Linking Business Management With E-ship Growth

LINKING SMALL BUSINESS MANAGEMENTWITH ENTREPRENEURIAL GROWTHby G. Russell Merz, Patricia B. Weber, and Virginia B. Laetz

This study examines growth in smaUbusinesses and whether the manage-ment of growth varies in a predictablemanner. As a complement to the tradi-tional notion of entrepreneurship as en-terprise formation or birth (Schumpeter1934), firm growth or expansion is be-coming increasingly accepted as a validindicator of entrepreneurship withinfirms weU beyond the founding event.Indeed, it has been suggested thatgrowth may be a useful way to distin-guish between small business ownersand entrepreneurs (Carland, Hoy,Boulton, and Carland 1984). This studyaddresses some of the weaknesses in tra-ditional approaches toward the study ofgrowth management and suggests an al-ternative method. Application of themethod yields greater detaU and insightinto how entrepreneurial CEOs managegrowth.

Research Devoted toSmall Firm Growth

The literature concerning small firmgrowth is often of two main types. Themost common type concerns cross-

Dr. Merz is associate professor of marketing at EasternMichigan University in Ypsilanti, Michigan. His research in-terests inciude the muitivariate measurement of strategicbehavior.

Dr. Weber is director of the Center for Entrepreneurship atEastern Michigan University. Her research interests focus onthe development of a theory of strategic management ingrowth-oriented firms.

Ms. Laetz is a research associate in the Department of Post-graduate Medicine at the University of Michigan where she isa research project manager.

sectional studies examining the relation-ship between certain firm char-acteristics (strategies, planning activi-ties, management behaviors, etc.) andfirm growth (usuaUy in either sales oremployment) as a performance meas-ure. Examples of such studies includePearce, Robbins, and Robinson (1987)who examined the impact of formal stra-tegic planning activities on financialperformance; Boag (1987) who estab-lished a linkage between control systemsand performance; Cragg and King (1988)who evaluated the relationship betweena wide variety of small firm planning ac-tivities and various measures of per-formance; and Covin and Slevin (1989)who found systematic relationships be-tween two types of managerial orienta-tions, strategic posture, and per-formance under hostUe and benign en-vironmental conditions. While suchstudies illuminate the usefulness of cer-tain activities and strategies in relationto growth performance, they fall shortin providing guidance about the man-agement of growth as an ongoing proc-ess.

The second major category of studiesfocuses on the organizational life cyclehypothesis and is usually concernedwith advancing a new model or examin-ing the characteristics of firms in vari-ous predetermined stages of growth.Studies of this nature are primarUy con-cerned with estabUshing or validating

48 Journal of Small Business Management

the life cycle theory on the basis of suchfactors as: management priorities(Smith, MitcheU, and Summer 1985);management problems in technology-based industries (Kazajian 1988, Kaza-jian and Drazin 1989); and strategycontent and planning processes (Hanks1990, Birley and Westhead 1990). Thesestudies, while interesting and thought-provoking, possess limited usefulnessfor the study of growth managementsince they are built upon the determinis-tic assumption that all firms grow lin-early through a predictable series ofpreordained stages.

A third, smaller group of growth stud-ies has recently emerged that focusesprimarily on the phenomena of growthitself and the management of thatgrowth. Unlike the performance and lifecycle studies, the attempt within thisthird group of studies is to develop a bet-ter understanding of the relationship be-tween the dynamics of firm growth andvarious aspects of management prac-tice. The usual research approach takenis to examine the managerial, structural,or strategy characteristics of a sample ofgrowing firms as they may relate to thefirms' environment, profitability, orother correlates of interest. For in-stance, Hambrick and Crozier (1985)found that high growth technology-based firms possessed decentralized taskteams made up of specialized individ-uals operating in highly formalized flatorganizational structures. Shuman andSeeger (1986) described the strategicplanning processes used in high growthfirms, while Fombrun and Wally (1989)demonstrated that previous rapidgrowth performance required smallfirms to design managerial systems thatameliorated the demands emanatingfrom the firms' environment and strate-gic orientation. The chief weakness ofmany studies in this category is thatthey rarely compare high- or rapid-growth firms with low- or no-growth

firms. The end result is that while moreis known about high-growth firms it isunclear whether the observations re-ported are similar or different for low-growth firms. The implication is thatsince high-growth firms behave in a par-ticular manner, then all firms wishing togrow quickly must behave in a similarway but what if they already do?

Measurement and Identificationof Growth

Greater understanding of growth man-agement requires resolution of two re-lated issues, the identification ofappropriate growth measures and thedelineation of rapid growth from slowgrowth. In a review of research studiesconcerned with high-growth firms. Hoy,McDougall, and Dsouza (1992) reportthat a variety of growth measures havebeen used ranging from increases in ven-ture capital and market share, to growthin revenues, return on investment (ROI),or number of customers. However, theyconclude that consensus appears to sup-port the use of sales or revenue growth(presumably in monetary terms) as thebest measure, because it is easUy obtain-able, reflective of both long-term andshort-term changes in the firm, and thatCEOs most often measure growththrough sales of the firm. In addition,they contend that high-growth firms canbe identified by choosing those firmswhose sales growth rate exceeds the av-erage sales growth rate of their industryor sector.

However, for studies equating salesgrowth with continued entrepreneur-ship, reliance on a unidimensional meas-ure of growth, such as average annualsales growth rate, assumes that entre-preneurship is best measured by focus-ing exclusively on development or, byextension, growth. WhUe theoreticaUythis approach is partially correct, theuse of a measure like sales growth aloneneglects another underlying and equaUy

October 1994 49

important dimension of entrepreneur-ship the concept of risk. This risk com-ponent reflects the level of outcomeuncertainty that underlies the nature ofentrepreneurial decision-making. Themost common approach used in financeto capture this concept is the level ofvariance exhibited over time by the fi-nancial measure under consideration,such as earnings, profits, or revenues. Itis argued here that continued entrepre-neurship may be best measured by twocomponents of revenue change aver-age annual sales growth rate and salesvariance over some time period. Thesetwo components taken together definewhat can be called a sales change pat-tern. Furthermore, it is expected thatCEOs of firms exhibiting different saleschange patterns within the recent pasthistory of the firm will also possess dif-ferent environmental perceptions, stra-tegic orientations, and managerial styles(see figure 1). By examining these differ-ences it is posited that greater insightabout growth management will emerge.

Research Problem andScope of the Study

The purpose of this study is to extendthe investigation of continued entrepre-neurship and growth management ap-proaches in smsill firms by (1) classifyinga sample of small businesses into one ofthe four types shown in figure 1 on thebasis of their previous five-year saleschange patterns, and then (2) examiningthe differences between the groups interms of firm demographics, and CEOenvironmental perceptions, strategicorientations, and managerial styles.Three specific research questions are ad-dressed: How do CEOs of firms in eachtype of sales change pattern (1) perceivethe business environment, (2) directtheir firms strategically, and (3) orga-nize, plan, and control? The answers tothese questions are then used as the ba-sis of some general growth management

guidelines addressing two specific man-agerial objectives: how to achievestronger market position and how tocontrol risk.

The thrust of this study is exploratoryand descriptive and should be consid-ered preliminary to the subsequent in-ductive development of a more generalgrowth management theory. Therefore,the study does not offer specific hypoth-eses to be tested. Instead it provides pre-liminary empirical evidence to evaluatethe proposition that CEOs of firms expe-riencing different sales change patternswill exhibit predictably different mana-gerial approaches. That is, it is expectedthat the CEOs will most likely perceivetheir environments differently and willpossess different strategic orientationsand managerial styles for planning, or-ganizing, and controlling their firm's ac-tivities.

METHODOLOGY

DefinitionsIn this study, three groups of dimen-

sions of a firm's managerial situation aremeasured and evaluated. These groupswere chosen because of their promi-nence in the business literature and be-cause business researchers have foundrelationships between them and per-formance. The first group of dimensionsis thought to reflect the CEO's percep-tion of environmental turbulence. Theturbulence in a firm's environment isfrequently conceived in terms of threedimensions: (1) dynamism, the degree ofunpredictable change in the environ-ment; (2) hostility, the degree to whichthe environment is threatening to firmsurvival; and (3) heterogeneity, the de-gree of diversity in the firm's operatingor task environment. Environmentalhostility has been found to be an effec-tive explanatory variable in studies ofentrepreneurial orientation (Miller1983), innovativeness (Miller andFriesen 1983), top management style


Figure 1SALES CHANGE PATTERN MATRIX

Sales Variance

LowHigh

High

AverageAnnual SalesGrowth Rate

Low

FocusedEntrepreneurs

SurvivorEntrepreneurs

AdventuristEntrepreneurs

UnfocusedEntrepreneurs

GreaterMarketStrength

Increasing Market Risk

and performance (Khandwalla 1977),and strategic posture, organizationalstructure, and performance (Covin andSlevin 1989). In a similar manner, the en-vironmental concept of dynamism hasshown some complementarities withstrategy and structure (Miller 1987a,1987b, 1988).

The second facet included in the studyreflects the CEOs strategic orientation.This orientation can be conceived of as aphilosophy of business behavior thatguides the firm as it navigates throughturbulent business environments. In thisstudy, the strategic orientation of thefirm is seen as a function of two varia-bles, the proactiveness or aggressivenessof the firm in its chosen product mar-kets, and its innovativeness or willing-ness to create or offer new products andservices. These dimensions of strategicorientation are consistent with concep-tual schemes developed by Miller andFriesen (1984) and supported by empiri-cal research conducted by Morris andPaul (1987); Covin and Slevin (1989);Davis, Morris, and Allen (1991), andMiles and Arnold (1991). Recent re-search evidence suggests that these pro-active, innovative and risk-takingbehaviors of the small firm may bestrongly related to the managerial styleadopted by the CEO (MiUer 1987; MiUer,Droge, and Toulouse 1988).

A third group of constructs are consid-ered here as components of the CEO's

managerial style. In this study, a CEO'smanagerial style is reflected in the de-gree to which the firm practices certainplanning, organizing, and controlling ac-tivities in its operation. Implicit in thisconceptualization is the notion thatwithin small business organizations, theCEO's need for information and controlwill directly influence the practices andpolicies in each area (Miller and Droge1986). From the many existing studies ofsmall firm managerial systems, eightconstructs in various combinations re-peatedly surface as common elements.These eight constructs organizedaround the fundamental managerialprocesses of planning, organizing, andcontrolling are used in this study tocapture the breadth of managerial stylesin small firms. Studies by Miller and Tbu-louse (1986), MiUer (1987a) and MiUer(1987b) established the interdepen-dence between scanning, analysis, andfuturity, and other structural dimen-sions of the firm. These three variablesare used here as indicators of the plan-ning processes in small firms. The ex-planatory richness of the moretraditional organizational structure di-mensions of decentralization and spe-cialization are used as indicators oforganizing activities. FinaUy, the use ofcost control mechanisms, formal rulesand procedures, and liaison activitiescomprise the controlling elements of thesmall firm's managerial system. The use

October 1994 51

of cost control mechanisms was found tobe a contributing explanatory variableby MiUer and Droge (1986) and MiUer,Droge, and Toulouse (1988). The formali-zation and liaison constructs have alsobeen established within the small busi-ness domain in many of the same studies(MiUer and Tbulouse 1986; Miller andDroge 1986; MiUer, Droge, and Toulouse1988; Miller 1987, 1988).

Measurement, Data Collection, andAnalysis Procedures

The scales used to operationalize theconstructs identified above wereadapted from a number of previous re-search studies. The scale used for mea-suring heterogeneity was from MUler(1988); the scales for dynamism, decen-tralization, specialization, formality, li-aison, and cost control were modeledafter MUler and Droge (1986). The scalesfor analysis, scanning, and futurity werederived from similar scales in Miller(1987a, 1987b). The scale for hostUitywas taken from a similar scale inKhandwalla (1977). The proactivenessand innovativeness scales were takenfrom MiUer (1983) and MUler and Friesen(1982). AU thirteen of the variables weremeasured with multi-item scales rangingfrom 2 to 15 items. The coefficient al-phas ranged from .63 to .88 with the av-erage at .75, indicating a reasonablyacceptable level of reliability for re-search of this type (Van de Ven and Ferry1979). Scale scores for all scales werebased on averages across aU items ex-cept for the decentralization, speciaUza-tion, and formalization scales whichwere additive scales. See table 1 for alisting of aU scales, together with thenumber of items for each, along withmeans, standard deviations, and alphacoefficients.

The measurement of continued entre-preneurship is operationalized in termsof two complementary components ofsales change: the average annual sales

growth rate and as a measure of risk the variance in sales volume over time.These two dimensions taken togethercan be used to define a variety of entre-preneurial situations. Consistent withthe guidelines reviewed above, we havechosen to identify as high growth firmsthose exhibiting average annual growthrates in excess of the median level for allfirms in the sample. In addition, weidentify as risk takers those firms withsales variances greater than the medianlevel of all firms in the sample.

The data used in this study were col-lected as part of a longitudinal study ofsmaU businesses in a large midwesternstate in the United States. The sampleframe for the study was drawn from apopulation of firms defined by the fol-lowing characteristics: older than 3 years sales greater than $500,000 and less

than $500 million more than 10 employees, and less than

500 headquartered, or with at least a sin-

gle location in the state, and operatingin either the business services, con-struction, wholesaling, or manufactur-ing industry sectors (based ontwo-digit Standard Industrial Classifi-cation Codes [SICs])WhUe most of the characteristics in

the sample frame are standard com-monly accepted characteristics for smallfirms, they were drawn from those in-dustry sectors in the state that had expe-rienced net employment gains over thefive-year period prior to the study. Thisfocus was chosen to reduce the popula-tion of firms and to give the research astronger economic development orienta-tion. The research was supported by astate research grant, the objective ofwhich was to support the establishmentof research centers of excellence con-cerned with economic developmentwithin state supported institutions ofhigher education. While the study was


broadly concerned with better under-standing the economic developmentcontributions of smaU firms in general,the support received from the state im-posed no restrictions on the nature ofthe research or its content.

An initial sample was drawn from theDun and Bradstreet Market IdentifiersFOe of all 25,000 firms meeting the sam-pling parameters using a randomizedskip factor technique. The resulting1,000 firms received a pre-interview no-tification mailer informing them of theirselection in the statewide survey andwere told that they would be contactedby an interviewer within the week. In-terviewers then contacted each poten-tial respondent and conducted thesurvey over the phone or set up an ap-pointment to conduct the interview at alater time. Of the 518 CEOs who werecontacted by phone, 303 eventuallycompleted the interview over thephone. Another 67 agreed to completethe same questionnaire in mail form. Intotal, 370 questionnaires were com-pleted for a response rate from those di-rectly contacted by interviewers of 71percent (370/518). The other 482 CEOswere not needed and were not con-tacted by telephone. This level of re-sponse exceeded the targeted samplesize of 300 needed to ensure a plus or mi-nus 4 percent level of error. Thus, themean values for aU items were withinplus or minus 4 percent of the true popu-lation mean at a 95 percent level of con-fidence. A check for nonresponse biaswas not conducted because of the highresponse rate and because of the diffi-culty of getting cooperation from nonre-spondents. Responses for thosecompleting the mail version of the ques-tionnaire were compared with tele-phone respondents by i-tests and nosignificant differences were foundacross the two groups.

More than 98 percent of the respond-ing CEOs were either owners or inves-

tors in the firms. Furthermore, 85percent reported to no one else in thefirm. The firms represented more than60 different four-digit SIC code catego-ries across the four industry sectors sam-pled and reported that 91.5 percent oftheir business activities were concen-trated in one SIC code category. The av-erage self-reported sales for the samplegrew from $2.9 million in 1984 to $6.5million in 1988. The average number ofemployees showed an increase from 21.5in 1984 to 34.2 in 1989. There were 67firms in the construction sector, 102 inwholesaling, 89 in business services, and112 in the manufacturing sector. The av-erage age of the firms sampled was 27.4years.

The data were analyzed in the foUow-ing manner. First, the average annualsales growth rate and the sales variancewere calculated for all firms supplyingtheir previous five year sales levels(w = 216). After the median value foreach measure was determined, all firmswere classified into one of the four salechange groups defined by the mediansplit matrix and the profile descriptivesfor each quadrant were determined.Then one-way multiple analysis of vari-ance (MANOVA) was conducted. Statisti-cal differences across groups weredetermined through the use of univari-ate F-tests and Duncan's multiple rangetest (MRT). (Note that the Duncan multi-ple range test may detect pairwise dif-ferences even when the analysis ofvariance F-test indicates non-significance.)

FINDINGSThe results, displayed in tables 2 and

3, show that firms across the four saleschange patterns exhibit a large numberof significant differences. OveraU, thedirect effect of sales change pattern onmanagerial style, environmental per-ception, and strategic direction ele-ments was highly significant (Wilk's

October 1994 53

Table 1CONTEXTUAL AND MANAGERIAL STYLE VARIABLES

Variables

EnvironmentalDynamismHostilityHeterogeneity

Strategic DirectionProactivenessInnovativeness

Number ofItems

4114

32

Manageriai Styie ElementsPlanning Activities:Scanning 3Analysis 4Futurity 4

Organizing Characteristics:Decentralization 8Specialization 15

Control Systems:FormalityLiaisonCost controls

955

Mean

3.933.463.70

4.583.21

3.952.583.93

15.124.21

4.643.293.93

Std. Dev.

1.020.861.57

1.331.61

1.321.181.41

6.033.37

3.051.491.53

Cronbach'sAlpha

.6760

.7500

.8144

.6296

.6500

.7178

.6754

.7733

.8814

.8321

.6807

.8197

.8008

F=3.08, p < .001). Twelve of the thir-teen dimensions tested were found to besignificantly different. Only the per-ceived environmental dimension of dy-namism failed the F-test, although theDuncan MRT indicated that focused en-trepreneurs perceived their business en-vironment to be less dynamic than theothers. This overall result supports thegeneral proposition guiding this study.More detailed examination of the analy-sis results shows that adventurist entre-preneurs possess significantly higherlevels of proactiveness and innovative-ness in their product-market strategy tocomplement the high level of sales vari-ance they experienced in the previousfive-year period. This strongly entrepre-neurial strategic orientation is furthercombined with significantly higher lev-els of scanning and forecasting activi-ties, specialization, and the use offormality, liaison, and cost controls. Incontrast, survivor firms show the lowest

levels of proactiveness and innovative-ness, as well as the lowest levels on allmanagerial style elements.

Management Styles

Within the planning element, both theplanning and futures forecasting indiceswere significantly different across thefour sales change patterns, while scan-ning behavior differed significantly onlybetween adventurist entrepreneurs(who led erratic, high growth compan-ies) and survivor entrepreneurs (thosewith steady, slow growth). Both con-structs measuring organizational styleswere significantly different across saleschange patterns. Companies with vola-tile sales whether adventurist entre-preneurs or unfocused entrepreneurs were significantly more decentralizedand significantly more specialized thancompanies with steady rates of salesgrowth (focused and survivor entrepre-neurs).


Table 2TESTS OF MANAGERIAL STYLE ELEMENTS

BY SALES CHANGE PATTERN

ManagerialStyleElements

PlanningScanningAnalysisFuturity

OrganizingDecentralizationSpecialization

ControllingFormalityLiaisonCost Control

Mean Vaiues by Saies Change Pattern

Focused 1

(n = 42)1

4,0082,2443,583

13,3332,833

4,5483,2334,338

Summary DescriptivesNumber

EmployeesSales Volume

($ Million)Age (years since

founding)Profit Level*

(% of sales)

20,9

1,2

19,0

6,1

Adventurist: Survivors

(n = 65)2

4,1542,5234.212

15,2315,138

5,8773,9754,465

55,9

10,6

25,8

4,2

(n = 62)3

3,6241,9603,460

12,0323,016

4,0322,8583,861

21,9

2,4

35,1

6,6

Unfocused

(n = 37)4

3.7842,7033,953

17.3245,676

5.2973.7894.281

90.6

15.9

42,2

4,2

ANOVAF-stat

1,944,30"3,99

8,20"9,69"

5,217,25"1,76

Duncan'sMuitipie Range Test

2 > 34>3,1;2>32>3,1;4>3

4>1,2,3;2>32,4 > 1,3

2>3,1;4>32,4>1,31,2>3

4>1,3,2;2>1,3

4>1,3,2;2>1,3

4>1,2,3;3>1;2>1

n,s.Note: All cell values are mean scale scores,'p

The controlling constructs were lesspredictable in their influence on salesresults. Companies with greater liaisonor coUaborative behaviors were signifi-cantly more likely to yield erratic salesresults than those low in liaison activi-ties. The more rigid and formal an orga-nization's job assignments, the moreerratic its sales results. While the degreeof cost controls did not differ signifi-cantly across all sales change patterns,high growth companies (either focusedor adventurist entrepreneurs) utilizedsignificantly greater cost controls thansurvivor entrepreneurs with slowgrowth and low volatility.

Business EnvironmentThe operating environments of the

companies also yielded significantly dif-ferent sales outcomes. Focused entrepre-neurs (with steady, high growth)perceived themselves to be operating in asignificantly less dynamic business envi-ronment than the others and in a signifi-cantly more complex businessenvironment than adventurist entrepre-neurs (with volatile, high growth) or sur-vivor entrepreneurs with (steady, slowgrowth). Those companies with erratic,slow growth unfocused entrepreneurs were significantly more likely than theothers to perceive themselves to be oper-ating in a hostile business environment.

Strategic OrientationThe strategic direction provided the

companies was also significantly relatedto sales change patterns. Adventuristentrepreneurs (with erratic, highgrowth) were significantly more proac-tive than focused entrepreneurs (withsteady, high growth). Focused entrepre-neurs were, in turn, more proactive thaneither type of slow growth companies.Adventurist entrepreneurs were mostinnovative, followed by focused and un-focused entrepreneurs. Survivor entre-preneurs with (steady, slow growth)were least innovative.

There was an equal contribution to ex-plained variation in sales change pat-terns by organizational structure (fromamong the managerial style elements)and by strategic direction elements.Strategic direction elements were morestrongly related to significant differ-ences in the rate of growth (with moreinnovative and proactive companiesyielding higher growth rates). Organiza-tional structure elements were morestrongly related to differences in salesvolatility (with the more specialized anddecentralized companies experiencingmore volatile sales results over time).

DISCUSSIONThe overall findings indicate that sales

change patterns identified in figure 1yield significantly different environ-mental perceptions, strategic orienta-tions, and managerial styles in theanalysis of variance (as shown in tables 2and 3), The profiles which emerge in re-lation to the sales change patterns offerinteresting perspectives on the way inwhich CEOs formulate organizationalstrategy.

Focused EntrepreneursFocused entrepreneurs yielded a high

annual sales growth rate of over 30 per-cent per year for five years. They deliv-ered this high sustained sales growthrate while maintaining a low sales vari-ance. They offered investors greatermarket strength with low market risk.The focused entrepreneurs representedboth the youngest and the smallest firmsin the study with an average of only 20.9employees and $1,2 million in sales.They were, however, an average of 19years old. Their average profitabilitywas 6.1 percent of sales. To achievethese results, they followed what mustbe described as a very moderate organi-zational strategy.

The only management style variablewhich fell at an extreme was that of spe-cialization. The focused entrepreneurs


were least specialized in defining jobtasks of any of the sales change patternsidentified. They were moderate in stra-tegic direction as measured by proac-tiveness and innovativeness butperceived their business environment tobe significantly less dynamic than anyother saJes change pattern. WhUe theirbusiness environment was not perceivedto be dynamic, it was viewed as signifi-cantly more heterogeneous than othersales change patterns.

Unfocused EntrepreneursUnfocused entrepreneurs yielded the

least market strength as measured bylow average annual sales growth rateand greater market risk than all but ad-venturist entrepreneurs. Their salesgrowth rate averaged only above 6 per-cent over five years. The unfocused en-trepreneurs represented the largest andoldest of the firms in the sample with anaverage of 90.6 employees and sales vol-ume of $15.9 million. They were an aver-age of 42 years old and delivered a profitlevel of only 4.2 percent of sales.

The organizational strategy followedby unfocused entrepreneurs was signifi-cantly more analytical than the othersales change patterns studied. In addi-tion, their decision making was most de-centralized, and job tasks and functionswere the most heavily specialized of allthe entrepreneurial types. Unfocusedentrepreneurs viewed their business en-vironment to be more dynamic and hos-tile than any other sales change pattern.

Survivor EntrepreneursIn spite of their dismal sounding name,

the survivor entrepreneurs reported thehighest profit level of the four saleschange patterns studied, yielding aver-age profit levels of 6.6 percent of sales.Their organization strategy could bestbe described as "minimalist," showingthe least of virtually every managementstyle element measured other than spe-cialization of job tasks, which was aver-

age. They conducted the least amount ofplanning activities, in terms of marketscanning and futures forecasting, of anysales change pattern. They were highlycentralized in their decision making.Their organization structure was leastformal, with little collaboration and lowlevels of cost control. The survivor en-trepreneurs operated in environmentspossessing little diversity (low heteroge-neity) and were the least proactive andinnovative of any sales change type.

Adventurist Entrepreneurs

The adventurist entrepreneurs repre-sent a group with high average annualsales growth rates and the highest levelof market risk as measured by sales vari-ance. Although they yielded the highestsales growth rate, it was comparable tothe growth experienced by focused en-trepreneurs, but significantly greaterthan unfocused entrepreneurs or survi-vors. They did experience a significantlygreater sales variance than any othersales change pattern studied. Theirprofit level was equivalent to that of theunfocused entrepreneurs at 4.2 percentof sales. Adventurist entrepreneurs fitthe classical characterization of the en-trepreneurial organizational style. Theirproduct market strategy is the most pro-active and innovative of any of the saleschange patterns studied. They perceivetheir business environment to be theleast hostile of the four groups. Theirdominant management style is one ofcontrol: they are the most formal of theorganizations, with the greatest costcontrol but also the greatest amount ofperceived liaison among work groups.They engage in a significant amount ofmarket scanning and futures forecast-ing. They offered the greatest marketstrength of the firms with the greatestmarket risk of any of the four saleschange patterns studied.

October 1994 57

IMPLICATIONS AND LIMITATIONS

In conclusion, the findings of thisstudy clearly demonstrate support forthe underlying premise that the man-agement of growth in small businessesvaries as both the growth rate and thesales volatility vary. In a departure fromapproaches taken by previous growthmanagement research, this study has ex-amined the managerial approaches usedby CEOs across four different types ofgrowth scenarios and found them to bestrikingly dissimilar. These empirical dif-ferences provide evidence that CEOsmay adopt different managerial stylesand strategic orientations as a conse-quence of the amount of growth desiredand the amount of risk they are willingto assume. The managerial implicationsof these results suggest that those firmsseeking greater market strength throughhigh sales growth may do best if theyadopt configurations similar to focusedor adventurist entrepreneurs. In addi-tion, firms seeking to control sales risksmay be advised to adopt strategies simi-lar to adventurist or unfocused entre-preneurs. Those confronted by neither,and interested in higher returns on satis-factory sales levels, may follow stylessimilar to survivor entrepreneurs. Fu-ture research efforts should be directedto evaluation of competitive strategiesand organizational goals across the saleschange patterns used in this study.

Limitations

All research studies have limitationsand this one is no exception. In this sec-tion several are identified, and sugges-tions for dealing with them in futurestudies of this type are delineated.

First, the sampling process was limitedto firms meeting a specific profile re-ported earlier, believed to reflect thepartial reality of small firms in a largemidwestern state. Thus, the findingscan only be generalized to firms meetingthese constraints. Small firms in the re-

tailing, transportation, or restaurantbusiness may not reflect the characteris-tics discussed here, and prescriptions formanagement practice directed towardfirms in those sectors should not bemade based on these findings. Future re-search projects may wish to evaluatefirms in industry sectors other thanthose studied here.

Secondly, the variables evehtuallyused in the analysis represent an ab-stracted yet narrow set of organizationalmeasures. Certainly other types of vari-ables could be included in future stud-ies. For instance, more detailedmeasurement of the strategies pursuedby small firms can be incorporated, suchas questions related to advertising andpromotional practice, product and serv-ice development, pricing policies, andhiring practices. In addition. Miller andTbulouse (1986) and Miller, Droge, andTbulouse (1988) have demonstrated thatcertain aspects of the CEO's personalitycan have a bearing on the activities andpolicies with small established firms.Thus future research in this area maywant to consider measures of this sort,

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