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The elixir of youth

Start-ups are widely acknowledged to have a role in economic development and yet, little
research has been done on their innovative activities as compared to those of more
established companies. In “The elixir (or burden) of youth? Exploring differences in
innovation between start-ups and established firms,” authors Paola Criscuoloa, Nicos
Nicolaoub and Ammon Salter explore innovation in new firms by using a sample of
12,209 United Kingdom companies.

They organize their data by first differentiating between services and manufacturing
industries. Using what they refer to as a “matching estimator approach,” the authors
“demonstrate that start-ups differ significantly from established firms in their innovation
activities.”

Their results show that start-ups in services have an increased likelihood of product
innovations. On the other hand, however, they find that there is no significant difference
in the likelihood of product innovation between start-ups and established firms in
manufacturing. Furthermore, they examine the returns to innovation, discovering that
“start-ups in both manufacturing and services have a higher proportion of sales from
innovative products than established firms.”

This paper has several implications in regards to theory and policy. First, their analysis of
service firms “breaks new ground in understanding the ways industrial conditions can
shape the advantages and disadvantages of start-ups versus established firms in terms of
innovation… Bringing together the literature on service innovation with the discussion of
age and innovation, this paper has helped to invoke a set of factors – intangibility, co-
terminality and low capital intensity – that might help to explain the relative advantages
of start-ups versus established firms.” In terms of policies, this research indicates that it is
important to consider industry conditions under which start-ups operate. The authors
suggest that such an approach would “put in place programs to help new firms lower the
liabilities associated with newness in manufacturing and help develop policies to sup-
port established service SMEs to upgrade their skills to meet the competition posed by
new firms.”

Paper: http://www2.druid.dk/conferences/viewpaper.php?id=1325&cf=9

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