A Note on Necessity Entrepreneurship and Competitive Strategy

Abstract

Many start-ups chose to compete with incumbent firms using one of two generic strategies: cost leadership or differentiation. Our note demonstrates how this choice depends on whether the start-up was founded out of necessity. Our results, based on a representative dataset of 4,568 German start-ups, show that the start-ups of necessity entrepreneurs are more likely than others to pursue a cost leadership strategy, and less likely to pursue a differentiation strategy.

Keywords: necessity entrepreneurship, competitive strategy, cost leadership, product differentiation, KFW/ZEW Start-up Panel, new venture strategy

JEL Classification: L10, L26