How do Business Relations Affect Startup Performance?
This paper examines how business relations with customers affect the performance of a startup. The analysis is based on panel data about firms established in 2006. Business relations affect startup performance on the two dimensions: commercial and non-commercial transactions. Regarding the former dimension, those firms which established business relations with the client of the former employer and deal with more customers at startup show a higher survival rate. However, firms which have built business relations at birth do not enjoy higher growth. This implies that survival factors do not guarantee firm growth and that growth depends on efforts for acquiring new clients after startup. Regarding the latter dimension, it is confirmed that those firms which seek referral to new clients for existing customers experience higher growth. Startups require trust to gain new clients. Seeking referral for existing customers can be an effective tool for getting trust.