Frontiers of Entrepreneurship Research
1997 Edition

SUMMARIES

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GROWTH IN ENTREPRENEURIAL FIRMS: THE IMPACT OF BUSINESS PRACTICES, FOUNDER CHARACTERISTICS, AND FUTURE ORIENTATION 

Pamela S. Lewis
Bruce R. Barringer
Foard F. Jones
Jeffery S. Harrison

University of Central Florida
Orlando, FL 32816

Telephone: 407-823-2679
Fax: 407-823-3725

Principal Topics

An important concern for entrepreneurial firms relates to their ability to sustain growth through innovation.  This is a difficult challenge for at least three reasons.  First, business practices  must be put in place that facilitate growth through innovation.  This is becoming an increasingly  complex task as the number of management techniques and business practices available to entrepreneurs continues to grow.  Second, the characteristics of the founder of the firm may have an impact on the firm's growth potential.  For instance, even though a firm behaves in an entrepreneurial manner during its start-up phase, the characteristics of the founder may have an influence on the ability of the firm to continue to behave in an entrepreneurial manner.  Finally,  once a pattern of growth through innovation is achieved, it must be sustained.  Often, firms  develop core competencies (like product or service innovations) that can become core rigidities  if the competencies cause a firm to shift into a pattern of maintaining the status quo rather than continuing to innovate.  As a result, when developing future plans entrepreneurial firm should recognize the need to think beyond their present array of product and service innovations towards new innovations to sustain growth.

Against this backdrop, the objective of this study was to develop a set of theoretical models that  depict the founder characteristics, business practices, and future orientations that facilitate growth in entrepreneurial firms.

Method

The data required for the study came from 16 case studies of entrepreneurial firms.  The case  studies were derived from sanitized Entrepreneur of the Year applications provided by the  Kauffman Foundation.  The firms included in the study were selected through purposeful  sampling and divided into two categories.  A total of eight firm (<30% growth rate) were labeled "high growth" firms and a total of eight firms (>12% growth rate) were labeled "low  growth" firms.  The business practices, founder characteristics, and future orientations that were consistent across the firms in each category were assessed using qualitative research techniques.  This analysis was used to develop separate conceptual models of the impact of  these variables on firm growth for "high growth" and "low growth" entrepreneurial firms.

Major Findings

The cases did not prove to be effective in discerning the influence of owner characteristics and future orientations on entrepreneurial firm growth.  As a result, we focused on the influence of  the precursors to growth and business practices on differentiating between the "high growth"  and "low growth" entrepreneurial firms in our sample.

In terms of precursors to growth, the "high growth" firms consistently based their business premises on fulfilling a previously unfulfilled need.  An example is a company that pioneered the technology that allows its users to cut and paste video similar to the manner in which a  word processor cuts and pastes text.  As a result, this firm, along with the majority of the high growth firms that we analyzed, captured first mover advantages.  In contrast, the "low growth"  firms in our sample tended to find profitable niche markets in existing industries.  Both groups of firms relied heavily on the recruitment and staffing of qualified personnel.

In terms of business practices, both similarities and differences emerged from our analysis when comparing high growth and low growth firms.  In regard to the similarities, both groups of firms focused on customer relations, incentive compensation, and employee empowerment.  In regard to the differences, the high growth firms were unique in their focus on the development of marketing channels and strategic alliances.  The low growth firms were unique in their focus  on product quality, employee training, and the development of international markets.

Implications

For managers and researchers, the study illustrates that high growth is often achieved through  identifying and filling a previously unfulfilled need.  This action provides a firm the opportunity to expand sales and capture first mover advantages.  The study also illustrates the emphasis that high growth firms place on channels development and the nurturing and development of strategic alliances.  Although our conclusions are only tentative, we believe that high growth firms place a heavy emphasis on strategic alliances, in particular, as a means of obtaining  access to the managerial talent, resources, and customers of their alliances partners.  Firms that  place a lower priority on the development of strategic alliances may be more limited in their  growth potential.  In the absence of parterning relationships, firms can only effectively increase  their sales at a pace that is consistent with the development of their internal resources and  managerial expertise.

 

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