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In search of persistent growth: Exploring how successful ventures can maintain exceptional growth

Serhan Kotiloglu

Dr. Serhan Kotiloglu, Assistant Professor of Management, researches strategic entrepreneurship, firm growth, and organization risk.

 

Exceptional venture growth (growth over 400%) is every entrepreneur’s dream. It brings success and high profits to a venture and it attracts top talent. Exceptional growth is also beneficial for local economies, as it creates new jobs and fosters future economic development. While researchers know some key factors that would increase the likelihood of a firm to achieve exceptional growth, e.g., novelty of business ideas and innovation, it becomes increasingly difficult for these ventures to maintain exceptional growth. Indeed, past growth rates are shown to negatively impact current growth rates, meaning a venture’s positive growth in this quarter may make it less likely for it to have positive growth next quarter.

Dr. Kotiloglu’s research focuses on what exceptionally growing ventures should do to maintain these growth rates. More specifically, he is working to understand whether certain strategies these ventures followed to achieve exceptional growth in the first place (novelty of business ideas and innovation) would also allow them to maintain exceptional growth. He finds that exceptionally growing ventures still need to be innovative following early success, but only incremental innovations pay off. For instance, following a successful launch of a business and early growth, making radical changes in the business model would make it less likely for a venture to continue growing. Instead, making incremental changes and adjustments would increase the future growth likelihood.

innovation

Image credit: Peshkova | Getty Images

These findings were consistently supported within a sample of 25,000 exceptionally growing ventures in the US. Loot Crate is one of the recent examples that went through this process. Loot Crate provides subscription boxes for video game and comic book enthusiasts. The initial business model of Loot Crate was to offer subscription boxes that only included rare collectible items. This initial idea was very successful, resulting in exceptional growth within the course of a couple years. Following a year of exceptional growth and profits, Loot Crate diversified into many different product lines - including decoration items, outfits and gadgets, as well as a separate subscription service for video games. Shortly after this diversification, Loot Crate’s growth came to a halt and the venture had to file for bankruptcy. This anecdotal example (and many more) summarize the findings of this research; in order to keep growing, ventures only need to make incremental changes (rather than radical ones) in their successful business models. Otherwise, failure will become more likely than growth in near future.

So, what would be a good piece of advice to a successful early-stage entrepreneur? Being innovative is definitely the key to future success but trying to reinvent your business every quarter might not be the best way to go. Instead, an entrepreneur who sees some early growth should focus on readjusting the business model and making small changes to the original idea. Doing so would likely result in persistent growth, which is very rewarding.