Escaping the Prior Knowledge Corridor: What Shapes the Number and Variety of Market Opportunities Identified Before Market Entry of Technology Start-ups?

Authors:
Marc Gruber;Ian C. MacMillan;James D. Thompson
Affiliations:
College of Management of Technology, Ecole Polytechnique Fédérale de Lausanne, CH-1015 Lausanne, Switzerland;The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104;The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104
Venue:
Organization Science
Year:
2013

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Abstract

The choice of the firm's market environment is one of the fundamental decisions of firm founders. We study the pre-entry generation of founders' market choice sets by investigating their search for market opportunities in which the firm's technological resources, as embodied in a product or service, can be commercialized. Analyzing data collected through personal interviews with founders of 496 technology ventures, we find that founding teams with more diverse industry experience and more diverse external knowledge sourcing relationships identify not only a larger number of but, in particular, more varied distant market opportunities. However, the extent to which strategic variety of such opportunities is identified depends on the founders' technological expertise, whereas technological expertise is less relevant in identification of the number of opportunities. Furthermore, by showing that the extent and nature of the firm's pre-entry opportunity set has a significant effect on the likelihood of subsequent firm diversification, we document how initial constraints in founders' choice sets can have a lasting impact on the growth potential that the new firm exploits over time. We discuss the implications of our findings for the literatures on organizational learning and innovation, entrepreneurship, as well as the strategy literature examining firm growth, diversification, and value creation.