Who Do Start‐Up Firms Imitate? A Study of New Market Entries in the CLEC Industry

Abstract

Institutional theory contends firms imitate other firms with ideal traits, whereas the strategic groups literature on imitation suggests firms imitate similar firms. We address this debate by studying 1,067 market entries by founder‐managed start‐ups in the U.S. Competitive Local Exchange Carrier industry from 1996 to 2004. In support of the strategic groups literature, start‐ups imitate entry decisions of and gravitate toward markets that are densely populated by other start‐ups. Though start‐ups avoid markets already densely populated by corporate ventures, they imitate the market entries of corporate ventures. Our discussion of these and other findings provide insights for start‐ups navigating new industries.

Notes

1. We acknowledge limits to this institutional theory argument, as a market that is overpopulated may be inhospitable to additional entrants. However, as this criticism is in keeping with population ecology (Greve 2000; Hannan and Freeman 1977) and seems more relevant in mature industries, we build our arguments related to market density and entry upon the framework of institutional theory.

2. Given the size of our sample, we did not employ an outlier trimming procedure in order to be as conservative as possible. In separate analysis, however, we ran our models on a reduced sample where we restricted our models to firms who entered into at least one market during the year in consideration. This was done to aid estimation and reduce the zero‐loading in our sample (Folta and O'Brien 2004). These models were consistent with the presented results and are available upon request.

Additional information

Notes on contributors

Richard J. Gentry

Richard J. Gentry is assistant professor of Strategy and Entrepreneurship, School of Business, University of Mississippi.

Thomas Dalziel

Thomas Dalziel is assistant professor of Entrepreneurship & Strategic Management Carl H. Lindner College at Business University of Cincinnati.

Mark A. Jamison

Mark A. Jamison is director in Public Utility Research Center at University of Florida Gainesville.