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Summary

This chapter explained that the first rule for success as a technology entrepreneur lies in choosing the right industry. The performance of new firms varies significantly across industries, and can influence by up to a factor of 1,000, the probability that an entrepreneur will establish an Inc 500 firm or will take a firm public. Researchers have identified four dimensions of industry that affect the relative performance of new firms: knowledge conditions, demand conditions, stage of the industry life cycle, and market structure. You can benefit from understanding the specific effects that each of these dimensions of industry has on the performance of new firms.

Industry knowledge conditions are composed of five factors that affect the relative performance of new firms in an industry. New firms perform poorly in industries in which the production process is complex, the amount of new knowledge created in an industry is high, knowledge is not well codified, the locus of innovation resides within the value chain, and complementary assets in marketing and manufacturing are important.

Industry demand conditions are composed of three factors that affect the performance of new firms in an industry. In industries in which markets are large, growing quickly, and heavily segmented, new firms perform well.

The industry life cycle also affects the relative performance of new firms in an industry. New firms perform better when industries are younger than they do when industries are older. New firms also perform better when a dominant design does not exist in an industry than when a dominant design does exist in an industry.

Four aspects of industry structure affect the performance of new firms in an industry. New firms perform poorly in industries that are capital intensive, advertising intensive, concentrated, and have large firms.

Now that you understand rule number one of technology entrepreneurship, selecting the right industry, we now turn to rule number two, identifying valuable opportunities, which is the subject of the next chapter.

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