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GROWTH OF SMALL BUSINESS


GROWTH OF SMALL BUSINESS
Tan et al (2009) suggest that small business research “...has shifted towards the attributes and strategies that enable small business to grow, to contribute to economic value creation, and to flourish at the center of the innovation and technology-based calculus.” (Tan et al, 2009:234).  The most common means for measuring growth is change in employment (Hoogstra & van Dijk, 2004; Chaganti et al, 2002; and Davidsson & Delmar, 1997) or change in sales (Kelley & Nakosteen, 2005; LeBrasseur et al, 2003; and McMahon, 2001).  Dobbs & Hamilton (2007) investigated small business growth.  Based upon 34 previous research studies they expanded upon four applicable categories, originally identified by Smallbone & Wyer (2000) relative to small business growth.

Table 4 documents these categories.  Growth will be related to management strategy, where a strategic decision is made that growth will be an objective.  In conjunction with this decision is the character of the entrepreneur who must be motivated to exploit the opportunity to grow.  The small business must be in a specific industry where the market provides the prospect for growth.  Finally, the small business profile (size and age) will be other contributing factors to growth.

SMALL BUSINESS GROWTH
CATEGORY
FACTOR
DESCRIPTION
Management Strategy
Growth Objective
Growth may not always be an objective.  An owner’s consideration of control, life style, and family desires will determine business goals.

Employee Recruitment and Development
A growth oriented strategy will be affected by the business’ ability to attract, develop and retain appropriate employees

Product Market Development
Growth will be facilitated with an emphasis on product or service innovation and differentiation rather than on price.

Financial Resources
A lack of financial resources may inhibit growth.  Accepting external equity may impinge upon owner control.

Internationalization and Business Collaboration
While most small businesses do not export, high growth businesses tend to do so.
Characteristics of the Entrepreneur
Motivation
Businesses established to exploit an opportunity will have a higher propensity to grow.

Education
Educated individuals are more likely to grow their business.  Education improves search skills, foresight, imagination, computational and communication skills.

Experience
Management and industry experience will contribute to growth

Size of the Founding Team
Larger teams possess more talent and resources which may contribute to growth if not affected by group conflict.
Environmental Industry Specific Factors
Nature of the Market
High demand increases growth prospects.

Role played by large companies
Sub-contracting and outsourcing policies of large companies can influence growth potential.
Characteristics of the Business
Size
New small businesses have a higher growth rates.

Age
Younger businesses have a higher growth rate.
Adapted from Dobbs & Hamilton, 2007

Kirkwood (2009) investigated growth aspirations in small businesses.  Growth was defined by sales turnover and the number of employees.  Growth in employees was hampered by availability of skilled personnel.  However, sales growth was accomplished by those who intended to grow by diversifying, focusing on customer service, and the resulting development of a positive reputation.

An interesting research question posed by Tan et al (2009) relates to identifying the factors that contribute to the divergence of growth paths in small business.  Figure 1 depicts this divergence.  This divergence in growth is supported by Dobbs & Hamilton (2007) who suggest that start-up firms tend to grow quickly until a certain size.  Then, depending upon management strategies, growth tends to slow.
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