Analyzing non-linear dynamics of organic growth: Evidence from small German new ventures

  • Harald Habermann Department of Start-up Management Leuphana University of Lueneburg
  • Reinhard Schulte Department of Start-up Management Leuphana University of Lueneburg


This paper links theories of growth models with the literature on serial autocorrelation of growth. We study the serial autocorrelation of tendencies of growth trajectories of employment and sales for German new ventures over a nine-year period using mosaic plots as a conceptual framework. The autocorrelation of growth tendencies provides important information on firms growth processes. We find that growing new ventures are subject to negative autocorrelation of tendencies of growth trajectories making sustained growth a very rare occurrence. This indicates that the growth of new ventures is non-linear, prone to interruptions, amplifying forces, and setbacks. Therefore, we interpret the commonly used term ‘stages of growth model’ in a different manner. A stage cannot be defined as a time span but rather as a sort of conditions of circumstances that are all present at a point in time and that are conditionally linked to a preceding sort of circumstances.


Agresti, A. (2013). Categorical data analysis. New York: John Wiley & Sons, Inc.
Anderson, P., Meyer, A., Eisenhardt, K., Carley, K., & Pettigrew, A. (1999). Introduction to the special issue: Application of complexity theory to organization science. Organization Science, 10(3), 233–236.
Anyadike-Danes, M., Bjuggren, C. M., Gottschalk, S., Hölzl, W., Johansson, D., Maliranta, M., & Myrann, A. (2015). An international cohort comparison of size effects on job growth. Small Business Economics, 44(4), 821–844.
Autio, E., & Acs, Z. (2010). Intellectual property protection and the formation of entrepreneurial growth aspirations. Strategic Entrepreneurship Journal, 4(3), 234–251.
Barney, J. B., & Zajac, E. J. (1994). Competitive organizational behavior: Toward an organizationally-based theory of competitive advantage. Strategic Management Journal, 15, 5–9.
Baruch, Y. (1999). Response rate in academic studies – A comparative analysis. Human relations, 52(4), 421–438.
Bingham, C. B., Eisenhardt, K. M., & Furr, N. R. (2007). What makes a process a capability? Heuristics, strategy, and effective capture of opportunities. Strategic Entrepreneurship Journal, 1(12), 27–47.
Blackburn, R., Hart, M., & Wainwright, T. (2013). Small Business Performance: Business, Strategy and Owner-Manager Characteristics. Journal of Small Business and Enterprise Development, 20(1), 8–27.
Boeri, T., & Cramer, U. (1992). Employment growth, incumbents and entrants: Evidence from Germany. International Journal of Industrial Organization, 10, 545–565.
Bottazzi,G., Cefis, E., & Dosi, G. (2002). Corporate growth and industrial structure: Some evidence from the Italian manufacturing industry. Industrial and Corporate Change, 11, 705–723.
Bottazzi, G., Cefis, E., Dosi, G., & Secchi, A. (2007). Invariances and diversities in the patterns of industrial evolution: Some evidence from Italian manufacturing industries. Small Business Economics, 29(1), 137–159.
Bottazzi, G., Coad, A., Jacoby, N., & Secchi, A. (2009). Corporate growth and industrial dynamics: Evidence from French manufacturing. Applied Economics, 43(1), 103–116.
Bottazzi, G., & Secchi, A. (2003). Common properties and sectoral specificities in the dynamics of US manufacturing companies. Review of Industrial Organization, 23, 217–232.
Brännback, M., Carsrud, A., & Kiviluoto, N. (2014). Understanding the Myth of High Growth Firms: The Theory of the Greater Fool. New York: Springer.
Brenner, T., & Schimke, A. (2014). Growth Development Paths of Firms – A Study of Smaller Businesses. Journal of Small Business Management, 53(2), 539–557.
Brown, R., & Mawson, S. (2013). Trigger Points and High-Growth Firms: A Conceptualisation and Review of Public Policy Implications. Journal of Small Business and Enterprise Development, 20(2), 279–295.
Burghardt, D., & Helm, M. (2015). Firm growth in the course of mergers and acquisitions. Small Business Economics, 44(4), 889–904.
Cassia, L., & Minola, T. (2012). Hyper-Growth of SMEs: Toward a Reconciliation of Entrepreneurial Orientation and Strategic Resources. International Journal of Entrepreneurial Behaviour & Research, 18(2), 179–197.
Chiles, T., Bluedorn, A., & Gupta, V. (2007). Beyond creative destruction and entrepreneurial discovery: A radical Austrian approach to entrepreneurship. Organization Studies, 28(4), 467–493.
Chandler, G., McKelvie, A., & Davidsson, P. (2009). Asset specificity and behavioural uncertainty as moderators of the sales growth: employment growth relationship in emerging ventures. Journal of Business Venturing, 24(4), 373–387.
Chesher, A. (1979). Testing the law of proportionate effect. Journal of Industrial Economics, 27(4), 403–411.
Christensen, C., & Scott, B. (1964). Summary of course activities. IMEDE, Lausanne. In B.R. Scott (Ed.), 1971. Stages of corporate development—Part 1 (pp. 371–294). Boston: Harvard Business School Case Services.
Churchill, N., & Lewis, V. (1983). The five stages of small business growth. Harvard Business Review, 61, 30–50.
Coad, A. (2007). A closer look at serial growth rate correlation. Review of Industrial Organization, 31(1), 69–82.
Coad, A. (2009). The growth of firms: A survey of theories and empirical evidence. Cheltenham Glos: Edward Elgar Publishing.
Coad, A., Frankish, J., Roberts, R., & Storey, D. (2013). Growth paths and survival chances: An application of Gambler’s Ruin theory. Journal of Business Venturing, 28(5), 615–632.
Coad, A., & Guenther, C. (2014). Processes of firm growth and diversification: Theory and evidence. Small Business Economics, 43(4), 857–871.
Coad, A., & Hölzl, W. (2009). On the autocorrelation of growth rates. Journal of Industry, Competition and Trade, 9(2), 139–166.
Cox, N. (2008). Speaking Stata: Spineplots and their kin. Stata Journal, 8(1), 105–121.
Daunfeldt, S. O., & Elert, N. (2013). When is Gibrat’s law a law?. Small Business Economics, 41(1), 133–147.
Daunfeldt, S. O., & Halvarsson, D. (2015). Are high-growth firms one-hit wonders? Evidence from Sweden. Small Business Economics, 44(2), 361–383.
Davidsson, P., Achtenhagen, L., & Naldi, L. (2010). Small Firm Growth. Foundations and Trends in Entrepreneurship, 6(2), 69–166.
Davidsson, P., & Gordon, S. (2012). Panel studies of new venture creation: a methods-focused review and suggestions for future research. Small Business Economics, 39(4), 853–876.
Davidsson, P., Steffens, P., & Fitzsimmons, J. (2009). Growing profitable or growing from profits: Putting the horse in front of the cart?. Journal of Business Venturing, 24(4), 388–406.
Davidsson, P., Delmar, F., Wiklund J. (2006). Measuring growth: methodological considerations and empirical results. Entrepreneurship and the growth of firms. Cheltenham Glos: Edward Elgar Publishing, 62–86.
Delmar, F., Davidsson, P., & Gartner, W. (2003). Arriving at the high-growth firm. Journal of Business Venturing, 18(2), 189–216.
Delmar, F., & Wiklund, J. (2008). The effect of small business managers’ growth motivation on firm growth: A longitudinal study. Entrepreneurship Theory and Practice, 32(3), 437–457.
Derbyshire, J., & Garnsey, E. (2014). Firm growth and the illusion of randomness. Journal of Business Venturing Insights, 1, 8–11.
Dierickx, I., & Cool, K. (1989). Asset stock accumulation and sustainability of competitive advantage. Management science, 35(12), 1504–1511.
Dooley, K. J., & Van de Ven, A. H. (1999). Explaining complex organizational dynamics. Organization Science, 10(3), 358–372.
Fackler, D., Schnabel, C., &Wagner, J. (2013). Establishment exits in Germany: the role of size and age. Small Business Economics, 41, 683–700.
Federico, J. S., & Capelleras, J. L. (2015). The heterogeneous dynamics between growth and profits: the case of young firms. Small Business Economics, 44(2), 231–253.
Friendly, M. (2002). A brief history of the mosaic display. Journal of Computational & Graphical Statistics, 11(1), 89–107.
Furlan, A., Grandinetti, R., & Paggiaro, A. (2014). Unveiling the growth process: Entrepreneurial growth and the use of external resources. International Journal of Entrepreneurial Behaviour & Research, 20(1), 20–41.
Garnsey, E., Stam, E., Heffernan, P., & Hugo, O. (2006). New firm growth: Exploring processes and paths. Industry and Innovation, 13(1), 1–20.
Geroski, P., Machin, S., & Walters, C. (1997). Corporate growth and profitability. Journal of Industrial Economics, 45(2), 171–189.
Geroski, P., & Mazzucato, M. (2002). Learning and the sources of corporate growth. Industrial and Corporate Change, 11(4), 623–644.
Gilbert, B. A., McDougall, P. P., & Audretsch, D. B. (2006). New venture growth: A review and extension. Journal of Management, 32(6), 926–950.
Gibrat, R. (1931). Les inégalités économiques. Recueil Sirey.
Goddard, J., Wilson, J., & Blandon, P. (2002). Panel tests of Gibrat’s law for Japanese manufacturing. International Journal of Industrial Organization, 20(3), 415–433.
Greiner, L. (1972). Evolution and revolution as organizations grow. Harvard Business Review, 50, 37–46.
Gupta, P., Guha, S., & Krishnaswami, S. (2013). Firm Growth and its Determinants. Journal of Innovation and Entrepreneurship, 2(15), 1–14.
Haagsman, E. (2012). Effectual Behaviour as the Firm Matures – The Effect of a Company’s Stage in its Life-Cycle on Effectual Behaviour. Enschede: University of Twente.
Hamilton, R. (2011). How firms grow and the influence of size and age. International Small Business Journal, 30(6), 611–621.
Hansen, B., & Hamilton, R. (2011). Factors distinguishing small firm growers and non-growers. International Small Business Journal, 29(3), 278–294.
Hofmann H. (2000). Exploring categorical data: Interactive mosaic plots. Metrika, 51(1), 11–26.
Holland, J. (1995). Hidden order. Redwood City, CA: Addison-Wesley.
Jennings, J., Jennings, P., & Greenwood, R. (2009). Novelty and new firm performance: The case of employment systems in knowledge-intensive service organizations. Journal of Business Venturing, 24, 338–359.
Kessler, P. (2009). Wachstumsbedingungen von Ein-Personen-Gründungen – Eine Längsschnittbeobachtung über acht Jahre. Zeitschrift für Betriebswirtschaft, 79(12), 1413–1435.
Kimberly, J., Miles, R. (1980). The organizational life cycle. San Francisco, CA: Jossey-Bass.
Kiviluoto, N. (2011). Rediscovering profitability in entrepreneurship: Evidence from Finnish high-technology start-ups. Åbo: Åbo Akademi University.
Kor, Y, & Mahoney, J. (2000). Penrose’s resource-based approach: The process and product of research activity. Journal of Management Studies, 37(1), 109–139.
Lambertz, S., & Schulte, R. (2013). Consolidation period in new ventures: how long does it take to establish a start–up?. International Journal of Entrepreneurial Venturing, 5(4), 369–390.
Lejárraga, I., & Oberhofer, H. (2015). Performance of small-and medium-sized enterprises in services trade: evidence from French firms. Small Business Economics, 45(3), 673–702.
Levie, J., & Lichtenstein, B. (2010). A terminal assessment of stages theory: Introducing a dynamic states approach to entrepreneurship. Entrepreneurship Theory and Practice, 34(2), 317–350.
Lichtenstein, B. (2011). Levels and degrees of emergence: Toward a matrix of complexity in entrepreneurship. International Journal of Complexity in Leadership and Management, 1(3), 252–275.
Lippitt, G., & Schmidt, W. (1967). Crises in a developing organization. Harvard Business Review, 47, 102–112.
Lockett, A., Wiklund, J., Davidsson, P., & Girma, S. (2011). Organic and acquisitive growth: re-examining, testing and extending Penrose’s growth theory. Journal of Management Studies, 48(1), 48–74.
McKelvey, B. (2004). Toward a complexity science of entrepreneurship. Journal of Business Venturing, 19(3), 313–342.
McKelvie, A., & Wiklund, J. (2010). Advancing firm growth research: A focus on growth mode instead of growth rate. Entrepreneurship Theory and Practice, 34(2), 261–288.
Meyer, A., Gaba, V., & Colwell, K. (2005). Organizing far from equilibrium: Nonlinear change in organizational fields. Organization Science, 16(5), 456–473.
Miller, A., & Camp, B. (1985). Exploring determinants of success in corporate ventures. Journal of Business Venturing, 1, 87–105.
Milne, T., & Thompson, M. (1982). The infant business development process. Glasgow: University of Glasgow.
Neumark, D., Wall, B., & Zhang, J. (2011). Do small businesses create more jobs? New evidence for the United States from the National Establishment Time Series. The Review of Economics and Statistics, 93(1), 16–29.
Norman, R. (1977). Management for growth. New York: John Wiley & Sons, Inc.
O’Farrell, P., & Hitchens, D. (1988). Alternative theories of small-firm growth: a critical review. Environment and Planning, 20(10), 1365–1383.
Pellegrino, G., Piva, M. & Vivarelli, M. (2012). Young firms and innovation: A microeconometric analysis. Structural Change and Economic Dynamics, 23, 329–340.
Penrose, E. (1952). Biological analogies in the theory of the firm. The American Economic Review, 42(5), 804–819.
Penrose, E. (1959). The theory of the growth of the firm. New York: John Wiley & Sons, Inc.
Romanelli, E., & Tushman, M. (1994). Organizational transformation as punctuated equilibrium: An empirical test. Academy of Management Journal, 37(5), 1141–1166.
Samuelsson, M., & Davidsson, P. (2009). Does venture opportunity variation matter? Investigating systematic process differences between innovative and imitative new ventures. Small Business Economics, 33(2), 229–255.
Shepherd, D., & Wiklund, J. (2009). Are we comparing apples with apples or apples with oranges? Appropriateness of knowledge accumulation across growth studies. Entrepreneurship Theory and Practice, 33(1), 105–123.
Short, J. C., McKelvie, A., Ketchen, D. J., & Chandler, G. N. (2009). Firm and industry effects on firm performance: A generalization and extension for new ventures. Strategic Entrepreneurship Journal, 3(1), 47–65.
Steffens, P., Davidsson, P., & Fitzsimmons, J. (2009). Performance configurations over time: implications for growth‐and profit‐oriented strategies. Entrepreneurship Theory and Practice, 33(1), 125–148.
Storey, D. (1994). Understanding the Small Business Sector. London: Routledge.
Storm, G. (2011). Intention, Economic Opportunity and Their Impact on Venture Creation. Kansas City: University of Missouri-Kansas City.
Tatikonda, M. V., Terjesen, S. A., Patel, P. C., & Parida, V. (2013). The Role of Operational Capabilities in Enhancing New Venture Survival: A Longitudinal Study. Production and Operations Management, 22(6), 1401–1415.
Thomson, T. 2011. Nascent Strategic Entrepreneuring as a Complex Responsive Process. Pretoria: University of Pretoria.
Triguero, A., Córcoles, D., & Cuerva, M. C. (2014). Persistence of innovation and firm’s growth: evidence from a panel of SME and large Spanish manufacturing firms. Small Business Economics, 43(4), 787–804.
Tsoukas, H. (1991). The missing link: A transformational view of metaphors in organizational science. Academy of Management Review, 16(3), 566–585.
Vilalta-Perdomo, E., & Montaudón-Tomas, C. (2011). Impact of different modelling approaches to evaluate public policies: The case of entrepreneurship in Central Mexico. Keynotes and extended abstracts of the OR53, Operational Research Society. Nottingham: University of Nottingham, 5–10.
Wagner, J. (1992). Firm size, firm growth, and persistence of chance: Testing Gibrat’s law with establishment data from Lower Saxony, 1978–1989. Small Business Economics, 4(2), 125–131.
Wales, W., Monson, E., & McKelvie, A. (2011). The organizational pervasiveness of entrepreneurial orientation. Entrepreneurship Theory and Practice, 35(5), 895–923.
Weinzimmer, L., Nystrom, P., & Freeman, S. (1998). Measuring organizational growth: Issues, consequences and guidelines. Journal of Management, 24(2), 23–262.
Weiss, C. (1998). Size, growth, and survival in the Upper Austrian farm sector. Small Business Economics, 10(4), 305–312.
Westerik, F. (2014). Investor readiness: Increasing the measurability of investor readiness. Enschede. University of Twente.
Wildemuth, B. (2009). Applications of social research methods to questions in information and library science. Westport (CT): Libraries Unlimited.
How to Cite
HABERMANN, Harald; SCHULTE, Reinhard. Analyzing non-linear dynamics of organic growth: Evidence from small German new ventures. Journal of Small Business Strategy, [S.l.], v. 27, n. 2, p. 36-64, june 2017. ISSN 2380-1751. Available at: <>. Date accessed: 21 may 2018.