Growth-oriented entrepreneurs: Can we really find them before they grow?

In recent years, development agencies have given greater attention to the importance of identifying the so-called “growth-oriented entrepreneur”, some times known as the “gazelles” of the business community. As the name suggests, these are firms that are most likely to grow quickly and, in doing so, create more jobs and a greater impact.

Frustrated by the limited success of programme interventions designed to promote the growth of micro and small enterprises (MSEs), including informal or unregistered enterprises, these agencies have come to the view that the problem is with targeting. If programme interventions could be more focused on those firms that are poised to grow, then the results of these interventions would be better: more jobs would be created, more profits generated, more goods and services provided on a sustainable basis, etc.

David McKenzie at the World Bank raises an important question on this matter: Should Development Organizations be Hunting Gazelles? While he argues that growth-oriented firms can be identified in advance – a point I have trouble agreeing with – he does admit that there are more failures here than success: “even venture capitalists in Silicon Valley identify more duds than they do successes”.

But, let’s say potential growth can be forecast accurately. Then, should governments and development agencies in fact be selecting these firms to provide their support to? Aren’t these agencies simply grabbing on to the coattails of firms that are going to succeed anyway? Development agencies should focus on the marginal returns of their interventions, argues McKenzie. Unlike a venture capitalist who is more interested in the  return on his or her investment regardless of whether it was this investment that made the difference, development agencies and governments should be concerned with the counterfactual: Did their investment turn the firm from a mediocre non-growth-oriented firm into a gazelle?

The proponents of gazelle hunting say that by finding the gazelles, programme interventions can speed-up the growth process and increase the amount by which the firm grows. But, determining whether or not a development programme has done this in any given firm is very difficult. Isn’t development support better oriented to helping those firms that may not grow to grow, rather than targeting only those that are going grow, even without external development programme support?

Maybe we are getting ahead of ourselves here. Before considering the ethics or rationale of choosing to support the gazelles, we should come to a view about whether this is indeed possible.

There are a number of agencies and programmes that claim to be able to effectively pick growth-oriented enterprises. The Entrepreneur Finance Lab (EFL), for example, is a facility that endeavours to help programme “identify high-potential, low-risk entrepreneurs in a low transaction cost way and with little available information”. The selection process involves psychometric testing, which is done in 30-60 minutes, and seeks to measure knowledge, abilities, attitudes, and personality traits. While EFL does not engage in any assessment of psychology or personality, it applies psychometric principles to credit scoring and entrepreneurial screening.

“There are many studies on the characteristics of successful entrepreneurs. These studies have moved beyond the search for the entrepreneurial “personality” and have uncovered a host of psychological, sociological, and cognitive features that have robust links to entrepreneurial success” (EFL).

Entrepreneurship Scan in the UK is another facility that claims success. The scan is a “psychometric assessment tool which evaluates the participants against ten key entrepreneurial characteristics”. These are:

  1. Need for achievement
  2. Need for autonomy
  3. Need for power
  4. Social orientation
  5. Self belief
  6. Endurance
  7. Risk taking
  8. Market awareness
  9. Creativity
  10. Flexibility

You pay £50 and do the E-Scan test on-line to obtain “specific advice on how to leverage your entrepreneurial strengths and opportunities to develop (sic) weaknesses”. Or, you can pay for an E-Scan Review which will bring the E-Scan to life and help you better respond to its findings. The E-Scan can also be used by firms with an interest in business development. Rabobank in the Netherlands, for example, provides a comprehensive package of support and services to attract new business start-up customers and to enhance its relationships with existing business account users. It uses E-Scan to focus attention on how to increasing ‘entrepreneurial competence’ among its clients.

These are but two examples of the many different assessments that can be found. They all are based on the belief that we can identify an entrepreneur, innovator or gazelle, before they bloom or jump. But does having the potential to jump mean that you will? Do we all live up to our life potential? Do all businesses want to grow?

Surely, growth orientation is just as important as growth potential. If psychometrics can be used to measure growth potential (and I am still to be convinced it can do this to the extent that it can measure causality), how can growth orientation be measured?

To date, the best mechanism for measuring growth orientation is the market. If I pay for an advisor to give me business advice, or pay for business management training, or jump through the hoops required to get expansion finance from a bank, then surely I am displaying an interest in growth. I’m oriented toward growth. If I am poor and have fewer resources to purchase these services, then can I still pay something and show other forms of commitment. Obviously, providing free advice, free training, along with a free lunch and transport (yes, these things are still paid for by development agencies all over the world), then it becomes more difficult for to determine whether someone is their because they are hungry, inquisitive or committed to the growth of their business.

What do the studies tell us about the determinants of entrepreneurship? These are many and varied.

Surely, the growth-oriented entrepreneur exists, but the search for her or him is a distraction. Governments should not waste their time and money gazelle hunting. Instead, they should focus on the systems in which entrepreneurs and innovators operate. They should create places where these agents can respond to markets and the opportunities they perceive––and make sure that failure, while still a real possibility, does not completely destroy the entrepreneur, who can instead learn from this failure and move on to another perceived opportunity.

Attention should be given to removing barriers to entry and anti-competitive behaviour, increasing market information and access, and identifying the sectors that are showing signs of growth. By doing this, a growth-oriented entrepreneur will see an opportunity and make her or his move. We can’t predetermine who these people will be. But when they move, then we can endeavour to ensure their growth path is clear.