Most firms die young. Those who survive grow incrementally and stay in the game for a while, even for long time. Very few experience an intense period of rapid growth. For those who do, most firms only experience such growth once in the life-span of the firm. These firms gain an almost mythic status as the successful dream firm. They are important for general economic development and applauded by policy makers. But their characteristics, the reasons for their growth, and the organizational consequences of rapid growth are still poorly understood. I have discussed the theoretical and empirical contributions in this field throughout this thesis, particularly in Chapter 4. In the following, I will briefly discuss, based on the review and my own investigations, why I argue for a combination of investigating environmental dynamics and internal firm capabilities when studying rapid growth.
The macro perspective of firm growth explains firm growth as being caused by environmental dynamics and characteristics of age, size, and industrial and regional distribution. Population ecology argues that growth depends on the environmental conditions for growth. If the environment has the capacity to supply the amount of resources required by the size of the population, there are conditions for growth within the population. In this thesis, I find that the cyclical development of the economy is an important explanation for rapid-growth. There is a relation between geography and growth, where RGFs seems to be overrepresented in regional economies undergoing growth. There is also a relation between high demand in the market, indicating a greater “carrying capacity” in the environment, and later RGFs growth. While this thesis indicates that the environmental forces strongly influence the possibilities for growth, surprisingly few investigate environmental dynamics in
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the research on rapid growth. Those who do, like Almus (2002) and Iudanov (2007), find that emergent niches provide an important explanation for the possibilities of rapid growth.
Evolutionary economics criticizes organizational ecology for eschewing simple premises for economic behavior. The results in this thesis demonstrate that RGFs perform better than the average firm of the total population. They have better productivity, win market shares, and have profitable operations. Furthermore, the more financially solid firms are more likely to continue their growth after a period of rapid growth. This is one of the indications that environmental dynamics is not the one and only explanation for growth. To take and/or hold a position in an emergent niche or a stable population, economic efficiency and solidity are important mechanisms for growth.
Different theories discuss the implications of age and size on growth, especially economic theory, organizational theory, organizational ecology, and strategy. Economic theory discusses whether small and young firms are creating employment and growth.
Organizational theory and organizational ecology discuss to what extent the internal structures and culture promote or hinder a firm’s capability to grow. The strategy literature discusses the managerial implications of directing firms. This is a comprehensive, complex, and long-lasting debate. This thesis provides evidence suggesting that there are opportunities for growth for firms of all ages and sizes. Young firms are related to later growth, indicating that they are less exposed to structural and cultural inertia. However, old firms are better at securing financial solidity, which seems to be important for later growth when the environment changes. Also, large firms focusing on better internal organizing, appear to have better development when the environment changes. Organizational theory argues that large organizations typically develop more formalized and bureaucratic structures. Such structures can both make the organization more efficient, but also more inert and difficult to change. The strategy literature argues that large organizations have slack resources that can be used to initiate improvements. The findings in this thesis are in opposition to the population ecology theory arguing that large firms with formalized structures will lose in the competition when the environment changes rapidly. Rather, it supports the view that large organizations with efficient structures can use the excess capacity provided by their predictable structures to improve and compete. So, even if the environmental dynamics are important factors for explaining possibilities for growth, the internal capabilities and resources within firms are important factors for explaining why some firms are actually growing or not.
In the first chapter of this thesis I also discussed luck as an explanation for growth.
When analyzing the data, it was evident that the variables did not explain every aspect of 84
growth. In my survey, I asked the respondents to what extent luck, or being “in the right place at the right time,” was an important explanation for their rapid growth (scale 1–5). One-third answered “to a low extent” (1–2), one-third answered “to a certain extent” (3), and one-third answered that this was an important explanation for their growth (4–5). As one of the respondents answered: It was a coincidence. A disease led them into a new product line. This resulted in an enormous expansion. Therefore, growth also has an element of luck, or coincidence. The problem of “luck” or coincidence is that it is difficult to measure. What one actor claims is luck can be related to internal skills or environmental conditions. What another actor claims is good skills can be a coincidence. The non-explained variance in my regressions shows that there are elements of randomness that are difficult to explain.
6.4.1 Implications
This thesis shows that rapid growth is related to the cyclical development of the whole economy (paper 1). There are possibilities for growth in all industries and regions and for firms of all ages and sizes, and the growth is mostly demand-driven. The population ecology theory seems to explain the macro conditions for growth fairly well. Changing demand or new technologies arises in the market and creates dynamics. However, despite the market dynamics, which every firm is subject to, there are only a few firms that experience such growth. Some firms are better able to respond to changes and position themselves accordingly. In paper 1, we report the boat analogy by Storey (1998) to explain that to make a boat go faster, you must either have a capable crew or be backed by a strong current (that is, the business cycle). RGFs are probably better at locating the boat correctly in the current.
Given that RGFs thrive in business environments in which niche markets exist and market-oriented behavior is rewarded, managers and founders should be especially concerned about the development of the market they operate within. Particularly changes in customer preference and new technology are important. However, based on previous research (Eckhardt and Shane, 2011; Feeser and Willard, 1990; Iudanov, 2007; Lindič et al., 2012), I would argue that firms should not necessarily be pioneers but should be fast in responding to promising opportunities and developments. Using the metaphor from above, managers should identify the new or changing current early on and act accordingly.
To be able to identify the current—in other words, the market dynamics—firms need information from outside and capabilities inside to utilize the information. The aim of paper 2 is to identify external sources of information and which firm-based resources and capabilities are important to access these resources. In this case, we must turn to theories of social
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networks, social capital, innovation, and knowledge sharing and development. There are studies of RGFs identifying how their networks are developed, the scope of their relations, and which relations are most important. However, studies of RGFs seldom combine the perspectives of external relations and internal capabilities and learning. The central concept crossing these perspectives is absorptive capacity, and I try to contribute to the development of the concept. I show that different internal capabilities are important when exchanging knowledge with different relations, as explained above. This paper can inform managers how different firm capabilities facilitate the use of external information. For example, if firms want to utilize close relations, such as customers and alliance partners, managers should be aware of the organizational challenges of such relations and structure the organization accordingly.
Although RGFs have “identified the current and positioned themselves in it,” it can be difficult to hold the position. Some firms probably landed in the current by luck, they were in the right place at the right time. However, currents can be erratic, and if you are unlucky, you might be turned over or stuck on a sandbank or a rock. Another possibility is to develop the skills or capabilities of “the crew” to try to maneuver the boat. Paper 3 investigates which firms are able to maneuver the boat in an unpredictable current. To understand which internal resources and capabilities firms should develop to be able to maneuver in such a way, the broader Penrosian perspective seems useful. My research shows that this perspective remains relevant even in an erratic current. The primary lesson for managers is that if they want their firm to stay correctly in the current, it is not enough to watch its movements. To be able to respond, managers have to develop internal capabilities, skills, and resources in the firm while it “flows.” Moreover, different capabilities are important for different positions—for example, if the firm wants to explore international or innovative opportunities. Further, it seems like diverse experience within the management group is an especially important underlying resource for a firm to continue its growth. Therefore, companies should strive to compose a group of managers that whose skills and experiences complement each other’s. It is probably not a good idea to only hire managers with similar education and experience.