We investigate how entrepreneurs should craft the narrative about their new ventures in order to position it successfully in the semantic space vis-à-vis incumbents and established market categories.
Entrepreneurs face the challenge of having to conform to gain legitimacy, while at the same time differentiating themselves to gain competitive advantage. We show how entrepreneurs can craft an entrepreneurial narrative to succeed in this task among the user audiences empowered to evaluate their products. Building on theories of categorization, optimal distinctiveness, and cultural entrepreneurship, we propose that entrepreneurs should utilize the narrative’s semantic relations with cultural meanings of established products and categories. We measure these semantic relations using machine learning methods for natural language, applied to data on 2901 independent video game proposals compared to 11,651 established games. Our findings reveal that semantically anchoring a product’s narrative in the cultural meaning of claimed categories can help to leverage the benefits of differentiation, especially when spanning multiple, atypical categories. When a product focuses on few categories, semantically enriching a narrative with unclaimed categories’ cultural meaning makes them more favorable to additional, possibly fragmented audiences that would not have considered them otherwise. Our results point to a key theoretical role of cultural entrepreneurship in shaping audience evaluation of categorization and differentiation by entrepreneurial ventures. It provides guidelines for entrepreneurs for managing the trade-off between differentiation and adherence to established cultural norms.