Growth Setbacks in New Firms

This study investigates interruptions in the early growth of new firms.Although researchers have largely ignored this issue, a decade-long study of 237 high-tech firms founded in 1990 reveals the prevalence of growth interruptions among young firms. Indeed, even firms with the best survival records experienced growth setbacks. Case studies of four Cambridge high-tech firms with an early growth record are used to identify the underlying causes of interruptions.These case studies suggest that the depletion of early resource endowments and the failure to sustain an early growth record are two crises that commonly create setbacks.Taken together, the data indicate that substantial, continuous growth is quite rare and that growth interruptions are created by both internal and external dynamics. The timing of resource availability is critical for new firms, and the pace of growth may eclipse the synchronization of specialized resources, as well as managers' skills and knowledge.The unpredictability of emerging industries leaves new firms that lack the resources to weather short-term crises particularly vulnerable. Still, new and unexpected problems can be useful learning tools for growing firms. (SAA)