Scale up Support: Mindset of an entrepreneur · entrepreneur and improve their access to...

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1 Insights & practical advice Oxford Innovation DR. JANE GALSWORTHY Are growth entrepreneurs born or made? Research has examined the role of an entrepreneur to try and identify common features of leaders of growth firms and to understand whether these features are innate or develop over time. Scale-up Support: Mindset of an entrepreneur INSIGHTS & PRACTICAL ADVICE 24 July 2017 © Oxford Innovation 2017 Copyright restrictions: All rights reserved. No part of Insights may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise, without full permission. All other Oxford Innovation Terms and conditions apply. INSIGHTS & PRACTICAL ADVICE is an online magazine for policy makers, funders and business support providers. It draws on Oxford Innovations thirty yearsof experience of delivering positive economic growth by enabling scale-ups to achieve their full potential.
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Oxford Innovation 2017 Copyright restrictions: All rights reserved.

1

Insights & practical advice Oxford Innovation

DR. JANE GALSWORTHY

Are growth entrepreneurs born or made?

Research has examined the role of an entrepreneur to try and identify common features of leaders of growth firms and to understand whether these features are innate or develop over time.

Scale-up Support: Mindset of an entrepreneur

INSIGHTS & PRACTICAL ADVICE

24 July 2017

Oxford Innovation 2017 Copyright restrictions: All rights reserved. No part of Insights may be reproduced, stored in a retrieval system or transmitted in any form or by any means; electronic, mechanical, photocopying, recording or otherwise, without full permission. All other Oxford Innovation Terms and conditions apply.

INSIGHTS & PRACTICAL ADVICE is an online magazine for policy makers, funders and business

support providers. It draws on Oxford Innovations thirty years of experience of delivering positive economic growth by enabling scale-ups to achieve their full potential.

Oxford Innovation 2017 Copyright restrictions: All rights reserved.

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Insights & practical advice Oxford Innovation

Creating a High Growth Mindset

High growth firms are responsible for the majority of economic growth in the UK. It has been estimated

that between 3% and 10% of any new cohort of firms will end up delivering between 50% and 80% of the

economic growth of the cohort over its lifetime1. Clearly, any support that can improve the performance of this elite group will have a huge impact upon overall economic performance. As a result, there has been a

huge focus in research, policy and delivery programmes on understanding how to identify and support

firms with high growth potential to successfully scale-up.

It is widely accepted that growth can be found in firms in all sectors and that high tech firms are not

particularly likely to be high growth compared to, say, companies in the services sector. Furthermore, while there are some concentrations of high growth firms in cities, over 40 per cent are found outside

urban areas. This means that it has been impossible to define a high growth potential business profile

based on readily accessible company characteristics.

Research has more recently examined the role of the entrepreneur to try and identify common features of

leaders of growth firms and to understand whether these features are innate or develop over time. If growth entrepreneurs are born then this suggests that we could identify individual character traits and use

these to identify individuals and firms with strong growth potential. It would also imply that we have a

limited pool of growth entrepreneurs within the UK. On the other hand, if growth entrepreneurs are made then this provides opportunities to support, coach and train entrepreneurs to improve their ability to lead

high growth firms.

This insights paper identifies the common traits of high growth leaders and actions we could take to

encourage a high growth mindset.

Are Growth Entrepreneurs Born or Made?

Several large studies have concluded that the proportion of entrepreneurs with growth intentions in the population is a significant predictor of economic growth. This factor is more important than general start-up

rates or self-employment rates2. In other words, the quality of entrepreneurship is more important than the

quantity. Worryingly, businesses in the UK have

much lower growth intentions

then those in the US3(see chart). Moreover, the

prevalence of growth

entrepreneurs has declined in the UK since 1999 but not in

the US. US high growth

businesses are more likely to intend to grow and have

planned for growth than their

UK counterparts.

1Autio, E. (2012) Dinosaurs, Mice, Gazelles and Ecosystems: Removing Bottlenecks of Growth for Innovative Firms. 2Stam, E., Suddle, K., Hessels, J. and van Stel, A. (2009). High-growth entrepreneurs, public policies and economic growth. 3Levie, J. and Hart, M. (2012) Global Entrepreneurship Monitor United Kingdom Monitoring Report 2011

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Insights & practical advice Oxford Innovation

If we take the view that growth is driven by the entrepreneur within the business, are we able to identify

factors that make an individual more likely to grow their firm?

There have been a small group of recent studies exploring whether there is entrepreneurial DNA and

whether entrepreneurship can be mapped against the genome. Researchers using twin studies involving

identical and non-identical twins4 argued that they had found evidence of a genetic basis to entrepreneurship, claiming to have identified an entrepreneurship variant gene, DRD3. However, other

researchers have been unable to replicate these findings and larger studies have failed to find any

association between entrepreneurship and any genetic markers.

If biology is of little help in indicating who might grow their business, are there any indicators relating to

nurture and experience?

A thorough review of existing research looking at associations between growth intentions and individual

characteristics showed the following effects5.

One often cited influence on entrepreneurial behaviour is that growing up in a family business or having

immediate or extended family members who run their own firms: this will shape the thinking of a potential

entrepreneur and improve their access to business-related resources and peer networks. However, the consensus amongst researchers is that attitude and intentions, i.e. a growth mindset, are a much greater

predictor of entrepreneurial activity than background or demographics6.

What is a Growth Mindset?

The term mindset is used to encompass how entrepreneurs think, as well as their values and behaviours. There are many different definitions in the literature but a useful one7 is a way of thinking about

opportunities that surface in the firms external environment, and the decisions, commitments, and the

actions necessary to pursue them.

The elements comprising mindset were investigated through case studies and in-depth interviews with

high growth firms and the findings were captured in the Business Growth Service Mindset of High Growth report8.

4Nicolaou, N., Shane, S. (2014). Biology Neuroscience and Entrepreneurship, Journal of Management Inquiry, 23 (1):98-100. 5Levie, J. and Autio, E., (2013). Growth and growth intentions. ERC White Paper No. 1. 6Gartner, W. & Liao, J. (2012). The effects of perceptions of risk, environmental uncertainty, and growth aspirations on new venture creation success. Small Business Economics, 39(3): 703-12. 7Ireland, R.D, Karatko, D.F., Morris, M.H. (2006). A health audit for corporate entrepreneurship: innovation at all levels: part 1, Journal of Business Strategy, Vol. 27(1):10-17. 8 McNeill, T., Antcliff, V., Baines, S., and Carter, J. (2015). The Mindset of High Growth. http://www.mmucfe.co.uk/assets/uploads/files/growth-mindset-full-report-23sep.pdf

Positive effect on growth intention No effect on growth intention

Entrepreneurs education levels Age of entrepreneur

Previous entrepreneurial experience Gender of entrepreneur

Willingness to take risks Prior managerial or industry experience

Need for achievement

Innovativeness

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Insights & practical advice Oxford Innovation

This study identified six building blocks of a growth mindset.

The contribution that each of these six elements make to a growth mindset9 is in the pie chart shown below.

Market expertise emerged as the most important component. Growth entrepreneurs are clearly aware of

the importance of securing sales but also understand and can navigate their chosen market using a strategic approach. They also have a strong customer focus which, allied with an alertness to spot new

opportunities for capturing market value, means that they are continually building expertise in what is

working, and what is not, and willing to change their approach to succeed. In other words, their thinking processes are geared to making sales.

9 % of variance explained by six component solution for dimensions of the High Growth Mindset

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Insights & practical advice Oxford Innovation

Business vision is based upon the presence of a clear plan and also a high degree of confidence in

achieving the vision. These elements imply an ability to visualise and plan although the research shows

that visioning ability can develop over time. This fits with our experience of coaching companies with growth potential where we have found that entrepreneurs are sometimes limited by an inability to see

beyond their current market and business model. Providing external support that focuses on identifying

new market opportunities and revising, or sometimes completing changing, the business model can encourage provide entrepreneurs with a clearer vision and greater confidence of business success. This,

in turn, can dramatically increase their ambitions for growth.

Looking at active decision making, the research found evidence of gut feel decision making as well as

analytical, data-based decision making. The entrepreneurs themselves recognised the pitfalls of gut feel

decision-making and explained how they moderate this tendency by drawing on the influence of other people (within and outside the business) and establishing structures and processes, e.g. formal strategic

review processes, market analysis etc. The other dimension to this component relates to following through

on ideas and reflects a commitment to decisions by taking the necessary action to operationalise them.

Growth drive, sales drive and innovation drive were responsible for significant but smaller components of

the growth mindset. It is worth emphasising that different components will inevitably be present in different people to differing extents. The balance is also likely to be dynamic and to change over time.

How do we Encourage a High Growth Mindset?

Interviews with growth entrepreneurs suggests that mindset is highly context dependent and dynamic

rather than comprising a set of fixed personality traits. Changes in circumstances can be hugely influential for some entrepreneurs, e.g. moving the business out of the family home, the death of a husband and

business partner. The capacity to drive innovation also changes over time in tandem with growing

awareness of the business potential and the resources that it has at its disposal.

In learning from successes and failures, taking time to reflect is key10. Reflection time can be very informal

or more structured, e.g. using a learning journal, and can be something that an entrepreneur does independently or through discussion with a trusted coach or mentor.

Many growth entrepreneurs attach a high value to learning from other people and deliberately seek out role models to learn from. Sometimes these are high profile entrepreneurs but more often they are

mentors, peers, family, partners, employees or other people who demonstrate qualities such as courage,

tenacity and diplomacy. Some seek to formalise their relationships with influential people, for example appointing advisers to their boards or having a formal mentor, whilst others keep these relationships

relatively informal. It is worth noting that role models are not always positive and learning from observing

how not to behave can be equally powerful.

Growth entrepreneurs also value learning through short courses, ad hoc support and MBAs and a key

message is that these different forms of learning are complementary. For example, learnings from an executive education programme can be embedded in the firm through discussions with peers or a coach

to find a solution that works effectively within the firm and its own particular context. Self-reflection, peer

networking, coaching, and formal training are all elements of learning that can be drawn upon to deliver the precise blend of learning that delivers the best results for each entrepreneur.

10 Matthew Syed, Black Box Thinking. Published 2015.

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Insights & practical advice Oxford Innovation

Implications for Policy Makers

As growth intent is a useful indicator of likely growth, we should track growth intentions in our small

businesses at programme, local/regional and/or national level. By monitoring growth intent, we will be able

to gauge the impact of business growth initiatives on business confidence in pursuing growth and gain an early indicator of subsequent business and economic growth.

Encouraging entrepreneurs to think more confidently and proactively about growth requires four key things:

1. A belief that substantial growth is a real possibility for their business - entrepreneurs need role

models that they recognise as similar to themselves. This means that policymakers and funders need to celebrate and promote growth success stories from a wide range of small businesses

2. Access to training or coaching support that can build their capabilities in the six key areas of a growth mindset and, bearing in mind the large contribution played by market expertise, access to

expertise in their target market is likely to be crucial.

3. A good understanding of the opportunities in their market and confidence that their business model

and strategy is able to exploit these opportunities. The opinion and advice of a knowledgeable

person external to their business - a peer, mentor or coach brings new perspectives that stress test the business model and strategy and provide the entrepreneur with increased confidence.

4. Help and support to find an external coach or adviser with the right skills, background and personal chemistry someone with whom they can trust to share their concerns and intimate business

details. They may also need help to pay for the advice of an experienced coach/adviser.