Heroes Today - But What about Tomorrow? Gazelles and Their Long-term Performance

Abstract

Young high-growth firms, or gazelles, have been investigated predominantly with respect to their outstanding short-term performance. The paper at hand adopts a different approach by analyzing the long-term performance of such firms to shed light on the sustainability of these job-creating machines. Using the Danish Integrated Database for Labour Market Research, we find that former gazelles are not able to sustain their headstart in terms of performance in the long run. We demonstrate that gazelles are often outperformed by initially slower growing competitors, as high initial growth negatively affects a firm’s long-term survival. We also find that high-growth start-ups ultimately achieve lower employment growth and higher employee turnover. We explain these counterintuitive findings by arguing that an initial period of rapid employment growth impedes the emergence of a stable and efficient routine structure within the newly founded venture if expansion is undertaken too hastily. In turn, this impediment decreases these firms’ long-term performance, as the initial set of structures and routines or the lack thereof has a long-lasting effect on the organization’s development.