Dynamic Capabilities in Early-Phase Entrepreneurship - Observations from Mobile Internet Start-Ups

The dynamic capabilities perspective has received increasing attention in the field of strategic management research. By focusing not only on the competitive advantage that is provided by a certain resource constellation, but also on the change of firms' resources over time to fit changing business environments, this perspective underlines the strategic importance of innovation. Despite the apparent interest in the dynamics of firm resources, there is still limited empirical evidence for how the strategic matching of resources and market needs is actually done, particularly in more rapidly changing environments. In order to investigate this process, an empirical study of 59 start-ups in the Swedish mobile Internet industry was performed. A first finding from the study is that start-ups which change market focus have a significantly higher probability to survive their first years. Furthermore, it is seen that in most cases, the change in market focus takes place without any related change in the technological resources that are used by the firm, indicating that an important factor at this stage is the flexible use of resources in searching for a suitable match between resources and market opportunities. This mode of learning and adaptation is very different from earlier proposed models focusing on the acquisition and transformation of resources. Instead, the early-stage dynamic capabilities reveal themselves as bricolage, that is, the capacity to re-interpret and re-combine already existing resources and thereby improve their fit with the demands of the market environment. The results suggest that earlier proposed dynamic capabilities frameworks need to be modified, by taking into account the single entrepreneur as a source of dynamic capabilities, and by introducing the concept of resource flexibility. In terms of managerial implications, the findings underline the importance for entrepreneurs to balance the striving for distinctive capabilities that provide competitive advantage and the experimentation and improvisation needed to adapt to changes in the market. Copyright © 2006 John Wiley & Sons, Ltd.