Growth barriers

The last section of this chapter considers growth barriers. It is especially important to discuss barriers to high growth because high growth is challenging to maintain.

This is an important reason why only 3% of all companies are high-growth companies (Satterthwaite & Hamilton, 2017; Feindta et. al, 2002).

Growth barriers are considered from two different perspectives. The first perspective considers the endogenous and exogenous growths barriers as general growth barrier phenomena (Bernroider, 2003). The second perspective takes the life cycle of a company into consideration because growth barriers differ in different phases of a company life cycle (Yeo & Park, 2018; Ghiculescu et al., 2014). Thus,

two different models for growth barriers in different phases of a company life cycle are considered—namely, the Yeo and Park (2018) model and the Greiner model (Greiner, 1998; Ghiculescu et al., 2014). Life cycle growth barriers are also either endogenous or exogenous.

Lack of ambition, vision and motivation of owners to grow their companies are common endogenous barriers (Morrison et al., 2003; Kolari, 2015). In addition, fear of growth consequences, lack of leadership and a lack of other skills inhibit the growth (Kolari, 2015; Lee, 2014). Furthermore, a “hobbyist” approach by or “life-style entrepreneurship” of owners may also slow down growth (Morrison et al., 2003). Other endogenous barriers include the mature position of a company’s life cycle and resistance from employees (Kolari, 2015; Morrison et al., 2003).

As far as the exogenous growth barriers are concerned, competition is one of the biggest factors limiting growth (Wiklund & Shepherd, 2003; Kolari, 2015). When assessing the competition, the market position of a company should also be taken into consideration (Bernoider, 2003; Kolari, 2015). This refers to the present market share of a company—the higher the market share, the more known the company is among customers. Moreover, lack of skilled employee availability is an important exogenous growth barrier, especially for high-tech companies (Bernroider, 2003;

Lee, 2014). Also, general market conditions, location or large competing companies may slow down the growth (Kolari, 2015; Lee2014). A market that is growing leaves more room for growth by new sales than a declining market. Moreover, a company in a rural area may benefit from lower personnel costs but then pay more for logistics. Additionally, access to venture capital or other financing may become an exogenous growth barrier (Bernroider, 2003; Lee, 2014). Government regulation related to taxes, employee issues, innovation policy or EU-related issues is another important group of possible exogenous growth barriers (Bernoider, 2003; Daunfeldt

& Halvarsson, 2015; Mason & Brown, 2013; Lindic et al., 2012). The reason for this seems to be that policymakers cannot control the phenomenon of the birth of growth companies because growth companies are not found in locations in which they are assumed to be found (Mason & Brown, 2013; Lindic et al, 2012). This may lead to prejudice towards growth companies among the policymakers.

Next, the life cycle of the company is considered and two models of life cycle growth barriers are presented, containing endogenous and exogenous growth barriers as well. Yeo and Park (2018) conducted an extensive study on the growth stages of

Korean high-growth companies and their growth barriers. They call each growth barrier in the sales growth rate/time curve an “inflection point”. It is defined as the second derivative of the sales growth rate curve. In the life cycle of a growth company, they have identified 4 different stages that depend on the turnover of a company: US $20 million, US $100 million, US $300 million and US $500 million.

At each inflection point, the organisation needs renewal of some sort. At the first inflection point, the need for renewal lies in the management and operational systems; at the second inflection point it lies in the development of new products and services; at the third one it is in the development of new markets; while the fourth point needs revitalisation of the organisation. This gives an illustrative picture of the different stages of company growth, which require different kinds of strategy, management, competence, organisation and mode of operation.

Greiner’s model of growth is another way to demonstrate various business phases, which lead to different crisis to be overcome on the growth path (Greiner, 1998;

Ghiculescu et al., 2014). In Greiner’s model, the life cycle of a business is divided into six phases, between which there are five crises to be overcome in order to continue on the growth path. In the creativity phase, the leadership is informal—

until the company grows to the phase in which formal communication is no longer sufficient and the leader cannot take part in everything. The crisis of leadership leads to the phase of direction. The growth phase of direction leads to the crisis of autonomy, where there is functional management in place but the leader is struggling because of a problem of letting go. The crisis of autonomy leads to the phase of delegation, where there is more formal structure in place but new layers of hierarchy are needed to maintain control. The crisis of control leads to the phase of coordination and an increase in the growth of organisational bureaucracy. The crisis forming at this stage is called the Red tape, which leads to the collaboration phase. The fifth crisis is the growth crisis, where there is a lack of new ideas and the company begins to look for partnerships, leading to the beginning of the alliance phase.

These two models are similar in the sense that, during the life cycle of a company, the leadership style and organisational structure have to be fitted to the current needs of the organisation. The key point of both models is that if the leaders of an organisation do not identify the respective crisis on time, then growth may slow down. Both models are, however, simplistic. Furthermore, not all businesses will suffer all the crisis as demonstrated in either one of the two models. In the case of Yeo and Park’s (2018) model, the analysis is limited to the contextual conditions of

Korea. When using Greiner’s model, the growth rate and company size affect to how well the company fits into the different phases of the model (de Haan et al., 2007).