Dr Noor Muhammad noormuhammad@giki.edu.pk

1. To understand growth and development in a small business context.

Is it an increase in:

1. Turnover/sales?

2. Profits?

3. Numbers employed?

4. Return to investors?

5. Global expansion?

Small firms represent 99% of all businesses in developed

Western economies and provide around half of employment

and turnover (Bennett, 2008). The situation in developing

countries is similar.

Main reason for start-up:

1. Pull factors (Opportunity driven)

2. Push factors (Necessity driven)

So we argue that the original motivation may influence whether or not they grow.

Type

1. Lifestyle

2. Small Profitable

3. High Growth

Drivers

1. Independence, autonomy

2. Comfortable living

3. Cash flow and profits

4. Autonomy and control

5. Sales and profit growth

6. Attract venture capital

1. Managerial objective

2. Product/service development

3. Expanding market

4. Economies of scale

5. Diversification

6. Type of industry

7. Strategic objective

Stage 1 Stage 2 Stage 3 Stage 4 Stage 5

Existence Survival Growth Consolidation Resource Maturity

Large

Small

Age of organisation Young Mature

Siz

e, dis

pers

ion,

com

ple

xity

A Composite Model of the Growth or Decline of a Small Business

terminate

Decline

Slow decline

Decline

Measure of growth (e.g. sales)

12 24 36 48 60

Phase 1 Concept/test

Phase 2 Develop-

ment

Phase 3 Growth

Phase 4 Maturity

Time (e.g. months)

Criticisms of Stage Models

1. No backward movement or skipping

2. Improbability of non-random defined crises

3. Exclusive internal focus/neglect of external environment Mostly by theory rather than evidence!

Researcher Phases/Stages Empirical Testing Mechanics

Steinmetz (1969)

4 Stages (and 3 phases)

(1) Direct supervision

(2) Supervised supervision

(3) Indirect control

(4) Divisional organisation

No empirical evidence

A successful small firm survives four

stages of growth and three critical

phases of growth, occurring at the end of

stages 1, 2 and 3.

Churchill and

Lewis (1983)

5 growth stages

(1) Existence

(2) Survival

(3) Success-disengagement;

success-growth

(4) Take-off

(5) Resource maturity

No empirical evidence

Managers of successful small firms were

consulted for the revision of the

perceived small firm growth model

(Greiner 1972). The proposed business

development framework delineates five

evolutionary stages of growth

characterised by an index of size and

diversity-complexity in terms of

managerial challenge.

Researcher Phases/Stages Empirical Testing Mechanics

Vozikis (1984)

3 stages of growth

(1) Start-up

(2) Early growth

(3) Later growth

Empirically tested (sample 117)

This investigation confirmed the existence of a diverse small

firm situation at the beginning /end of the organisational life

cycle. There was a statistically significant difference in the

small firm problem among the stages of development.

Scott and Bruce (1987)

Synthetic 5 stages of

Growth

(1) Inception

(2) Survival

(3) Growth

(4) Expansion

(5) Maturity

No empirical test

Their proposed synthetic model draws on previous researchers

(extensively on the work of Churchill and Lewis, 1983) of small

business development, and is a diagnostic tool of a firms

position and growth strategies, to achieve the development of

small firms along their life cycle.

1. Phase 1 - Creativity

Emphasis on creating a product and market Founders are in charge Technically oriented Focus on making and selling the products

Communication is frequent and informal

Crisis of Leadership Increasing complexity, founders struggle to both run and manage

the business, conflicts emerge on new products/markets

Phase 2 - Direction Capable business manager installed

Functional organisation structure

Accounting and capital management

Crisis of Autonomy direct energy into growth, increasing complexity, top management

unable to manage all operation, lower level managers feel tied down despite their grater knowledge of markets and products

Solution - Delegation

Phase 3 Delegation Operational and market level responsibility

Profit centres and financial incentives

Decision - making based on periodic reviews

Crisis of Control Management attempts to regain control and fail due to scope of

operations and markets

Solution - co-ordinate rather than control

Phase 4 Co-ordination Thorough review of formal planning

Centralisation of support functions

Motivation through lower-level profit sharing

Crisis of Red Tape Resource use become more efficient, local management look

beyond local needs, growth recommences.

Solution increase market alertness and people need flexibility

Phase 5 Collaboration Team action for problem solving

Cross functional task teams

Team incentives

Crisis of Internal Growth Only way to grow is through collaboration with other organisations

Solution - alliances

Phase 6 - Alliances Extra organisational solutions

Creating holdings

Managing a networks of companies

Crisis of Identity

Berger and Udell (1998) use a categorisation of small firms and suggest that firms from 0-2 years are infants, 3-4 are adolescents, 5-24 are middle-aged and 25+ are old firms.

This categorisation is consistent with the seed, start-up, market research and expansion, stages of business development noted in the literature.

The differences in the administrative structures of the very small and the very large firms are so great that in many ways it is hard to see that the two

are of the same genuswe cannot define a caterpillar and use the same definition for a butterfly (Penrose, 1959, p.19)

1. Management practices and style

2. Organisation structure

3. Strategic orientation

4. Entrepreneurial role

The Entrepreneur Motivation Education Managerial experience Teams Age

The Firm Legal status Age and size Location Size Market/industry sector Ownership

The Strategy External equity

Market positioning New product introduction Management recruitment

Internal and External Growth Strategies

Internal Growth Strategies

New Product Development

Other product-related

strategies

International expansion

External Growth Strategies

mergers and acquisitions

Licensing

Strategic alliances and joint ventures

Franchising

Firm Growth

Mission

Goals

Objectives

A shared mental image of a desired future state:

Provides a sense of meaning and purpose

Inspirational

Motivating

But must be realistic, credible and attractive

Often includes core values

The (company) aims to use its (competitive advantage) to achieve/maintain (aspirations) in providing (product scope) which offers (benefits) to satisfy the (needs) of (customer scope). In doing this the company will at all times strive to uphold (values).

Wickham

1. Having vision and ideas

2. Long-term, strategic planning

3. Communication (internal and external)

4. Creating the culture by example

5. Monitoring and controlling performance

Clarity of goals, tasks, procedures etc.

Expectation of high standards

Commitment to organizational goals

Feeling of personal responsibility towards these goals

Feeling of recognition & reward for high performance

Sense of unity & team working

Timmons

1. Availability and cost of finance

2. Overall growth of market

3. Increasing competition

4. Government controls, legal and regulatory environment

5. Skills shortage

Labour

Owner/manager

1. Management capability

2. Attitude to risk

3. Lack of enthusiasm

1. Bennett, R. (2008). SME policy in Britain since the 1990s: what have we learnt? Environment and Planning C: Government and Policy, 26, 375-397.

2. Berger, A. N. and Udell, G. F. (1998) The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle, Journal of Banking and Finance, Vol. 22, pp. 613-673.

3. Butchart, R. L. (1987) A new United Kingdom definition of the high technology industries, Economic Trends, No. 400, pp. 82-94.

4. Curran, J. and Blackburn, R. A. (2001) Researching the Small Enterprise. Sage, London.

5. Deakins, D., and Freel, M. (2009) Entrepreneurship and Small Firms, 5th edition. McGraw-Hill.

6. OECD SMEs Outlook, (2000)

Explain how your new venture can apply the marketing mix to gain

competitive advantage and strategic positioning.

Time: 15 Minutes

Total Marks: 10