Published 27 April 2016

The Swedish Start-Up Firms of 1997

– Growth dynamics from a 14-year perspective

In this report, Growth Analysis studies a single cohort of start-up firms and follow their development over a relatively long time period. The purpose of the study is to describe how many firms survive and grow, as well as how this growth is distributed over time.

Seeing innovation and productive entrepreneurial activity as one of the drivers of economic growth implies that the establishment of successful start-up firms is a key contributor to a country’s economy. Of particular value are firms that are able to not only achieve high growth rates, but ultimately to survive in the long term and continue to provide a range of socio-economic benefits such as employment and innovations in the market.

Previous research indicates that most firms do not survive in the long term, and that even fewer qualify as “growth engines.” For this very reason, they have been receiving increasing attention in order to gain more insight into their determinants and the dynamics that affect their growth and survival.

A considerable share of previous research has suggested that the process is essentially random. However, many studies have based their analyses on cross-sectional data, as opposed to this paper, which uses longitudinal data following a specific cohort of new firms.

The study

The object of study in this paper is the 1997 cohort of Swedish start-up firms. Here, we can essentially differentiate between two types of firms. One consists of firms that originate from incumbent enterprises, i.e., spin-offs. These are often already well-connected in the market when they are created, and previous research suggests that they are the main source of the economic growth that is generated by new firms. The other type comprises start-ups with little or no previous market experience. This category also includes academic spin-offs, as well as start-ups where founders were previously unemployed. In this study, we focus on this latter type of start-ups, since they are ones that are likely to benefit most from public support for continued survival.

Results

The paper shows that over a period of 14 years, 1 517 of 19 232 (8 percent) firms survive. The sum of the surviving firms’ revenue is lower than that of all firms combined in the first year. A marked growth is seen among the surviving firms ten years after their establish­ment. The surviving firms thus constitute a measure of “sustainable” development and can justifiably be said to have introduced innovations that have contributed to Swedish growth.

In general, the results corroborate the notion that growth plays an important role in promoting a firm’s chances of survival. Further­more, early growth is clearly associated with increased survival. Finally, firm size and geographic expansion do not appear to have a significant effect, while, somewhat surprisingly, subsidiaries appear to be less prone to survive.

Conclusion and future studies

The study corroborates previous findings that growth leads to a greater likelihood of survival for new firms. This pattern has also been found in previous studies using similar methods.

Possibly fruitful paths for future research include additional studies of market selection processes and what determines long-term sustainability in firm survival. For instance, the question remains under which circumstances subsidiaries actually benefit from their parents’ resources in terms of long-term survival, rather than mere short-term resilience to market selection.

Title
The Swedish Start-Up Firms of 1997 – Growth dynamics from a 14-year perspective

Serial number
PM 2016:07

Reference number
2014/227

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