ENTREPRENEURIAL VALUE CREATION: ARE EUROPEAN BUSINESS SCHOOLS PLAYING
THEIR FULL PART?
David Molian
Bettany Centre for Entrepreneurship at Cranfield
Cranfield School of Management
MK43 0AL
Bedfordshire
United Kingdom
Tel 44 (0)1234 751122
Email d.molian@cranfield.ac.uk
Abstract
This paper reviews the contribution of European business schools to entrepreneurship in the context
of the performance of European economies in recent years, and raises the question of whether we
are excessively focused on encouraging business start-ups at the expense of promoting and
accelerating the growth of established SMEs [small and medium-sized enterprises]. The paper
examines evidence from UK economic data and draws heavily on two publications produced by
NESTA [the National Endowment for Science, Technology and the Arts], Measuring Businesss
Growth: High-Growth Firms and the Contribution to Employment in the UK, and the sister report, The
Vital 6 Per Cent: How high-growth innovative businesses generate prosperity and jobs.
This
research is the fullest recent analysis known to the author of the contribution of high-growth SMEs to
employment in a national economy. The research cited supports the seminal work of Birch in
identifying the gazelles phenomenon, evidencing how a very small number of high-growth businesses
contribute a disproportionately high number of new jobs. This effect is seen to hold good across
discrete time periods, industries and geographic regions.
Drawing on previous studies, the paper argues that the historical focus of entrepreneurship education
in European schools – indeed in business schools in general – is on the start-up and early stage
phases of the business life-cycle. This concentration is reflected in both the programmes offered and
in the literature, which has comparatively few studies on business growth and the later stages of the
cycle. Yet there is compelling evidence that a very significant proportion of new job creation derives
from those SMEs which have survived the start-up and early-stage phases to establish themselves as
growth businesses, the gazelles. From a policy perspective, the implication is that the
encouragement of new start-ups needs to be balanced by active support for businesses with proven
and scalable business models.
The tide has turned, however and a growing number of UK business schools are now becoming
active in the provision of management development for aspirant or actual gazelles. This is an
encouraging trend and raises the question of what type of pedagogy is appropriate for such
development, and whether business schools are equipped to deliver it. The author draws on his own
experience of working with gazelle businesses over a long period to offer conclusions on the
1
necessary structural components of a pedagogy for gazelle management development. Six key
areas are identified:
-
-
-
The need to recognise the interconnectedness of the owner-manager and his/her business.
This is often a bottleneck on growth and there is thus a requirement on educators to design
interventions that lessen the dependency of the business on the proprietor
The need to address deficiencies in skill and knowledge and specifically inadequate
understanding of financial reporting and management accounts
The use of a robust process which avoids prescribing “one size fits all” solutions, but an
awareness of the proven benefits of niche market strategies
The value in facilitated peer-to-peer learning as a means of addressing the isolation
commonly felt by many entrepreneurs
The importance of heterogeneity in programmes for gazelles. Owner-managers tend to be
networked primarily in their own market sectors, and membership of a diverse participant
group can spread good practice across industries
The critical use of entrepreneurs in both the delivery of such programmes and their value as
role models
The author also poses the question of how the effectiveness of such interventions can be
gauged.
All this has important implications for European business schools at a time when many of their
countries’ economies are experiencing low levels of economic growth.
Introduction: the current performance and predicted growth of European economies.
The consensus of forecasters is that European economies face a bleak outlook. The recovery from
the banking crisis of 2008 has been spasmodic and is currently threatened further by the sovereign
debt crisis in a number of European countries.
This is illustrated in recent forecasts of two of the most respected economic forecasting organisations.
At the time of writing, the International Monetary Fund’s [IMF’s] World Economic Outlook 2011
predicts real annual GDP growth for the European Union of 1.8% and 2.1% for the years 2011 and
2012 respectively. For the same period the Organisation for Economic Co-operation and
Development [OECD] Economic Outlook 90 database forecasts real annual GDP growth for the euro
area of 1.6% and 0.2%, recovering to 1.3% in 2013. This faltering growth contrasts sharply with the
forecasts for both advanced economies as a whole and emerging & developing economies:
TABLE 1: Forecasts of annual changes in real GDP, %
2011
2012
European Union
1.8
2.1
Euro area
1.6
0.2
Advanced economies
2.4
2.4
IMF
Emerging & Developing
Economies
4.6
4.7
IMF
2
2013 Source
IMF
1.4 OECD
The picture is not helped by the fact that in 2009 real GDP fell by - 4.1% in the European Union [IMF]
and by - 4.2% in the Euro area [OECD],while Emerging & Developing Economies recorded growth of
2.7% [IMF]. In simple terms, “Europe” has yet to make up the ground lost three years ago.
The European average figure, of course, masks the growth rates of economies which do better than
their peers, but even these are struggling to hit advanced economy long-term trend growth of 2.25 –
2.5% per annum. Given the volume of internal trade within the EU - around two-thirds of goods and
services produced by member states [Europa.com] – this is not surprising. Both national
governments and supra-national organisations such as the EU find themselves with limited options for
the purposes of encouraging economic growth. Eurostat, the statistical office of the European Union,
reports that the ratio of government debt to GDP across all 27 member states increased from 74.4%
in 2009 to 80.0% in 2010 [Eurostat: 2011 data not yet published], severely restricting the ability of
governments to stimulate growth; in fact national governments across Europe are seeking to cut
structural deficits through reduced spending, a situation exacerbated by the sovereign debt crisis of a
number of European countries.
If government spending cannot kick-start economic growth, that leaves few alternatives: essentially
consumer expenditure, and the private sector in the form of increased business activity, coupled with
an improving balance of trade. Increasing domestic consumer expenditure can be discounted for two
main reasons. One is unemployment. Between January and November 2011 Eurostat reports a
steady rise in EU-wide unemployment as a per cent of the workforce, from 9.5% to 9.8%; at the
extreme end Greece and Spain report figures of 19% and 23% respectively. Since this figure shows
no sign of slowing, aggregate consumer demand will shrink. Second, the drive to cut structural
deficits through reduced government spending will steadily erode the spending power of consumers.
The UK Office for National Statistics – ONS, for example, reported in October 2011 that UK real
household disposable income grew by a mere 0.1% during 2010, a trend aggravated by a rate of
inflation running at twice the growth in earnings [ONS], and a net negative effect of tax burden minus
government benefits.
Big businesses meanwhile seem unwilling to invest and are hoarding their cash. Bank of England
figures for November 2011 show aggregate bank deposits [excluding financial institutions] at £377.9
bn, a five-year high [Bank of England]. The majority of this will be accounted for by larger businesses.
Commentators ascribe the unwillingness of big businesses to invest for growth to continuing
economic certainty [see, for example, the ITEM Club]. There are of course specific examples which
buck the trend. UK auto manufacturing has witnessed an unexpected renaissance. Although
domestic demand for cars has shrunk, auto production has steadily increased [Society of Motor
Manufacturers and Traders: (SMMT 2012)] and aggregate committed investment in the industry at
end 2011 is estimated at £4bn (SMMT 2012). Two aspects of this example are of particular interest:
a significant part of this increase is export-led, to emerging markets outside the EU such as China;
and a major part of the investment is coming from businesses headquartered outside the EU, such as
Tata, SAIC, Toyota, Nissan and Honda [BMW being an honorable exception]. If this twin
phenomenon of export to emerging markets and foreign direct investment can be replicated across
Europe it will prove a major filip to economic growth. Unfortunately there is no evidence yet that these
individual instances prefigure a trend.
The role of SMEs in national economies
The data so far described are no secret and it thus makes eminent sense for policy-makers to focus
on the SME sector as an alternative source of economic growth. For some thirty years, ever since the
seminal work of Birch (1981), academics and policy-makers have been aware of the disproportionate
impact on new job creation [disproportionate, that is, in terms of numbers of small firms] of SMEs, and
that this impact is not evenly distributed. Birch’s work identified that this effect was most marked in
3
younger firms with fewer than 20 employees and over the years the term “gazelles” has come into
1
scholarly parlance to denote fast-growth SMEs [Acs and Mueller (2009)]. There is by no means
universal agreement on what constitutes a gazelle. For example, the OECD defines high-growth
businesses as those with ten or more employees which average at least 20% growth in employment
over a three-year period, and that such firms should be less than five years old [OECD; Ahmad
(2006)]. Henrekson and Johansson’s study (2009: 228-230) provides a commentary on the many
definitions employed by empirical surveys and a recent paper by Parker et al (2010) identifies 11
studies between 1995 and 2009 which have examined fast growth in primarily small- and mediumsized enterprises. The authors cited employ a range of measures that include:
Absolute growth of sales over a defined period
Growth of sales over a defined period relative to a peer comparison group
Absolute and relative growth in employment over a defined period
Success in the eyes of the founders
Employment growth in a defined percentile of the sample studied
Multiple measures including all of the above
[Parker et al (2010: 206-208)]. The representation of gazelles in any one sample will thus vary
depending on the definitional measures used. One such study [Delmar et al (2003)] employed 19
different measure of firm growth to reduce a starting population of 11,758 Swedish firms with more
2
than 20 employees in 1996 to a gazelle population of 1501, or 13% . The Parker et al paper cited
identified a gazelle population of 708, or 9.8%, from a universe of 7,203 UK companies with sales
between £5mn and £100mn, using 30% annual sales growth over four years as the distinguishing
feature. A Cranfield School of Management survey in 1999 using One Source/ICC data identified a
universe of 15,000 UK businesses with turnovers between £1mn and £50 mn who reported full
accounts, and applied the following criteria to characterise gazelles:
Compound growth of 25% in profit and sales over the preceding four years [measures of
consistent return] : 960 firms
and making at least £100,000 net profit before tax [rule out micro firms]: 523 firms
and making at least a 5% return on sales and at least a 15% return on capital [measures of
absolute return] : 411 firms
and with a current ratio of at least 1:1 and debt:equity ratio no higher than 50% [measures of
liquidity and solvency] : 267 firms
Only 2% of firms made the cut. Delmar et al (2003) argue persuasively for the use of multiple criteria,
but it is evident that the more performance criteria used, and the more rigorously these are applied,
the smaller the resultant gazelle population. Moreover, certain measures are more contentious than
others, notably profit, which is notoriously prone to manipulation in the owner-managed firm. On the
other hand, it seems intuitively useful to be able to attach some sense of economic value added when
we look at this population of high performers.
1
Fast-growth and high-growth are often used interchangeably. The NESTA reports discussed distinguish
between them [see discussion in this paper].
2
The Delmar et al study required firms to meet at least one criterion rather than all; otherwise the resultant
gazelle population would have been vastly smaller.
4
The NESTA reports
Differences over what is to count as a gazelle should not, however, mask the accumulated evidence
of the economic importance of this phenomenon. In 2009 the UK’s National Endowment for Science,
Technology and the Arts – NESTA – published a series of reports which sought to establish
definitively the impact of gazelles on a national economy. These were:
Measuring Businesss Growth: High-Growth Firms and the Contribution to Employment in the UK
[referred to as NESTA 2009a]
Business Growth and Innovation: The wider impact of rapidly-growing firms in UK city-regions
[referred to as NESTA 2009b]
Their findings were summarised in the companion report The Vital 6 Per Cent: How high-growth
innovative businesses generate prosperity and jobs [referred to as NESTA 2009c] and an update
involving further findings was published as Vital growth:The importance of high-growth businesses to
the recovery [referred to as NESTA 2011]. This section of the paper highlights key findings from
these studies, made possible by the establishment of a demographic database, the Business
Structure Database, of the UK Office of National Statistics: an overview of which can be consulted at
www.esds.ac.uk/findingData/snDescription.asp?sn=6697.
These studies investigated the proportion of gazelles present in the UK economy over two time
series, 2002 - 2005, and 2005 - 2008, and their influence on net new job creation during both periods.
Table 1 below reproduces the identified populations:
Table 1: Fast-growth and high-growth firms: definitions by employment and turnover
Employment
Percentage Fast-growth*
Percentage High-growth**
Total No. of Businesses***
Turnover
2002-05
2005-08
2002-05
2005-08
10.0
9.5
13.9
9.8
n=107,465
n=162,332
n=145,431
n=165,396
6.4
5.8
12.8
9.4
n=11,369
n=11,530
n=22,439
n=18,641
1,078,382
1,702,784
1,045,497
1,681,810
Notes: * Fast-growth is defined as having at least 20 per cent annual average growth in employment/turnover over three
years, regardless of the initial size of the firm. ** High-growth is defined as for Fast-growth but with at least ten employees
in the initial year. *** Defined as an employer enterprise with non-zero employment in each year.
Source: NESTA 2009a:18
It is instructive to note the dramatic reduction in numbers from fast-growth to high-growth numbers
when a minimum size threshold is applied: in all four cells, only a tiny proportion of the total stock of
businesses with at least one employee meet the criteria of high-growth, whether defined by
employment or turnover. For present purposes, the most interesting statistic drawn from the study is
the impact of gazelles on employment:
Established firms (regardless of their size) created 3.4 million net jobs in 2002-05 and 2.9 million net
jobs in 2005-08. 11,500 high-growth firms accounted for 56 per cent of jobs created by existing
businesses in 2002-05 and 43 per cent in 2005-08, or an average of 49.5 per cent between 2002 and
2008 [NESTA 2009a: 20]. In terms of comparison with their peer non-gazelles, high growth firms
5
generated around 3.5 times and 3 times the number of new jobs in the respective time periods.
When the two time periods are combined, the approximately 11,000 businesses that generated 20
per cent or higher average annual employment growth over a three-year period were responsible for
creating 54 per cent of new jobs [NESTA 2011]. In the follow-up survey that reviewed a time series of
2007 – 2010, using the same database, the authors observed exactly the same trend, namely that
high-growth firms were responsible for generating half of the new jobs created by firms employing
more than ten people [NESTA 2011: p5] Given that the British economy saw its worst recession
for 50 years during this latter period, it seems reasonable to conclude that this phenomenon is
resilient through the economic cycle. Moreover, the authors of these studies conclude that
3
gazelles are to be found across all industry sectors and across different regions [NESTA 2009a: 5] .
Gazelles appear to be an episodic phenomenon
A question of clear importance to all who are interested in this phenomenon is how long a gazelle
remains a gazelle. Simple arithmetic logic dictates that no gazelle could stay as such indefinitely,
since its rate of growth would consume its entire market sector and, eventually, national economy.
Parket et al (2010)’s paper compares the performance of a UK gazelle population over two time
series and their broad finding is that the growth rate of the initial gazelles group is substantially lower
in the second time period (ibid:204). That finding supports the review of Coad (2009), cited by
Parker et al (2010), that a survey of studies shows a tendency for negative serial correlation
experienced by both small firms generally and those that exhibit extreme rates of growth, whether
negative or positive.
The implication of this is that gazelles are an episodic phenomenon of overlapping cohorts that
emerge, rise, peak and subside, rather in the way that waves break on a shore. If policy-makers and
others want to engage seriously with this population, to encourage and enhance their numbers and
performance, it follows that they will need to do so on a continuing rather than occasional basis.
How much attention do gazelles receive from European Business Schools?
So far this paper has argued that, for policy-makers, empirical evidence provides good reason to view
high-growth SMEs as an appealing sector on which to focus for the purposes of economic recovery.
The question then arises as to the role in this played by the academic community and, specifically, by
business schools. Evidence from high-growth firm research suggests that the subject of gazelles has
received surprisingly little attention. After outlining a systematic and comprehensive review process
across numerous scholarly databases, Henrekson and Johansson’s (2009) meta-analysis of the
literature surveying gazelles concludes:
In total we identified 20 studies in our search, which was a much smaller number than we had
expected, especially given the importance of the issue [2009: 230].
The relative paucity of research is supported by the Parker et al ([2010) paper referred to earlier,
which identifies11 studies of interest. Henrekson and Johansson (2009) attribute this primarily to the
difficulty of data collection, which has only recently been mitigated by the creation and dissemination
of better mass databases [such as the UK ONS database supporting the NESTA studies] that hold
longitudinal data. In the opinion of this author, the divergence of opinion over what is to count as a
gazelle may also act as a disincentive to undertake studies: in simple terms, if it’s not clear what we
are looking for, why start the exercise in the first place? However, a further factor at play may also be
a latent bias in the field of academic entrepreneurship towards start-up and early-stage business.
3
Gazelles were found to be over-represented in London and the SE, and in business services, but this reflects
the geographical concentration of businesses in the UK and the structure of the UK economy. Crucially the
presence of gazelles across the board refutes the notion that they exist predominantly in, say, high tech
industries in a limited range of locations. Cf Henrekson and Johansson (2009), p 227.
6
Any business school which is serious about educating at the masters’ level – typically through an
MBA – will have an entrepreneurship capability, either in the form of a separate department or as part
of a larger faculty group. In large part this is a result of the growing interest in the student market in
entrepreneurship, as starting your own business is seen increasingly as a viable career alternative to
employment, especially when jobs are scarce. For example, UK Companies House data show that
4
435,856 new businesses were registered in 2011, compared with 384,981 in 2010. To serve this demand,
the entrepreneurship curriculum is focused very largely on the issues relating to market entry and the
end-point of many courses is the creation and assessment of business plans for start-up. To
encourage this further, a plethora of business plan competitions at national, European and
intercontinental levels has arisen. This is an understandable response from the supply side to the
demand side, but it raises the question whether the remainder of the life-cycle is “crowded out” by the
focus on start-up and early-stage.
The issue was highlighted back in 2004, when the European Foundation for Entrepreneurship - EFER
- conducted a joint survey with EFMD, reported in OECD (2008; Ch 5). The goals of the survey were
to gain a perspective on the level and growth of entrepreneurship education in Europe, identify trends,
and understand the training and development needs of faculty teaching entrepreneurship. The results
were used as a basis for comparison with other recent surveys and research conducted in Europe
and the United States. Among many issues identified by respondents was a concern that too great a
focus on start-up was overshadowing other elements of entrepreneurship education [OECD 2008].
By analogy, it is as if medical training were geared very largely to gestation, birth and infancy, with
only rudimentary attention paid to childhood and very little about adulthood.
The issue is further compounded by what the OECD (2008) report saw was a clear lack of adequate
distinction in European schools between serving the needs of general SME education – ie a target
population where gazelles are in the minority – and the needs of the high-growth firm. The implication
of the survey was that much so-called entrepreneurship education is actually addressing the
undifferentiated small business population, which the report contrasts starkly with practice in the
United States. (On the tendency to treat all entrepreneurs as created equal, and the undesirable
outcomes that result, see Nightingale and Coad (2011).)
Have things changed in the period since the OECD report was compiled? The view expressed can
be tested by examining how many business schools actually address the gazelle population that has
gone beyond the point of start-up and early-stage, through a policy of active engagement with
potential or successful gazelles, for example by running executive education programmes. Those
who do, seem still to be in a minority. A survey of websites of UK higher education institutions known
to be active in this field is produced in Appendix 1. Analysis suggests that 16 of the 75 members of
Enterprise Educators UK were engaged in activities aimed specifically at actual or potential gazelles.
The good news, however, is that most of those who are engaged in this activity have started doing so
recently, which may presage a growing trend.
A pedagogy for gazelle development
If business schools are to play a role in the development of gazelles, they must create a pedagogy,
or a set of pedagogies. To avoid the trap of delivering undifferentiated small business education, as
identified above, programme faculty must be expert in this field, either through first-hand experience,
research or, ideally, a mixture of both. Do we know enough about gazelles to prescribe expert
developmental solutions?
The work of Parker et al (2010) suggests that we should approach this question warily. Their study
tests the prescriptions of strategic management theory across a number of areas – human resource
management, innovation and technology, administration and governance, marketing and sales and
4
th
Referenced on 19 January 2012 in www.bmmagazine.co.uk/home.
7
corporate strategy – against the performance of a population of UK gazelles and finds that there are
5
significant relationships only in the following cases :
Positive growth relationships
Having a single dominant product or service increases the odds of being a large firm five
years later
And firms that had marketing or sales departments in 1996 were significantly more likely to be
large or acquired in 2001 than they were to be liquidated
Negative growth relationships
Trading in an international market reduced the log odds of being a small firm in 2001
Those gazelles that developed new products for introduction to the market after 1996 were
significantly less likely to be acquired than to be liquidated
Companies reliant on customer complaints to evaluate the quality of their product or service
were significantly less likely to survive or be acquired by 2001
The authors report that there are no significant relationships for:
Choice of business-to-business as mode of trading rather than business-to-consumer
Administration, governance and HRM strategies
(ibid 215-222)
This picture grows more complicated when the authors report the same analysis for the earlier five
year period of 1991 – 1996 (ibid p222-3). What emerges is that the statistical relationships are much
weaker and that the explanatory power of management strategies in determining growth rate largely
evaporates. What works in one period, the authors conclude, is no guarantee of success in another,
because markets are essentially dynamic and firms need to adapt their strategies.
One response to this is to observe that precepts derived from strategic management theory are very
largely based on the study of large businesses. Inherently they are less likely to apply across the
board to smaller businesses [for the particularities of the owner-managed business see, for example,
the discussion in Molian (2010)]. Some might be relevant, others less so, and so these findings
should not perhaps surprise us. However, it is clear that some precepts did correlate with growth, and
that the significance fluctuates across time. Consequently any pedagogy directed at management
development for aspirant or successful gazelles needs to take account of this.
A pedagogy for the management development of gazelle businesses is outlined in Molian (2010)
6
which describes the contribution of one UK business school to this area over an extended period .
The study highlights
-
The evolution of the pedagogic approach as the institution’s understanding of the target
audience is built over time
The balance between content and process
The use of non-core academic faculty with extensive real-life experience of creating
entrepreneurial businesses
5
The paper also reviews external environment and structural variables but these are not considered here: only
the authors’ strategic management variables
6
In a parallel manner to Henrekson and Johansson (2009), the author was surprised by the scarcity of research
papers in this area.
8
The pedagogical approach that underpins the main programme described in the paper is the classic
strategic planning three-step process, as depicted below:
Steps
Themes
Where are we now?
Where are we going?
How do we get there?
Markets
Markets
Markets
Money
Money
Money
Management
Management
Management
Me
Me
Me
FIGURE 1 : A HIGH-LEVEL PEDAGOGY FOR BUSINESS SCHOOL GAZELLE DEVELOPMENT [Source
Molian ( 2010)]
The culmination of the process outlined is the creation of a formal business plan, which centres on the
continuing growth and development of the participating businesses.
This process is a prescribed, formal process underpinned by a body of knowledge and theory,
imparted in the manner typical of business school teaching: plenary sessions and small group
working, supplemented by close personal mentoring and small group facilitation. The remainder of
this section is devoted to a discussion of how that pedagogy has been constructed.
Constructing a pedagogy for gazelle development: crucial considerations
The pedagogy described is that of the Business Growth & Development Programme [BGP] at
Cranfield School of Management in the UK, with which the author has been associated for 12 years.
Molian (2010) reviews this in detail. This programme is designed specifically for gazelles and for
aspirant gazelles and is populated both by owner-managers who are – in their own eyes –
underachieving their desired levels of growth and by those who are overachieving and are concerned
about how to manage this rate of growth. After twenty-three years of continuous delivery involving
some 1250 participants, the programme delivery team have identified a number of critical success
factors, as follows:
1. The link between the owner-manager and his/her business. For those who work with
owner-managed businesses, perhaps the most striking common feature is the
interconnectedness of the owner-manager and the business [see Molian (2010)]. The
business can be characterised as an extension of the personality and ambitions of the driving
7
force, who is also typically the founder. The personality of the proprietor may well be a major
factor in the historical success of the enterprise, but the dominant role of that individual may
also be its biggest limiting factor for growth in the future. If all major – and many day-to-day –
decisions are vested solely in the owner, the physical capacity of the owner is a bottleneck to
7
For convenience we use the singular, but in many cases owner-managed businesses are of course jointly
controlled and managed.
9
further growth. Thus there needs to be a progressive separation of the owner[s] from the
business if it is to grow and develop as an entity: it must achieve a status which is in some
sense independent of, or certainly less dependent on, the proprietor. The issue of interdependence is evidenced by a marked tendency of owner-managers to work long hours, take
little holiday and to be in constant contact with the business when on holiday. This syndrome
may be characterised as the constant gravitational pull on the owner-manager to work in the
business, when the demands of planning future growth require the owner-manager to work on
the business.
A successful intervention, therefore, will habituate the owner-manager to working on the
business by understanding what is required, why it is required and by giving them practice at
doing so.
2. Gaps and deficiencies in skills and knowledge. Gazelles, the author has learnt over the
years, come in numerous shapes and guises. Gazelle businesses are started by individuals
who quit school early with limited formal education, by PhDs, and by all manner of people in
between. Some, but only a distinct minority, have some formal management education and
many have a set of professional or technical competences which form the basis of the
business. However, if there is a dominant deficiency in managerial skill/competence in the
gazelles with which the author has worked, it is in the area of finance and accounting. This is
typically manifested in an inadequate understanding of how balance sheets and profit
statements are constructed, no real sense of how the working capital cycle operates within
the business, and an inability to model the cashflow implications of both operational and
strategic decision-making. This lack of understanding is not necessarily a limiting factor in the
early days of the business, when the business can operate with a book-keeper and simple
spreadsheets, but can prove a major, and sometimes fatal, impairment of the ability of the
business to grow in future. A major risk for many ambitious owner-managed businesses is
over-trading, that is the inability to finance the increase in cash receivables while maintaining
payments to creditors, ultimately resulting in insolvency. To avoid, mitigate or manage this
risk requires a heightened understanding on the part of the owner-manager, frequently
coupled with an upgrading in the skills of key employees, from basic book-keeping to
sophisticated financial management. Addressing this issue is a key challenge for those
seeking to develop gazelles.
3. Process vs Managerial strategies. One of the benefits of the strategy development process
shown in Figure 1 is that it is an analytical process, which enables gazelle owners to identify
and adopt strategies of their own devising. It can thus avoid the trap of being overly
prescriptive that “one size fits all, for all time” as highlighted by the Parker et al (2010) study.
It would also seem intuitively more likely that owner-managers will internalise and implement
plans which they have developed themselves, as opposed to ones that are created by
consultants.
However, observation of businesses that have passed through BGP and performed
exceptionally afterwards shows that many have a dominant market strategy. This consists of
identifying a niche in which they can do well, and then consistently building and consolidating
their position in that niche. Conversely, they avoid premature diversification into areas that
are not closely related to the core or, if they do so, learn from their mistakes and retrench to
focus on the area where they can compete most effectively. An example is shown in Exhibit
1. This is congruent with the Parker et al (2010) finding that having a single dominant product
or service increases the odds of being a large firm five years later, as above, and is consistent
with the converse finding that gazelles that developed new products for introduction to the
market after 1996 were significantly less likely to be acquired than to be liquidated [assuming
we infer a dilution of focus on the core business]. The pedagogy of BGP, therefore,
encourages participants to identify opportunities to entrench their niche positions and develop
competitive advantage prior to expansion into adjacencies, and to approach diversification
with extreme scepticism.
4. Facilitated peer-to-peer learning. We are talking here of an elite population of ambitious
and talented owner-managers. Many have already achieved considerable commercial
10
success. It would thus be naïve and arrogant of a business school provider to assume that
management development is a one-way process. This audience has much to teach us and to
teach one another, and is notably self-directed [cf observations in Sexton et al, 1997].
Facilitated peer-to-peer learning is an important component of the informal element of a
successful programme, with faculty performing the role of coach, mentor and critical friend as
required. In the right environment, gazelle business-owners will teach each other and solve
each other’s problems. Higgins and Elliot (2011) present the conceptual case for
entrepreneurial education which is based on active, engaged “doing” rather than passive
reception. The efficacy of this approach is seen in practice when working with a gazelle
population.
5. Isolation and Heterogeneity. A further reason for the impact of facilitated peer-to-peer
learning is that entrepreneurs suffer notoriously [Gumpert and Boyd (1984), Rubin, (1999)]
from isolation by comparison with their corporate peers. The growth in facilitated peer
networks such as Vistage [www.vistage.co.uk] and the Academy of Chief Executives
[www.chiefexecutive.com] has helped to mitigate this problem, but is still cited by participants
as one of the main reasons why they join the Business Growth & Development Programme.
Through working with other gazelle business owners, participants rapidly discover that a)
problems which they had frequently believed to be unique to them are in fact generic; b) that
others may have already addressed these problems and found solutions which can be
applied across the board [this is particularly the case with HR and business systems].
The benefits of this are amplified if the peer to peer learning takes place across industry
sectors, ie the gazelle population on BGP is heterogeneous. Jack et al (2004) make the case
that owner-managed businesses develop strong ties with customers, suppliers and sector
peers and this tendency for owner-managers to build their network largely within their industry
is reflected on BGP. The benefit of this inward focus is that their knowledge of the industry
they are in is deep, but the downside is that their existing view of the world is constantly
reinforced by the norms of that industry. The programme consciously places participants
from different industries in action learning sets in order to challenge their set of assumptions
about what is possible. This is best achieved through asking naïve questions, which can be
posed by others from outside the industry. Thus participants are exposed to a wider range of
ideas than they would normally receive within their pre-existing networks, and good practice
in one sector cross-fertilises another.
6. The use of entrepreneurs and role models. In the 24 years of this programme, BGP has
been led and directed by academic faculty who have founded and grown businesses prior to
entering a business school. The author believes that this experience is qualitatively different
from either a prior career as an advisor to small business, or a career as a corporate
manager. The difference resides in both the degree of empathy with the target audience,
and the extent to which the programme is seen as credible. During the recruitment process
many participants express a healthy scepticism that business schools understand and are
qualified to work with businesses such as theirs, as opposed to serving the needs of
corporate business. This scepticism is well grounded. MBA and MSc programmes, which
are often the “public face” of business schools, are still predominantly aimed at those aspiring
to accelerate a career as a corporate manager. The majority of executive education
programmes offered by business schools are directed towards corporate customers. Gazelle
owners will be rightly suspicious of an intervention that looks like an ersatz version of a
curriculum for large businesses and public sector organisations.
In addition to a faculty with relevant experience, BGP uses a network of associates to assist
in the delivery of programme. Most of these are former participants who have sold their
businesses and now enjoy a portfolio career, and who have an interest in and ambition to
develop the next generation of gazelle business owners. The programme also makes
extensive use of previous participants who have gone on to build a significant, successful
business, as a means of charting the road map for those who aspire to do the same,
delineating their mistakes and triumphs.
11
Summary
This paper has sought to explore the notion of gazelle businesses as a route to economic renewal.
There are good empirical grounds for believing that encouraging their numbers and promoting their
performance should be a strategic priority for national policy-makers concerned with faltering growth
in European economies. A survey of UK business school activities in this area suggests that this
topic is now receiving far greater attention than in the past, which may help to redress the balance of
academic entrepreneurship between start-up and later-stage. And there exists expertise in the design
of a pedagogy for gazelle development which may help the business school community in the
development of a distinctive competence in working with this population of owner-managers.
There are two issues which this paper has not addressed. One is whether business schools are
better suited for this purpose than some other type of intervention. This may not necessarily be the
case. The author was disquieted to learn recently that the UK government’s main national
programme for encouraging gazelle performance, Coaching for Growth (Department of Business
Innovation and Skills) does not include a single business school in the consortium of providers [see
www.businessgrowth.uk.com]. The providers feature instead a mix of chartered accountancy firms,
consultants and incubation centres. They will bring their own set of competences and it will be
interesting to see how this intervention is monitored and its impact measured. This consideration
leads to a second issue which has not been addressed, but which is nonetheless an important one.
How are we to measure the effectiveness of an intervention to improve the performance of gazelle
businesses? The Business Growth Programme at Cranfield deliberately selects businesses which
are already outperforming their peers and have a scalable business model. Internal studies show
these businesses continue to outperform their peers subsequently, but this may illustrate nothing
more than the ability of the programme to identify talent; it could be analogous to a successful venture
capital investor taking credit for the performance of businesses in its portfolio when their actual skill
lies in the ability to pick winners. Equally, it would be a formidable challenge to identify and enrol a
control population of business which looks identical to the profile of participants, with the difference
that they have not participated in the programme, and then track the performance of the participants
against the control group. The author would welcome thoughts on how the effectiveness of
interventions like this could be credibly measured. In the meantime, self-reported and anecdotal
feedback will continue to loom large as measure of success.
12
EXHIBIT 1 HOTEL CHOCOLAT
Hotel Chocolat is one of the UK’s retail success stories, with 62 stores, 35 instore concessions and operations in North America and the Middle East. It was
started in 1989 by Peter Harris and Angus Thirlwell, initially to supply the
corporate market with mints and chocolates. In 1993, as Geneiva Retail, the
business expanded to supply large supermarkets with own-label chocolates
and in 1994 the founders entered a joint venture with Britain’s largest
independent retailer of chocolates, Thorntons, to supply mail-order customers
under the Choc Express brand. Both of these initiatives were departures from
the core business model of supplying end customers directly under the
company’s own brand.
Disappointed by low margins and frustrated by an imbalance in the
relationship with their suppliers, Harris and Thirlwell discontinued their
contracts with supermarkets in 1997. In the same year they reviewed their
relationship with Thorntons and concluded that this was not working for
similar reasons. As a consequence, they returned to the core business model,
rebranded some years later as Hotel Chocolat, and have grown to a turnover in
2011 of around £60 mn.
See Brown R & Molian D [2001] Choc Express A, B and C, reference number
501-066-1, European Case Clearing House
13
APPENDIX 1
UK universities/business schools identified as being active in “gazelle” education. Drawn primarily
from members pages of Enterprise Educators UK, comprising 75 UK higher education institutions.
Entries in bold indicate programmes started within the last twelve months within the institution
concerned.
Institution
Aston University
Programme[s]
Goldman
Sachs 10000
Outsourced?
No
University of
Bangor
University of
Brighton
Lead
Profitnet
With
Lancaster
Semi
University of
Cambridge/Judge
Business School
[CfEL]
City
University/Cass
Business School
Cranfield School
of Management
Ignite
Better Business
Managers’
Toolkit
Business
Growth &
Development
Programme +
portfolio
Lead
University of
Gloucestershire
University of Kent
Duration
100 hours,
12
workshops
As Lancaster
Certificated
No
Current
Yes
No
In progress
No
Yes
No
3 hours per
month x 12
months
5 days
No
Yes
Yes
10 days
No
Yes
No
4 days
10 days
No
Yes
As Lancaster
No
In progress
6 x 2 day
modules over
9 months
10 months,
20 – 30 days
100 hours,
12
workshops
5 days
No
Yes
No
Yes
No
Yes
No
Yes
100 hours,
12
workshops
100 hours,
12
workshops
As Lancaster
No
Yes
No
Yes
No
In progress
100 hours,
12
workshops
No
Yes
Various
BIG journey
With
Lancaster
Semi
Lancaster
University
Leeds University
Lead
No
Goldman
Sachs 10000
No
London Business
School
Financing the
Entrepreneurial
Business
Goldman
Sachs 10000
No
Goldman
Sachs 10000
No
Lead
With
Lancaster
No
Manchester
Metropolitan
University
University of
Oxford, Saïd
School
University of
Swansea
University
College London
Goldman
Sachs 10000
No
14
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