business growth: the entrepreneurs experience lecture 6: entrepreneurship and enterprise zoe dann
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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 growthFinancial Growth
Strategic Growth
Structural Growth Organisational Growth
Resources Performance
Asset accumulation Direction
Use of assets
(Source: Wickham, p.224)
Net assets Number of people
New productsStrategic alliances
Profitability, sales turnover
What does a typical growth curve look like for a business?
Time
A Gazelle Company: Facebook
Distribution of firms by size
Large250+
Medium50-249
Small 0- 49
Micro 0-9
0.1%
0.6%
99.3%
95.4%
Source: stats berr, 2008
Enterprise survival rates
Percentage of firms still trading after
US UKVat Reg’d
1 year 96
2 years 66 80
3 years 65
4 years 50 54
5 years 45
6 years + 40Source: 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
‘Trundlers’
‘Gazelles’
‘Triers’
‘Supergrowth’firms
passiveshrinkers
‘Livingdead’
negativegrowth no growth growth
aspirations,some growth
high growth
deliberateshrinkers
Mature firms
‘Flyers’
eg. Topclass ties
eg. Used cars
eg.Cycle world
e.g. Chocolat Hotel,Facebook
‘Life style 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
Size
Age of business
Evolution Crisis
Inception Survival Growth Expansion Maturity Stage 1 Stage 2 Stage 3 Stage 4 Stage 5
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
1. Crisis of
Leadership
2. Crisis of
Autonomy
3. Crisis of
Control
4. Crisis of
Red Tape
5. Crisis of
?
1. Growth
through
Creativity
2. Growth
through
Direction
3. Growth
through
Delegation
4. Growth
through
Co-ordination
5. Growth
through
Collaboration
Size of Firm
Age of Firm
From: Greiner (1972)
Churchill and Lewis model
Changing role of the entrepreneurHIGH
LOW
1Conception/
Existence
2Survival
3Growth/Success
4Expansion/
Takeoff
5Maturity
Owner’s ability to do
People, planningand systems
Owner’s abilityto delegate
(Adapted from: Churchill and Lewis, 1983)
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
Entrepreneur Firm
Strategy
Business Environment Storey, 1994
Influences on Growth
26
AgeBehaviourGenderReligionFamilyExperience
Role Models
Support/ training
Economic
TechnicalPolitical/ legal
Religion
History
Industry
Social
Digital
TechnologyCycles
Political economy
Education systemEmployment
levels
ModelsTaxation
Interest rates
Internet
Sustainability
Access to finance
Regulation
Attitude to risk
The End of the Cycle:Business Closure
• Planned exit v forced• Part of natural cycle of ‘business churn’• Closure routes
– sold on 33% approx– Insolvent 20% approx.– Reopened – closed down
(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_facebook?currentPage=2
Appendices
Churchill and Lewis
Churchill, N.C & Lewis, V.L. (1983)