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STAGES OF SMALL BUSINESS GROWTH REVISITED:
INSIGHTS INTO GROWTH PATH AND NEEDED LEADERSHIP/MANAGEMENT SKILLS IN LOW AND HIGH GROWTH COMPANIES.

John H. Eggers
Kim T. Leahy

Center for Creative Leadership
8910 University Center Lane, 10th Floor
San Diego, CA 92122-1085

Telephone
(619) 453-4774

Fax
(619) 453-6154

Neil C. Churchill

INSEAD
Blvd. de Constance
77305 Fontainebleau Cedex,
France

Telephone
(33) 1-60-72-41-42

Fax
(33) 1-60-72-42-23

Principal Topics
The leadership and management skills of 338 entrepreneurial CEOs and the developmental progression of their organizations were studied. The CEO's skills used in each stage and the companies' progression were measured with an open-ended, qualitative survey. In a separate step, the CEO's current management and leadership skill's level were measured again using an established, structured inventory. We also divided the sample according to Reynolds's four categories of Low-start, Low-growth, High-start, High-growth to attempt to replicate his findings and investigate differences in leadership and management skills within those categories.

Method
A database of 2,700 top entrepreneurial CEO's were drawn from four sources: Ernst & Young and Inc. Magazine's Entrepreneur Of The Year Institute, The Executive Committee (TEC), Connecticut Mutual's Blue Chip Enterprise Initiative, and the Small BusinessAdministration's National database of women- and minority-owned businesses. Two surveys,the Entrepreneurial Leadership Questionnaire (ELQ, a qualitative, open-response formatquestionnaire) and the Management Skills Profile (MSP, a Likert-Scale broad spectrummanagement skill inventory), were used to learn how businesses develop and how theirowners manage them. Using Churchill and Lewis' 1983 model of small business growth,company presidents were asked to identify what stage their businesses were currently in,what previous stages of growth they had been in, and what stage they aspired to achieve.They were also asked what skills they used in each of these stages and what skills theybelieved would be needed at their next stage of development. The response rate was 13percent for the ELQ, 346 respondents. The MSP questionnaire was later sent to theserespondents which resulted in 237 returns -- a 67 percent response rate. The sample for each group was randomly stratified for industry and geography and returns approximated the distribution of businesses in each category as identified by the ten SBA reporting regions. Acontent analysis of the returns was carried out by two independent researchers who reached100 percent agreement on all the leadership dimensions. The initial results of the surveywere presented to eight focus groups of small business CEOs in San Diego, Austin, Kansas City, Atlanta and Boston. The groups confirmed the study results as representative of their experiences in leading their organizations.

Major Findings
The Stage Model: The study took Churchill and Lewis' third stage, Success, and retitled its two phases, Disengagement and Preparation for Growth, into two distinct stages, Stabilization and Growth Orientation, on the assumption that all business owners face a decision to stay or grow. The original five-stage model, with this modification, was confirmed by most CEOs as representative of their experiences. Most respondents said that they went through both phases of the original Success stage. Further refinement was added to the Churchill-Lewis model when we found resource mature companies who had reached stage six but then reported a regression to earlier stages of the model. Churchill and Lewis had posited regression only in the earlier stages. Skills:: The set of leadership/management skills needed in one stage was different from those needed in other stages. Although the CEO's said they would not need different skills in their next stage of management, they had already shown that their skill needs were different in each past stage. Some categories of skills, like finance and communication, were consistently cited as important in all stages. However, even the consistently mentioned skills were shown to be slightly different in nature from stage to stage. Other categories of skills were recognized as important only In later stages (e.g., ethics and organizational culture). When CEOs looked back on a previous stage, what they thought was important then (e.g., self motivation) does not match what the people currently in these stages think is important. From the opposite perspective other skills, like delegation, were predicted as important in future stages of management, but the people who are currently in these later stages do not find them important. Growth Rates: The responses to the questionnaire included both high and low growth companies. We found that we could divide our sample companies into Reynold's 1988 categories of Low-start/low-growth, Low-start/high-growth, High-start/low-growth, and High-start/high-growth. In our sample, which had an average company age of 13 years, we found that the Low-start/high-growth companies were not significantly different in current sales from the High-start/high-growth companies. We also found that the CEOs of High- growth companies set priorities for leadership and management skills differently than the CEOs of Low-growth companies.

Implications
The Churchill-Lewis model has been revalidated and updated. In addition, critical leadership skills, as perceived by the CEOs, were identified for each stage in the updated model. Results suggest that CEOs of high growth companies rank skills differently than CEOs of companies with lower growth rates. Our study also suggests that Low-start companies may be as important to generating revenue and employment as are High-start companies.

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