Performance Configurations over Time: Implications for Growth- and Profit-Oriented Strategies

24 Pages Posted: 2 Jan 2009

See all articles by Paul Steffens

Paul Steffens

Queensland University of Technology - School of Management

Per Davidsson

Queensland University of Technology - Brisbane Graduate School of Business

Jason Fitzsimmons

Queensland University of Technology

Abstract

Strategic entrepreneurship can be described as simultaneous opportunity seeking and advantage seeking. Younger firms are generally more flexible and therefore enjoy discovery advantages, whereas established firms tend to be resource rich and more experienced and consequently enjoy exploitation advantages. The resulting evolution of the two important performance dimensions, growth and profitability, by firm age is not well understood. In this article we integrate several theoretical arguments concerning profitgrowth relationships to develop a dynamic model of firm development, which suggests different development pathways for young firms. This leads to several unidirectional, competing hypotheses that we examine by studying the profitability-growth configurations of approximately 3,500 small firms and how these configurations evolve over time. We find that for both young and old firms a focus on achieving above-average profitability and then striving for growth is a more likely path toward achieving sustained above-average performance than is first pursuing strong growth in the hope of building profitability later. In line with our hypothesis we find that younger firms are over represented as Stars (high on both growth and profitability) and underrepresented as Poor (low on both growth and profitability). However, young firms in the Star category are also less likely than their older counterparts to maintain that position. Furthermore, our results indicate that young firms are overrepresented not only among Stars, but also among growth-orientated firms, regardless of the level of profitability. The findings strongly caution against the blind pursuit of growth for young firms, in favor of a thoughtful analysis of how both growth and profitability might be developed by firms. The results also question whether simultaneous high performance in terms of growth and profitability among young firms usually reflects a successful entrepreneurial strategy. The results can also be interpreted as luck on the part of a subgroup of young firms who indiscriminately pursue growth opportunities with varying profit prospects, and in many cases, the high growthprofit performance will be short lived.

Suggested Citation

Steffens, Paul and Davidsson, Per and Fitzsimmons, Jason, Performance Configurations over Time: Implications for Growth- and Profit-Oriented Strategies. Entrepreneurship Theory and Practice, Vol. 33, Issue 1, pp. 125-148, January 2009. Available at SSRN: https://ssrn.com/abstract=1321537 or http://dx.doi.org/10.1111/j.1540-6520.2008.00283.x

Paul Steffens

Queensland University of Technology - School of Management ( email )

Brisbane, Queensland 4001
Australia

Per Davidsson

Queensland University of Technology - Brisbane Graduate School of Business ( email )

Brisbane
Australia
+61 7 3864 2051 (Phone)
+61 7 3864 1299 (Fax)

HOME PAGE: http://www.qut.edu.au/ph_server_query.do

Jason Fitzsimmons

Queensland University of Technology ( email )

2 George Street
Brisbane, Queensland 4000
Australia

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