- Growth is a complex phenomenon that is not homogeneous, random, or deterministic. It comes in many forms and is influenced by various factors. - Not all small firms can, will, or should grow. What owners say they want impacts growth. - While growth is often seen as a measure of success, it does not necessarily correlate with other measures like survival or profitability. - More research is needed on specific types and modes of growth, the role of employees and context, and growth as a process over time. Future studies should avoid undifferentiated conceptualizations of growth and focus on narrow contexts.

1. Small Firm Growth: What I Think We Know;
Don’t Know, and Should Know
Per Davidsson
Australian Centre for Entrepreneurship Research (ACE)
Queensland University of Technology

3. 1. What we know
• Not all (young/small/independent) firms can grow; will grow; should
grow, or even want to grow
• What they say they want matters
• Growth is not a homogenous phenomenon
• Growth is not random
• However, it is definitely not deterministic, either
• Growth is not necessarily “good performance”

4. Not all…grow
Derbyshire, J., & Garnsey, E. (2014). Firm growth and the illusion of randomness. Journal of
Business Venturing Insights, 1, 8-11.

5. Not all … grow:
Perceived Barriers to Growth
(third year follow-up of several thousand ‘genuine start-ups’)
• Fierce competition 40%
• Insufficient profitability 40%
• Insufficient demand 38%
• Lack of external equity 26%
• Lack of bank loans 19%
• Lack of management skills 9%
Ergo: Not all firms have growth potential

6. Not all…grow: Gray (1990; survey; UK)
• Proportion of owner-managed firms that see employment growth as
an important goal:
0%

7. Not all…grow: The willingness to grow
• PSED & International counterpart studies (nascent entrepreneurs)
– “Want to grow as large as possible” ~20%
– “Want to stay small and manageable” ~80%
– And they typically achieve less than they say they want
• Expected consequences of growth & overall growth willingness
(Wiklund et al., 2003)

8. Expected consequences
regarding:
Own workload
Own work tasks
Owner-manager
income
Sense of independence
Sense of supervisory
control
Employee well-being
Crisis vulnerability
Product/Service Quality
Overall Growth
Willingness
Wiklund, Davidsson &
Delmar (2003). Three large
survey studies of
established SMEs with 2-50
employees

9. What they say they want matters
• 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), 437-457.
• Wiklund, J., & Shepherd, D. (2003). Aspiring for, and achieving
growth: the moderating role of resources and opportunities. Journal
of Management Studies, 40(8), 1911-1941.
• Baum, J. R., & Locke, E. A. (2004). The relationship of
entrepreneurial traits, skill, and motivation to subsequent venture
growth. Journal of Applied Psychology, 89(4), 587-598.

10. T2
Supported
Supported
Supported
Supported for empl. growth
Delmar & Wiklund

11. Wiklund & Shepherd, 2003

13. Venture Growth
(H4b) .22*
(H4a) .28*
(H1a) .08
(H3a) .22*
(H1c) .11
(H3c) .26*
(H1b) .05
-.03
-.07
.17*
(H8b) .21*
(H3b) .34*
(H2a) .06
(H2b) .14*
(H8a) .24*
(H8c) .19*
(H5a) .13*
(H7a) .14*
(H6a) .23*
(H5b) .12*
(H7b) .15*
(H6b) .22*
Past Venture
Growth+
Size+
Age+
Tenacity
Passion
New
Resource Skill
Communicated
Vision
Goals
Self-efficacy
Regional
Munificence+
.08
Baum & Locke, JAP, 2004
R2 = 0.35

14. Growth is not a homogenous phenomenon
• Sales$ – Employment – Assets – Capacity – Production volume
• ‘Mere’ volume expansion – Diversification – Integration
• Organic – Acquisitions
• Domestic – International
• Percent or Absolute numbers
• Change in Amount vs. Process

15. Growth is not a homogenous phenomenon
Shepherd, D., & Wiklund, J. (2009). “Are we comparing apples with apples or
apples with oranges? Appropriateness of knowledge accumulation across growth
studies”. Entrepreneurship Theory and Practice, 33(1), 105-123.
• Correlations across growth indicators and within indicators over time are low in
many instances
• Employment growth shows better concurrent validity than sales growth
Delmar, F., Davidsson, P., & Gartner, W. (2003). Arriving at the high-growth firm.
Journal of Business Venturing, 18(2), 189-216.
• Proportion of the population that is included among the “top 10% growers”
according to 1-6 growth measures: 1) 41%; 2) 25%; 3) 17%; 4) 9%; 5) 6%; 6)
2.5% (organic vs. total empl; sales; absolute vs. relative)
• Clustering according to 19 indicators of the pace, regularity and type of growth
yielded not one homogenous set of “gazelles” but seven different types of “high
growth firms”

16. Growth is not a homogenous phenomenon
Hence we need to:
• Be very careful with how “growth” is conceptualized and
operationalized
Davidsson, P., & Wiklund, J. (2000). Conceptual and empirical challenges in the study of
firm growth. In D. Sexton & H. Landström (Eds.), The Blackwell Handbook of
Entrepreneurship (pp. 26-44). Oxford, MA: Blackwell Business.
• Develop and test hypotheses pertaining to specific forms or
modes of growth
McKelvie, A., & Wiklund, J. (2010). Advancing firm growth research: a focus on growth
mode instead of growth rate. Entrepreneurship Theory and Practice, 34(2), 261-288.
EXAMPLES

17. Organic
Growth, t1
Acquisition-
based Growth, t1
Organic Growth, t2
-
+
Interplay of Organic and Acquisition-based Growth over Time
Lockett, A., Wiklund, J., Davidsson, P., & Girma, S. (2011). Organic and Acquisitive
Growth: Re-examining, Testing and Extending Penrose's Growth Theory. Journal
of Management Studies, 48(1), 48-74.

18. Sales Growth
Employment
Growth
Transaction Costs
- Search
- Bargaining
- Enforcement
Environmental
munificence
Interplay of Sales and Employment Growth by Context
Chandler, G. N., McKelvie, A., & Davidsson, P. (2009). Asset specificity and behavioral uncertainty as moderators
of the sales growth--Employment growth relationship in emerging ventures. Journal of Business Venturing,
24(4), 373-387.

19. International
Knowledge
Acquisition
Entrepreneurial
Growth Domestically
- New Product
- New Markets
Firm Age
Interplay of International and Domestic [Entrepreneurial] Growth
Entrepreneurial
Growth Internationally
- New Product
- New Markets
Naldi, L., & Davidsson, P. (2013). Entrepreneurial growth: The role of international knowledge
acquisition as moderated by firm age. Journal of Business Venturing., 29(5), 687-703.

20. Growth is not random
As implied by:
• Gibrat’s Law
• Recent papers by Coad, Frankish & Storey
• Low R2 values in many studies

22. Firm age No. of cases
(n)
Cumulative total
employment growth
Cumulative organic
employment growth
Organic as
percent
of total
< 5 years 490 19 168 16 361 85.4
5-9 years 226 28 158 21 479 76.3
10+ years 437 137 938 22 200 16.1
Total 1153 185 264 60 040 32.4
1996 size
class
No. of
cases (n)
Cumulative total
employment growth
Cumulative organic
employment growth
Organic as
percent
of total
20-49 342 8124 7963 98.0
50-249 532 44 320 34 208 77.2
250-499 127 22 340 12 497 55.9
500-2499 127 57 752 15 682 27.2
2500+ 25 52 728 -10 310 (-19.6)
Total 1153 185 264 60 040 32.4
Table 7:1 Total and organic growth for high growth firms of different age (cf. Davidsson & Delmar, 1998; 2006)
Table 7:2 Total and organic growth for high growth firms of different (1996) size (cf. Davidsson & Delmar, 1998; 2006)

23. What they say they want matters
• 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), 437-457.
• Wiklund, J., & Shepherd, D. (2003). Aspiring for, and achieving
growth: the moderating role of resources and opportunities. Journal
of Management Studies, 40(8), 1911-1941.
• Baum, J. R., & Locke, E. A. (2004). The relationship of
entrepreneurial traits, skill, and motivation to subsequent venture
growth. Journal of Applied Psychology, 89(4), 587-598.
Remember this?

25. Random?
Derbyshire, J., & Garnsey, E. (2014). Firm growth and the illusion of randomness. Journal of
Business Venturing Insights, 1, 8-11.

26. -100000
-80000
-60000
-40000
-20000
0
20000
40000
60000
80000
1988 1989 1990 1991 1992 1993 1994 1995 1996
Year
Absoluteemployment
HGF
Control group
Total
Growing your way through financial crisis
2008 2009 2010

27. Growth strategies vary with
macroeconomic conditions
-10
-5
0
5
10
15
20
25
30
35
40
45
50
AnnualGrowthperHighGrowthFirm
Year
Total
Organic
Acquisition
k
lTot

28. Growth is not random
• “It is indeed impossible to predict the growth and decline of new and small
firms as the originators of GRT imply. However, this is not because running
a new firm is analogous to gambling, it is because the performance of new
firms is subject to deterministic chaos. This does not imply that variations in
firm resources and entrepreneurial skill do not affect performance.”
(Derbyshire & Garnsey, 2014)
• I do not fully agree. However, their data illustrate that we have every reason
to expect a very low R2 if we assume normal distribution of the DV and use
a simplistic model to predict one arbitrary indicator of “growth” over one time
period across the total population of (mostly non-growing) firms, or a
random sample from that heterogeneous population.

29. • The problem of unmeasured heterogeneity – the Z variables are
correlated with both X’ and Y’
• The problem of causal heterogeneity – the direction, form,
strength or structure of X – Y relationships is variable
• The problem of instrument inequivalence – measurement error
in X’ or Y’ or both is different for different sub-populations
X
X’
Y
Y’
Z

30. However, it is certainly not deterministic
Levie, J., & Lichtenstein, B. B. (2011). A terminal assessment of stages theory: Introducing
a dynamic states approach to entrepreneurship. Entrepreneurship Theory and Practice,
34(2), 317-350.

31. Growth is not necessarily good for the firm
• Strong tendency, especially in entrepreneurship research, to use
growth as sole DV and interpret it as success (Davidsson et al.,
2007)
• Size +Survival (many studies)
• Growth ?Survival (Coad et al., 2013; Delmar et al., 2013)
• Growth ?Profitability (Capon et al., 1990; Davidsson et al., 2009)
• “relative sales growth, the most widely used measure of growth,
shows no convergent validity to any other performance measure,
regardless of industry and regardless of firm age” (Kiviluoto, ERD,
2013)

32. Growth Quartile
1 2 3 4
1 Poor Growth
2
3
Middle
Profit
Quartile
4 Profit Star
Interplay of Growth in Sales vs. Profitability
Davidsson, Steffens &
Fitzsimmons (2009,
JBV + ETP)

33. What we don’t know (enough about)
• All of the above, of course…
• Especially, differences across different forms/modes/types of growth
• Growth as a management issue:
– Actionable antecedents and consequences of
– Specific forms/modes/types of growth
• Role of employees in growth
– Antecedent and consequences
• Growth patterns; growth as process (cf. Wright & Stigliani, 2013,
ISBJ)
• The role of context (ditto)
– Beyond multiplicative moderator variables

34. What I think we should do
• Theorize and examine antecedents and effects of
particular forms/modes/types of growth (and their inter-
relationships)
• Integrate insights from related literatures, e.g.,
internationalization; diversification; M & A; organizational
change

35. What I think we should do
• Avoid using:
– An undifferentiated conceptualization of “growth”
– Single, arbitrary or cherry-picked indicators of growth
– Full populations or random samples where doing so does not match the research
question
– An assumption of a normally distributed DV
• Study growth in “narrow” contexts (Baum & Locke, 2005)
– Less unmeasured heterogeneity
– Less causal heterogeneity
– Better operationalizations
• Generalize based on patterns across well-designed studies in
different contexts; not based on “statistical significance” in a single,
heterogeneous population

36. Thanks!