The entrepreneurial growth ceiling

Abstract

Purpose In this paper the authors aim to introduce a concept that they call the “entrepreneurial growth ceiling” (EGC). They develop arguments that new venture IPOs hit the EGC prior to their IPO, and the ceiling is part of the impetus for going public. The paper argues that proceeds from the IPO will aid firms in breaking through the ceiling if the proceeds are strategically allocated. Design/methodology/approach The study examines a cohort of firms that went public in the same year. The authors code data from the prospectuses of 366 organizations, including how proceeds were to be spent, and then add performance data post‐IPO. Findings The results from a longitudinal study of IPOs indicate that firms that allocate proceeds to human resources and innovation (research and development) are more likely to break through the EGC quickly and enhance long‐term stock performance. Practical implications Entrepreneurial firms will have higher success when investing money into their human resources (people) and in research and development (innovation). Given the current high rate of change in business, the authors expect these findings are even more relevant for not just IPOs but for all organizations going through change. Social implications Organizations that support and fund entrepreneurship and new venture growth should consider expanding their training to include human resource management, in particular as it ties to innovation. Originality/value The entrepreneurial growth ceiling is a new concept introduced in this paper. This research has important implications for IPOs and other high‐growth organizations.

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