When collaborating with larger companies, startups with a small number of carefully chosen alliances would reap the most benefits, a research showed.
The study found that by aligning with established companies, a young firm gains valuable access to additional resources and markets.
However, as a startup adds more outside partners, eventually the firm's internal capability would weaken and the cost of maintaining its alliances would exceed any remaining benefits, said researchers from the University at Buffalo's School of Management in the US.
"Established companies can tap into a startup's cutting-edge technologies and innovative potential while young firms acquire knowledge and status from experienced partners," said study co-author Ramin Vandaie, assistant professor of operations management and strategy.
But more is not necessarily better.
"We found the benefits of alliances with larger companies do not increase proportionally with the number of partners, but instead start to level off and turn negative as more partnerships are formed," he added.
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The study examined 150 independent film production studios and tracked their partnerships with major studios from 1990 to 2010.
In addition, the research revealed that highly specialized firms experience greater benefits from inter-firm alliances than generalist competitors.
"Small, specialised firms that have the opportunity to align with larger firms should put their expansion plans on hold to gain the full benefits of those partnerships," Vandaie said.
Later, they can use their newly developed capabilities as a basis for growth and a more reliable path to expansion.
The data can be applied to many industries, particularly creative fields like publishing or advertising, as well as professional services like accounting or law firms, the researchers concluded.
The study is forthcoming in the journal Organization Science.