Entrepreneurial sustainability

1
Entrepreneurial sustainability exogenous
structural factors or endogenous absorptive
capacity?
Colin Gray

• Professor of Enterprise Development
• Open University Business School

2
Context - EU Distribution of Enterprises
gt140 million workers
gt25 million firms
50 new SMEs fail lt5 years
Productivity lt US, Japan
Policy focus on innovation
3
GEM total entrepreneurship activity
Source Global Entrepreneurship Monitor
4
EU19 soletraders, micro, small, medium and large
firms, 2003.
Low productivity
Time/resource
High churn
Market power
5
Enterprise competitive context
Economy/business pressures competition
E
SMEs
Start-up
Large Firms
Exit
trade
capable
Growth-oriented
Competition
Absorptive capacity
RD
Spillover
Cultural Peer group Influences
Government policy/regulatory pressures
Education RD
6
SME internal competence differences 2003 (n
7,750 )
Micro (lt10) Small (10 49) Medium (50 249) All SME
Growth intentions 28 42 52 30
Growth attained 15 25 44 17
Employee skills shortages 19 25 29 20
Written Plan for Competence development 16 37 47 18
Source ENSR Observatory (EC, 2003).
7
Entrepreneurship
Frank Knight (1921) entrepreneurs play an
essential role in the process of efficient
re-allocation of resources through their
function in accepting and exploiting uninsurable
risks.
Joseph Schumpeter (1934) firms founded by
entrepreneurs who enterprisingly and
energetically seek competitive success through
exploiting innovations ( a new combination of
the means of production).
Israel Kirzner (1973) the entrepreneur is a
business person who has the ability to recognise
opportunities that others have overlooked and the
capability of successfully exploiting that
opportunity. Opportunities need not necessarily
be innovations. They may arise through the
innovations of others or through social and
market changes, or from chance observations..
EU Entrepreneurship Green Paper (2003) -
Entrepreneurship is the mindset and process to
create and develop economic activity by blending
risk-taking, creativity and/or innovation with
sound management, within a new or an existing.
Organisation of Economic Cooperation and
Development (OECD) - the successful development
and application of new knowledge
Sources Knight F. (1921). Risk, Uncertainty and
Profit. Harper and Row. New York. Schumpeter J.
(1934). Theory of Economic Development. Harvard
University Press. Green Paper Entrepreneurship
in Europe. Brussels Kirzner I. (1973).
Competition and Entrepreneurship. University of
Chicago Press. Chicago. Jaumotte F and Pain N.
(2005). From innovation development to
implementation evidence from the Community
Innovation Survey. OECD Economics Department
Working Papers, No. 458.
8
Typology of entrepreneurship theory
9
SME sustainability-cycle
Renovation
Growth
Mainly medium
Maturity
4 Resourcing growth.
4
3
DownsizingDecentralisationDecline
2
Mainly small
Survival
Disappear
3 Sustaining creativity/innovation.
50 in 3 years
1
Time
Crises
1 Launch
2 Delegation.
10
Importance of skills gaps by firm-size
Skills gap? Sole Micro (lt10) Small (10 19) Medium (20) All
Very important 9 23 29 46 25
Irritating but manageable 5 24 53 28 26
Only occasional 8 12 9 8 10
No problem 79 42 8 18 39
Total (n) 80 305 75 78 538
15 57 14 14 100
Chi2 121. 240 df 9 plt0.000 Chi2 121. 240 df 9 plt0.000 Chi2 121. 240 df 9 plt0.000
Source (2006) NatWest/SERTeam Quarterly Surveys
of Small Business in Britain 222.
11
Capacity development in SMEs by entrepreneurial
mindset (column )
Low Mid High All
External courses 34 50 62 46
Time for study 20 26 46 27
Internal courses 18 28 38 26
Online 4 8 18 9
Other 7 8 6 7
No formal training 47 36 24 34
Sample (n) 277 171 84 739
34 25 13 100
Source (2006) NatWest/SERTeam Quarterly Survey
of Small Business in Britain. Vol.22, no. 4.
12
Overcoming competence gaps in SMEs by
entrepreneurial mindset (column )
Low Mid High All
Develop internally 58 66 74 66
Outsourcing/contract out 25 19 22 21
Specialist consultants/freelancers 15 15 26 18
Poach directly from competitors 10 12 21 13
Use recruitment agencies 13 11 17 13
Offer higher pay 10 13 16 13
Use temporary staff 10 9 6 9
Other 8 10 8 9
Sample (n) 72 228 87 387
34 25 13 100
Source (2006) NatWest/SERTeam Quarterly Survey
of Small Business in Britain. Vol.22, no. 4.
13
SME Owner-manager Decision-making Model
Cultural
External changes
Motivations
Perceived threats
Influences
Business Behaviour Operations Outcomes
Strategic aims
economic
Perceived opportunity
Full set of market needs
Expectations
work
personal
Network/Peer
Perceived knowledge resource capacity
Internal capabilities
Influences
family
14
Perceptions of Main Business Problems 2007
Problem Entrepreneurs Non-entrepreneurs Business advisors
Lack of time 10 7 14
Regulations 18 19 12
Cashflow 5 5 12
Marketing 4 2 10
Lack of skills 9 5 9
Competition 7 13 7
Economic climate 6 14 6
Total tax burden 10 6 4
Sample (n) 124 114 1948
Source SERTeam - Quarterly Survey of Small
Business in Britain. Vol 23. No, 2. Business
Support Professionals in Britain 2007
15
SME personal career motivation 1990-2006
(column )
Source Small Enterprise Research Team, OUBS
16
SME growth strategy by innovation
Single-activity Multi-activity Non-innovator All
Growth-oriented 62 60 29 46
Exit/merge strategy 17 19 18 18
Growth averse 21 21 53 36
Total (n) 187 168 314 679
Chi2 83.248 df 4 plt0.000 Chi2 83.248 df 4 plt0.000 Chi2 83.248 df 4 plt0.000
Source Small Enterprise Research Team, OUBS
17
SME Innovation by size of firm 2004
Sole-trader 1 4 5 9 10 19 20 All
New products/services 19 24 32 31 37 28
New process/methods 17 19 23 33 43 25
Marketing/distribution 14 15 21 32 31 21
Sourcing supplies/inputs 7 9 3 19 15 12
Other significant changes 6 5 7 7 5 6
No significant innovations 61 51 37 36 24 43
Sample (n) 164 333 155 108 122 808
Source Small Enterprise Research Team, OUBS
18
Conclusions

• Growth-orientation is an important determinant of
  sustained entrepreneurial activity
• Non-entrepreneurial firms are more daunted by
  exogenous factors (labour market, fiscal,
  regulations and the business climate) and tend to
  attribute performance causality to them.
• Entrepreneurial firms have more self-efficacy and
  are more concerned about factors over which they
  have little control (but more likely to treat
  these as a normal part of business life).
• Small firms with higher, endogenous, absorptive
  capacity (higher education, more experience and
  more staff development) are more likely to be
  innovative, growth-oriented, and to achieve
  sustained entrepreneurship.

19
Wider implications
External
Economic / structural change
Opportunities
Opportunities Entrepreneurs
Internal

• Flexibility gt Structure

Business culture gt Administrative rules
Creative / sharing Innovation,
Quality, Customers