Growth Setbacks in New Firms

Abstract

This paper examines setbacks in the early growth of new firms. Growth interruptions mark the unfolding, cumulative processes of firm growth overlooked in standard studies that use cross sectional methods. To probe for possible patterns in growth setbacks, we examined a cohort of 200 high technology firms founded in about 1990 and analysed the growth paths of survivors. Simple compression techniques yielded seven types of growth turning points. Growth setbacks are the norm even among firms with better growth records. Growth crises can be represented as a shift in phase state. To understand what such a shift implies, we focus on the micro-evidence relevant to processes of firm growth and illustrate growth crises from case studies. Growth crises represent both limits to knowledge and the means by which knowledge is revised and learning accelerated in the firm.

Keywords: Growth, setbacks,Cambridge, technology-based firms, employment, limits of knowledge, learning, cohort study, complex adaptive systems

JEL Classification: L10, L21, M13