Small Bus Econ (2013) 40:211–225
DOI 10.1007/s11187-011-9369-9
Creating good public policy to support high-growth firms
Colin Mason • Ross Brown
Accepted: 29 August 2011 / Published online: 27 September 2011
 Springer Science+Business Media, LLC. 2011
Abstract Writing in Small Business Economics Scott
Shane argues that policy-makers should stop subsidising
start-ups and instead focus on supporting the small
subset of new businesses with high growth potential.
However, both Shane and other scholars who have made
the same argument only offer broad-brush proposals to
achieve this objective. The aim of this article, in
contrast, is to engage in a detailed discussion of how to
create appropriate policies for high-growth firms
(HGFs). Drawing on research in Scotland, we argue
that policy-makers are looking for HGFs in the wrong
places. The heterogeneous nature of HGFs in terms of
sector, age, size and origins makes in impractical to
target support on particular sectors, technologies or
types of firms (e.g., new or R&D intensive). The article
proposes a reorientation of HGFs, both in terms of
appropriate targeting and forms of support. Public
policy also needs to focus on the retention of HGFs
C. Mason (&)
Hunter Centre for Entrepreneurship, Hunter Centre
for Entrepreneurship, Strathclyde Business School,
199 Cathedral Street, Glasgow G4 OQU, UK
e-mail: colin.mason@strath.ac.uk
R. Brown
Scottish Enterprise, Atrium Court, 50 Waterloo Street,
Glasgow G2 6HQ, UK
e-mail: Ross.Brown@scotent.co.uk
which are acquired by non-local businesses. Finally,
policy-makers need to properly reflect upon the spec-
ificities of their entrepreneurial environment when
devising appropriate policy interventions.
Keywords Entrepreneurship
High-growth firms

Gazelles
Regional development
Policy
1 Introduction
In his provocative Small Business Economics paper
‘‘Why encouraging more people to become entrepre-
neurs is bad public policy’’ Shane (2009) argues that
policy-makers should stop subsidising start-ups and
instead focus on supporting the small subset of new
businesses with high growth potential. On the one
hand, Shane argues, ‘‘there is a lot of evidence that
these policies lead people to start marginal businesses
that are likely to fail, have little economic impact, and
generate little employment.’’ (Shane 2008, p. 158).
Meanwhile, on the other hand, ‘‘we need to recognise
that only a select few entrepreneurs will create
businesses that …. create jobs, reduce unemployment,
make markets more competitive, and enhance eco-
nomic growth’’ (Shane 2008, p. 163).
Although originally voiced by Storey (1994) nearly
20 years ago, this is now an increasingly articulated
view, with authors such as Acs et al. (2008) and Lerner
(2010) expressing similar opinions. Indeed, this may
be an exception to Karlsson and Andersson’s view
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(2009, p. 112) that ‘‘there is no consensus in the field of
entrepreneurship policy.’’ Certainly there is consider-
able empirical evidence to support the proposition that
only a small proportion of firms, often termed gazelles,
create the majority of jobs in any cohort of new
businesses (Birch 1987; Anyadike-Danes et al. 2009;
Henrekson and Johansson 2010; Kirchhoff 1994;
Stangler 2010). A recent overview of this literature
concluded that ‘‘a few rapidly growing firms generate
a disproportionately large share of all new net jobs
compared with non-high-growth firms. This is a clear-
cut result’’ (Henrekson and Johansson 2010, p. 240).
Other attributes of high-growth firms (HGFs) include
above-average levels of productivity growth (Mason
et al. 2009), high levels of innovation (Coad 2009;
Mason et al. 2009), strong levels of export-orientation
(Parsley and Halabisky 2008) and a high level of
internationalisation (Mason and Brown 2010). More-
over, not only do HGFs create jobs directly, they also
have important spill-over effects that are beneficial to
the growth of other firms in the same locality (Mason
et al. 2009) and industrial cluster (Stam et al. 2009;
Brown 2011).
In the light of this mounting evidence on the
importance of HGFs, Shane argues that ‘‘we need to
change our public policies towards entrepreneurship’’
(Shane 2008, p. 164) to encourage ‘‘high quality, high
growth companies to be founded’’ (Shane 2009,
p. 145). However, his book has nothing to say on
how this might be achieved while the recommenda-
tions in his Small Business Economics paper focus on
the polices that should be abandoned—for example,
subsidies that encourage people to start businesses
(such as the home office tax deduction available in the
USA) and schemes to encourage unemployed workers
to start businesses. In contrast, he provides little
practical advice to policy-makers on how the objective
of supporting HGFs might be achieved. His only
suggestion for active policy initiatives is to extend
existing schemes which provide financial incentives
for small firms to undertake research and development
[e.g., through Research and Development (R&D) tax
credits]. Other scholars who have also argued for
policy to support HGFs are equally reticent when it
comes to discussing support initiatives that policy-
makers could actually implement (Anyadike-Danes
et al. 2009; Mason et al. 2009; Lerner 2010). Rather
than providing specific guidance on how to actually
help develop and support high-growth companies, the
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C. Mason, R. Brown
suggestions offered to policy-makers are very broad
brush, with a tendency to focus on ‘what not to do’.
Even the Organisation for Economic Co-operation and
Development’s (OECD; 2010) proposals for the types
of support necessary to support HGFs are fairly
generic and more or less indistinguishable from
standard enterprise policies targeted at small and
middle-sized enterprises (SMEs). In short, whereas
recent research has made a convincing case that
policy-makers should re-focus entrepreneurship pol-
icy on initiatives that will generate more HGFs, the
actual policy proposals have been bland, lacking
sufficient detail to provide coherent guidance to
policy-makers seeking to help foster and support such
ventures. We argue that it is remiss for academic
commentators to propose broad-brush policy strate-
gies without being able to offer something of practical
relevance and evidence-based to the policy commu-
nity. Indeed, it is precisely this lack of detailed
engagement with policy-makers which limits the
influence of most academic research.
Of course, we recognise that there are much bigger
debates on the most effective forms of policy inter-
vention to promote economic growth and job creation
and the merits or otherwise of entrepreneurship
policies to achieve such goals (see Karlsson and
Andersson 2009). However, we side-step these
debates (which warrant separate papers in their own
right) to focus on the policies that governments,
rightly or wrongly, are actually implementing. Owing
to the short-term electoral imperatives facing politi-
cians, the reality is that governments around the world
are strongly engaged in entrepreneurship policy (Ro-
drik 2004; Lerner 2010). Our starting point is the view
articulated by Shane et al. (2009) on the basis of
considerable empirical evidence that entrepreneurship
policy needs to focus much more explicitly on
generating and promoting HGFs. However, in contrast
to these earlier studies, we seek to engage in a much
more detailed discussion of how this objective might
actually be implemented and achieved. We further
acknowledge that macroeconomic conditions and
regulatory issues such as taxation, immigration and
product regulations all affect the growth of firms
(Henrekson and Johansson 2009; Bravo Biosca 2010).
But these policy areas tend to lie outside the jurisdic-
tional parameters of regional and local governments
and the economic and business development institu-
tions that they have established to promote economic
Creating good public policy to support high growth firms
development and which play a powerful role in
shaping the entrepreneurial system within regional
and local economies (Gertler 2010). Accordingly, the
focus of this article is on the types of micro-level
interventions that regional and local business devel-
opment agencies could deliver that are specifically
geared towards supporting the emergence of HGFs.
The paper draws extensively on our own detailed
research on HGFs in Scotland (Mason and Brown
2010). In contrast to much of the literature on HGFs,
which comprises quantitative analyses of the number
of HGFs and their contribution to employment
(Henrekson and Johansson 2010; Leitch et al. 2010),
the aim of our research was to look inside the ‘black
box’ of how these firms have emerged and currently
operate. The study was based on a multi-method
approach comprising five components. First, it under-
took a traditional quantitative assessment of the
number of HGFs in Scotland, using the standard
OECD definition of such enterprises.1 Second, back-
ground secondary analysis using business databases,
websites and newspaper articles was undertaken on a
sample of HGFs to examine the main characteristics
of these firms. Third, in-depth interviews were
conducted with over 20 HGFs.2 Fourth, recognising
that reality is often constructed differently by various
agents and groups (Glaser and Strauss 1967), inter-
views were conducted with business development
officers who deal directly with these firms to provide a
complementary perspective to that provided by the
interviews with entrepreneurs. Finally, workshops
with policy-makers and business development officers
were used to ‘road test’ some of the study’s emerging
findings and policy implications. This approach was
also used by Fischer and Reuber (2003) in their study
of HGFs.
1
The precise definition of a HGF used during this research
project is the one recommended by the OECD: ‘‘enterprises with
average annualised growth in employees or turnover greater
than 20% per annum, over a three year period, and with more
than 10 employees in the beginning of the observation period,
should be considered as high growth enterprises’’ (2010, p. 16).
2
The interviews explored a wide range of topics, including
founding circumstances; backgrounds of founder(s) and man-
agement team; activities; markets; sources of competitive
advantage; patterns of growth; barriers to growth; financing;
links to universities; and impact of government (as customer,
regulation and deregulation, direct assistance).
213
2 Promoting high-growth firms: current policy
approaches
Despite the growing consensus that HGFs contribute
disproportionately to economic growth and prosperity,
relatively few OECD countries have policies which
specifically promote such firms (OECD 2010). More-
over, such initiatives are recent (Autio et al. 2007;
OECD 2010). Early adopters, such as Scotland,
Finland and the Netherlands, first began to develop
bespoke programmes for high-growth entrepreneur-
ship in the early 1990s. These countries typically have
the most ‘advanced’ policy measures. In countries
such as Australia, Hungary and Italy, such policies are
much more recent and less well developed. Moreover,
localised institutions, such as economic development
bodies, have frequently played a central role in shaping
these policies. The consequence is that regional
institutional architecture and support structures can
be quite differentiated even within the same national
economic contexts (Gertler 2010). Information on
these localised initiatives is less well documented.
The national support systems which have been
surveyed reveal common features in terms of types of
high-growth support (Autio et al. 2007; OECD 2010).
An important feature of these programmes is that they
are generic rather than specifically geared towards
potential HGFs: ‘‘dedicated initiatives with an explicit
focus on high growth entrepreneurship remain surpris-
ingly rare’’ (Autio et al. 2007, p. 74). This suggests that
existing programmes are being ‘tweaked’ to accom-
modate support for HGFs and that the development of
entirely new types of support structures is uncommon.
In terms of the types of support provided, the
overwhelming emphasis is directed towards two main
areas: innovation support and access to finance
(OECD 2010). The emphasis on support for techno-
logical development reflects the strong cross-over
between entrepreneurship and innovation policy that
is prevalent across many countries (Audretsch 2007).
A common feature of these programmes is support for
R&D activities in early-stage technology-based enter-
prises (Lerner 2010). The strong emphasis on the
development of university spin-outs as a vehicle for
generating HGFs has also created strong connections
between HGF policy and Higher Education commer-
cialisation policies. For example, the majority of
Scottish support programmes for high-potential ven-
tures are primarily aimed at aiding the technological
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development of young technology-based firms (e.g.,
Intermediate Technology Programme, SMART) and
at increasing the commercialisation and exploitation
of Higher Education research (e.g., Proof of Concept,
Enterprise Fellowships). It appears that this approach
is being replicated in other countries (Autio et al.
2007; OECD 2010).
In summary, current approaches for promoting
HGFs are strongly tied to technology policy. This
clearly indicates that policy-makers view high-tech-
nology sectors as the main generators of potential
HGFs. However, as we suggest below, this approach
over-emphasises the importance of technology sectors
as a source of HGFs and fails to acknowledge the
opportunities for rapid entrepreneurial growth in other
sectors of the economy (Autio et al. 2007). Technol-
ogy policy is not a substitute for HGF policy. Nations
and regions also need a set of initiatives whose specific
objective is to promote HGFs.
3 A critique of existing policy approaches:
looking in the wrong places?
Our core critique of existing approaches to generate
HGFs concerns their targeting: specifically, policy-
makers are looking in the wrong places for such firms
to emerge. This has three key dimensions: (1) the
related assumptions that technology sectors are the
main source of HGFs and that technology-based firms
have a high propensity to growth; (2) that HGFs are
typically recent start-ups; (3) that the manufacturing
sector is a significant source of HGFs. The empirical
evidence does not support any of these assumptions.
First, as noted above, there is a presumption of a
strong link between technology-based firms, including
university spin-offs, and HGFs. However, there is
considerable evidence that this assumption is not valid.
Studies in various countries indicate that HGFs exist in
all sectors and are not confined to high-technology
industries (Acs et al. 2008; Anadyke-Danes et al. 2009;
Mason et al. 2009). Specifically, HGFs are not over-
represented in high-technology industries (Henrekson
and Johansson 2010). Our own evidence from Scotland
confirmed the sectoral heterogeneity of HGFs and also
the paucity of university spin-offs. In particular, there
were very few HGFs in the life sciences sector (just
over 1% of the entire population). The low numbers of
high-growth technology companies is generally
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C. Mason, R. Brown
attributed to the weak commercialisation capabilities
of such firms (Harrison and Leitch 2010; Planys 2010).
The fundamental problem is the need for firms
developing new technologies to create a market.
Indeed, venture capital firms shy away from investing
in companies that seek to break new technological
ground precisely because of uncertainty about market
size and when demand will take off. Instead, they
prefer businesses with ‘mid-level innovation’ which
offer evidence of sizeable sales in conjunction with a
large number of potential users who have not yet
become customers (Bhidé 2008). The presumption that
support for early-stage technology firms will create
significant numbers of HGFs therefore goes against the
empirical evidence. The imprecise overlap between
the sectoral distribution of HGFs and the Scottish
Government’s ‘key sectors’ also questions the appro-
priateness of Scotland’s sectoral and cluster policies
(Scottish Government 2007).
Neither is there strong evidence for a universal
linkage between R&D expenditure and the rapid
growth of firms. Stam and Wennberg (2009) observe
that R&D does not of itself improve the performance
of new firms. Rammer et al. (2009) have shown that
with the correct strategies, SMEs without in-house
R&D can have the same level of innovative success as
firms which perform R&D. The link between innova-
tion and growth is also questionable. Coad (2009;
p. 83) argues that innovation is not very important in
explaining the growth of the average firm although it
is of ‘‘crucial importance for a small number of fast-
growing firms.’’ Freel and Robson (2004) reported a
negative relationship between product innovation
(both incremental and novel) and growth in sales or
productivity. Hinton and Hamilton (2011) report that
fast-growing firms in New Zealand were never the
first to market with a new idea. Instead, they leveraged
the market education undertaken by the firms that
were first to market products or services with a
superior product—but one which stopped short of true
novelty. This is consistent with the evidence from the
Scottish HGFs study: firms were innovative—but few
of these innovations were an outcome of significant
explicit R&D activity (Mason and Brown 2010). Even
fewer are at the frontiers of science. This all fits in
well with the broader thesis of Barwise and Meehan
(2011) that sustained profitable growth is more likely
to be achieved by firms which are able to offer ‘‘the
familiar’’ to their customers in the short term while
Creating good public policy to support high growth firms
‘‘innovating beyond the familiar in the longer term’’.
Striving for uniqueness, on the other hand, involves
much higher risks.
This thesis challenges the appropriateness of the
dominant policy view in Scotland and elsewhere that
R&D support, innovation policies and university-
based knowledge transfer and commercialisation
policies are effective means of generating HGFs. This
policy reflects the ‘pipeline’ view of innovation where
traditional research and development results in pat-
entable innovations that are then commercialised.
However, in a series of reports. the National Endow-
ment for Science Technology and the Arts (NESTA)
(2006; 2007; 2010) has emphasised that most of the
spending that promotes innovation does not take place
in science laboratories (and is not reflected in tradi-
tional indicators such as R&D spending or patents).
These ‘hidden’ innovations include innovations in
organisational forms and business models (see Mason
and Brown 2011) and innovations created from the
novel combination of existing technologies and pro-
cesses. In many cases, these innovations have arisen
through the ‘co-creation’ of knowledge with custom-
ers and end-users in the marketplace (NESTA 2010).
Moreover, as such innovations arise from opportunity
recognition that derives from market engagement,
they are more likely to be commercially successful.
Policy-makers therefore need to understand that
support for R&D is not the same as support for
innovation which often occurs independently of R&D
(Kay 2009).
Recent evidence further suggests that the most
successful high-technology firms are those which
utilise their customers and end-users as sources of
innovation (Connell and Probert 2010). Both Freel
(2000) and Collinson (2000) note that firms with
strong trust-embedded partnerships are able to be
innovative and thereby improve business perfor-
mance. Wynarczyk and Watson (2005) note that
investment in supply chain partnerships provides
superior opportunities for firms to grow. Thus, the
heavy supply-side emphasis on support for R&D and
innovation within high-growth entrepreneurship pro-
grammes (OECD 2010) may not actually generate
innovation processes and products which are relevant
to end-users (NESTA 2010). This may partially
explain why no companies presently supported by
Scottish Enterprise under its three flagship technology
programmes, such as Enterprise Fellowships, Proof of
215
Concept and the International Trading Institute (ITI)
programmes, have become HGFs (Mason and Brown
2010). Accordingly, there appears a strong case for
shifting support from technology (with its emphasis on
R&D expenditures) to innovation support which
focuses on end-user engagement.
Second, by suggesting that HGFs are young, the
literature has pointed policy-makers in the direction of
start-ups as the focus for intervention. However, more
recent studies point to HGFs as commonly being older.
For example, Acs et al.’s (2008) study of what they
call high-impact firms in the USA note that the average
age of such firms in 25 years. Anadike-Danes et al.
(2009) similarly find for the UK that it is the longer
established firms rather than gazelles which create
most of the jobs. In Scotland, more recently estab-
lished companies (i.e. genuine gazelles under 5 years
of age) established from 2004 onwards comprised a
mere 3% of the entire high-growth population in 2009
(Mason and Brown 2010). This was even the case for
technology-based firms. Indeed, the few Scottish high-
technology firms that meet the high growth definition
were more than 10 years old. Hence, it may take
several years for a start-up to record significant
growth. Furthermore, some firms, especially longer
established ones, grow primarily through acquisition;
hence, many of the jobs that they appear to create
already exist (Deschryvere 2008). Moreover, where
the acquired business is in another region, or country,
then the jobs will not benefit the local economy. This is
well illustrated by the case of Wood MacKenzie, the
Edinburgh-based energy, metals and mining consul-
tancy, which has grown rapidly primarily through the
acquisition of complementary businesses in other
countries (Table 1). The growth of younger firms, in
contrast, is more likely to be through organic growth.
Table 1 Employment in Wood MacKenzie
Year Total Employment Edinburgh
employment in Edinburgh employment
as % of total
firm employment
2009 640 265 41
2008 280 580 48
2005 200 354 57
2003 190 250 76
2001 180 140 78
Source Newspapers and interview
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To take the argument one stage further, whereas the
vast majority of public support in Scotland and
elsewhere targets very early stage or even nascent
enterprises in their high-growth programmes, our
research in Scotland also challenges the implicit view
in the literature that HGFs invariably begin as de novo
start ups. This, in turn, weakens the case for high-
growth start-up programmes. From a sample of 22
HGFs interviewed in Scotland, 13 had been ‘pre-
incubated’ in the sense of previously being part of
another business (Mason and Brown 2010). This takes
a variety of forms, with the most common form of pre-
incubation being management buyouts (MBOs)
(Table 2). The fact that MBOs should produce HGFs
is consistent with evidence reported in the wider
literature which shows that businesses that undergo an
MBO achieve significant growth and investment under
their new owner–managers (Meuleman et al. 2009;
Wright et al. 2009), although there is some debate on
whether this is a ‘one-off’ effect. Policy-makers
therefore need to recognise that by no means do all
future HGFs follow the standard company progression
model.
Specifically, policy-makers need to recognise that
there are potential HGFs that are ‘imprisoned’ in large
organisations that would flourish if they were
‘released’. Thus, there may be a need for mechanisms
to support such situations in which the organisation is
new, even though the business is not, possibly even to
the extent of playing the role of business ‘midwife’ in
some situations. However, company managers of
divisions and subsidiaries who would be the potential
leaders of an MBO may be less aware than the typical
start-up entrepreneur of what enterprise support is
available. Moreover, the types of support available,
Table 2 Origins of high-growth firms in Scotland
Type of start-up Number
De novo start-up 9
Pre-incubated 13
Management buyout 7
Management buy-in 1
Corporate start-up 1
Employee-buyout 1
Family businesses 3 The one management buy-in in the sample of Scottish sample
Source Mason and Brown (2010)
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C. Mason, R. Brown
their associated eligibility criteria and the way entre-
preneurs are targeted are all typically geared to new
start-ups rather than MBOs/MBIs (management buy-
ins) and other corporate transformations. A key action
for policy-makers is therefore to assess the availability
of finance for MBOs and MBIs. Here again, present
forms of public sector financial intervention—typi-
cally early-stage venture capital funds and co-invest-
ment funds, both with fairly modest maximum
investment thresholds—are focused at the start-up
and early growth phases. For the same reasons that
there is market failure in the supply of small amounts
of venture capital, there may also be a shortage funds
to make small MBOs and MBIs. Support for business
angel networks could also extend to supporting groups
that focus on investing in MBOs and MBIs.3
Another source of ‘pre-incubated’ firms, although
only represented by one firm in our Scottish HGF
sample, is the corporate spin-out. However, this
singularity in our sample probably underplays the
importance of this source of HGFs. Evidence from
Scott and Rosa (1996) has demonstrated the frequency
with which established entrepreneur-led firms spin-out
new businesses as a means of pursuing diversification-
led growth. Indeed, their view is that ‘‘the greatest
source of new high growth businesses is entrepreneurs
with existing businesses, not novice entrepreneurs’’
(Rosa and Scott 1999). This view is consistent with our
evidence. The relevance of conventional start-up
support to these types of firms, such as finance, is
therefore questionable as they are likely to draw on the
resources of their ‘parent’ business (Rosa and Scott
1999).
Third, the view that manufacturing is more valuable
than services in terms of economic development
remains deeply embedded in some segments of the
policy-making community. However, this binary
distinction is extremely problematic on both defini-
tional and conceptual grounds. Because of the shift in
the nature of production processes, an increasing
proportion of the value of products is accounted for by
knowledge-based activities that envelope the physical
process of production. So, with services now increas-
ingly embedded within physical products and playing
an ever more pivotal role in the competitiveness of
3
of HGFs was funded by an angel group specialising in small
MBI investments.
Creating good public policy to support high growth firms
firms (e.g., through the use of ‘product-as-service’
business models), it has made it increasingly difficult
to distinguish manufacturing companies from service
companies (Bryson et al. 2004). Increasingly, firms are
describing themselves as ‘solution providers’ rather
than a provider of a particular product or service (Tuli
et al. 2007; Nordin and Kowalkowski 2010).4 Thus,
restricting support to high-growth firms in the manu-
facturing sector is both wholly inappropriate and
would be very difficult to apply in practice.
4 Re-orienting high-growth policies
In the previous section we argued that the lack of
empirical evidence on the characteristics of HGFs has
led to inappropriately targeted forms of policy inter-
vention. However, challenging existing forms of
interventions leaves the task half done. We also need
to identify appropriate forms of intervention to
increase the numbers of HGFs. Accordingly, in this
section we draw on our evidence and understanding of
HGFs to propose specific types of interventions which
match the specificities and development requirements
of these businesses. We look first at targeting and
second at tools.
4.1 Targeting HGF policy
In the academic entrepreneurship literature, support
for enterprise promotion and support for high-growth
businesses are often viewed as alternative approaches
towards promoting economic development (Shane
2009). The implication of the type of shift from a start-
up policy to a HGF policy that has been suggested by
Shane (2009) and others is that policies to promote
start-ups would cease. We believe this to be a false
dichotomy since without new business start-ups there
would be no pipeline for companies to become future
high-growth companies. As Henrekson and Johansson
(2010) note, in employment terms the positive effect
of each cohort declines over time, so a continuous
entry of new firms is needed to achieve net job
creation. Moreover, during our interviews with Scot-
tish HGFs, several entrepreneurs noted the importance
of particular forms of support that they had received in
4
We are grateful to Suzanne Mawson for suggesting the term
‘solution provider’.
217
their start-up and formative years. One firm received a
small equity investment from the public sector: the
entrepreneur reflected that without this support the
company might not have made the transition from a
home-based start-up to full-time serious business.
Other businesses emphasised the benefits of the
various overseas market entry schemes operated by
Scottish Development International for young com-
panies with export potential. Our argument is therefore
not to cease start-up support entirely but to cut generic
start-up business support on the grounds of question-
able effectiveness and high displacement and instead
focus on the types of support likely to be needed by
potential HGFs.
Some observers argue that the ability of policy-
makers to predict which start-ups will grow rapidly is
highly problematic (Freel 1998). Although admittedly
a difficult task, clearly start-up support should be
targeted at firms with the greatest growth potential.
But how do policy-makers identify such firms and
what support should they receive? It seems reasonable
to argue that firms with high growth ambitions should
be a priority. While objectively verifying ambitious
businesses will be an extremely challenging task, it
should nevertheless be attempted. One potential
indicator of growth ambition is the desire to grow
internationally. Recent research shows that export-
oriented entrepreneurs are more likely to have higher
growth ambitions than entrepreneurs serving purely
domestic markets (Verheul and Mil 2008). Research
on the Business Link programme in England and
Wales also suggests that its impact might increase if
more export-oriented firms were targeted (Mole et al.
2008). This would provide strong evidence for focus-
ing support towards firms with strong internationali-
sation intentions. Whatever the indicators used,
policy-makers should adopt very clear and precise
approaches to segmenting the start-up business pop-
ulation to help identify the most suitable firms to target
assistance.
Judging when is best to assist firms is also
challenging. Given that the growth of firms is highly
uneven and episodic, identifying when a firm is about
to accelerate its growth is extremely difficult (Garnsey
et al. 2006). HGFs often emerge after an important
catalyst or ‘trigger point’, such as the introduction of a
new product, the acquisition of the company by an
entrepreneurial new owner through an MBO/MBIs or
the injection of new capital or management expertise
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(Vinnell and Hamilton 1999; Mason and Brown 2010;
Hamilton 2011). It is at these times that firms then face
so-called ‘critical junctures’ that necessitates the
acquisition of new resources and capabilities to
progress to the next phase of development (Vohora
et al. 2004). Identifying these growth trigger points is
an extremely challenging task for policy-makers. An
appropriate mechanism to address this problem is the
account management process operated by a number of
economic development agencies (including Scottish
Enterprise) whereby specific companies are allocated
a dedicated person—an account manager—to help
with their business development requirements.
Account managers are in regular contact with their
companies and are often able to identify additional
support services, such as innovation support, export
support and capital expansion assistance. By forming
these close relationships, business development agen-
cies can be more aware of these key trigger points
within companies. Once identified, more intensive and
customised forms of support can be provided to help
overcome the resource limitations of such companies.
4.2 Tools to support high growth
We have already argued that the dominant forms of
support for HGFs—support for innovation and finan-
cial assistance—are too narrowly focused and fail to
address the many other needs of such firms. In the
following paragraphs we identify more appropriate
forms of intervention to support potential HGFs.
One of the key findings in relation to the charac-
teristics of HGFs concerns their strong market orien-
tation and customer engagement (Parker et al. 2010).
Our earlier research also revealed the strong emphasis
of Scottish HGFs on engagement with customers and
end-users to help shape their product offering (also see
Hinton and Hamilton 2011). By working closely with
their customers, these firms ensured that their innova-
tion processes and outcomes closely matched the
requirements of the end-users. Thus, there seems to be
a case for transferring some of the present support for
product development (e.g., R&D support, SMART in
Scotland), which can be criticised for being ‘technol-
ogy push’ schemes, to new ‘market pull’ schemes
which encourage product ‘co-creation’ between grow-
ing firms and their customers. In order to promote this
type of knowledge ‘co-creation’, novel forms of
business support may be needed which bind
123
C. Mason, R. Brown
companies and their end-users more closely together.
These might include subsidised secondments with
end-user firms. It could also involve the provision for
funding joint product and service development pro-
jects between SMEs and potential customers or end-
users so that SMEs are closely connected to their
customers at the outset of the product development
process.
Another strong feature of HGFs is the emphasis that
they give to sales and marketing (Brooksbank et al.
2003; Parker et al. 2010). It is therefore surprising that
this is rarely a form of support offered by governments
to assist HGFs (Autio et al. 2007; OECD 2010). For
example, Scottish Enterprise has specialist support
services which assist firms with manufacturing issues
(SMAS), investment issues (SEED, Co-Investment
and Venture) and technology issues (SMART, R&D
grant). No specialist support programmes exist to
assist with sales, marketing and customer engagement.
There is a need for a programme to develop the kind of
specialist sales and marketing skills which are typi-
cally lacking in potential high-growth companies. This
should comprise two elements—first, company-ori-
ented programmes and second, economy-wide pro-
grammes to alleviate the deficiency in specialist sales
and marketing personal in branch plant regions that
have been characterized by truncated managerial
labour markets. However, as a minimum, to balance
the technology-push emphasis of innovation policies,
it is appropriate to require businesses seeking any type
of business support to produce both evidence of
engagement with potential customers and a marketing
and sales plan in the application process, in addition to
a typical business plan. Moreover, the sales and
marketing plans of companies participating in public
sector business development programmes should be
subjected to the same level of scrutiny that their
financial and technological development projections
currently receive.
Another key characteristic of HGFs is their high
level of business internationalisation. HGFs are much
more likely to engage in international markets than
slower growing SMEs (BIS 2010). Moreover, HGFs
are much more likely to be found amongst ‘born
global’ SMEs which challenge traditional internation-
alisation perspectives by undertaking very rapid
internationalisation at formative stages of their devel-
opment (Rialp et al. 2005). Indeed, quite often the
internationalisation process within some of these firms
Creating good public policy to support high growth firms
occurs in conjunction with the establishment of
linkages with important customers and end-users.
Owing to the important role these customers play in
shaping the innovation process within some HGFs
(Mason and Brown 2010), these ‘customer-led born
globals’ enhance their ‘absorptive capacity’ concur-
rently with their internationalisation (BIS 2010).
Given the particular challenges of operating in new
international markets, especially from a base in
smaller peripheral economies, where limited domestic
markets necessitate early internationalisation, support
for internationalisation should be a key component of
assistance packages for potential HGFs.
This proposal is underpinned by the evidence from
our research that the most important types of early-
stage support required by firms that went on to become
HGFs was new market entry grants to support business
internationalisation. Relatively small amounts of
assistance in these areas often enabled firms to make
a quantum leap forward, which would appear to be
logical because young firms often encounter growing
pains when attempting to break into new geographical
markets (BIS 2010). The specific types of support will
depend on the nature of the recipient firm, but firms
often require ‘in-country’ support, such as funding for
travel and making direct connections to end-users in
the marketplace. One approach is to use prominent
members of diasporas (both former residents of the
region and affinity diaspora) in overseas business
communities that local companies which are interna-
tionalising can draw upon for advice, support contacts
and networks (Rogerson et al. 2006).
A further feature of HGFs is strong leadership
skills. Given the importance of key gifted individuals
in the creation and growth of some firms, it might be
expected that there is little public policy could do to
help foster the traits of ‘rugged individualism’ found
in many HGFs (Fischer and Rueber 2003, p. 353). On
the contrary, however, HGFs often recognise the need
for their leadership skills and ambition to be chal-
lenged and honed. There are various processes for
undertaking this type of organisational and leadership
development. A particularly effective way to help
promote these capabilities is to use experienced
entrepreneurs to help ‘peer review’ the leadership
and strategic capabilities of other growing firms. This
type of approach might be useful because research
reveals that entrepreneurs prefer to obtain advice from
their peers more than policy-makers and consultants
219
(Fischer and Rueber 2003).5 Robson and Bennett
(2000) found that the use of external government
sources of advice does not have significant effects on
SME growth. Rather, SME growth is related to the use
of private sector sources of advice. According to
Fischer and Rueber (2003), the importance of peer
support suggests that much greater consideration
should be given to network-based forms of assistance
whereby entrepreneurs can utilise the experience of
successful entrepreneurs to be ‘‘informed, motivated
educated, inspired and supported’’.6 By acting as a
brokerage mechanism, public policy-makers could
help to foster connections between these different
types of businesses.
Another important mechanism of leadership devel-
opment is through the establishment of a non-execu-
tive Board of Directors. Boards of Directors may be
important in guiding the strategic direction of firms as
they evolve. For example, Zahra et al. (2009) suggest
that boards enhance the absorptive capacity of firms
that are moving beyond their initial stages of devel-
opment. They complement the existing human capital
of firms by adding to the array of information sources
and experiences and providing an important strategic
challenge and source of guidance to their senior
management. Others note that effective boards can
sometimes substitute for poor absorptive capacity
within young firms (Colombo et al. 2010). Here again
it may be appropriate to make financial support
conditional upon the creation of non-executive Boards
of Directors. However, it must be recognised that not
all economies are equally endowed with the same
depth of talent pool. It may therefore be necessary in
some smaller regional economies to access non-local
sources of expertise.
Policy-makers also need to recognise existing
entrepreneurs as being a key resource. This has
various dimensions. Although there is no general
association between serial entrepreneurship and high-
growth entrepreneurship, there is evidence that
5
One entrepreneur described a scheme to support internation-
alisation which involved engaging with companies that were
already engaged in international markets as ‘‘aspirational’’ and
‘‘inspirational’’.
6
This is the objective of Scotland’s Entrepreneurial Exchange,
Scotland’s leading members’ organisation for ambitious,
growth-orientated entrepreneurs. It was created ’for entrepre-
neurs, by entrepreneurs’ (http://www.entrepreneurial-exchange.
co.uk/).
123
220
entrepreneurs with a track record of success are much
more likely to succeed than first-time entrepreneurs
and those who have previously failed (Gompers et al.
2010). One of the reasons is that experienced start-up
founders are more successful in attracting venture
capital at an early stage and more quickly, and also at a
later stage (Zhang 2011). Indeed, our sample of
Scottish HGFs included several businesses that had
been started by entrepreneurs who had successfully
built up and sold a previous business. Serial entrepre-
neurs are able to bring knowledge and resources
(notably personal finance) to their new business, and
their track record and associated credibility enable
them to more easily attract external funding, custom-
ers and other resources. Having achieved some level of
personal financial security, they might be expected to
be more ambitious with their new venture than typical
new starts. They might simply want to prove—to
themselves or others—that their earlier success was
not due to luck. Even if ‘cashed-out’ entrepreneurs do
not start another business, they can play other
significant roles to support HGFs, for example, as
business angels, forming venture capital funds, serv-
ing as non-executive board members and mentors,
among others. Policy-makers therefore need to culti-
vate relationships with cashed-out entrepreneurs to
encourage them to engage in this kind of ‘entrepre-
neurial recycling’ (Mason and Harrison 2006). Port-
folio entrepreneurs are another potential source of new
businesses. Rosa and Scott (1999) have noted that
multiple business ownership is common. One conse-
quence is the creation of business ‘clusters’—legally
separate businesses with common ownership which
reflect the preference of many entrepreneurs to expand
through the creation of separate businesses rather than
a single legal entity.
Finally, as mentioned earlier, some business sup-
port agencies, such as Scottish Enterprise, have
procedures for segmenting the corporate base so that
firms with the largest growth potential receive the
most intensive forms of business support. The main
mechanism for this is through an account management
process. This kind of ongoing ‘relational’ support
enables Scottish Enterprise account managers to
strategically critique and challenge a firm’s growth
capabilities. Although a minority of Scottish HGFs are
account managed, firms receiving such support were
very positive about its benefits (Mason and Brown
2010). While firms valued the account manager
123
C. Mason, R. Brown
relationship in terms of its pecuniary benefits in the
form of access to various ‘products’ for the business
through the support offered by Scottish Enterprise
(e.g., RSA, SMART, etc.), they also placed as much, if
not more, value on the strategic relationship with
Scottish Enterprise. In other words a ‘relational’ rather
than a purely ‘transactional’ relationship may be the
most appropriate form of support for HGFs.
5 Anchoring and embedding high-growth firms
Studies have shown that a significant number of HGFs,
especially in technology sectors, become acquired and
are now subsidiaries of large, often foreign-owned,
businesses (e.g., Garnsey and Cannon-Brookes 1993;
Dahlstrand 2000). In fact, nearly 40% of Scottish
HGFs are foreign-owned, a figure which rises to nearly
70% for HGFs in some high-technology sectors, such
as life sciences (Mason and Brown 2010). This
tendency reflects both demand and supply-side fac-
tors. From the demand-side, the process is driven by
the needs of large companies to remain competitive.
Baumol (2002) argues that large firms, particularly in
oligopolistic markets, experience competitive pres-
sures that force them into a continuing process of
innovation in order to remain competitive. However,
as internal R&D mainly generates incremental inno-
vations, such firms also seek to obtain technology from
smaller, entrepreneurial businesses which are much
more effective at developing breakthrough technolo-
gies. This approach is particularly prevalent in certain
sectors such as pharmaceuticals (Ahn et al. 2009).
From a supply-side perspective, selling the business
may be the entrepreneur’s objective from the outset.
Or it may be driven by external (and internal) investors
seeking a harvest event. Indeed, venture capitalists are
increasingly favouring a trade sale rather than an
Initial Public Offering as their desired exit route
(Bessler and Seim 2011; Kraeussl and Krause 2011).
Alternatively, selling may be a means of overcoming
the lack of resources needed to make the transition to
the next stage. Davenport (2009) notes that these
resource constraints may emerge not at the early
growth stage but when companies are already well
established in their markets but need significant
additional resources to meet the expectations of their
global customers who require that their business
partners are also global. Becoming part of a larger
Creating good public policy to support high growth firms
organisation is therefore a way in which companies
can obtain financial and managerial resources and
access distribution channels and sales support and
thereby overcome growth constraints. In the case of
technology companies, acquisition is often seen as a
means whereby a young company can, to use Geoffrey
Moore’s phrase, ‘‘cross the chasm’’ separating the
early adopters from the mainstream market (Moore
1991). Indeed, for most entrepreneurs of technology-
based firms, it is as case not of ‘if’ but ‘when’ to sell
their company their company (Oakey 2003).
It remains a matter of conjecture whether acquisi-
tion is beneficial for the companies concerned as well
as the economy as a whole. The resource-based view
(RBV) of the firm has been widely used to explain the
motives of the acquiring firms, especially in relation to
the desire to obtain new types of R&D resources
(Pablo and Javidan 2004). However, this theoretical
approach has been criticised for its lack of explanatory
power in unpacking the complexities behind the
transnational technology strategies of many firms
(Medcof 2000). The key benefit for the acquired
company is generally thought to be access to superior
financial, managerial and marketing resources to
enable further growth. In this instance, a process of
‘resource augmentation’ occurs in which the acquired
firm is given additional resources to enable it to grow,
which could ultimately benefit the local economy.
However, the process is detrimental if the acquisition
leads to a run-down or closure of the company and
transfer of its intellectual assets elsewhere. The latter
case is most likely where the acquisition was moti-
vated by access to intellectual property and the
acquired company was young and therefore only
weakly embedded in the local environment. In this
scenario, a process of ‘resource depletion’ occurs
within the firm, which negatively affects the local
economy.
More evidence is undoubtedly needed to better
understand the complexities of the acquisition process
and how this impacts, both positively and negatively,
on acquired firms and their regional economies.
Anecdotal evidence seems equally balanced in terms
of cases where the acquired company has attracted
investment from its new parent, enabling it to expand,
and cases where the company was simply absorbed,
leaving no lasting footprint, or subsequently closed.
Our interviews with HGFs highlighted the vulnerabil-
ity of head offices in the event of a takeover as most of
221
the functions that are undertaken in the head office
duplicate those in the acquiring business. For a
significant number of HGFs, because of their highly
globalised orientation, the head office is their major, or
only, presence in Scotland. Therefore, Scotland would
derive all of the disadvantages and none of the
advantages of the acquisition. On the other hand, if
the focus switches from the company to the share-
holders, then acquisition can be seen as potentially
beneficial to the economy if the entrepreneurs
re-invest their financial gains and knowledge by
becoming serial entrepreneurs, business angels and
non-executive directors (Mason and Harrison 2006).
Such acquisitions also provide business angels and
venture capital funds with liquidity events which
enable them to re-invest in other businesses.
Companies that are particularly vulnerable to being
sold are those with private equity and venture capital
investors because such investors need an exit route. Of
course, companies can provide investors with an exit
route without having to sell out to a bigger company by
floating on the Stock Market. Other advantages of this
approach are access to further capital through second-
ary issues and, perhaps most significantly, its shares
are a currency with which to make acquisitions. On the
other hand, concerns about pricing, liquidity of shares,
lock-ins and costs of maintaining a listing may make
this option less attractive than a trade sale for all but
the larger and most successful businesses. Ownership
also becomes much more geographically dispersed.
Currently, only around 30 Scottish based companies
are listed on the Alternative Investment Market
(AIM), which is just two percent of all UK-based
companies listed. This under-representation is also a
feature of northern parts of the UK more generally
(Amini et al. 2011). If it is judged to be important to
retain the independence of HGFs, then policy-makers
need to promote the Stock Market listings as a logical
step for at least the top performing HGFs.
A further concern is that many acquired firms will
have received public sector financial support prior to
being acquired. Should revenue from local tax payers
be used to ‘fatten up’ local companies simply to be
acquired by non-local businesses? There seems a
strong argument that acquiring companies should be
required to pay back the support that the acquired
company has received (either through grant clawback
or royalty revenues) in the years immediately prior to
acquisition as occurs in Israel under their strict R&D
123
222
regulations. Perhaps this would send out the wrong
signals. Given the reality that foreign ownership is
important in enabling potential HGFs to overcome
resource constraints, especially in peripheral regional
economies such as Scotland, it can be argued that
policy-makers need to adopt a supportive rather than
confrontational stance towards acquiring businesses
with pro-active ‘aftercare’ policies aimed at mitigating
some of the potential negative consequences of
foreign acquisition. Aftercare policies, which are
often found in regions with high levels of foreign
direct investment (FDI), are mechanisms designed to
foster positive spill-overs from FDI, such as local
supplier linkages (Brown and Raines 2000) and local
subsidiary upgrading (Hood 1998). It may therefore be
appropriate to extend inward investment aftercare
policies undertaken by regional development agencies
to indigenous firms which have been acquired by
foreign-owned multinational enterprises (Brown
2011). Certainly, more needs to be known about how
the acquisition of local HGFs affects the entrepre-
neurial dynamism of a local economy. At the very
least, policy-makers should try and monitor the way in
which foreign acquisition affects the performance and
economic impact, either positively or negatively, of
HGFs in any given local economy.
6 Conclusion
Karlsson and Andersson (2009, p. 127) have observed
that ‘‘there is still a gulf between our understanding of
the need for entrepreneurship policies and how such
policies should be designed when needed.’’ This
article was motivated by our dissatisfaction with the
extent to which academics engage in detailed discus-
sion of policy design. Academics who comment on
the policy implications of their research generally
confine themselves to bland, broad-brush statements
that have little or no practical value to policy-makers.
Specifically, various academics, most recently Shane
(2009) in an article published in Small Business
Economics, have argued that in the light of the
significant body of research pointing towards the
disproportionate economic contribution of HGFs,
policy should refocus from promoting start-ups to
fostering HGFs. However, this proposition is not
supported by any practical proposals on how this
objective might be achieved.
123
C. Mason, R. Brown
In this article we have attempted to offer strategic
insights on the focus of HGF policy and also on the
type of support mechanisms needed. First, in terms of
focus, we suggest that policy-makers are looking in the
wrong places for HGFs. Current approaches are
predicated on the assumption of a strong overlap
between HGFs and technology sectors. However,
HGFs are found across all sectors of the economy, a
heterogeneity that is also reflected in their age, size,
origins and ownership. This heterogeneity poses
considerable challenges for policy-makers. Second,
taking a ‘pipeline’ perspective, we argue that in their
efforts to promote HGFs, policy-makers cannot ignore
support for start-ups. However, start-up support needs
to be much better targeted towards high-potential new
ventures with support tailored to the particular
requirements of such firms. Third, based on our own
research on HGFs in Scotland as well as the wider
academic literature, we identify a range of support
needs of HGFs and propose specific forms of
intervention that need to be developed to meet these
needs. Finally, we note the propensity for HGFs to be
acquired, and the varying outcomes of this process on
the acquired business and the local economy prompt
us to recommend that policy-makers may need to
adopt ‘anchoring strategies’ for HGFs. The primary
rationale for this is the desire for an economy to retain
HGFs in the event that they are acquired by larger, and
in particular, non-local businesses. Such retention
strategies will be particularly important for smaller
peripheral economies with high levels of foreign
ownership.
In the final analysis, however, ‘geography matters’,
and we recognise that our policy diagnosis is highly
context specific. Scottish HGFs are unlikely to be the
same as those from other small economies (e.g.,
Finland, New Zealand) because of the different
resource endowments, economic structures and entre-
preneurial environments of these respective econo-
mies. Similarly, Scottish HGFs are unlikely to directly
resemble HGFs in much larger economies, such as the
USA, on account of differences in the scale of their
domestic market, or with their Russian counterparts on
account of its stage of economic development (Yuda-
nov 2010). Therefore, when devising appropriate
policies to promote HGFs, policy-makers must
attempt to balance the advantages of borrowing from
best practice elsewhere, together with the pressing
need to properly customise and shape policy to the
Creating good public policy to support high growth firms
nuances and specificities of their own distinctive
economic and entrepreneurial context.
Acknowledgments The authors would like to thank Scottish
Enterprise for funding the study of high-growth firms in
Scotland. Earlier versions of the paper were presented at the
New Zealand Centre for SMEs Annual Research and Policy
Symposium (2 September 2010) and The European Policies
Research Centre, University of Strathclyde (16 February 2011).
We are pleased to acknowledge the helpful comments that we
received from these audiences. The usual disclaimer applies.
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