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A Strategic Pathway to the Rapid-Growth of New Startups: Niche Marketing and Strategic Investment

This paper presents 16 startups that ultimately grew to become Fortune 500 corporations through niche marketing in 30 years or less. A discrete-choice single-prize innovation race model is used to simulate their investment behavior under four possible business scenarios that are constructed by the combinations of quality shock and market shock: {high quality, high market}, {high quality, low market}, {low quality, high market}, {low quality, low market}. By the order from the left, they are scenarios 1, 2, 3, and 4. The model predicts that pioneer startups are able to protect their market leadership as they experience greater scale of the quality and market shocks. Among four scenarios, the startups are more likely to grow rapidly under the scenarios 1 and 2. In particular, the scenario 2 rather than the scenario 3 contributes more to the investment of the pioneer startups, which suggests that, of the two types of shocks, their survival and investment depend more on quality shocks than on market shocks. Some panel estimation results strongly support the predictions of the numerical example; the size expansion and profitability of pioneer startups indeed benefit from quality shocks compared with their early competitors and, between the two types of shocks, quality shocks have larger impacts on the performance of pioneer startups, differently from the early competitors.

Yim, Hyung Rok
(Assistant professor)
School of International Studies
Kyung Hee University (Korea)

Full Paper: http://sbaer.uca.edu/research/icsb/2009/PT01-1_202%20A%20Strategic%20Pathway_10.pdf

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