Sowing the seeds: The impact of initial ties on growth and innovation among micro and small firms

We investigate the influence of networking on micro and small enterprises (MSEs) innovation and growth. We claim that people whom the entrepreneur approaches for advice as well as the companies with which initial relationships are forged leave an imprint that is reflected in MSEs tendency to upgrade - that is, innovate and grow. Our analysis of a sample of forty-six thousand French MSEs shows that the likelihood that MSEs upgrade within the first five years of existence is affected by their initial partners. Specifically, we find that companies seeking professional advice early on have a higher likelihood to achieve growth through innovation than others whilst companies relying primarily on advice provided by family members and/or organizations specializing in entrepreneurship have a lower likelihood. Moreover, we find that initial cooperation with other companies as well as cooperation with suppliers and customers leave a positive imprint on the MSEs' propensity to innovate and grow. Thus, the paper provides unique insights on the importance of fostering opportunities for networking in the earliest stages of MSEs development.