A close look at high growth among Spanish SMEs

Cristina Cruz. Professor. IE Business School

28 November 2006

Fast-growing SMEs known as gazelles are vital to European efforts to meet the objectives of the Lisbon agenda. More effort should be made to convert small companies into swift-footed gazelles.

The importance of SMEs in a growing economy

The European Council of March 2000 in Lisbon established the following strategic objective for the new decade: "To become the most competitive and dynamic knowledge-based economy in the world." In March 2005, the bid to re-launch the Lisbon agenda proposed focusing efforts on achieving stronger and more sustainable growth.

In an economy such as Spain´s, with 80% of its business fabric made up of small and mid-sized enterprises, achieving this objective requires highly competitive SMEs (micro, small or mid-sized enterprises) with a high growth potential. However, much needs to be done in this area. According to official statistics, the failure rate of SMEs is around 7%, while specialised studies on the creation of enterprises, such as the GEM Report (Global Entrepreneurship Monitor), indicate that our country is at the bottom end of the spectrum for potential high-growth projects.

High-growth SMEs that are successful over time are known as gazelles and they seem to be more the exception than the norm. These gazelles become paradigms of success and their distinguishing features are studied in an effort to obtain growth models that can be applied to other companies. This is exactly what The Instituto de Empresea and DGPYME, Banesto (through its BanesPyme school) have done by joining forces with the AC-E report. This report takes a closer look at the growth of consolidated Spanish SMEs using as a reference point companies that have been trading for more than five years.

What factors contribute to a successful SME

The AC-E report concludes that the key factors for successful business growth lie mainly in the internal features of the company, the character of the founder and the management team and the strength of the business strategy they promote. In particular, the profile of high-growth enterprises (gazelles) corresponds to that of a company with a greater international presence and a diversified product/service portfolio. It also allocates resources to increasing its knowledge of its market and the clients it serves.

In addition, as the classic literature points out, the entrepreneurial character of the founder appears to be an important distinguishing feature of a growth company. The managers of these high-growth enterprises take more risks to achieve better results. They invest more in research and development; and they are more flexible when putting an innovative idea into practice. Furthermore, the profile of this type of founder-entrepreneur is not that of the ´orchestra conductor´ who tries to control all the areas of his/her business, but rather one who creates a strong team: Indeed, gazelles seem consistently to have relatively larger management teams.

Finally, and again in accordance with recent studies on company survival, access to external sources of finance-- in particular, bank finance and government subsidies--are key factors contributing to the growth rate of SMEs.

Gazelles create jobs

The studies also show that gazelles create employment at a faster rate than the other companies that were analysed. According to the figures from the 2005 GEM Report, the average expected rate of employment growth per company is very moderate---in fact, not more than two people. Therefore, it would seem logical to put greater efforts towards turning more companies into gazelles. Some companies have already succeeded while others continue trying day after day. We hope the results of this report contribute to clearing the road ahead for them all.

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