Surviving the Commercialization Gap: Identities, Forms, and the Emergence of New Industries

Abstract

Existing research suggests that the first commercialization of a product or service in a new activity domain is a key turning point in the evolution of what we commonly refer to industries. An organization theory logic implies high failure rates among these pioneers: most new firms in most new activity domains will disappear, a phenomenon we call the commercialization gap. A first challenge in understanding this gap is created because the dynamics of new forms are complex. Specifically, the dynamics of building consensus about appropriate ways of organizing with small numbers of firms, limited support from stakeholders, and high rates of mortality are not well understood. Liabilities of newness, made worse because the organizations are in new activity domains, suggest that most attempts at new industries will fail. Given that many may disappear without a trace, possibilities for large sample, empirical study of early phases of industry evolution are limited. Accordingly, we use simulation methodology and begin with a simple organization theory model of the commercialization gap. To apply the model, we derive theoretical questions related to how social information exchange might affect consensus about organizational identity. After discussing the computational algorithms and demonstrating that they produce a consistent commercialization gap, we run simulation experiments to investigate these theoretical questions. Based on clear answers from these experiments, we develop five propositions and close with a discussion of both theoretical and practical implications.