From the Cabinet of Curiosities: The misdirection of research and policy debates on small firm growth

Abstract

We would like to thank Professor Mark Hart, Dr Neha Prashar and Dr Anastasia Ri for compiling our Annual Review Article of 2020 which is dedicated to the memory of Michael Anyadike-Danes. Analyses of growth and scalability are of perennial interest given the centrality of this issue and the diverse range of debate it generates; it is clearly of even greater importance during the current pandemic given the disruption to markets and related economic volatility. This review papers offers a refreshing critique of axioms regarding scalability which have been latched onto by policy makers but are not supported by longitudinal evidence and instead, considers alternative pathways for future research. I would like to extend my thanks to the authors and to the referee who commented upon an earlier version of this article, for their valuable contribution to the ISBJ. Understanding business growth, and particularly the growth of small firms, has been the subject of academic enquiry for over 40 years. Yet, it still creates debate and controversy as academics and policy makers wrestle with a rich, complex evidence base. From a policy perspective, ‘scaling’ is an important dynamic to nurture in the UK economy, but we argue that current discussions about ‘scale-ups’ are profoundly unhelpful from a policy perspective and has misdirected research effort and public policy resources. We step away from growth rates as the central concern – the preoccupation of the Organisation for Economic Co-Operation and Development (OECD) High-Growth Firm metric – towards ‘growth trajectories’ which better captures the interplay between growth and survival. It provides a different approach to measuring the contribution of rapidly growing firms to job creation and economic growth.

On the consequences of firm growth

“…It is clear, not only that sustained growth is incredibly rare but, equally, that many more firms than are commonly thought enjoy a period of high growth. In this light, Hart et al’s (2021 , p. 17) contention that ‘there’s no such thing as a High Growth Firm…only firms that have high-growth episodes’ is compelling.…”

Under which circumstances do family SMES achieve high growth? A behavioural perspective

“…Scholarly interest in high-growth firms has focused on the scaling-up processes of new ventures and established SMEs (Anyadike-Danes et al, 2015; Coad et al, 2017, 2021; De Santola and Gulati, 2017; Demir et al, 2017; Hart et al, 2021; Rasmussen et al, 2018). It is widely acknowledged that a relatively small proportion of firms, namely high-growth SMEs, contribute disproportionately to value creation, economic development and net job creation (Anyadike-Danes and Hart, 2018; Anyadike-Danes et al, 2009, 2015; Hart et al, 2021). For instance, Henrekson and Johansson’s (2010) meta-analysis of their role in job creation shows that high-growth SMEs generate a disproportionately large share of all new net jobs, a clear-cut result in the entrepreneurship literature.…”

“…The high-growth phenomenon, measured as compound annual growth in sales or employees above 20%, has attracted the attention of both management and entrepreneurship scholars (De Santola and Gulati, 2017; Demir et al, 2017; Hart et al, 2021; Rasmussen et al, 2018). High growth is deemed important for economic development, innovation and wealth creation (Anyadike-Danes et al, 2009; OECD, 2011; World Economic Forum, 2015).…”

“…High growth is deemed important for economic development, innovation and wealth creation (Anyadike-Danes et al, 2009; OECD, 2011; World Economic Forum, 2015). Researchers argue that understanding more about firm growth patterns should be a key objective of scholarly efforts (Bamiatzi and Kirchmaier, 2014; De Santola and Gulati, 2017; Demir et al, 2017; Hart et al, 2021), as they are extremely relevant to government policy agendas (Mason and Brown, 2013). High growth relies on a sustained commitment to growth and the adoption of a growth logic that coherently and consistently permeates the organisation and its decision-making, entailing specific organisational and managerial challenges (De Santola and Gulati, 2017; Delmar et al, 2003; Markman and Gartner, 2002).…”

Is there heterogeneity among persistent high‐growth firms?

“…From a theoretical point of view, persistence in growth would challenge Gibrat's law-according to which corporate growth can be described as a stochastic process-and, more generally, would go against the idea of luck as a determinant of growth (Bianchini & Pellegrino, 2019). This is relevant in that it creates space for strategic action-for example due to the presence of superior resources (Barney, 1991;Peteraf, 1993)-as well as for public policies (Hart et al, 2021) to promote growth and employment. To put it another way, the non-randomness of persistent growth is a necessary condition for building meaningful public policies and strategies.…”