Challenges for growing SMEs: A managerial perspective

ABSTRACT

The pursuit of growth is a key endeavor of all types of firms, but it is particularly important for SMEs. From a managerial perspective, growing SMEs face a wide range of challenges; this study proposes a broad framework that emphasizes not only the various types of managerial challenges, but also the importance of taking a balanced, broad approach to facing them. In a qualitative study of 44 Swedish SMEs, the researchers identify, map, and aggregate distinct challenges to SME growth, proposing three overarching themes – business model, leadership, and people. Multiple lower-level categories and individual challenges make up each of these themes suggesting that firms that seek to excel in growth should be aware of and manage all three themes in a balanced manner. This research provides insights into each theme and potential consequences for SMEs; it also offers an overarching, integrative perspective on SME growth challenges opening future research avenues.

KEYWORDS:

• Growth
• challenges
• business model
• leadership
• strategy

Introduction

The pursuit of growth is often argued to be a key endeavor of firms, regardless of industry, age, or size. This pursuit of growth, and the corresponding high growth firms, has also been a prioritized area for researchers (Demir et al., 2017), for policymakers seeking efficient way to support job creation, and for investors who want to allocate resources to growing SMEs (Coad & Srhoj, 2020) In addition to a general interest in growth, which is particularly important for small- and medium-sized enterprises (SMEs), the ability to sustain growth has been argued to be a prerequisite for survival and prosperity (Dobbs & Hamilton, 2007; Taylor & Cosenza, 1997), as “most firms die young” (Cressy, 2006, p. 113).

Although prior literature emphasizes the importance of SMEs, such as in relation to job creation (Smallbone & Wyer, 2000), we lack knowledge into how these firms sustain their growth over time (compare, Esteve-Pérez et al., 2022). Despite the fact that small, young firms seem to have the most potential for high growth (Coad & Karlsson, 2022), relatively few SMEs manage to grow successfully (Dobbs & Hamilton, 2007; Moscarini & Postel-Vinay, 2012; Phillips & Kirchhoff, 1989). Therefore, it becomes important to increase overall understanding of what it is that enables these firms to grow in a sustainable manner. After all, SMEs are not smaller versions of larger firms, instead their needs and challenges differ from those of larger firms (Delmar et al., 2003; O’Regan et al., 2005). High growth SMEs (HG-SME) in particular provide a relevant and interesting arena for increasing our understanding around growth.

For SMEs, growth opens up opportunities, yet it also poses a range of challenges. It is challenging to manage, organize, and lead firms that double, triple, or even quadruple their turnover or numbers of employees in the span of just a few years, and such growth puts a particular strain on management (Coad, 2007). Few HG-SMEs have the resources to grow through external means (Bierly & Daly, 2007), such as through acquisitions, so they manage and sustain their growth organically (Delmar et al., 2003). These conditions call for a managerial perspective in understanding the growth phenomenon. Such a perspective is not limited to management style or managerial approach (for example, Smith et al., 2003); it includes management-led processes and managerially oriented challenges that are particularly relevant to SMEs.

For many reasons, such as for example, resource bottlenecks, managers in HG-SMEs encounter various challenges as they pursue organic growth, that is, the “‘normal’ growth mode of firms” (Achtenhagen et al., 2017, p. 458). Although multiple studies have focused on how firms grow, as in articles that describe growth trajectories and stage models (Churchill & Lewis, 1983; Greiner, 1998) or determinants of growth (Roper, 1999), few studies systematically investigate the types of challenges actual HG-SME managers face. The topic of growth still remains deficient in terms of theory development (Leitch et al., 2010) and regarding conceptual clarity (Coad et al., 2014; Demir et al., 2017; Esteve-Pérez et al., 2022). Beyond the need for greater conceptual understanding of the challenges to growth – especially from a managerial perspective (Hansen & Hamilton, 2011) and with regard to the development of “managerial resources” (Macpherson & Holt, 2007; Penrose, 1959) – we lack empirical insights and require more empirically grounded research into this area (Dobbs & Hamilton, 2007; Smallbone & Wyer, 2000).

In studies that investigate barriers to growth (Doern, 2009), most refer to specific geographic regions and their particular environments (for example, Hawawini et al., 2002), or obstacles to growth at the macro level (for example, Lee, 2014; Mason & Brown, 2013). Stage-model researchers (for example, Churchill & Lewis, 1983; Greiner, 1998) touch on barriers in their descriptions of the stages firms typically go through, with the end-stage of “crisis” resembling the notion of challenges. However, such models lack comprehensiveness and empirical evidence (Gibb & Davies, 1990). To formulate effective counterstrategies and launch meaningful managerial initiatives, it is crucial to understand managers’ perceptions of the challenges that arise in HG-SMEs (Lee, 2014; Mason & Brown, 2013), as a lack of appropriate managerial initiative and competence can hamper that growth (Goffee & Scase, 1995).

To increase our understanding of SME growth, we conducted a three-year investigation of 44 Swedish HG-SMEs, that were experiencing challenges as they grew organically. Growth here implies growth in turnover. During this process, we realized that though these firms represent a multitude of industries and experience many different situations, they exhibit similarities with regard to the types of managerial challenges they face and how they perceive those challenges. Using this insight as a starting point, we sought to increase our understanding of the managerially oriented challenges that HG-SMEs face as they grow, and propose an overarching, conceptual framework of growth challenges. Our work thus responds to calls for more research and conceptual development related to SME growth (Chaganti et al., 2002; Fuller-Love, 2006; Hansen & Hamilton, 2011; Wiklund et al., 2009).

Notably, the firms that participated in our research are established in their respective industries and have moved beyond the early, start-up stages of their firm’s life-cycles; rather than pursuing “early growth” they have established business models and exhibit growth. Because these types of firms are prevalent in many economies, having a better understanding around the factors that might impede their growth can provide insights into how individual firms may prosper over time. Such firms are indeed critical to the innovative capacity and overall employment levels of most economies (for example, Esteve-Pérez et al., 2022; Macpherson & Holt, 2007). It is especially vital to focus on their organic growth, which provides net additions to an economy and supports regional/national economic growth and employment (for example, Dobbs & Hamilton, 2007).

The contribution of our research is primarily two-fold. First, by comprehensively investigating the managerially oriented growth challenges that confront HG-SMEs, we provide insights, empirical and theoretical, that are pertinent both to academics and practitioners. Second, we categorize these challenges and propose a framework for how to understand them. The overarching, three-dimensional conceptualization of identified growth challenges we propose opens the topic to further research as well.

SME growth is challenging

While previous research on understanding high growth firms mainly seeks explanatory power through sets of variables (for example, Coad & Srhoj, 2020) this paper address growth challenges from an in-depth managerial perspective. Change creates challenges for managers, and growth, especially when significant, leads to change. The resulting challenges of this process tend to be managerial in character, ranging from operational (for example, scaling up production) to market-related (for example, finding sales leads) to people-oriented (for example, integrating new staff) and to organizational (for example, developing appropriate management structures). Often, SMEs are led by driven entrepreneurs, who have limited formal managerial and organizational training, but high contextual knowledge and experience, as well as pronounced growth ambitions. Such personal drive can lead to situations in which operational aspects are emphasized and other areas are neglected, at least in the short-term, potentially compounding any managerially oriented challenges. As organizations grow in size, in terms of turnover or numbers of employees (for a discussion of growth measures, see, Delmar et al., 2003), the number of neglected areas multiplies, leading to what stage-oriented growth researchers refer to as managerial “crises” (Greiner, 1998). These crises are the result of emerging, and then compounding, managerial challenges (Goffee & Scase, 1995). However, it is important to note that stage-models seldom provide a complete map in terms of describing small firm growth, instead, the progression is typically more dynamic; where network, relationships, and existing structures are being used to transform opportunities into value for the growing firm and its customers (Levie & Lichtenstein, 2010).

As firms progress and experience growth, they also confront managerial challenges related to structural aspects and decision-making. For organizations that expand from very small to small, then not-so-small, these challenges become pronounced. Typically the impact of growth on smaller firms is greater than for larger firms, with greater consequences for organizational structure and leadership (Coad, 2007; Parker et al., 2010). Although organic growth emphasizes in-house development of managerial resources and capabilities (Achtenhagen et al., 2017), the business side also presents unique challenges, because customers multiply, markets become more international and complex, and financial aspects become more critical, as in the case of transitions from start-ups to scale-ups (Cavallo et al., 2019). Finally, as more people join the growing organization, talent management, employee empowerment, decentralization of decision-making, and organizational culture become more pronounced considerations (Barney, 1996). To approach growth proactively, and to manage it and the associated changes over time, it therefore is vital to identify challenges to growth and determine where and when they emerge.

Because managerial challenges to SME growth emanate from different sources and perspectives, we need a wide perspective to comprehend the challenges SMEs face. Managerially oriented growth challenges can relate to human capital development (Lee, 2014), organizational structuring (Parker et al., 2010), market development (Littumen & Tohmo, 2003), financing (Cavallo et al., 2019), and even business model design (Markides, 2013). Therefore, we need to account for differing perspectives to be able to gain a more comprehensive understanding. Wiklund et al. (2009), in one of only a few integrative studies, discuss this wider notion in terms of ontological layers (Fuller & Moran, 2001); they refer to a human-capital–oriented perspective, an internally oriented perspective, and a business model perspective. Similarly, in their study of growth barriers, Mason and Brown (2013) find that a range of barriers, rather than any dominant type of barrier, arise as SMEs grow.

The external business environment – including the type of industry, technological development, and customer characteristics – is finally also important when we attempt to understand growth challenges (Scott & Bruce, 1987). From a managerial perspective, these environmentally oriented challenges primarily relate to how a firm can respond to events in the environment, rather than to the environmental characteristics and events themselves.

Methodology

To understand the managerial challenges to SME growth, we undertake a primarily exploratory endeavor, taking a qualitative approach to our research (Eisenhardt & Graebner, 2007). While scholars have paid attention to SME growth in general, the managerial challenges in relation to growth are not as well studied. To understand challenges from the perspectives of SME managers, who are embedded in social, contextual, and business contingencies, requires in-depth knowledge, and that requirement in turn also links to the chosen exploratory focus and a qualitative approach (Eisenhardt & Graebner, 2007; Yin, 2009). We do not adopt a methodologically predesigned template for our study, for example, Eisenhardt’s case study approach (2021) or a pure grounded theory approach. Instead, we adopt a mixed method framework, where active choices around data collection and data analysis are made continuously (Pratt et al., 2020). Many times, this enables a deeper understanding of the data than relying on single methodological templates, which is especially relevant in more exploratory oriented processes.

Data collection

Using a purposefully, theoretically oriented sampling process (Gibbert et al., 2008; Patton, 2002), we selected SMEs to participate in this research on the basis of four criteria (apart from formally qualifying as SMEs): They (1) were geographically located in a particular region (for example, to limit geographically based differences between firms) and exhibited an interest in participating (to ensure access to informants), (2) exhibited growth in terms of turnover (to ensure the firm indeed is growing), (3) displayed an intent in their strategic activities, as well as a managerial ambition in senior management, to grow in the future (for example, to ensure that they reflect over and address growth over time and thus have the ability to perceive any challenges), and finally (4) expressed an interest in understanding and discussing their approach to growth and the growth trajectory. This furthermore reflects previous findings that attitudes to growth and mental models of senior managers (including owners) are important (Fuller & Moran, 2001; Wiklund et al., 2009). The sampling also follows the logic from Coad and Srhoj (2020) stating that what distinguishes high growth firms from others is that they already are performing well in terms of growth in the period right before a high growth episode. This led to the identification of 44 firms suitable for this study.

The average size of the firms in our sample (2019 figures) is 50,000,000 Swedish Krona (SEK) (approximately €5,000,000), and the average growth from 2016 to 2019 was 48% (as measured by turnover). As mentioned, currently high growing firms indicate growth potential for the forthcoming period (Coad & Srhoj, 2020). Finally, all firms are well established in their respective industries and are not characterized as start-ups or newly started firms.

All selected firms are established in the same geographical region in Sweden but represent multiple different industries, both product and service oriented, mirroring the spread of firms in many regions (for example, construction, education, facility management, IT-services, software firms, management consultants, health care, and manufacturing). We conducted 4–6 interviews per firm and respondents included senior managers as well as more operationally oriented personnel. Having respondents from several different functions and levels within firms provided us with, among other things, a degree of data triangulation increasing validity (Gibbert et al., 2008; Yin, 2009).

Because it was not possible to record the interviews, for confidentiality and anonymity reasons, two researchers carried out each interview; one researcher acted as the primary interviewer, and the other researcher took comprehensive notes, consistent with the methodology advocated by Brinkmann and Kvale (2009). Directly after each interview, the researchers collated their notes and data and captured them in a detailed case protocol (Yin, 2009).

Both the interviews and the case protocol were guided by an open-ended semi-structured interview guide that operationalized (1) the business model concept, to capture firm-specific information; (2) the business environment, to capture information about customers, competitors, and technological developments; and (3) the growth strategy that reflects the strategic aspects and objectives of a firm. We deemed this general operationalization appropriate as our aim was to capture a wide range of challenges (as discussed in the previous section) without unduly limiting respondents’ answers, minimizing problems related to ”active listening” (McCracken, 1988, p. 21). Making use of a formal interview guide and case protocol also increases reliability (Yin, 2009).

Data analysis

The data analysis was inspired by, but not strictly adhering to, the grounded theory approach of Glaser and Strauss (1967) in that we coded the data in three steps – open, axial and selective coding (see, Figure 1 for an overview of the analytical process) (see also, Gioia et al., 2013). We first used open coding (based on our gathered raw data) as the first step, which allowed us to structure the data, first within each of our individual case firms and then to collate, and compare, them in a cross-case process (Eisenhardt, 1989).

Figure 1. Overview of the analytical process.

In this open coding step, each case contributed with specific information regarding their particular managerial challenges, and these where carefully extracted based on the multiple interviews with each firm. Based on the detailed case protocol for each firm we empirically identified, coded, and summarized individual managerial challenges in a within-case analysis (Eisenhardt, 1989). In total 359 challenges were identified in the case firms.

Following Gioia et al.’s (2013) suggestions, the axial coding step then focused on devising preliminary sub-categories of challenges (resulting in a total of 18 categories – see, Table 1) by aggregating similar open codes (that is, the empirical challenges) into overarching, ”higher-order,” theoretical categories. Finally, as our third step, the selective coding enabled us to gather the categories into themes (in total three themes were identified) for increased theoretical clarity (see, Table 1). The aggregation, or categorization, of both step 2 and 3, was performed by linking similar challenges to each other and meaningfully labeling the emerging categories. For example, both the challenge “Establishing process for follow-up” and the challenge “Defining key performance indices (KPIs)” were linked to the category termed “Management control” as they cover processes of controlling and governing the firm. We strived to label the categories using well-established concept to increase clarity and interpretability. Management control, from the above example, is a well-established concept and thus suitable as a label. Management control in the next aggregation was then linked to “Leadership,” as it is a concept that grasp the governance and control aspects related to leading. In the same manner, each identified challenge was scrutinized in order to build up the hierarchical structure of the analysis as seen in Figure 2. Further, in an iterative fashion, which Dubois and Gadde (2002, p. 588) refer to as a “systematic combining process,” over the course of several months and including multiple coding seminars with participating researchers, we developed and theoretically refined these categories and themes further, through the coding process and through pattern matching (Eisenhardt, 1989; Figure 2 presents typical coding examples). Through this process we build our theoretical implications on our empirical findings, and the categorization and thematization enable our theoretical conceptualization by contributing to a better understanding of managerial challenges that face HG-SMEs. Two researchers coded the empirical material separately and checked inter-rater reliability as suggested by Perreault and Leigh (1989); the researchers discussed any differences in detail and, when necessary, reiterated responses with the respondents to reach mutual and valid interpretations.

Figure 2. Examples of the coding of empirically identified challenges (24 out of the total of 359) and the subsequent categorizations.

Table 1. Three overarching themes, their 18 corresponding lower-level categories and the number of individual challenges coded into each category.

Business model (98)	People (127)	Leadership (134)
Sales (36)	Employees (36)	Strategy development (31)
Business development (30)	Recruitment (29)	Leading (30)
Market (14)	Culture/values (21)	Board (25)
Value proposition (14)	Structure (16)	Vision/goals (22)
Customers (3)	Organization (15)	Management control (21)
Innovation (1)	Production (10)	Communication (5)

Finally, we conducted validation workshops and focus groups (Stewart & Shamdasani, 2014) individually with each participating firm, thereby ensuring our understanding of the specific firm context and the identification of challenges. As a final measure to increase the trustworthiness, and to ensure the validity, of the findings (Matthyssens & Vandenbempt, 1998), we invited all participating firms to a group workshop in which we presented and discussed our final analyses, also functioning as what Lincoln and Guba (1985) call a ”member check”.

Challenges to growth: Empirical findings

On the basis of the empirical data and through our analytical process, we aggregated the findings into three primary themes of challenges, composed of 18 lower-level categories, which in turn were derived from the individual challenges. These primary themes represent the overarching direction of the challenges regarding the focus and content of the empirically identified challenges. We denoted these overall themes as business model, leadership, and people.

In devising the overarching themes, we first used our lower-level categories, in a bottom-up analytical approach, to structure all empirically identified challenges. These lower-level categories functioned as a bridging mechanism that enabled better understanding of the direction and nature of the challenges, before we aggregated them into the overarching themes. The themes and their corresponding lower-level categories were discussed both among the researchers and with the participating firms in order to increase robustness and ensure the validity of the themes.

From the overarching three themes, we find, as expected, that the challenges facing HG-SMEs span a broad range of areas and are not limited to traditional growth aspects focusing on the actual business, such as market development, value propositions, and customers. Instead, growth-oriented SMEs struggle to, for example, establish both formal as well as informal leadership structures and nurture healthy cultures, as they try to maintain a “small-firm feeling” during rapid growth. In fact, many challenges relate to what we refer to as the leadership and people themes, which emphasize the importance of developing these areas through for example, management training.

Our identification of the three themes of challenges also indicates that sustainable and successful growth strategies must exhibit a balance, whereas an overly narrow a focus on any one area can hamper sustained growth over time. Storey (1994, p. 122) refers to the importance of the balanced approach, arguing that “Less rapidly growing, no-growth, or failing firms may have some appropriate characteristics in the entrepreneur, firm or strategy areas, but it is only where all three combine that the fast-growth firm is found.”

Leadership-oriented challenges

According to the number of challenges mentioned by respondents in the different firms, the most prevalent theme in our study is leadership (including in total 134 challenges); challenges related to building and maintaining effective, functioning leadership structures are high on the agendas of SME managers and an area where they struggle. Respondents mention the challenges of having well-designed and active boards (including external-to-the-firm members), creating effective management teams, and clarifying owners’ roles. They also identify the ability to create, develop, and communicate their firms strategies’ and the ability to formulate clear goals for their firms as a key type of challenge (category termed strategy development). Relatedly, they identify the ability to provide inspirational and culturally relevant visions that instill a sense of commitment among their employees as a challenge that links directly to the people category in terms of, for example, setting boundaries for acceptable behavior and overall firm (cultural) values.

Another often-mentioned type of challenge, the category termed leading, relates to decision-making, delegation, and the ability to embrace a broader portfolio of leadership roles (formal and informal). “Letting go of making decisions,” including others in the decision-making process, and designing processes that work in more complex future organizations seems to be a major challenge for many firms. This finding is not surprising; previous research has highlighted this, and our findings confirm its importance. Previous research also shows that in contrast with European managers, Nordic managers (as in our empirical sample) are more likely to rely on colleagues than on formal structures in their decision-making and management styles (Smith et al., 2003). Our research supports this finding, revealing challenges that relate both to formal and informal leadership roles and structures.

People-oriented challenges

With regard to respondents’ mentions related to the people theme (in total 127 challenges), the difficulty of recruiting is cited as a major obstacle for many firms. This relates both to the difficulty of finding needed competencies and to finding employees in general. Notably, we carried out our research during an economic boom (that is, 2016–2019) when many economies experienced challenges with recruitment including the chosen region for our research, primarily for qualified positions, but also related to unskilled labor.

However, the most frequently mentioned, and rather broad, type of challenge in this overarching theme, the category termed employees, revolves around employees and their abilities to develop individual competencies, including stimulating employee motivation, and creating efficient communication channels with, as well as clarifying role descriptions for, said employees. This category also links directly to the leadership challenges related to delegation and the previously mentioned establishment of leadership structures.

Other key aspects in the people theme, and the category termed culture/values, are the establishment of appropriate values, the development of sound culture in organizations, the vision challenge at the leadership level, and the ability to maintain the small-firm feeling despite growth. Previous research has indeed referred to the importance of establishing an appropriate culture for enabling growth (for example, Hansen & Hamilton, 2011). Finally, the challenges of establishing, and developing, an appropriate formal structure, including the organizing of production (both regarding products and services), during growth is mentioned frequently. As many firms lacked knowledge of this area, through, for example, formal training or education, they often addressed this issue by bringing in outside competence, typically consultants, to alleviate this gap.

Business-model-oriented challenges

Somewhat surprisingly, mentions of challenges related to business-oriented and business model aspects are the least prevalent. Only 98 of the 359 challenges represent this category. The most frequently mentioned type of challenges here relates directly to sales or to growth at a more strategic level, such as business development and finding future growth opportunities. This sales category, involving finding new customers and generating leads, is mentioned most often. This is also related to the dual challenge of being able to develop attractive new propositions and manage existing value propositions, further emphasizing this type of challenge.

Respondents identified multiple challenges related to business development and finding new growth opportunities, such as by expanding niche markets (the category termed business development). This finding reflects previous research that outlines key business model-related areas for growing SMEs (for example, Burns, 1989; Dobbs & Hamilton, 2007). Although few firms in our study have processes in place to conduct systematic, or strategic, business development activities, many of them identified such process development as a future challenge and something that needs attention going forward. Finally, the notion of customers and innovation relates to the business model, and challenges in these categories (termed customers and innovation) typically do not revolve around developing new technologies or even developing entirely new products and services. Rather, they are associated with more market-oriented innovations, such as the previously mentioned focus on value proposition and niche exploration (Bierly & Daly, 2007), as well as functionality and customer usage and finding new ways to deliver existing portfolios to new and existing customers. However, both innovation and customers specifically were not mentioned to any great extent, perhaps reflecting the fact that the participating firms are established firms with an existing customer base. Somewhat surprising is that identifying new customers and being able to innovate products, typical growth aspects for many firms, were mentioned only very rarely as challenges in our study.

Discussion of findings

Identifying managerial growth challenges enabled us to take a starting point in individual challenges but also to address them at an aggregate level and, hence, contribute with theoretical insights beyond mapping. By categorizing these challenges into lower-level categories and overarching themes, we can structure the challenges in a systematic process. Next, by examining the challenges and their relationships in more detail, beginning with the overarching themes and their interactions, we identify several key aspects that enhance the current theoretical framing, and also enrich our understanding of not only specific individual challenges, but also the overall nature of the managerial challenges that HG-SMEs face in our study. In this, we add to the theoretical understanding of HG-SMEs and shed light over previously hidden aspects of managerial challenges related to growth in SMEs.

In the following we structure our discussion around our three overarching themes – leadership, people and business model – and their interrelatedness.

Broadening the leadership platform: Leadership theme

Senior managers play a key role in driving growth (Hansen & Hamilton, 2011) but they can also act as a growth barrier in themselves. In our study, most owner-managers express growth ambitions and approach growth in a proactive manner; they actively search for opportunities and emphasize this search in their strategic thinking. This personal drive, as well as other personal characteristics, leads to strong tendencies to want to “do everything themselves.” In this, they become immersed in operational details and have difficulty “letting go” and delegating decision-making. As operational aspects consume more and more of their attention, this lack of delegation leads to neglect, nonprioritization of compounded strategic issues and thus become a key challenge in itself.

For the HG-SME managers in our study, translating this tendency to involve themselves in everything into clear management agendas makes it difficult to include other people in the leadership platform as well as create formal management structures (including both firm boards and management teams). This difficulty is one of the key challenges identified in our research, as seen in the prevalence of challenges in the leadership and people themes and the underlying categories. It suggests that structured initiatives, such as directed educational or consultation activities aimed at alleviating this challenge, can have a strong positive impact. According to Weinzimmer (1997), with regard to the importance of creating leadership platforms, well-functioning and heterogeneous top management teams are indeed vital to small-firm growth. Moreover, Littumen and Tohmo (2003) find support for the need to create broad leadership platforms (or management groups). This need also tends to increase as firms grow (Wiklund & Shepherd, 2003). The ability to obtain external advice, such as bringing in external members to firm boards, has also been associated with positive firm performance (Robson & Bennett, 2000).

Our study finds that part of the challenge of creating leadership platforms is the ability to recruit active, knowledgeable management resources, as well as board members who can complement typically owner-dominated boards. In line with previous research (for example, Fischer & Reuber, 2003), we find that many owner-managers in our study express uncertainty and even an unwillingness to bring external actors into their firms. This relates to a perceived uncertainty linked to the loss of control. Many of the owner-managers have controlled their firms from the very beginning and the preservation of power and control is typically an essential part of their thinking. One firm in the study, as an example, recruited an external CEO but within a year that CEO was removed because the former CEO (and owner) had difficulty relinquishing personal control and integrating external advice.

Inherent in the personal drive of individual managers is the challenge of transferring that drive to the rest of the organization to achieve higher levels of engagement and commitment. As organizations grow, it becomes increasingly difficult for managers to communicate clear strategies, meaningful visions, and to individually manage and interact with all organizational members. Because a sense of meaningful work relates positively to work engagement, job satisfaction, and general health (Allan, Batz-Barbarich, Steering & Tay 2019), finding ways to communicate visions and senses of meaning should become a managerial priority. Often, senior managers in our study display a strong sense of purpose and vision but experience difficulties communicating them to their increasingly larger organizations. The difficulties arised as the vision transformed from something self-evident, almost axiomatic, to something that needed extensive explanation and clarification. Hence, senior managers’ visions must be anchored in a narrative or description of the firm in order to communicate it to a larger group of coworkers. Firms in our study that focused on this had, for example, firm-wide weekly meetings (called the “Friday prayer” in one firm) attempting to further anchor their vision, or invited customers to visit to encourage a “customer-first” philosophy (that was a key part of their particular culture).

Many of the senior managers in our study struggle, as mentioned, to formulate clear, communicable strategies and visions – perhaps because they lack time to do so, but also because they may lack leadership training and certain managerial skills being mostly self-educated leaders. The ability to develop strategic agendas and work with strategy development often is key to continued growth, that is, to avoiding “growth stalls” (Olson et al., 2008). Storey (2011) elaborates on the positive relation between the performance of a firm and the owner’s education, and that education can alleviate the need for some type of managerial ability that is needed in HG-SMEs. Finding time, and prioritizing, these processes and tasks are important and need to be addressed. The owner-managers in our study tend to emphasize tactical and operational aspects thus neglecting more long-term strategic activities. Mentioned barriers for this are lack of time, and also a willingness to reflect and work with these issues. Several firm representatives stated that inviting third-party actors, such as researchers and local business support functions as catalysts, would be one way of stimulating these processes.

A key implication of our study is the central role of being able to develop, and broaden, the leadership platform and not limit leading to a solitary entrepreneur that dominates the firm at all levels, both through ownership as well as operational control. This requires a development of internal competences but may necessitate a wider search for suitable external resources.

Enabling employee development: People theme

As in most firms, the ability to recruit and develop relevant and needed skills is crucial for HG-SMEs (Lee, 2014; Macpherson & Holt, 2007) – especially managerial skills (Goffee & Scase, 1995). However, as our identification of challenges shows, this ability becomes especially pivotal for HG-SMEs, in which the contributions of new people and new skills often are more pronounced than in other firms. Respondents identified the ability to bring in new skills and develop existing skills as key endeavors of their firms. Recruitment is indeed a key aspect; Dobbs and Hamilton (2007), in their review, identify employee recruitment and development as key areas for SME growth and emphasize the importance of successfully managing these challenges. For many of the participating firms in this research, it is particularly challenging to recruit employees that have values in line with prevailing firm cultures and exhibit the same drive as the firm’s owner-managers. It was also perceived difficult to promote and maintain a healthy firm culture as a firm grows (for example, Hansen & Hamilton, 2011). Many firms in this study struggle with this challenge; at the same time, they acknowledge the importance of maintaining the “small-firm feeling” and “family atmosphere” emphasizing cooperation, a team-oriented approach, and flexibility in customer interactions. Managerial activities focusing on this among our participating firms include having firm-wide recreational activities focusing on building a team-oriented culture, as well as developing internal IT-systems to disseminate not only firm-related information, but also customer reviews, employee achievements, as well as personal aspects such as employee birthdays.

Typically, SMEs do not have established internal processes for human resource development; senior managers refer to employees “learning on the job” and often find it difficult to dedicate time and resources to long recruitment processes that ensure the hiring of the right people, or to commit to more formal skill development programs and management training. Employee training and competence development is critical for sustaining growth (Barringer et al., 2005; Lee, 2014; Macpherson & Holt, 2007); many respondents in our study mention a lack of suitable organizational systems, formal role descriptions, defined career pathways and a clear organizational structure. This can become a major obstacle to growth, as it hampers learning, knowledge transfer, and ultimately employees might find other jobs outside SMEs. Similarly, a lack of appropriate skill levels can lead to poor quality of delivered products/services as well as disgruntled customers. One successful firm (being awarded “HR-oriented firm of the year” in the region) put a lot of effort into this, for example, creating individual development plans for all employees, scheduling formal feedback meetings, and emphasizing training and educational activities in their budgetary work.

In emphasizing the overarching theme ”people,” our study provides detailed and systematic insights on the role of employees’ development and the role of firm culture as essential managerial areas for understanding HG-SME. The empirical investigation furthermore reveals how these managerial challenges relate to growth.

Driving growth through sales: Business model theme

An inherent aspect of all firm growth and its associated strategies is the ability to increase sales and develop efficient sales processes. Not surprisingly, these aspects are also evident in many of the firms in our study (sales being the most prevalent lower-level category as seen in Table 1). They include not only typical sales activities, such as lead generation, but also broader sales areas, such as how cultural values are reflected in market offers and effectively communicated to the market to attract relevant customers. Of course, more direct sales activities, such as establishing clear and efficient sales strategies and developing routines for sales processes, are high on managers’ agendas. This emphasis on sales activities links directly to the previously mentioned challenges of finding and developing necessary employee skills.

Furthermore, several challenges identified in our study relate to (organically) growing businesses within the scope of existing products and services, typically with a market penetration and market development strategy (Ansoff, 1965). These market strategies tend to focus on increasing customer share-of-wallet and loyalty, as well as finding new customers within existing niches and portfolios, rather than introducing new, more radical product and service innovations. The emergence of these challenges probably results from the participating firms’ being firmly established in their respective industries and that they exhibit more mature product/service portfolios. A sample consisting of technology start-up firms would probably emphasize radical innovation to a greater extent.

Market strategies linked to the maintenance and development of established customer relationships seem to be key for our participating firms; respondents stress the importance of focusing on devoting time and resources to such an approach. This emphasizes the focus on organic (and incremental) growth in the participating firms. Surprisingly, rather few mention the process of acquiring new customers as a challenge. This is probably due to, as mentioned, a predominant focus on existing customers and the fact that the firms, in most cases, are strongly embedded in their respective market niches where they already are familiar with the customer base. However, and interestingly, they do not mention the ability to carry out market research; few firms in our study conduct any systematic market research and instead rely on personal interactions and personal knowledge (typically through owner-managers) of their geographical markets. This can potentially, over time, emerge as a key challenge as inertia and complacency risk taking hold, hampering continuous growth.

Finally, and probably because of the focus on more incremental growth through existing portfolios, most firms in our study spend little time developing their value propositions in a structured manner, other than undertaking minor customization activities for larger customers. However, firms with more ambitious growth targets tend to put more effort into developing new value propositions as ways to stimulate new growth. Typically, this consists of adding new services to complement existing portfolios and moving toward more comprehensive and customized solutions in a “servitization” process. However, several other challenges are related to this type of growth, not least to find the right skills and attract knowledgeable individuals as more advanced services for example, typically requires a value-oriented sales forces and flexible service delivery resources.

A key insight emanating from the business model theme in this study is the lack of structured market research and a certain neglect in terms of developing new value propositions. This is an important area for continued growth and HG-SMEs not investing in this run a very real risk of becoming complacent and left behind as the market, and customer needs, develop over time.

A balanced approach to growth challenges

As previously mentioned, our research indicates that SMEs with growth ambitions need to approach growth in a balanced manner; they avoid overemphasizing any one area. That is, they need to take a holistic, “360-degree” approach to their growth trajectories and the challenges they face. This requirement can put heavy strain on managers, unless they manage to build appropriate, robust structures to support them through their growth journeys. Firms’ strategies need to refer not only to how to achieve sales growth, but also how organizational leadership and management should grow to match the business side. Many firms experience leadership bottlenecks when establishing functioning and active boards, appointing external CEOs, or introducing broader management teams with associated roles. A balanced 360-degree approach also emphasizes the need to bring employees along and empower them, in order to maintain an entrepreneurial, innovative, supportive culture as a firm grows. Many firms in our study identify the challenge and importance of maintaining key cultural traits, such as curiosity, a sense of ownership, team focus, and organizational flexibility during busy recruitment periods. This becomes especially pivotal when early entrepreneurs and leaders find themselves having less time available for informal discussions and direct interactions with members of their extended organizations.

The main challenge for many of our managers, therefore, is balancing the time they devote to different issues during their growth journeys. For owner-managed firms, a key challenge is broadening the leadership structure while maintaining efficiency. By acknowledging the need for a broader, balanced, approach – and recognizing that challenges occur in a wide range of areas – managers can focus on the most pressing issues while creating structures to deal with other challenges. Such balanced structures recognize the complementary aspects of challenges and the resources needed to successfully address them.

Taking a starting point in managerial challenges, this study advocates a more holistic perspective, jointly considering multiple challenges and not only isolating them as individual entities. While previous research typically emphasizes the role of the entrepreneur in growth, or the importance of the business model and strategy to achieve growth (see for example, Parker et al., 2010), this study proposes a more dialectic and holistic approach where the key is to systematically acknowledge the challenges and consider them as interrelated.

Conclusions

With regard to growing SMEs, there is a need for further, in-depth research into why growth is at times episodic and how managers can better understand the challenges related to growth over time. Accordingly, our research focuses on the identification, categorization, and understanding of the managerial challenges high-growth SMEs face as they grow, such that firms can manage their growth processes proactively over time. The research requires an in-depth approach, because these challenges are contextual and embedded in firm practices; it is necessary to understand in detail the experiences and pressing concerns of managers of growing SMEs.

Delmar and Wiklund (2008) argue that it is important for managers to have an ambition or desire for growth, and it has also been argued that growing firms are more likely to have managerial mindsets oriented toward growth. We take a similar management-oriented approach in identifying key managerially oriented challenges, then categorizing them and proposing a growth-challenge vernacular. With our broad approach, we can identify a wide range of challenges, then propose an inclusive categorization that comprises not only individual challenges, but also integrate findings across the thematic categorizations.

Accordingly, we propose an overarching conceptualization of growth management that emphasizes three themes: business model, leadership, and people. Within each theme, various lower-level categories and individual challenges arise; firms that seek to excel in growth over time need to be aware of and manage all three themes in a balanced manner. The emphasis on the leadership and people themes, including cultural aspects, in addition to the more traditional business model theme, provides a wider and more robust foundation for understanding the challenges that SMEs face as they grow. Overall, we emphasize the balanced aspect and the complementary characters of several challenges. It is, however, interesting to note that the participating firms experience challenges in all areas but seem to be more uncertain as to how to actually meet the challenges in the leadership and people themes. In the business model theme, they express a closer familiarity with available tools and processes for addressing these challenges.

Interestingly, and unlike previous research, our findings do not emphasize networking, networks, and relationships. From our contextual knowledge of the firms and their industries, however, we know that having networks is indeed key for many of the firms participating in this research, but because our firms are active in their respective geographical regions, most of them already exhibit such networks, mainly through the personal networks of the owner-managers. In this sense the existence of a high-level of social capital is given starting point and is embedded in the context of our participating firms. Networks may be an issue for internationally and, to some extent, nationally oriented firms, and the firms in our study with this focus tend to bring in external, more experienced, board members to mitigate this challenge. Another contrasting finding, in light of previous research (Cavallo et al., 2019), is that almost no respondents in our study mention challenges related directly to access to capital. Perhaps because our participating firms focus on incremental and organic growth (Delmar et al., 2003) and exhibit profitable growth, they are not yet considering acquisition-based growth and thus do not see this as a challenge at this time.

Further research

With its exploratory approach, our study suggests several potential research avenues. One key topic is the question of how firms actually manage the challenges they face. Are there, for example, broader solutions to multiple challenges that can be applied in different focal areas, simultaneously? Can we refer to the practice of “challenge management” – that is, how SMEs and their managers understand and face the sequential nature of some challenges, as well as the compounding of challenges, as their firms grow? Such an approach is more directive than those suggested by previous stage-oriented SME research.

Our research shows that both people and leadership themes have prominent roles; these are areas that demand more detailed research. This can, for example, have consequences on policy development and educational initiatives. Moreover, further studies could delve deeper into the inter-relatedness of individual challenges and overarching categories and themes. Because meaningful work is a determinant of work engagement and satisfaction (Allan, Batz-Barbarich, Sterling and Tay 2019), an exploration of how meaningful work can be created among SME employees, as well as the role of management in this process, provides an interesting research agenda. A better understanding of this issue might lead to more sustainable growth in SMEs. Yet another future research objective is the question of ownership and its structure; previous research indicates that ownership configuration is an important factor for firm strategic choice and overall performance (O’Regan et al., 2005).

Another potentially interesting avenue for the future is to investigate how different industry sectors as well as different type of firms might mediate the nature of the HG-SME challenges. In the research reported here, the focus was not on discussing a sectoral or firm level, but rather on the level of the challenges themselves. However, with specific research questions directed toward understanding these particular aspects, a more contextually detailed understanding of growth can be developed.

Finally, to provide insights and guidelines to practitioners, academics, and policymakers, researchers should undertake quantitative studies of larger samples of firms, to clarify and specify the prevalence and effects of the various challenges to growth. A more quantitatively oriented analysis can support further explanations in terms of different challenges in different industrial contexts and with different firm characteristics. It can also provide helpful overall generalizations of knowledge regarding the effects of growth challenges on larger samples of firms in different contexts.

Disclosure statement

No potential conflict of interest was reported by the authors.