Linking small business management with entrepreneurial growth

Abstract

This study examines growth in small businesses and whether the management of growth varies in a predictable manner. As a complement to the traditional notion of entrepreneurship as enterprise formation or birth (Schumpeter 1934), firm growth or expansion is becoming increasingly accepted as a valid indicator of entrepreneurship within firms well beyond the founding event. Indeed, it has been suggested that growth may be a useful way to distinguish between small business owners and entrepreneurs (Carland, Hoy, Boulton, and Carland 1984). This study addresses some of the weaknesses in traditional approaches toward the study of growth management and suggests an alternative method. Application of the method yields greater detail and insight into how entrepreneurial CEOs manage growth. Research Devoted to Small Firm Growth The literature concerning small firm growth is often of two main types. The most common type concerns cross-sectional studies examining the relationship between certain firm characteristics (strategies, planning activities, management behaviors, etc.) and firm growth (usually in either sales or employment) as a performance measure. Examples of such studies include Pearce, Robbins, and Robinson (1987) who examined the impact of formal strategic planning activities on financial performance; Boag (1987) who established a linkage between control systems and performance; Cragg and King (1988) who evaluated the relationship between a wide variety of small firm planning activities and various measures of performance; and Covin and Slevin (1989) who found systematic relationships between two types of managerial orientations, strategic posture, and performance under hostile and benign environmental conditions. While such studies illuminate the usefulness of certain activities and strategies in relation to growth performance, they fall short in providing guidance about the management of growth as an ongoing process. The second major category of studies focuses on the organizational life cycle hypothesis and is usually concerned with advancing a new model or examining the characteristics of firms in various predetermined stages of growth. Studies of this nature are primarily concerned with establishing or validating the life cycle theory on the basis of such factors as: management priorities (Smith, Mitchell, and Summer 1985); management problems in technology-based industries (Kazajian 1988, Kazajian and Drazin 1989); and strategy content and planning processes (Hanks 1990, Birley and Westhead 1990). These studies, while interesting and thought-provoking, possess limited usefulness for the study of growth management since they are built upon the deterministic assumption that all firms grow linearly through a predictable series of preordained stages. A third, smaller group of growth studies has recently emerged that focuses primarily on the phenomena of growth itself and the management of that growth. Unlike the performance and life cycle studies, the attempt within this third group of studies is to develop a better understanding of the relationship between the dynamics of firm growth and various aspects of management practice. The usual research approach taken is to examine the managerial, structural, or strategy characteristics of a sample of growing firms as they may relate to tire firms' environment, profitability, or other correlates of interest. For instance, Hambrick and Crozier (1985) found that high growth technology-based firms possessed decentralized task teams made up of specialized individuals operating in highly formalized flat organizational structures. Shuman and Seeger (1986) described the strategic planning processes used in high growth firms, while Fombrun and Wally (1989) demonstrated that previous rapid growth performance required small firms to design managerial systems that ameliorated the demands emanating from the firms' environment and strategic orientation. The chief weakness of many studies in this category is that they rarely compare high- or rapid-growth firms with low- or no-growth firms. …

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