This paper explores and explains the emergence and growth of new firms in the knowledge economy. The resource-based view, capabilities approach, and evolutionary economics are used as a foundation for a developmental approach. The development of the firm is conceptualized in terms of processes that include opportunity recognition, resource mobilization, resource generation and resource accumulation, which lead to the development of competences and capital in a base made up of productive, commercial and financial resources. Problems originating within or outside the firm may deplete the productive, commercial and asset base, leading to turning points in the life course of these firms. These have negative consequences when problems are not solved, but positive consequences when they lead to new solutions and the development of new competence. The empirical study shows that even in an elite sample of young fast-growing firms, most firms face turning points in their life course, and thus do not grow in a continuous way. The study shows that quantitative growth indicators do not always reveal growth problems that have been faced by new firms. Some problems do not negatively affect the employment growth of the firm, and other problems are solved before growth stagnates. The qualitative analysis shows that young firms are almost always in disequilibrium: there is almost never a perfect match between the constituents of their resource base, between input resources and requirements for expansion. This explains why continuous growth is so unlikely. Although every firm seems to grow in a unique manner, there is evidence for the presence of a limited set of necessary mechanisms for the growth of (new) firms, which work out in particular ways given the specific context and history of these firms.
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Paper provided by Max Planck Institute of Economics, Evolutionary Economics Group in its series Papers on Econonmics and Evolution with number
2005-05.
Find related papers by JEL classification: D21 - Microeconomics - - Production and Organizations - - - Firm Behavior D92 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Firm Choice and Growth, Investment, or Financing L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Garnsey, E. & Stam, F.C. & Heffernan, P. & Hugo, O., 2003.
"New Firm Growth: Exploring Processes and Paths,"
Research Paper
ERS-2003-096-ORG Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
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