Understanding the Challenges to Growth in Entrepreneurial Firms: Cases from the UK
Robert A. Blackburn
Small Business Research Centre
Kingston-upon-Thames, KT2 7LB, UK
Candida G. Brush, Professor of Entrepreneurship
Paul T. Babson Chair in Entrepreneurship
Chair- Entrepreneurship Division
Arthur M. Blank Center for Entrepreneurship
Wellesley, MA 02457
Paper to be presented at the XXIII RENT conference, Budapest, November 19-20, 2009
Research suggests that the bulk of SMEs are ‘steady state’ enterprises (Stanworth and Curran,
1976; Gibb and Davies, 1990) whilst only a small proportion are ‘high growth’ and make a
disproportionate contribution to income and jobs (Autio 2007; BERR, 2007; Hoffman and
Junge, 2006). Hence, growth, and particularly business growth, are popular notions that
continue to attract attention by theorists and policy makers. This was heightened recently by
a focus on fast growth small firms, or gazelles, by international scholars and policy agencies
(e.g. Acs et al., 2008; BERR, 2008; OECD, 2007). Hence, the extant literature on fast growth
firms spans a variety of international contributions from academic studies (Barringer et al.,
2005; Baum et al., 2001; Delmar et al., 2003; Dobbs and Hamilton, 2007; Freel and Robson,
2004) and government sponsored and published research (e.g. Acs et al., 2008; BERR, 2007;
Headd and Kirchhoff, 2007).
This paper aims to contribute to the growing body of evidence by focusing on the specifics of
fast-growth firms within a time period. The literature on firm growth is not new (Penrose,
1959; Boswell, 1972), spans a wide disciplinary base (e.g. Evans 1987; Starbuck, 1965) but
remains unsatisfactory in terms of detailed empirical evidence and levels of theorising (Coad,
2007; Dobbs and Hamilton, 2007). The paper is an attempt to respond to the underlying
exasperation of many scholars, with the level of theory development in the literature, and a
call for more empirical evidence, on the actual experience of firms undergoing business
growth. Using a framework that spans individual, enterprise and environmental factors, the
paper examines owner-managers and the experience of their firms whilst undergoing the
growth process and the causes of spurts and slowdowns in growth. The paper draws on data
collected using a qualitative methodology with evidence from fast growth enterprises in the
UK and the US.
Small business growth: the context
The literature on small business growth is extensive. Many writers in the field of
entrepreneurship consider growth the essence of entrepreneurship (Sexton and Smilor, 2000;
Stevenson and Jarillo, 1990). Not surprisingly, growth is considered to be an important
measure of firm success (Davidsson, 1991; Delmar, Davidsson, and Gartner, 2003) as well as
a vital precursor of national economic renewal (Davidsson and Henrekson, 2002), and as
such has received a great deal of attention in the entrepreneurship literature (Acs and Evans,
1993; Delmar et al., 2003). Despite numerous excellent reviews (e.g. Gibb and Davies, 1990;
Davidsson and Wiklund, 2000; Hamilton and Dobson, 2007; Wiklund et al., 2009) authors
continue to identify its inadequacies and call for more evidence and methodological
developments. One of the key problems in developing an adequate understanding of business
growth is its level of complexity. This has led to a variety of perspectives and a disparate,
rather than comprehensive or general, corpus of theory. Earlier contributions tended to
characterise business growth as a process involving a number of distinct stages through
which firms pass, each associated with particular management challenges which must be
addressed if growth is to be sustained (e.g. Greiner 1972; Churchill and Lewis 1983; Phelps
et al., 2007; Scott and Bruce 1987). Critics argue that stage models mistakenly assume a
linear development path when, in fact, firms experience periods of expansion, stability and
decline in no fixed order (St-Jean et al., 2008).
More recent contributions seek to develop statistically based models of business growth,
drawing on a series of constructs, spanning individual, business and environment domains
(e.g. Baum et al., 2001). In their review, Dobbs and Hamilton (2007) classify the literature
on small business growth into six broad groups: stochastic; descriptive; evolutionary;
resource based; learning; and deterministic. They illustrate the variety of approaches as well
as their contributions and weaknesses. Their paper also finds 34 empirical studies of the
determinants of small business growth featuring over 30 independent variables, illustrating
the flurry of research on this phenomenon.
Wiklund et al. (2009) point out the theoretical or empirical partiality of most studies thus
impeding the conceptual development of the literature and an inability of scholars being able
to see the ‘big picture’ (Wiklund et al., 2009: 352). They draw upon Fuller and Moran’s
(2001) ontological layers approach to understanding small business. From this Wiklund et al.
identify five perspectives in relation to small business growth, entrepreneurial orientation
(EO); the environment; strategic fit with characteristics of the firm and its environment;
resources including financial, human and network capabilities; and growth attitude of owner-
managers. Their subsequent empirical modelling finds that three constructs have the
strongest influence on growth, including growth attitude of the small business manager, the
EO of the firm, and the dynamism of the task environment in which they operate.
These findings reflect a literature which places an emphasis on a mixture of individual, firm
and environmental factors (e.g. Baum et al., 2001; Smallbone and Wyer, 2006; Smallbone et
al., 1995). They also resonate with the literature review of variable centred studies by Dobbs
and Hamilton (2007) who classify these variables as (i) Management strategies (growth
objectives, employee recruitment and development; product market development; financial
resources; internationalisation and business collaboration) (ii) Characteristics of the
entrepreneur (motivation; education; experience; and size of founding team) (iii)
Environmental/industry specific factors (market factors) and characteristics of the firm (age,
In reviewing the literature, we find that the bulk of studies are quantitative and variable
centred. However, despite the optimism of many studies in pursuing the key variables that
affect business performance, their level of explanation remains limited rendering
generalisation and prediction problematic. Quantitative approaches have their inherent
limitation, inter alia, including the search for empirical regularities of a limited number of
variables to support causal explorations, the inability to provide processual explanations
behind observations and problems regarding two-way causality.
However, research on fast growth firms is not confined to quantitative analyses. A limited
number of qualitative studies have also added to the evidence base and theorising of fast
growth firms (e.g. Barringer et al., 2005). These demonstrate the heterogeneity of experience
of growth, the complexity of factors involved and the instability of cross-sectoral variables or
factors over time. For example, Delmar and Wiklund (2008) show that growth affects
subsequent growth aspirations.
St-Jean et al. (2008) present a qualitative study of seven high growth firms and unearth a
variety of events and factors which cause changes in business performance. They add to the
weight of evidence that demonstrates “... the see-saw nature of growth in gazelles” (p162) but
also emphasise the relative absence of research “...into the causes of growth rate changes in
high growth SMEs” (p162). Their conceptual approach emphasises the entrepreneur and
their team, strategy, resources, organisational adjustment and markets and competition. The
analysis identifies 14 radical changes in the pace of growth ‘seven spurts and seven
slowdowns’ (p168). These changes were found to be linked to proactive and reactive
decisions, such as the launch of a new product (proactive spurt) or being in the right place at
the right time (reactive spurt). Conversely, proactive and reactive slowdowns can also occur.
The case studies show that changes in growth rates are often triggered by more than one
event, and at least one of these events was regarded as ‘reactive’ – that is to changes in
external environment. Their general analysis finds that the potential for growth include
management’s motivation (though this changed over time), adjustment capacity and access to
resources. However, their results also highlight “the significant role played by chance in
triggering growth spurts or slowdowns” (p183). The above suggest that gaps in the extant
literature on small firms’ growth remain despite years of study and the use of sophisticated
In short, there have been some breakthroughs in the literature on firm growth but much
remains to be understood. This leads many authors, including Wiklund et al. (2009), Dobbs
and Hamilton (2007) and Coad (2007), for example, to call for more detailed research on this
phenomenon. Coad goes so far as to argue that ‘We have observed that theoretical
predictions have been of limited use in understanding the growth of firms, if not downright
misleading. It appears that the way forward is through empirical analysis (Coad, 2007: 59).
In this paper we seek to:
(i) present evidence on the performance of ‘high-growth’ firms over a three year
(ii) explore the reasons for the performance of these firms;
(iii) contribute to the literature on the factors that are affecting business growth
This will involve mapping a variety of growth experiences of fast-growth firms, unpacking
the causes of episodes of growth, including the tipping points for growth spurts and
slowdowns and setting these findings within a broader conceptual framework of growth
influences. Our contribution seeks to add to the body of evidence that growth should be
regarded as episodic, rather than a smooth progression, and can be a result of a range of
factors, internal and external to the organization. These results may be used as a basis for
further empirical investigation as well as the development of appropriate qualitative and
Influences on business growth are well documented in empirical studies. For example, public
policy (Audretsch, 2003), co-alignment between a firm’s strategy and the external
environment (Covin and Slevin, 1989; Dess et al., 1997), industry factors (Carter, et al.,
1994; McDougall et al., 1994) as well the relationship between resources and particular
strategies (Chandler and Hanks, 1994; Brush and Chaganti, 1999). Growth is argued to be a
function of the resource capabilities of the firm and the expectations of the entrepreneur
(Penrose, 1959). While significant work shows the relationship between strategy and growth
(Carter, et al, 1994; McDougall, et al, 1994), other studies show that resources and their
combinations may be more influential in small service firms (Edelman et al., 2005).
Research shows that entrepreneurs have a variety of goals and not all ventures plan or are
able to grow (Davidsson et al., 2002). Resource availability, specialization and the
coordination of these by the entrepreneur will determine the nature and possibilities for
growth (Penrose, 1959).
The framework for analysis was derived from past research and considered sufficient to
allow for complexity whilst at the same time ensure that the issues raised in the extant
literature were covered (Figure 1). The framework is in essence a multi-level framework.
Several scholars call for incorporation of macro and micro level considerations in research to
more fully understand the phenomenon and process of entrepreneurship (Davidsson and
Wiklund, 2001; Steyaert and Katz, 2004). Even with the tremendous expansion of the field,
it is still conventional for entrepreneurship research to focus on either the micro level and
draw conclusions about macro outcomes, or to begin with the macro level and infer specific
This framework sought to cover:
Wider context influences, sometimes referred to as environment, typically include
market conditions, competitors and suppliers, collaborative links with other
organisations and public policy support and regulations on business.
Business characteristics typically include size, age, ownership, sector and flexibility
Strategic influences typically include owners’ business objectives, product or service
differentiation, cost focus, innovation, R&D, marketing, internationalisation, and
Resource acquisition include organisational, social, technical, physical and human
Fieldwork and Interview Methods
There are many definitions of business growth (Delmar and Wiklund, 2008) and so called
‘metrics’ for measuring business growth. This research uses change in turnover as the
measure of business growth. Sales growth is one of the most widely used measures (Brush
and VanderWerf, 1992). We targeted firms achieving real turnover growth of 60 per cent
over the previous three years for interview. This follows an OECD definition (OECD, 2007;
BERR, 2008). Reliable data on business activity is scarce although OECD cross-national
data suggests that the UK has a much higher proportion of business stock in the very smallest
size band than the US (Hoffman and Junge, 2006) and approximately 5.8 per cent of UK
businesses are defined as high growth, compared with 8.1 per cent in the USA.
• Regulatory authorities
It is recognised that high growth is difficult to sustain over a long period of time and for
smaller firms turnover changes can be sporadic and vulnerable to sudden market changes.
Finding suitable firms for interview demonstrated this issue. Firms were originally selected
from the records of Dun and Bradstreet and had to meet the following criteria:
(i) Independence – businesses were not part of, or owned by, large companies;
(ii) Growth performance – businesses had achieved 60 per cent or higher real turnover
growth over the previous three years. In practice, businesses with nominal sales
growth of 75 per cent over the previous three years were included; this avoided asking
respondents to make real sales growth calculations, taking inflation into account. It is
acknowledged that a relative measure of sales growth is easier for smaller, rather than
larger, firms to achieve given their lower starting points (Delmar 1997). Steps were,
therefore, taken to include small, and medium-sized businesses, as well as micro
firms, within the sample.
(iii) Employment size - single-only businesses were excluded. The study businesses
employed 3-250 people, with a spread of business sizes to avoid focusing only on
very small firms.
(iv) Business sector – businesses operated in the following sectors (information
technology; financial services; business and professional services; electronics,
engineering and architecture). This allowed the exploration of a variety of
experiences but within a small range of sectors;
(v) Location – businesses were located in South-East England, especially London, and
within the I-128 highway around Boston, Massachusetts.
(vi) Business age – businesses were at least three years old to meet the sales growth
In practice, many of the firms that had recorded a growth rate in the commercial databases
had experienced decline; others had been acquired. The business databases used to identify
the samples were found to be a poor base for identifying fast growth firms because of
misclassification, and lack of updating of firm discontinuances, mergers or other changes in
form. Therefore, hundreds of businesses were contacted in order to find a comparative
sample meeting the growth, sector and size criteria. Thus, seeking appropriate firms for
interview added to our questioning of the notion of growth as a ‘constant’ or steady organic
process: it was neither. Our original sampling frame of high-growth firms was experiencing
a very high degree of churning.
All firms were approached with an introductory letter to a named individual in the business.
This was followed up with a telephone call. If firms agreed to participate, a pre-interview
profile data form was sent for completion and returned prior to the research team prior to
interview. Fieldwork comprised interviews with owner-managers of fast growth firms in the
South East of England in the UK (21 businesses) and from Massachusetts, USA (18
businesses). The empirical evidence comprised four main data sources: a short pre-interview
profile data form; a semi-structured interview topic guide; a graph to enable respondents to
record historical sales performance as a precursor to discussing the causes of sales change;
and an audio-recoding of the interview. The face-to-face interviews lasted between 30 and
Although the approach to interview the owner-manager is standard for research of this type, it
is worth noting the style and content of the face-to-face interviews undertaken. Given the
variety of factors that affect business performance found in the extant literature, we sought to
strike a balance between a semi-structured interview (which covered the factors discussed
above) whilst allowing sufficient scope for open discussion and an owner-manager’s
narrative to emerge. In order to facilitate free-flow of discussion and a focus on their growth
pattern, in the interview owner-managers were asked to draw their sales trend in graphic form
over the previous three years with estimates of financial amounts at key points. This was
designed to act as a vehicle to tease out trends in sales and form the basis for discussion
rather than any precise counting of revenue. Although the researchers had not come across
this approach previously and we were , therefore, apprehensive regarding its use as a vehicle
to unpack sales trends and their reasons for these, in practice this novel aspect of the research
design proved successful. Some owner-managers were able to offer a longer historical
perspective. The resulting graphic plots helped focus attention on the three years under study
and formed a basis for owner-managers’ explanations of the underlying causes of their firm’s
income trend. Together with the responses to the semi-structured questions, the data from
commercial databases, the interviews produced a wealth of information on the growth
patterns of small firms and possible reasons for these trends.
The results from the interviews were pooled and shared amongst the research team.
Summaries, in the form of ‘thick descriptions’, were made by the interviewers of each
interview, together with selective quotations from transcripts to illuminate the key points
being made. It was obvious that the sales trends and their explanations were diverse and
making sense of the amount of data collected required several iterations before patterns or
groups emerged. This is not unusual in qualitative research approaches where the search for
explanations begin with descriptive accounts (Ritchie and Lewis, 2006).
Fast-growth firms: general sample profiles
The results from the study revealed a broad range of growth patterns. These are depicted in
Figure 2: Typical Plots of Business Growth Over Three Years
Four broad plot lines were identified: the ‘hockey stick’, ‘incremental’, ‘plateau’ and ‘erratic’
patterns. The erratic pattern permits further subdivision: some firms had experienced gradual
growth over a number of years, while others experienced explosive growth over a shorter
period, following a period of low and/or stable sales. Others have experienced high growth
followed by a degree of decline.
We were only able to interview firms that were within our criteria ‘window’ at the time of the
study. Such vacillations in performance exposed in the interviews were masked by the
selection criteria for study of achieving the criterion of a sales growth of 75% over three
years. It may be inferred from these patterns that had we sought to interview these firms one
year earlier, or later, many would not have satisfied our criteria. Similarly, average trends of
the sample businesses, over a three year period or even more, is misleading as these also
conceal the variations between firms and of the same firms from year to year. The basic
sample characteristics are shown in Table 1.
Sample Businesses: Size and Sector
Micro (< 10 employees)
Small (10-49 employees)
Medium (50+ employees)
Information Technology (IT)
Business and professional services
The average growth rates shown in Table 2 display some differences between the UK and the
UK samples. It is also noteworthy that the turnover growth rate appears to decrease with firm
size and the employment growth rate is lower than turnover.
UK and US Samples: Summary Sales and Employment Data
Sales 3 years ago £155,000
£3,350,000 $1,675,000 $2,500,000 $5,000,000
Growth rate over
employment 10 12 43 40 25 84
3 years ago
over period (%)
Source: Calculated from survey data
Note: Firms were ranked according to their current sales, from lowest sales turnover to highest, to form the basis for data presented. Thus,
all the following data categories are determined by this sales ranking. For example, the UK median firm has a turnover of £2m and three
years ago had sales of £500,000 and employed nine people.
The aggregated results demonstrated a variety of experience, motivations, environmental
conditions, engagement with external stakeholders, public policy initiatives. Owner-manager
characteristics of high growth enterprises were found to be similar in the UK and US. These
were highly educated, and displayed a variety of motivations ranging from wanting to work
for ones’ self through to developing a growing business. In some cases growth was planned,
whilst in others the business was being pulled along by a particular market demand.
The competitive strategies of the businesses in both the US and UK emphasised quality and
client service rather than price. This meant products or services were subject to permanent
development and honed to satisfy clients’ needs. Indeed, it was the customer relationship that
was emphasised as the key to success. Hence for some businesses although they were abreast
of the latest IT, they were striving to bring this in line with customer requirements and/or
educate their clients into its use.
In both the UK and US owner-managers expressed awareness of IPRs. These were regarded
as not only a means of protection, but more importantly as indicators of reputation and value
of the business. The marketing tactics of the businesses tended to rely on word-of–mouth and
reputation. Whether or not this enabled them to break into new markets was questionable.
These high growth businesses emphasised repeat business as well as finding new customers.
The latter incurred an investment, a lead time and hence risk for which many owner-
managers were reluctant to prioritise.
A strong contextual difference between the firms in the UK and US was their export
orientation. Whilst firms in the US were able to achieve growth by supplying the US market,
in the UK the niche nature of the business activities meant that they had to export if growth
was to be achieved. Hence, US firms were more inclined to develop strategic partnerships
and extend their footprint through branches and subsidiaries within the USA. This was
confirmed by the finding that the UK firms relied on exports for a greater proportion of their
sales. This involved targeting overseas partners and opening offices abroad. From this it
could be argued that the barriers to expansion are higher for UK firms than those in the US.
On the other hand, UK exporters are most likely to be less vulnerable to a domestic downturn
in the economy than those in the US.
The UK and US financial environments could be regarded as different, and the landscape at
the State (US) and regional levels more so. In the UK there appeared a higher level of take-
up of equity investment and government backed initiatives. US owner-managers were less
likely to want to be involved with government, although in the UK owner-managers were
ambivalent about the role of government in their growth. Such differences are not surprising
as other studies have identified variations in growth rates even within the same country
(Barkham et al., 1996; Hart and McGuiness, 2003)
Exports constitute >50% of sales
Source: pre-interview data profiles.
Finally, the interviews revealed the volatility in the financial turnover of firms over time,
confirming prior research that sales growth is episodic. Respondents often reported
downturns in performance between quarters or years. The fieldwork (early 2008) found that
the US business environment was undergoing a slow down with some owner-managers
mentioning ‘credit-crunch’. On the other hand, some firms were resistant to the macro
environment, operating in niches that were much more resilient.
In relation to the model of the causal influences of business turnover growth (Figure 1), the
results show that size of the domestic market and the macro-economic conditions exert
influence on the growth potential and performance of firms in the US vis a vis the UK.
However, the study also found differences in the attitudes of owner-managers to the state: in
the UK respondents were more likely to seek and be involved in government support. On the
other hand, owner-managers of US firms appeared to be more involved in planning and
This general analysis shows the profiles of fast growth firms in aggregate. However, the
main argument in this paper is to demonstrate the complexity and diversity of experiences of
fast growth firms rather than reinforce knowledge and theorising derived from averages or
simple metrics. Five cases are now presented to help illuminate this diversity of experience
and hence the illusion of a stereotypical ‘fast growth’ firm. These are drawn from the
sample of 39 firms discussed above. They are not picked because of any ‘extreme’
experiences, but are designed to show variations in experience whilst fulfilling the fast
growth definitions discussed above
Case Study Examples
Case 01 Architect Co
Founding date/ owner-
manager and ambition
Current Annual Sales
...3 years ago
(and 3 years ago)
Started by 2 ex-college
Initially no written plan
Primary Drivers of Sales Growth
sis on differentiation from competitors: active client involvement;
reputation and word of mouth
• R&D embedded in activities (no explicit budget) ‘it’s innate’
• Significant investment in state-of-the-
art graphics design building information
• Growth has been in quality of work and clients
• Constrained by lack of financial skills
Architect Co was founded by two college students who worked previously in architectural
design firms. They started the firm with no external funding and no clients, running the firm
out of a garage. There was little planning about how the business should develop although
the underlying emphasis has been on the quality of work and client interaction that promoted
the business more so than following an actually plan or business methodology: ‘We are not
business people. We’re not financial people. We are design people’.
The business has a diverse group of target customers that include public sector; some general
architectural work; and corporate interiors. It is a highly competitive field. The competition
from firms of all sizes, from boutique firms through to medium and large practices.
However, the focus of Architect Co is described as constantly looking at how design can fit
the clients’ needs. The respondent emphasised that differentiation is the primary reason that
they have been successful and that differentiation includes their relationship building with
clients, their business referral network and more recently the introduction of their building
information modelling. Although the business does not have an explicit R&D budget, a key
innovation for the business has been the ability to utilise the latest business information
modelling software which ’...is a revolutionary new design and drafting software that you
build virtual buildings. So one of the difficulties in architecture is that everything is, .../... a
one-off, you know, there’s no prototyping. Every one is a different kind of custom
construction. So the [main] pitfalls of doing custom construction is that it’s a very complex
3-dimensional, many, many trades and a lot of things to think about and the architect, things
have gotten more complex.../... So we have a lot of consultants and structural engineer,
mechanical, electrical, fire protection, plumbing, sound, landscape, civil engineer. So we
worked with a lot of people, depending on the complexity, the traffic engineers. So we lead
the orchestra, but there’s a lot of experts. So being able to virtually construct a building and
see it and walk through it like instantly and see all the things in its place, cut away the scan,
drag sections, rotate it.’ Architect Co had an advantage of being one of the first practices to
use this new platform, although it is open to other users.
Growing the business was not one of the main goals of the owner-managers. However,
during the early years of the business, growth in staff was fairly rapid from 8 to 23 people
and then stabilised. During the three years up to interview, however, the financial growth
pattern of the business has been a U curve although employment growth has been relatively
non-existent. ‘2006 was not a good year’. The rise and decline in the sales was explained
as a result of a reflection of the movements in the housing market. Archtect Co also owns
some property. However, the spurt in the growth sales performance of the firm is
undoubtedly linked to the pro-activeness of the business in terms of the adoption of the
building information modelling programme.
The primary growth challenges for Architect Co include the need to appoint a business
manager, rather than an architect. The latest plans for the business demonstrate an
emerging imperative, to grow, develop a longer term succession strategy and move into the
expanding health building sector: ‘ ...that’s not a sector I ever wanted to go into from the
architect’s point of view, but from a business perspective, now that we’re growing and we
have five principals and we intend to double in size in the next year and a half or so, we’re
looking at those avenues to grow the business’. However, the respondent indicated that a
weakness in the business was their very strength: ‘We’re architects so the mindset is
different (from management and business people).’ Architects, who try to manage the
business are seen ‘... slinking back to getting over-involved in projects and not getting
involved with management. And I think ....you need the business guy.’
The key themes to emerge from this business was the strong self-identity of being an
architect as distinct from a ‘businessman’ even though they ran a successful business;
relatively low emphasis on financial growth; a focus on relationship building with clients,
the adoption of new technologies and a willingness to adapt to new conditions. The
management are clearly pro-active in terms of their market clients. However, these
conditions did not render it immune from the decline in the housing market in the mid
2000s, demonstrating the power of broader market forces over business strategy.
Case 02 Web Marketing Co
Founding date/ owner-
manager and ambition
Current Annual Sales
...3 years ago
(and 3 years ago)
Founder sold previous
Saw market opportunity
Plateau / Dip
• Emphasis on comprehensive service: product and service mix
• ‘We manage client to the end’
• Major investment fixed in R&D for software development
• Facilitates market segmentation via web
• Turnover rose to £2.25m but recent decline: downsized
• Over-reliance on large clients (60% revenue)
• Looking to merge with a complimentary firm
Web Marketing Co was founded by one person who had sold their previous company and
was looking to start another. ‘Well, what kind of business issues did I want to address?
What issues did I face as a CEO that I wanted to see if I could solve? ../..Marketing
accountability was a key issue. In other words, when I was making decisions about how to
spend money to generate leads and generate brand awareness for my companies, I never got
the sense that it was a controlled spend, that there was something that I was managing.’ The
owner undertook a systematic search to determine what business issues could be solved by
the internet and developed a business which sought to evaluated evaluate ‘...end-to-end
accountability and ROI and all that.../... we then added a creative agency capability to the
company so that we could be a full-service company and we are a marketing solutions
company now. So we provide creative strategy, creative execution on the Web, and a
platform that allows you to do tracking, reporting, data management, analytics, marketing
operations.’ The business claims its IPR through copyright and trademarks. The firm has
around $1m of external angel investment.
The competition for web marketing analysis is rife. However, Web Marketing Co claims its
strength is in providing a full portfolio of services: ‘You know, there’s tons of analytics
companies, there’s tons of database companies, there’s tons of agencies, there’s tons of Web
developers. So at any given time, we could be competing with a completely different
audience. But our message is really it doesn’t make sense to just manage one point. It makes
sense to manage end to end. And that’s what makes us unique.’ The clients of the business
tend to be multinational corporations. The firm invests heavily in product development and
spends up to 20-30% of revenue on R&D.
The sales growth pattern of Web Marketing Co is a plateau which dipped recently. The main
reason for this was a decline in orders from two very large clients who represented 60% of
the firm’s sales. This was ‘..completely unrelated to performance.’ One firm switched its
budget to another project. As a result, Web Marketing Co had to downsize, including
reducing its staff to stabilize. The plan for the business is to merge with another company
which has complementary skills and services. This would allow a sufficient critical mass of
sales to on the same R&D and fixed cost base: ‘You can’t shrink your development team past
a certain level. We have technology requirements independent of whether we make a sale.’
The main themes to emerge from this case is that a minimum efficient scale is required in
some sectors in order to develop the firm profitably and that even being pro-active in product
development alone does not guarantee continued growth. However, the classic problem of
relying on too few large customers is illustrated. Whilst this may stimulate rapid growth in
the short-run this may be a high-risk strategy. If this is relationship is terminated it inevitably
creates a crisis in the business. ‘You know, one of the big challenges for a small company
that’s growing is how to manage your exposure with huge accounts? On the one hand, you
need them to grow and they provide stability but on the other hand they’re inherently
Case 03 Legal Service Co
Founding date/ owner-
manager and ambition
Current Annual Sales
...3 years ago
(and 3 years ago)
2 founders as partners
Ambition to shape own
Flat then Hockey stick
• Shift form original market toward criminal and civil fraud
• Increasing specialisation in fraud cases and development of expertise
• The business is an ‘approved supplier’ of legal services on certain kinds of high-
cost publicly-funded cases
• Client referrals have generated new business
• Shift to taking larger cases, where higher fees can be charged
• Operate ‘state of the art’ IT systems to enable storage and retrieval of documents
This firm was established with a view to serving a growing market for insurance litigation
and personal injury. However, the firm has evolved to serve the criminal and civil fraud
cases as these became more lucrative and the firm developed a reputation for this work. A
majority of the work is public funded although the intention is to reduce this element as
public aid cuts begin to take effect. The firm benefits from being an approved supplier of
legal services. The bulk of clients are found through referrals from solicitors and client
groups: this is the industry norm. A strategy has been to take on larger, higher value cases
and move away from smaller public funded cases which tend to pay less.
Marketing in legal services is relatively constrained: there is a reliance on referrals and
although some cases may not generate a large income, they may generate subsequent client
interest. Clients come to Legal Service Co because of their high quality of service. The
location of the firm is important and proximity to the City of London is useful. The business
benefits from its niche focus: only a handful of firms in the Legal 500 directory do both
criminal and civil fraud cases (e.g. Alan Maybury, Lovell). Legal Services Co tend to act for
individuals against banks; competitors act for the banks. There has been no real change in the
number of competitors over the past 3 years. Many firms are not interested in 2-year cases
involving piles of documents in criminal cases. Competitors tend to be much larger (civil
litigation), although their fraud teams might only be the same size as Legal Services Co.
Competitor actions are argued not to have had any impact on what the firm does and the
market share is ‘not a threat to any of these people’. Keeping under their radar seems to be a
reasonable strategy for growth.
The financial performance of Legal Services Co has had a chequered history. The early years
showed ‘horrific dips’ in turnover, followed by a fairly static period, then serious growth over
the past 3 years. The year up to the interview was the most successful year and turnover will
be £1.5m this year. Ostensibly, this spurt in turnover is largely due to taking on two very
large cases. However, the partner anticipates a dip next year as the company might not be
able to secure cases of equivalent size.
Investment in information technology is one of the underlying reasons for the increase in
sales and cost efficiencies. Legal Services Co has undertaken a £200-£300k investment in IT,
a ‘state-of-the-art’ electronic case management system which enables the storage, analysis
and retrieval of documents. This is regarded as one of the best IT systems available in any
legal practice anywhere and is essential for the management of the enormous amounts of
material. A constraint on the growth of the firm has been an inability to recruit suitable legal
professionals. This has meant that partner and the Chief Executive have spent too much time
on legal issues rather than on business development issues. At one point there was the
possibility of a merger with another practice to help expansion but the complementarities of
the firms were not considered sufficient.
A main theme to emerge from this case is the effect of particular industry norms and
conventions on how the business operates. These include a strong referral system,
qualifications and memberships of regulatory bodies. However, the investment in the state of
the art data storage and retrieval system demonstrate a relatively proactive management
attitude and an impact on growth.
Case 4 Outdoor Advertising Co
Founding date/ owner-
manager and ambition
Current Annual Sales
(3 years ago)
(and 3 years ago)
Installation of outdoor
Saw a market niche
Sole founder though large
VC equity investment
Not in profit
• Owners strongly motivated to grow, although currently behind plan
• Identified a specific market niche for advertising in the UK
Invested in developing a national network of sites in UK cities to support
advertising media, in order to attract large agencies
• Developed a digital dimension which accounts for a rapidly increasing % of sales
• Access to venture capital from three separate sources
• High R&D expenditure on digital service development
• IPR prevents suppliers copying product designs
• Constraints in expansion because of rebates given by ad agencies
Seeking international expansion
Based on his intuition and previous experience, the owner of Outdoor Advertising Co
identified a market for outdoor advertising. He had seen advertising on lamp-posts overseas
and brought this to the UK market. The business focuses on a specific niche, lamp-post
advertising. Outdoor Advertising Co sells lamp-post space to advertising agencies and pays
lamp-post owners (councils, shopping park owners) a share of the revenue. The firm has a
network of over 3,000 sites in 130 towns/cities and is becoming large enough for the main
advertisers to buy in. There has been a shift in the customer base from small business to
agencies: 90% of sales are now through agencies.
Product innovation is important for the business and they spend up to 20% of revenue on
R&D: ‘we have to constantly innovate to compete.’ More recently, the firm has developed a
digital product to meet competitor products. This is regarded as the future of the company.
Digital sites are 1% of company sites but 15% of revenues, because space can be sold over
and over again to different advertisers. The paper sites are likely to be phased out in future.
The company has a series of IPRs including patents and copyright design protection on paper
copy and is heavily investing in new digital media.
The competition for selling outdoor advertising space is limited. Around 4-5 main
competitors target bus shelters but not lamp-posts. However, this market concentration means
that many competitors are able to extract high discounts from media owners and develop
longstanding relations which means that newcomers have to work hard to break into that
market.. The customer base for Outdoor Advertising Co is the UK with little change in past 3
years. However, the business is attracting international attention and plans to expand through
a joint venture to move into China. Getting bigger in the market; ‘...opportunities are coming
to the firm rather than us seeking them’.
The performance of Outdoor Advertising shows that following a flat period to 2003 when
much investment was taking place, sales have grown year on year with a slowdown in the
year prior to interview (only 30%). This was a result of the rolling out of digital sites and a
slowing down with paper sites. Although sales are planned to increase to £6m, there is a
‘competition ceiling’ where rebates by large advertising agencies are preventing the firm
‘receiving the revenues they should be’. The firm is not yet in profit although the plan is that
it will break even in 2010. The owner-manager reported constraints on the growth of the firm
to include managerial capabilities and capacity, finding suitable staff, disappointment with
the VCs role and ‘anti-competition in our market!’
The experience of Outdoor Advertising Co demonstrates the complexities of fast growth
firms, the multiple of factors that affect growth and the thus vulnerability of firms
undertaking significant investment. The case exemplifies the long lead times involved to
reap the rewards of investment in new-technology based ventures. In order to secure funding
the business has drawn upon 3 tranches of VC funding and this may start to constrain the
further investment of the firm as VCs looks for a return on their investments. The high-
growth sales pattern of the firm is a result of the effects of introducing new products although
bringing on-stream new products is expensive and can be detrimental to sales volume in the
Case 05 Telecoms Fault Co
Founding date/ owner-
manager and ambition
Current Annual Sales
(3 years ago)
(and 3 years ago)
Telecoms Software Fault
Established by 3
ownership and sector
Ambitions to grow
Flat then Hockey Stick
in yr 3
Not in profit
28 of staff are based in India
• Owners strongly motivated to grow but behind plan
• Identified specific need of telecoms providers
• Continuous R&D and product innovation
• Established branch in India to access cheap, skilled labour to undertake product
• Market diversification into exporting to increase sales – now 50 per cent of
sales are exports
• Attention to cost base: reap benefits of fixed cost of R&D and relocated out of
London to reduce premises costs
Telecoms Fault Co was founded by three individuals who had previous experience in running
a company in a similar market but ran into market collapse in 2001. The growth ambition of
the owner-managers was high although they were conscious of the vagaries of the market
‘…The thing about development stage businesses, particularly if you’re dealing with
anything which involves technology, is that the plan that you start out with, unless you’re just
simply lucky, is never the plan you actually proceed with because you never get it quite
right.’ The bulk of the staff are software programmers and all development work is
undertaken in-house, in India.
The main product (approximately 90% of the sales) of Telecoms Fault Co is software that
permits telecoms service providers to assess faults in their computer networks and
components on-site or remotely. This enables users to gather data on the networks they
manage. Clients pay Telecoms Fault Co licence fees in relation to the size of the box and the
number of components. The product is considered unique although there is constant
development aimed at increasing robustness and speed. The software is supplied under
licence and where appropriate copyright protected, although, as with many software
producers, the view prevails that ‘The real protection for software is to keep innovating’. The
customer base of the firm includes telecoms service providers, professional services firms,
systems integrators, and IT consultants. The marketing strategy is to approach clients
directly as other forms of marketing would not be as effective. A half of sales are outside the
UK demonstrating the strength of the product. Clients buy the software ‘...because only we
can do what they need.’ There is no direct product on the market. However, some
prospective clients need cultivating before they are prepared to buy and client inertia is an
Telecoms Fault Co’s sales history shows a flat line and then a hockey stick ‘spurt’, from
£150k to £1m. One of the reasons for this is the earlier losses incurred as a result of product
development costs. However, the firm was engaged in development work until 2004 on a
different product but realised that this would not be profitable and so redirected its activity to
a new core product. Thus, the management team were prepared to switch tack but this came
at a price whilst there was little or no revenue. It is anticipated that the sales of the business
will grow exponentially whilst costs will remain stable thus bringing the business into profit
The challenges to growth faced by Telecom Fault Co include recruitment, particularly the
finding and retaining of programmers and the rising cost of labour in India. Finding
adequate finance was considered less of an issue: the owner, friends and family had invested
in the venture together with a small amount of external equity. The business has relocated
out of London because of high space costs, although some staff have now left the company.
The Telecom Fault Co provides an example of a new technology based company that is about
to benefit from years of investment. The management team are experienced and have shown
a pro-activity in developing products that are geared for the market, rather than technological
Discussion of Cases
The above descriptive cases are designed to add to the weight of evidence that shows a
variation in experience behind the blanket term of fast growth, defined in terms of rapid
turnover growth of 60% over three years. Clearly, fast-growth as defined in the
contemporary literature does not necessarily equate to profitability or rapid employment
growth. Some firms were in deficit as a result of heavy investment as well as a loss of
customers. Moreover, the cases demonstrate a variation in motivations, industry sub-culture,
customer base, profitability and engagement with external stakeholders. These render
generalisations on fast-growth firms problematic.
However, the cases also provide some general findings. One observation is that a period of
investment in technology leads to a spurt of turnover growth. This may take many years to
emerge and is not guaranteed: however, in these cases, there is a strong connection between
growth and investment in technologies that are industry specific. Second, the cases show the
particular vulnerability of some firms that are investing in technology and where lead times to
bring the product to market are long. Third, the cases of fast growth tended to expose
pressures on managerial and human resource weaknesses rather than finance and premises. In
other words, theory and policy needs to pay attention to these factors in subsequent studies of
fast growth firms. Finally, the cases show the power of any cyclical or structural changes in
demand. Even when firms appear strong and are experiencing growth, a downturn in
aggregate demand or a specific market, can appear to swamp a robust firm.
Limitations of the Research Approach
This paper and its underlying approach have particular strengths and limitations. First, the
results cannot be assumed to be typical of all fast growth businesses, wherever located. The
results it could be argued are constrained by location, sector and time specificities. Second,
as this is a study of high growth businesses, this might lead to a neglect of the deeper
constraining effects of particular environments on business performance more broadly. For
instance, fast growth might be more prevalent and/or easier to achieve in London than in
other UK regions. One way forward might be to identify research issues that have not been
tackled here but which subsequent studies might address. It might, for instance, be useful to
undertake a study of firms that are on the cusp of fast growth as defined here and the barriers
restricting their growth together with the learning required (Macpherson and Holt, 2007).
Third, a large-scale quantitative study might seek to identify the correlates of fast growth
with the aim of generalising findings to the broader business population. This would help
policy makers develop appropriate interventions to enable firms to realise their growth
potential. Finally, these ‘snapshot’ cases suffer from data collection at one point in time with
retrospective collection of historical information on business growth. It is suggested that a
longitudinal approach would contribute significantly to our understanding of the processes
and complexities of fast growth firms.
This paper aims to contribute to our understanding of the specifics of firms’ growth at the
level of the enterprise. The paper is an attempt to respond to the underlying dissatisfaction by
many scholars with the level of theory development in the literature, and a call for more
empirical evidence, on the actual experience of firms undergoing business growth.
The paper sets out a framework that spans individual, enterprise and environmental factors,
following main concepts in the literature. In general, growth firms were found to possess
some common characteristics at the individual owner-manager level, particularly in terms of
educational qualifications and motivation. However, it was the interplay of the owner-
manager’s strategy and resources, with their product/service and external environment which
generated different growth outcomes. For example, firms in the UK were shown to be more
likely to have to export in order to achieve fast-growth rates than those in the US. On the
other hand, the US economy was experiencing a downturn and even fast growth firms were
struggling to cope with these deteriorating general market conditions. Geographic expansion
is regarded as one of the routes to growth, but this may be easier for firms located in a large
economic zone (Barringer and Greening, 1998).
The case studies help contribute to the weight of evidence that shows a variation in
experience behind the blanket term of ‘fast growth firm’ or ‘gazelles’ (Dobbs and Hamilton,
2007). Fast-growth firms, as defined in the contemporary literature related to turnover
change, does not necessarily equate to profitability or rapid employment growth (Acs and
Mueller, 2008). Indeed some of the cases presented were loss-making at the time of
interview. Most of the owner-managers were very pro-active in the development of their
products and services, although not all were able to manage their firm especially in relation to
financial and general management. The cases showed variations in the ambition of owner-
managers (see Cassar, 2007), different resource requirements, including managerial and
staffing constraints (see Barringer et al., 1998); challenges to coping with the lead times to
bring products and services to markets and a variation in the ability to cope with vacillations
in their market segment.
The paper and the methods used to identify firms for study, also raise some questions
regarding the nomenclature of growth firms. The term ‘fast growth firm’ depicts a dynamic
organisation; one that is ‘going places’ and making a substantial contribution to the economy
in terms of output and employment. However, this role may be short lived or even a chimera.
The historical routes to achieving growth in the cases presented vary; their patterns of growth
– even whilst in the growth definition window of 60% turnover over 3 years – differ; and in
all probability their futures will vary. Hence, the results and the means to achieving this
research, suggest that we need to move away from any homogeneous notion of ‘the growth
firm’. Instead, the growth of a firm should be regarded as part of its wider experience and an
episode in its development. A single firm may experience numerous growth spurts and
slowdowns in its life. Indeed, it is likely that the episode of growth will constitute only a
minor part of the life of the organisation, as their smallness enhances their vulnerability to
other pressures and complexities.
In summary, this paper provides insights into the growth processes of firms, and adds to the
growing knowledge base on understanding the causes of growth in SMEs. Overall, it
confirms the notion of heterogeneity in business growth and cautions against general
prescriptions, comprehensive or growth stage models. Behind such vacillations in business
growth lay a variety of personal, business and environmental influences. Simple or mono-
causal explanations of growth are also not supported, confirming the research of St-Jean et
al., (2008). We would therefore concur with Dobbs and Hamilton (2009) that ‘Future
research in this area needs to be driven by theory and methods that reflect the heterogeneity
of the phenomenon.../...treating growth as one phase in an evolving pattern of development.’
(p. 316). Hence, today’s high growth firm may have been yesterday’s ‘plodder’ or
tomorrow’s failure. Whilst attractive to scholars and policy makers, we must exercise more
caution of an uncritical use of this label (see Gibb, 2000). We need to provide more evidence
on how the episodes of small firm growth sparks complexity and challenges to businesses in
order to inform sound theory and practice.
We would like to thank the owner-managers who gave up their valuable time to take part in
this study. We also appreciate the contributions of Dr John Kitching and Dr Dennis Ceru in
undertaking the fieldwork. Finally we would like to acknowledge Her Majesty’s Treasury
and the then Department of Business and Regulatory Reform (now BIS) for the funding of
the research. The views expressed and any errors or omission remain those of the authors.
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