Survival Strategy for Startup Business

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Product Strategies and Firm Survival in Technologically Dynamic Industries

Barry L. Bayus Kenan-Flagler Business School University of North Carolina CB 3490 Chapel Hill, NC 27599 Voice: (919) 962-3210 Fax: (919) 962-7186 Barry_Bayus@UNC.edu Rajshree Agarwal College of Business University of Illinois at Urbana-Champaign 350 Wohlers Hall, 1206 S. Sixth Street Champaign, IL 61822 Voice: (217) 265-5513 Fax: (217) 244-7969 agarwalr@uiuc.edu

Key words: innovation, industry evolution, marketing, entrepreneurship Revised May 2006 This research has had a long development cycle. We appreciate comments of the following people on a much earlier version of this paper: Jay Barney, Gaurab Bhardwaj, Oliver Chatain, Raj Echambadi, Glenn Hoetker, Steven Klepper, MB Sarkar, Anju Seth, Charles Williams and participants at seminars/conference presentations given at University of Illinois at Urbana Champaign, Purdue University, University of Toronto, the 1st ACAC conference, the 2003 Academy of Management and Strategic Management Society meetings and the 2nd West Coast Symposium on Entrepreneurship. More recently, the comments of participants at the Penn State and Texas A&M Marketing Research Camps have been valuable. We especially appreciate the comments of the journal associate editor and reviewers, as well as the financial support of the Ewing Marion Kauffman Foundation. All remaining errors are ours.

Product Strategies and Firm Survival in Technologically Dynamic Industries

ABSTRACT

Studying the US personal computer industry from its inception in 1974 through 1994, we address the following questions. What product strategies increase the survival chances of entrants into new, technologically dynamic industries? Does the effectiveness of these product strategies differ by pre-entry experience? Does the effectiveness of these product strategies differ by when firms enter a new industry? Consistent with the published literature, we find that diversifying entrants have an initial survival advantage over entrepreneurial startups. But, we find the reverse for later entrants: startups that enter later in the industry have a survival advantage over the later entering diversifying entrants. We explain this finding in terms of the firms’ product strategies, pre-entry experience, and entry timing. Importantly, our research is very revealing over the existing literature—the effects of pre-entry experience on firm survival disappear when controls for product strategy are included in the analysis. Our findings highlight that it is crucial to study what firms do after they enter a new industry in order to more completely understand their ultimate performance.

1. Introduction What product strategies increase the survival chances of entrants into new, technologically dynamic industries? Does the effectiveness of these product strategies differ by pre-entry experience? Does the effectiveness of these product strategies differ by when firms enter a new industry? Providing answers to these important questions has long been of interest to researchers in the economics, marketing, management, and strategy disciplines. Unfortunately, a complete understanding of why some entrants into new industries ultimately fail is still lacking. Studies of organization mortality tend to fall into one of three main streams of inquiry: one stresses the importance of environmental and industry-level factors, a second emphasizes the pre-entry experience of entrants, and the third considers firms’ post-entry activities. Within the first stream, organizational ecologists argue that corporate

demographics matter (e.g., see the reviews in Carroll and Hannan 2000; Carroll and Khessina 2005). In particular, a number of empirical studies demonstrate that firm tenure and size in the new industry, as well as competitive density, are important explanatory factors related to survival. In a review of the second research stream, Helfat and Lieberman (2002) conclude that...
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