Small–Business Group Formation as an Entrepreneurial Development Model

Why do small–business groups in developed countries exist? Research has shown the strong economic impact of business groups throughout the world but remains heavily focused on large–business groups and on emerging economies. Theoretical approaches to explain the existence of highly diversified business groups range from market power to the resource–based view and include market failure, transaction costs, agency theory, and cultural embeddedness. These approaches, however, are not very appropriate to explain the existence of small to medium–size firms in developed countries. What we know is that these smaller groups exist and that they are largely the outcome of related diversification. We investigate relatively small and young–business groups organized in a holding structure. What are the perceived benefits of this kind of group for entrepreneurs and how can we explain the phenomenon theoretically? Based on case study research, we argue that the small–business group is both the outcome and the antecedent of growth. It enables, and helps to realize and manage the growth of entrepreneurial firms. The enabling function consists in increasing reputation, attracting complementary resources that facilitate the exploitation of new opportunities, overcoming overembeddedness, and dealing with coopetition (concurrent cooperative and competitive relationships with another company). The group is also the outcome of realized internationalization and related diversification. Interestingly, for the emergence of the small–business group, just as important as diversification is the integration of activities as well as the separation of closely linked activities. Finally, the small–business group corresponds to an entrepreneurial management style. The main contribution of this article is to link organizational structure to the management and growth of entrepreneurial firms.