The antecedents and consequences of product variety in new ventures: An empirical study

Abstract Despite the known benefits of greater product variety for large firms, less is known about how new ventures pursue product variety. Liabilities of newness and smallness could possibly impede the ability of new ventures to develop the product design capabilities needed to increase product variety. Drawing on the design principles of product modularity, we posit that new ventures with modular product designs tend to have higher product variety. The benefits of product variety, however, are not monotonic, and at higher levels of product variety, increasing internal operational costs lead to an inverted‐U type relationship between product variety and operational performance. We posit that process modularity, a systems‐level capability, and manufacturing flexibility, an operations capability, enhance the benefits from product variety and mitigate the costs that arise from increasing product variety further. Based on a sample of 141 new ventures and using latent moderated structural model (LMS), we find support for the proposed model. The findings are robust against alternate model specifications. Academic and managerial implications from the findings are discussed.