Resource allocation of high-growth firms in scale-up phase

Abstract. High-growth firms are important for economic growth and employment points of view, which have been recognized by multiple studies. The purpose of this research is to gain new knowledge of the resource allocation of high-growth firms in general and especially during their scale-up phase. The specific interest of this research is how functional resources, research & development (R&D) and marketing & sales, are allocated within Finnish high-growth firms. The world-level reference for the marketing & sales and R&D investment levels are US high-growth firms. Therefore, US high-growth firms, prior to their initial public offering, are used as a reference to compare resource allocation during the scale-up phase. The previous growth literature inclined to bundle all small and medium-sized enterprises (SMEs) together and to also make conclusions based on caracterisation of their different growth factors. Firms internal activities during the high-growth period has received less attention on the previous growth literature. The focus on Finnish studies has been on employment impact of high-growth firms. The high-growth firms resource allocation in scale-up phase is a scarcely studied research topic. The marketing & sales expenses are not itemized within the commonly used profit and loss statement, i.e. layout of the profit and loss account by nature of expenses, by the firms in Finland. The exact comparison between US and Finnish firms’ financial statements is currently not possible, since the Finnish SMEs do not report their marketing & sales expenses. Hence the firms’ marketing & sales expense data is not publicly available, the topic has been investigated by conducting a web-based survey within Finnish high-growth firms’ top management and board members. As a result, the approach of a quantitative research method was chosen for this study. This research contributes on the scarcely populated field of high-growth firms’ resource allocation studies. Firstly, for the firms, which are currently in the scale-up phase, there is clear contradictions between budgeted resource allocation and what the allocation should be based on the survey respondents’ opinion. The emphasis of resource allocation is still within R&D while it would need to be focused more to the marketing & sales, based on the results. Secondly, the assumption or expectation that most of the management and board members in Finnish high-growth firms seem to have regarding the required resourcing in the marketing & sales in the scale-up phase is inadequate, when compared to the US references. Thirdly, the board members would invest more to the marketing & sales during the scale-up phase than the operative management. The operative management would in average keep the R&D resourcing higher than marketing & sales in the scale-up phase. Additionally, venture capital and banks are in average almost as important a source for high-growth firms’ financing as founders are. The contributions of the study can be used to guide high-growth firms’ managerial attention toward importance of resource allocation decisions. Moreover, policymakers and public actors can use the contributions when they are assessing firms receiving public funding to evaluate if there is adequate balance between R&D and marketing & sales investments

Getting Past the “Entrepreneurial Growth Ceiling”: A Longitudinal Study of IPO Firm Growth Through Solution Driven Strategies

In this paper we introduce a concept that we call the Entrepreneurial Growth Ceiling (EGC). We develop arguments that new venture IPOs hit the EGC prior to their IPO, and the ceiling is part of the impetus for going public. The EGC represents a set of problems, and we hypothesize that a firm’s ability to break through the ceiling quickly (within a year following the IPO) is critical for long-term performance. We argue that proceeds from the IPO will aid firms in breaking through the ceiling if the proceeds are strategically allocated. Results indicate firms that allocate proceeds to human resources and research and development (R&D) resources are more likely to break through the EGC quickly and enhance long-term stock performance

Can’t Buy Me Rights! The Contractual Structure of Asymmetrical Inter-firm Collaborations

The efficient allocation of control rights in inter-firm collaborations is a widely emphasized issue. In this paper, I empirically identify control rights and the allocation of these rights using a unique survey data set on collaborations between biotechnology and pharmaceutical firms. Fifteen control rights are identified to make up the structure of deals with five rights being the items of contention in deal making (ownership of patents, production, further development of the technology, the right to manage the collaboration, and the right to market universally). I find that the assignment of control rights is related to the bargaining position of firms and incentive issues. Hence, goliaths –pharmaceutical incumbents–subrogate critical rights to the new ventures when the final outcome of the project is depending on the venture’s effort

Britain's financial system

Two years have now elapsed since the tech-stock share bubble burst – most notably on the NASDAQ in New York, but engulfing other high-tech markets as well. In Britain, as in other countries, the overall stock market environment has been relatively bearish in the intervening period. The two events are not causally linked, in that the subsequent decline in established and blue-chip markets is not directly attributable to contagion spreading from the high-tech sector. Yet, taken together, these events have served to divert the attention of both the academic and the policy communities from the wider implications of the ‘new economy’. The ‘new economy’ became so associated with the image of an ever more bullish stock market that the mere presence of falling share prices has stalled the debate about what the ‘new economy’ is, what benefits it could bring, and how it could be integrated into existing economic structures. I suggest that the time is now right to revisit that debate and, in so doing, to reclaim the discussion of the ‘new economy’ from the share price bubble with which it has been popularly linked

Entrepreneurial profile of the UK in the light of the global entrepreneurship and development index

In this research summary, we provide a novel look into the entrepreneurial profile of the UK in an international context. We use a new method – the Global Entrepreneurship and Development Index GEDI [1] – to identify the entrepreneurial strengths and weaknesses of the UK economy, as well as to identify potential bottlenecks that hold back the performance of the UK relative to other advanced economies. We begin by providing an overview of the main findings

The Theory of the Firm and the Markets for Strategic Acquisitions

Five problems are addressed: (1) the role of competent actors in the venture capital and exit markets supporting the industrialization of winning technologies in small innovative firms, (2) the competence of the large firm to integrate large-scale operational efficiency with small-scale innovative capability through distributed development work and integrated production and (3) the importance of viable markets for strategic acquisitions, both in making this possible and in allowing a flexible choice for the small firm between growing aggressively on its own through own acquisitions, or being acquired strategically itself. We (4) find that the less developed markets in continental Europe may be a disadvantage compared to the US in ushering in a future New Economy. We finally (5) discuss what becomes of the Coasian theory of the firm when production is constantly outsourced in, or insourced from the market as the relative efficiency of coordination through management and over the market changes.competence bloc; experimentally organized economy; heterogeneity; Marshallian industrial district receiver competence; strategic acquisitions

Allocation and productivity of time in new ventures of female and male entrepreneurs

The present study investigates the factors explaining the number of hours invested in new ventures of female and male entrepreneurs. For new ventures in particular time investment is an important issue, in particular as series of (usually) new and non-recurrent activities is undertaken, laying the foundation of the firm and securing its viability. A distinction is made between factors that influence the number of working hours through preferences or productivity. To test for influences on allocation and the productivity of work time a nonlinear model is proposed that is tested using data of 1256 Dutch business owners (919 male and 337 female) who started a business in 1994. Findings indicate that time invested in the business is determined by various aspects of human, financial and social capital, availability of other income, outsourcing activities and gender. It is shown that some of the identified factors relate to preferences and others to productivity. Women appear to invest less time in the business than men, which is due to an on average lower productivity of work time. This lower productivity can - in turn - be attributed to lower amounts of human, socialm and financial capital of female entrepreneurs, as well as specific ambitions or goals, not directly related to economic performance.

Can’t Buy Me Rights! The Contractual Structure of Asymmetrical Inter-firm Collaborations

The efficient allocation of control rights in inter-firm collaborations is a widely emphasized issue. In this paper, I empirically identify control rights and the allocation of these rights using a unique survey data set on collaborations between biotechnology and pharmaceutical firms. Fifteen control rights are identified to make up the structure of deals with five rights being the items of contention in deal making (ownership of patents, production, further development of the technology, the right to manage the collaboration, and the right to market universally). I find that the assignment of control rights is related to the bargaining position of firms and incentive issues. Hence, goliaths –pharmaceutical incumbents–subrogate critical rights to the new ventures when the final outcome of the project is depending on the venture’s effort.contracts; performance; inter-firm collaboration; biotechnology

A Review of IPO Activity, Pricing, and Allocations

We review the theory and evidence on IPO activity: why firms go public, why they reward first-day investors with considerable underpricing, and how IPOs perform in the long run. Our perspective on the literature is three-fold: First, we believe that many IPO phenomena are not stationary. Second, we believe research into share allocation issues is the most promising area of research in IPOs at the moment. Third, we argue that asymmetric information is not the primary driver of many IPO phenomena. Instead, we believe future progress in the literature will come from non-rational and agency conflict explanations. We describe some promising such alternatives.