Characteristics of Growth-Oriented Entrepreneurs

Entrepreneurship is a popular topic for researchers and policymakers around the world and much of the work in the area does not distinguish new businesses by size or strategy.  However, it is now widely acknowledged that a sub-class of entrepreneurs, often referred to as “growth-oriented entrepreneurs” or “high-growth entrepreneurs”, can be identified and distinguished by their aspirations relating to job creation, innovation and internationalization, all of which have been positively related to the economic development that is important to so many governments.[1]  Acs and Szerb, the creators of the Global Entrepreneurship and Development Index (“GEDI”), argued that international rankings of entrepreneurial activities in various countries should place more weight and importance on the amount of entrepreneurial activity directed toward innovation, high-impact entrepreneurship and globalization  focused their research on international entrepreneurship and “the efforts of the early-stage entrepreneur to introduce new products and services, develop new production processes, penetrate foreign markets, substantially increase the number of firm employees, and finance the business with either formal or informal venture capital, or both”.[2]

As to what constitutes a “high-growth firm”, Audretsch offered several definitions.[3]  For example, the 2007 OECD-Eurostat Manual on Business Demography Statistics defined the term to include: “All enterprises with average annualized growth greater than twenty percent per annum, over a three-year period, and with ten or more employees at the beginning of the observation period. Growth is thus measured by the number of employees and by turnover.”  The same source explained “gazelle firms” to be “[a]ll enterprises up to five years old with average annualized growth greater than twenty percent per annum over a three-year period, and with ten or more employees at the beginning of the observation period.” When Delta Economics surveyed “growth oriented” entrepreneurs in BRICSA countries, the US and Europe, it limited its survey to entrepreneurs running relatively young businesses (between 2 and 10 years old) that had turned over a minimum of $300,000 after the second year of trading and found that “growth oriented” businesses shared several common features: high growth rate in turnover; average employment of around 25 people and expectations of doubling the size of the workforce within three years; high likelihood that initial financing came from self-investment, usually from savings; some level of innovation in the way in which they approached their markets, product differentiation or research and development; and international orientation..[4]  For Llisterri and Garcia-Alba, “new, dynamic ventures” in Latin America, Asia and Europe were “firms between three and ten years old that had grown to employ at least 15 workers, and no more than 100, during the study” and which were likely to engage in export activities and compete on innovation (i.e., offering differentiated products or services) rather than price.[5]

As for characteristics of growth-oriented entrepreneurs, noted that there did not appear to be significant differences in the educational background of the founders of the dynamic and less dynamic companies. In most cases, they had attained high education levels and their college degrees had provided them with important technical knowledge, especially for the dynamic entrepreneurs; however, the educational system did little to transfer other skills necessary for successful entrepreneurship.  Dynamic entrepreneurs appeared to have distinctly different learning processes for entrepreneurship than their counterparts among the less dynamic companies.  For example, the previous work experiences of dynamic entrepreneurs provided significant advantages in terms of gathering information on business ideas and learning the skills necessary to commercialize those ideas.  In addition, dynamic entrepreneurs were better able to establish and mine networks of relationships that provided them with valuable support on such things as identifying business opportunities, accessing funds, forging relationships with executives at larger companies and obtaining access to information and non-financial resources such as raw materials or facilities.  Delta found that the top four drivers in motivating growth-oriented entrepreneurs worldwide were in order: following a dream; taking advantage of a market opportunity; getting autonomy over the entrepreneur’s time; and “making a lot of money”.[6]   While growth is an important facet of growth-oriented entrepreneurship, recognition has also been given to smaller firms that had opportunities to grow, and grow quickly, yet decided that while growth was a sign of health it was better to focus on “other, nonfinancial priorities as well, such as being great at what they do, creating great places to work, providing great service to customers, making great contributions to their communities and finding great ways to lead lives”.[7]

Growth-Oriented Entrepreneurship
 

A number of different methods have been used to describe “growth-oriented entrepreneurship”; however, there is a consensus that there is a particularly desirable form of entrepreneurship that seeks to create and scale up businesses that will drive productivity growth, create new employment, increase innovation, promote business internationalization and achieve sustainable economic growth.

Criterion for growth-oriented entrepreneurship can be understood from the following descriptions:

·         “Knowledge-based entrepreneurship” is entrepreneurship in the context of medium and high technology industries, both in the manufacturing and service sectors as well.  Distinguishing factors include the sophistication or intensity of technology involved, level of education and product/service uniqueness.

·         “Innovation” is a condition of growth-oriented entrepreneurship that includes both the development and commercialization of new products and services and the development and implementation of new or improved processes that enhance productivity or reduce costs associated with manufacturing or distributing existing products.  Innovation involves firms pursuing distinctive business strategies and doing new things in new ways to increase productivity, product development, sales and profitability, including finding and developing new ways of identifying the needs of new and existing customers and making and marketing products that satisfy those needs.

·         “Opportunity-based entrepreneurship” focuses on the motives of the entrepreneur and includes entrepreneurship undertaken to take advantage of a business opportunity.  The key characteristic among opportunity-based entrepreneurs is their acknowledgement that they made a voluntary career choice to pursue an entrepreneurial path.

·         “Genuine entrepreneurship” describes situations where individuals start businesses with the goal of generating sufficient income so that a portion of it can be reinvested in order to underwrite business growth and development.

·         “High-impact entrepreneurship” combines various characteristics and goals of entrepreneurial activity including innovation (i.e., development of new technologies, products and/or services and/or development of new production processes), penetration of foreign markets and globalization of overall business activities, an objective of substantially increasing the number of firm employees, and financing the business with risk capital.

Relevant metrics for growth-oriented entrepreneurship include changes in sales, assets, employment, productivity, profits and profit margins.

The goal of the launch phase for growth-oriented entrepreneurial ventures is to reach the point of “scale up” and common goals and activities associated with the launch phase include market disruption and penetration; gaining access to capital and markets and mentorship opportunities; organizational growth through management capacity, systems, resources (i.e., people, product and assets) management; embedding organizational culture; development of stakeholder relationships; monitoring and evaluation; and governance and reporting.

Finally, framework conditions for growth-oriented entrepreneurship to flourish and sustain include financial support; government policies; government programs; education and training; research and development transfer; commercial and professional infrastructure; internal market openness; access to physical infrastructure; cultural and social norms; and protection of intellectual property rights.  

This post is part of the Sustainable Entrepreneurship Project’s extensive materials on Entrepreneurship and Sustainability and Entrepreneurship.

Notes

[1] J. Amoros and N. Bosma, Global Entrepreneurship Monitor 2013 Global Report: Fifteen Years of Assessing Entrepreneurship across the Globe (2014), 37-41.

[2] Z. Acs and L. Szerb, “The Global Entrepreneurship and Development Index (GEDI)” (Paper presented at Summer Conference 2010 on “Opening Up Innovation: Strategy, Organization and Technology”, Imperial College London Business School, June 2010).

[3] D. Audretsch, “High-Growth Entrepreneurship”, OECD (March 2012).

[4] The Association of Chartered Certified Accountants, High-growth SMEs: understanding the leaders of the recovery (July 2012) (based on data and analysis provided by Delta Economics in “Challenges and Opportunities for Growth and Sustainability”).

[5] J. Llisterri and J. Garcia-Alba, HGSMEs in Latin American Emerging Economies. The paper was prepared for “The OECD Kansas City Workshop”, Session III. “From Invention to the Market Place: Acquiring knowledge and intellectual assets: The interaction between large firms and small business in the fast growth process”.

[6] The Association of Chartered Certified Accountants, High-growth SMEs: understanding the leaders of the recovery (July 2012) (based on data and analysis provided by Delta Economics in “Challenges and Opportunities for Growth and Sustainability”).

[7] B. Burlingham, “Best Small Companies”, Forbes (February 8, 2016), 86.

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