Debate and Counter Argument

 

Some of our experts in the field have given their thoughts on the Debate Piece by Francis Greene Spinning the Wheel If you would like to join the debate please email chris@isbe.org.uk and your comments will be placed on the website.

Successful Growth is a Matter of Choice

By Thomas M. Cooney

Reading the article ‘Spinning the Wheel’ caused my feelings to oscillate between outrage and the right of a person to question assumed truths. My outrage was caused by the suggestions that we actually know little more now about high-growth firms than we did in 1971 and that growth was due to luck. I wondered how the life work of excellent researchers such as David Storey (particularly his 1994 book ‘Understanding The Small Business Sector’ in which he detailed the factors influencing growth in small firms under the categories of entrepreneur, firm, and strategy) could be so quickly laid to waste and their enormous contribution to the better understanding of firm growth be so easily dismissed. Similarly rejected was a whole global industry of personal development materials and programmes that tells us that success is a matter of choice, our choice! However, having read the article a second time, I then allowed myself a second opinion which was to ask ‘well, does this person have a point: what do we know about growth?’

In reflecting upon what is known about high-growth firms, I simply reverted to my own doctoral thesis entitled "Fast-Growth Firms and Entrepreneurial Teams: An Investigation Of The Structures And Strategies Employed By Firms In The U.S. and Irish Software Industry”. The thesis highlighted that as in any other aspect of life, success in the business world can be a choice and not simply a consequence of fate. While non-achievers complain of the environmental challenges that they face, such as economic conditions or government regulations, achievers overcome these same challenges through a determination to succeed. The research demonstrated that fast-growth firms indeed display a number of characteristics that are significantly different to those found in non-fast-growth firms. These variances were the result of decisions made by management, not because of events forced upon a manager by external influences.

The research highlighted that fast-growth firms exhibit a more organic structure than other firms, one that is fluid and able to mould its shape to the current environmental requirements. They have few structural layers and the leader of a project team is customarily the person with most knowledge in that area, rather than the person who is most senior in authority. Fast-growth firms share information, advice, responsibilities, and rewards. Fast-growth firms also demonstrated a greater willingness to learn, to continually generate new strategies, while incessantly searching for fresh opportunities. Fast-growth firms will target growing markets, or growth market segments in a stable or mature market, and their export activity will be greater than that undertaken by other firms. However, the most significant finding of the research was that the founders of fast-growth firms have a clear vision of how they define success and that they were quite certain in their own mind that they were going to achieve that ambition. That was their choice!

Dr Thomas Cooney is a Research Fellow at the Dublin Institute of Technology and Director of the Institute for Minority Entrepreneurship (DIT) He was recently appointed President of the European Council for Small Business (2009-2011)

Spinning the Wheel response

Independent comment from George Derbyshire, NFEA Chief Executive

What a fascinating paper - but I am not convinced about the casino analogy.  Indeed I’ve never been a great gambler because

a) the people with inside knowledge always seems to win
b) most gambling is bent
c) even when it is straight, the odds are against you. 

So much for luck. As Gary Player, the golfer, used to say “The more I practice, the luckier I get.”

My standard script says that entrepreneurs need attitude, skills and knowledge. We teach people skills, we can provide them with knowledge, but we can’t teach them the right attitude. It’s fundamentally genetic.

I recall speaking to a super-successful sales person, who had a reputation for being lucky. She said it wasn’t a case of “Right place, right time”. More a question of “Right question, right time.”

All businesses come to natural decision points - the first employee, the first manager, the first bank loan, the first equity investment, the first licensing agreement. Remember Robert Frost?

Two roads diverged in a wood, and I
I took the one less travelled by,
And that has made all the difference.

It wasn’t luck that sent Robert Frost down the road less travelled. It was his attitude to life.

Maybe it’s time for the study of entrepreneurship to follow economics back to its behavioural and psychological roots?

George Derbyshire is Chief Executive of NFEA - the national enterprise network.  Its members, drawn from local enterprise agencies and a wider range of enterprise support organisations, provide an array of services to new and emerging businesses including independent and impartial advice, training and mentoring.  www.nfea.com

High Growth Firms: what’s ‘luck’ got to do with it?

By Pooran Wynarczyk

In his article, Francis Greene suggests that central to fast growth is sheer blind luck. He argues that entrepreneurial success is, mainly, about ‘being the ‘right’ person, in the ‘right’ place at the ‘right’ time’. 

Right person does not necessarily mean lucky person. Lucky people are born with silver spoons in their mouths. Some highly successful entrepreneurs, such as Alan Sugar, came from working-class background and had to work hard and overcome many challenges to create high growth firm(s) and continue to work even harder to become serial entrepreneurs and remain successful. It is the right person (entrepreneur) who is the crucial factor in the creation of high growth firm. It is he or she who has the vision and strives to spot opportunities and niche markets (right place and right time) even in the wrong place at the wrong time. Once they become successful, it is their involvement in the social network of influential people who could help them to be in the right place at the right time if that is called luck. It short, entrepreneurs need to create their own luck in order to create high growth/successful ventures. In contrast with Greene’s argument, we have a culture of calling ‘successful’ people ‘lucky’ rather than giving them the credit they really deserve for their hard work and endeavor. We send a wrong message, particularly, to our young generation (future entrepreneurs) through such claims that if lucky they are going to be successful.

In recent years, there has been a growing number of books written by successful entrepreneurs (themselves or ghost writers), mainly, through their engagement with media (e.g., The Apprentice and  Dragons’ Den). These books are, generally, about their challenging journey rather than how lucky they have been to be successful. It is believed that entrepreneurship is in the ‘gene’ and some people are born ‘lucky’ but these two do not necessarily go hand in hand. Although if you are a lucky person and, for example, win the lottery along the entrepreneurial journey rather than relying on bank loan that could help to succeed further. In academic terms, I agree with Greene that we know very little about high growth firms. There is a need for more academic research that not only focuses on the background of entrepreneurs alone but capable of measuring the cumulative effects of interrelated internal and external factors. We need more studies on how some entrepreneurs in the wrong place (e.g., hostile environments to entrepreneurship activities) and/or at the wrong time (e.g., recent economic downturn and recession), manage to take advantage of these antagonistic factors to create and/or sustain successful high growth businesses. In my opinion ‘luck’ has got very little to do with it.     

Professor Pooran Wynarczyk is FRSA Director of the Small Enterprise research Unit (SERU), Newcastle University Business School


Reader reponses 

David Molian, Cranfield School of Management
Congratulations to Francis Greene.  If there is an award going for provoking debate in this sphere, he must be a shoo-in for a nomination. 

The article has certainly  galvanised me to add my two pennyworth to the contributions already received. My qualifications – such as they are - for expressing a view derive from over ten years working with participants on the Business Growth & Development Programme at Cranfield.  As far as I know, this programme attracts the highest concentration of ambitious owner-managers to any business school in the UK.  As well as teaching and conducting research projects, I have personally mentored over twenty of the participants and remain in regular contact with many more.

I have the following observations:

1. I have yet to meet the successful entrepreneur who has enjoyed an uninterrupted run of good luck.  Their careers resemble less the phased progression predicated by Greiner or Lewis & Churchill and more a game of snakes and ladders.  In fact what strikes me is the amount of ill luck suffered by so many of the successful entrepreneurs I know.  Off the top of my head I can think of two whose businesses were almost destroyed by the events of 9/11: they were in the wrong business in the wrong place at the wrong time.  This was later compounded in each case by key managerial appointments that went disastrously wrong   Both survived to rebuild their businesses into substantial organisations that were sold for over £20mn. 

What distinguishes both from their less successful peers are their resilience and their ability to learn rapidly from a setback.  These are personality and cognitive traits which the possessors may well have as [partly] the luck of the genetic draw, but have nothing to do with luck per se. 

2. There are good grounds for thinking that a high-growth entrepreneur can load the dice in her favour through avoiding certain common pitfalls of ambitious businesses: not diversifying into new markets too early, for example, not over-gearing the business, allowing the managers she hires to manage free from excessive interference, and so forth.  These are conscious managerial choices often born out of learning from one’s own mistakes or observing those of others.  Not much to do with luck here.

3. With some psychology colleagues from the University of Toulouse II, we have researched the links between cognitive biases and financial performance as a measure of growth/success.  [There is a growing body of evidence that such biases have a role to play in shaping entrepreneurial behaviour and performance.]  Our results – about to be submitted for publication - show a strong correlation between judgmental overconfidence and adverse profitability.  In simple terms, the smarter you think you are outside your own narrow sphere of  competence, the more likely you are to underperform against your peers.  Conversely, those who are less prone to overestimate the limits of their knowledge do better.  Not for one minute would I suggest that this of itself explains successful growth – but it’s another grain of sand in the scales.

4. All that said, getting lucky at the right time in the right place may be the single most important thing to happen in the career of  an ambitious entrepreneur.  Again, numerous examples come to mind.  Francis Greene has done the scholarly community a good turn not just by provoking debate, but reminding us of something we are too prone to overlook.  On that note, I sign off with Ecclesiastes 9:11:

"I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happeneth to them all".
 
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