Firm Size and Innovation: A Double-Edged Sword | National Crowdfunding & Fintech Association of Canada

New Things Under the Sun | Matt Clancy | Jun 2, 2023

Image: Unsplash/Kaleidico

Recent studies highlight that as firms grow in size, their R&D expenditures rise proportionally with sales, but they tend to produce fewer groundbreaking innovations per R&D dollar spent.

• Large firms, often termed "superfirms", are more focused on incremental innovations, primarily aimed at improving existing products and services.

Read:  To Support Disruptive Technologies, Take Bigness Seriously

Implications:

1. For Investors:
   • Opt for a balanced portfolio, including stocks from both small firms, which might produce high-impact innovations, and large firms, which offer stability through incremental innovations.
   • Monitor R&D efficiency; a larger R&D budget doesn’t always translate to groundbreaking innovation.
2. For Startups:
   • Leverage agility and small size for high-impact innovations, which can be an edge over large competitors.
   • Consider partnerships or alliances with large firms to access resources without compromising the innovative culture.
3. For Government Policy Makers:
   • Incentivize small and medium enterprises (SMEs) through subsidies, tax reliefs or grants to foster high-impact innovation.
   • Encourage collaboration between large firms and SMEs for a synergetic effect on innovation.
   • Establish frameworks for intellectual property rights that protect smaller players without stifling innovation.

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