How technology-based new firms leverage newness and smallness to commercialize disruptive technologies.(Report)

Although the survival of young firms is challenged by the liabilities of newness, there are numerous instances where these firms have been successful at commercializing disruptive technologies at the expense of much larger and stronger incumbents. This paper explores this phenomenon and argues that the characteristics that challenge young technology- venture survival are also potential sources of advantage when commercializing disruptive technologies. The propositions developed also identify the boundary conditions for the advantages by examining the context of commercialization that is created by four types of disruptive technologies. The contributions of this paper are relevant to the enhanced understanding of the liabilities of newness, as well as the commercialization of disruptive technologies.

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The literature on young firms often describes them as entities whose survival is challenged by their lack of experience, lack of resources, and lack of legitimacy (Stinchcombe, 1965). However, in the research that addresses the displacement of large and experienced incumbents, there is no shortage of stories that represent the business version of David and Goliath (e.g., see Christensen, 1997; Henderson & Clark, 1990). These stories describe how young firms that commercialize disruptive technologies are able to challenge, and sometimes displace significantly larger and more powerful incumbents. How is this possible?

A variety of theories have been proposed to explain why the large firm may be displaced by smaller, younger challengers, such as large firm rigidities and bounded rationality, which limit the ability of large firms to recognize and respond to competitive threats (Christensen, 1997; Dougherty & Heller, 1994; Henderson & Clark, 1990). Despite the valuable insights provided by existing research, scholars continue to argue that the displacement of large incumbents is not fully understood and requires further exploration (Adner, 2002).

The purpose of this paper is to explore the role of young firm characteristics on the displacement of large incumbents. Specifically, it is argued that large firm displacement may also occur because the young technology-based venture's characteristics that are associated with the liabilities of newness also create potential sources of advantage when it is pursuing the commercialization of a disruptive technology. A framework and propositions are developed that examine the interaction between age-related characteristics and technology characteristics to identify sources and circumstances of young technology firm advantage. This is achieved by synthesizing and building on a considerable body of research on the liabilities of newness (e.g., see Aldrich & Auster, 1986; Freeman, Carroll, & Hannan, 1983), as well as research from several other research streams including the commercialization of disruptive technologies (Abernathy & Clark, 1988; Henderson & Clark, 1990), the dynamics of firm rivalry (Chert, 1996; Porac, Thomas, Wilson, Paton, & Kanfer, 1995), and the creation and implications of legitimacy (Aldrich & Fiol, 1994; Deephouse, 1999; Suchman, 1995).

It should be noted that the arguments advanced are not contradicting empirical findings that suggest that the young firm's survival is challenged by its characteristics. Instead, the propositions developed seek to extend understanding of young firm survival by recognizing some of the conditions in which these characteristics may be beneficial. This paper is in line with and incorporates insights of researchers such as Autio, Sapienza, and Almeida (2000) who confirmed that the lack of experience that sometimes challenges young firms can also create important learning advantages.

A potential criticism of relying on the synthesis of established theory and concepts may be that, individually, some of the propositions developed may not appear new. However, the arguments offer novel insights when taken as a whole, and in particular considering the extension of the liabilities of newness to a closer examination of four types of disruptive technologies.