Unpacking liabilities of newness and smallness in innovative start-ups: Investigating the differences in innovation performance between new and older small firms

Abstract

New ventures face both liabilities of newness and smallness, which may inhibit their innovation efforts and output. However, existing research has not clearly distinguished between the two liabilities, leaving it unclear how certain determinants differentially affect innovation performance in start-ups relative to older established small and medium sized enterprises (SMEs). Therefore, in this study we investigate the impact of R&D investments, external knowledge sourcing and public R&D subsidies on innovation effectiveness in new versus older small firms. Employing panel data from the Spanish Community Innovation Survey (CIS), we show that R&D investments have a lower contribution to the innovation performance of new ventures, compared to older small firms. In contrast, we find that external knowledge sourcing makes a higher contribution to the innovation performance of new compared to older small firms, but only in high-tech settings. However, we find no support for a differentiating effect of R&D subsidies in new versus established small firms. Effectively, our results highlight the limited effects of internal R&D investments and R&D policy instruments to promote the growth of innovative start-ups, while highlighting potential benefits of their openness to external sources of innovation. As such, these results have important implications for research, practices and policies that relate to innovation in new ventures and SMEs, while casting doubts on the effectiveness of some of the common strategy and policy instruments to stimulate performance in small innovative start-ups.