Lowering the Bar? External Conditions, Opportunity Costs, and High-Tech Startup Outcomes

Annamaria  Conti; Maria P. Roche

Article | Organization Science | Forthcoming

Lowering the Bar? External Conditions, Opportunity Costs, and High-Tech Startup Outcomes

by Annamaria Conti and Maria P. Roche

Abstract

We assess the heterogeneous impact of economic downturns on individuals’ decisions to bring high-technology ideas to the market in the form of new ventures. We thereby examine how worsening labor market conditions influence individuals’ opportunity costs of starting new ventures, the resulting composition of the entrepreneurial pool, and startup performance outcomes. Using a rich dataset of startup founders in the biotechnology and medical device sectors, we find that an increase in the unemployment rate is associated with a substantial rise in the share of entrepreneurs who are most sensitive to worsening labor market conditions. Additionally, we find that startups founded by these entrepreneurs display lower financial and innovative performance than startups founded by entrepreneurs who are relatively insensitive to business cycles. Finally, we provide suggestive evidence that individuals’ heterogeneous response to worsening labor market conditions is a relevant factor in explaining the negative relationship between unemployment and startup performance outcomes.

Keywords: necessity entrepreneurship; economic conditions; recessions; high-tech startups; Entrepreneurship; Economic Slowdown and Stagnation; Business Startups; Technology; Performance; Labor;

Format: Print

Citation:

Conti, Annamaria, and Maria P. Roche. "Lowering the Bar? External Conditions, Opportunity Costs, and High-Tech Startup Outcomes." Organization Science (forthcoming).

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Lowering the Bar? External Conditions, Opportunity Costs, and High-Tech Startup Outcomes

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