Understanding the sources of business growth is central to both the fields of entrepreneurship and strategy. This is a logical endeavor given the positive macro-level outcomes of firm growth, such as the creation of new jobs, an increase in tax revenues, the provision of innovations, and overall economic growth (Wennekers & Thurik, 1999; Davidsson, 2005). At the same time as the macro-level outcomes, business growth has determinants on the micro-level. Indeed, the majority of firm growth studies have examined a long list of internal factors as predictors of growth, such as the founding team, founder’s prior knowledge and education, access to capital and financing, and/or networks. In particular, these studies argue that the firms’ resources are likely to influence its growth, and its increased size will have implications for what kind of management skills become crucial (e.g. Chandler & Hanks, 1994; Flamholtz, 1986). Despite the increase in the amount of research into this topic over the past decade (cf. Wiklund, 1998; Delmar, Davidsson & Gartner, 2003) the outcome of these reviews is, however, rather disappointing. It appears that despite the increased research efforts, relatively little of solid, generalizable knowledge has emerged. It has been suggested elsewhere that part of the explanation for this is likely that much research has overly simplistically treated business growth as one phenomenon (cf. Davidsson & Wiklund, 2000). In reality, there are several different modes and patterns of growth. For instance, Delmar, Davidsson and Gartner (2003), using numerous measures of growth, found seven different types of growth patterns. These different modes and patterns require different explanations, and they have different implications on the societal and organization level. In this book chapter we will focus on one particular aspect of the multi-facetted nature of business growth, namely the distinction between organic (or internal) growth and acquisition growth. While there are exceptions (Niosi, 2003; Delmar, Davidsson, & Gartner, 2003), few empirical studies of firm growth have dealt with this important distinction. More precisely, we will start from an empirical observation concerning organic vs. acquired growth. The observation is that there is a very strong empirical relationship between the size of a growing firm on the one hand, and what proportion of growth is acquired on the other. It turns out that in the smaller firms almost all the growth is organic while the converse is true for growth firms in the largest size classes. The purpose of this book chapter is, firstly, to try to make theoretical sense, within the framework of the resource-based view of the firm (RBV), of the strong firm size acquired share of growth relationship. Secondly, we will test hypotheses based on our theoretical reasoning on two independent sets of data.
