Working Paper | HBS Working Paper Series | 2017

Parallel Play: Startups, Nascent Markets, and the Search for a Viable Business Model

by Rory McDonald and Kathleen Eisenhardt

Abstract

Prior research examines how firms navigate nascent markets but overlooks an imperative for entrepreneurial firms that pioneer in these contexts: finding a viable business model. Through an in-depth, multiple-case study of ventures in the nascent social investing market, we induce a theoretical framework to explain how firms efficiently accomplish this important strategic objective. Our core contribution is the concept of parallel play—a theoretical construct characterizing the search process by which entrepreneurial firms efficiently reach a viable business model ahead of competitors. Parallel play’s three components, enacted in sequence, map onto how very young children play. These components are (1) focusing on substitutes and borrowing selectively from peers, (2) testing assumptions about profit logics before committing to one, and (3) pausing with a loosely connected activity system to await surprise before completing the business model. We describe how parallel play promotes efficient search by unpacking the mechanisms by which it leads to fast, inexpensive, and reliable problem solving. We offer a richer and more realistic view of search in nascent markets and contribute to search theory and its nexus with learning theory.

Keywords: Business Model; Market Entry and Exit; Competitive Strategy; Entrepreneurship; Financial Services Industry;

Citation:

McDonald, Rory, and Kathleen Eisenhardt. "Parallel Play: Startups, Nascent Markets, and the Search for a Viable Business Model." Harvard Business School Working Paper, No. 14-088, March 2014. (Revised February 2017.)