On the consequences of firm growth

Freel, Mark and Gordon, Ian (2020): On the consequences of firm growth. Forthcoming in: International Small Business Journal (2022)

Abstract

Recent contributions to the literature on small firm growth have been marked by a growing sense of frustration with the state-of-the-art and what it implicates in both theory and policy. In short, while growth events appear relatively common, a tiny proportion of firms sustain growth and ‘scale’; calling into question the very basis of policies seeking to target high growth firms (HGFs). We argue that understanding the frequency of growth events and the rarity of sustained growth requires a better understanding of growth consequences. To this end, we report case study evidence from ambitious entrepreneurs whose firms had experienced an episode of high growth followed by longer periods of mixed performance. Our goal is to shed light on how the experience of growing affects further growth. Our data provide initial insights into the mechanisms linking past growth to growth motivations and into the ways in which past growth lays the foundations for future performance.

• Item Type: MPRA Paper
• Language: English
• Keywords: firm growth, growth intention, ambidexterity, income, barriers
• Subjects: L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L21 - Business Objectives of the Firm; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L25 - Firm Performance: Size, Diversification, and Scope; L - Industrial Organization > L2 - Firm Objectives, Organization, and Behavior > L26 - Entrepreneurship

References

Achtenhagen, Leona, Lucia Naldi, and Leif Melin. 2010. “‘Business Growth’—Do Practitioners and Scholars Really Talk about the Same Thing?” Entrepreneurship Theory and Practice 34 (2): 289–316. Aldrich, Howard E., and Martin Ruef. 2018. “Unicorns, Gazelles, and Other Distractions on the Way to Understanding Real Entrepreneurship in the United States.” Academy of Management Perspectives 32 (4): 458–72. Anyadike-Danes, Michael, and Mark Hart. 2018. “All Grown up? The Fate after 15 Years of a Quarter of a Million UK Firms Born in 1998.” Journal of Evolutionary Economics 28 (1): 45–76. Brown, Ross, Suzanne Mawson, and Colin Mason. 2017. “Myth-Busting and Entrepreneurship Policy: The Case of High Growth Firms.” Entrepreneurship & Regional Development 29 (5–6): 414–43. Cassar, Gavin. 2007. “Money, Money, Money? A Longitudinal Investigation of Entrepreneur Career Reasons, Growth Preferences and Achieved Growth.” Entrepreneurship and Regional Development 19 (1): 89–107. Coad, Alex, Sven-Olov Daunfeldt, and Daniel Halvarsson. 2015. “Bursting into Life: Firm Growth and Growth Persistence by Age.” Available at SSRN 2616759. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2616759. Coad, Alex, Sven-Olov Daunfeldt, Werner Hölzl, Dan Johansson, and Paul Nightingale. 2014. “High-Growth Firms: Introduction to the Special Section.” Industrial and Corporate Change 23 (1): 91–112. Coad, Alex, Julian Frankish, Richard G. Roberts, and David J. Storey. 2013. “Growth Paths and Survival Chances: An Application of Gambler’s Ruin Theory.” Journal of Business Venturing 28 (5): 615–32. Coad, Alex, Julian S. Frankish, and David J. Storey. 2019. “Too Fast to Live? Effects of Growth on Survival across the Growth Distribution.” Journal of Small Business Management, 1–28. Cyert, Richard M., and James G. March. 1963. A Behavioral Theory of the Firm. Vol. 2. 4. Englewood Cliffs, NJ. Daunfeldt, Sven-Olov, and Daniel Halvarsson. 2015. “Are High-Growth Firms One-Hit Wonders? Evidence from Sweden.” Small Business Economics 44 (2): 361–83. Davidsson, Per. 1989. “Entrepreneurship—and after? A Study of Growth Willingness in Small Firms.” Journal of Business Venturing 4 (3): 211–26. ———. 1991. “Continued Entrepreneurship: Ability, Need, and Opportunity as Determinants of Small Firm Growth.” Journal of Business Venturing 6 (6): 405–29. Delmar, Frédéric, Per Davidsson, and William B. Gartner. 2003. “Arriving at the High-Growth Firm.” Journal of Business Venturing 18 (2): 189–216. Delmar, Frédéric, Alexander McKelvie, and Karl Wennberg. 2013. “Untangling the Relationships among Growth, Profitability and Survival in New Firms.” Technovation 33 (8–9): 276–91. Delmar, Frederic, and Johan Wiklund. 2008. “The Effect of Small Business Managers’ Growth Motivation on Firm Growth: A Longitudinal Study.” Entrepreneurship Theory and Practice 32 (3): 437–57. Demir, Robert, Karl Wennberg, and Alexander McKelvie. 2017. “The Strategic Management of High-Growth Firms: A Review and Theoretical Conceptualization.” Long Range Planning 50 (4): 431–56. Derbyshire, James, and Elizabeth Garnsey. 2015. “Are Firm Growth Paths Random? A Further Response Regarding Gambler’s Ruin Theory.” Journal of Business Venturing Insights 3: 9–11. Dierickx, Ingemar, and Karel Cool. 1989. “Asset Stock Accumulation and Sustainability of Competitive Advantage.” Management Science 35 (12): 1504–11. Dutta, Dev K., and Stewart Thornhill. 2008. “The Evolution of Growth Intentions: Toward a Cognition-Based Model.” Journal of Business Venturing 23 (3): 307–32. Eshima, Yoshihiro, and Brian S. Anderson. 2017. “Firm Growth, Adaptive Capability, and Entrepreneurial Orientation.” Strategic Management Journal 38 (3): 770–79. Garnsey, Elizabeth, and Paul Heffernan. 2005. “Growth Setbacks in New Firms.” Futures 37 (7): 675–97. Garnsey, Elizabeth, Erik Stam, and Paul Heffernan. 2006. “New Firm Growth: Exploring Processes and Paths.” Industry and Innovation 13 (1): 1–20. Gavetti, Giovanni, Henrich R. Greve, Daniel A. Levinthal, and William Ocasio. 2012. “The Behavioral Theory of the Firm: Assessment and Prospects.” Academy of Management Annals 6 (1): 1–40. Giannetti, Mariassunta, and Andrei Simonov. 2004. “On the Determinants of Entrepreneurial Activity: Social Norms, Economic Environment and Individual Characteristics.” Swedish Economic Policy Review 11 (2): 269–313. Greiner, Larry E. 1989. “Evolution and Revolution as Organizations Grow.” In Readings in Strategic Management, 373–87. Springer. Greve, Henrich R. 2008. “A Behavioral Theory of Firm Growth: Sequential Attention to Size and Performance Goals.” Academy of Management Journal 51 (3): 476–94. Hambrick, Donald C., and Lynn M. Crozier. 1985. “Stumblers and Stars in the Management of Rapid Growth.” Journal of Business Venturing 1 (1): 31–45. Hart, Mark, Neha Prashar, and Anastasia Ri. 2020. “From the Cabinet of Curiosities: The Misdirection of Research and Policy Debates on Small Firm Growth.” International Small Business Journal, 0266242620951718. Henrekson, Magnus, and Dan Johansson. 2010. “Gazelles as Job Creators: A Survey and Interpretation of the Evidence.” Small Business Economics 35 (2): 227–44. https://doi.org/10.1007/s11187-009-9172-z. Hermans, Julie, Johanna Vanderstraeten, Arjen Van Witteloostuijn, Marcus Dejardin, Dendi Ramdani, and Erik Stam. 2015. “Ambitious Entrepreneurship: A Review of Growth Aspirations, Intentions, and Expectations.” In Entrepreneurial Growth: Individual, Firm, and Region, 127–60. Emerald Group Publishing Limited. Koryak, Oksana, Andy Lockett, James Hayton, Nicos Nicolaou, and Kevin Mole. 2018. “Disentangling the Antecedents of Ambidexterity: Exploration and Exploitation.” Research Policy 47 (2): 413–27. Levie, Jonathan, and Benyamin B. Lichtenstein. 2010. “A Terminal Assessment of Stages Theory: Introducing a Dynamic States Approach to Entrepreneurship.” Entrepreneurship Theory and Practice 34 (2): 317–50. Levinthal, Daniel A., and James G. March. 1993. “The Myopia of Learning.” Strategic Management Journal 14 (S2): 95–112. Lewis, Virginia L., and Neil C. Churchill. 1983. “The Five Stages of Small Business Growth.” Harvard Business Review 61 (3): 30–50. Mason, Colin, and Ross Brown. 2011. “Creating Good Public Policy to Support High-Growth Firms.” Small Business Economics 40 (2): 211–25. https://doi.org/10.1007/s11187-011-9369-9. ———. 2013. “Creating Good Public Policy to Support High-Growth Firms.” Small Business Economics 40 (2): 211–25. Mathias, Blake D., and David W. Williams. 2018. “Giving up the Hats? Entrepreneurs’ Role Transitions and Venture Growth.” Journal of Business Venturing 33 (3): 261–77. Moreno, Fabiana, and Alex Coad. 2015. “High-Growth Firms: Stylized Facts and Conflicting Results.” Entrepreneurship Growth: Individual, Firm, and Region, 187–230. Mueller, Susan, Thierry Volery, and Björn Von Siemens. 2012. “What Do Entrepreneurs Actually Do? An Observational Study of Entrepreneurs’ Everyday Behavior in the Start-up and Growth Stages.” Entrepreneurship Theory and Practice 36 (5): 995–1017. Nason, Robert S., and Johan Wiklund. 2015. “An Assessment of Resource-Based Theorizing on Firm Growth and Suggestions for the Future.” Journal of Management, 0149206315610635. Neergaard, Helle. 2007. “10 Sampling in Entrepreneurial Settings.” Handbook of Qualitative Research Methods in Entrepreneurship, 253. Nicholls-Nixon, Charlene L. 2005. “Rapid Growth and High Performance: The Entrepreneur’s ‘Impossible Dream?’” The Academy of Management Executive 19 (1): 77–89. Nightingale, P., and A. Coad. 2014. “Muppets and Gazelles: Political and Methodological Biases in Entrepreneurship Research.” Industrial and Corporate Change 23 (1): 113–43. https://doi.org/10.1093/icc/dtt057. Nightingale, Paul, and Alex Coad. 2016. “Challenging Assumptions and Bias in Entrepreneurship Research.” Challenging Entrepreneurship Research, 101–28. Penrose, Edith. 1959. “The Theory Ofthe Growth of the Firm.” New York, JohnWiley&Sons. Raisch, Sebastian, Julian Birkinshaw, Gilbert Probst, and Michael L. Tushman. 2009. “Organizational Ambidexterity: Balancing Exploitation and Exploration for Sustained Performance.” Organization Science 20 (4): 685–95. Senderovitz, Martin, Kim Klyver, and Paul Steffens. 2015. “Four Years on: Are the Gazelles Still Running? A Longitudinal Study of Firm Performance after a Period of Rapid Growth.” International Small Business Journal, 0266242614567483. Shane, Scott. 2009. “Why Encouraging More People to Become Entrepreneurs Is Bad Public Policy.” Small Business Economics 33 (2): 141–49. Steffens, Paul, Per Davidsson, and Jason Fitzsimmons. 2009. “Performance Configurations over Time: Implications for Growth–and Profit–Oriented Strategies.” Entrepreneurship Theory and Practice 33 (1): 125–48. Volery, Thierry, Susan Mueller, and Björn von Siemens. 2015. “Entrepreneur Ambidexterity: A Study of Entrepreneur Behaviours and Competencies in Growth-Oriented Small and Medium-Sized Enterprises.” International Small Business Journal 33 (2): 109–29. Wiklund, Johan, Per Davidsson, and Frédéric Delmar. 2003. “What Do They Think and Feel about Growth? An Expectancy–Value Approach to Small Business Managers’ Attitudes toward Growth.” Entrepreneurship Theory and Practice 27 (3): 247–70. Wright, Mike, Stephen Roper, Mark Hart, and Sara Carter. 2015. “Joining the Dots: Building the Evidence Base for SME Growth Policy.” International Small Business Journal 33 (1): 3–11. Wright, Mike, and Ileana Stigliani. 2013. “Entrepreneurship and Growth.” International Small Business Journal 31 (1): 3–22. Yin, Robert K. 2003. “Case Study Research: Design and Methods (Ed.).” Applied Social Research Methods Series 5. ———. 2012. “Case Study Methods.” Zhou, Haibo, and Peter van der Zwan. 2019. “Is There a Risk of Growing Fast? The Relationship between