Business Growth:
The entrepreneurs experience
Lecture 6:
Entrepreneurship and Enterprise
Zoe Dann
Learning outcomes
By the end of this lecture, you should be able to:
• Understand the integrated nature of business
growth and how it is measured
• Discuss and evaluate the use of models of the
small business growth process
• Discuss some of the factors that impinge on
business growth
Key Questions
• How can we tell whether a business is
growing?
• Do businesses need to grow?
• What affects the growth of organisations?
• How can we model growth and is it useful?
How can we tell a business is
growing?
Business growth
Financial Growth
Resources
Profitability, sales turnover
Performance
Strategic Growth
Asset accumulation
New products
Strategic alliances
Direction
Structural Growth
Organisational Growth
Use of assets
Net assets
Number of people
(Source: Wickham, p.224)
What does a typical growth curve look
like for a business?
Time
A Gazelle Company: Facebook
Distribution of firms by size
Large
250+
Medium
50-249
Small 0- 49
95.4%
0.1%
0.6%
99.3%
Micro 0-9
Source: stats berr, 2008
Enterprise survival rates
Percentage of
firms still trading
after
1 year
US
2 years
66
96
3 years
4 years
80
65
50
5 years
6 years +
UK
Vat Reg’d
54
45
40
Source: Headd (2003) and Office for National Statistics (2008)
Typology of Business Growth
Birches: Mice, Elephants and Gazelles
• Mice
– Small, vulnerable, hardworking, little market influence power, quick to
change direction if needed, very few aspire to grow, maintain their
profitability
• Elephants
– Large, command respect, cannot change direction quickly, can
influence the market place and conditions, likely to be contracting in
size
•
Gazelles
– Growth oriented with above average profitability, seek growth rather
than control, ultimately become large employers, agile, “at least 20%
growth a year for 4 years”
Birch (1988)
Start ups: A taxonomy
• Life style firms:
– privately owned and support owners
– modest growth
– Typically micro business
• A foundation company
– Centered on research and development
– Creates new industry or changes entire sector
• A high potential venture
– Rapid growth,
– Innovative products/services in a large market
– Large investments
(Hisrich and Peter, 1995)
Growth aspirations and performance
eg.
Topclass ties
passive
shrinkers
eg.
Used cars
‘Trundlers’
eg.
Cycle world
e.g. Chocolat Hotel,
Facebook
‘Triers’
‘Flyers’
deliberate
shrinkers
‘Living
dead’
‘Gazelles’
Mature
firms
‘Life style firms’
negative
growth
no growth
growth
aspirations,
some growth
high growth
‘Supergrowth’
firms
• A Social Enterprise
• Uses ‘engaged ethics’ buying cocoa beans
from multiple growers
• www.hotelchocolat.co.uk
• The company’s sales have soared 226% a year
from an annualised £533,000 in 2005 to
£18.4m in 2008.
Can we model growth?
Life Cycle Models
Principals of Life Cycles
These theories suggest that small business growth
characterised by
• a number of predictable, common, discrete and
consistent ‘stages’ or ‘phases’
• sequential in nature and occur as a hierarchical
progression not easily reversed
• tend to be ‘metamorphosis’ models (d’Amboise and
Muldowney, 1988)
• ‘Crises’ are an important feature – periods of
relatively stable growth interspersed with periods of
more rapid, discontinuous change
The small business life cycle
Stage 1
Inception
Stage 2
Survival
Stage 3
Growth
Stage 4
Expansion
Stage 5
Maturity
Size
Age of business
Evolution
Crisis
From:
Scott
and
Bruce
(1987)
What are crises?
•
•
•
•
‘growing pains’ (Steinmetz, 1969)
‘developmental problems’ (Kazanjian, 1988)
‘developmental ‘hurdles’ (Parks, 1977)
Consensus that different problems during
different stages of the growth process –
sequential (Dodge and Robbins, 1992)
• Certain problems more dominant at certain
times and sequential pattern to crises
Greiner Model : Evolutions and revolutions as
organisations grow
5. Crisis of
4. Crisis of
Size of Firm
?
Red Tape
3. Crisis of
Control
5. Growth
2. Crisis of
through
Autonomy
4. Growth
1. Crisis of
Collaboratio
through
Leadership
3. Growth
Co-ordination
through
2. Growth
1. Growth
through
Creativity
Delegation
through
Direction
Age of Firm
From: Greiner (1972)
Churchill and Lewis model
Changing role of the entrepreneur
HIGH
Owner’s ability to do
People, planning
and systems
LOW
Owner’s ability
to delegate
1
Conception/
Existence
2
Survival
3
Growth/
Success
4
Expansion/
Takeoff
(Adapted from: Churchill and Lewis, 1983)
5
Maturity
Greiner v Churchill & Lewis
• What similarities and differences can you see in the
two models?
• Think about issues like linearity: is there any scope
for backwards steps as firms in reality shrink and
grow? Can steps be missed out, e.g. dot.coms can
grow incredibly quickly?
• What about crisis issues such as a downturn in the
market? What about firms that just never grow, or
grow very slowly over a long period?
Criticism of models of growth
• “Limited usefulness for the study of growth management
since they are built on the deterministic assumption that all
firms grow linearly through a predictable series of
preordained stages” (Merz et al, 1994).
• Empirical studies confirmed that growth stages not discrete
and highly specific
• Stages are fluid and non-sequential, with developmental
problems often overlapping between different stages
• ‘Grow or fail’ hypothesis criticised.
• Small businesses often reach a plateau in their development
and can remain in one growth stage for prolonged period of
time
What factors influence small
business growth?
Influences on Growth
Strategy
Entrepreneur
Business Environment
Firm
Storey, 1994
Influences on Growth
History
Employment
levels
Education system
Social
Role Models
Models
Age
Behaviour
Gender
Religion
Family
Experience
Religion
Attitude to risk
Technology
Cycles
Internet
Technical
Taxation
Industry
Sustainability
Economic
Interest
rates
Access
to finance
Political
economy
Regulation
Support/
training
Political/ legal
Digital
26
The End of the Cycle:
Business Closure
• Planned exit v forced
• Part of natural cycle of ‘business churn’
• Closure routes
–
–
–
–
sold on
Insolvent
Reopened
closed down
33% approx
20% approx.
(Source: SBRC, 2002)
• Entrepreneurial learning – continued as an
entrepreneur, sought employment or retired
• Serial entrepreneurs, portfolio entrepreneurs
Conclusions
• Variety of measures of growth – balanced
score card needed
• No one single theory will adequately describe
the growth patterns in small businesses
(Smallbone, in Carter and Jones-Evans, 2006)
• Successful entrepreneurs need to be
exceptional learners and adaptable to survive
Key References and Further Reading
• Carter and Jones-Evans (2006) ‘Enterprise and Small Business’,
Chapter 6
• Churchill and Lewis (1983), ‘The 5 stages of small business growth’,
Havard Business Review
• Greiner, Larry E., (1972), ‘Evolution and Revolution as Organizations
Grow’, Harvard Business Review
• The Wall Street Journal, (March 2008) ‘Facebook CEO Seeks Help as
Site Grows Up’
http://online.wsj.com/public/article/SB120465155439210627.html
?mod=blog
• Storey, D (1994), ‘Understanding the Small Business Sector’,
International Thomson Business Press, London
• Wired (09/06/07), How Mark Zuckerberg Turned Facebook Into the
Web's Hottest Platform
http://www.wired.com/techbiz/startups/news/2007/09/ff_faceboo
k?currentPage=2
Appendices
Churchill and Lewis
Churchill, N.C & Lewis, V.L. (1983)