Entrepreneurship and growth: the strategic use of external resources

Abstract

A common characteristic of entrepreneurial farms is fast growth. A common problem for their managers is obtaining enough resources to accommodate that growth. A typical entrepreneur (either individual or corporate) often desires to pursue a detected opportunity but lacks the necessary resources to make it happen. Again, gaining access to those resources becomes the “first” entrepreneurial problem. One of the most efficient weapons used by entrepreneurial firms to gain market share from larger, more powerful corporations is their flexibility. But the progressive accumulation of resources that growth often entails brings almost necessarily a loss of that very flexibility that made the firm successful in the first place. This can be termed the “second” entrepreneurial dilemma. “Networking” practices are a way to overcome these problems. Essentially, networking is a system by which entrepreneurs can tap resources that are “external” to them, i.e., that they don't control. In its simplest form, networking consists of the use of all personal relationships to obtain advice, financing, “insider” sales, etc. (Birley 1986). In its most sophisticated form, entrepreneurs set up an elaborate web of relationships between companies, most of them of similar entrepreneurial characteristics, that are extremely efficient and flexible at delivering a product or service. In all cases, we find that the ability to exploit resources that are outside the entrepreneur's control is a constant of entrepreneurial, high-growth management. This is why entrepreneurs have been defined as being primarily motivated by the pursuit of opportunities, as opposed to those managers exclusively concerned with the proper management of the resources already controlled by their firm (Stevenson 1983; Stevenson and Gumpert 1985). This paper proposes a view whereby the essence of entrepreneurship is seen precisely in the ability and willingness to use external resources. A statistical validation of the main hypothesis, i.e., that entrepreneurial, fast- growing firms do use more external resources than their competitors, is then attempted. The results strongly support the hypothesis. It is found that the fastest-growing firms in a very large sample of public companies are much less integrated (make more use of external resources) than their competitors; in addition, those firms that are at the forefront of using external resources grow, on average, much faster (more than 10% every year) than their competitors over a long period of time (ten years). This study's implication for managers seems clear. It constitutes yet another piece of evidence in favor of the efficiency of networking arrangements. Being flexible enough to use external resources allows the entrepreneurial firm to break through the limits to sustainable growth and, at the same time, lowers its risk, for it taps into someone else's experience and know-how. Entrepreneurs and entrepreneurial managers must not be deterred by the lack of resources in the pursuit of opportunities.