Alexander McKelvie

Advancing Firm Growth Research: A Focus on Growth Mode Instead of Growth Rate

The development of firm growth research has been notably slow. In this paper, we argue that a major reason for this lack of development is the impatience of researchers to prematurely address the question of “how much?” before adequately providing answers to the question “how?” On the basis of an extensive review of the literature, we suggest how growth research can advance by changing focus to growth mode (organic, acquisition, hybrid). Toward this end, we provide a research agenda that helps establish the types of questions that growth researchers can ask within this new focus.

From Resource Base to Dynamic Capabilities: An Investigation of New Firms

Despite the numerous observations that dynamic capabilities lie at the source of competitive advantage, we still have limited knowledge as to how access to firm-based resources and changes to these affect the development of dynamic capabilities. In this paper, we examine founder human capital, access to employee human capital, access to technological expertise, access to other specific expertise, and access to two types of tangible resources in a sample of new firms in Sweden. We empirically measure four dynamic capabilities and find that the nature and effect of resources employed in the development of these capabilities vary greatly. For the most part, there are positive effects stemming from access to particular resources. However, for some resources, such as access to employee human capital and access to financial capital, unexpected negative effects also appear. This study therefore provides statistical evidence as to the varying role of resources in capability development. Importantly, we also find that changes in resource bases have more influential roles in the development of dynamic capabilities than the resource stock variables that were measured at an earlier stage of firm development. This provides empirical support for the notion of treating the firm as a dynamic flow of resources as opposed to a static stock. This finding also highlights the importance of longitudinal designs in studies of dynamic capability development. Further recommendations for future empirical studies of dynamic capabilities are presented.

The Organizational Pervasiveness of Entrepreneurial Orientation

While 30 years of entrepreneurial orientation (EO) research has demonstrated that EO provides critical insights into questions of organizational–level strategy and performance, how EO manifests inside organizations has received little attention. Instead of assuming that EO is homogenous, we examine the questions of how and why EO might pervade organizations heterogeneously along three dimensions: vertically across hierarchy levels, horizontally across business units, and temporally as an organization develops. We then present three models for how EO can dynamically pervade organizations and discuss how examining the pervasiveness of EO can further our understanding of entrepreneurship as an organizational phenomenon.

What matters, matters differently: a conjoint analysis of the decision policies of angel and venture capital investors

Prior studies have examined the importance of economic, strategic, and human factors to decision policies of angel investors and venture capitalists. As more angels professionalize into angel funds and as markets for technologies and ideas become more competitive, it is becoming more important to compare their decision policies with those of venture capitalists. Drawing upon agency theory, we examine whether economic potential, specific human capital, strategic readiness, and passion matter differently to venture capitalists and angel investors. Our study is an experimental conjoint analysis of more than 2700 investment decisions nested within a mixed sample of venture capitalists and angel investors. We find that strategic readiness for funding and affective passion matter more to angel investors, while economic potential matters more to venture capitalists. We also find that both investor types place similar weights on the specific human capital of entrepreneurs. These findings support the agency view that differences in the investment decision policies of angel investors and venture capitalists can be explained by examining the agency costs, market risks, information asymmetry, and control mechanisms that are structured into angel and venture capital deals.

A Resource-Based View on Organic and Acquired Growth

Understanding the sources of business growth is central to both the fields of entrepreneurship and strategy. This is a logical endeavor given the positive macro-level outcomes of firm growth, such as the creation of new jobs, an increase in tax revenues, the provision of innovations, and overall economic growth (Wennekers & Thurik, 1999; Davidsson, 2005). At the same time as the macro-level outcomes, business growth has determinants on the micro-level. Indeed, the majority of firm growth studies have examined a long list of internal factors as predictors of growth, such as the founding team, founder’s prior knowledge and education, access to capital and financing, and/or networks. In particular, these studies argue that the firms’ resources are likely to influence its growth, and its increased size will have implications for what kind of management skills become crucial (e.g. Chandler & Hanks, 1994; Flamholtz, 1986). Despite the increase in the amount of research into this topic over the past decade (cf. Wiklund, 1998; Delmar, Davidsson & Gartner, 2003) the outcome of these reviews is, however, rather disappointing. It appears that despite the increased research efforts, relatively little of solid, generalizable knowledge has emerged. It has been suggested elsewhere that part of the explanation for this is likely that much research has overly simplistically treated business growth as one phenomenon (cf. Davidsson & Wiklund, 2000). In reality, there are several different modes and patterns of growth. For instance, Delmar, Davidsson and Gartner (2003), using numerous measures of growth, found seven different types of growth patterns. These different modes and patterns require different explanations, and they have different implications on the societal and organization level. In this book chapter we will focus on one particular aspect of the multi-facetted nature of business growth, namely the distinction between organic (or internal) growth and acquisition growth. While there are exceptions (Niosi, 2003; Delmar, Davidsson, & Gartner, 2003), few empirical studies of firm growth have dealt with this important distinction. More precisely, we will start from an empirical observation concerning organic vs. acquired growth. The observation is that there is a very strong empirical relationship between the size of a growing firm on the one hand, and what proportion of growth is acquired on the other. It turns out that in the smaller firms almost all the growth is organic while the converse is true for growth firms in the largest size classes. The purpose of this book chapter is, firstly, to try to make theoretical sense, within the framework of the resource-based view of the firm (RBV), of the strong firm size acquired share of growth relationship. Secondly, we will test hypotheses based on our theoretical reasoning on two independent sets of data.

The New Venture Innovation Process: Examining the Role of Absorptive Capacity

The relationship between knowledge and innovation is well established in the strategy and entrepreneurship literatures. However, little is known about how absorptive capacity – the firms ability to acquire, assimilate, and use new knowledge – effects innovation in new firms. We build on extant conceptual arguments from scholars who assert that the concept of absorptive capacity can be delineated into a number of individual components, and we test the influences of each component on innovation using a sample of new firms in the Swedish telecom, IT, media, and entertainment sectors. We find that while all of the components of absorptive capacity influence innovation in new ventures, acquiring new technological knowledge and employing mechanisms for exploiting new knowledge have the greatest effects. Our results provide a direct empirical test of the linkage between absorptive capacity and innovation, and suggest that the effects of these components of absorptive capacity on performance are more complex than previously articulated in the literature. We conclude with implications for future research surrounding absorptive capacity.

What is entrepreneurial failure? Implications for future research

Research into entrepreneurial failure is increasing in prevalence. However, there remains a lack of clarity surrounding how failure is conceptualized. This is an important issue because how failure is conceptualized influences the relevance of research questions posed and the comparability of findings across studies. In this article, we review conceptualizations of entrepreneurial failure including at two levels of analysis (firm and individual) and perspectives of failure (objective and subjective). We discuss the implications these conceptualizations have for future research, including the sampling frame and questions scholars ask.

What about new entry? Examining the theorized role of new entry in the entrepreneurial orientation–performance relationship

It has been well over a decade since Lumpkin and Dess first suggested new entry to represent the principal outcome of an entrepreneurial orientation (EO). Yet, little consideration has been given to the implications of conceptualizing new entry as a phenomenon distinct from EO. This article draws attention to inconsistent assumptions concerning the role of new entry across the two dominant conceptualizations of EO, discusses empirical challenges with exploring new entry as an outcome of EO, and provides a longitudinal test of the causal chain linking EO to future new entry behaviors and eventual performance outcomes.

Externally Acquired or Internally Generated? Knowledge Development and Perceived Environmental Dynamism in New Venture Innovation:

We investigate the relative importance of external market knowledge acquisition and internal knowledge generation in new venture innovation. We argue that the effectiveness of externally acquired knowledge is less important in environments that are perceived as highly dynamic. To test our model, we examine 316 new ventures in one singular, high-growth sector. We find that managers have different interpretations of dynamism within this single sector and that these perceptual variations have important implications for how new ventures develop knowledge in pursuit of innovation. In so doing, we illustrate important within-sector mechanisms and boundary conditions behind new venture knowledge development and innovation.

Financial literacy, role models, and micro-enterprise performance in the informal economy:

This article analyses how financial literacy and role models contribute to explaining the performance of micro-enterprises in the informal economy. Grounded in human capital reasoning and social learning theory, we argue that financial literacy and personal knowledge of role models lead to improved firm performance. We test our hypotheses on a unique dataset of 739 micro-enterprises in Ecuador. We find that financial literacy is an important predictor of financial performance but not growth, and the use of role models predicts return on assets but not other performance metrics. Our results have implications for future work on micro-enterprises and the nature of the human and social capital of their founders.