Effective Growth Paths for SMEs

Abstract

How firms grow forms a key question in the research on small and medium-sized enterprises (SMEs). Based on a survey amongst 1,535 SMEs, we show that the presence of growth capability factors, such as, innovation capacity, financing capacity and human capital, offers inadequate explanation for differences in the level of growth between SMEs in a specific period of time. The utilisation of different growth paths however does seem to elucidate differences between low and high growth. Remarkably, we found that growth paths that are most commonly used by SMEs (market penetration and increasing efficiency) hardly lead to growth. Rather growth paths that are infrequently utilised like setting up a new additional venture and entering foreign markets lead to significantly higher growth levels. It seems however that these growth paths are not attainable for SMEs due to the more extensive investments required. Increasing the firms’ brand awareness was found to be the only path to growth that was both used frequently and that yields actual growth. Therefore, investing in this path to growth seems to be a sensible investment choice for SMEs that want to grow.