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business school research

A startup's leader has to harbour ambitions for growth, a Mount Royal University researcher says. /Istock

The Globe’s bimonthly report on research from business schools.

In the business world, there is nothing quite as sexy as a startup.

From tech, logistics and manufacturing to health, travel, food and finance, Canadian industries across the board have been disrupted by small but scrappy newcomers hungry for a chunk of the market.

Truth is, though, the majority of new startups fail – taking with them the potential for innovation, job creation and growth.

Researching the forces behind that trend, and, more specifically, mapping the route to startup success were the inspirations behind an 18-month study by Simon Raby, professor of innovation and entrepreneurship at Mount Royal University’s Bissett School of Business in Calgary.

“Understanding how and why companies grow is my No. 1 passion,” he says in an e-mail.

In particular, Dr. Raby focused the study on “high impact” small and mid-sized entrepreneurs (SMEs) with ambitions for future growth.

In general, SMEs are significant job creators in Alberta, employing nine out of 10 private-sector employees in the province. While companies surveyed as part of the study represent just a small proportion of all SMEs, they are responsible for the bulk of all job creation.

“These are companies that hold a will to grow; are currently achieving high growth in revenue, profit or employment; are diversifying their markets; and are innovating in products, services, processes, organization and marketing,” he says.

The importance of the leader’s growth mindset was chief among the lessons that emerged from the survey of leading SMEs. Specifically, the leader has to harbour ambitions – that is, a will to grow.

“If they do not, it is highly likely that growth will stagnate as a result of a defensive approach to the market, and a focus primarily on cost,” says Dr. Raby.

Innovation was also found to be heavily tied to firm performance. The greater the innovation activity, the higher the growth that companies experienced.

Additionally, the study revealed a need for companies to compete beyond their provincial borders. More than half of the firms surveyed were “locked in” to their provincial market, meaning the growth trajectory of the firm is reliant on the provincial trading environment. Very few firms were exporting. Those that did outperformed the rest; however, they were heavily reliant on U.S. markets.

Many firms were operating at low debt-to-equity ratios, and many were operating at zero debt, with cash in the bank. This indicates a low threshold for risk, a desire for a “war chest” to help companies ride the next economic wave, and the potential existence of underutilized capital, says Dr. Raby.

The study was peer-reviewed ahead of its presentation this week in Tel Aviv, Israel, at the Academy of Management’s conference called From Startup to Scale Up: Coping with Organizational Challenges in a Volatile Business Environment.

Dr. Raby notes that the work has also led to the formation of the Growth Compass at Mount Royal. The venture brings together academics and industry leaders in a bid to deliver evidence-based insights and intelligence on scaling companies.

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