Managing Growth and Development

1
Managing Growth and Development
2
Managing Growth and Development

• Aim To examine the process of and barriers to
  small firm growth and the major issues in the
  management of this process.

3
Enterprise Growth

• Majority of small firms do NOT grow to any
  appreciable size.
• Objective survival, maintenance of lifestyle
• Small proportion aims to achieve growth into a
  medium or large firm.
• Of small enterprises
• 55 have no ambition to grow
• 35 seek slow, steady growth
• 10 aim for fast growth (Hakim)

4
Enterprise Growth (cont.)

• Out of every 100 small firms, the fastest growing
  FOUR firms will create half the jobs in the group
  over a decade. (Storey)
• 23 of the firms contributed 71 of jobs
  created. (Smallbone)
• Important for employment opportunities and
  economic development
• important for policy makers (intervention!)

5
Enterprise Growth (cont.)

• ONE of many attempts at classifying new ventures
• Life-style small firms
• Marginal small firms
• Successful small-growth firms
• High-growth firms

6
Enterprise Growth (cont.)

• Influences on the growth rate of small firms
• Entrepreneur
• background
• resources
• Nature of firm
• Management strategies
• (Storey)

7
Enterprise Growth (cont.)

• Important issues in relation to entrepreneur
• Gender
• Motivation
• Education
• Ethnicity
• Age
• Family history
• No conclusive evidence to link any of these to
  small firm growth.

8
Enterprise Growth (cont.)

• Important issues in relation to nature of firm
• Consistent link between limited liability
  companies and fast growth
• Protection
• Enhanced credibility
• BUT legal status cause or consequence of growth?
• Limited companies have higher failure rates than
  sole proprietorship or partnership.

9
Enterprise Growth (cont.)

• Younger firms tend to grow more rapidly than
  older firms.
• BUT mature firms can grow rapidly after period
  of stagnation
• Growth is rarely a continuous process.

10
Presentation Assessment Criteria

• Relevance of Content
• Structure
• Delivery
• Quality and use of AVAs
• Subject Knowledge

11
Stages/Life-cycle models of small firm growth

• Various models
• Most use five stages e. g Churchill Lewis
  (1983)
• Existence
• Survival
• Success Disengage ? Growth
• Take-off
• Maturity

12
Stages/Life-cycle models of small firm growth
(cont.)

• Stages perspective suggests common patterns of
  development of new ventures.
• Each stage exhibits particular characteristics in
  terms of managerial/organisational/strategic
  issues.
• What, in your opinion, are the most important
  issues at a given stage?

13
Stages/Life-cycle models of small firm growth
(cont.)

• Role of entrepreneur
• changes from doer (at start-up) to manager
  during later stages.
• Difficult transition for many.
• Structure
• Lack of structure at start-up
• Entrepreneur covers all functions
• Increasingly formal and hierarchical

14
Stages/Life-cycle models of small firm growth
(cont.)

• Finance
• Focus on cash management in early stages
• Cash flow improves as business matures
• Critical again in case of decision to grow
• ? External sources of finance.

15
Stages/Life-cycle models of small firm growth
(cont.)

• Intensive activity at two stages
• Which?
• Why?
• Start-up
• Take-off
• Requires significant financial resources
• Entrepreneur needs to delegate
• Systems and controls must be developed

16

• Where would you see the limitations/weaknesses
• of these stages models?

17
Stages/Life-cycle models (cont.)

• Critique of stages models
• Most firms exhibit little or no growth.
• Some firms may skip stages or move backwards.
• Stages difficult to define
• Variations between industries (high/low tech)
• Firms may show characteristics of several stages.

18
Enterprise Growth (cont.)

• The Ten Percenters
• Companies with
• turnover of 5-100 million
• Sales growth of 30 or higher over 5 years
  (starting in 1992 or 93)
• Represented 10 of UK firms in the category

19
The Ten Percenters

• Results of study
• Successful entrepreneurs have their own unique
  style of management.
• Well managed firms (by textbook standards) no
  more successful than badly managed ones.
• Many firms based in unfashionable industries e.
  g. food processing.

20
The Ten Percenters (cont.)

• Three-quarter of the sample identified and
  exploited a profitable market niche.
• Market niche was expanding even if industry as a
  whole was not.
• Niche creating opportunities
• Outsourcing
• supermarket own-label products
• specific local circumstances
• Very few competed directly with large
  enterprises (Deloitte Touche)

21
SME Growth in Ireland

• Study by OGorman (2001)
• 131 SMEs in m/f and services sectors
• Success consistent growth over 5 years
• Results
• High growth SMEs
• Pursue a strategy of a broad product line in a
  narrower niche than competitors.

22
SME Growth in Ireland (cont.)

• Differentiate their product/service offerings
  from competitors ? USP.
• Innovate continually ? introduce new products ?
  change and improve entire product portfolio.
• Compete on product quality and customer service.

23
SME Growth in Ireland (cont.)

• Invest in their future by expanding capacity and
  up-dating plant and equipment.
• Grow in related areas of business by building on
  existing expertise.
• Likely to be involved in export markets.
• High growth as well as high profitability.

24
Barriers to Growth

• Three main categories of barriers to growth
• Management and motivation
• Reluctance to share responsibility/equity
• Lack of expertise/experience (the founder must
  go, if the business is to grow)
• Resources
• Market opportunities
• Small domestic market
• Lack of product and market innovation

25
Summary

• Enterprise growth
• Stages/life-cycle model(s)
• Fast firm growth studies
• In the UK
• In Ireland
• Barriers to growth

26
Further Reading

• Churchill, N C Lewis, V C (1983), The Five
  Stages of Small Business Growth, Harvard
  Business Review, Vol. 61, No. 3 30-39.
• Deloitte Touche (1997-99), The Ten Percenters
  Fast Growing Small and Medium Enterprises in
  Great Britain.
• OGorman, C (2002), Planning for Growth, in
  Cooney, T M Hill, S, New Venture Creation in
  Ireland, Cork Oak Tree Press
• Storey, D. J. (1994), Understanding the Small
  Business Sector, London Routledge.