Abstract

This chapter discusses economic failure in the process of small business growth, using the example of Polish companies operating in the shadow economy. The discussion covers internal and external barriers contributing to economic failure in the process of company growth. The presence of companies in the shadow economy influences their operation and consequently the process of their growth. On the one hand, it stimulates the efficiency of businesses and, on the other, it boosts the risk of failure due to possible overestimated investment profitability, the confidential nature of internal activity in a company and problems in contacts with the surroundings. Such a risk is increasing with the increase of the shadow economy's financing of the company's growth.

Introduction

Small businesses have specific market, finance, location, organization and technology features that define their operational and strategic behavior, which are different than in large companies. Due to those features a small business is not merely a downscaled large company (Storey 1994). Differences in companies of various scale can be seen when it comes to development as well. Contrary to large companies, the majority of small businesses are in the early stages of their operations and only some of them succeed and grow to become a larger, stable and expandable company. With the growth of the scale of business, a company faces new problems and challenges in terms of management, finance and technology, and they contribute to various barriers and risk factors. According to the literature, we observe concentration of attention interchangeably on internal and external barriers and factors causing economic failure in the process of company growth (Ropęga and Stawasz 2014; Blackburn et al. 2013; Wiklund et al. 2009; Garnsey et al. 2006). One of the less examined factors is the share of companies in the shadow economy and the impact of the latter on the growth of small businesses (Stawasz and Głodek 2009; Caca 2010).

Shadow economy activity complements the legal sphere of business limited to certain areas only. In 2010– 15, the scale of the shadow economy was about 19.7– 18.5 percent of businesses in EU member states, whereas in Poland it was 23– 24 percent (Schneider 2015). Retail, construction and property and business services have the largest influence on the scale of the shadow economy.