One of the main issues confronting start-ups is the question of how to earn returns from their innovative efforts when industry incumbents typically have much greater resources and could ostensibly compete successfully against entering start-ups. In this section, I review four prescriptive themes in the literature that might guide start-up entry strategy:
entering into a niche;
exploiting relative organizational flexibility;
differentiating product or service offerings;
cooperating with industry incumbents.
The first start-up strategy is the conventional wisdom to enter in a discreet market niche, making sure to stay below the radar screen of industry incumbents (e.g., Yoffie and Kwak, 2001). The idea is that inconspicuous entry allows entrants to improve their offerings without established incumbents perceiving an immediate threat to their business, allowing entrants to improve their capabilities and learn over time while avoiding direct head-to-head competition in the near term. This phenomenon is consistent with Romanelli's (1989) finding in the minicomputer industry that a 'specialist', or niche-targeted strategy, is associated with new venture survival. Consider the experience of Southwest Airlines: founded in 1972, the airline got its start serving cities in Texas on short-haul flights, which were meant to compete against other modes of transportation (not necessarily other airlines). In the 1980s, the airline expanded to California and certain cities in ...