David Versus Goliath: Strategic Behavior of Small Firms In Consolidated Industries

This study assesses the effect of strategy selection and firm adaptability on small firm performance, using firm tenure as a moderator variable. The study is based upon interviews with sixteen small firms operating in rapidly changing and consolidating industries. All of the firms in the study pursued a differentiation strategy. Half of the firms pursued a broad product strategy and more than three-quarters pursued a broad service strategy. The study found that small firms adapt by addressing community needs and forming cooperative agreements with other small firms but not larger firms. Variation among the industries studied suggests that the intensity of industry concentration affects firm adaptation decisions. For instance, while the heavily concentrated hardware anti drugstore industries showed limited adaptation, the unconsolidated bookstore industry showed greater commitment to adaptive strategies. In addition, firm tenure was found to affect the adaptation of the small firms studied.