Final Report Summary - ORGGROWTH (The Growth of New Entrepreneurial Ventures and the Internal Dynamics of Resources)
The objective of this research project has been to develop a unique perspective on the growth of new entrepreneurial ventures by opening the black box of these firms and to study the flow of resources within such ventures. New businesses are repeatedly upheld as the engines of a growing European economy, but most start-up firms face growing pains in their early years. This is often because newcomers are constrained by scarce resources, which limits their ability to scale up quickly, but also by their lack of resource management routines. By looking at internal resource dynamics, we attempted to unravel the detailed mechanisms that connect the resources available to entrepreneurs to how these resources are managed and ultimately how this corresponds to organizational growth.
The main conclusions of this project are as follows:
- A central finding is that a diverse portfolio of resources seems very hard to manage by entrepreneurs and small business owners. A diverse portfolio of resources tends to lead to (1) lower survival chances, (2) lower growth rates, and (3) a greater likelihood that managers seek to divest resources to deal with the challenge of maintaining diverse resources. Overall, small business owners tend to be better off when they manage a more streamlined, homogeneous set of resources.
- Rejuvenating resource portfolios from time to time is of critical importance. Without rejuvenation, entrepreneurs face the risk of running a venture that will turn obsolete relative to a changing environment. Yet, our analyses also show that -paradoxically- rejuvenation itself can be risky: when a resource portfolio experiences major rejuvenation this can lead to (1) lower growth rates, and (2) a lower likelihood of venture survival. So any rejuvenation attempt needs to be done carefully and incrementally.
- Competition at founding matters. When entrepreneurs start out under highly competitive conditions, they struggle to get a hold on the right resources and will be forced to start out with a (smaller) set of uneconomical resources. Once they start out on the wrong foot, entrepreneurs will find it more difficult to achieve a sustainable pattern of growth later on (even though competitive conditions may have improved later on).
- Industry structure matters. Industry concentration facilitates rather than constrains the acquisition of resources by specialized entrepreneurial ventures. In contrast to conventional beliefs, industry concentration does not necessarily hamper start-ups in achieving growth. This is because when large industry players seek economies of scale, they tend to rid themselves of resources out of the mainstream that new start-ups can subsequently then profitably use.
Findings of this research project have implications for both entrepreneurs and policy makers. For entrepreneurs, the findings imply that starting conditions should not be underestimated. Although it may be tempting to commence a venture with any available means, selecting an alternative time and setting for starting a venture can be preferred when this allows for a larger, better, more homogeneous portfolio of resources that only requires incremental updating over time. Such a time and setting does not require the industry to have a low degree of concentration: even in highly concentrated industries entrepreneurs can find suitable opportunities for organizational growth. Although the management of resources and the growth of new ventures is essentially under the control of entrepreneurs, policy makers could still improve the transparency of the market for resources and find ways to further facilitate the transfer of resources among entrepreneurs and small business owners. This way, entrepreneurs are in a better position to optimize (e.g. to update and homogenize) their asset portfolio and achieve sustainable growth.
Results of this project have been presented at a final conference concluding the project hosted at Tilburg University (April 17, 2015). The title of this conference was “Growing Sustainable Businesses”. At this conference, which was attended by a large number of practitioners and colleagues at other universities, presenters reflected on the theme, and the findings of the ORGGROWTH project in particular were presented and discussed. Contactperson for this project is Dr. Jeroen Kuilman, Associate Professor of Management at Tilburg University, who can be reached at j.g.kuilman@uvt.nl.
The main conclusions of this project are as follows:
- A central finding is that a diverse portfolio of resources seems very hard to manage by entrepreneurs and small business owners. A diverse portfolio of resources tends to lead to (1) lower survival chances, (2) lower growth rates, and (3) a greater likelihood that managers seek to divest resources to deal with the challenge of maintaining diverse resources. Overall, small business owners tend to be better off when they manage a more streamlined, homogeneous set of resources.
- Rejuvenating resource portfolios from time to time is of critical importance. Without rejuvenation, entrepreneurs face the risk of running a venture that will turn obsolete relative to a changing environment. Yet, our analyses also show that -paradoxically- rejuvenation itself can be risky: when a resource portfolio experiences major rejuvenation this can lead to (1) lower growth rates, and (2) a lower likelihood of venture survival. So any rejuvenation attempt needs to be done carefully and incrementally.
- Competition at founding matters. When entrepreneurs start out under highly competitive conditions, they struggle to get a hold on the right resources and will be forced to start out with a (smaller) set of uneconomical resources. Once they start out on the wrong foot, entrepreneurs will find it more difficult to achieve a sustainable pattern of growth later on (even though competitive conditions may have improved later on).
- Industry structure matters. Industry concentration facilitates rather than constrains the acquisition of resources by specialized entrepreneurial ventures. In contrast to conventional beliefs, industry concentration does not necessarily hamper start-ups in achieving growth. This is because when large industry players seek economies of scale, they tend to rid themselves of resources out of the mainstream that new start-ups can subsequently then profitably use.
Findings of this research project have implications for both entrepreneurs and policy makers. For entrepreneurs, the findings imply that starting conditions should not be underestimated. Although it may be tempting to commence a venture with any available means, selecting an alternative time and setting for starting a venture can be preferred when this allows for a larger, better, more homogeneous portfolio of resources that only requires incremental updating over time. Such a time and setting does not require the industry to have a low degree of concentration: even in highly concentrated industries entrepreneurs can find suitable opportunities for organizational growth. Although the management of resources and the growth of new ventures is essentially under the control of entrepreneurs, policy makers could still improve the transparency of the market for resources and find ways to further facilitate the transfer of resources among entrepreneurs and small business owners. This way, entrepreneurs are in a better position to optimize (e.g. to update and homogenize) their asset portfolio and achieve sustainable growth.
Results of this project have been presented at a final conference concluding the project hosted at Tilburg University (April 17, 2015). The title of this conference was “Growing Sustainable Businesses”. At this conference, which was attended by a large number of practitioners and colleagues at other universities, presenters reflected on the theme, and the findings of the ORGGROWTH project in particular were presented and discussed. Contactperson for this project is Dr. Jeroen Kuilman, Associate Professor of Management at Tilburg University, who can be reached at j.g.kuilman@uvt.nl.