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New Venture Growth: Current Findings and Future Challenges
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11
New Venture Growth:
Current Findings and Future
Challenges
Ivan Zupic and Alessandro Giudici
Introduction firm (Penrose, 1959). Growth is also one of the

most frequently used measures of firm perfor-
Everybody seems to be interested in growth. mance. A number of studies, whose explicit
Politicians and policymakers love growth aim was not to study firm growth, have used
because it brings new jobs and helps eco- growth as a measure of firm performance. This
nomic development. Startup founders want chapter focuses on new venture growth and is
advice on growing their ventures into multi- organized in two sections.
billion dollar companies. Academics want to First, we review the state-of-the-art of the
understand growth in order to help entrepre- literature on new venture growth and classify
neurs and politicians achieve it. From a prac- this into three perspectives: the research on
tice point of view, the recently established high-growth firms, which comes mainly from
Future 50 program backed by the UK gov- an economic perspective; the research on fac-
ernment to accelerate the growth of a selected tors driving firm growth (i.e. antecedents of
group of high-growth digital startups repre- growth), which represents the entrepreneurial
sents a case in point. A thorough understand- perspective; and research on the growth pro-
ing of new venture growth is therefore critical cess. Research on high-growth firms primar-
when establishing these kinds of programs. ily utilizes large-scale secondary databases to
New venture growth is one of the founding research stylized facts about populations of
topics of entrepreneurship research. Growth is high-growth new ventures and their effect on
a multidimensional and complex phenomenon the wider economy, mainly in relation to GDP
(Davidsson, Achtenhagen, & Naldi, 2010; growth and the employment rate. The second
Delmar, Davidsson, & Gartner, 2003). It can perspective uses quantitative and qualita-
be viewed as the development of the firm or tive methods to investigate questions relating
simply as quantitative change in the size of the to how different factors (e.g. human capital,
BK-SAGE-BLACKBURN_ET_AL-170255-Chp11.indd 191 10/08/17 8:26 PM

192 The SAGE Handbook of Small Business and Entrepreneurship
social capital, finance, and strategy) influence (What we know about)

new venture growth levels. Finally, the third High-growth firms
perspective investigates the process of new
venture growth. Process research comes pri- Interest in high-growth firms (HGFs) is driven
marily in the form of stages-of-growth models by the recognition that the bulk of job creation
(e.g. Churchill & Lewis, 1983; Hanks, Watson, is the consequence of the fast growth of a small
Jansen, & Chandler, 1993; Kazanjian, 1988). number of firms while the average firm’s con-
These models have, however, been heavily tribution is negligible (Coad, Daunfeldt, Hölzl,
criticized as overly deterministic (Levie & Johansson, & Nightingale, 2014). The HGF
Lichtenstein, 2010) and are thus less diffused literature is largely empirical, and emerged as
in contemporary research. Arguably, new a large distinct research stream only weakly
research approaches are needed to reinvigor- connected to other literature on firm growth
ate this latter stream, which is also likely to be (Zupic & Drnovsek, 2014). Research on HGFs
most useful to entrepreneurs in practice. usually comes from an economic perspective,
Finally, we outline our suggestions for is mostly conducted on large-scale secondary
moving the research agenda forward. We databases, and tends to be published in jour-
summarize the suggestions of previous major nals like Small Business Economics and
reviews and discuss methodological and Industrial and Corporate Change.
measurement challenges in designing growth High-growth firms are most often defined
studies. Further, we argue that the extant in one of the following two ways: (1) as a
research is not sufficiently useful to policy- percentage of firms recording the highest
makers and entrepreneurs and thus pay spe- growth (e.g. the top 5% of the fastest grow-
cific attention to proposing future research ing firms) or (2) as all firms surpassing an
directions that might address this gap. annual predetermined level (e.g. all firms
New venture growth research is a vast and growing at least 20% annually in a three-year
fragmented landscape that is impossible to period) (Coad et al., 2014). The OECD and
cover in-depth in one chapter. We focused Eurostat’s recommended definition of HGFs
on summarizing the core contributions, but is that annual growth (measured in sales or
space constraints have meant the exclusion of number of employees) should exceed 20%
some nuanced discussions. We will therefore for a period of three years and that the firm
occasionally point the reader to more exten- should have at least ten employees in the
sive discussions of specific subject matter. starting year (Eurostat-OECD, 2007). There
are significant differences in how firms grow,
and different growth measures are weakly
correlated. This suggests that firms are often
New venture growth: considered high growth only according to
Current findings one measurement criterion. The consequence
of the choice of growth measure is that dif-
This section summarizes current findings in ferent firms will be classified as high growth.
firm growth research. We divide the literature The literature on HGFs has mostly been
into three sections: (1) research on high- guided by these firms’ supposed outsized
growth firms; (2) antecedents of growth (the contribution to job creation. As most small
most thoroughly researched area with the firms do not have the capability or even
largest number of studies); and (3) growth motivation to grow, there is a small minor-
process. We conclude by examining how ity of firms that create most new jobs, which
growth is measured. Our visualization of the seems to be confirmed by the literature.
landscape of new venture growth research is Henrekson and Johansson (2010) performed
presented in Figure 11.1. an analysis of recent studies and found that

New Venture Growth: Current Findings and Future Challenges 193
Figure 11.1 Map of the new venture growth literature
gazelles are indeed outstanding job creators. Gibrat’s law (Gibrat, 1931; Sutton, 1997)
The term ‘gazelles’ should be used only for – the law of proportionate effect – states that
young high-growth firms, specifically those firm size and growth rate are independent and
that are less than five years old. Since Birch that growth has no correlation through time.
(1979), small firms have been identified as This represents the most researched issue in
creating the majority of new jobs. Recent the HGF literature. HGFs tend to be smaller
studies, however, seem to imply that the in size, which runs contrary to Gibrat’s law
relationship between the age of the firm and (Moreno & Casillas, 2007). Most empiri-
growth is more important than the relation- cal studies now tend to reject Gibrat’s law
ship between size and growth (Haltiwanger, for smaller firms. However, the law appears
Jarmin, & Miranda, 2013). Therefore, young to hold for larger firms. The law is a good
firms, not small ones, create the majority of first approximation of growth rate distribu-
jobs (Lawless, 2014). tion, indicating that growth in HGFs has a

large random component (Coad et al., 2014). political biases in the research on entrepre-
Firms’ growth rate distributions tend to be neurial firms, which resulted in positive bias
tent-shaped, meaning that the majority of in assessments of the impact of startups on
firms do not grow at all while a small number the economy. This leads us to the conclusion
of firms experience high-growth episodes. that, although research on HGFs has produced
It seems to be that high-growth firms are several important stylized facts, its lessons for
one-hit wonders (Daunfeldt & Halvarsson, policy are mostly in relation to ‘what not to
2015) as most are unable to sustain high growth do’ and that ‘it’s complicated’ as opposed to
beyond a brief period. Coad and Hölzl (2009) concrete advice on specific policies that work.
found a negative autocorrelation of annual This section briefly summarized the
growth in small growing firms, which means research on HGFs (for an in-depth treat-
that sustained fast growth is a very rare occur- ment of the HGF literature, see Coad, 2009;
rence. Furthermore, the R2 values of studies for other recent reviews and summaries, see
that aim to explain high growth are very low; Coad et al., 2014; Henrekson & Johansson,
the explained variation by these models is usu- 2010; Moreno & Coad, 2015).
ally below 10% (Coad et al., 2014).
HGFs are not necessarily high-tech. The
often assumed association between high-
growth firms and high-tech industries is Antecedents of growth
not empirically supported. HGFs come
from all sectors (Henrekson & Johansson, This section reviews research into various
2010). Technology-based firms are repre- factors that drive firm growth: founders and
sented roughly equally in high-growth as in the entrepreneurial team, resources, strategy,
all firms. However, service sectors seem to the external environment, barriers to growth,
have a slightly larger proportion of HGFs. and other considerations. Most of the studies
High-growth SMEs in countries closer to the in this section examine the effects of anteced-
technological frontier have a higher R&D ents on growth rates and are sometimes
intensity than others while, in other coun- labeled as the ‘change of amount’ research
tries, there is no difference in R&D inten- stream. Growth is viewed here as the depend-
sity between high-growth SMEs and others ent variable. This research tends to be pub-
(Hölzl, 2009). Hölzl investigated the con- lished in general management or specialty
nection between investment and R&D on entrepreneurship and strategy journals.
European-wide data from a CIS survey and
concluded that R&D seems to be important
only for high-growth SMEs in countries
close to the technological frontier. Founder and entrepreneurial
It is difficult to conclude from the HGF lit- team factors
erature what policymakers should do to spur
economic growth and increase employment. Motivation and ambition are important driv-
As noted earlier, HGFs cannot be reliably pre- ers of firm growth (Baum, Locke, & Smith,
dicted; high growth is not usually a persistent 2001). Entrepreneurs with higher growth
phenomenon; and there is a significant random ambitions are more likely to create a high-
component in growth rates. The explanatory growth venture. However, it is inaccurate to
power of models is low. Young small firms do assume that most entrepreneurs have high-
create the majority of jobs but also have the growth ambitions. On the contrary, the major-
highest rates of churn (Anyadike-Danes, Hart, ity of small business founders have limited
& Du, 2015). Furthermore, Nightingale and intentions to grow their ventures and are
Coad (2014) listed several methodological and motivated by other goals (e.g. to provide for

family or to enable certain lifestyles). Starting education in economics or business fields

a new venture with the motivation of finan- positively affects growth. Their past joint
cial success is significantly connected with work experience and heterogeneity in indus-
future growth (Cassar, 2007). However, try experience (founders with experience
growth motivation can be both a growth pre- from both within and outside the new venture
dictor and an acquired taste as the managers industry) have been linked to higher growth
of firms that have experienced past episodes (Eisenhardt & Schoonhoven, 1990; Vissa
of high growth are more likely to be moti- & Chacar, 2009). University-based high-
vated by future high growth (Delmar & tech startups have been found to be slower
Wiklund, 2008). growing than their independent counterparts
A number of studies have examined the (Ensley & Hmieleski, 2005).
connection between entrepreneurial teams Company founders can have common prior
and growth. One issue in this regard is the company affiliation (e.g. an entrepreneurial
association between leadership behavior team working together before founding the
and growth. Ensley, Hmieleski, and Pearce firm) or diverse prior company affiliation
(2006) found that shared leadership (stem- (founders worked for different companies).
ming from within a team by emergent formal Companies whose founding team has both
and informal leaders) is more strongly asso- common and diverse company affiliation are
ciated with growth than vertical leadership more likely to grow (Beckman, 2006). This
(from an appointed formal leader as com- finding suggests that shared understand-
mander). Transformational and empowering ing following common history encourages
dimensions of vertical leadership are even exploitation strategies (efficiency and speed
negatively associated with growth. of implementation) while creativity associ-
Founding top-management team (TMT) ated with diverse prior company affiliations
characteristics have important consequences encourages exploration behavior (innovation
for a venture’s subsequent growth. Previous and change). Both of these contribute toward
experience in the same industry seems to be making firms more ambidextrous (i.e. able
strongly associated with growth (Colombo to handle both exploration and exploitation
& Grilli, 2005; Cooper, Gimeno-Gascon, & simultaneously) (Raisch & Birkinshaw, 2008).
Woo, 1994). For instance, a content analy- Similarly, Beckman, Burton, and O’Reilly
sis of company narratives found that 76% of (2007) found that diverse prior company
high-growth companies had founders with affiliation and diverse functional experiences
previous industry experience compared with lead to a higher probability of venture capital
just 24% of slow-growth firms (Barringer, investment, which is one of the predictors of
Jones, & Neubaum, 2005). Specific com- growth. Adding experienced top-management
petences and technical skills are linked to team members when developing a venture is
growth while general competences (e.g. also associated with higher growth.
organizing and managerial skills) appear not High growth in itself can lead to top-
to be (Baum et al., 2001). management team change because different
Colombo and Grilli (2005) found that managerial capabilities are needed to handle
founders with previous management experi- the increased complexity of managing the
ence gained easier access to private equity venture (Boeker & Wiltbank, 2005). This
investment but that having that experience, need can be counterbalanced by TMT func-
on average, did not positively affect growth. tional diversity to ensure that the capabilities
However, obtaining private equity itself has needed for growth are already present in the
a positive effect on future growth. Does this team. However, low growth can also lead to
mean that venture capitalists are misguided management team change as it is often per-
by betting on ex-managers? Founders’ ceived as a failure on the part of management.

Resources capabilities are a key growth enabler as high

levels of resources cannot compensate for
The founding work of resource-based explana- weak capabilities (O’Cass & Sok, 2014).
tions of firm growth is The Theory of the The most researched resources in the growth
Growth of the Firm (Penrose, 1959). Penrose literature are human, financial, and social
suggested that there are managerial limits to capital (i.e. networks). The performance of
firm growth. Experienced managers need to new ventures is often dependent on the initial
train new managers, thus diverting time and human and financial resource base at startup
attention away from their work, suggesting (Cooper et al., 1994). Human capital includes
that there are adjustment costs to growth. The both the human capital of the founders (cov-
availability of experienced managers puts an ered in the previous section) and employee
upper limit on the rate a firm is able to grow, capabilities that help founders achieve their
the so-called ‘Penrose effect’. The second cen- goals. A meta-analysis of human capital stud-
tral tenet of Penrose’s theory is the productive ies showed that the outcomes of human capital
opportunity set (POS) facing the firm. The (e.g. knowledge, skills) are more strongly con-
identification and exploitation of growth nected to entrepreneurial success than human
opportunities is dependent on managers’ sub- capital investments (e.g. education, experi-
jective evaluation of POS. The POS is influence) (Unger, Rauch, Frese, & Rosenbusch,
enced by a firm’s current resources and 2011). The connection between human capital
knowledge and the ways in which managers and success is also stronger for young busi-
can recombine them to develop new products nesses but not for high-tech firms. Human
and services. The legacy of Penrose’s work capital thus seems to be important for both
was later further developed within the resource- technology and non-technology new ventures.
based view (RBV) (Barney, 1991; Wernerfelt, Another highly researched topic is the
1984). Resources that are valuable, rare, inimi- importance of networks in firm growth. Two
table, and non-substitutable (VRIN) are con- different kinds of networks are examined:
sidered to be sources of competitive advantage. entrepreneurs’ personal networks and firm
Acquiring and orchestrating the right resources networks. Personal networks refer to the social
is thus crucial for firm success. capital of the entrepreneurial team while firm
Capabilities are firm-level constructs that networks are strategic alliances that small
reflect a firm’s ability to use its resources. firms have with other firms. Social capital can
Growth-related capabilities can be divided also be a way for entrepreneurs to compensate
into substantive growth capabilities (those for the lack of other forms of resources (e.g.
that enable the firm to compete and grow, human, financial), and social networks can
e.g. new product development) and dynamic also be a source of advice and emotional sup-
capabilities (those that extend, change, or port. Networks allow entrepreneurs to access
create new substantive capabilities) (Koryak, resources and capabilities they do not possess.
Mole, Lockett, Hayton, Ucbasaran, & Moreover, they can enhance the effectiveness
Hodgkinson, 2015). For instance, one study of existing financial and human resources
found that marketing and financial capabili- (Florin, Lubatkin, & Schulze, 2003). A vari-
ties can be associated with market expansion ety of weak ties that bridge otherwise dis-
and innovation as two ways of achieving connected groups (Burt, 1992; Granovetter,
high growth (Barbero, Casillas, & Feldman, 1973) make it more likely for entrepreneurs to
2011). Another study based on 212 young acquire new information and knowledge.
technology firms established that technology It is mostly acknowledged that the social
and marketing management competences are capital of entrepreneurs has a positive effect on
linked to higher development speed (Salomo, growth. In their longitudinal study, Davidsson
Brinckmann, & Talke, 2008). Developed and Honig (2003) found that bridging and

bonding social capital consisting of both (business advice, emotional support, or busi-
strong and weak ties plays an important role ness resources) helps or undermines firm
in new venture development. Lechner and growth (Arregle, Batjargal, Hitt, Webb, Miller,
Dowling (2003) also found that both strong & Tsui, 2015). Network capabilities can also
and weak ties are positively associated with strengthen the relationship between entrepre-
firm growth. Indeed, as Pirolo and Presutti neurial orientation and growth performance
(2010) suggested, finding the optimal con- (Walter, Auer, & Ritter, 2006). Finally, strate-
figuration of strong and weak ties is one of the gic alliances are another form of network (this
major challenges for startups. Structural holes is discussed in the strategy section).
in entrepreneurial teams’ external networks are Another extensively researched predic-
positively correlated with new venture perfor- tor of growth is finance. Fast growth usu-
mance (Vissa & Chacar, 2009). Additionally, ally requires increasing amounts of capital
specific human capital in the form of domain that can be sourced from venture capital-
knowledge seems to enable entrepreneurs to ists, banks, or customers. Finance studies on
leverage bridging ties (i.e. connecting other- growth have examined how startups use vari-
wise separate networks) for growth (Scholten, ous types of financing (Cassar, 2004), credit
Omta, Kemp, & Elfring, 2015). The combina- constraints faced by new technology-based
tion of network centrality and extra-industry firms (Colombo & Grilli, 2006), growth-cycle
bridging ties in entrepreneurial teams with theory of small business financing (Gregory,
high entrepreneurial orientation has also been Rutherford, Oswald, & Gardiner, 2005), and
found to enhance new venture performance how bootstrapping new ventures affects their
(Stam & Elfring, 2008). growth (Vanacker, Manigart, Meuleman, &
Khaire (2010) showed that new ventures Sels, 2011). The role of venture capitalists
can overcome lack of legitimacy and status has been thoroughly examined, and several
by mimicking the structures and ceremonial studies have found that firms supported by
activities of established players and becoming venture capital investment experience higher
affiliated with them. In this way, new ventures growth (Inderst & Mueller, 2009). However,
can grow and overcome their lack of resources. a recent meta-analysis challenged this view
Notwithstanding, some studies have found (Rosenbusch, Brinckmann, & Müller, 2013)
that social networks at founding seem to have and, after controlling for industry selection,
a negative effect on sales in subsequent years found that the venture capital effect on growth
(Lechner, Dowling, & Welpe, 2006). is small. Nevertheless, the working venture
While the majority of network studies are capital industry is considered to be one of
based on data from developed economies, sev- the cornerstones of the successful technology
eral have explored networks and institutions entrepreneurial ecosystem (Grilli, 2014).
in emerging economies. Batjargal’s (2010) Nason and Wiklund (2015), in their meta-
survey of software entrepreneurs in China and analysis of growth studies, made the distinc-
Russia discovered a negative effect of struc- tion between VRIN resources characteristic
tural holes on the profit growth of new ven- of RBV (Barney, 1991) and Penrosean versa-
tures. Somewhat conflictingly, a study of 637 tile resources. VRIN resources enable firms
entrepreneurs in four developed and emerging to distinguish themselves from competitors
economies linked structural holes with rev- that do not possess such resources as a way
enue growth (Batjargal, Hitt, Tsui, Arregle, of facilitating sustained growth. Conversely,
Webb, & Miller, 2013). This link was stronger resource versatility allows managers to
in the presence of weak and inefficient institu- use them in a variety of ways to develop a
tions. Another study (based on the same data broad range of new products and services,
collection) investigated how the proportion thus increasing a firm’s productive oppor-
of family ties in different types of networks tunity set and enabling its managers to take

broader strategic actions. A meta-analysis tend to more frequently engage in entrepre-

of 113 studies showed that VRIN resources neurially uncertain activities (Wales, 2016).
have no effect on growth while more versa- Nonetheless, EO cannot be expected to be
tile resources can be linked to higher growth universally beneficial as its effects might be
(Nason & Wiklund, 2015). This spells bad contextually dependent, and different dimen-
news for RBV-based growth explanations. sions of EO might generate different effects
The authors thus recommend that future stud- on firm performance. In particular, innova-
ies build on Penrose’s theory instead. tiveness has been independently examined as
a possible factor influencing growth.
Business models have emerged as an impor-
tant new perspective in strategy (Aversa,
Strategy Haefliger, Rossi, & Baden-Fuller, 2015;
Baden-Fuller & Haefliger, 2013; Teece, 2010).
A sub-stream of the growth literature exam- However, the role of business models in new
ines the connection between firm strategy venture growth remains largely uncharted ter-
and growth. Studies on the effects of com- ritory, with the exception of one study. High-
petitive strategies on growth have produced growth firms in declining industries have been
conflicting findings. Some studies have shown to have different value propositions
shown that higher levels of competitive strat- (a central component of a business model)
egy (focus, low-cost, or differentiation) are than incumbent firms (Chandler, Broberg, &
positively associated with higher growth Allison, 2014). High-growth firms are able to
(Lechner & Gudmundsson, 2014). Others grow in spite of adverse conditions by creat-
have found that the differentiation strategy ing one of the three unique value propositions:
has a positive effect on growth while focus or meeting the needs of an underserved market
low-cost strategies have no effect on growth segment, identifying a new market segment by
(Baum et al., 2001), that no single generic focusing on product/service characteristics that
competitive strategy can be linked to higher appeal to that segment, or providing a total cus-
growth (Leitner & Güldenberg, 2009), and tomer solution.
that combined strategies perform better. Alliances are one way in which new ven-
Strategic decision speed has been con- tures can access strategic resources (Gulati,
nected with higher growth, an effect that 1998). They are specifically attractive to entre-
has been especially pronounced in dynamic preneurs who do not want to cede control over
environments (Baum & Wally, 2003). This their ventures. Complementary resources from
finding might encourage managers to fol- partners can compensate for the lack of inter-
low the strategy of simple rules (Sull & nal resources and enable market access, and
Eisenhardt, 2012) but, in dynamic industries, endorsements from well-known established
higher growth is also associated with higher firms can signal quality and help overcome
strategic variety (Larrañeta, Zahra, & Galán legitimacy barriers faced by new ventures.
González, 2014). Alliances can predict growth and seem to
Entrepreneurship orientation (EO) (Miller, be the vehicle through which venture capi-
1983) has also been shown to be one of the tal investment can promote growth (Mohr,
most robust predictors of growth (Wiklund, Garnsey, & Theyel, 2013). They can mitigate
Patzelt, & Shepherd, 2009). EO captures the negative effects of bootstrapping on new
the entrepreneurial aspects of firms’ opera- venture growth as bootstrapping has been
tions (Lumpkin & Dess, 1996) and is usually found to have an inverted-U relationship with
defined as a multidimensional construct that new venture performance (Patel, Fiet, & Sohl,
includes risk-taking, proactiveness, and inno- 2011). Collaborating with big firms might also
vativeness. Managers of firms with high EO impact new ventures negatively as external

partnerships can influence the link between the organizational environment: munificence,
internal capabilities and growth. Having too complexity, and dynamism. The munificence
many partnerships can limit growth as part- concept states that organizations seek envi-
ners’ resources, rather than complement, can ronments that enable them to grow and gen-
act as substitutes for internal resources and erate slack resources that allow them to
capabilities (Vandaie & Zaheer, 2014). Power survive periods of scarcity (Cyert & March,
relations between partners can also be asym- 1963). Dynamism represents both environ-
metric. New ventures thus need to be selective mental turbulence and the stability–
and cautious when entering strategic alliances. instability axis. Highly dynamic environ-
The question of mode of growth – whether ments are characterized by unpredictable
it is internal (i.e. organic) or external (i.e. change and heightened uncertainty.
acquisitive) – is a strategic issue (McKelvie Environmental complexity refers to the het-
& Wiklund, 2010). Acquisitive growth ena- erogeneity and range of activities that organi-
bles firms to grow more quickly and can zations need to perform (Child, 1972).
– under certain conditions – even spur sub- Some studies have conducted thorough
sequent organic growth (Lockett & Wild, investigations of strategic decision speed and
2013). Acquisitive growth can also enable firm performance under different combina-
firms to embark on new development paths tions of organizational and environmental
that might not be available organically from characteristics (Baum & Wally, 2003). They
these firms’ current resource base and POS. examined entrepreneurs’ growth intentions
This is a consequence of path dependency as a as they change through time under different
firm’s future market opportunities depend on competitive conditions (Dutta & Thornhill,
current opportunities, and acquisitions might 2008). Other studies have also scrutinized the
be a way of breaking that limit to growth. moderating influence of environmental dyna-
This proposition seemed to be confirmed by mism on the relationship between leadership
a study on a 10-year panel of Swedish firms, behavior and venture performance (Ensley,
which found that previous organic growth Pearce, & Hmieleski, 2006), entry modes
acts as a limit on current growth (Lockett, when internationalizing (Rasheed, 2005), and
Wiklund, Davidsson, & Girma, 2011). opportunity exploitation under conditions of
Previous acquisitive growth, however, has a risk and uncertainty (Hmieleski & Baron,
positive influence on current organic growth. 2008). Clarysse, Bruneel, and Wright (2011)
Moreover, exportation and internationali- examined how firms develop and structure
zation are another frequently used mode of their portfolios of resources in different kinds
growth. This topic is generally well covered of environments.
within the international business literature
and does not merit further discussion here
(for a recent review of the internationalization
process literature, see Welch & Paavilainen- Barriers to growth
Mäntymäki, 2014).
Barriers to growth are factors that constrain
growth in new ventures. Although barriers can
be viewed as mirror images of drivers of
External factors growth, some factors are more frequently dis-
cussed as constraints and limiters of growth
The characteristics of the organizational (Davidsson et al., 2010). Several studies found
environment substantially influence the that financial constraints (e.g. lack of access to
amount and modes of firm growth. Dess and credit) are the most common impediments to
Beard (1984) proposed three dimensions of growth (Pissarides, 1999). Institutional

barriers like taxation and regulation are also work systems (HPWS) are usually referred to
often considered as important impediments. as a set of practices designed to improve
Andersson (2003) found that rules and taxa- employees’ skills and effort. These practices
tion make it difficult to attract foreign talent to include recruitment and selection, monetary
Sweden. Budak and Rajh (2014) examined performance incentives, performance
how the business sector is dealing with cor- appraisal processes, and employee training
ruption in seven Western Balkans countries. processes. HPWS have been found to improve
They found that some entrepreneurs under- growth prospects in young firms that also
stand corruption as ‘greasing the wheels’ and exhibit high entrepreneurial orientation (EO)
that a key component in fighting corruption (Messersmith & Wales, 2013). Opportunity
was to raise anti-corruption awareness. spin-offs (initiated by the former employees
Interestingly, some studies reported (Xheneti of incumbents to exploit an opportunity) have
& Bartlett, 2012) that firms with a greater been found to grow faster than incumbent-
awareness of corruption grew faster. Aidis backed and necessity spin-offs (Bruneel, Van
(2005) implemented a study on 332 Lithuanian de Velde, & Clarysse, 2013). In a comparative
SMEs and found interrelations between case study, Hansen and Hamilton (2011) iso-
formal and informal barriers. lated factors that distinguish growing from
A considerable amount of barriers-to-growth non-growing firms.
research is geographically focused on Eastern Some studies suggest that there is a signifi-
European transitional countries. Barriers to cant random component to the growth pro-
growth have been researched in the context of cess. The proposition that firm growth is best
Lithuania (Aidis, 2005), Albania (Hashi, 2001; approximated by a random walk and that its
Xheneti & Bartlett, 2012), Kosovo (Hoxha survival depends on the stock of resources at
& Capelleras, 2010), Slovenia (Bartlett & startup or that accumulated thereafter is part
Bukvič, 2001), Russia (Doern, 2009), Bulgaria of Gambler’s ruin theory (Coad, Frankish,
(Pissarides, Singer, & Svejnar, 2003), develop- Roberts, & Storey, 2013). Firms are here com-
ing countries (Coad & Tamvada, 2012; Das & pared to gamblers whose wins are based on
Das, 2014; Robson & Obeng, 2008), as well as chance, but they must stop playing when they
specific contexts in developed countries (e.g. run out of money. Coad and colleagues tested
Lee & Cowling, 2013). However, the barriers- this theory on a sample of 6,247 new ven-
to-growth literature is fragmented and theoreti- tures and found its explanations superior to
cally under-developed (Doern, 2009). Extant resource-based predictions. They also found
studies are based on quantitative surveys with that each growth path in the observed four-
theoretically weakly founded questionnaires. year period occurs with roughly equal prob-
A shift from prediction towards understanding ability and that growth has a positive effect
is thus needed to advance knowledge on barri- on subsequent survival. Growth rates are
ers to growth. nearly random, but survival is not. Therefore,
according to this study, even though firm
growth is not a pure random walk, chance is
the most dominant component.
Other considerations This account was disputed by Derbyshire
and Garnsey (2014) who wrote that Coad and
Some growth-related studies cannot be easily colleagues’ result was an artefact of measure-
classified into the abovementioned categories. ment and that comparing entrepreneurship to
This section briefly reviews these studies. indeterminate processes such as gambling
Formal human resource management prac- was incorrect and counterproductive. The
tices have been linked to higher performance concept of deterministic chaos in complex-
in SMEs (Sheehan, 2014). High-performance ity science provides an explanation for the

failure to identify factors that are closely needs to establish a new set of management
linked to firm performance. Therefore, while practices and organizational structures that
it might seem like the growth process is will become the basis for the next period of
largely indeterministic (i.e. it has no cause evolutionary growth. Greiner’s model features
and is random), there is an underlying pro- five stages of evolutionary growth (creativity,
cess that involves iterative matching of a direction, delegation, coordination, and col-
firm’s resources to external opportunities. laboration) punctuated by revolutionary lead-
Firm growth is thus not a random process, but ership crises, autonomy, control, and red tape.
entrepreneurial skill and a firm’s resources If organizations wish to move to the next stage,
affect its growth. Viewing firms as complex they need to undergo some kind of revolution-
adaptive systems would explain the failure of ary transformation and solve the crisis at hand.
decades of entrepreneurship research on firm One reason for the popularity of stage
growth and would offer a new lens for further models among practitioners is their high
research (Derbyshire & Garnsey, 2015). face validity. The majority of entrepreneurs
can identify the stage their company is in
at a certain point in time (Eggers, Leahy, &
Churchill, 1994). The problems discussed in
Growth process the stages literature are real-world organiza-
tional challenges that are relevant to founders
While the previous research streams reviewed and managers of growing firms.
in this chapter are primarily concerned with Few contemporary studies still utilize the
the ‘amount’ of growth, studies in this sec- stages-of-growth paradigm. It has been criti-
tion adopt a processual view of growth. The cized as overly deterministic (Phelps, Adams,
main focus of this literature is on how firms & Bessant, 2007). New ventures are sup-
grow, the problems caused by growth, and posed to linearly advance through different
how to solve them. stages, and there is supposed to be an opti-
New venture growth process research is mal configuration for each stage, which is an
dominated by stage models of growth that obviously unrealistic assumption consider-
first appeared in the early 1970s and domi- ing the significant differences between indi-
nated the growth discussion throughout the vidual firms. Levie and Lichtenstein (2010)
1980s and early 1990s (e.g. Churchill & assessed 104 stages-of-growth models pub-
Lewis, 1983; Greiner, 1972; Hanks et al., lished between 1962 and 2006 and reached
1993; Kazanjian, 1988). The stages-of- worrying conclusions. There is no agreement
growth models assume that there are a cer- in the literature of what exactly is a stage, and
tain number of stages in the development of every definition was used only by a handful
a company and that all firms move through of authors without wide-reaching consensus.
these stages. The development of a biological The number of stages in these models var-
organism is used as a metaphor for growing ies a great deal, and three to six stages are
organizations, so these models are sometimes usually proposed. There is no consensus on
also called organizational life-cycle models. the number of stages and the relationships
For example, in Greiner’s model (1972), the between stages. The theoretical foundations
organization develops in a successive series and conceptual origins of the models are
of interchanging evolutions (periods of steady weak. Furthermore, all stage models assumed
growth and stability) and revolutions (peri- that organizations have a growth imperative,
ods of substantial organizational turmoil and which is contrary to empirical findings that
change). Revolutionary periods are character- many organizations have no desire or capa-
ized by crisis and practices that no longer work bilities to grow. The proliferation of models
for a larger organization. Management thus continued even though half of them were

presented as ‘universal’, supposedly covering for existing customers requires stronger cus-
all kinds of firms. The assessment concluded tomer awareness and is constrained by the
that stage models do not accurately represent lack of marketing and sales skills); (5) obtain-
the growth and development of new ventures ing finance (growing firms need to move to
and should ‘no longer be used by scholars external capital providers); and (6) opera-
of entrepreneurship, for they act as a barrier tional improvement (moving towards a better
to advancement of research on the growth understanding of process capabilities and the
of entrepreneurial organizations’ (Levie & implementation of best practices for efficiency
Lichtenstein, 2010, p. 336). gains). These tipping points are the conse-
This judgement is pretty harsh; how there- quence of growth and need to be overcome
fore do we get out of this conundrum? Levie by developing and applying new knowledge
and Lichtenstein (2010) proposed a dynamic to resolve the challenges posed. Absorptive
states model that builds on stage models but capacity (Cohen & Levinthal, 1990) is a criti-
modifies two unrealistic assumptions: that cal capability in this regard.
businesses develop like organisms through a Studies examining the growth process out-
specific number of stages and that these stages side of the stage models paradigm are few
represent a fixed program of development. The and far between. Prashantham and Dhanaraj
authors define a dynamic state as ‘a network of (2010) used a process lens within the
beliefs, relationships, systems, and structures grounded theory approach to study a three-
that convert opportunity tension into tangible year evolution of social capital in four inter-
value for an organization’s customers/clients’. nationalizing Indian software firms. They
Opportunity tension, in this context, means the found that initial social capital rapidly dimin-
tension between the perceived untapped mar- ishes and that, when that happens, a broad
ket potential and the commitment to act on that variety of searches for new network relation-
potential. Dynamic states thus represent the ships becomes necessary for growth. Raisch
best perceived match between a firm’s business (2008) examined the organizational design
model and the market potential. In an organi- challenges of growing firms and inductively
zation’s existence, there can be any number developed a process model of balanced struc-
of dynamic states in any sequence. Levie and tural designs that enable firms to pursue prof-
Lichtenstein (2010) laid the foundations for the itable growth while simultaneously balancing
dynamic states approach in a very abstract and exploration and exploitation activities in dif-
general way. Further work should thus focus ferent situations. Rindova, Yeow, Martins,
on elaborating on these and specifying the and Faraj (2012) examined how Google and
details in particular contexts. Yahoo utilized their partnering portfolios in
Phelps, Adams, and Bessant (2007) pro- their distinct approaches to growth. Clarysse
posed an alternative model by discarding et al. (2011) analyzed the growth paths of
stages and introducing six tipping points that young technology firms and showed that
characterize qualitative changes in develop- different growth paths result from firms’
ing organizations: (1) people management attempts to structure resource portfolios in
(developing the skills to encourage delegation, accordance with environmental demands.
communication, and teamwork); (2) strategic
orientation (moving away from an oppor-
tunistic to a more deliberate strategy); (3)
formalized systems (when existing informal Measurement of growth
systems fail to adequately cope with changed
environmental conditions); (4) new market Different indicators can be used to measure
entry (replicating existing business models growth: sales growth, employment growth,
in new markets or developing new products asset growth, or profit growth, among others.

The two most utilized indicators in the extant Delmar, & Wiklund, 2006) since it is diffi-
research are sales (or turnover) growth and cult to determine exactly what they measure.
growth in the number of employees. Low Furthermore, the Birch Index is driven by
concurrent validity has been found among absolute growth in large firms, so it cannot
different growth indicators (Shepherd & resolve the issue of absolute or relative meas-
Wiklund, 2009; Weinzimmer, Nystrom, & ure selection (Coad et al., 2014). Developing
Freeman, 1998). For instance, sales and absolute growth hypotheses based on the
employment growth are only modestly cor- findings of studies using relative growth
related. It is thus questionable whether the (and vice versa) is thus not recommended
universal theory of growth can be achieved. (Shepherd & Wiklund, 2009).
It would need to explain several measures of A further complication is that most meas-
growth that are not necessarily correlated ures of growth (and entrepreneurship in gen-
(Shepherd & Wiklund, 2009). eral) are not normally distributed but exhibit
Most studies do not explain why a particu- highly skewed power law distributions
lar indicator was used. Indicator choice needs (Crawford, Aguinis, Lichtenstein, Davidsson, &
to be substantiated by the theoretical focus of McKelvey, 2015). For instance, most of the
the investigation. Greater attention to the con- central constructs in resource-based explana-
text specificity of both measures and theories tions of performance – human, social, and
is warranted. Entrepreneurs, for example, are financial capital – are found to be power law
interested in developing their business, not distributed. As a consequence, the work-
necessarily employing more people, so meas- horses of Gaussian statistics – means and
ures of most use to them would be sales or standard deviations – are relatively meaning-
profit growth. An additional measure of inter- less in many cases and do not provide apt
est specifically in high-tech startups would be descriptions of the variables. Thus, the results
the value of the firm (Achtenhagen, Naldi, & of studies relying on unjustified normality
Melin, 2010). However, generating higher assumptions often have little relevance for
employment is one of the major objectives of policymakers and practitioners. A greater
policymakers; therefore, research that aims to focus should be on the outliers (e.g. fast-
inform policy would tend to use employment growing firms), which are usually thought of
growth measures. as exceptions to be squeezed by transforma-
A multiple-year time window is usually tions into normal distributions in the tradi-
used for measuring growth. This reduces the tional approach.
amount of noise and one-off growth events. The measurement of organizational growth
Another dilemma is to choose between abso- is a significant topic in itself, and space con-
lute and relative growth indicators. Relative siderations do not allow us to do justice to it
growth is most frequently measured as a per- (readers may wish to consult several excel-
centage or log change. Absolute growth is a lent reviews of growth measurement (cf.
raw number change of selected indicators in Delmar, 2006; Shepherd & Wiklund, 2009;
the measured time period. Relative measures Weinzimmer et al., 1998) as well as exten-
tend to be biased towards smaller firms (i.e. sive treatments of measurement issues in
small firms seem to grow faster when rela- Davidsson et al., 2010; Coad et al., 2014).
tive measures are used) while absolute meas-
ures favor larger firms. This dilemma has led
to the construction of compound indexes,
such as the Birch Index, that include both Summary of current findings
relative and absolute measures of growth.
These indicators have, however, been criti- We have divided the new venture growth
cized as conceptually empty (Davidsson, literature into three sections: research on

high-growth firms (HGFs), antecedents of assumptions of the stages literature. Studies

growth, and growth process. that examine the growth process outside of
The research on HGFs is guided by their the stages paradigm are very rare.
important contribution to job creation. It There are two major deficiencies of the
examines the characteristics of fast-growing extant literature. First, there is not enough
firms and has so far established the follow- accumulation of knowledge, which is partly a
ing stylized facts: (1) young firms, not small consequence of an insufficient number of repli-
ones, create the majority of jobs; (2) Gibrat’s cations being conducted (Shepherd & Wiklund,
law (growth rate is independent of size) holds 2009). The exception is research on HGFs,
for large firms but not for small ones; (3) the where issues are typically examined across
majority of firms do not grow at all; (4) HGFs multiple datasets in different studies. Although
are often one-hit wonders as high growth is some direct effects of major factors on growth
extremely difficult to sustain; (5) HGFs are are well researched, more nuanced findings are
often young but not necessarily small; (6) typically one-off. This is not characteristic only
HGFs are not necessarily high-tech; (7) con- of the growth field; it is a problem that plagues
crete policy advice remains thin. much of management research. The academic
Antecedents of growth represents the larg- incentives and publication preferences of the
est research stream among the three exam- top outlets are structured so that they seek
ined. It investigates the effects that various novel findings and theoretical contributions.
factors have on the rate of growth. This litera- Replication and confirmations of past findings
ture is dominated by resource-based expla- are thus being neglected. However, a single
nations of growth that were first established study, regardless of how well executed, cannot
by Penrose (1959) and thereafter elaborated provide final and conclusive resolutions to any
within the RBV. The most researched factors issue (Davidsson, 2015).
are the founding team characteristics; human, Second, the explained variance of growth
social, and financial resources; strategy; and studies is typically low. Firm growth is a
the external environment. A recent meta- complex phenomenon, and it is perhaps a bit
analysis found that Penrosean versatile naïve to expect that a small number of factors
resources are more useful for growth than the at founding or later stages can significantly
RBV’s VRIN resources (Nason & Wiklund, impact growth paths. Although firm growth
2015). The outsized attention on the amount of is not a completely random process, it has a
growth suggests that other aspects of growth significant stochastic component.
remain neglected (Davidsson et al., 2010). The following section outline a future
The growth process research has been research program aimed at alleviating these
dominated by the stages-of-growth models. shortcomings.
These models assume that firms move lin-
early through a specific number of stages
that are punctuated by crises. Firms need to
overcome crises at certain stages of develop- New venture growth:
ment if they want to continue on the growth Future challenges
path. These models have high face validity
among entrepreneurs but have received only At the start of the discussion on future
scant empirical support. A recent review research relating to firm growth, we exam-
(Levie & Lichtenstein, 2010) concluded that ined the research suggestions of previous
these models are not appropriate for further major reviews in the firm growth literature.
research. However, lessons from the stages The findings of this meta-review of reviews
literature can be used in the dynamic states published between 2006 and 2015 are sum-
approach, which discards the unsupported marized in Table 11.1.

Table 11.1 Findings and suggestions for further research from previous reviews
Review Focus Selected main findings Suggestions for further research
Gilbert et al., 2006 New venture growth The two resources most often found connected with new Examine the impact of specific forms of entrepreneur
venture growth are human capital and financial capital. competences on growth. Conduct more in-depth
explorations of the role of teams and leadership. There
are several opportunities to research the relationship
between resources and different types of growth
(internal, external). Explore how financial capital enables
or constrains decision-making, which in turn influences
BK-SAGE-BLACKBURN_ET_AL-170255-Chp11.indd 205
growth.
Macpherson & Holt, 2007 Knowledge and learning Most studies favor high-tech and manufacturing industries. Use of epistemological approaches that are sensitive to
in small-firm growth A significant subsection of research examines new ventures relational qualities; for instance, activity theory or practice
rather than old firms. The growth process is significantly theory might provide useful frameworks for research.
more complex than the stage models portray. Researchers should use methodologies that are able
to get close to practice (e.g. ethnography, processual
research). More sophisticated heuristics targeting
policy initiatives are needed. These should address the
idiosyncratic and contextual nature of growth as opposed
to blanket and best-practice approaches.
Dobbs & Hamilton, 2007 Small business growth The growth literature uses a wide range of measures and Focus on growth as a process and incorporate more
models, i.e. knowledge development is fragmented rather longitudinal theories and research designs. Use the
than cumulative. New theoretical perspectives are needed to learning perspective to study growth paths and tipping
understand the growth process. points in the growth of small businesses in the same
industry and region.
Coad, 2009 High-growth firms Gibrat’s law is a useful model of firm growth even though it Use cohort studies to explore the relationship between
is not perfectly accurate in all contexts and for all firms. financial performance and growth, which feature
The nature of growth is remarkably random. Financial the significant gap between theoretical predictions
performance and productivity are poor predictors of growth. and empirical results. Use techniques that go beyond
No single theoretical perspective can explain firm growth. The ‘average firm’ characteristics (e.g. quantile regression).
standard regression approach, which focuses on ‘the average More research is needed on the relationship between
effect for the average firm’, is not an appropriate method for innovation and growth. Empirical work should first
analyzing the growth phenomenon because few firms grow provide ‘stylized facts’, which should then be explained
rapidly and the ‘average firm’ will barely grow at all. using theory.
(Continued)
10/08/17 8:26 PM
Table 11.1 (Continued)
Davidsson et al., 2010 Small business growth Small firm growth is a complex phenomenon that addresses both Conduct theory-driven studies within more homogenous
the ‘change in amount’ of growth and the growth process. samples of firms. Rigorous, theoretically sampled
The literature is fragmented and develops along separate lines case-based growth process studies are needed. More
of inquiry. There is lack of integration of existing findings into effort should be put into researching the management
a comprehensive theory of growth. The knowledge on growth challenges of growth.
modes and growth processes is underdeveloped. There is a
dearth of high quality in-depth studies. There is little need for
new studies seeking to identify antecedents of growth.
McKelvie & Wiklund, 2010 Growth mode Researchers prematurely began addressing ‘how much’ The research focus should be changed to growth modes
questions before adequately answering ‘how’ questions. (organic, acquisition, or hybrid). Researchers should strive
to explain which growth modes firms choose and why.
The relationships among different growth modes should
be examined. Penrose’s theory should be extended to
include hybrid modes of growth. Real-time longitudinal
case studies could be used to focus on how growing
firms utilize and combine different growth mechanisms.
Levie & Lichtenstein, 2010 Stage models of growth Stage models are overly deterministic. There is no agreement Stage models should no longer be used for further research.
on what stages are and how they are related. The They should be replaced with dynamic states models,
biological metaphor of the firm as a developing organism which have their foundations in complexity theory. These
is inappropriate. Stage models are not appropriate for models offer theoretical support for research on business
explaining business growth. sustainability.
Wright & Stigliani, 2013 Entrepreneurial growth The growth literature is overly focused on ‘how much’ studies More research is needed into how entrepreneurs’ cognitive
and neglects ‘how’ and ‘why’ questions. processes influence growth, how entrepreneurs obtain
and configure resources needed for growth, how
important are contextual factors for these questions, and
whether they influence types and patterns of growth.
10/08/17 8:26 PM
Moreno & Coad, 2015 High-growth firms High-growth episodes in firms are rare and most often not Explore the differences among regions and countries – how
repeated. High-growth firms generate most of the new jobs contextual factors influence the prevalence of HGFs. Look
in developed economies; they tend to be young and present into the different firm strategies and growth. Explore the
in all industries. internal characteristics of high-growth firms. Investigate
the role of different strategies in high growth.
Wright, Roper, The IJSB special issue The majority of jobs in the UK are created by small firms. More research is needed on the processes that drive job
Hart, & Carter, 2015 containing evidence- Internal enablers (skills, research and development (R&D), creation in different types of firms in order to develop
based reviews of capital investment, and liquidity) have a major influence in appropriate policy interventions. How do entrepreneur
growth policy focused shaping SME innovation and exports. Targeted supply-side objectives (growth/lifestyle) and the importance of
on five areas: job and demand-side policies are effective in promoting SME retaining control affect venture capital or equity
creation, innovation innovation and export. SME growth depends on substantive funding decisions? There is a need to better understand
and exporting, growth capabilities, which are shaped by leadership and how psychological factors influence the selection and
ethnic and gender capability development issues. implementation of growth goals. Little is known about
diversity, finance, how dynamic capabilities evolve in emerging ventures
and management & and how entrepreneurial cognition and growth intentions
leadership shape the development of dynamic capabilities in
supporting sustained growth.
10/08/17 8:26 PM
Several previous reviews found that the other theoretical perspectives, such as behav-
research on growth is fragmented and that ioral theory (Cyert & March, 1963), that
findings are often conflicting. Our effort have proven their utility in prior management
largely confirms that this is still the case. A research can be utilized. An important aspect
comprehensive universal theory of growth of behavioral theory underscores an orienta-
might not be possible, or at least we are very tion toward processes rather than outcomes
far from it. Our better bet would be to pro- of organizational growth. Cyert and March
duce a variety of context-dependent mid- (1963), in their initial contribution, empha-
range theories that work for certain types of sized the actual process of making business
firms. decisions so that imperfectly rationalized
Here, we outline a strategy for the further organizational goals, which can be seen as
development of new venture growth research. consequences of different coalitions within
We suggest three strategies to improve the firms, can be attained.
field: (1) reorient the focus of research from Human resource management (HRM) is
‘change in amount’ to the process of firm another topic that has so far been neglected
growth; (2) use fewer questionnaire-based within the firm growth literature and should
quantitative studies and more qualitative, in- be given greater credence in the future. Most
depth studies as well as studies that leverage of the existing studies on the role of people
big data; and (3) pay more attention to the in firm growth focus on the role of human
usefulness of growth research for other stake- capital (of the individual/entrepreneur) and
holders: entrepreneurs and policymakers. the impact that this personal capability has on
Several authors suggested that the mode firm growth. While managing and motivating
of growth should be the focus of future stud- employees, finding new talent, and recruit-
ies (e.g. McKelvie & Wiklund, 2010). They ing the right people are widely discussed
argued that growth research has focused pre- themes among practitioners, entrepreneurs,
dominantly on ‘how much’ questions while and investors of high-potential firms, there is
neglecting ‘how’ questions. Future focus a lack of scholarly discourse on these ques-
should thus be on examining how firms tions in the particular context of high-growth
grow – whether organically or by acquisition. firms. Some of these questions consider how
However, with the exception of a few exam- HRM practices and different HR systems
ples (Clarysse et al., 2011; Lockett et al., (e.g. high-performance work systems) at
2011; Naldi & Davidsson, 2014), these stud- the firm level change during the process of
ies are yet to materialize. The reason might growth. Further research is needed to inves-
be the scarcity of secondary data, including tigate the specifics of these issues. When
modes of growth, and the difficulty of gather- focusing on the outcomes of different modes
ing new data on this topic. Of necessity there- of growth (McKelvie & Wiklund, 2010),
fore are longitudinal research designs that researchers could explore how and why the
require significant time and resource invest- productivity of human research practices dif-
ments. It is easy to observe the dearth of fer across organic, acquisition, and hybrid
longitudinal designs in the literature review; modes of growth.
however, it is considerably more difficult, Finally, by ‘over-focusing’ on RBV argu-
time-consuming, and expensive to rigorously ments, the existing research on firm growth
implement them in real-world research. has neglected the role of customers as sources
A major part of firm growth research is of growth (Zander & Zander, 2005). The role
dominated by the RBV perspective. We of customers was already noted in Penrose’s
suggest that future firm growth researchers (1959) concept of ‘inside track’, which
should aim to bring more diversity in their allows firms to sense and capture value from
research questions so that the foundations of existing customers. The underestimation of

demand-side arguments is visible not only in Neergaard, 2010; Wright & Stigliani, 2013)
the context of firm growth research but also that delve deeper into growth phenomena
in the broader management literature (Priem, than our limited capability – which measures
Li, & Carr, 2012). There are future research what goes on inside firms – is able to explain.
opportunities associated with using demand- Qualitative methods are relatively lit-
side theoretical foundations and exploring tle used in contemporary growth research.
firm growth from the business model view- Arguably, this deficiency has two explana-
point. Indeed, the concept of business model tions: (1) a fair number of researchers believe
(Baden-Fuller & Morgan, 2010) is an integra- that qualitative studies are difficult to pub-
tive perspective that combines both supply- lish; and (2) rigorous qualitative studies are
and demand-side arguments. Firm growth difficult and time-consuming to conduct,
research from the business model perspective especially in an environment in which most
(Baden-Fuller & Mangematin, 2013) could academics are under increasing pressure to
explore the role of the institutional environ- publish quickly and extensively. This does
ment and opportunity co-creation (George & not mean that there are no robust qualita-
Bock, 2011) in the context of firm growth. tive studies. Some recent excellent examples
By using institutional theory in entrepre- include Bamiatzi and Kirchmaier (2014),
neurship and sense-making (Daft & Weick, Hansen and Hamilton (2011), and Rindova
1984), institutional pressures on the business et al. (2012). Lockett and Wild (2014) also
models that shape firm growth could be ana- noted that, while Penrose (1959) used his-
lyzed. Business models may be an important torical case studies for the development of
component in the co-evolution of stories that The Theory of the Growth of The Firm, this
determine legitimacy as a necessary compo- method has been neglected in contemporary
nent of firm survival (George & Bock, 2011; studies on RBV and firm growth. Penrose
Lounsbury & Glynn, 2001). used a hybrid approach, including both induc-
tive and deductive logic, a research process in
which history played a major role.
As Wright and Stigliani (2013) argued,
Measurement and methods the field needs to embrace more innova-
tive research methodologies. This could be
Cross-sectional studies of the influence of implemented on either side of the qualitative–
various factors on firm growth explain only a quantitative continuum. Ethnographic, nar-
limited amount of the variance in growth rative, and case study approaches have
rates. These factors are assumed to be stable so far been neglected in growth research.
and context-free. It is questionable whether a Notwithstanding, one such opportunity is the
comprehensive model of firm growth based availability of (big) data from the internet,
on these factors can be developed (Dobbs & which calls for the use of alternative meth-
Hamilton, 2007). Factors that vary over time ods of data collection such as web scraping.
would have a better chance of explaining dif- Recent advancements in computerized text
ferences in growth rates. Moreover, cross- analysis (e.g. Blei, 2012) that can be used to
sectional studies are only able to identify the content-analyze large amounts of text docu-
factors that accompany growth spurts, which ments make this a potentially fruitful avenue
are not necessarily those generating the for further research that is currently com-
growth. pletely untapped.
As the saying goes, ‘not everything that If the critique of Crawford and colleagues
counts can be counted’. We are not the first to (2015) concerning power law distribution
suggest that the field needs more case studies effects is accurate, it would imply that a large
(c.f. Davidsson et al., 2010; Leitch, Hill, & part of existing research, which is based on

average effects for average firms – to put it Future challenges –

politely – is not very useful. There is a need Antecedents of growth
for additional research into how power law
distributions shape results in growth studies The research on ‘growth amount’ almost com-
and what methods would be more appropri- pletely dominates the entrepreneurial perspec-
ate for studying new venture growth. Some tive of firm growth studies. Extant research
authors suggest that techniques like quan- has placed too much emphasis on the question
tile regression might be more appropriate of ‘how much’ companies grow while neglect-
(Coad, 2009). ing questions on ‘how’ they grow (Davidsson
et al., 2010; Leitch et al., 2010; McKelvie &
Wiklund, 2010). We believe the research on
antecedents of growth has hit a wall similar to
Future challenges –
that of the stages-of-growth literature. As
High-growth firms Davidsson et al. (2010) noted, there is little
chance that additional factors that explain
Research on high-growth firms represents a growth beyond what we now know will be
dynamic and vibrant field that has produced found. Growth rates have been shown to be
a number of stylized facts about HGFs. There nearly random (Coad et al., 2014), so it is
is a considerable push among policymakers perhaps futile to try to improve explained vari-
to concentrate support for HGFs in the hope ance (McKelvie & Wiklund, 2010). Therefore,
of increasing employment. More research is the first issue would be for researchers to
thus needed on the evaluation of policy reorient their perspective to other more fruitful
approaches for supporting HGFs. What avenues like growth process.
policy measures increase the frequency of For researchers who would like to continue
HGFs? Are these effective at boosting their work within this orientation, rigorous
employment? Having more HGFs also longitudinal studies in specific industries
implies a higher number of declining and might be of value. Large-scale context-
failing firms, with its attendant negative specific and theoretically driven studies
effects. Are these offset by the good effects? that would follow a cohort of firms in their
The danger is that by supporting HGFs, as growth and repeatedly gather data from this
defined on the basis of employee growth, cohort would further contribute to knowledge
policymakers will encourage labor-intensive on antecedents of growth. The effort, scale,
enterprises that weaken economic productiv- and time required for such a project are prob-
ity. One new phenomenon that warrants fur- ably beyond the realm of most entrepreneur-
ther investigation is the appearance of venture ship researchers.
accelerators (Cohen, 2013). Do these really
accelerate growth?
A fruitful avenue is further exploitation
of matched employer–employee databases Future challenges –
that can now be constructed for a number of Growth process
advanced economies. Some advanced inno-
vative approaches warrant attention. For Stages-of-growth models do not currently
instance, labor flow networks – networks constitute a very active stream of research
where nodes represent firms and connections and have been heavily criticized (Levie &
represent labor flows among firms (Guerrero Lichtenstein, 2010). We think, however, that
& Axtell, 2013) – could be constructed for it would be unwise to dismiss the stage
whole economies and utilized to examine the models literature too soon. The criticism
role of HGFs in employment. might have a point that organizational

development is never linear through a fixed much faster than the previous generation of
number of stages. Firms are too different in companies. Does this mean that the ‘Penrose
character and development path to be effects’ do not hold for such firms? These
described by a single universal stage model. companies go through periods of hyper-
The problems addressed in this literature are growth; it would therefore be interesting to
nevertheless real and important. The decline investigate the consequences of such growth
in process studies is also unfortunate for and how such incredibly high growth rates
entrepreneurs and managers as this research are sustained. This line of inquiry (studying
has a greater potential to inform practice than the management challenges and effects of
merely studying ‘the amount of growth’ in growth) would be fruitful not just for digital
relation to various antecedents that are not but for all kinds of new ventures.
under the influence of the entrepreneur.
Stage models are a metaphor that functions
for a subset of firms. By transforming them
Conclusion
along the lines of Levie and Lichtenstein’s
dynamic states model, it generalizes them
onto a larger population of firms. Further This chapter presented a summary of the
theoretical work is needed to elaborate this contemporary growth literature and its most
perspective. influential foundations and theoretical per-
McKelvie and Wiklund (2010) sug- spectives. It also outlined several opportuni-
gested that future researchers examining ties for future research. The new venture
the growth process by focusing on differ- growth landscape is fragmented but
ent modes of growth can build on the theo- extremely important for scholars, entrepre-
retical foundations of behavioral theory. neurs, and policymakers. This chapter is our
This would allow researchers to explore how small contribution to moving the field
firms achieve growth-related goals through forward.
organic, acquisition, and hybrid modes of
growth. A selected mode of growth defines
the variety of coalitions that are present in
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New Venture Growth: Current Findings and Future Challenges

Chapter · January 2018

Ivan Zupic Alessandro Giudici

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Introduction firm (Penrose, 1959). Growth is also one of the

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social capital, finance, and strategy) influence (What we know about)

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Figure 11.1 Map of the new venture growth literature

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family or to enable certain lifestyles). Starting education in economics or business fields

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Resources capabilities are a key growth enabler as high

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broader strategic actions. A meta-analysis tend to more frequently engage in entrepre-

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high-growth firms (HGFs), antecedents of assumptions of the stages literature. Studies

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average effects for average firms – to put it Future challenges –

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and small manufacturing firms in India. Interna- doi:http://dx.doi.org/10.1016/j.

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Retrieved from http://www.sciencedirect. http://dx.doi.org/10.1371%2Fjour nal.

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and Enterprise Development, 19(4), 607–626. Studies, 42(8), 1519–1548. doi:10.1111/

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