Understanding strategic adaptation in small firms

Examines the concept of adaptation as it relates to the start‐up and survival of small businesses over time. Adaptation is approached as the making of appropriate adjustments to the business and its strategic focus, as the venture evolves from an initial idea to a successful business. It is proposed that adaptation has three relevant components: the firm’s capacity to adapt, how much it actually adapts, and the strategies it relies upon to adapt. A conceptual model and hypotheses are proposed, relating the entrepreneur, the organizational context and the external environment to these three components of adaptation, and relating the components of adaptation to performance. Results from a cross‐sectional survey of small business founder/owners suggest that characteristics of the entrepreneur and levels of environmental change are especially important determinants of the three components of adaptation, and that levels of and strategies for adapting are related to organizational performance. A number of implications are drawn from the findings and suggestions are made for ongoing research.