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Business Growth: The entrepreneurs experience Lecture 6: Entrepreneurship and Enterprise Zoe Dann.

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Presentation on theme: "Business Growth: The entrepreneurs experience Lecture 6: Entrepreneurship and Enterprise Zoe Dann."— Presentation transcript:

1 Business Growth: The entrepreneurs experience Lecture 6: Entrepreneurship and Enterprise Zoe Dann

2 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

3 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?

4 How can we tell a business is growing?

5 Business growth Financial Growth Strategic Growth Structural GrowthOrganisational Growth Resources Performance Asset accumulation Direction Use of assets (Source: Wickham, p.224) Net assets Number of people New products Strategic alliances Profitability, sales turnover

6 What does a typical growth curve look like for a business? Time

7 A Gazelle Company: Facebook

8 Distribution of firms by size Large 250+ Medium Small Micro % 0.6% 99.3% 95.4% Source: stats berrSource: stats berr, 2008

9 Enterprise survival rates Percentage of firms still trading after USUK Vat Reg’d 1 year96 2 years years65 4 years years45 6 years +40 Source: Headd (2003) and Office for National Statistics (2008)

10 Typology of Business Growth

11 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)

12 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)

13 Growth aspirations and performance ‘Trundlers’ ‘Gazelles’ ‘Triers’ ‘Supergrowth’ firms passive shrinkers ‘Living dead’ negative growth no growth growth aspirations, some growth high growth deliberate shrinkers Mature firms ‘Flyers’ eg. Topclass ties eg. Used cars eg. Cycle world e.g. Chocolat Hotel, Facebook ‘Life style firms’

14 A Social Enterprise Uses ‘engaged ethics’ buying cocoa beans from multiple growers The company’s sales have soared 226% a year from an annualised £533,000 in 2005 to £18.4m in 2008.

15 Can we model growth? Life Cycle Models

16 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

17 The small business life cycle Size Age of business EvolutionCrisis InceptionSurvivalGrowthExpansion Maturity Stage 1 Stage 2Stage 3Stage 4Stage 5 From: Scott and Bruce (1987)

18 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

19 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 )

20 Churchill and Lewis model

21 Changing role of the entrepreneur HIGH LOW 1 Conception/ Existence 2 Survival 3 Growth/ Success 4 Expansion/ Takeoff 5 Maturity Owner’s ability to do People, planning and systems Owner’s ability to delegate (Adapted from: Churchill and Lewis, 1983)

22 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?

23 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

24 What factors influence small business growth?

25 Influences on Growth Entrepreneur Firm Strategy Business Environment Storey, 1994

26 Influences on Growth 26 Age Behaviour Gender Religion Family Experience Role Models Support/ training Economic Technical Political/ legal Religion History Industry Social Digital Technology Cycles Political economy Education system Employment levels Models Taxation Interest rates Internet Sustainability Access to finance Regulation Attitude to risk

27 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

28 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

29 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’ ?mod=blog ?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 k?currentPage=2 k?currentPage=2

30 Appendices Churchill and Lewis

31 Churchill, N.C & Lewis, V.L. (1983)

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