COVER SHEET

ENTREPRENEURSHIP: NEW VENTURE DEVELOPMENT

Assignment: Growth Businesses are Different

Module code: BEMM 108

Name of Tutor: Olga Kalinowska-Beszczynska

Date of submission: 17th February 2014

Number of words: 1909

Submitted By: Ayush Agrawal

Student Number: 630058475

Candidate Number: 02330

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BEMM 108 ENTREPRENEURSHIP: NEW VENTURE DEVELOPMENT

GROWTH BUSINESSES ARE DIFFERENT

Report by: Ayush Agrawal (Student No. 630058475) (Candidate no. 02330)

“Growth firms are those corporations that rank first according to a measure that combines

relative (percentage) and absolute rates of employment expansion”. (Schreyer, 30May 2000)i

The veracity of the present robust environment is that only diminutive businesses nurture

radically hence these only generates the majority of economic and other benefits. The changes

in technology and population demographics have made the economic conditions very robust. All

business has different start ups and improvement activities and hence diverse prospects.

Creating a new business is not always good for the enhancing employment and other forms of

economic and social benefits due to lack of either practical appeal or visibility. (Global Report,

GEM 2012, p.6)

Characteristics of growing businesses

There are two chief characteristic of growing businesses, one being innovation and the other is

business start-ups or market entry. Entrepreneurs can jeopardise to be more innovative and

hence can develop affirmative prospects in market environment. It is proved that innovative

businesses demonstrate more growth in market as well as in sales and hence create more jobs.

In words of Neil Kelly “True innovation is rarely about creating something new. It’s pretty hard

to recreate the wheel or discover gravity; innovation is more often about seeing new

opportunities for old designs.” (Burns) Statistics gathered by NESTA says that due to innovative

or amended products, a firm experienced a 4.4 percent employment growth compared to 2

percent exhibited by non innovative competitors. (The vital 6 percent, October 2009). Also on

an average 10 percent increment in sales append for approximately 1.5 percentages to the

employment. Between 2002 and 2008, half of the fresh employment was done by only 6%

businesses. (Nesta, The vital 6 percent, October 2009, p.3). Therefore the observers hold an

erroneous thinking that creating new business is a ‘good idea’ to create employments.

Further the start-ups firm’s growth depends on Entrepreneur’s capabilities for acquiring

proficiency in the course of learning.(Joan-Lluis Capelleras, March 2004)ii. In start-up firms the

decision making process is faster because of involving fewer individuals. This makes them

receptive to market, making it more adaptable. (Burns) iii

High growth

David Birch introduced a term called “Gazelles” for High growth firms that in his vision creates

huge net new jobs in market. (Johansson M. H., 2008) Pragmatically also it is the high growth

firms that accounts for utmost employment and other economic benefits as these are

comparatively more elastic, to recession hence more stable and consistent. The high growth

firms were contrasted with huge majority of small and start-up firms (Mice firms) consequently

effecting employment growth, to large firms (Elephant firms) with large share of employment

but exemplifying sluggish growth. (Johansson, June 24, 2008).

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BEMM 108 ENTREPRENEURSHIP: NEW VENTURE DEVELOPMENT

GROWTH BUSINESSES ARE DIFFERENT

Report by: Ayush Agrawal (Student No. 630058475) (Candidate no. 02330)

The start-ups and small companies thrive on resources and capabilities, their suppleness helps

them to respond fast and trounce on their deficiencies. These display higher net job creation in

disparity to old and large firms. The net job creation (employment gained minus unemployed)

imitates the significance of small and large firms in the job creation process which is indirectly

proportional to the firm’s size as small size firms can exhibit more net job gains to larger firms

(Schreyer, 30 May 2000). Contradicting these larger firms from high growth group create

significant jobs because of rapid growth due to mergers and other acquisitions. Also in certain

scenarios the start-up businesses cannot endure the market complexities. They hardly attain

breakeven, consequently imparting no positive economic benefits. (Churchill & Lewis, 1983).

They are either terminated or exhibit sluggish growth. It is mistaken that all high growth

firms are young, the fact cannot be neglected that about 70 percent of high growth firms were

established no less than five years back and 62 percent of these either remains small or even

don’t survive. (Nesta, The vital 6 percent, October 2009, p. 4) hence the bystander must have a

discerning for strengthening just those firms that can demonstrate consistent and reliable

growth.

Identifying the consistent high growth firms can be extremely critical and difficult. Normally the

companies while pushing for the growth often mismanage when they reach there. Supporting

only a number of firms may be iniquitous but the fact is most of the companies lack the

indispensable skills to take them to the next level, even though they are great at searching

perfect business model. (Blank, September 19, 2012). To avoid this ambiguity the policy makers

must focus more on qualitative issues rather than quantitative.

Unemployment often replicates lack in economies capacity to adapt to change. The

acclimatizing of economies depends on the nature of institutions, structural policies, regulations

and legal settings as well as social and cultural values. (Schreyer, 30 May 2000). These

determine the survival of the firms.

The Resource Based View

An organizational framework certainly cannot be correct or incorrect; it can only be helpful or

unhelpful. A growing organizational framework provides continuous learning through

experiences and always tries to extend their existing knowledge. Growth businesses always

build their strengths and core competencies, prop up its weaknesses and expand marketing

strategies. (Burns). Entrepreneurial growth is opportunity driven. Receptive entrepreneurs cash

every growth opportunity in the market by introducing innovation at the best time.(Hinz, 2011)

Entrepreneurship is “Constantly attuned to the environmental changes that may suggest a

favourable chance.” (Gumperter, 1985)

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BEMM 108 ENTREPRENEURSHIP: NEW VENTURE DEVELOPMENT

GROWTH BUSINESSES ARE DIFFERENT

Report by: Ayush Agrawal (Student No. 630058475) (Candidate no. 02330)

Unswerving growth is accomplished in certain stages. Consistently growing businesses must

demonstrate all these stages by habitually acclimatizing change in social, political and economic

situations. Imperatively high growth firms involves ‘growth’ till establishment and later

‘Expansion’. In ‘growth’ stage (As exhibited in Stage 3; Figure 1; Page 3) mounting customers

and revenues with many new innovative issues and opportunities for the firm is witnessed. At

this stage the profitability of the firm increases but the competition is also cultivated due to

increasing rivals. The biggest challenges can be lack of funds and time, for this the firms should

improve the management systems by new employment for in fluxing demand and better

intellectual skills. The human proficiencies are more effective than financial resources in

attaining high growth. (Holbeche, 2013). This can improve the knowledge and resource base for

the firms.

In ‘Expansion’ stage (As exhibited in Stage 5; Figure 1; Page 3), new distribution channels and

new markets are explored. At this stage opportunities are discovered based on the present

experience and bestowed skills. The biggest challenge here is planning as moving into disparate

business can leads to catastrophic results, for this expansion of either products or markets is

done. (Thierry Janssen, 2013)

Figure 1 Stages of development

Growth Business rapidly gains market dominance by penetrating the market. High growth firms

offer customer satisfactory services. Hence new customers from the same market segment are

targeted by the entrepreneurs. These firms are never complacent and targets customer needs

to remain competitive.

Secondly as mentioned above for products/services innovation is a key characteristic of

successful growth. High growth firms always try to develop a relationship of trust with its

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BEMM 108 ENTREPRENEURSHIP: NEW VENTURE DEVELOPMENT

GROWTH BUSINESSES ARE DIFFERENT

Report by: Ayush Agrawal (Student No. 630058475) (Candidate no. 02330)

customers, edifying reputation. The entrepreneurs focus on cost effective product/service

development to enhance business volume with the intention of satisfying present and future

customers.

Third, effective entrepreneurs always hanker for developing new markets for existing

product/service. This gives benefits from economies of scale.

The final step taken by high growth firms is to diversify. This can be related or unrelated to their

existing operations. In related diversification, either forward or backward integration is done

with the existing supply chain, whereas in unrelated diversification, the firms venture beyond its

present industry.

Figure 2 Product /Market Matrix

The Institutional Based View

Emphases on firms with predominantly large growth potential must be done. The ‘Gazelles’

must hold a centre stage as their record suggests that it is the finest approach for extensive

opportunity and affluence. This necessitates the involvement of institutions. “Institutions are

the humanly devised constraints that structure human interaction” It includes the formal and

informal constraints. “If institutions are rules then entrepreneurs of the organizations and are

the players”. (North, December 9, 1993).

Based on observations, high turnovers enhance the number of high growth firms (cf.,

Bartelsman et, 2005, Birch 2006, Fogel et al. 2006, Brown et al. 2006,) The probable reason

behind this is the speeding discovery of innovative business opportunities and rationalizing

resources requires greater amount of capital. Capital generates itself as it is used for procuring

raw materials which are further converted into commodities that can be offered in the market

to generate profits. Hence prerequisites to create High Growth firms are facilitating subsidies in

entry and expansion in addition to contraction and exit in order to save capital. (Johansson, June

24, 2008) Lacking this reorganization, obstacles might arise in inheriting growth potential.

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BEMM 108 ENTREPRENEURSHIP: NEW VENTURE DEVELOPMENT

GROWTH BUSINESSES ARE DIFFERENT

Report by: Ayush Agrawal (Student No. 630058475) (Candidate no. 02330)

The government must encourage innovation to construct business growth environment. This

can be done by suitable financial design, technology transfer and effective procurement.

Implication of policies is a challenge for the government. The high growth firms draw much

policy interest since these generates indirect and spillover effects. (Schreyer, 30 May 2000). The

authorities should critically note that these businesses must not face excessive barriers to

growth from taxes and other regulatory systems. It assists the emergence of high growth firms

without requiring picking winners. The relevant policies give confidence to the entrepreneurs to

institute firms that can enhance capital through innovation. (Nesta, The vital 6 percent, October

2009, p. 8) According to Henrekson and Johansson (2010b), matching policies can be a scaffold

to pick up state of high growth firms. The policy makers mustn’t pick certain sectors but take a

broad approach for institutional reforms that can perk up the condition of high growth firms.

(Jun Du, Yundan Gong and Yama Temouri)

The High growth firms display dissimilar performance in different countries. Principally

businesses differ in the environment in which they prosper (Pfeffer Jeffrey). The cross country

disparity is solely not due to endowments and industry structure. It requires the arrangement of

incentives in competence bloc by apposite institutions that silhouette the payment structure.

(Johansson, June 24, 2008). Further entrance of MNCs and augmentation of export/imports

after the globalization made noteworthy development on intangible resources on firms

dominating the local market. In order to counter the boosting cut throat competition, the local

leaders improved their output efficiency, R&D etc, hence creating jobs. Relating intangible

assets with competency, study done by Riley and Robinson, 2011; Dal Borgo et al., 2012 in

context to the UK, said that intangible assets possessed by the firm are directly proportional to

the firm’s productivity. (Jun Du, Yundan Gong and Yama Temouri). Augmentation of such assets

develops prospects for more number of growing firms and hence greater economic benefits.

Conclusions

High growth is certain sets of stages by which all expanding firms go through. Not all firms are

able to sustain longer in the growth and expansion stage, and hence high growth firms are rare.

These firms can be found in all the sectors and effects employment growth unanimously.

Innovation and start-ups are the two aspects for development. Growth businesses effecting

employment and other economic benefits are not essentially the start-ups, even the larger firms

can create significant amount of jobs. Hence recognizing the consistently growing firms can be

of utmost complication. Judicious approach from the policy makers might decipher this tricky

scenario. Growing businesses recognizes the challenges at every growth stage and act

accordingly by using their core competencies which all the companies fail to do. Hence from the

findings, it is concluded that only minorities of businesses are nurtured significantly

preponderating majority of economic and other benefits.

a

BEMM 108 ENTREPRENEURSHIP: NEW VENTURE DEVELOPMENT

GROWTH BUSINESSES ARE DIFFERENT

Report by: Ayush Agrawal (Student No. 630058475) (Candidate no. 02330)

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