Per Davidsson

Arriving at the high-growth firm

This study explores heterogeneity in how firms have achieved high growth. Using the population of all firms in Sweden with more than 20 employees in existence in 1996 (n= 11,748), we analyzed their development for each year of the previous 10 years (1987 to 1996). From this population of all firms in Sweden, multiple criteria were used to define a sample of high growth firms (n = 1,501). Using nineteen different measures of firm growth (such as relative and absolute sales growth, relative and absolute employee growth, organic growth versus acquisition growth, and the regularity and volatility of growth rates over the ten year period) we identified seven different types of firm growth patterns. These patterns were related to firm age and size as well as industry affiliation. Implications for research and practice are offered.

Where Do They Come from? Prevalence and Characteristics of Nascent Entrepreneurs

This paper reports on a unique study of a large, random sample of business start-ups that were identified prior to the actual, commercial launch of the ventures. The purpose of this paper is two-fold. First, to present frequencies on the involvement of the Swedish population in the small business sector (particularly in start-ups of firms) and to compare these with estimates from Norway and the USA, which are based on studies using a similar research design. The authors also discuss the possible reasons for the differences that emerge between countries. Second, the characteristics of nascent entrepreneurs (i.e. individuals trying to start an independent business) are analysed and compared for sub-groups within the sample and with characteristics of business founders as they appear in theoretical accounts or retrospective empirical studies of surviving all firms. In order to get a representative sample from the working age population, respondents (n = 30,427) were randomly selected and interviewed by telephone. It was found that 2.0% of the Swedish population at the time of the interview were trying to start an independent business. Sweden had a significantly lower prevalence rate of nascent entrepreneurs compared to Norway and the USA. Nascent entrepreneurs were then compared to a control group of people not trying to start a business. The results confirmed findings from previous studies of business founders pointing to the importance of role models and the impression of self-employment obtained through these, employment status, age, education and experience. Marital status, the number of children in the household, and length of employment experience were unrelated to the probability of becoming a nascent entrepreneur. The gender of the respondent was the strongest distinguishing factor. Importantly, the results suggest that while one has a reasonably good understanding of the characteristics associated with men going into business for themselves, the type of variables investigated here have very limited ability to predict nascent entrepreneur status for women.

Levels of Analysis in Entrepreneurship Research: Current Research Practice and Suggestions for the Future *

In their path-breaking article, Low and MacMillan (1988) suggest that entrepreneurship be defined as the “creation of new enterprise.” The purpose of entrepreneurship research should be to “explain and facilitate the role of new enterprise in furthering economic progress” (p. 141). Such a delineation, they hold, would o- and macro-perspectives. They argue that researchers must acknowledge that entrepreneurship studies could and should be carried out at multiple levels of analysis and that these analyses complement each other. The reasons for studying entrepreneurship on multiple levels of analysis lie in the characteristics of the entrepreneurial phenomenon itself.

Continued entrepreneurship: Ability, need, and opportunity as determinants of small firm growth

The purpose of this research was to enhance our understanding of the growth or non-growth of individual small businesses, growth here being regarded as an indication of continued entrepreneurship. Taken together, earlier studies have suggested a very large number of determinants of entrepreneurship and growth. Yet no very strong explanatory factors emerge. It is argued here that all of the specific lowlevel explanatory variables that have previously been used can be regarded as aspects of either of three major determinants: Ability, Need, and Opportunity. A model based on these three major factors is developed, and the results of previous studies are reviewed in the light of this more abstract model. In the model, objective factors are separated from their subjective counterparts, and it is suggested that subjective factors-or reality-as-perceived-influence Growth Motivation and direct behavior. Although objective factors only partly determine subjective perceptions, they can have important direct effects on outcomes, i.e., Actual Growth. Using survey data from more than 400 Swedish small firms and applying Partial Least Squares analysis, which is a technique for analyzing structural relations among indirectly measured concepts, the parameters of the model are empirically estimated. The results largely lend support for the usefulness of the model. More specifically, the analyses suggest that: (1) objective measures of Ability, Need, and Opportunity can explain a substantial share of the variation in Actual (historical) Growth rates; (2) objective and subjective measures of these three factors can explain a substantial share of the variation in Growth Motivation; (3) in both cases, Need-related issues appear more important than Ability and Opportunity (which would mean that satiation is the major reason why small firms stop growing); (4) subjective factors contain growth-relevant information that is not captured by objective measures; (5) direct effects of objective variables on Actual Growth can be traced; (6) some relations are consistent whereas others seem to vary considerably across industries; and (7) while the model largely gains support, the analyses also suggest some additional relations that are theoretically reasonable and may deserve consideration in future studies. Finally, it is argued that for the advancement of entrepreneurship research, conceptual models at a higher level of abstraction like the one developed in this article are needed. Such models can add meaning to empirical facts and have the virtue of reducing complexity without assuming away too many potential contingencies. It is also suggested that entrepreneurship is a matter of degree and can show itself in different ways, such as start-up, growth, innovation, etc. In practice, the sole measure of entrepreneurship has often been a persons current status as being or not being the founder or owner-manager of a small firm. In future studies the use of a composite measure of the degree of entrepreneurship may prove more fruitful than the comparison-of-characteristics approach has been.

What Do They Think and Feel about Growth? An Expectancy-Value Approach to Small Business Managers’ Attitudes Toward Growth†

This study focuses on small business managers’ motivation to expand their firms. More specifically, we examine the relationships between expected consequences of growth on the one hand, and overall attitude toward growth on the other. Data were collected in three separate studies over a ten–year period using the same measuring instrument. The results suggest that noneconomic concerns may be more important than expected financial outcomes in determining overall attitude toward growth. In particular, the concern for employee well–being comes out strongly. We interpret this as reflecting a concern that the positive atmosphere of the small organization may be lost in growth. We conclude that this concern may be a cause for recurrent conflict for small business managers when deciding about the future route for their firms.

Culture, structure and regional levels of entrepreneurship

While the potential importance of cultural factors for entrepreneurship has been stressed by several researchers, empirical research focusing on this issue is scarce. In this study, values and beliefs assumed to be related to entrepreneurial behaviour, as well as entrepreneurial intentions, are investigated amongst the general population in six structurally different clusters of regions within Sweden. The cultural differences found are not very large, but interesting and statistically significant differences exist. The results suggest that the prevalence of certain values affect levels of entrepreneurship measured as regional rates of new firm formation. There is no clear indication that beliefs about the societal and individual outcomes of entrepreneurship influence new firm formation. The results further suggest some intricate relationships between structure, culture and entrepreneurship. These have implications for policy-making as well as research.

Entrepreneurship — And after? A study of growth willingness in small firms

Abstract In this article an attempt is made to identify and estimate the relative impact of some factors that enhance and reduce the willingness of small business managers to pursue growth. This is done using interview data from a random sample of more than 400 Swedish small business owner-managers. The firms studied are quite small, having 2–20 employees, and represent four different industries, one of them being high-tech. The focus of the study is the following: 1) Can differences in growth willingness be explained by differences in the expected outcomes of growth? If so, what expected outcomes are important growth motivators and/or growth deterrents? 2) Do differences in achievement motivation affect growth willingness? 3) How does growth willingness and its determinants differ among firms in different size classes? According to the results, significant relations exist between expected outcomes and growth willingness. Among the factors investigated, expectations of financial reward and increased independence (the prospect of reducing external dependencies) are the most important motivators. However, economic incentives toward growth appear not to be at work for 40% of the sample. Fear of reduced employee well-being and loss of supervisory control appear to be the most important growth deterrents. An interesting result is that the relations between some expected outcomes and growth willingness appear to be asymmetric. When growth is expected to result in a loss of control, this has a strong growth-deterring effect, according to these data. If, on the other hand, a gain in controllability is expected, this has no motivating effect at all. For independence, exactly the opposite pattern is found. The results also suggest a positive relation between achievement motivation and growth willingness. This relation appears to be contingent on an expectation of financial gains from growth. Thus, in the absence of financial reward, achievement motivation does not enhance growth willingness. As for differences in motivational patterns for managers of firms in different size classes, the results indicate that for a large share of the population of small business managers, the deterring forces override the motivating incentives once their firms have reached a size of about 5–9 employees. Thus, the psychological reasons for further growth seem weak. Only a minority of small firm managers, to whom growth is intrinsically motivating, are likely to pursue continued growth of their firms.

The domain of entrepreneurship research : some suggestions

There is progress in entrepreneurship research. Important works in entrepreneurship increasingly appear in highly respected, mainstream journals (see Busenitz et al., 2003; Davidsson, Low & Wright, 2001). There is conceptual development that attracts attention (e.g. Shane & Venkataraman, 2000) and handbooks are compiled, providing the field with more of a common body of knowledge (Acs & Audretsch, 2003a; Shane, 2000a; Westhead & Wright, 2000). Further, there is evidence of methodological improvements (Chandler & Lyon, 2001) and accumulation of meaningful findings on various levels of analysis (Davidsson & Wiklund, 2001). Moreover, due to time lags in publication the reported improvements are likely to be underestimated. This author’s experience as organizer, reviewer and participant in core entrepreneurship conferences on both sides of the Atlantic (e.g. Babson; RENT) suggests that much of the lower end of the quality distribution has either disappeared from the submissions or is screened out in the review process. Much more than used to be the case a few years back we find among the presented papers research that is truly theory-driven; research on the earliest stages of business development, and research that employs methods suitable for causal inference, i.e. experiments and longitudinal designs.

Values, beliefs and regional variations in new firm formation rates

There are recurrent claims that culture, understood as prevailing values and beliefs, is an important determinant of the level of entrepreneurship in a society. In spite of this, relatively few empirical studies with this focus seem to have been carried out. While some studies of national culture and the rate of economic development have been published and received wide readership, empirical studies of values and beliefs in relation to variations in new firm formation rates are lacking. In a previous study in that vein by one of the authors, it was found that possible cultural and economic-structural determinants of the new firm formation rate were positively correlated, so that the unique contribution of each type of explanation could not be determined. In the present follow-up study, three matched pairs of regions are investigated. While the regions in each pair are similar on economic-structural dimensions, one region in each pair has shown a higher and the other region a lower rate of new firm formation than predicted by carefully developed regression models that use economic-structural factors as explanatory variables. To determine whether cultural differences can explain the deviations from the predictions based on economic-structural variables, large samples of 35-40 years old inhabitants in each region were surveyed for cultural values and beliefs data. The results of this study suggest that both values and beliefs of the kind investigated do have an effect on regional new firm formation rates. The cultural variation is small, however, and for contemporary Sweden it appears to be a relatively less important determinant of new firm formation rates than are variations in economic-structural conditions.

Determinants of the Prevalence of Start-Ups and High-Growth Firms

The purpose of this study is to identify key institutional determinants of firm emergence and growth. We do this using various types of data from Sweden. A characterization of a number of institutions and policy measures shows that they are likely to have contributed to an environment that discourages entrepreneurial activity and firm growth. Aspects dealt with include: missing arenas for entrepreneurship in the care sectors and for household-related services, taxation of entrepreneurial income, incentives for wealth accumulation, wage-setting institutions and labor market regulations. Using original data, we provide evidence of a low prevalence of nascent entrepreneurs and a small net employment contribution by high-growth firms. We admit that indisputable evidence for the effects of institutional arrangements is almost impossible to establish. However, the consistency of our theoretical arguments and empirical data makes a strong case for the notion that the Swedish case illustrates the costs of giving too little weight to economic renewal in policy making.