Bottoms Up: Microentry Nonmarket Strategies to Change State Policy

How do small firms overcome regulatory constraints despite opposition from entrenched interests? Microentry strategies enable small firms to compete with larger incumbents in markets, but exploration of such strategies in nonmarket arenas is limited. Existing research suggests that, when firms face regulatory constraints, they often venue shift upward, for example, overturning a local ban by lobbying for statewide legislation. This article uses qualitative data on craft breweries to identify and analyze a set of microentry nonmarket strategies through which firms engage locally, venue shifting downward from state to local regulators, to successfully ease state-level constraints from the bottom up. In public hearings with city officials, entrepreneurs aligned local investment tactics and supportive coalitions with an iterative approach that motivated city-based regulators to challenge state-level restrictions on direct-to-consumer (DTC) business models that are favorable to smaller firms. Experimenting locally with the discretionary use of “event” licenses for ongoing DTC beer sales led to an accumulation of bottom-up support across locales. This support included relational infrastructure and policy-relevant information that enabled entrepreneurs to work through city officials to overcome incumbent opposition. By elaborating how small firms and local officials together create punctuations in a state-level policy monopoly and analyzing both the antecedents and consequences, this study builds a theory of microentry nonmarket strategy and bottom-up policy change. Even in a mature industry with well-institutionalized regulations, powerful incumbents opposing changes, and minimal technological change, small businesses reshaped the policy environment of an entire state from the bottom up.

Funding: This work was supported by the Sloan School of Management, Massachusetts Institute of Technology.