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412 M. Virtanen and T. Heimonen “Money is not a measure of success because we have not had it in really vast amounts yet. I do not know how much you should have. When you have enough for a normal life, and a little for entertaining and for business operations so that there is no need to hold out a begging bowl when you approach a banker that will be great.” (CEO Mikko Häikiö, Pentin Paja Oy) 1 Introduction Small firm growth and especially new venture growth has been the subject of much empirical research recently (e.g., Davidsson et al., 2005; Wiklund et al., 2009). In the field of entrepreneurship the main journals reporting empirical growth studies include Entrepreneurship Theory and Practice, International Journal of Entrepreneurship and Innovation Management, Journal of Business Venturing, Journal of Small Business Management, Regional Studies and Small Business Economics. Roughly 100 articles have been published during the last 50 years. About 75% of these articles have been published in the 2000s. Theoretical background and frameworks of these studies represent a wide spectrum of entrepreneurship and management theories including, for example, Gazelles literature, industrial organisations, life cycle theories, resource-based view, and strategic management. In addition, data and methodological choices include both cross-sectional and longitudinal data as well as quantitative and qualitative approaches. Connection between sales and employment growth has been investigated, especially in the so-called Gazelles literature (e.g., Acs et al., 2008; Birch, 1979; Julien, 2001). Acs et al. (2008) revisited and expanded Birch’s findings on gazelles and labelled those firms which grow fast and create a significant growth in employment as high impact firms (HIFs). In spite of the large amount of SME growth studies concentrating especially on high growth businesses the simultaneous analysis of profitability, which could be used as the measure of success, has been quite scarce (Davidsson et al., 2005). The purpose of this paper is to study the development path of those firms which experienced simultaneous high growth and success period compared to their industry in 2002 to 2005. The approach of this paper starts from the growth perspective, but even if we differentiate between growth and success factors, both will be studied simultaneously. Previously we have analysed simultaneous growth and success of businesses in the period 2002–2005 and concluded that high growth and high success are not concentrated only in high technology industries but are also found in the service sector (Heimonen and Virtanen, 2007, 2008). Inspired by the outcome that the average high impact firm is 25 years old (Acs et al., 2008) we decided to focus more carefully on the overall development path of high growth and highly successful (HGS) firms. The aim of this paper is to answer the question, what kinds of overall development have these HGS firms encountered? Especially, we are interested in their performance before and after HGS period. Can we identify and suggest what factors could affect growth and success of the case firms? How do the entrepreneurs evaluate their high growth and high success? How do these firms contribute to job creation and employment growth?
The development of high growth and highly successful SMEs 413 2 Theoretical framework and former studies Many of the former growth studies (e.g., Davidsson and Wiklund, 2001; Delmar, 1997) are mainly concerned only with growth as such, without any wider emphasis on other dimensions of performance. As Birley and Westhead (1990) point out, success is seen as a parallel phenomenon with growth. However, they argue that the use of external finance which could be thought to be a prerequisite for growth correlates negatively with profitability. Davidsson et al. (2005) notice that even if numerous empirical studies on small firm growth can be compiled only a few have investigated the crucial relationship between growth and profitability. One notable inquiry into the determinants of high growth versus marginal survival (Cooper et al., 1994) found that the chances of both survival and high growth were positively associated with a higher level of education, greater industry-specific know-how and larger initial financial resources. Zhao and Aram (1995) compared low growth with high growth firms. They found that the range and intensity of business networks was markedly higher in the firms that grew rapidly. Sandberg and Hofer (1987) who used return on equity as their performance variable found no confirmation for the effects of the entrepreneur’s characteristics on venture performance. But they found support for the interactive effects of venture strategy and industry structure. Chrisman et al. (1999) extended the theoretical model of new venture performance proposed by Sandberg and Hofer (1987). The original model combined several potential explanatory factors that influence the performance of a firm. Their extended model specified that the performance of a new venture was a consequence of a confluence of factors that encompass attributes of entrepreneurs, industry structure, business strategy, resources, and organisational structure, processes, and systems. Acs et al. (2008) examined firms with significant revenue growth and expanding employment which they call HIFs. They found about 375,000 US HIFs in 2002 to 2006. HIFs were discovered in all industries, in almost all regions. Similarly, Chan et al. (2006) concluded that high growth small firms experience similar management challenges regardless of the industry, size and revenue level. Acs et al. (2008) found out that HIFs represent 2% to 3% of all firms, and they account for almost all of the private sector employment and revenue growth in the economy. Clearly, being a HIF in the previous four years has a significant impact on firm performance in the subsequent four years, and the effect is more evident as firm size categories increase (Acs et al., 2008). The study suggests that there is a connection between the age of the firm and its performance. But even if they state that HIFs are younger than low impact firms, their average age is around 25 years. Wiklund et al. (2009) use relative sales growth and sales growth compared to competitors, relative growth of employment and value growth (market value) compared to competitors as measures of growth. They conclude that resources have only an indirect effect on growth but environmental dynamism appears to have a complex relationship with changes over time, i.e., growth. Wiklund et al. (2009) argue that entrepreneurial orientation and growth attitude have a strong direct impact on growth. Littunen and Virtanen (2009) discovered that the growing ventures were more probably opportunity driven (pull motivation), used more often external financing (loans and public funding) at the start-up stage, applied group management style, had increased their production capacity, were adopting a specialised product policy but focusing on current customers, and were more open to external discussion. Littunen and Virtanen (2009) concluded that
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Aalto University publication series
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Author Tomi Heimonen Name of the do
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Acknowledgements This dissertation
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CONTENTS PART 1: Overview of the di
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List of Articles This thesis is bas
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1 Introduction Some scholars claim
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1 Introduction In addition, the dur
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1 Introduction Figure 1: Framework
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1 Introduction factors that affect
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1 Introduction 1.4 Key concepts and
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2 Literature review and conceptual
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3 Research methodology Constructivi
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3 Research methodology and the meth
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3 Research methodology The data use
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3 Research methodology 3.4 Models a
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3 Research methodology reliable. Se
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3 Research methodology concluded th
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4 Results, evaluation of the studie
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References Abetti, P. A. (2001). Ac
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References Bhide, A. (2000). The or
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References Creswell, J. W. (2003).
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References Golafshani, N. (2003). U
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References Leitch, C., Hill, F., an
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References Pellikka, J. and Laurone
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References Storper, M. (1992). The
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Appendixes Overview: Appendix 1: Ke
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Appendixes High growth When examini
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Appendixes profitability, liquidity
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Appendixes Appendix 1 Continued (Ke
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Appendixes Appendix 2 Construction
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Appendixes Appendix 2 Continued (Co
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not increased compared to Eastern F
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propensity for risk taking (Covin a
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2. Former studies and derivation of
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firm’s annual sales growth (Arund
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H4. Firm success has an impact on t
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other branches in which employment
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