The Importance of Industry to Strategic Entrepreneurship: Evidence from the Kauffman Firm Survey

Abstract

Industries serve an important function in strategic entrepreneurship. By placing the industrial structure at the focal point of analysis, Porter’s five forces model explains why some industries are more profitable than others. Yet, despite their importance in strategic entrepreneurship, studies often treat industries as something to be controlled rather than explicitly examined, and although some studies have considered the industry’s important role in the entrepreneurship literature, they often examine particular industries or comparisons between a few select industries. Research, however, has seldom examined the importance of industries to entrepreneurship outcomes. We fill this void by conducting an empirical analysis of North American Industry Classification System industry sectors using the Kauffman Firm Survey, which follows thousands of small and nascent businesses in the USA between 2004 and 2011. We uncover several important findings. Namely, we find that service industries—particularly the Professional, Technical, and Scientific services industry—have a higher rate of profit and better rate of survival when compared to other industries. In contrast, we find that retail and manufacturing industries generally perform worse on these metrics, as they are less profitable and have lower rates of survival. Our evidence, thus, affirms the importance of industry for strategic entrepreneurship, which has important managerial and public policy implications.