This paper investigates the employment growth of small and medium-sized firms that survived the transformation process of the German Democratic Republic (GDR). We find that firms founded in the later period of the GDR's existence have especially low growth prospects, even 10 years after German reunification. The later phase of the GDR was marked by tightening measures intended to enhance political influence on the planned economy, accompanied by a sharp economic decline. Thus, organizations were more deeply embedded in planning structures that were more rigorous than those present in the first years of the GDR's existence. We argue that these organizations therefore developed less appropriate practices for coping with a market economy than organizations founded in other periods.