Joining the pack or going solo? A dynamic theory of new firm positioning

The question of new firm positioning in the marketplace and entrant's subsequent long-term performance lies at the heart of strategic entrepreneurship. We suggest a dynamic theory of new firm positioning that hinges on an important feature of the competitive environment: industry-level product diversity. The key argument is that industry-level product diversity drives imitation or differentiation at entry, which in turn shapes the exit likelihood of new entrants. So, in our theory, the extent of the new entrant's product portfolio overlap with all the industry's incumbents takes center stage. Support for our logic is obtained from the analysis of the life histories of 640 British motorcycle producers during the period 1899–1993.

Highlights

► Illustrate the trade-off exists between conformity and innovation with respect to overlap in the product portfolios. ► ‘Optimal’ new firm product portfolio positioning depends upon the distribution of incumbent firms in product market space. ► At increasing industry-level diversity, new firms imitate incumbents and the survival of differentiating firms decreases. ► At elevate industry-level homogeneity, new entrants differentiate and the survival of differentiating firms is enhanced. ► A substantial support to our dynamic view of positioning is obtained from the British motorcycle industry during 1898–1993.