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HYPOTHESES

In the following section, the foregoing discussion is summarized in testable hypotheses. We propose that both the characteristics of the cooperative partners and the number of cooperative relationships affect growth and innovative performance of entrepreneurial high-technology companies. Hypotheses 1 and 2 examine determinants of innovative output and hypotheses 3 and 4 have firm growth as the dependent variable.

Innovative Output

According to the resource-based view, cooperative arrangements are often a critical part of the early strategies of R&D-intensive firms; cooperation helps to organize innovation and commercialization activities when the necessary complementary resources are dispersed among firms. As discussed widely in the previous literature, entrepreneurial firms often lack the necessary capabilities, and legitimacy to conduct all the activities associated with innovation (Teece, 1986; Aldrich & Fiol, 1994). On the other hand, firms with a long industry tenure are likely to have accumulated a large stock of capabilities for innovation. Therefore, shortcomings in technical, marketing or production expertise, for example, may be better overcome by cooperation with incumbent firms than by cooperating with other newcomers. An experienced incumbent firm may also be able to overcome some of the inherent constraints of the new field through its reputation and existing complementary capabilities (see for example Sharma and Kesner, 1996). Overcoming these constraints subsequently affects the innovative output of the new start-up firm. Therefore, we hypothesize:

Hypothesis 1a. The longer the industry tenure of the R&D collaborative partner, the higher the innovative output of the start-up firm.

On the other hand, collaborative relationships with incumbents may also have negative effects. In the preceding chapter we discussed how the liabilities of age, like inertia and vested interests may actually suppress radical innovation. Consequently, in contrast with hypothesis 1a, we hypothesize that the age of the partner in technology collaborations is negatively related with the likelihood of radical innovation.

Hypothesis 1b. The longer the industry tenure of the R&D collaborative partner, the lower the portion of radical innovation of the total innovative output of the start-up firm.

Several earlier studies have also discussed how the number of collaborative partners affects performance. Powell et al. (1996) found a positive relationship between the number of ties and firm growth. Eisenhardt and Schoonhoven (1996) propose that since technologically innovative strategies demand a high level of competence and substantial resources, alliances can help the know-how and strategic resource position of the firm. On the other hand, transaction cost economics supports an alternative hypothesis. All relationships involve coordination costs, and in some circumstances, the costs of coordination are likely to overcome the benefits of collaboration.

To reconcile these two views, we hypothesize a positive relationship between the number of partners and total innovative output in general, but a negative relationship between the number of partners and radical innovative output. It is thus assumed that negative effects of cooperation, like knowledge spillovers are likely to have a stronger effect on radical innovative output.

Hypothesis 2a. The more collaborative partners the start-up firm has, the higher its innovative output.

Hypothesis 2b. The more collaborative partners the start-up firm has, the lower the portion of radical innovative output.

These hypotheses are somewhat in contrast with Eisenhardt and Schoonhoven (1996) who claim that firms with less innovative strategies are less likely to need alliances. Their study, however, looks at antecedents of collaboration, not its outcomes.

Start-up Growth

How the characteristics of collaborative partners affect the growth of the start-up firm is not known in detail. Powell et al (1996) find support for the hypothesis that the number of startup collaborative relationships is positively associated with growth, but more detailed studies are missing from the literature.

Penrose (1959) mentions three factors that limit the growth of the firm: uncertainty about the future, limitations of management, and limitations of the market (resource availability). Start-up cooperative relationships with industry incumbents, by providing resources, industry-level expertise and managerial know-how seem to address all these limitations (see also Mody, 1993). If, as the resource-based view claims, capabilities are built over time and they can be accessed through collaboration, high-growth entrepreneurial firms are more likely to have older R&D collaborative partners. We also propose that the number of relationships is positively associated with growth. As discussed earlier, industry incumbents are likely to be better equipped to provide short-term boost for these organizations, although their effect on longer term growth, for example on growth through radical innovations, may be the opposite. Thus:

Hypothesis 3. The longer the industry tenure of the R&D collaborative partner, the higher the short-term growth of the start-up company.

Hypothesis 4. The higher the number of R&D collaborative partners, the higher the short-term growth of the start-up company.

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