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Chapter 1. Selecting the Right Industry

Chapter 1. Selecting the Right Industry

While entrepreneurs like to think of themselves as being able to overcome all of the obstacles that life puts in front of them, being a successful technology entrepreneur is really more about playing the odds successfully. While you certainly need to temper playing the odds with playing to your strength, and make sure that you do not pursue a venture in an industry that you know nothing about, you need to keep in mind that your success depends a great deal on selecting the right industry in which to launch a new firm. Some industries operate through dynamics of creative destruction, and, as a result, entrepreneurs tend to perform very well. In these industries, entrepreneurs enter with new firms, challenge established firms on the basis of new ideas, disrupt the old ways of production, organization, and distribution and replace the old firms. Examples of industries in which this process of creative destruction appears to operate and entrepreneurs tend to do very well are chemical processes, computer disk drives, machine tools and lighting.[1]

Other industries operate through dynamics of creative accumulation and entrepreneurs tend to perform very poorly. In these industries, entrepreneurs enter and challenge established firms on the basis of their new ideas. However, established firms defend their old ways of production, organization, and distribution, and the new firms tend to fail. Examples of industries in which this process of creative accumulation tends to be found are organic chemicals, telecommunications, and electronics.[2]

This chapter focuses on identifying the attributes that make an industry favorable to new firms. The first section provides empirical evidence of the differences in the favorability of different industries to new firms. The subsequent sections each review different dimensions of industry differences that influence the performance of new firms: knowledge conditions, demand conditions, industry life cycles, and industry structure.

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