In this paper we study how the existence of a functioning market for technology differentially conditions the entry strategy and survival of different types of entrants, and the role of scale, marketing ability and technical assets. Markets for technology facilitate entry of firms that lack proprietary technology and increase vertical specialization. However, they also increase the relative advantage of downstream capabilities, which is reflected in the relatively improved performance of incumbent Information and Communication Technologies (ICT) firms compared to startups. We find that diversifying entrants perform better relative to startups. Contrary to earlier studies, we find that spin-offs do not perform any better than other startups. Moreover, firms founded by serious hobbyists and tinkerers, whom we call hackers, perform markedly better than other startups. These findings reflect the non-manufacturing setting of this study, as well as the distinctive nature of software technology.
*Published: This paper was subsequently published as Securing Their Future? Entry and Survival in the Information Security Industry, Ashish Arora, Anand Nandkumar, in NBER book Entrepreneurship: Strategy and Structure (2007)
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