Entrepreneurial Diversification, Business-Cluster Formation, and Growth

In its 1998 White Paper on competitiveness, the British government stressed the importance of entrepreneurship in halting Britain's apparent relative economic decline and in enhancing international competitiveness. In this document the potential contribution of entrepreneurship is envisaged primarily in terms of the need to increase the supply of entrepreneurs capable of starting and growing innovative new businesses; less recognition is given to the entrepreneurial vitality of the existing business base. This is in keeping with much of the influential policy and research literature, in which concentration through core growth of single firms has tended to be valued, rather than growth through diversification by entrepreneurs starting additional firms. The authors researched diversification as an entrepreneurial phenomenon through case studies of new high-growth Scottish companies. Most business founders in the study had established more than one company, and many had successfully pursued entrepreneurial forms of diversification. The high-growth companies were, in effect, embryonic business clusters, rather than single unidimensional businesses. This supports the notion that the greatest source of new high-growth businesses is entrepreneurs with existing businesses, not novice entrepreneurs. This has implications for future policy support for entrepreneurship.