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

Prior research has examined how firms compete effectively in established markets. The current study investigates new markets and traces the activities of entrepreneurial rivals as they search for a business model. Through an in-depth, longitudinal field study of five firms in the online investing market, I induce a theoretical framework to explain how firms win the race to develop a viable business model. As the new market emerged, high performing firms enacted three strategies in sequence, which helped them get to a business model quickly and efficiency. First, executives attended to substitutes and copied from rivals. Next, they actively tested assumptions and made major resource commitments to the business model identified as most lucrative. Finally, they maintained loose links in the organizational activity system to accommodate emergent sources of value. Overall, the nature of competition among the entrepreneurial firms resembled neither intense rivalry nor collective action but rather a form of interaction akin to parallel play. The resultant middle range theory has implications for research on entrepreneurial competition in new markets and the organizational processes of developing business models.