Strategic signaling in dynamic technology markets: Lessons from three IT startups in Spain

Abstract

Building a successful startup in the IT industry remains as an elusive dream for many technology-based entrepreneurs, the competitive dynamics of IT markets and the resource requirements for new entrants make it a rather uncertain strenuous effort.

In this article we describe how technology-based entrepreneurs strategically use signals to transform their ideas into viable businesses, regardless of their resource limitations and the complexity of the technology markets where they operate. We describe how entrepreneurs unlock the value proposition that makes a technology useful, observing the use of signals as market communication strategies. In this context, we look beyond the traditional value of the new firm’s resources to explain the impact that entrepreneur’s actions, as signals, introduce on the process of technology entrepreneurship in a startup. In this article, we use a multiple case study on three new technology-based firms to explore how their actions were interpreted as valuable market signals. The results suggest that entrepreneurs strategically use market, technology, and social capital signaling to mitigate uncertainty and advance in the technology entrepreneurship process. This research highlights the often unattended value of resources and actions as signaling elements; in particular it identifies that in highly competitive and dynamic markets, understanding how to “signal” valuable information to stakeholders and market actors, could be as important as the actual technological development of the product or service of the new firm. Such findings are relevant for entrepreneurs and practitioners that can benefit from further understanding the impact of visible actions (that can be observed as signals) in the early stages of a new technology-based venture.