Startups are often seen as places that come up with cool new things and shake up industries with their innovations. However, a recent study from Texas McCombs reveals that startups do more than just create new products or services.
According to the researchers, these new companies not only bring fresh ideas to the market but also play a crucial role in speeding up the progress of new technologies. Interestingly, startups are found to inspire and lead to more future inventions compared to established companies.
“Consumers benefit from the work of startups well beyond what is immediately apparent to them,” they explain. “These startups generate a lot of knowledge spillovers. Other entities can build on their ideas to create subsequent inventions, some of which may eventually benefit consumers in product markets.”
Building on what came before
However, this ripple effect can have both positive and negative aspects for tech startups. If a startup doesn’t have sufficient resources to develop its own inventions, it might struggle to turn them into profits. Larger, more established companies with greater financial resources may end up taking the lead in advancing these innovations.
“There is a silver lining to being an entrenched player when it comes to adapting to a new technology that supports the emergence of a new industry,” the authors continue.
The researchers focused on patents in the photovoltaic (PV) cells industry, where sunlight is turned into electricity. This field attracts both startups and established companies, including those from industries like oil and gas.
They studied 6,116 patents from the mid-1970s to 2016, checking how many times these patents were cited in later patents from other organizations—a sign that the initial patents led to more innovations.
High impact
Even though startups only held 13% of the patents, their inventions got a lot of attention in the form of citations. In any given year, a startup’s patent received 8.5% more citations than those of established companies. Over nine years, startup patents got 21% more citations.
The researchers suggest a few reasons why startups’ inventions lead to more innovations by other companies:
- Limited Resources: Larger companies might have more resources to build on a startup’s innovations than the startup itself, especially if the startup struggles to develop its own inventions.
- University Recognition: In emerging industries, universities play a role in identifying promising inventions. When a university cites a startup’s patents, it brings more attention—measured in more citations—to the company than when a university cites patents from an established company.
- Litigation Deterrence: Established companies benefit from a reputation for filing patent infringement lawsuits, making rivals less likely to build on their inventions. However, startups don’t have the same deterrent effects.
