Competing in New Markets and the Search for a Viable Business Model

Prior research examines how firms compete effectively in established markets. This study investigates new markets, and traces how entrepreneurial rivals in such a market search for a successful strategy. Through an in-depth, multiple-case study of firms in the nascent online-investing market, we induce a theoretical framework to explain how firms win the race to find a viable business model. As the new market emerged, high-performing firms enacted three strategies in sequence that helped them achieve their objective quickly and efficiently. First, their executives focused primarily on substitutes but copied from rivals. Next, they actively tested their assumptions and made major resource commitments to the business model they identified as the most lucrative. Finally, they deliberately maintained a loosely structured organizational activity system in order to continue to accommodate emergent sources of value. For these firms, competition resembled neither economic rivalry nor collective action but a logic of interaction akin to parallel play. The resultant middle-range theory has implications for research on entrepreneurial competition in new markets and on the organizational processes of developing a business model. 3 LinkedIn's initial public offering in 2011 was the capstone of the highly successful startup's rapid rise. At the time of its founding, however, LinkedIn was merely one of several ventures, such as Ryze, Plaxo, Visible Path, and Spoke, in the new professional-networking market (Piskorski, 2007). LinkedIn quickly developed a successful strategy that catalyzed subsequent growth and carried the firm well beyond these rivals. The LinkedIn story is not unique. New markets are typically contested domains in which a handful of firms strive to develop a better strategy sooner than rivals. Scholars of strategy and organization theory have long been interested in how firms develop strategies, and have advanced several theories to explain why some firms are more successful than others. With an emphasis on generic strategies, the industry-structure perspective maintains that competitive advantage derives from differentiation (Porter, 1996; Bingham and Eisenhardt, 2007). That is, a firm should stake out a unique market position and attract customers with valuable products that competitors cannot match (Gavetti and Rivkin, 2007). In contrast, the strategic-action perspective prioritizes moves over position. One strand emphasizes the benefits of competitive aggressiveness (Smith, Ferrier, and Ndofor, 2001), asserting that firms that move early and rapidly, and outmaneuver rivals, will capture market opportunities first (Chen and MacMillan, 1992; Ferrier et al., 1999). Another strand emphasizes the benefits of bold, resource-intensive moves (i.e., …