Investigating the growth paths of young technology-based firms: A process approach

Abstract

Young technology-based firms are widely recognised as important drivers of economic renewal and growth. Many statistical studies have been carried out to ascertain the attributes of the more successful ventures. Most studies are based associations between measures of firms’ growth and other firms’ attributes, taken out of context. The internal developmental processes of these new ventures, viewed holistically, have not received attention in the research literature. Cross-sectional analyses of variance cannot reveal cumulative dynamic processes at work within firms, while case studies on new firms have lacked a generic conceptual framework capable of providing a systematic basis for comparison. This report aims to complement findings from the dominant research approach by explicitly addressing new firms' internal development processes. To summarise unfolding growth experience over time in new firms, a quantitative analysis has been conducted on an exploratory basis. A new data set was created tracing over a period of eight years, the growth of a cohort of 136 German technology-based firms incorporated in 1991/9 . New compression techniques were devised that preserve information on internal change over time within firms. This analysis provides a quantitative background to an in-depth examination of 15 case studies undertaken to identify internal firm development processes. The analytic framework, inspired by the work of Penrose, provides a systematic way of comparing firms' growth experience. An exemplar is provided here together with an exposition of the conceptual framework. It is shown that the typical growth paths of even a relatively successful cohort of survivor firms feature growth spurts, growth interruptions and temporary stagnation, evidence of which is concealed in standard studies of aggregate growth rates. The report explores the reasons for these patterns, using detailed case evidence. The ‘new venture development framework’ explains the prevalence of these growth patterns with reference to the entrepreneurs' evolving business concept and the firms' resource base and market opportunities. This pilot study shows that it is possible to understand and compare new firm growth by using contextual observations at the level of the firm. This provides rich material to inform support agencies and entrepreneurs facing growth problems of new firms in the field.