The evolving small firm

Citation

Jones, O. (2009), "The evolving small firm", International Journal of Entrepreneurial Behavior & Research, Vol. 15 No. 4. https://doi.org/10.1108/ijebr.2009.16015daa.001

The evolving small firm

Article Type: Editorial From: International Journal of Entrepreneurial Behaviour & Research, Volume 15, Issue 4

This issue has three papers, which examine the development of small businesses from very different perspectives. Two of those papers deal with issues, which have received a considerable amount of attention in the last few years. The growth of small firms has been a preoccupation of both academics (Macpherson and Holt, 2007) and policy-makers since the seminal work of Birch (1979) in the US and Bolton (1971) in the UK. Mazzarol et al. add to this literature with their study of 204 Australian small firms. Links between experiential learning and entrepreneurship have also attracted much academic attention (Kolb, 1984; Cope and Watts, 2000) but has been of less interest to politicians and policy-makers. Politis and Gabrielsson focus attention on the positive outcomes of learning from business failure. The financing of small firms has certainly been a key theme in the literature and has been of concern to those engaged in business support. Bootstrapping, particularly since the publication of Winborg and Landstrom’s (2000) extensive study of small firms in Sweden, has been the focus of some research but this is certainly an underdeveloped area of study. Ebben has made an earlier contribution to this topic by examining the way in which bootstrapping techniques evolve as businesses develop (Ebben and Johnson, 2006).

Mazzarol et al. focus on the way in which the owner-manager’s practices influence firm growth. The study was based on a sample of 204 owner-managers who were focused on growing their businesses. The questionnaire-based survey examined strategic and operational behaviours undertaken by owner-managers. The findings confirmed the importance of formal business plans in promoting network partnerships, quality assurance procedures, change management activities and above annual sales turnover. The authors conclude that, in order to improve performance, owner-managers should benchmark their firms against industry/sector best practice. Owner-managers also have to complement benchmarking activities with a clear strategic vision and the ability to share that vision with other stakeholders. While the authors acknowledge there are limitations to their study – it still helps provide greater insight into the importance of clear strategic thinking to the performance of small firms.

Despite the high level of failure amongst entrepreneurial businesses this remains a topic, which is relatively under-researched. Politis and Gabrielsson draw on theories of experiential learning to examine the way in which entrepreneurs respond to business failure. Their study is based on a sample of 231 Swedish entrepreneurs whose businesses were less than four years old. Two clear elements of previous experience are identified as important: previous start-up experience, previous business failure – particularly when associated with poor firm performance (rather than personal reasons such as ill-health). Developing a positive attitude towards business failure, by learning from earlier mistakes, is crucial if individuals are eventually to establish themselves as successful entrepreneurs.

As indicated previously, bootstrapping, defined as “financing methods other than the traditional debt and equity from financial institutions and personal equity” (Carter and Van Auken, 2005, p. 131), has been the focus of increasing academic attention in the last eight years. Ebben’s survey of 186 US small firms investigates the relationship between the financial conditions and the adoption of bootstrapping techniques. The findings indicate that “highly-levered, illiquid and under-performing firms” were more likely to use certain bootstrapping methods. For example, joint-utilization methods had a negative relationship with return on sales; delay-payments and customer-related methods both had significant negative relationships with return on sales and return on assets Hence, particular bootstrapping methods seemed likely to be detrimental the firm’s long-term performance. As the authors state, it is important that owner-managers and entrepreneurs have a clear understanding of the bootstrapping options available to them – and of the implications for the financial health of their businesses.

Oswald Jones