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416 M. Virtanen and T. Heimonen 6 firms’ strategic choices – growth and internationalisation, subcontracting, specialisation and protection of competitive advantage (Smallbone et al., 1995; Littunen and Virtanen, 2009) 7 social capital – networks, environment and trust in relationships (Chetty and Campbell-Hunt, 2003; Littunen and Virtanen, 2009). This design was applied in themed interviews and in the organisation of the analysis. In addition to the above framework, we asked for the entrepreneurs’ own perceptions of what success and performance really mean for themselves. Questions asking what had been the main challenges in the development path and what kind of challenges could be expected to lie ahead in the future were also included in the interviews. 3 Methodology and data In order to find out the real nature of the development of HGS firms we have followed in this paper more carefully some case firms. As Bygrave and Hofer (1991) state it is difficult to fit mathematical models in entrepreneurship studies. They argue that regression analysis usually generates smoothly changing analytic functions, while entrepreneurship deals with sudden changes and discontinuities. In this analysis, our purpose is to identify and understand potential prerequisites and consequences of the HGS stage of SMEs. Since it came out that the amount of HGS firms is very small and no proper statistical analysis could have been performed, we selected multiple case approach as the method of analysis. The empirical path will be followed to define the entrepreneur’s judgment and perception of the processes. Thus the unit of analysis in this study is an owner manager entrepreneur rather than a firm even if financial development and job creation will be analysed as the firm level phenomena. The study concentrates only on those existing firms that have experienced HGS period in 2002 to 2005. This could possibly cause some self-selection bias, but a totally objective analysis is quite impossible to attain in this kind of approach. Together values, judgments, beliefs and attitudes are generally a matter of subjective rather than objective characteristics, and as Arrow (1965, p.12) states, only the values and beliefs of an agent are relevant to explain his choice. The criterion for selection of the cases required that average sales grow more than 20% in the period 2002–2005 and the growth is at least 15% every year. Thus the high growth firms have more than doubled their turnover in the four-year period. Success of the firm is defined by using the index constructed from the variables: earnings before taxes, current ratio, return on investment, equity ratio, debt ratio, repayment period of liabilities and business growth (Appendix 2). A firm should get annually at least 70 points out of a maximum of 100 to be classified as a highly successful business. We selected HGS firms from the longitudinal data including 348 SMEs. Altogether these data included 49 HGS firms of which nine were located in Eastern Finland. From these data, we selected from Eastern Finland five HGS firms where both the growth and success had been above the industry average in 2002 to 2005 (see Appendix 1). We excluded four cases based on their branch of industry. The excluded firms represented such branches where they had monopoly power because of legislation (motor-vehicle inspection) or they could cause some bias in employment and job creation (labour leasing).
The development of high growth and highly successful SMEs 417 Our main interest in this paper was to understand how the firms have performed before and after their high growth and high success period. Moreover, we investigated the job creation process and employment growth. The annual figures of financial statements and key ratios of the selected SMEs were obtained from the Voitto+ database and completed the data with the latest financial statement figures from the Patent and Registration Office of Finland and annual reports (ePortti databases). Because of the availability of the data in Voitto + database financial figures of the case firms were mainly restricted to the years 2000 to 2009. The primary data for the study were collected through interviews. The above framework for the theme interview was applied and used to analyse the results of the study. The interviews were carried out from 21 August to 15 September 2009, mainly in the offices of the case firms. All the interviewees were the main owners and CEOs of the firms. The interviews were recorded and transcribed accurately. The text was classified accordingly and the content was analysed. 4 Results and implications 4.1 The development of the case firms The characteristics and the development of the firms in the period 2000–2009 are described in Figures 1 to 3 and in Appendix 1. As can be seen all the firms have grown and succeeded well during the period 2002–2005. But before this period the trend of changes of turnover was declining in all the firms. After the HGS period both the turnover and ROA were mainly decreasing. The only exception is Mummon Turva Oy where ROA increased. ROA in Mummon Turva Oy was below 20% in 2004 and 2005 but because the SI takes into account the overall situation of the branch of industry, companies which score higher than the mean of the branch getting high SI figures. These findings are consistent with the results of Orser et al. (2000) which show that small firm growth is neither linear nor described well by biological paradigms (life-cycle theories). On the other hand, in HGS firms the changes of turnover and ROA seem to be parallel (cf., Davidsson et al., 2009; Steffens et al., 2009). The overall trend of the development of employment in the case firms seems to be upwardly sloping for the whole period of our study. The only exception in this development is BP Asennus Oy where the changes in the number of personnel are mainly due to the high number of project workers. The firm uses a lot of part-time and temporary workers, too. The overall employment effect of the case firms is substantial. Altogether the firms employed 51 people in the year 2000. At the end of 2009, the total number of personnel was 218. Thus these firms create regionally a significant growth in employment and consistent with the findings of Acs et al. (2008) they can be considered regionally as HIFs. Based on the financial statement and annual report figures it seems that growth and success measured by profitability are parallel phenomena. Both the growth and profitability curves of the case firms fluctuate but the direction changes simultaneously. This result is consistent with Cowling’s (2004) outcome that the movement of growth and profits is parallel but runs contrary to the conclusions of Davidsson et al. (2009) and Steffens et al. (2009) where firms first take care of profitability and then strive for high growth.
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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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and Rao, 2008). Because of the unev
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Table 1. Characteristics of the dat
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