Cutting the apron strings of business incubation firms: Is the liability of newness...A liability?

Current theory and public policy suggest liabilities of newness can be overcome through external legitimacy and protected positions in the market. In this study, we show that while this assumption holds true in the short run, the long run implications are often the opposite. We develop an evolutionary model of organizations founded under competitive and protected positions using a nationally representative sample of 18,909 incubated firms and a matched control group of non-incubated firms in the U.S. from 1990 to 2008. We argue that business incubation eases initial start-up pressures, but restricts competitive capabilities with longer incubation times. Consistent with this view, we find that business incubation lowers initial exit rates, but organizations have higher exit rates post-incubation - particularly when incubation times are longer than six years and in industries with greater competition. Implications for a theory of business incubation and public policy are discussed.