ENTREPRENEURIAL ROUND TRIPPING: THE BENEFITS OF NEWNESS AND SMALLNESS IN MULTI-DIRECTIONAL VALUE CREATION

Abstract

In this study, we develop and empirically test the theory that new industry entrants hold advantages over incumbents in the shift from unidirectional to multi-directional revenue streams. Using a Cobb-Douglas production function, modified to isolate returns to innovation, we examine data from three distinct contexts: steamships on western rivers (1810-1860), satellite-based Internet services (1962-2010), and food waste recycling (1995-2015). The results reveal that while incumbents often attempt to stretch existing technologies to fit emerging circumstances, entrepreneurial innovators achieve greater success by approaching multi-directional value creation as a distinct challenge, one requiring new technologies, organizational forms and business models. While existing theories have primarily attributed incumbent inertia to a firm’s inability perceive and pursue radical innovations, our results also suggest that existing firms are simply unwilling to pursue innovations that are likely to erode the marginal ...