Dong Chen is an Associate Professor of Management in the College of Business Administration and the Research Director for the Center of International Business Education at Loyola Marymount University in Los Angeles. Chen received his PhD in Management from Rutgers University. He was also a visiting researcher at Institute for Global Industry at Tsinghua University, Samsung Economic Research Institute, and China Europe International Business School. His current research pertains to interfirm cooperation, foreign direct investment, and institutions in emerging markets. He has published in academic journals in the fields of international business, strategic management, and entrepreneurship.
Survival by diversification? A case study of an entrepreneurial firm’s business scope expansion
Diversification is a major topic under business expansion strategies, but previous diversification research mainly emphasized the study of large firms and neglected small and medium-sized enterprises. Although disadvantaged with fewer resources and capabilities, smaller firms are increasingly pursuing divarication, expanding into new verticals and industries. Their efforts are often frowned upon due to the traditional notion that businesses should develop a foothold in the market of a single industry before expansion, but it could be plausible that startups may profitably operate an ecosystem of diversified businesses. Our study examines the drivers of diversification for startups through a case study approach, analyzing a Los Angeles-based startup that focuses on natural purification technologies. The company is pursuing expansion beyond the athletic apparel industry and into new verticals. In this article, we first review prior literature on diversification and highlight their limitations in explaining small firm diversification. We then explain the research methodology and present a description of the case. Next, we analyze our data and compare our findings with extant literature. Three main internal and external drivers for startup diversification are derived from the study: startups are more likely to diversify when their founders have diverse business experience, when their technology has applications in other industries, and when they experience challenges in its mainstream business.
Co-presenter: Siyuan Cheng