Entrepreneurship and growth

Abstract

The entrepreneurial growth literature is extensive, but research focusing on questions such as how firms grow, why they grow according to different patterns, how the decisions about growing or not growing are made, and the contextual dimensions within which growth takes place, has been neglected. This annual review article explores such issues: it suggests that there is a greater need to understand the processes that underlie entrepreneurial growth. In particular, we need to know more about how the entrepreneur’s cognitive processes shape growth (i.e. microfoundations of growth), how they access and configure resources to achieve growth (i.e. the resource orchestration underpinning growth), whether these are influenced by a wider variety of contextual dimensions than previously recognised, and how these influence different patterns and types of growth.

Keywords

cognition growth strategic entrepreneurship microfoundations resource-based view

Introduction

The topic of firm growth as a focus of entrepreneurship scholarship has attracted much interest and stimulated considerable empirical research (Delmar et al., 2003; McKelvie and Wiklund, 2010). To date, most attention has been devoted to investigating and understanding the reasons surrounding how much firms grow, as well as why some firms (especially new ventures) grow more than others (see Gilbert et al., 2006; McKelvie and Wiklund, 2010). Despite the inherent heterogeneity of the existing literature, previous studies have identified some compelling predictors of growth addressing the ‘how much’ question, such as entrepreneur characteristics (e.g. Baum and Locke, 2004; Baum et al., 2001), availability of resources (e.g. Lee et al., 2001), venture strategy (e.g. Baum et al., 2001; Chandler and Hanks, 1994), industry context (e.g. Covin et al., 1990; Eisenhardt and Schoonhoven, 1990) and organisational structures and systems (Kazanjian and Drazin, 1990; see Gilbert et al., 2006 for a comprehensive review). Furthermore, entrepreneurship research has placed much emphasis on firm growth per se as the primary indicator of business success (Clarysse et al., 2011; Davidsson et al., 2009). In other words, the extant literature predominantly depicts firm growth as the result of a rich array of factors as well as an unavoidable step in order to increase firm profitability and business success (Davidsson et al., 2006, 2009).

Nevertheless, empirical analyses of the drivers of firm growth report low predictive accuracy and low concurrent validity between several growth measures. Some studies have been flawed in adopting cross-sectional approaches to what is essentially a longitudinal phenomenon (Davidsson et al., 2007), while others have failed to address adequately the dynamic states of entrepreneurial ventures engaged in growth over time (Levie and Lichtenstein, 2010). Further, growth is now recognised to be a multidimensional, heterogeneous and complex construct (Leitch et al., 2010a). As a result, for the accumulation of knowledge there needs to be a shift of attention beyond the use of different empirical proxies of growth toward the development of more fine-grained theorising (Shepherd and Wiklund, 2009). Some would argue that chance and entrepreneurial optimism play a major role in determining firm growth (Storey, 2011): this view has been challenged for not recognising recent developments in entrepreneurship research relating to the entrepreneur and the contexts in which they operate (Westhead and Wright, 2012). These developments call for a shift in emphasis beyond the firm to include the entrepreneur level. Such a shift is particularly important, since entrepreneurial firms do not make decisions about growth – entrepreneurs do. We contend that a lack of understanding about individual cognitive decision processes or microfoundations has been a particularly problematic omission in the literature on the growth of entrepreneurial ventures. In this article, we devote particular attention to this aspect.

Research focusing on questions such as how firms grow, why they grow according to different patterns, how the decisions about whether to grow or not are made by entrepreneurs, and the dimensions of the contexts in which growth occurs, have been neglected (Clarysse et al., 2011; Iacobucci and Rosa, 2010). In short, there is a greater need to understand the processes that underlie entrepreneurial growth (Leitch et al., 2010a). Such an emphasis may help contribute to building theoretical and empirical insights that may reconcile some of the differences arising between the different operationalisations of growth adopted in quantitative growth studies. Also, it may contribute to closing the gap between the meanings attached to growth by practitioners and how they are operationalised in academic research (Achtenhagen et al., 2010). It follows that a greater understanding of processes may contribute to the development of more fine-grained and relevant policies to promote growth. This is particularly pertinent, given that at the time of writing (late 2012), governments worldwide face the challenge of developing policies to promote growth in an environment of severe financial constraints and double-dip recession.

Figure 1 presents the organising framework. First, specifically we analyse who is involved in enabling entrepreneurial growth by examining the microfoundations in terms of entrepreneurs’ cognitive processes and experience. Our focus on the microfoundations of growth resonate with a renewed interest in the microfoundations of organisational processes in different fields of research, such as institutional theory (Greenwood et al., 2008), strategy (Jarzabkowski et al., 2007), dynamic (Teece, 2007) and organisational capabilities (Salvato, 2009). In what follows initially, we devote most attention to this aspect, as the role of the entrepreneur’s decision to grow (or not to grow) their firm is crucial but has been afforded little attention within the extant research upon entrepreneurial firm growth. Therefore, understanding how entrepreneurs make these decisions will complement, enrich and extend current research on growth which, to date, focuses largely on the firm level.

Figure 1:

A framework for growth processes in context

Second, we consider how the process of resource orchestration occurs to facilitate growth with respect to accessing and configuring resources. Third, we examine how the various dimensions of context influence entrepreneurial behaviour and resource orchestration to achieve growth. Finally, we analyse the outcome of these processes in terms of different patterns, types and measures of growth. We show how the microfoundations of entrepreneurial behaviour relate to each section. In the remainder of this article, we utilise our framework to review the extant literature and identify a possible future research agenda. The article concludes by discussing methodological and policy implications.

Who: the microfoundations of growth

The entrepreneurship literature provides many examples of entrepreneurs who realise little or no growth in their firms (see Wiklund et al., 2003), resulting from a limited desire for growth (Cliff, 1998; Gilbert et al., 2006) rather than an inability to grow. As Gilbert et al. (2006) note, the decision to grow the firm is the ‘first and foremost strategic decision all entrepreneurs must make … the decisions entrepreneurs make in the venture’s early years have profound long-lasting implications for performance’ (2006: 929). Further, extant models of venture growth represent it as the outcome of a rich array of factors, including the decisions entrepreneurs make about how, how much, when and where they should grow their firms. Given the importance and the implications of such decisions, understanding how entrepreneurs think about growth, as well as how they develop their core beliefs about growth and what cognitive styles and knowledge structures they use to process information and make decisions about growing their ventures, is unavoidable to depict a thorough explanation of how, why and under what conditions firms grow. Therefore, it is quite surprising that the existing literature on the topic provides limited answers to these questions.

To date, research on entrepreneurial cognition has examined a wide range of intriguing issues, mostly revolving around three key questions (Baron and Ward, 2004).

Are the cognitions of entrepreneurs different from those of other business professionals? Do they think differently in various ways, both with respect to the content of their thoughts (e.g. Mitchell et al., 2002) and the processes they employ? (e.g. Baron, 2000).

What role do cognitive biases and errors play in entrepreneur thinking? (e.g. Alvarez and Busenitz, 2001; Busenitz and Barney, 1997; Simon et al., 2000).

What cognitive processes are involved in opportunity recognition? (e.g. Gaglio and Katz, 2001).

Collectively, these studies have pointed out that cognitive factors play an important role as key aspects of the entrepreneurial process, specifically in respect to the discovery, evaluation and exploitation of opportunities and the start-up phase (Mitchell et al., 2004). Nevertheless, relatively little attention has been devoted to understanding the relationships between individual and team-level entrepreneurial cognition and firm growth. In the remainder of this section we provide a brief review of the extant literature on entrepreneurial cognition, then identify unanswered questions and areas deserving further investigation to enrich insights into firm growth. Research has drawn increased attention to the role of entrepreneurial cognition (see Grégoire et al., 2011). In particular, two lines of enquiry can be identified: the study of cognitive structures and the study of cognitive processes (Sanchez et al., 2011). We explore these two themes in further detail.

Cognitive structures

Cognitive or knowledge structures are the basic mental models that people use to make sense of and organise information. These structures rely on comparative thinking to make connections, find patterns and relationships and generate rules and abstract generalisations which apply to more than the immediate situation. The most common cognitive structures documented by theories on cognition include cognitive maps, categorisations, logical reasoning, metaphors, symbolic and visual representations and scripts.

Research on entrepreneurial cognition has tried to understand whether entrepreneurs use knowledge structures differently from non-entrepreneurs when they have to make sense of information, and has focused primarily on the role of scripts or schema (Fiske and Taylor, 1991) and self-efficacy (Bandura, 1977). Within the specific context of entrepreneurship, scripts refer to the knowledge structures that entrepreneurs rely upon in order to make assessments and judgements, identify and evaluate opportunities and make decisions regarding the creation and growth of their business. In particular, these studies have examined how entrepreneurs use mental models to link previously unconnected information to help them notice change and market disequilibria (Gaglio and Katz, 2001 call this schema ‘entrepreneurial alertness’), and identify or invent new products or services and the necessary resources to start up and cultivate a business (e.g. Busenitz and Lau, 1996; Mitchell et al., 2002). Collectively, they suggest that successful and expert entrepreneurs think differently from less successful entrepreneurs and novices because they develop more refined, more complex and more adaptive schema scripts about a particular domain which allow them to perform better in their environment than those who do not have these scripts (Smith et al., 2009; Westhead et al., 2009).

In a similar vein, studies on entrepreneur belief in their abilities to succeed show that self-efficacy represents a robust predictor distinguishing between entrepreneurs and non-entrepreneurs (Markman et al., 2005; Rauch and Frese, 2007). In any given situation, entrepreneurs tend to perceive more opportunities than non-entrepreneurs where the latter perceive the same situation to have more costs and greater risks (Vecchio, 2003). Therefore, some people avoid entrepreneurial activities not because they lack ability, but because they believe that they do not have such ability. Entrepreneurial self-efficacy studies provide data that help to understand why some businesses grow and others do not, in that some entrepreneurs have insufficient self-efficacy to cope with specific tasks, and thus, will decide not to grow their firms (Vecchio, 2003).

As a whole, research on entrepreneur cognitive structure rests on the assumption that entrepreneurs differ from non-entrepreneurs in the cognitive structures that they use, as well as in the way that they use them (see Baron and Ward, 2004). However, further research is needed to understand better how they develop their cognitive structures and use them in a more efficient way than non-entrepreneurs to navigate through the uncertain external environment. Moreover, the extant research focuses largely on the consequences that cognitive structures have on relevant outcomes, overlooking the role of the antecedent dynamics stimulating entrepreneurship cognition. Although the study of consequences is important to inform relevant policies, consulting practices and educational strategies, it only provides a narrow portrayal of the dynamics of entrepreneurial cognition. As Grégoire et al. (2011) note, a better understanding of cognition in entrepreneurship cannot leave investigation of personal and external antecedents out of the equation. In particular, research has shown that firms can grow at different rates and with different patterns (Delmar et al., 2003). One possible explanation is that entrepreneurs are motivated differentially towards growth: previous studies have focused on understanding the influence of beliefs and motivation towards firm growth (e.g. Baum and Locke, 2004; Delmar and Wiklund, 2008; Wiklund et al., 2003), but have fallen short of understanding why some entrepreneurs are more motivated than others to grow their firms. Therefore, issues such as ‘What influences their motivations?’ and ‘What types of motivations (e.g. personal vs. profit maximisation) drive entrepreneurs’ choices?’ remain empirical questions. We encourage scholars to engage in studies addressing these points, as we believe that so far, empirical contributions have neglected aspects of entrepreneurial cognition that are important to inform both practitioners and policymakers as to what really influences and drives entrepreneurial motivation – and hence, decisions – towards growth.

Cognitive processes

As noted by Baron and Ward, ‘opportunity recognition is often viewed as a central aspect of entrepreneurship and of entrepreneurial cognition’ (2004: 556). Unsurprisingly, current research on entrepreneurial cognition mostly focuses on the cognitive processes underpinning opportunity recognition: decision-making and opportunity evaluation.

Decision-making

Making decisions is a key task faced by all entrepreneurs, as they often face environments characterised by high levels of uncertainty and ambiguity. Usually, entrepreneurs are portrayed as people who ‘think on their feet’ and prefer action to reflection and thought (Markman and Baron, 2003), as often they must make decisions rapidly. Therefore, they tend to think heuristically, following quick rules for making decisions and planning action rather than thinking analytically and systematically. Research on the topic has shown that entrepreneurs with a logic firmly based on heuristics make sense of complex and ambiguous situations more quickly and taking more orthodox approaches when making decisions than those who think analytically (see Mitchell et al., 2007). However, like all human beings, entrepreneurs are not immune to errors and biases that can lead to faulty decisions, erroneous inferences and unrealistic expectations (Kahneman et al., 1982) such as counterfactual thinking (Baron, 1998, 2000; Gaglio, 2004; Gaglio and Katz, 2001), the planning fallacy (Baron and Markman, 1999; Krueguer and Evans, 2004), overconfidence (Russo and Schoemaker, 1992) and over-optimism (Cooper et al., 1988; Parker, 2006).

Opportunity evaluation

Evaluating opportunities is a critical entrepreneurial process in differentiating an idea from an opportunity (Hills and Shrader, 1998). Deciding whether an idea represents an opportunity often involves making judgements under conditions of complexity and uncertainty (Allinson et al., 2000). Closely associated with uncertainty is risk, which is the probability that an entrepreneur will successfully turn an idea into an opportunity. As such, perceived risk is a significant aspect of how entrepreneurs evaluate available ideas; an idea will be evaluated more favourably where risks are deemed to be lower. Research has shown that cognitive biases influence the decision to start a business venture (e.g. Simon et al., 2000); although entrepreneurs are more alert and able to discern opportunities (Kirzner, 1973) and think differently from non-entrepreneurs, they do not represent an exception in this respect. In particular, Keh et al. (2002) found that two biases, illusion of control and belief in the law of small numbers, influence risk perception and thus, opportunity evaluation.

Although cognitive research in entrepreneurship has become a significant area of study, it suffers from important conceptual challenges that reduce its contribution (Grégoire et al., 2011). In particular, a comprehensive understanding of how entrepreneurs undertake decisions to grow or not to grow their firms, and of which factors (internal – the person, and external – the environment) may influence this decision, is still missing. As Grégoire et al. (2011) noted, research on cognition emphasises that behaviours proceed from complex interactions between the environment and the human mind (see Fiske and Taylor, 1991; Turner, 2001). Hence, cognitive research has focused mostly on investigating how, when and why these interactions play a role in the development, transformation and use of mental representations and other cognitive constructs, and on how, when and why these elements influence (and are influenced by) human action. So far, despite the advancements produced by cognitive science, research on entrepreneurial cognition has failed to develop an understanding of entrepreneur cognitive processes and the interactions between mind, environment and entrepreneurial action. In other words, scholars still need to unpack the ‘black box’ of entrepreneurial cognitive processes by exploring how entrepreneurs really make the decisions to grow their firms or not. Furthermore, we believe that it is important to engage in a deeper understanding of the cognitive styles that entrepreneurs rely on when making such decisions. The extant research usually portrays entrepreneurs as relying on non-linear thinking modes such as intuition, feelings and emotion, creativity and imagination, all of which support risk-taking in the face of ambiguity and uncertainty (e.g. Aquino, 2005; Runco, 2004). Some empirical studies have shown that successful entrepreneurs tend to demonstrate a greater intuitive style, while managers tend to prefer an analytical or linear approach to information processing and decision-making (e.g. Allinson et al., 2000; Baron, 2007; Groves et al., 2011). Non-linear or divergent thinking helps to deal with ambiguity more easily and with the exploration of different opportunities. Therefore, we can hypothesise that entrepreneurs who rely on this cognitive style will have a more positive inclination towards growth. Nevertheless, to date, a clear link between cognitive styles and decision-making regarding growth has not been traced. Whether non-linear thinking is most likely conducive to the decision to grow the firm, and analytical thinking most conducive to the choice of not growing the firm, remains an empirical question.

A further issue of importance relates to the sense-making process that entrepreneurs engage with when deciding whether and how much to grow. Sense-making is commonly understood as a process in which individuals or groups attempt to interpret novel and ambiguous situations (Weick, 1995) when they face events or tasks that cannot be readily interpreted using available mental structures (Kiesler and Sproull, 1982). The sense-making approach has emphasised the processes by which individuals and groups extract patterns of meaning from ambiguous environments (e.g. Balogun and Johnson, 2004; Weick, 1995), as well as how these processes participate in construction of the social reality where individuals and groups operate (Anderson and Nichols, 2007; Oliver and Montgomery, 2008). Growth by definition is an inherently uncertain process characterised by a high level of ambiguity with respect to both the context and final outcomes. As a consequence, when facing firm growth, entrepreneurs repeatedly have to make sense of ambiguous and changing information extracted from uncertain external environments. Previous studies have begun to apply sense-making theory to understand strategy-making better (Gioia and Chittipeddi, 1991) and, more recently, entrepreneurship (see Cornelissen and Clarke, 2010; Hill and Levenhagen, 1995). Collectively, they show how individuals or groups engage in the development of new mental models (of the market, a product, the organisation, etc.) and attempt to convince relevant stakeholders to accept them. Despite the potential benefits to be gained by more intense cross-fertilisation between sense-making and entrepreneurial cognition research, so far the two streams have remained disconnected. In particular, we believe that sense-making theory could be useful to illuminate a deeper investigation of entrepreneurs’ cognitive processes. Indeed, a comprehensive understanding of how sense-making processes influence firm growth is still missing. Scholars of entrepreneurial cognition need to investigate how entrepreneurs make sense of the information extracted from the uncertain external environment to decide whether to grow (retrospective sense-making), and to develop an understanding of the desired growth pattern (how and how much to grow – prospective sense-making). Recent studies on how designers work (see Stigliani and Ravasi, 2012) has shown how relying upon material practices and artefacts, as well as conversational practices, supports individuals and groups in the development of such understandings. Therefore, further studies in settings where less visually-oriented persons (e.g. entrepreneurs) engage in less visually-oriented tasks (e.g. vision about a desired growth pattern) are needed to enlarge the application of models of sense-making (both retrospective and prospective) to non-traditional contexts.

Finally, there is a paucity of research about how entrepreneurial cognition unfolds across different levels of analysis. The cognitive perspective rests on the assumption that cognition operates across multiple levels of analysis, from individual to group organisation and society (Hodgkinson and Healey, 2008; Huff et al., 2000; Walsh, 1995). Just like mental representations, ideas and other mental resources can be ‘shared’ with others, the dynamic relationships between environment, mind and action also can take place across levels of analysis. As a result, it is relevant to investigate how cognitive phenomena anchored at different levels may influence one another.

In particular with respect to firm growth, we believe that exploring the link between team cognition and growth is particularly important. Research in cognitive psychology introduced the concept of ‘shared mental models’ (Cannon-Bowers et al., 1993), defined as shared representations of key elements of group tasks and environment (Klimoski and Mohammed, 1994), and has suggested that team mental models may enhance team member coordination and effectiveness in complex tasks that are unpredictable, urgent and/or novel (Marks et al., 2000), as in the case of firm growth. However, to date, an understanding of how entrepreneurial teams collectively decide whether and how to grow remains absent. The relative paucity of research on this topic leaves room for a number of interesting questions. What factors affect the development of shared representations among team members? How do they share individual mental representations? How do they build on each other’s representations in order to develop an agreed-upon collective mental representation of the desired growth pattern? Is the collective mental representation simply the result of the sum of the individual representations? Does shared cognition lead to different or better decisions?

Although many growth ventures do involve entrepreneurial teams, it is not clear to what extent decision-making processes take place on a shared basis, or whether decision-making relies upon the cognitive processes resulting from leadership by a dominant individual within the team (Wright and Vanaelst, 2006). It follows that to the extent that such differences exist within teams, there may be differential effects on growth strategies, the coordination of resource to achieve growth and growth outcomes. It is also the case that entrepreneurial teams may change as the venture grows (Ucbasaran et al., 2003). Not only may the search and transition process involved impact upon growth outcomes, but also changes to team composition may disrupt cognitive decision processes regarding the development and implementation of growth strategies. We believe that addressing these questions is important to unpack the cognitive dynamics underlying teams of entrepreneurs, in order to identify best practice that could inform practitioners and policymakers alike.

How: the processes of growth

Firms may grow by adopting different strategies. For example, they may adopt innovation strategies to improve performance. A meta-analysis by Rosenbusch et al. (2011) shows that age of the firm, firm context and innovation type influence performance differently. However, quite surprisingly, while the analysis included growth as one of the performance variables considered, it does not distinguish whether innovation has a different effect on growth versus profitability measures of performance, such as return on assets. More generally, implementation of the decision to grow cannot be divorced from the need to access and configure the requisite resources. An extensive literature has examined the relationship between resources and the growth of entrepreneurial firms; primarily, this has focused on the roles of human and financial capital (Gilbert et al., 2006). Yet, it is clear that technological and social resources also make a major contribution to the pattern and type of growth. For example, these resources are interrelated with human capital and financial resources, helping to develop both technological and social resources (Clarysse et al., 2011; Davidsson and Honig, 2003). Little attention has been paid in the growth literature to the processes by which entrepreneurial firms access and configure resources in order to achieve growth. Some recent studies have begun to recognise how entrepreneurs deal with heavily constrained resource environments through the use of bricolage, for example (Baker and Nelson, 2005). While these studies have provided important insights into the early stages of venture creation, a major challenge concerns how, and indeed whether, these firms make the transition to growing firms or whether they remain small.

The strategic entrepreneurship perspective emphasises the need to select and structure human, social and/or network, financial and technological resources in order to exploit opportunities and gain competitive advantage, achieve growth and create value (Ireland et al., 2003). Recent developments in the resource-based view of the firm also have stressed the need to understand how firms orchestrate or better coordinate their resources and capabilities (Barney et al., 2011; Sirmon et al., 2011). This involves identifying the origins of resources and how to accumulate, bundle and configure them to generate sustainable returns. With respect to resource configuration and bundling, the first issue concerns the need to examine how an initial research idea can be refined (and re-refined) into a viable business concept. The notion of re-refining reflects the challenges arising from eventual market identification, being at some variance from initial expectations, and suggests the need to develop capabilities to adapt an initial growth trajectory to where the demand lies. A second dimension concerns the need to examine how (and when) resources from industrial and financial partners can be accessed, and how this can be communicated to external investors; a third issue concerns how appropriate individuals with the cognitive skills to champion the growth of the venture can be identified over its life cycle (Rasmussen et al., 2011). The founders may not be the ones to take the business forward to growth, and there is a need to understand how such transitions are made. A fourth issue is the challenge of understanding how an appropriate networking competency can be developed over the life cycle of the venture.

The resource orchestration approach focuses on the achievement of a competitive advantage rather than growth as such. Entrepreneurial firms facing resource constraints in some areas can achieve a competitive advantage by developing complementary resources in others (Sirmon et al., 2010). This emphasises the need for resources to be viewed as bundles, and that different configurations of such may lead to competitive advantage – achieving competitive advantage implies a need for growth. Besides different resource bundles, resource-constrained entrepreneurial firms may need to adopt different modes and patterns of growth to attain competitive advantage. However, the processes through which resource orchestration arrives at different appropriate bundles of resources and capabilities to generate different modes and patterns of growth are little understood, and call for further research. For example, how do entrepreneurs undertake the iterative processes to identify the appropriate configuration of resources for different growth paths? What cognitive processes are involved in selecting between different possibilities?

Where and when: contexts

How entrepreneurs make decisions about growth is influenced by their situated cognition (Haynie et al., 2010). That is, entrepreneurs develop metacognitive strategies, reflective of their own motivations, which allow them to adapt their cognitive processes according to the environments in which they operate. In this respect, prior research has focused largely on the influence of geographical location. Distinctions have been made between rural and urban areas, high versus low cluster locations, spatial proximity and spatial mismatches, with respect to competition for and access to resources (Babcock-Lumish, 2009; Eisenhardt and Schoonhoven, 1990). In addition, prior research has considered the role of industry context and the life cycle stage: notably whether the sector is emerging, growing, in maturity or decline (Gilbert et al., 2006; Bamiatzi and Kirchmaier, 2012). At different stages, the resource environment may be more or less munificent in facilitating growth. Relatedly, the industry environment may be dynamic, heterogeneous, highly competitive or hostile.

Recent research has highlighted a need to consider the heterogeneity of institutions and organisations within particular locations, and their impact on firm growth (Huggins, 2008). Further, there is a need to consider the interaction of the entrepreneur, notably their cognitive attributes and experience, with the location. For example, Mueller et al. (2012) show that in respect of spin-offs from universities, firms located outside the ‘golden triangle’ universities in the UK can compensate for the weaker reputation of their localities and universities by signaling the high quality of their founders – for example, in terms of their prior entrepreneurial success – to increase the likelihood that they will be able to obtain venture capital to fund growth. Contextual dimensions extend beyond geographical or spatial location within a particular country and industry or market environment (Welter, 2011; Zahra and Wright, 2011). Moreover, the processes of firm growth need to be understood in relation to the temporal dimension that is, ‘when’ is also an important dimension. At the firm level, this dimension relates to the particular phases of a firm’s life cycle, but ‘when’ also involves the individual entrepreneur level in terms of the stage in their entrepreneurial career. Entrepreneurial careers may take place within a single venture, or in multiple ventures held sequentially or concurrently as a portfolio (Westhead et al., 2009).

Entrepreneurs and firms may learn through the process of emergence from opportunity identification, initial resource assembly, adaptation and iteration to a credible entity that meets a market need through to eventual generation of growth and sustainable returns. This process involves the development of absorptive capacity over time, which can involve the recruitment and augmentation of leadership teams and boards with the skills to enable growth (Zahra et al., 2009). Such a process is unlikely to be without its challenges. The introduction of board members representing external investors may introduce conflict with entrepreneurs about the direction and pace of growth, which arises from differences in knowledge, cognitive processes and the contractual powers held by investors – which, in turn, may include the ability to remove the entrepreneur (Oakey, 2003). Entrepreneurial firms may need to develop capabilities and resources to switch from one growth mode to another over the life cycle of the firm: for example, having grown initially in terms of building the value of technology, they may need to build capabilities to generate revenue. This may involve a shift from exploration-only skills to exploitation skills, as well as a need to acquire or otherwise access downstream complementary assets. Further analysis is needed of the timing of such changes, the nature of inertias that may impede them, and the processes by which these challenges are overcome.

Resolving these challenges may depend heavily upon cognitive processes. In relation to the microfoundations of entrepreneurial growth reviewed previously, research is needed to explore the extent to which cognitive scripts, self-efficacy and heuristics facilitate or constrain entrepreneur ability to make these changes. Entrepreneurs may learn in different ways from prior experiences that influence the extent and nature of the subsequent growth of their ventures (Cope, 2003, 2005). They may also learn differentially from prior success or failure, and further research is needed to explore this process. For example, habitual entrepreneurs that have failed previously may become more risk-averse in their next venture; this may lead to lower mean growth but also lower variability in growth (Ucbasaran et al., 2009). Serial entrepreneurs may be more likely than portfolio entrepreneurs to attribute the reasons for prior failure to external factors and thus, what they learn from this experience may be different, with consequences for future actions to create growth. Following failure, entrepreneurs need to develop strategies of recovery and critical self-reflection to be able to reassess their networks and relationships, in order to be able to devise new growth trajectories. Those entrepreneurs who have experienced both prior success and failure may be more likely to recover more quickly (Cope, 2011) and to pursue subsequent growth-oriented entrepreneurial activities (Ucbasaran et al., 2010).

The temporal dimension of context has a country-level aspect, as they differ in their notion of time: for example, between some emerging and developed economies (Zahra and Wright, 2011). Entrepreneur cognitive processes and resource configuration behaviour in countries with a more urgent view of time may differ from those countries with a more lax perspective. These differences have implications for both domestic firm growth and international growth that remain under-explored. In addition, country differences extend to a need to compare how different institutional contexts influence the processes and nature of growth. While there has been some attention to how institutional contexts influence differences in the conditions for business creation between countries, these differences can affect entrepreneurial firm growth, such as their impact on the availability of entrepreneurial finance, development of stock markets, etc., which require additional attention.

While studies examining the role of clusters and spatial proximity consider the social dimension of context in terms of access to human and financial resources, we suggest that there is a need for a reconfiguration of these approaches to consider the impact of the entrepreneurial ecosystem on entrepreneurial growth more explicitly. Such a reconfiguration has implications for understanding of entrepreneurial growth at the firm level, but also at a more macro-level. Often, in the traditional national innovation systems approach, institutions create and disseminate new knowledge while entrepreneurship is ignored (Nelson, 1993). Yet entrepreneurial innovation is viewed as the true source of national competitive advantage (Baumol, 2002): the challenge is to create an enabling environment where entrepreneurial innovation can flourish (Acs et al., 2012; Adams, 2011). Such an environment may involve defining, creating and supporting an entrepreneurial ecosystem, involving relations between entrepreneurs and their ventures, universities, potential and actual industrial partners, trading partners, finance providers and government support. Rather than focusing on entrepreneurial ventures in isolation, with the firm as the unit of analysis, there may be a need to focus on the role of the entrepreneurial ecosystem and the processes of how it is developed, nurtured, adapted and sustained. Furthermore, it is important to understand how these processes differ between different forms of innovative entrepreneurial venture.

To the extent that ownership and governance are considered at all, entrepreneurial growth studies typically focus on founder-owned ventures. Recognition that entrepreneurship is not only about new ventures introduces the need to consider how different ownership and governance regimes influence the nature of entrepreneurial growth. First, family firms are characterised by both economic and non-economic goals (Chrisman et al., 2012), which may lead to conflict between different growth trajectories and processes. A family firm’s goal of employing many family members across generations may emphasise a growth objective which may be in conflict with family owners who perhaps are not involved in the management of the firm, but who would like to emphasise profits in order to maximise their dividends. A longer-term, lower risk-taking perspective typically attributed to family firms may influence the nature of the processes involved in creating growth over the longer term, compared to a non-family firm (Ng and Keasey, 2010). Further, while family firms may need to be entrepreneurial in order to survive over the longer term, part of their processes for securing longer-term survival may be to ring-fence newer, riskier activities into separate entities from the main family business. There is little evidence on the opportunities identified to be ring-fenced, which family members are involved, and at what point growth in the ring-fenced venture is such that it can be deemed a success or a failure.

Second, while venture capital and private equity-backed buy-outs of firms are linked often with restructuring and downsizing, they also may be associated with the realisation of entrepreneurial growth opportunities that were not possible under the previous ownership regime (Boucly et al., 2011; Meuleman et al., 2009; Wright et al., 2000). However, the cognitive processes that managers who are involved in buying out firms adopt to identify and pursue growth opportunities, are little understood. For example, buy-outs created through divesting subsidiaries of larger groups may initially be heavily resource-dependent on their former parent yet, need to engage in a process of identifying new trading partners to grow the firm beyond the former parent and reduce dependence.

What: growth patterns and types

As we noted at the outset, there is growing recognition of the heterogeneity of entrepreneurial growth, such as with respect to the modes of growth (organic versus acquisitive), pattern of growth (high-growth versus low-growth versus erratic-growth) and growth measures (sales revenue, employment, profits, value creation, international versus domestic) (Davidsson et al., 2007). Increasing attention is being given to moving beyond simply operationalising growth through different measures, towards theorising different patterns of growth. Understanding of how entrepreneurial cognitive processes and resource configuration processes differ according to the heterogeneity of these entrepreneurial growth modes and patterns is limited. Further, there is little insight into how contextual factors shape different patterns and modes of growth and associated processes. Clarysse et al. (2011) make a start in this direction by exploring how environmental contingencies along the dimensions of stable and complex environments affect resource portfolio development, and shape different forms of high-growth trajectory. In a qualitative study of high-growth firms, they demonstrate that the stability of the competitive environment influences whether resource accumulation resulting in an organic growth path or acquisitive growth was the main mechanism to build a resource portfolio. Whether growth will be fuelled by internal cash flow from profits generated by sales to customers, or whether it will depend on external financing from venture capital firms, depends on the complexity of the market environment. This study also suggests that an abundance of certain resources substitutes for deficiencies in other areas at founding, also how resources develop into portfolios optimally adjusted to the competitive environment.

A central under-theorised issue in the analysis of growth concerns the market context: traditionally, much of the current research has focused on growth in the product market. Earning profits may be important to sustain and enhance growth in this market; however, this is a narrow view. Recent work also has contrasted the conditions for growth in the product market with growth in the technology market (Gans et al., 2002). Yet, besides selling technology to other firms, for example through licensing, there is also a need to recognise the importance of the financial and corporate asset markets. Ventures with high-growth potential likely attract funding by venture capitalists who can contribute to realisation of that potential (Hellman and Puri, 2002). However, the ultimate objective of commercially-oriented venture capitalists is to create growth in the value of their portfolio companies, so that they can be floated or sold to strategic buyers, enabling venture capitalists to generate returns for their fund providers. Different growth strategies are available to create value growth. Further, the associated growth paths may not be linear, as early-stage firms struggle to develop and adapt technology into viable products that will meet emerging market needs. Thus, they face the challenges of obtaining funding rounds to bridge the so-called ‘valley of death’, develop internationalisation strategies, identify alliance partners and acquisition candidates and build relationships with incumbent firms that may provide an eventual exit. These growth processes may differ from those pursued by entrepreneurial firms that are not venture capital-backed, but these differences are not well understood.

Discussion and conclusion

In summary, our analysis has pointed to a number of potential questions for future research. These research questions are brought together under themes of the framework in Table 1.

Table 1.

Future research questions

Who?	How?	Where and when?	What?
Why are some entrepreneurs more motivated than others to grow their firms? Does entrepreneurs’ background influence their attitude towards growth? How?	What challenges face firms in moving from a bricolage or effectuation approach to new venture creation to be able to generate significant growth?	How do entrepreneurs’ cognitive processes and learning based on experience interact with different institutional environments to enable growth?	What factors influence the process of changing from one mode of growth to another as the venture emerges?
How do beliefs and perceptions about growth form?	How are these challenges overcome?
How do entrepreneurs really decide to grow or not to grow their firms?	How does resource orchestration arrive at the appropriate bundles of resources and capabilities to generate growth?	How do the cognitive processes of entrepreneurs seeking growth opportunities differ between countries with varying concepts of time?	How do modes and patterns of growth differ when the emphasis is on product markets versus financial and corporate asset markets?
On what kind of cognitive styles do they rely?		What factors influence the ability of countries with a lax view of time to change in order to augment entrepreneurial growth?	How do entrepreneurs interact with venture capitalists/PEs in the process of generating different modes of growth?
How do entrepreneurs make sense of the information extracted from the uncertain external environment to decide whether and how to grow?	Which resources and capabilities complement or substitute for each other to facilitate (different patterns of) growth?	Where can governments develop enabling environments and ecosystems to stimulate growth-oriented innovation?	What entrepreneurial and research orchestration processes are successful in turning around venture performance?
How do they develop the cognitive structures that help them navigate through the external environment?
Who decides whether and how to grow the entrepreneurial venture?	How do notions of resource-constrained firms differ with respect to different growth modes and trajectories?	How do the cognitive processes and resource orchestration processes in growth-oriented family firms and management buy-outs differ from those in new venture start-ups?	How do growth modes and patterns differ according to different types of entrepreneurial contexts?
How do entrepreneurial teams collectively decide whether and how to grow?
What is the role of external investors in deciding the direction of growth?

Our insights contribute to developing the entrepreneurial growth research agenda. In addition to the growth area, our analysis contributes to the development of entrepreneurial cognition and strategic entrepreneurship research agendas. With respect to entrepreneurial cognition, our analysis indicates a need to devote more attention to cognitive processes beyond the opportunity recognition and start-up phases.

The research questions outlined suggest a need for greater methodological plurality in the study of growth. Traditionally, research has relied on large-scale quantitative studies; our framework suggests that future quantitative work needs to adopt a multilevel approach that takes into account individual, firm and contextual-level influences on entrepreneurial growth. We also believe that, although a quantitative approach is important, alone it does not allow for the dynamics behind firm growth to be fully captured. Specifically, focusing on the microfoundations of growth and addressing ‘how’ and ‘why’ research questions require the adoption of alternative methods. Experimental psychological approaches, and more recently developed neural approaches (e.g. Nicolaou et al., 2008), may provide insights into the thinking behind growth processes. However, we suggest that there is a major need for rigorous qualitative methods, such as comparative case studies, ethnographic and longitudinal studies, to complement and enrich the findings provided by large quantitative databases and experimental approaches which are unable to provide insights into the real processes of entrepreneurial growth. Further, qualitative studies are needed that adopt interpretivist as well as positivist approaches (Leitch et al., 2010b). In addition, qualitative methods may be used as part of a mixed methods approach to analyse the drivers of growth, but such studies need to provide a clear justification for why a mixed methods approach is appropriate.

Implications of the study

Finally, our call for a reconfiguration of the research agenda concerning entrepreneurial growth has important implications for policy development. Our analysis suggests a need to develop more fine-grained policies in order to improve the success prospects for support for growth. Exhortations on existing finance providers to make more finance available, and the development of new forms of non-bank finance that will invest in riskier projects, seem unlikely to be successful unless greater consideration is given to matching support to the cognitive characteristics of entrepreneurs and the contexts within which their entrepreneurial activities take place. For example, support for existing firms with growth potential, such as family firms and management buy-outs, may bring greater returns than focusing solely on early-stage ventures. In addition, support may need to take more account of the extent and nature of the entrepreneurial experience of entrepreneurs with growth potential. As such, policy might aim to provide incentives that encourage entrepreneurs with experience in growing ventures, and who still have the motivation to do so, to mentor novice entrepreneurs. However, even among early-stage ventures, support for growth may need to move beyond traditional ‘hard intellectual property’ high-technology areas towards ‘softer intellectual property’, where entrepreneurs’ cognitive skills and the resources that need to be configured may need to be quite different: for example, funding levels may be much lower and often formal intellectual property protection is not possible, but where social networks and entrepreneurial agility may be more important. Moreover, our identification of the importance of the interaction between institutional factors relating to differences between countries and entrepreneurial cognitions suggests the need to adapt growth policies to local environmental contexts, rather than transferring them wholesale from western developed economies.

Overall, we have argued that the time has come for a reconfiguration of the large and complex growth literature, by integrating it with more process-oriented perspectives and a wider array of methodological and conceptual approaches. We have suggested that there is a greater need to understand the processes that underlie entrepreneurial growth and that this reconfiguration can be achieved through generating greater insight into the role of entrepreneurial agency in driving entrepreneurial growth. In particular, we need to know more about how cognitive processes shape growth (i.e. microfoundations of growth), the influence of process on how entrepreneurs access and configure resources to achieve growth (i.e. the resource orchestration underpinning growth), how entrepreneurs’ processes are influenced by a wider variety of contextual dimensions than previously recognised, and how these influence different patterns and types of growth. After all, ventures do not generate entrepreneurial growth – entrepreneurs do.

Footnotes

Acknowledgements

Many thanks to the editor, Susan Marlow and several anonymous reviewers for helpful and constructive comments on an earlier version. (Editor’s note: I also extend my thanks to the reviewers who so generously gave of their time and expertise to comment upon earlier versions of this article.)

Funding

This research received no specific grant from any funding agency in the public, commercial or not-for-profit sectors.

Notes

Mike Wright is Professor of Entrepreneurship and Director of the Center for Management Buyout Research at Imperial College Business School and visiting professor at University of Ghent. He is a co-editor of Strategic Entrepreneurship Journal. His research focuses on private equity, entrepreneurial mobility, family firms and entrepreneurship in emerging economies.

Ileana Stigliani is Assistant Professor at the Innovation and Entrepreneurship Group of Imperial College Business School, London. Her current research focuses on how material artifacts and practices influence cognitive processes – including sensemaking and sensegiving processes, and perceptions of organizational and professional identities – within organizations.

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