Healthy dose of competition immunises start-ups

Cranfield School of Management

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Healthy dose of competition immunises start-ups

By: Bettany Centre for EntrepreneurshipPublished on: 08/03/2013

Exposure to competition in the early stages of a firm’s life increases its long-term survival prospects according to researchers at the Bettany Centre for Entrepreneurship at Cranfield School of Management.

A study on start-up survival by Professor Andrew Burke and Dr Stephanie Hussels, published in the March issue of the Harvard Business Review, reveals that firms launched in a crowded market space have a higher three-year survival rate than those born into less competitive markets. The research is based on data covering nearly two million UK business start-ups.

Professor Andrew Burke, Director of the Bettany Centre for Entrepreneurship at Cranfield commented: “We find that young firms’ early exposure to competition appears to have an immunising effect, in much the same way that a person’s exposure to illness can create antibodies that provide long-term protection. A challenging environment causes start-ups to be tightly focused on satisfying customer needs along with lowering and containing costs both of which boost firm performance.

He continued: “Exposing a business to a non-fatal dose of competition can become an effective immunization against the threat of competition in the future. Furthermore, businesses can generate similar gains in performance by mimicking safe levels of competitive pressure through adopting a lean financial approach and using competitive benchmarking as a substitute for actual competition.”

Co-author of the research, Dr Stephanie Hussels from the Bettany Centre for Entrepreneurship at Cranfield, commented: “Our research still supports the importance of strategies aimed at creating a competitive advantage or finding a new market space, but it does indicate that some exposure to the harsh realities of a competitive environment is good for the long term health of an organisation.

She continued: “Not surprisingly, we find that firms that started in more competitive markets show lower survival rates after one year. However, by year three the survival rate for these firms is 9% higher than those that started in a less crowded market.”

The March 2013 issue of the Harvard Business Review magazine features the research in an article ‘How Competition Strengthens Start-Ups’ co-authored by Professor Andrew Burke and Dr Stephanie Hussels.

To see Professor Burke and Dr Hussels talk about the article click here.

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