A Theory of the Early Growth of the Firm

Abstract

Economic enterprise consists in the matching of resources and opportunities to create value. Growth processes of the new enterprise are here explored in a systems model inspired by Penrose. A sequence of phases in the early life of the firm reflects growth processes and problems, solutions giving rise to new problems. Firms must access, mobilize and deploy resources before they can generate resources for growth. Subsequent phases—in which growth reinforcement and growth reversal forces contend—are not universal, but are set in motion in an important minority of firms, the major job creators. Beyond the early phases, critical problems facing the firm are more diverse. The growth of the firm is related to the building of the competence needed to respond to changing industrial opportunities.