THE “RESOURCE BALANCE PROPOSITION”: BALANCING RESOURCE ALLOCATIONS AND FIRM GROWTH

This study tests the “Resource Balance Proposition” that is developed from the Resource-Based View (RBV) of strategy. While recent research using RBV to study new ventures has focused primarily on the identification and acquisition of resources (Alvarez & Busenitz, 2001; Lichtenstein & Brush, 2001), this investigation examines the deployment of given resources in the pursuit of growth. It argues that the effective management of the resource base is at least as important to long-term survival as securing that base in the first place. Further, it assumes that firm growth is a desirable goal (especially for young firms) but posits that growth is not without cost and highly accelerated growth is particularly costly. Therefore, the hypotheses presented in this paper propose that there is a growth trajectory that optimizes profits and net worth by striking a balance between the resource deployments necessary to fuel growth and those needed to meet current obligations. The findings from this study confirm that both too little and too much growth have detrimental effects on firm vitality. More specifically, the data show a curvilinear relationship between the absolute rate of firm growth and the levels of both profits and net worth. This finding provides significant support for the Resource Balance Proposition, which states that the allocation of firm resources must be properly balanced between current resource positions and future resource positions to maximize wealth creation.