Critical Review

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Critical Review:
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, vol. 24, pp. 388–406.

Q1. Identify the key findings/ arguments and any recommendations given by the author/s. Davidsson et al. (2009) examine in their article “Growing Profitable or Growing from Profits: Putting the Horse in front of the Cart?” the relationship between firm growth and profitability in case of small and medium-sized enterprises (SME). One of the key findings is that companies, which feature high profitability and low growth, show a high probability to become a company with high profitability and high growth. This result can be explained by the resource-based view, which says that the high profitability indicates a competitive advantage. This will facilitate the company to reach a state of high growth and high profitability in subsequent periods because high profitability leads to a security of financial resources, which provides the opportunity of growing in following years. Another result is that enterprises, which display high growth rates but only low profitability, show a high chance to turn into a firm with low profitability and low growth rates because the previous growth did not result from a competitive advantage but rather from price reduction or excessive marketing expenses, which cannot be obtained in subsequent years. These discoveries lead to the suggestion that rather than pursuing the objective to expand, SME managers and owners should establish a competitive advantage, which is more likely to lead to long-term success of the company. Q2. Explain how the article has broadened your thinking in the area. The growth of companies is mostly depicted as a positive attribute and equated with success. The article of Davidsson et al. (2009) showed me, that firms should be carefully observed before conceiving an opinion about their success. Many...
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