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Characteristics of successful gazelles 13
1 Introduction
The fostering of high growth (HG) and highly successful (HS) businesses is considered
an important element of economic development. Different approaches have been used to
identify these so-called ‘gazelles’ since they are thought to generate the majority of new
jobs in society. Many expectations are loaded onto entrepreneurs and their businesses
when society changes. However, these expectations followed by the allocation of
resources for business development may be overestimated because of the wide diversity
of entrepreneurs and businesses. Thus the identification of HG and HS businesses could
decrease the gap between expectation and actual outcome.
From the policy perspective it is essential to be able to identify HG businesses, since
these businesses will be the most prominent portfolio companies of venture capitalists
and improving access to venture capital is one very important policy target. Several
studies have been conducted aimed at identifying growing firms as well as high or even
hyper-growth businesses (Acs et al., 2008; Almus, 2002; Ardichvili et al., 1998;
Davidsson and Wiklund, 2000, 2001; Littunen and Virtanen 2006, 2009; Markman and
Gartner, 2002; Sexton et al., 2000; Smallbone et al., 1995; Virtanen and Heimonen,
2007). However, is the identification of high-growth businesses sufficient if we are also
interested in high success? Statistics from venture capitalists suggest that only one tenth
of their portfolio of companies will be exceptionally successful and the success of only
one quarter will be considered satisfactory.
In most previous studies growth performance has been connected with the success of
the firm and in some studies growth has even been used as a surrogate measure of success
(Birley and Westhead, 1990). This kind of approach could be defended in studies such as
that of Smallbone et al. (1995). They used samples where high-growth firms were
associated with good performance, so that only those businesses which showed some
profit at the end of the period were classified as high-growth businesses. On the other
hand, in their study, success was defined as being adequate if the firm showed more than
zero profit, which cannot really be considered to demonstrate good profitability at the
lowest levels of success of the definition.
Virtanen and Heimonen (2007) concluded that a HG rate does not inevitably
equate to high success. The reason for this is obvious if you think about the factors
associated with growth. In order to grow, a lot of funds will be needed, which may
cause cash flow problems. However, Markman and Gartner (2002) suggest that both
sales and employment growth are unrelated to profitability in the case of extraordinarily
high-growth businesses. The growth and success of small and medium sized enterprises
(SMEs) can be considered from different perspectives depending on definitions of the
relevant concepts, their operationalisation and methods used in the analysis (Davidsson
and Wiklund, 2000; Delmar, 1997; Kirby, 2005; Markman and Gartner, 2002; Pasanen,
2003). This paper focuses on different approaches to studying HG and HS businesses and
the use of different quantitative methods in analysing the data. Simultaneously, the paper
describes the learning process associated with refining the data and selecting appropriate
methods for the analysis.
The paper is organised so that first we briefly introduce the research outline and
research questions. Then we turn to the existing literature relevant to the subject,
especially those empirical studies addressing the problems of growth and performance as
well as the methodology used in these studies. Thereafter we introduce the methods that