Dr Noor Muhammad

noormuhammad@giki.edu.pk

1.

To understand growth and development in a

small business context.

Is it an increase in:
1.

Turnover/sales?

2.

Profits?

3.

Numbers employed?

4.

Return to investors?

5.

Global expansion?

Small firms represent 99% of all businesses in developed

Western economies and provide around half of employment
and turnover (Bennett, 2008). The situation in developing
countries is similar.

Main reason for start-up:

1. Pull factors (Opportunity driven)

2. Push factors (Necessity driven)

So we argue that the original motivation may influence
whether or not they grow.

Drivers

Type
1.

Lifestyle

1.

2.

Small Profitable

3.

3.

High Growth

5.

2.

4.

6.

Independence, autonomy
Comfortable living
Cash flow and profits
Autonomy and control
Sales and profit growth
Attract venture capital

1.
2.
3.
4.

5.
6.
7.

Managerial objective
Product/service development
Expanding market
Economies of scale
Diversification
Type of industry
Strategic objective

Size, dispersion, complexity

Stage 1
Existence

Stage 2
Survival

Stage 3
Stage 4
Growth
Consolidation

Stage 5
Resource
Maturity

Large

Small
Young

Age of organisation

Mature

A Composite Model of the Growth or Decline of a Small Business

Measure of growth
(e.g. sales)
Phase 4
Maturity
Decline
Phase 3
Growth

Slow
decline

Phase 2
Development
Decline

Phase 1
Concept/test
terminate

Time (e.g. months)

12

24

36

48

60

Criticisms of Stage Models

1. No backward movement or skipping
2. Improbability of non-random defined crises
3. Exclusive internal focus/neglect of external environment
Mostly by theory rather than evidence!

Researcher

Phases/Stages

Empirical Testing Mechanics

Steinmetz (1969)

4 Stages (and 3 phases)

(1) Direct supervision
(2) Supervised supervision
(3) Indirect control
(4) Divisional organisation

No empirical evidence
A successful small firm survives four
stages of growth and three critical
phases of growth, occurring at the end of
stages 1, 2 and 3.

Churchill and
Lewis (1983)

5 growth stages
(1) Existence
(2) Survival
(3) Success-disengagement;
success-growth
(4) Take-off
(5) Resource maturity

No empirical evidence
Managers of successful small firms were
consulted for the revision of the
perceived small firm growth model
(Greiner 1972). The proposed business
development framework delineates five
evolutionary
stages
of
growth
characterised by an index of size and
diversity-complexity
in
terms
of
managerial challenge.

Researcher
Vozikis (1984)

Scott and Bruce (1987)

Phases/Stages

Empirical Testing Mechanics

3 stages of growth
(1) Start-up
(2) Early growth
(3) Later growth

Empirically tested (sample 117)

This investigation confirmed the existence of a diverse small
firm situation at the beginning /end of the organisational life
cycle. There was a statistically significant difference in the
small firm problem among the stages of development.

Synthetic 5 stages of
Growth
(1) Inception
(2) Survival
(3) Growth
(4) Expansion
(5) Maturity

No empirical test
Their proposed synthetic model draws on previous researchers
(extensively on the work of Churchill and Lewis, 1983) of small
business development, and is a diagnostic tool of a firms
position and growth strategies, to achieve the development of
small firms along their life cycle.

1. Phase 1 - Creativity

Emphasis on creating a product and market

Founders are in charge
Technically oriented
Focus on making and selling the products

Communication is frequent and informal

Crisis of Leadership

Increasing complexity, founders struggle to both run and manage

the business, conflicts emerge on new products/markets

Phase 2 - Direction

Capable business manager installed

Functional organisation structure
Accounting and capital management

Crisis of Autonomy

direct energy into growth, increasing complexity, top management

unable to manage all operation, lower level managers feel tied
down despite their grater knowledge of markets and products
Solution - Delegation

Phase 3 Delegation

Operational and market level responsibility

Profit centres and financial incentives
Decision - making based on periodic reviews

Crisis of Control

Management attempts to regain control and fail due to scope of

operations and markets
Solution - co-ordinate rather than control

Phase 4 Co-ordination

Thorough review of formal planning

Centralisation of support functions
Motivation through lower-level profit sharing

Crisis of Red Tape

Resource use become more efficient, local management look

beyond local needs, growth recommences.
Solution increase market alertness and people need flexibility

Phase 5 Collaboration

Team action for problem solving

Cross functional task teams
Team incentives

Crisis of Internal Growth

Only way to grow is through collaboration with other organisations

Solution - alliances

Phase 6 - Alliances

Extra organisational solutions

Creating holdings
Managing a networks of companies
Crisis of Identity

Berger and Udell (1998) use a categorisation of

small firms and suggest that firms from 0-2
years are infants, 3-4 are adolescents, 5-24 are
middle-aged and 25+ are old firms.
This categorisation is consistent with the seed,
start-up, market research and expansion, stages
of business development noted in the literature.

The differences in the administrative structures of the very small and the
very large firms are so great that in many ways it is hard to see that the two
are of the same genuswe cannot define a caterpillar and use the same
definition for a butterfly (Penrose, 1959, p.19)

1. Management practices and style

2. Organisation structure
3. Strategic orientation
4. Entrepreneurial role

The Entrepreneur

The Firm

The Strategy

Motivation

Legal status

External equity

Education

Age and size

Market positioning

Managerial experience

Location

New product
introduction

Teams

Size

Age

Market/industry
sector
Ownership

Management
recruitment

Internal and External Growth Strategies

Internal Growth
Strategies

External Growth
Strategies

mergers and
acquisitions

New Product
Development

Other
product-related
strategies

Firm
Growth

Licensing

Strategic alliances
and joint ventures

International
expansion
Franchising

Mission

Goals

Objectives

A shared mental image of a desired future state:

Provides a sense of meaning and purpose
Inspirational
Motivating
But must be realistic, credible and attractive
Often includes core values

The (company) aims to use its (competitive

advantage) to achieve/maintain (aspirations) in
providing (product scope) which offers (benefits)
to satisfy the (needs) of (customer scope). In
doing this the company will at all times strive to
uphold (values).
Wickham

1.

Having vision and ideas

2.

Long-term, strategic planning

3.

Communication (internal and external)

4.

Creating the culture by example

5.

Monitoring and controlling performance

Clarity of goals, tasks, procedures etc.

Expectation of high standards
Commitment to organizational goals
Feeling of personal responsibility towards these goals
Feeling of recognition & reward for high performance
Sense of unity & team working

Timmons

1.
2.
3.
4.
5.

Availability and cost of finance

Overall growth of market
Increasing competition
Government controls, legal and regulatory environment
Skills shortage
Labour
Owner/manager

1.

Management capability

2.

Attitude to risk

3.

Lack of enthusiasm

1.

Bennett, R. (2008). SME policy in Britain since the 1990s: what have we learnt?
Environment and Planning C: Government and Policy, 26, 375-397.

2.

Berger, A. N. and Udell, G. F. (1998) The economics of small business finance: The roles
of private equity and debt markets in the financial growth cycle, Journal of Banking and
Finance, Vol. 22, pp. 613-673.

3.

Butchart, R. L. (1987) A new United Kingdom definition of the high technology

industries, Economic Trends, No. 400, pp. 82-94.

4.

Curran, J. and Blackburn, R. A. (2001) Researching the Small Enterprise. Sage, London.

5.

Deakins, D., and Freel, M. (2009) Entrepreneurship and Small Firms, 5th edition.
McGraw-Hill.

6.

OECD SMEs Outlook, (2000)

Explain how your new venture can apply the marketing mix to gain
competitive advantage and strategic positioning.
Time: 15 Minutes
Total Marks: 10