New Firm Gestation: Conception, Birth, and Implications for Research

Abstract

The gestation patterns of new firms areinvestigated, especially the duration of gestation. Two present theories ofbusiness startup are examined, which consider the business as rational economicactors or as a biologic analogy. The definitional and theoretical issuesinvolved in defining the "birthdate" of firms are analyzed, and how thedefinition affects the understanding of firm survival. The gestation process can be marked by four key events: the entrepreneur'spersonal commitment, the initial hiring activities, the initial financing, andthe initial sales. The study reviews the presence, sequence, and time frameassociated with these events. The study was based on data gathered from almost3,200 representative new firms in Minnesota (gathered in 1984 and 1987) andPennsylvania (gathered in 1986). Both public data and phone interviews wereused. Not all four key events were reported by all firms, and every possiblesequence of events was reported. Gestation ranged from one month (20%) to ten years; three years or less wasmost common (90%). Data indicate that any event involving a transaction orrelation outside the firm results in similar survival patterns. It is concludedthat, for most research, first sales may be an appropriate indicator ofbirthdate for a new firm. A firm's conception is harder to define. Oneconsequence of the study is the suggestion that widely varying estimates offirm survival are partly due to the choice of a firm's birthdate. Public policyto assist new firms should consider and vary depending on the stage of thefirm. (TNM)

Keywords: Firm survival, Nascent entrepreneurs, Startups, Research methods, Firm gestation, Firm performance, Public policies