Many start-ups chose to compete with incumbent firms using one of two generic strategies: cost leadership or differentiation. Our study demonstrates how this choice depends on whether the start-up was founded out of necessity. Our results, based on a representative data set of 4,568 German start-ups, show that necessity entrepreneurs are more likely than other entrepreneurs to pursue a cost leadership strategy and less likely to pursue a differentiation strategy. Decomposition analyses further show that up to half of the difference in choice of strategy can be attributed to distinct endowments of human capital, socioeconomic attributes, and start-up project characteristics that correlate with necessity entrepreneurship.

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ERIM Top-Core Articles
Small Business Economics: an entrepreneurship journal
Erasmus Research Institute of Management

Block, J.H, Kohn, R, Miller, D, & Ullrich, K. (2014). Necessity entrepreneurship and competitive strategy. Small Business Economics: an entrepreneurship journal. doi:10.1007/s11187-014-9589-x