Trigger points and high growth firms: A review of the policy implications 28 March 2012 Suzanne Mawson, University of Strathclyde Dr. Ross Brown, Scottish Enterprise

Agenda Scottish Enterprise research on high growth firms High growth firms in the Scottish context Current business growth policy and SE interventions Research Findings HGF growth process Role of trigger points in the growth process Policy implications

Scottish Enterprise HGF Research Programme High growth firms have risen up the policy agenda in Scotland Ongoing Scottish Enterprise programme of inter-linked research on HGFs Outputs to date: 1.High Growth Firms in Scotland 2.High-Tech, High Growth Firms in Scotland 3.Enablers of high growth – the role of customer value

High growth firms in the Scottish context Identified around 1500 HGFs in Scotland; 13.5% of the 10+ employee business base (using OECD turnover criteria) Cover most sectors, particularly services Older and larger companies – few true “gazelles” (Acs et al., 2008) Firms are predominantly B2B rather than B2C Strong focus on end-user engagement

Business growth policy in Scotland Focus on young firms (sometimes pre-revenue) with a new technology Focus on smaller firms (those with the opportunity to grow and become “companies of scale”) Focus on technology (and related sectors e.g. Life sciences, computer games and “enabling technologies”) Interventions are generic and reactive to firm needs – financial support, general R&D assistance In common with much support for HGFs, strong focus on R&D support (OECD, 2010)

Scottish Enterprise interventions Segmented approach, working with 2000 firms with the greatest potential for growth High Growth Start-Up Unit to support firms with growth potential in the earliest stages of growth However, most support for these firms is generic rather than bespoke Transactional (R&D grants, soft loans etc) forms of support dominant rather than relational (strategic advice, peer support etc.) The majority of support is provided either before or after a time of high growth

Research findings

HGF growth process Growth is not linear and predictable as per traditional lifecycle models of growth (e.g. Churchill & Lewis, 1983; Greiner, 1972), but rather unstable and inconsistent (Levie & Lichtenstein, 2010) Most HGFs appear to have a “stepped” growth pattern – periods of low / modest growth punctuated with periods of high growth (Garnsey et al., 2006) These periods of growth often result from an identifiable “trigger point” Trigger points are a new way of understanding business growth

What do we mean by growth triggers A growth trigger is “a systemic change to the structure and workings of a firm which provides a critical opportunity for altering that firm’s growth trajectory” (Brown & Mawson, forthcoming) Triggers reconfigure a company, providing the catalyst for it to undertake a period of rapid, transformative growth Triggers can catapult moderately performing businesses or “trundlers” into a high performing businesses or “flyers” (Storey, 1994)

Growth trigger points EndogenousExogenousCo-Determined New product/service offering Technological developmentEntry into a joint venture Change in company ownership (e.g. MBO, MBI, employee-share ownership) Government regulatory issues Acquisition by another firm Acquisition of another firmMacroeconomic changesMajor new capital investment Change in management or Board personnel Changes to public policyAdoption (or adaptation) of new business models Development of a new production process Access to public sector assistance (e.g. R&D or capital expenditure grants) Injection of risk capital or new bank funding Implementation of new management systems Product failure in the marketplace Receipt of a major contract or obtaining a new customer

Growth trigger process Source: Brown and Mawson (Forthcoming)

Policy implications Previous policy support for HGFs has (largely) been around transactional forms of assistance common to most SME support (see OECD, 2010) Policy makers may have been guilty of ‘looking in the wrong places’ for HGFs (Mason and Brown, forthcoming) Many are not technology-intensive businesses - but they are highly innovative Newer more customised forms of support are now required Supporting high growth entrepreneurship is not the same as supporting new venture creation Need to focus on existing businesses as main source of future HGFs (Acs et al, 2008; Brown and Mason, 2012)

Policy implications Interventions for existing businesses may differ from support currently targeted a new ventures No longer just an issue of how to support HGFs, but rather when There needs to be a temporal element in business support - how can interventions for HGFs be best sequenced Support when a firm experiences a growth trigger Newer forms of support around assistance with MBOs etc. Comprehensive support during the post-trigger transition phase E.g. Scottish Enterprise’s “Companies of Scale” programme CofS works intensively with companies to help companies better understand and help navigate the growth journey

References Acs, Z. J., Parsons, W. and Tracy, S. (2008), “High-Impact Firms: Gazelles Revisited”, Office of Advocacy of the US Small Business Administration (SBA), Washington, DC. Brown, R. C. and Mason, C. (2012), “Raising the Batting Average: Re-Orientating Regional Industrial Policy to Generate More High Growth Firms”, Local Economy, Vol pp Brown, R. and Mawson, S. (Forthcoming), “Trigger Points and High Growth Firms: A Conceptualisation and Review of Public Policy Implications”, Journal of Small Business and Enterprise Development. Churchill, N.C. and Lewis, V.L. (1983), “The Five Stages of Small Business Growth”, Harvard Business Review, Vol. 61 No. 3, pp Garnsey, E., Stam, E. and Heffernan, P. (2006), “New firm growth: Exploring processes and paths”, Industry and Innovation, Vol. 13 No. 1, pp Greiner, L.E. (1972), “Evolution and revolution as organizations grow”, Harvard Business Review, Vol. 50 No. 4, pp Levie, J. and Lichtenstein, B. B. (2010), “A Terminal Assessment of Stages Theory: Introducing a Dynamic States Approach to Entrepreneurship”, Entrepreneurship Theory and Practice, Vol. 34 No. 2, pp Mason, C. and Brown, R. C. (2012), “Creating good public policy to support high growth firms”, Small Business Economics, (forthcoming). OECD (2010), High-growth enterprises: What governments can do to make a difference, OECD studies on SMEs and entrepreneurship, Organisation for Economic Cooperation and Development (OECD), Paris.