Small Firm Growth and Performance : Entrepreneurship and Beyond

Abstract: Why is it that some small firms perform well and grow while others do not? Does entrepreneurship play a role in this process? These are the two principal questions addressed in this text.On the basis of an extensive literature review, variables enhancing and restricting small firm growth and performance were identified. A theoretical model, drawing on management theory and psychology, was developed and operationalised.The data for the study were collected in 1996 and 1997. The first year a telephone interview was followed up by a mail questionnaire concerning the independent variables. Out of the 808 firms in the initial sample, 630 were telephone interviewed, and 465 also returned the mail questionnaire. These firms were approached again for a telephone interview one year later. No less than 447 responded. The data collected during the second year were concerned with outcomes, i.e., indications of performance and growth. Due to the time lag between collecting the explanatory variables and the outcome variables, it is possible to infer causality. Analyses move from relatively simple means comparisons through multiple regression to sophisticated PLS modelling and analyses. The empirical analyses address somewhat different questions, and suitable methods are chosen in relation to these questions.A consistent finding is that small business managers themselves, and the choices they make, are crucial to the development of their firms. The possibility to influence the destiny of their firms should be encouraging for small business managers. It is possible for the small business manager to take such actions that will allow the company to expand and perform better. Moreover, in broad terms, motivation seems to be more important than any personal abilities. It seems that "what I want" has a larger influence on actual outcomes than "what I know". The findings further suggest that small firms which perform well and grow have an entrepreneurial strategic orientation. Innovation and proactiveness are key strategic dimensions. Small firms that face environments with increasing dynamism tend to perform better and grow faster. Aiming for growing market niches seems to be more important for growth than taking market shares from competitors. Put differently, it seems more important to position the firm in market niches where customer demand is increasing than to pursue a strategy aimed at confronting the competition.