Structural Growth Disengagement and value creation in small and micro-firms. Mapping pathologies and physiologies of business “dwarfism” in a dynamic resource-based view

This paper focuses growth disengagement, in the perspective of those firms who have been keeping their structures, processes and relational systems unchanged for a very long time. The implicit hypothesis according to which such businesses are affected by a structural disease, are not able to create any significant value, and characterised by similar features, is critically discussed. Through an analysis of the phenomenon in the business growth and dynamic resource-based-view, a first attempt taxonomy, based on case-studies, is sketched. It is demonstrated how the implicit assumption according to which such firms are affected by a pathological condition is false, at least if seen as an a priori statement. 1. Small business “dwarfism” as a structural condition of growth disengagement in small and micro-firms: relevance of the field in the debate on growth and non-growth SMEs This paper explores the issue of SME (Small and Medium Enterprises) growth disengagement, with the aim to understand under what conditions structural non-growth in small and micro firms can be considered as either a pathology or a physiology, in the perspective of value creation in the long run. According to Gibson (2002, p.1), “the notion that firms may have a capped growth objective is evident in many areas”. In this view, there are many micro and small firms, where owner-entrepreneurs take actions that indicate they are concerned with maintaining a stable business. Growing out of this stability is not regarded as a primary objective. Empirical evidence of this phenomenon emerges from both statistics and case-study analysis. Turok (1991, p. 29) has also remarked: “there is a considerable interest within the field of small firms policy and research in the identification of features that distinguish firms which grow from those that stand still or fail. This is thought important if more selective small firms policies are to be developed. Identifying distinctive features of more and less successful firms may also provide insights into the factors influencing small firm development and hence improve understanding of the growth process”. It has been also stated by Holmes and Zimmer (1994 p. 97) that: “an operational framework that distinguishes growth from non-growth small businesses does not exist”. In order to minimise agency costs, non-growth owner-entrepreneurs are reluctant to enter new activities which will result in an agency relationship (Jensen and Meckling, 1976). This implies that the level of contracts is kept to minimum, and a greater use of casual and part-time labour is done. Holmes and Zimmer distinguished Growth Capped from Growth SMEs. In the first kind of firms, growth is sought and plans are developed to facilitate it. However, growth will only be financed by additional equity inputs of the existing owners or trading bank debt. Provided that new equity from outside sources is not an option, such firms have