Overcoming internal barriers to new venture growth: The role of employee motivations

ABSTRACT

A major internal barrier to new venture growth is employee effort that diminishes with expansion of the venture’s workforce. This paper advances entrepreneurial growth theory by exploring conceptually how management measures that leverage three distinct employee motivations – extrinsic, intrinsic, and prosocial – affect this barrier. I argue that “agency measures” which leverage employees’ extrinsic motivations likely lose their effectiveness as firms grow; in contrast, measures that leverage employees’ prosocial motivations are better placed to overcome the internal growth barrier and spur ongoing new venture growth.

KEYWORDS:

• Growth
• small business
• employee motivations
• barriers

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

¹ For example, BancoSol, a growing Bolivian microfinance organization, scaled back a branch-based pay-for-performance scheme introduced four years after founding as its effectiveness was observed to weaken as the organization grew (Battilana & Dorado, 2010). For other, well resourced (for example, VC-backed) firms, however, rising agency costs can be covered by the investors.

² It is noteworthy that many large and old, and not just small and young, businesses utilize prosocial management measures. This suggests that their efficacy does not diminish with firm size – consistent with the reasoning stated.

³ If things get bad enough, disaffected employees will quit, and can be replaced by more prosocially motivated employees. Then average effort levels, which dipped initially when prosocial measures were first introduced and encountered resistance from employees, eventually recover since newly hired prosocially motivated replacements supply higher levels of effort, spurring growth. This suggests the existence of a U-shaped relationship between average employee effort and the strength of the firm's prosocial stance. Negative moderation from ideological opposition would fade away as the composition of the entrepreneur’s workforce increasingly aligns with the venture’s social mission.

⁴ Thus Figure 3 suggests that management measures specific to each proposition advanced in this paper affect the specific employee motivation associated with that measure. This linkage is moderated by firm size. Effort and agency costs then both mediate the impact of the given motivation on venture growth rates. The boundary conditions in Proposition 4 suggest moderation of the relationship between prosocial motivation management measures and growth outcomes.