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

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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.

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Notes

  1. This is typically done by including industry-level dummy variables to control for differences between industries.

  2. An exception is the study by Hurst and Pugsley (2011) which recommends that entrepreneurship research should not focus on all industries. Rather, it should focus on growth-oriented industries exclusively.

  3. For more information, see Cochran (1977), Levy and Lemeshow (2013), Korn and Graubard (2011), and Cleves et al. (2008). The latter is a useful guide for researchers using Stata.

  4. We thank an anonymous reviewer for this suggestion.

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Acknowledgments

Certain data included herein are derived from the Ewing Marion Kauffman Foundation, Kansas City, MO.

Funding

Funding and support were received from the Ewing Marion Kauffman Foundation and the NORC enclave at the University of Chicago.

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  1. Department of Economics, College of Business, Florida Atlantic University, 777 Glades Road, KH 145, Boca Raton, FL, 33431, USA

    Christopher J. Boudreaux

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  1. Christopher J. Boudreaux
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Correspondence to Christopher J. Boudreaux.

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Boudreaux, C.J. The Importance of Industry to Strategic Entrepreneurship: Evidence from the Kauffman Firm Survey. J Ind Compet Trade 20, 93–114 (2020). https://doi.org/10.1007/s10842-019-00310-7

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