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One of the central explanations of the high failure rates of de novo entrants is the liability of smallness. As a corollary, most prior literature has suggested that firms should experience survival benefits from growth. In this paper, we argue that survival benefits need to be balanced against the potential cost of rapid growth, and they are contingent upon the structure of the environment. We predict a curvilinear relationship between an entrant's growth rate and failure, and argue that the relationship is contingent upon the local agglomeration of economic activity and the local structure of competition. We test and find support for our predictions using firm-level longitudinal data of all de novo entrants into the Canadian manufacturing sector between 1984 and 1998. A. Pe'er, I. Vertinsky, and T. Keil products are highly perishable and in which transportation costs dominate (e.g., food and related products, meat packing, newspapers, milk and cream, and concrete products). The results suggest that the effect of local market concentration on survival is much stronger for those sectors. Additional supporting information may be found in the online version of this article:Appendix S1. Determining the boundaries of agglomeration and local market concentration. Appendix S2. Accounting for potential endogeneity. Appendix S3. Microfoundations of agglomeration.

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Some geographical locations have characteristics that create opportunities for de novo enterprises, but not all new firms can access the benefits presented by a potential location. The ability of new firms to appropriate benefit and avoid risk depends on the resources that entrepreneurs can marshal for their enterprise. This article develops a model of the interplay between the attributes of de novo entrants and their founding locations. The model assumes that de novo entrants tend to appear in the region where their founders live, but that founders choose among locations within their regions.The test of the model, using data on all de novo entrants in the Canadian manufacturing sector during 1984—98, reveals that entrants with greater resource and capability endowments are more likely to locate in areas with an agglomeration of similar firms, but this effect reverses at high endowment levels. Additionally, larger entrants are less likely to locate in areas characterized by intense local competition and potential entry deterrence, while smaller and well-endowed entrants tend to locate in areas where entry barriers are lower and asset turnover higher. These findings suggest that entrants choose locations strategically within their founding regions.They also indicate that the strategic imperatives of de novo entrants differ significantly from those of geographically diversifying firms, and thus suggest amendments to theories of location choice when modeling the decisions of new ventures.