Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
Pathways to entrepreneurial growth: The influence
of management, marketing, and money
Candida G. Brush a,*, Dennis J. Ceru ...
business. We need to continue to explore merg-
ers and acquisitions with other organizations,
try to find compatible streng...
achieved real sales growth of 60% over the previous
3 years. In practice, businesses with nominal sales
growth of 75% over...
3. Factors affecting growth
3.1. The management
Business owners vary in their business objectives and,
specifically, in the...
sophisticated as what we are capable of doing, so
there is some education that has to go on.’’ In short,
it appears that t...
What I’m doing right now is a frustrating pro-
cess, like herding cats.
–—Educational services firm
We do everything with c...
and effort necessary to properly train and assimilate
new staff to the organizational structure and rou-
tines of the firm,...
4.3. Episodic growth
Growing businesses need to manage resources ef-
fectively if they are to achieve sustainable growth
rather than smooth growth pattern. This sometimes
resulted in sales blips instead of consistent upward
trajectory. These fi...
Most firms, however, achieve growth with far fewer
resources. Reluctant to share control, equity is
rarely used outside of ...
Sarasvathy, S., & Dew, N. (2005). New market creation through
transformation. Journal of Evolutionary Economics, 15(5),
Upcoming SlideShare
Loading in …5

Biz horizons pathways final


Published on

Published in: Business, Education
  • Be the first to comment

  • Be the first to like this

Biz horizons pathways final

  1. 1. Pathways to entrepreneurial growth: The influence of management, marketing, and money Candida G. Brush a,*, Dennis J. Ceru a , Robert Blackburn b a Babson College, The Blank Center, Wellesley, MA 02457, U.S.A. b Kingston Business School, Kingston University, Kingston-upon-Thames, Surrey KT2 7LB, UK 1. The challenge of growth At the beginning we decided, ‘‘All right, let’s give ourselves 10 years here. In 10 years, if it doesn’t work, we will have amassed enough experience to sort of go back in and grab a job someplace else.’’ So we just hit 10 years and in some ways it is still a puppy with big paws, but I think we have a clear idea of where we want it to go now. We’ve learned how to grow the company, learned how to get through the downturns. –—Advertising and design firm Right now we’re struggling to get the thing built and costs are still high in the construction Business Horizons (2009) 52, 481—491 KEYWORDS Entrepreneurial growth; Patterns of growth; Management decision- making; Growth strategies Abstract Business growth is considered a worthy goal for firms and a measure of entrepreneurial success, as well as important for economic development. Why some firms grow and others do not, though, remains a subject of debate. Of the small proportion of firms that do grow, it is often assumed that they follow a similar growth trajectory and/or encounter certain stage thresholds; however, the evidence base on this is wanting. The new study of business growth presented here provides an in-depth analysis of 19 New England-based firms. Our findings reveal that fast-growing compa- nies exhibit different rates and patterns of growth: some display rapid growth trajectories (Rapid Growth Pattern); some, slower, more measured rates (Incremental Growth Pattern); others, episodic periods of quick growth followed by sharp retrench- ment (Episodic Growth Pattern); and, while no firm actively chose to stop growing, some reached points of stagnation (Plateau Growth Pattern). We found that three key factors–—management, marketing, and money–—affected company growth across these patterns. While not every factor was critical at each moment of growth for each firm, every entrepreneur cited the relative importance of each factor at some time during the growth of their firm. Thus, fast-growing firms do not grow in the same manner, at the same rate, or with the same outcomes. This article has implications for those seeking to understand the processes of development and patterns of fast- growth businesses. # 2009 Kelley School of Business, Indiana University. All rights reserved. * Corresponding author. E-mail addresses: (C.G. Brush), (D.J. Ceru), (R. Blackburn). 0007-6813/$ — see front matter # 2009 Kelley School of Business, Indiana University. All rights reserved. doi:10.1016/j.bushor.2009.05.003
  2. 2. business. We need to continue to explore merg- ers and acquisitions with other organizations, try to find compatible strengths in broader marketplaces, or find new strengths in existing marketplaces, new leadership. We’ll look for smaller firms to buy because it is expensive to buy firms, and I’m not sure that we’re quite ready, willing, and able to make that invest- ment. We’ll merge with like-minded organiza- tions if we think we can triple the value proposition, not double it. –—B2B services firm Growth is generally agreed upon as a worthy goal for most firms. It is widely celebrated in the media–— consider, for example, the Top 100 Inc. 500/5000 Companies; the Fortune 100 Fastest Growing Com- panies; and so forth–—and is considered a measure of entrepreneurial success (Davidsson, 1991). While not all firms choose to grow (Ginn & Sexton, 1990; Rosa, Carter, & Hamilton, 1996; Wiklund, Davidsson, & Delmar, 2003), analysts suggest that some growth over time is desirable for continued survival (Delmar, Davidsson, & Gartner, 2003). Yet, it has been long recognized that the decision to grow is usually the choice of the entrepreneur, whose ex- pectations for the size and scope of the business at start-up ultimately affect the growth potential of the business over time (Cassar, 2007; Stanworth & Curran, 1976; Wiklund et al., 2003). A wealth of literature describes the various approaches to growth: expanding geographically, adding more establishments, targeting new markets and custom- ers, adding products/services, or mergers and ac- quisitions. Accompanying these strategies are prescriptions for enhancing the marketing mix of growth firms: raising prices, increasing marketing, improving distribution, or revamping the product. Underpinning this literature is an assumption that sales of entrepreneurial ventures will gradually in- crease as the business expands, creating a rising sales curve over time. In other words, growth is assumed to be normal and follow a normal curve. For more aggressive growth strategies, the curve peaks quicker and creates a sharp angle (think ‘‘hockey stick’’); for slower growth strategies, it peaks later. Although there is no consensus regard- ing the number of stages involved, most assume that there are contextual dimensions influencing the process, especially age, size, and industry growth rate (Hanks, Watson, Jansen, & Chandler, 1993). However, most practitioners would probably agree that there is nothing ‘‘normal’’ about growth pat- terns, as each business takes its own pathway to development; moreover, the academic literature has not studied the various pathways in great detail. As part of a cross-national research project spon- sored by the UK Government’s Department for Busi- ness Enterprise and Regulatory Reform (BERR) and Her Majesty’s Treasury (HMT), we interviewed in 2008 19 U.S. entrepreneurs from the Boston area and 21 entrepreneurs from the Southeast UK, all of whom ran companies which grew 60% or more in sales between 2003 and 2007. While this research investigated a variety of factors influencing growth, in this article we focus on decisions and activities around management, markets, and money, and confine our discussion to U.S. companies. The life cycle literature suggests that the growth phase typically involves major decisions around manage- ment, money, and markets (Bates, Jackson, & Johnson, 2007; Churchill & Lewis, 1983; Greiner, 1972; Miller & Friesen, 1984). For example, a domi- nant management style, formalization of planning, budgeting, and operating systems are frequently referred to as key to achieving growth (Churchill & Lewis, 1983; Flamholtz, 1986; Griener, 1972). Mar- ket considerations such as geographic expansion, market orientation, diversification, and product/ market scope comprise a second set of major variables (Miller & Friesen, 1984; Scott & Bruce, 1987). Finally, there is the money. Growing ventures need capital to grow; hence, considerations around sources of finance, cash generation, budgeting, and financial controls are central issues (Flamholtz, 1986; Scott & Bruce, 1987). Our study found no single or common growth pathway, and the vast majority of fast-growth com- panies did not proceed according to a normal curve. On the contrary, we found what can be depicted as four typical growth patterns for fast-growth enter- prises. The remainder of this article presents a brief overview of the methodology for our study, and a description of four predominant pathways we ob- served for fast-growth firms highlighting manage- ment, money, and marketing (Bates et al., 2007). We close with some implications from this study. 2. Background of the study Drawing from Dun & Bradstreet and Financial Anal- ysis Made Easy (FAME) data bases, a list of more than 600 fast-growth firms within a 40 mile radius of Boston was compiled. Businesses were selected from information technology, financial services, business and professional services, electronics, en- gineering, and architecture sectors. This allowed the exploration of a variety of experiences but within a limited range of sectors, especially given the influence of sector on growth (Van Stel & Carree, 2004). We identified those companies that had 482 C.G. Brush et al.
  3. 3. achieved real sales growth of 60% over the previous 3 years. In practice, businesses with nominal sales growth of 75% over the previous 3 years were in- cluded; this avoided asking respondents to make real sales growth calculations, taking inflation into account. It is acknowledged that a relative measure of sales growth is easier for smaller, rather than larger, firms to achieve given their lower starting points (Delmar, 1997). Steps were therefore taken to include small- and medium-sized enterprises (SMEs), as well as micro firms, in order to develop an understanding of growth issues faced by different sized firms. Owner-only businesses were excluded. The businesses studied employed 3-250 people, were at least 3 years old, and were legally indepen- dent rather than being subsidiaries or owned by corporations. We arranged a 120 minute, face-to- face interview with the CEO of each of the 19 companies and, when possible, audio-recorded the discussion. Quotes utilized in this article were culled from these interviews. Despite restricting the sample to those report- ing a 75% sales increase in the past 3 years, re- spondents reported a variety of sales trends. As a central component of the interview process, re- spondents were asked to draw a line graph indi- cating sales trends over time. Although the specific focus was on the 3 year period immediately prior, some participants were able to provide a longer historical perspective. Focusing on the line graphs enabled further questions about the drivers of sales trends. What were the particular activities undertaken by business owners, and other key actors with whom they engage, that contributed to the development paths plotted? Initiating and managing business growth successfully is not sim- ply about undertaking one particular activity well while paying little attention to others. Creating business ideas, accessing key resources, mobilizing them effectively, and maintaining close customer relations are all essential tasks that enterprises must perform consistently if they are to achieve sustained growth. We made overhead transparencies of the hand- drawn growth charts and, after several iterations of overlaying the transparencies, four trends emerged from the U.S. sample. We labeled these the rapid, incremental, episodic, and plateau patterns (see Figure 1). Some firms experienced gradual growth over a 3 year period, while others experienced explosive growth over the period following a phase of low and/or stable sales. Others experienced high growth followed by a degree of decline, yet still achieved sales growth of 75% over the 3 year study period. As we examined these patterns further, it became apparent that not only does growth follow distinctively different trends, but also that growth is primarily influenced by management, marketing, and money. Pathways to entrepreneurial growth: The influence of management, marketing, and money 483 Figure 1. Four growth pathways
  4. 4. 3. Factors affecting growth 3.1. The management Business owners vary in their business objectives and, specifically, in their growth aspirations. Generally, the vast majority of business owners prefer to remain small, and of those that seek growth, most seek moderate rather than rapid growth (Acs, Parsons, & Tracy, 2008; Ginn & Sexton, 1990). Growth aspira- tions, like growth performance, are subject to adaptation over time as owners’ experiences of own- ership, the market, competition, and other business life cycle considerations shape their business goals. Indeed, some authors have suggested that growth affects the motivations of owner-managers to seek subsequent growth (Delmar & Wiklund, 2008). Be- cause our sample was identified based on a history of high sales growth, we asked respondents about their intentions when they started/joined the business: whether growth thus far was as planned at start-up, ahead of plan, or behind plan. It is worth noting that the degree to which business performance was in line with owners’ expectations depended very much on the nature and scale of those expectations. For instance, highly ambitious owners might be more likely to fall short of expectations precisely because they aimed so high. This is in line with previous work studying over-optimism of entrepreneurs (Mehta & Cooper, 2000). Conversely, owners seeking modest growth might be better able to achieve their goals. In our study, four businesses achieved growth as they planned, while seven achieved growth faster than planned. Nearly all of the companies had a plan; only one did not. Respondents’ reasons for achieving growth as planned related to quality of human resources, consciously managing the rate of growth, and carefully managing customer relation- ships. For those firms that grew slower than expec- tations, customer cut-backs and the decline in the U.S. economy were the major causative factors cited. Those firms that reported managing or con- trolling their rate of growth were driven by clear rationale. These may not necessarily be regarded as a lack of ambition, but the opposite: some owner- managers wanted to grow their business at a rate deemed appropriate, for example, on the grounds of sustainability. Rather than risk aversion, this may be interpreted in a positive way as managing risk with the aim of securing long-term growth. 3.2. The market 3.2.1. Market development All businesses face the challenges of finding custom- ers, communicating product features, pricing products and services attractively, establishing effective distribution channels, implementing sales and marketing efforts to win and retain clients, and undertaking continued product development to sus- tain sales (Hisrich & Peters, 1997). Business owners pursuing high sales growth pay particular attention to these issues because of their need to generate increasing levels of demand from new and existing clients. The fast-growth enterprises we studied ap- proached marketing and advertising in a slightly different fashion. In the majority of cases, compa- nies segmented and targeted their markets very carefully, then employed direct selling combined with a secondary web-based strategy as the means to identify, sell, and maintain customers. One com- pany identified customers from the Fortune 500 which had responsibility for hazardous waste sites; another two financial services firms identified their clients based on size of business and geographic location, allowing targeted personal selling and relationship building. For many information technology (IT) companies, there was no existing market for their proposed products. Much of these firms’ early efforts there- fore consisted of interaction with potential clients and industry actors to discuss whether the proposed product(s) would meet an unsatisfied, though latent, market need. When there is no market out there whose demands wait to be satisfied (Sarasvathy & Dew, 2005), companies must convince clients they have a requirement or need that the proposed product or service can satisfy. While this is the case–—to some extent–—with regard to all goods and services, the challenge is particularly acute in relation to novel, innovative products for which no market yet exists. In these circumstances, firms are market creators; this appeared to be a familiar characteristic of fast-growth firms. Pioneers have to incur the costs of constructing market demand with no guarantee they will be successful; followers can wait to discover whether such efforts are suc- cessful and then attempt to exploit the market opportunities created at lower cost. In addition, if there is a regulatory aspect, there are additional costs incurred in achieving governmental approvals and in developing and implementing technology. Similarly, another company providing Internet content delivery services reported that having a major media organization recognized as one of the most innovative in the sector as a client was also a means by which new business could be won. A clinical testing company had invested in a new software system but, despite interest in its product, had yet to realize any specific benefit. Yet another company noted, ‘‘our target audience is not as 484 C.G. Brush et al.
  5. 5. sophisticated as what we are capable of doing, so there is some education that has to go on.’’ In short, it appears that the challenges of fast-growth firms transcend general contexts. The strategies of niche market development and building customer rela- tionships, rather than competing on price, appear to go hand in hand with being a fast-growth firm. This often involves the risk of upfront investment. The relative maturity of these firms meant that they had undergone renewed vintages of product devel- opment and were much more likely to have a devel- oped sales network. 3.2.2. Geographical diversification Firms seeking expansion often aim to achieve this by entering new geographical markets, particularly be- yond the local area (Barringer & Greening, 1998; Iacobucci & Rosa, 2005). In some sectors, expansion might only be possible by securing export clients because the national client base has been exhausted or is too difficult to enter. Export activity was re- ported in only five companies. This is consistent with other data showing that the majority of U.S. small firms tend to serve local or national markets, and that small firms generally are not export-oriented, even in more open economies such as the UK (Wheeler, Ibeh, & Dimitratos, 2008). Of the sampled companies doing business internationally, most of their customers were in global industries (e.g., bio-pharma, engi- neering design, software, advertising). In some cases, international customers were served in the U.S. On the challenge of entering new markets, different perspectives were offered: There are always brand names in our market, but in addition to that, every market seems to have three to four ‘‘Mom and Pops’’: locally based organizations that never really expand beyond that city, but which have been there for decades and have a great reputation. That’s generally what we are up against on a high level. –—Architectural firm I say to my guys here all the time: Just remem- ber–—every new person you meet, every new company you meet–—as soon as you [leave them], they’re going to go right to the Internet and look us up. We always have to be thinking about what’s the next thing we can do to our website. How do we better provide information and not let it get stale? –—Financial services firm It might be argued that expanded export activity will increase as firms grow in size. But, it is not simply a matter of firms diversifying sales geographically in order to secure higher sales. First, the geographical distribution of the research client base was often an artifact of the date of interview: respondents reported that in previous years, the distribution of the client base was quite different. Taking on new clients–—particularly those whereby the value of the sale was high relative to total turnover–—could influ- ence the geographical sales distribution markedly. Sometimes, such changes were deliberately sought by business owners as they consciously attempted to enter new markets; however, on other occasions such changes occurred as the consequence of clients seek- ing out the business unsolicited, rather than because the business had targeted clients in particular loca- tions. This supports previous work from the export marketing literature indicating that companies often internationalize at customer request (Crick & Spence, 2005). Nearly all our study companies planned to grow in the future, and at least five were planning to make an acquisition of another company or were consid- ering a merger. In two cases, the plan was to sell and exit the business. Several planned to move into new states geographically, while others planned to up- date and create new generations of services and products. 3.3. The money All businesses require financial resources in order to reach customers and fund growth. Lack of access to capital or availability of financing can be a con- straint on business growth (Brophy, 1997). Start- ups can be financed from founders’ own wealth and/or by accessing external sources of funding, whether from informal sources such as family and friends, or from formal, market-based sources such as banks, venture capitalists, and private equity firms. Once businesses have achieved sales, further development can be financed using retained profits. Some study companies sought external investors while others did not; the latter indicated they did not wish to cede any control over the business, and/ or that they were able to meet financial require- ments from business revenues or informal sources. Those companies that did not seek outside equity were either self-financed, were financed from cash flow, or relied on bank financing and short-term credit. Several had lines of credit to manage short-term cash flow variations. Three companies indicated that lack of capital was a constraint on growth, and in all cases, they were pursuing angel financing. As these companies noted: Our biggest challenge is raising money; raising money with angel investors, in particular. Pathways to entrepreneurial growth: The influence of management, marketing, and money 485
  6. 6. What I’m doing right now is a frustrating pro- cess, like herding cats. –—Educational services firm We do everything with cash. We’ve built up equity in the firm and have taken a more mea- sured approach. –—Architectural firm We use debt pretty heavily, so our second mar- ket was opened up with an SBA loan–—a very small one–—and we established revolving lines of credit that we used to cover both our sea- sonality and to help finance some growth; to- day, we are still using those. We have actually pumped up our credit limits to almost a million dollars at this point, and use that pretty fully. Right now, we are in the middle of trying to raise our first equity round; we haven’t, to date, but are looking to do so moving forward. –—Educational services firm Overall, financing was found to be an important, though not significant, constraint on business growth. In some cases, securing bank or venture capital funding was regarded as a challenge, even though there is a developed venture capital com- munity in the Boston/New England area and many firms had a track record of successful prior fund- ing. The next section provides an overview of the four growth pathways revealed by our study, as well as the influences of management, markets, and money. 4. Pathways to growth 4.1. Rapid growth Rapid-growth firms are characterized by fast, of- ten extreme surges in sales and revenues; these surges frequently far exceed the original expec- tations of the business owner. Rapid-growth firms are able to bring the right product or service to the market, at the right time and the right price, in an atmosphere where the overall macro and micro market and industry forces have largely been fa- vorable. Those businesses in our study which qual- ified as rapid-growth firms faced competition, but avoided it by utilizing geographic strategies (i.e., choosing a specific locale in which to oper- ate) or niche strategies (i.e., choosing a highly specific product/service offering to a highly strat- ified client base). Companies exceeding growth expectations often did so because of customer relationships. For example, a materials and sys- tems engineering company noted: Our first customer is–—and remains–—a large customer, providing strong revenues and a solid foundation of sales. Additionally, this customer was our strategic partner, providing 27% of initial funding. The partnership involved [our company] acquiring a division of this partner company, consisting of 28 employees plus the existing customers and revenues, thus provid- ing immediate expansion and a strong base from which to grow. Sales went from $1 million to $5 million immediately. –—Design and architect firm In another case, the CEO of an environmental consulting firm explained: We now have sales that are, maybe, five times what I could have anticipated. Two things [ex- plain this]: a lot of repeat and referral business. –—Environmental consultancy firm A financial planning company noted: Client satisfaction for this service has been tremendous, and referrals have spurred the rapid growth of the company. –—Financial planning firm As stated from the field of IT: The two things I would cite as the source of our growth have been product quality–—I know ev- erybody says that, but I have data to support it: last year, nearly two-thirds of our revenue came from either repeat clients or referrals–—and being aggressive in pushing and opening up new markets. We’re in ten cities today; 2 years ago, we were in five. So, we have doubled our unit count. We have plans to continue doing that. –—Software firm Nonetheless, rapid growth is not without its pit- falls. Fast-growing companies are cash hungry ma- chines; the faster the growth, the greater the appetite for cash. Many struggle to find the essential cash to fuel this fortunate expansion, and the amounts needed–—as well as the time-sensitive re- quirements of the need–—often preclude organic growth from internal cash flow alone. As Churchill and Mullins (2001) have noted, there is a pace beyond which companies cannot fuel growth organically and must turn to external sources of cash flow: debt (whether it be permanent or semi-permanent), eq- uity financing, owner and family financing, and joint venturing are some of the more common solutions. But, cash is not the only potentially constraining factor holding back the reins on rapid growth. Find- ing qualified human resources, devoting the time 486 C.G. Brush et al.
  7. 7. and effort necessary to properly train and assimilate new staff to the organizational structure and rou- tines of the firm, and managing employment rela- tions can often take up the time of top management in growing firms (Gilman & Edwards, 2008). Partic- ipants in our study cited the need to find properly skilled employees as a critical factor to all stages of their growth, and noted that retaining an effective- ly trained workforce is one of the ‘‘stay-awake-at- night’’ factors that senior executives ponder. Growth-oriented entrepreneurs must also pre- pare for the rigors of rapid growth. First, they need to build a solid yet lean hierarchy of command that fosters and enhances delegation whilst maintaining clean reporting, management, and metric-based evaluation. Second, it is critical that they develop a future-forward eye and groom heirs/successors, and develop senior second-in-commands and divi- sional leaders. One of the most difficult personal challenges entrepreneurs of all sizes of firms face is preparing for and handling this ultimate transition of power, which is essential for stable and sustain- able growth. 4.2. Incremental growth Firms which grow incrementally often do so for one of two reasons: as a response to their assessment and view of the business climate and the macro/ micro industry and market factors in their competi- tive arena, or to suit purely personal goals for more manageably-sized firms they can control. An ac- counting firm included in our study noted it had planned for a downturn and picked up other busi- nesses in response, which allowed growth to contin- ue at the rate anticipated. For its part, a medical billing company decided to control growth in a way that could be managed with qualified staff and superior customer service, rather than opt for a rapid growth rate. Incremental growth is regarded at times as natu- ral progression, a reflection of leadership transition as the firm matures or reaches a new stage in its evolution as a sustainable business. Such firms will carefully construct plans to hand over the reins in a controlled manner, facilitating the mentoring of the newer business owners while maintaining consisten- cy of culture, operations, and all-important client relationships: I think transitioning a firm from first generation to second generation is a fascinating thing. I’m actually going to be sitting on a panel that talks about ownership transition. It’s not ownership transition; it’s actually leadership transition. –—Advertising design firm I believe there is a real difference between a second-generation-owned president and a first- generation-owned president. Some of it is psy- chological, some of it is what’s in your gut. Every one of us probably has the ability to leave here and start our own firm, but there’s some- thing we helped create with the first-genera- tion leader that we’re comfortable with. The first-generation leader took the risk. I joined [the firm] in 1981; we were 15 people. We grew and we shrank, and we grew and we shrank, and we sort of got used to spending time together. The job of the second-generation leader, I’ve always said, is to leverage and expand based on the opportunities created by the first-genera- tion leader. –—B2B services firm Other firms choose incremental growth as a nat- ural response to the competitive environment as it evolves over time. These firms may find themselves so devoted to serving a current and essential client base that they can only afford to ‘‘add around the edges,’’ or bring on only one or two new clients at a time. While mostly profitable, growth in sales, rev- enues, and bottom line returns more resembles that of slow and steady dividend paying public companies than that of advanced trajectory high-growth, high capital return firms: In this profession, you really need to continue to seek new business just at the very least to stay even, and hopefully grow by adding incremen- tal business while maintaining existing busi- ness. Over the last 9 months we’ve probably picked up more than a half a dozen really substantial pieces of business, which has been great. I think this is a result of the continuing effort [we expend]. –—Financial services and accountancy firm Employees and their orientation is another factor involved with creating incremental patterns of growth. When companies cannot find the right employees, or best-and-brightest new hires simply do not mix with the vision and direction of the company, growth slows and sometimes stalls as the company engine is re-tuned. The owner of a high- tech firm included in our study mentioned that he had to replace a 15-person development team three times over within 36 months, as the technology it was developing outpaced the skills sets of then-current technical staff members. Al- though the teammates worked diligently on the project, their ‘‘heads-down’’ dedication prevented them from learning newly-needed, mission-critical skills in a timely manner. Pathways to entrepreneurial growth: The influence of management, marketing, and money 487
  8. 8. 4.3. Episodic growth Growing businesses need to manage resources ef- fectively if they are to achieve sustainable growth without periods of retrenchment or inactivity (Macpherson & Holt, 2007). We sought to investigate the relationship, if any, of managerial action as a causal factor for these episodic growth patterns. Analysts find episodic growth patterns–—whereby companies burst into a high-growth mode, only to then suffer a period of stagnation or deflation in sales, revenues, and profits–—challenging to tackle. Internal causes include the managerial capabilities and capacities to cope with growth, whilst external causes include the cyclical nature of the economy or market segments. Episodic growth and its causes are exemplified in the study by a lack of advanced management skills in finance, marketing, or oper- ations; difficulties within management teams having multiple objectives, conflicting visions, or outright discord; and an unfavorable business climate or economy. In the United States, in particular, the late 1990s through the early 2000s were character- ized by relatively strong and sustained growth across almost all sectors of the economy; thus, a rising economy lifted the growth opportunities for all firms. As the boom began to wane, certain industries fell sooner, and while most all were forced to lower levels of sales in the period beginning January 2008, some fell faster and deeper than others. In light of the aforementioned finding by Macpherson and Holt (2007), respondents were asked two related questions concerning managerial constraints: First, what were the major managerial challenges of planning to grow a business, and actually growing? Second, did the managerial skills available to the business constrain business growth? The results found that existing management capac- ity and capabilities were sometimes impediments to achieving steady growth, as the management team sought to catch-up with the demands commensurate with a growing business. Respondents openly reported a lack of manage- rial skills and experience to deal with growth, at least during the early stages of business develop- ment. This was not merely a result of the scale of demands on the existing management’s skill and knowledge base. The very nature of the demands on management teams changes as businesses grow. Growth inevitably requires the expansion of the labor force, or certainly labor input; this meant that somebody within our study firms had to orga- nize and manage new staff or the new labor input. Hence, owner-managers reported that expansion triggered the need for an enhanced managerial capacity, as well as a change in their own role within the enterprise: to behave more strategically and work ‘‘on’’ the business rather than ‘‘in’’ the busi- ness. As these companies noted: My problem with the new principals is [this]: we all learn how to run and manage projects, and then we keep going back to that because that’s what I guess we like to do, but it’s also what we know how to do. You put them in a principal managerial role, [and] they keep slinking back to getting over-involved in projects and not getting involved with management. –—Internet media firm I would say that we have gotten very good at managing our cash flows and projecting, and forecasting those on a month-by-month basis. But I would say that my personal inexperience at equity fund raising is holding the company back right now. I have been working at this for a good 3-4 months now, and were I either more experienced or someone with a stronger net- work in that, I think we would be further along than we are. –—Educational services firm Such examples are not rare; indeed, included in our study was a hazardous waste clean-up company which suffered slower than planned growth due to its lack of capacity to serve customer needs. These cases illustrate that some businesses grow in bursts, rather than incrementally, because of bottlenecks in managerial capabilities. Having to switch roles, assimilate new information and knowledge, appoint new managerial staff, and so on contribute to a growth pattern that is episodic rather than steady. As indicated, many respondent firms were using cutting-edge technology. For some, this caused problems because the technological base itself was unstable and not yet proven: We had exceptionally aggressive expectations. We thought it would take off from the get-go after a year or so of sort of a start-up phase. But, it turned out that it took much more time to work the kinks out of the technology from the standpoint of what we inherited. It was not really market ready. –—Environmental services firm Other firms displayed staccato growth because of vacillations in customer demand. In several cases, unmet business goals were due to customer cut- backs. The causes of episodic growth were therefore multifaceted, but were not merely a result of vac- illations in market demand. Internal capabilities and need for structural adjustments, especially in the management function, contributed to a sporadic 488 C.G. Brush et al.
  9. 9. rather than smooth growth pattern. This sometimes resulted in sales blips instead of consistent upward trajectory. These findings underscore the literature that emphasizes the absorptive capacity of a firm as key to its development and competitiveness (Zahra & George, 2002). 4.4. Plateau patterned growth Often seen as the ‘‘end-game’’ in business growth cycles, plateau patterned growth is reflective of slowed growth to the point of replacement sales versus new sales, stabilized revenues, and ultimate- ly declining profitability; the latter is due to com- merce standing still whilst inflation continues to erode existing assets over time. Much research has been focused on how large companies reach this plateau point and the perils to their future if they remain in non-growth, non-innovative cycles (Bower & Christiansen, 1995). The literature focuses less on ways that smaller firms grow, in part because fast-growth firms tend to create more innovations, jobs, and returns to investors (Acs et al., 2008). While most entrepreneurs would say that faster growth is more desirable, the reality is that most firms do hit plateaus, often due to ineffective mar- keting, static or incorrect strategy, or uncontrolla- ble economic factors. As one firm stated so clearly: I would say that every marketing effort we’ve ever made has yielded nearly no results. And it’s not that we’ve [conducted] poor marketing efforts; it’s that it’s really an introduction from one person to the next, one client to the po- tential future client, that will almost certainly yield work. Trying to, through some marketing effort, force our way into one firm or the other. . .I don’t want to give the impression that it’s without merit. But, it has a very low impact on sales. –—Environmental services firm It is important to note that our study firms gen- erally do not fit this pattern of stagnating growth, save for periods of time. Our study firms did indeed often reach plateau patterns of growth, but this was temporary as they then re-invigorated themselves either through changed strategy, market tactics, orientation, or resolving roadblocks in technology, staffing, or deployment. Plateau growth is thus not an irreversible death knell for firms. It can be an opportunity for active reflection, coupled with revised and revitalized strategy for those firms willing and able to re-invent themselves and propel themselves through innova- tion into a new and more profitable future. Such firms take their direction from both leadership vision and market cues. The challenge is to make this transition before the levelling trend in this growth curve becomes a downward and final decline. 5. Implications Our study of 19 U.S. firms finds that fast-growing companies exhibit different rates, patterns, and tra- jectories of growth. We stated in our introduction that the scholarly literature abounds with notions which support a single, steady pathway to growth. Yet, it also includes references to firms that choose not to grow, or to grow slowly, which remain no less successful than their faster-trajectory counterparts. What distinguishes these firms from one another are the choices they make based on management ability, capability, and accessibility. In the ability arena, we note from our study that business owner vision, strategy, and direction are the essential first refer- ence point to chart a course for successful growth at any pace. The ability of the business owner to implement, and then manage to, these goals often determines whether the next waypoints will be close to–—or further from–—growth goals. Similarly, capa- bility–—in terms of execution, but also as measured by an adequate, functional, and complimentary work force–—is needed to implement tactical initiatives and achieve business milestones. Some companies findthemselves saddledwith a work forcethat failsto deliver, or is in disharmony with the company culture or business owner’s vision. Other firms suffer with under-qualified talent or unproven technologies that limit their ability to act. As we look to factors outside the company itself, we find that the time-proven micro and macro industry, market, and economic forces act like waves, weather, and wind in either propelling firms forward or preventing them from sailing smoothly along their charted course. An inability to access necessary talent can slow growth, despite market demand for the firm’s products and services. Simi- larly, an abundance of talent, resources, or perfect product cannot overcome the doldrums of a reces- sionary economy when cash is tight and customer or client spending is sparse. Mounting a massive mar- keting campaign has often been hailed as a grand offense by many large companies in order to achieve success. However, our study has shown that for smaller firms, close personal relationships, word- of-mouth referrals, repeat business, and niche mar- keting efforts prove more expedient, cost effective, and successful. Much has been made of large corporate coffers, or ‘‘war chests,’’ that give industrial giants the ability to outlast, out-siege, and overcome their adversaries. Pathways to entrepreneurial growth: The influence of management, marketing, and money 489
  10. 10. Most firms, however, achieve growth with far fewer resources. Reluctant to share control, equity is rarely used outside of owners/partners/small em- ployee ownership pools, and friends and family. Access to debt financing is more difficult the smaller the firm, and often takes the form of personal rather than business loans–—a path many choose to avoid. Thus, our study shows limited access to, or use of, external funding, with the more common instrument a revolving line of bank credit used for periodic access. Hence, firms in our study grew mainly through organic pathways, funded through small and strategic acquisitions, or conversion of new prospects to new sales, rather than through a large injection of venture capital funding or external finance. Our study has shown that, of the firms which do seek to grow, there appears to be a difference between intentions and outcomes: some display rapid growth trajectories (Rapid Growth Pattern); some, slower, more measured rates (Incremental Growth Pattern); others, episodic periods of quick growth followed by sharp retrenchment (Episodic Growth Pattern); and, while no owner-managers of firms in our study actively chose to stop growing, some did reach points of stagnation, either in their past or at that current time (Plateau Growth Pat- tern). We found that three factors–—management, marketing, and money–—have emerged as core com- ponents, or concepts, affecting company growth across these growth patterns. While not every factor was critical at each moment of growth for each firm, every entrepreneur interviewed cited the relative importance of each factor at some time during the growth of their firm. Thus, firms experiencing growth do not do so in the same manner, at the same rate, or with the same outcomes. Acknowledgments The authors would like to acknowledge the support of the Department for Business and Regulatory Reform and Her Majesty’s Treasury for funding the research on which this article is based. We are also grateful to the business owners who gave their valuable time to be interviewed. References Acs, Z., Parsons, W., & Tracy, S. (2008). High impact firms: Gazelles revisited. Retrieved from advo/research/rs328tot.pdf Barringer, B. R., & Greening, D. W. (1998). Small business growth through geographic expansion: A comparative case study. Journal of Business Venturing, 13(6), 467—492. Bates, T., Jackson, W. E., III, & Johnson, J. H., Jr. (2007). Introduction to the special issue on advancing research on minority entrepreneurship. Annals of the American Academy of Political Science and Social Science, 613(1), 10—17. Bower, J., & Christiansen, C. (1995). Disruptive technologies: Catching the wave. Harvard Business Review, 73(1), 42—53. Brophy, D. (1997). Financing the entrepreneurial firm. In D. Sexton & J. Kasarda (Eds.), Entrepreneurship, 2000 (pp. 5—28). Chicago: Upstart Publishing. Cassar, G. (2007). Money, money, money? A longitudinal investi- gation of entrepreneur, career reasons, growth preferences, and achieved growth. Entrepreneurship and Regional Devel- opment, 19(1), 89—107. Churchill, N., & Lewis, V. (1983). The five stages of small business growth. Harvard Business Review, 61(3), 30—50. Churchill, N., & Mullins, J. (2001). How fast can your company afford to grow? Harvard Business Review, 31(4), 135—143. Crick, D., & Spence, M. (2005). The internationalisation of ‘high performing’ UK high-tech SMEs: A study of planned and un- planned strategies. International Business Review, 14(2), 167—185. Davidsson, P. (1991). Continued entrepreneurship: Ability, need, and opportunity as determinants of small firm growth. Journal of Business Venturing, 6(6), 405—429. Delmar, F. (1997). Measuring growth: Methodological considera- tions and empirical results. In R. Donckels & A. Miettinen (Eds.), Entrepreneurship and SME research: On its way to the next millennium. Ashgate, UK: Aldershot Publishing. Delmar, F., Davidsson, P., & Gartner, W. (2003). Arriving at the high-growth firm. Journal of Business Venturing, 18(2), 189— 216. Delmar, F., & Wiklund, J. (2008). The effect of small business managers’ growth motivation on firm growth: A longitudinal study. Entrepreneurship Theory and Practice, 32(3), 437—453. Flamholtz, E. (1986). Managing the transition from an entre- preneurship to a professionally managed firm. San Francisco: Jossey-Bass. Gilman, M., & Edwards, P. (2008). Testing a framework of the organization of small firms. International Small Business Jour- nal, 26(5), 531—558. Ginn, C., & Sexton, D. (1990). A comparison of personality type dimensions of the Inc. 500 company founders with those of slower growth firms. Journal of Business Venturing, 5(5), 313—326. Greiner, L. (1972). Evolution and revolution as organizations grow. Harvard Business Review, 50(4), 37—46. Hanks, S., Watson, C., Jansen, E., & Chandler, G. (1993). Tight- ening the life—cycle construct: A taxonomic study of growth stage configurations in high—technology organizations. Entre- preneurship Theory and Practice, 18(2), 5—29. Hisrich, R., & Peters, M. (1997). Entrepreneurship (4th ed.). New York: RD Irwin. Iacobucci, D., & Rosa, P. (2005). Growth, diversification, and business group formation in entrepreneurial firms. Small Busi- ness Economics, 25(1), 65—82. Macpherson, A., & Holt, R. (2007). Knowledge, learning, and small firm growth: A systematic review of the evidence. Research Policy, 36(2), 172—192. Mehta, S.R., & Cooper, A.C., (2000). The role of optimism as a predictor of new firm performance. Frontiers of entre- preneurship research. Wellesley, MA: Babson College. Miller, D., & Friesen, P. (1984). Successful and unsuccessful phases of the corporate life cycle. Organization Studies, 4(4), 339—356. Rosa, P., Carter, S., & Hamilton, D. (1996). Gender as a determi- nant of small business performance: Insights from a British study. Small Business Economics, 8(6), 463—478. 490 C.G. Brush et al.
  11. 11. Sarasvathy, S., & Dew, N. (2005). New market creation through transformation. Journal of Evolutionary Economics, 15(5), 533—565. Scott, M., & Bruce, R. (1987). Five stages of business growth. Long Range Planning, 20(3), 45—52. Stanworth, M. K. J., & Curran, J. (1976). Growth and the small firm: An alternative view. Journal of Management Studies, 13(2), 95—110. Van Stel, A., & Carree, M. (2004). Business ownership and sectoral growth: An empirical analysis of 21 OECD countries. Interna- tional Small Business Journal, 22(4), 389—419. Wheeler, C., Ibeh, K., & Dimitratos, P. (2008). UK export perfor- mance research. International Small Business Journal, 26(2), 207—239. Wiklund, J., Davidsson, P., & Delmar, F. (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—270. Zahra, S. A., & George, G. (2002). Absorptive capacity: A review, reconceptualization, and extension. Academy of Management Review, 27(2), 185—203. Pathways to entrepreneurial growth: The influence of management, marketing, and money 491