What Factors Contribute to the Success or Failure of Software Firms?

Throughout the 1990s and 2000s, news about 20-somethings becoming billionaires from the sale of their software companies flooded the media, giving the impression that a good idea was all it took to succeed in the software industry. Jennifer Shang, an associate professor of business management in the Joseph M. Katz Graduate School of Business, along with colleagues Shanling Li of McGill University and Sandra Slaughter of the Georgia Institute of Technology, investigated what caused software companies to succeed or fail.

Their research study, titled “Why Do Software Firms Fail? Capabilities, Competitive Actions, and Firm Survival in the Software Industry From 1995 to 2007,” has been published in the journal Information Systems Research.

Because of low entry and exit barriers and low marginal-production cost, new-product development takes place rapidly in the software industry, says Shang. However, the industry’s bankruptcy rate of 15.9 percent is much higher than the rates in other industries. For example, the bankruptcy rate in the pharmaceutical industry is 4.7 percent. Continue reading …

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