When new businesses enter an established market, they typically face a massive disadvantage. They are competing against legacy corporations endowed with vast financial resources, established supply chains, and entrenched market recognition.
A study published in the Journal of Business Research examines how these under-resourced ventures survive. The researchers argue that while large corporations rely on hard power to dominate markets, entrepreneurial ventures can cultivate soft power to influence competitors and attract customers.
Redefining Market Power
David B. Audretsch of Indiana University and Antje Fiedler of the University of Auckland initiated the research to address a gap in management literature. Existing studies largely rely on a resource-based view of the firm. This perspective suggests that market dominance flows directly from controlling valuable and rare physical assets.
Hard power involves using material resources to force an outcome. Soft power relies on attraction, shared values, and narratives to influence how others think. The researchers wanted to understand the specific strategies entrepreneurs use to activate this alternative form of influence.
Because this research is theoretical rather than an analysis of a single dataset, the authors reviewed existing historical accounts, market case studies, and business literature. They looked at how startups interact with large firms when they lack material advantages.
The analysis revealed that startup strategies generally vary along two distinct dimensions. The first is the degree of control the venture retains over its own resources and strategy. The second is the adversarial stance the venture adopts toward established legacy firms.
Four Strategies for Underdogs
Based on these dimensions, the researchers built a typology of four soft power strategies. To explain the mechanics of each approach, they mapped the strategies to well-known cultural metaphors.
The first strategy is illusion, which occurs when a venture adopts a low-adversarial stance and gives up some control. The authors compare this to the children’s story The Gruffalo, where a small mouse avoids predators by convincing them it is friends with a terrifying monster.
In business, a startup might partner with a massive legacy firm. This creates a perception of affiliation that deters rival startups, even if the startup itself has no actual hard power.
The second strategy is teasing, where the venture retains high control but maintains a low-adversarial stance. The researchers liken this to the cartoon Tom and Jerry.
Startups using this approach avoid direct confrontation, operating in market niches where large corporations are too clumsy or risk-averse to follow. They use their agility to playfully provoke the larger firm, winning audience sympathy by positioning themselves as clever outsiders.
The third strategy relies on solidarity, characterized by a highly adversarial stance but low individual control. This approach is compared to the animated film A Bug’s Life, where a colony of ants realizes they outnumber their oppressors.
Startups using this strategy join collectives to establish new market norms. Craft breweries, for example, often share knowledge and band together to promote authenticity, contrasting their shared values against the profit-driven motives of corporate brewers.
The final strategy is courage, which involves high control and a highly adversarial approach. The authors use the biblical story of David and Goliath to illustrate a direct, head-on challenge to a legacy firm.
Startups in this category rely on shifting societal values or new technology to attack a larger competitor. By stigmatizing the legacy firm’s practices, the startup gains respect and consumer support for its bravery.
The Limits of Legacy Firms
The researchers note that these soft power strategies are largely inaccessible to legacy corporations. If a massive corporation attempts to use illusion to hide its true resources, it runs afoul of financial and environmental reporting standards.
If large firms attempt to build solidarity coalitions, they often trigger antitrust laws and face accusations of price-fixing. Similarly, if a legacy firm adopts a highly adversarial stance against a small startup, the public generally views it as corporate bullying.
This dynamic allows startups to bend market rules in ways that would severely damage an established corporation’s reputation. At the same time, activating soft power still carries significant risks for the entrepreneur.
Startups that rely on a legacy firm for an illusion of power risk losing their intellectual property. Those that directly attack legacy firms face potential retaliation through predatory pricing or aggressive legal action, which can quickly overwhelm a smaller company.
