Small Business Economics

, Volume 6, Issue 5, pp 327-347

First online:

Innovation and diffusion in small firms: Theory and evidence

  • Bart NooteboomAffiliated withSchool of Management and Organisation, Groningen University

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The article provides an inventory of the strengths and weaknesses of small firms in a dynamic context. To do this it considers verbal accounts of the processes of innovation and diffusion, as well as quantitative studies testing cause-effect relations. It consider both economic and noneconomic factors, concerning issues of motivation, perception and knowledge. First an overall summary is given of the characteristics of small business compared with large business, as a basis for an assessment of strengths and weaknesses. Perhaps the most important characteristic of small business is its diversity, and the article gives the conditions and sources of it. Other core characteristics are small scale, personality and independence of the small firm. From these, derived characteristics, strengths and weaknesses and core strategies can be inferred. From the perspective of the firm, strengths and weaknesses are subsequently analysed for the successive stages of innovation: invention, development, tooling/production, introduction to practice/market. Strengths and weaknesses in diffusion are analysed for the successive stages in the adoption process, as proposed by Rogers. Reference is made to theory and to empirical studies from the literature and from research by the present author.