Growth: Why Some Firms Do and Others Do Not

A review of business research indicates that entrepreneurs who set high-growth targets for their firms and plan for growth are more likely to be successful than are entrepreneurs who do not.

The evidence also suggests that high-growth entrepreneurs have the following attributes: a stronger commitment to success; a greater willingness to sacrifice; a much tighter focus on planning for growth; a commitment to improving management efficiency; a finer concern for the reputation of their brand; strong leadership attributes; and a wider range of sources to finance their venture.

Gazelle Index surveys have found that the willingness to plan for growth and set high-growth targets are the most important distinguishing features between high-growth entrepreneurs and low growth entrepreneurs.

Research findings sometimes differ on the relative importance of factors such as education, experience and risk-taking. However, the necessity of planning for growth is a consistent finding in the research.

Some ventures are not interested in growing and would prefer to remain lifestyle enterprises. In such cases, the objectives will be reflected in the style of management as well as planning and implementation.

On the other hand, small business ventures whose owners are committed to growth will usually devote the resources required to move beyond the startup phase. Those resources include planning, organizing the enterprise so that it becomes more professionally managed, and setting high-growth targets.

Many features that are thought to be unique to high-growth entrepreneurs are not necessarily distinctive to them.  In fact, traits such as a commitment to product and service quality and innovation, willingness to take risks, and the enthusiasm to work hard to achieve success are traits that are commonly found among successful high-growth and low growth entrepreneurs.

One attribute that high-growth entrepreneurs have been able to master is “value innovation”. As described in the popular book entitled Blue Ocean Strategy, value innovation is defined as introducing innovations in products, services or distribution networks that are not currently in the marketplace. This allows the entrepreneur to achieve “uncontested market space.”

The fact that the entrepreneur is unique in providing the product, service or distribution network creates a quasi-monopoly. Until rivals are able to imitate the product, the uncontested market space allows the entrepreneur control over prices. Therefore, new products can be offered at a higher market price and at the same time greater market share can be captured. This advantage will continue for a limited period of time, until rivals are able to compete by offering similar or better products and services.

Several examples will help illustrate this point. One of the most unique products to experience value innovation was MP3, by way of the development of the iPod. One of the unique  services to experience this was Starbucks Coffee. Likewise, Dell Computer and Walmart implemented unique distribution networks.

Value innovations allow them to gain market leadership in their respective product and service areas. However, as rivals gained ground, the uncontested market space diminished correspondingly and so did the control over price.

The important point is that market leadership was achieved by developing unique products, services or distribution networks that allow them uncontested market space – not by competing based on prices.

In summary, growth-oriented  small businesses must plan to grow if they wish to be successful. The plan must include implementing growth targets, introducing changes in management efficiency and developing unique products or services. Trying to scale by competing with lower prices is still important, but much less so today than in the past. The most effective way of completing today is through achieving “uncontested market space.”