A recipe for USO success? Unravelling the micro-foundations of dynamic capability building to overcome critical junctures

University Spin-Offs (USOs) are important contributors to regional innovation, productivity and job creation; however, their failure rates remain very high. While studies have explored the factors affecting USO formation and success, scholars have highlighted the need for further research into the processes through which USOs can effectively reach sustainable returns by navigating several critical junctures. We posit that a micro-foundational perspective can contribute new knowledge on how USOs develop higher-order dynamic capabilities, which are essential to overcoming key challenges and leveraging opportunities. This paper explores how USOs develop the micro-foundational dynamic capabilities of adaptive, absorptive and innovative capabilities to successfully overcome formation's critical junctures and reach long-term sustainability. The findings identify how USOs develop, deploy and integrate various combinations of micro-foundational capabilities to navigate each critical juncture and reach thresholds of sustainability. In particular, as firm development progressed and critical junctures increased in complexity, USOs needed to deploy all three capabilities simultaneously and in an integrated manner. We identify the limitations of existing linear models of USO development and contribute to theory development through the development of a new, dynamic model that illustrates how USOs build micro-foundational dynamic capabilities cumulatively and iteratively to overcome critical junctures.