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• Article | Administrative Science Quarterly | June 2020

  Parallel Play: Startups, Nascent Markets, and the Effective Design of a Business Model

  Rory McDonald and Kathleen Eisenhardt

  Prior research advances several explanations for entrepreneurial success in nascent markets but leaves a key imperative unexplored: the business model. By studying five ventures in the same nascent market, we develop a novel theoretical framework for understanding how entrepreneurs effectively design business models: parallel play. Similar to parallel play by preschoolers, entrepreneurs engaged in parallel play interweave action, cognition, and timing to accelerate learning about a novel world. Specifically, they (1) borrow from peers and focus on established substitutes, (2) test assumptions, then commit to a broad business-model template, and (3) pause before elaborating the activity system. The insights from our framework contribute to research on optimal distinctiveness, and to the learning and evolutionary-adjustment literature on search. More broadly, we blend organization theory with a fresh theoretical lens—business-model processes—to highlight how organizations actually work and create value.

  Keywords: search; legitimacy; organizational innovation; organizational learning; mechanisms and processes; institutional entrepreneurship; qualitative methods; business model design; Business Model; Business Startups; Entrepreneurship; Emerging Markets; Adaptation; Competition; Strategy;

  Citation:

  McDonald, Rory, and Kathleen Eisenhardt. "Parallel Play: Startups, Nascent Markets, and the Effective Design of a Business Model." Administrative Science Quarterly 65, no. 2 (June 2020): 483–523.  View Details

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• Article | Harvard Business Review | May–June 2020

  The New-Market Conundrum

  Rory McDonald and Kathleen M. Eisenhardt

  Brand-new markets are like the wormholes of science fiction, where the usual rules of time and space do not apply. When a market has just been born, the forces of competition there are constantly in flux, it’s unclear who your customers really are, and conventional strategies just don’t make sense. How then can you navigate this constantly shifting terrain?
  
  Over the past few years, we have interviewed entrepreneurs and corporate innovators in new fields such as genomics, augmented reality, and fintech. We discovered that the most successful ones practice something called “parallel play,” exploring and testing the world the way preschoolers do. Instead of trying to differentiate their businesses, they observe what others in the market are doing and borrow ideas. After relentless experimentation, they commit to a single template for creating value. But rather than quickly optimizing that template, they leave it partially undetermined and pause, watch, and wait. As they gather serendipitous insights and the market begins to settle, they refine their models bit by bit.

  Keywords: new markets; Business Model; Strategy; Framework; Innovation and Invention; Value Creation;

  Citation:

  McDonald, Rory, and Kathleen M. Eisenhardt. "The New-Market Conundrum." Harvard Business Review 98, no. 3 (May–June 2020): 75–83.  View Details

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• Working Paper | HBS Working Paper Series | 2020

  Category-spanning Startup Entry and Investor Valuation of Incumbents: The Case of Fintech

  Ryan T. Allen and Rory M. McDonald

  Although previous work has examined how audiences evaluate category-spanning organizations, little is known about the conditions under which such spanners affect audience evaluations of other organizations. We posit that the emergence of atypical categorical combinations, pioneered by startups, signals an altered future state—and seeds doubt about certain incumbents’ future prospects within a re-ordered industry. We test this hypothesis using startup funding announcements as an information shock to investors evaluating incumbents in the financial services sector from 2010 to 2017—a period marked by significant category-spanning entry from non-traditional Fintech startups. We find that announcements by startups that spanned unusual combinations of industry categories led to lower cumulative average returns for incumbents, compared to entry by typical startups. Our theory and results contribute to research on categorization in markets and to theories of disruptive innovation, industry evolution, and technology change.

  Keywords: category spanning; fintech; industry evolution; Business Startups; Information; System Shocks; Disruption; Technological Innovation; Financial Services Industry;

  Citation:

  Allen, Ryan T., and Rory M. McDonald. "Category-spanning Startup Entry and Investor Valuation of Incumbents: The Case of Fintech." Harvard Business School Working Paper, No. 20-109, April 2020.  View Details

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