Entrepreneurial Strategies 125
lent of the five rent-seeking behaviors is the entrepreneurial strategy. Here a firm enters
with a new resource configuration or implementation strategy and makes above-average
profits until, through technological diffusion and increased knowledge, competitors are
able to enter and compete away those profits. This describes the cycle of “destructive
capitalism” that constantly redeploys capital to its most economic use.
Ventures with the four attributes required for sustainable competitive advantage are
positioned to use strategy to collect one or more of the five types of rents. The more
types of rent the firm can accumulate, the better its overall long-term performance will
be. Any of the five types of rent described above require that the firm be able to protect
its advantage. These protective devices are calledisolating mechanisms. The absence of
isolating mechanisms means that others (workers, investors, customers, competitors,
governments) can work out strategies to claim the rents for themselves.
ISOLATING MECHANISMS AND FIRST-MOVER AVANTAGES
An entrepreneur who is fortunate enough to create a new venture must expect that com-
petitors will attempt to retaliate, and protect his or her own positions.
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Therefore, it is
important that the entrepreneur find ways to increase these benefits and cash flows for
either future investment or personal incentives. The methods the entrepreneur uses to
prevent the rents generated from the new venture leaking out are known as isolating
mechanisms.
Types of Isolating Mechanisms
Isolating mechanisms can take a number of forms. Most obvious are property rights,
which consist of patents, trademarks, and copyrights. Any secrets, proprietary in-
formation, or proprietary technology also help isolate the firm from competitive attack.
These mechanisms, though, will not last indefinitely; therefore, the entrepreneur must
be prepared to move quickly and establish a strong position. Some firms establish their
position, and work to protect it right from the beginning of the new venture. This is
known as first-mover advantage (FMA). First-mover advantage can also be a power-
ful isolating mechanism when combined with a government rule change that encourages
privatization or industry deregulation.^22
Sources of First-Mover Advantage
First-mover advantages prevent the erosion of the new venture’s competitive advan-
tage.23iA firm’s resources and capabilities are frequently enhanced by its early entry.
Examples include:
- Having prime physical locations
- Having technological space
- Having customer perceptual space
- Having an industry with standard setting
- Developing switching costs
- Generating lead time and learning
The first use of a technology, known as technological leadership, can provide first-
