One or more growth processes? Evidence from new Italian firms

The paper proposes a descriptive model of firm growth which assumes that learning processes are conditional on existing competencies of the firm and its founders. We suggest the idea that firms who do not grow under all realizations of potentially profitable opportunities can be considered as zero-learning. In order to explain why some firms are zero-learning and how these are different from growing ones, we put forward and discuss the hypothesis that both start-up size and founders’ pre-entry history affect the firm’s ability to adjust to market. Using a sample of 3,905 Italian firms born in 1999 and 2000, we find that individual competencies influence start-up size, but not directly growth. We also find a significant nonlinear relationship between start-up size and growth, implying that firms which were born smaller than a given size grow significantly less. The results support the hypothesis that multiple and heterogeneous growth processes coexist and that the growth process of microfirms below a given organizational threshold may be structurally different, in the long run, from that of firms starting up above that threshold.