An online monthly research publication by the Ivey Business School 

Volume 13, Number 10
October 2007

To grow or not to grow

Stewart Thornhill finds that entrepreneurs frequently change their minds about growth, but some more than others

“I was driven by the fire in my belly and I set ambitious targets for the business. But the conditions prevailing around me meant that I had to drastically cut down the growth targets for my firm. I am moving at this slower pace even now.”

“Even though I am a visionary, I began this business small. However, during one of my travels across the border, I realized there was a far larger market just waiting there. I substantially revised our growth target, and since then we have grown by leaps and bounds every year.”

Entrepreneurs are often seen as people who are prepared to sacrifice everything to the pursuit of growth. But real-life entrepreneurs, like the two quoted above, do not conform to a common pattern. They have different attitudes towards growth, and these attitudes change as their businesses evolve. In a study about to be published in the Journal of Business Venturing, Ivey professor Stewart Thornhill and recent PhD student Dev Dutta, now of the University of New Hampshire, looked at two questions: do growth intentions change after start-up, and if so, why?

To conduct their research, Thornhill and Dutta conducted multiple interviews with 30 entrepreneurial firms over a five-year period, asking them about their goals in respect to growth. The firms had all received working capital by a B.C.-based financial institution that specialized in new ventures.

The study was originally motivated by Thornhill’s sense that entrepreneurs do not define success by growth alone. “I’ve always thought it rather presumptuous to assume that all companies want to grow through the roof,” he says. “To say that a slow-growing firm is by definition less successful than a fast-growing one is not only wrong, but unfair.”

Thornhill and Dutta found that about half the entrepreneurs they interviewed changed their plans for growth after they started, based on perceived opportunities or threats that they hadn’t anticipated. “Many researchers assume that entrepreneurs want to grow in the same amount,” says Thornhill. “We found that entrepreneurs start with different attitudes to growth, and about half of them change their intentions, either up or down, to accommodate a better understanding of the market.”

Personal factors were also found to play a big role in how entrepreneurs react to perceived changes in the marketplace. Entrepreneurs have different ways of thinking, “holistic” and “analytic.” An holistic entrepreneur is one who tends to focus on the big picture, relying more on vision and “gut feeling,” whereas an analytic entrepreneur is more detail oriented and data driven.

In their study, Thornhill and Dutta found that holistic entrepreneurs are prone to big changes, revising their intentions sharply upwards when they perceive opportunities, and sharply downwards when they encounter threats. Analytic entrepreneurs, on the other hand, tend to stay the course, even when their perceptions of the market are changing. “The biggest reason that entrepreneurs change their plans for growth is the disconnect between their initial expectations and their perceptions of the subsequent reality,” says Thornhill. “But entrepreneurs who are more analytic simply tend to update that data and forge ahead. Holistic thinkers are more likely to take big swings, becoming either much more or much less aggressive about growth.”

It’s important for investors in new ventures to understand that entrepreneurs often change their minds about how they want to grow. “Lenders or shareholders should know that entrepreneurs have different personal styles that can result in big changes to their goals,” says Thornhill. “It’s not the kind of thing you can learn from a balance sheet. You can only learn it by talking to entrepreneurs and spending time with them.”

Professor Stewart Thornhill is the ERA Fellow in Entrepreneurship.
 

Professor Thornhill's Homepage

Supplement: Q&A with Professor Stephen Sapp on Executive Compensation

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