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Factors Influencing Small Business Start-Ups: A Comparison with Previous
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Article in International Journal of Entrepreneurial Behaviour & Research · April 1999
DOI: 10.1108/13552559910274499
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IJEBR
5,2
48
Factors influencing small
business start-ups
A comparison with previous research
Tim Mazzarol, Thierry Volery, Noelle Doss and
Vicki Thein
Curtin University of Technology, Perth, Western Australia, Australia
Keywords Demographics, Entrepreneurs, Small businesses
Abstract Sheds light on the process leading to new enterprise formation and identifies the impact
of some selected demographic variables on business start-ups. In contrast to traditional research
methodologies, this study used a new and more comprehensive approach to survey entrepreneurial
intention. It studied both those who actually set up a new business and those “nascent
entrepreneurs” who abandoned their idea prior to trading. The findings of an empirical analysis
of 93 such entrepreneurs are presented. Using multivariate techniques to analyse the data, the
importance of three demographic variables – gender, previous government employment and recent
redundancy – was identified as having potential negative influences on small business formation,
and comparisons are made with past studies.
International Journal of
Entrepreneurial Behaviour &
Research, Vol. 5 No. 2, 1999,
pp. 48-63. © MCB University Press,
1355-2554
Introduction
The driving force in the modern economy for the past ten years, and the
foreseeable future, is entrepreneurship. Entrepreneurs are meeting our
economic needs through the creation of thousands of new businesses each year.
While larger corporations have instituted extensive “downsizing” or
“rightsizing” programs, job creation and economic growth have become the
domain of the new ventures and the entrepreneurs who create them.
A great deal is known about the characteristics of entrepreneurs and the
motives that have urged them to set up a business venture. Previous research
has examined the importance of various demographic variables such as
personality, human capital and ethnic origin. Marital status, education levels,
family size, employment status and experience, age, ethnicity, gender, socioeconomic status, religion and personality traits have all been considered to
varying degrees. However, the picture which emerges from this research is
somewhat “fuzzy” due to differences in testing procedures, sampling and
country-specific factors. Furthermore, virtually all previous studies focused on
entrepreneurs actually working in a new business, and has ignored persons
who still are in the process of starting a new business. This is a serious
omission. In order to gain a comprehensive picture of entrepreneurship (and of
the barriers and triggers affecting start-ups), both groups must be studied. It is
not sufficient enough to approach only those who have fulfilled their objectives.
This study brings forth a new approach, by focusing on this other group as
well. The goal of this research was to identify the demographic characteristics
of selected demographic variables likely to affect small ventures formation. As
considerable research has already been undertaken about the start-up process,
the next section of the report presents a review of the literature and a theoretical
framework of start-up. In section three, the methodology used to carry out the
project is presented. The results are detailed in section four, while the goodness
of fit of the model is explained in section five, followed by a discussion of the
results in section six. Finally, the implications for managerial and research
issues are outlined in section seven.
Review of the literature
Not surprisingly, most of the literature on start-up relates to entrepreneurship
defined by Low and McMillan (1988, p. 141) as the “creation of new enterprise”.
This definition reflects a growing awareness that entrepreneurship is a “process
of becoming rather than state of being” (Bygrave, 1989, p. 21). Starting a
business is not an event, but a process which may take many years to evolve
and come to fruition. Entrepreneurial research has developed along two main
lines:
(1) the personal characteristics or traits of the entrepreneur; and
(2) the influence of social, cultural, political and economic contextual
factors.
These two perspectives are discussed in the next two subsections.
The models and studies focusing on the entrepreneur
Before organisations there are preorganisations (Katz and Gartner, 1988; Van de
Ven et al., 1984). Initially they exist only as the thoughts, ideas, or dreams of an
individual. Through the start-up process, the founder’s thoughts are sometimes
(but not always) translated into a preorganisation (an attempt to found), and
then sometimes (but not always), an organisation. Central to the process is the
founding individual – the entrepreneur – in whose mind all the possibilities
come together, who believes that innovation is possible, and who has the
motivation to persist until the job is done.
Early research in entrepreneurship focused therefore on the entrepreneur. It
sought to determine what personality characteristics distinguished
entrepreneurs from non-entrepreneurs, and examined the influence of these
characteristics on organisation formation rates. For example, such factors as
the need for achievement (McClelland, 1961), risk-taking propensity
(Brockhaus, 1980), locus of control (Brockhaus, 1982), tolerance of ambiguity
(Schere, 1982), and desire for personal control (Greenberger and Sexton, 1988)
have been identified and examined as possible traits associated with
entrepreneurial behaviour. Numerous other background factors related to
individual personality, such as previous employment (Storey, 1982; Ronstadt,
1988), family background (Scott and Twomey, 1988; Matthews and Moser,
1995), gender (Buttner and Rosen, 1989; Kolvereid et al., 1993), education
(Storey, 1982), ethnic membership (Aldrich, 1980), and religion (Weber, 1930)
have also been discussed. Altogether, the combination of psychological traits
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50
interacting with background factors makes some individuals more likely
entrepreneurial candidates than others.
The models and studies focusing on the environment
Theory development and research into the relationship between the
environment and organisation formation is a more recent event. Advocates of
this approach believe that the entrepreneurial trait perspective has reached a
dead end (Aldrich, 1990) and has partially contributed to the understanding of
new firm formation. The study of the role of the environment, the so-called rates
or demand perspective (Peterson, 1980), is seen as a more viable approach.
While not denying the role played by the founders’ characteristics, the demand
perspective proposes that the environment is more important in understanding
organisation formation.
Before detailing the environmental (or contextual) approach, it should be
acknowledged that this approach certainly has a link with economics. Indeed,
the new firm has a central place in economics, and it represents a real or
imagined threat to firms currently producing goods and services within a given
industry. According to economic theory, perfect and imperfect competitive
markets have substantial numbers of potential producers patiently waiting for
prices in that industry to exceed long run average costs. Once this happens new
firms will enter the market and produce output as efficiently as existing firms.
Baumol (1968), for example, noticed that the firm is assumed to perform a
mathematical calculation which yields optimal (i.e. profit maximising) values
for all its decision variables. These matters remain forever or until exogenous
forces lead to an autonomous change in the environment.
Beyond this theoretical perspective, most of the models and studies rely on
environmental characteristics to explain start-ups. Drawing on dependence
theory, this approach proposes that the new firm needs some external resources
and information to emerge. The environment is seen as a pool of resources; the
degree of resource abundance is called environmental munificence (Dess and
Beard, 1984; Castrogiovanni, 1991), and will significantly influence the start-up
process. In her literature review, Specht (1993) distinguishes five main
environmental factors affecting organisation formation:
(1) social;
(2) economic;
(3) political;
(4) infrastructure development; and
(5) market emergence factors.
Within the social environment, the impact of networks (Marett, 1980; Gartner,
1985; Aldrich and Zimmer, 1986; Johannisson, 1988) and the support of
sociopolitical élites along with cultural acceptance (Gartner, 1985; Bull and
Winter, 1991) are of particular importance. The economic environment studies
focus on capital availability (Cross, 1981; Storey, 1982; Gartner, 1985), aggregate
economic indicators (Walton, 1977), economic recessions (Gould and Keeble,
1984; Shutt and Whittington, 1987) and unemployment (Pennings, 1982; Gould
and Keeble, 1984). The political environment concerns mainly the support of
public or semi-public agencies (Gartner, 1985; Young and Francis, 1989; Walker
and Greenstreet, 1990).
Infrastructure development encompasses numerous variables such as the
education system (Gartner, 1985; Romanelli, 1989; Bull and Winter, 1991), the
nature of the local labour market (Pennings, 1982; Gartner, 1985; Mason, 1989),
incubator organisations (Gartner, 1985, Young and Francis, 1989), information
accessibility (Romanelli, 1989) and availability of premises (Cross, 1981; Storey,
1982; Gould and Keeble, Mason, 1989). Finally, market emergence theory
integrates both concepts of niche emergence (Boeker, 1988; Delacroix and Solt,
1988) and technological innovation (Cross, 1981; Gould and Keeble; 1984;
Mason, 1989).
Two visions reunified
The two previous subsections showed that both personal characteristics and
environmental influence play a central role in the start-up process. Gartner
(1985) proposes a conceptual framework of new venture creation that portrays
the process as an interaction of the environment, the individual, the
organisation, and entrepreneurial behaviour. In the same vein, Greenberger and
Sexton (1988) present new venture creation as an interactive process in which
personal characteristics, including personality, interact with an interpretation
of salient events in the environment to influence decisions concerning new
venture creation.
Bird (1988) notices also that both personal characteristics and environmental
factors define entrepreneurial intentionality. She describes intention as a state
of mind that focuses a person’s attention, experience, and behaviour toward a
specific object or method of behaving. Figure 1 illustrates a modified version of
Bird’s (1988) conception of the contexts of entrepreneurial intentionality. The
direction of the relationship between the variables discussed in this review and
the start-up is also indicated.
Bird (1988) further suggests that entrepreneurial intention directs critical
strategic thinking and decisions, and operates as a perceptual screen for
viewing relationship, resources, and exchanges. According to this framework,
individuals are predisposed to entrepreneurial intention based on a
combination of both personal and contextual factors.
However, all of these studies have confined themselves to an examination of
existing entrepreneurs. While often quite rigorous and wide-ranging in their
methodology, they have ignored the very large pool of prospective
entrepreneurs who never actually go on to form a business. This omission is
more than just a curious anomaly; it is critical to an effective understanding of
who, how and why entrepreneurs begin.
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ENVIRONMENT
•Social: networks (+); support
of sociopolitical elites (+)
•Economic: capital availability (+)
aggregate indicators (mostly +);
recessions (+, x); unemployment (x)
•Political: support agencies (+);
regulation (–)
•Infrastructure development: education
system (+); labour market (+, –, o);
information accessibility (+); availability
of premises (mostly +)
FOUND
INTENTIONALITY
DECISION
ABANDON
PERSONALITY
Figure 1.
A model of organisation
formation
•Traits: risk taking propensity (+);
tolerance for ambiguity (+); locus of
control (+); need for achievement (+);
need for autonomy (+); energy level (+);
creativity (+)
•Background: gender (o);
education (+, –); previous
employment (+); family support (+);
ethnic minority (+): immigrant (+);
religion (+)
Direction of the relationship with formation: o: none; +: positive; –:negative; x: curvilinear
Methodology
In order to examine the factors likely to motivate an individual to establish a
small business, a study was undertaken with entrepreneurs in Western
Australia. The purpose of this study was to identify the factors important in
serving as either barriers or triggers to small business start-up. A joint venture
between the Institute for Small Business Research and the Institute for
Research into International Competitiveness of the Curtin Business School, the
study drew a sample of 93 respondents. Forty-eight of these entrepreneurs had
successfully established a small business within the previous two years prior to
interview. The remaining 45 individuals had given serious consideration to
establishing a business (e.g. they had attended a small business training
program or demonstrated a strong desire to found a business) within the
previous two years, but had not proceeded for some reason.
The sample was drawn from a range of sources including the Small Business
Development Corporation, business enterprise centres, the Women’s Economic
Development Organisation and Dun & Bradstreet databases. Following
prequalification all respondents were interviewed face-to-face with an initial
semi-structured approach using open-ended questions which focused on
reasons motivating their intentions to found a business. Following this, a series
of closed ended questions were asked which explored potential barriers and
triggers for small business establishment drawn from the literature.
Of the respondents, 54 were male and 48 female. Just over half (54 percent)
had parents who were previously self-employed or in small business, and 58
percent had relatives who were. Of the respondents 42 percent had been born
overseas and 55 percent had at least one parent who was born overseas. Fortytwo percent had been educated to university degree level, 17 percent held
diploma level qualifications from other post-secondary institutions, a further 17
percent held trade qualifications and the remaining 23 percent had school
education with 7 percent having completed only ten years of education. The
average age of the respondents was 38 years.
Of the respondents, 29 percent had no previous experience in the field of
business in which they had either founded the business or sought to do so. The
average length of experience in the chosen field of business was eight years
prior to business start-up. About half the respondents (51 percent) had held
permanent employment before commencing or considering to commence their
business ventures. A further 26 percent had been unemployed, 3 percent were
students and the remainder had either casual or some other form of
employment (e.g. homemakers). Fourteen percent of the sample had been made
redundant within the previous two to three years before either commencing or
considering the commencement of the business.
Of the respondents, 65 percent had had previous experience of employment
in small business, about half (49.5 percent) had experience of employment in
large business organisations, and 41 percent had previous employment
experience in government agencies.
Franchise businesses were not included in the scope of the study because of
obvious independence problems in the franchiser-franchisee relationship.
However, owners who bought an existing business and changed some of its
activities were included in the research. This study considered that a new
business has effectively started if the first sales have occurred.
To determine the influence of demographic variables on the decision to
establish a small business, a logistic regression analysis was undertaken.
Logistic regression is suitable when a categorical variable is regressed against
any combination of discrete and continuous variables (Hosmer and Lemeshow,
1989, p. 1). The sample was clearly divided into two groups:
(1) those respondents who had established their business; and
(2) those who had not proceeded to foundation.
The presence of a dichotomous dependent variable precluded the use of linear
regression. The chosen form of analysis for the study was therefore logistic
regression.
Result of the logistic regression
Sixteen independent variables relating to demographic issues were regressed
on the dichotomous dependent variable. These variables measured such
characteristics as:
• age;
• education level;
• ethnicity;
• gender;
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54
• previous employment experience;
• unemployment;
• rural versus urban location; and
• family experience with small business or self employment.
The equation used to estimate the model was the following:
P ( y = 1) =
1
1 + e – z)
where:
z = β0 + β1x1 + β2 x2 + ... + βnxn
xn = a set of independent variables
β0 = an intercept term
βn = a set of parameters for the independent variables
e = the quantity 2.71828+, the base of natural logarithms
y = the dichotomous dependent variable, business success
P(y = 1) = the probability of a firm being classified as a high performer
The logistic regression procedure was used to develop the model. A total of 88
of the 93 cases were used to estimate the model. Five cases were not included
because they were missing data for one or more of the variables. The final
model, which contained three significant terms, is shown in Table I. All three
variables were significant at the 0.05 level.
The first variable in the model was gender. The positive coefficient for this
term indicates that this term is negative for females who were generally less
likely to be founders than their male counterparts. A chi-square analysis of the
relationship between gender and business start-up confirmed this. While 75
percent of male respondents had established small businesses, only 25 percent
of females did so.
The second term selected for inclusion in the model was the variable which
measured whether the respondent had previously worked within a government
agency or department. The negative sign for this term’s coefficient indicated
that those respondents who had such previous employment experience were
less likely to be successful founders of small businesses. A subsequent
Model term
Table I.
Logistic model for
demographic variables
influence on business
start-up
Gender
Previous experience in government employment
Made redundant within previous two-three years
Constant
Coefficient
Significance level
1.86
–1.01
–1.49
1.66
0.0004
0.0468
0.0407
Notes: –2 log likelihood for model with constant only = 100.07; –2 log likelihood for full
model =85.98
chi-square analysis confirmed this. Of the respondents who had previously
worked in government jobs, only 37 percent had founded a small business while
63 percent had not.
The third term in the model was a measure of whether the respondent had
been made redundant within the previous two to three years. As with the
previous term, this term also possessed a negative coefficient. The
interpretation was that those respondents which reported recent redundancy
were less likely to be successful founders of their business. Of those who had
been made redundant, 69 percent did not proceed to start up while 55 percent of
those who had not been made redundant had successfully founded a business.
Small business
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55
Goodness of fit of the model
One method of assessing the goodness of fit of logistic models is to examine the
–2LL measure. This measure is calculated by the SPSS logistic regression
procedure each time a model is developed. If a model fits perfectly, then the
value for–2LL will be 0. The –2LL is also calculated for the model which
contains the constant only. This enables an estimation of the level of
improvement gained by adding the model terms (Norusis, 1993, p. 10). These
two values for –2LL are shown in Table I. –2LL for the model with the constant
was found to be 100.07, while that for the full model was 85.98.
Seeing how well the model classifies the data is another way of determining
how well a logistic model performs. This involves a comparison of the observed
number of cases for each state of the dependent variable with the predicted
number of each state as derived from the model (Wrigley, 1985, p. 50). Table II
illustrates the classification performance of the model.
The prior probabilities indicate the probability of a case being correctly
classified into one of the two groups before the model is applied to the data
(Afifi and Clark, 1984, pp. 263-4). The relative sizes of the two populations in the
current model determined the value of 50.63 percent for the prior probabilities.
The posterior probabilities express the probability for each case of belonging to
a particular group as determined by the chosen model (Afifi and Clark, 1984,
Actual
Predicted
Starters
Non-starters
Total
(%)
Prior probabilities
Starters
Non-starters
Classification accuracy of prior probabilities
47
41
0
0
100.0
0.0
53.41
Posterior probabilities
Starters
Non-starters
Classification accuracy of posterior probabilities
34
14
13
27
72.34
65.85
69.32
Table II.
Classification table
for the logistic model
IJEBR
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56
p. 262). The results of applying the model to the data are shown in the bottom
half of Table II. This shows that the model correctly classified 69.32 percent of
the 88 cases. This may be seen as a reasonable goodness of fit of the model.
Discussion of the results
The findings suggest that there are three key demographic variables
distinguishing small business start-up:
(1) gender;
(2) previous government employment; and
(3) recent redundancy.
Each of these three variables is essentially a measure of the barriers to small
business establishment rather than a trigger or incentive. Each is strongly
linked to the groups who did not form a business. Females, previous
government employees and those experiencing redundancy were all less likely
to form businesses than those other respondents.
Why do these characteristics appear to be a barrier to entrepreneurial
activity? There are a number of possible reasons for this. It is worth noting that
other studies have previously found a similar barrier among their sample
respondents. For example, Blanchflower and Oswald (1990) and Blanchflower
and Meyer (1991) have examined the personality characteristics of those who
established small businesses. According to this view the level of
“entrepreneurial vision” possessed by the founder of the firm was a critical
factor in their decision process. This psychological view of the foundation of
small businesses is shared by others (Chell et al., 1991). According to Kazumi
(1995) the entrepreneur is characterised by a combination of abilities and
personal characteristics. Among the key abilities are such things as
imagination, the ability to create and execute plans, negotiation, leadership and
managerial skills. The personal characteristics are determination, optimism,
independence and a willingness to take risks and rise to challenges.
The research by Blanchflower and Oswald (1990) in an empirical study of UK
entrepreneurs found a significant and positive association between
unemployment and a desire to seek self-employment through small business
establishment. It also found a similar association between personality and the
possession of financial inheritance or liquidity and small business foundation.
The present study also found a positive link between these two items. In the
interviews several respondents who were unemployed complained of being
“sick and tired” of long-term unemployment. Their business ideas were born
out of a desire to find a way out of that “gloom”. Frequently, hobbies and special
talents were turned into commercial ventures. In a study of Australian small
business founders Blanchflower and Meyer (1991) found that education,
previous small business experience and geographic location (e.g. regional
versus urban) were significant influences on the establishment of small
businesses.
Dolton and Makepeace (1990) in their study of small business formation
among graduates in the UK found that age, gender and social class were all
significant motivators to business foundation. A study of small business
foundation in the USA (Evans and Leighton, 1990) found that marital status,
education and financial support were all positive and significant influences on
small business establishment among both employed and unemployed workers.
Table III shows the key findings from these previous studies as well as a
summary of the key findings from this study. The results shown in Table I
highlight the inconclusiveness of these five studies regarding the impact of
demographic variables. It should be noted that all these studies were drawing
on somewhat different samples. Three different countries were examined and
different levels of age and educational background were included. However, as
Storey (1994, p. 66) observes:
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Several conclusions may be drawn from this table. The first is that although all four [previous]
studies are addressing a broadly similar issue, there must be some risk of omitted variable
bias, since none appeared to include all variables, or even all variables which had been shown
to be significant in other studies. Only four variables appear in all the studies – ethnic, sex, age
and education – and only three variables appear with a significant coefficient in more than one
of the studies. Thus unemployment appears to be positively associated with higher levels of
self-employment in two studies, as does higher levels of education and being in receipt of some
form of inheritance, enabling a liquidity constraint to be overcome.
Factors
Married
Divorced
Education
Children
Unemployed
Previous wage
Experience
Age
Ethnicity
Gender
Social class
School type
Region/urban
Inheritance/liquidity
Personality
Manager
Family in business
Evans and
Leighton
(USA)
Dolton and
Makepeace
(UK)
Blanchflower
and Oswald
(UK)
Blanchflower
and Meyer
(Australia)
Present
study
(Australia)
+
+
+
x
+
–
x
x
x
x
o
o
x
+
o
o
o
x
o
x
x
x
x
o
+
x
+
+
+
o
o
o
o
o
o
o
x
x
+
o
o
x
x
x
o
o
x
+
+
x
x
x
o
+
o
o
o
+
x
x
x
o
o
+
o
o
x
o
o
o
x
o
+
+
x
x
x
+
o
o
x
–
o
o
x
Key: + = variable is statistically positively significant in the study; – = variable is statistically
negatively significant in the study; x = variable included in the equation, but not shown to be
significant; o = variable not included in the equation
Source: Storey (1994)
Table III.
Factors influencing small
business formation
IJEBR
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58
Forty-two percent of the sample reported having been born overseas and 55
percent reported having at least one parent who was a migrant. Forty-one
percent reported having parents who had family members who were selfemployed. Despite this, family background and ethnicity were not strongly
associated with small business foundation which is in contrast to other studies
using empirical analysis (Curran and Burrows, 1988a; Meager, 1991). The
variety of testing procedures employed in these studies, the variations in their
samples and the characteristics of their countries are all likely to contribute to
the differences which are found in their findings. Such differences create a
somewhat “fuzzy” picture of what factors are important to motivating small
business foundation (Storey, 1994).
Managerial and research implications
Gender issues
The issue of gender has been examined in previous research studies although it
has only become a topic of strong interest in recent years. Much of the literature
relating to small business issues has tended to ignore gender differences (Allen
and Truman, 1991). A major problem has been a relatively low participation
rate among women in small business as owner-managers (Curran and Burrows,
1988b), although this gap is rapidly closing.
Women’s entry into small business may also be influenced in a negative way
by a “sectoral segregation” process whereby occupations are separated into
“male” and “female” industries (Hakim, 1979). Women have traditionally found
greater employment within the services sector and this appears to be a
continuing pattern within self-employment. The business interests of female
respondents in the present study ranged from beauty therapy treatment, aged
care, recycling to bar management. An examination of the Business
Longitudinal Survey data of near 9,000 Australian small firms highlights the
concentration of women in “traditional” female industry categories (IC/DIST,
1996).
Other issues facing women in the establishment and operation of small
business are their dual responsibilities of household and family versus
employment. Women tend to spend fewer hours working in their businesses
than men, due to home and family commitments (Allen and Truman, 1991).
Further, the “traditional” female occupations are often remunerated at a lower
level than their male counterparts (Curran and Burrows, 1988b).
While the majority of the female respondents viewed their family
responsibilities and child-rearing as a barrier to self-employment, there were
several cases where owning a small business offered a favourable alternative to
having a “9 to 5” occupation. For example, several young mothers said that they
were attracted to the flexible hours and mobility of running their own business.
Some worked out of home and could combine child care with work.
According to Allen and Truman (1991) there is a need for successful female
entrepreneurs to become more “visible” so as to serve as role models for other
women. Banks and other sources of finance may also need to adopt a greater
willingness to lend to women for business purposes. The level of business
advisory services specifically available to women may also be an area requiring
attention.
More research is required to identify how female entrepreneurs differ from
males and what specific difficulties (if any) they may face. The expansion of the
services sector in most developed economies may assist women to achieve
greater self-employment over the longer term.
Previous work history and redundancy
The findings of this study that previous employment in the government sector
and recent redundancy may serve as negative influences on small business
formation is of interest. Little research has so far specifically addressed this
issue. Keeble et al. (1992) found that individuals who had previous employment
experience within large organisations were significantly more likely to establish
their own businesses. However, the opposite was found by earlier research
undertaken within the manufacturing industries (Cross, 1981; Gudgin et al.,
1979). Other research suggests that previous managerial experience may be the
key to whether an individual establishes a small business (Bates, 1990). What
none of these earlier studies examines however, is the perceptions of nascent, as
well as actual, entrepreneurs.
Many of those interviewed for the present study who did not found their own
business were in employment and were reluctant to leave the “security” of their
current job. Some of the younger respondents felt that they had to first build a
career before venturing out on their own. One young couple who were paying
off a large mortgage wished to first become more financially independent before
taking on the risks of self-employment.
The present study did not specifically examine whether the respondents had
managerial experience. Education was measured by the study and possession
of a university degree may indicate a likelihood for more managerial experience
(although there is no causal link suggested here). An examination of the
relationship between recent redundancy and education level did not find any
significant association. A similar examination of the relationship between
previous government employment and education did find that higher education
levels were significantly associated with this type of employment. Chi-square
tests found these two variables to be significantly related at the 5 percent level.
However, a partial chi-square test of education and business start-up controlling
for previous government employment did not find a significant relationship.
These additional findings may indicate that something other than education is
responsible for the relatively poor start-up rate among former government
employees and the recently redundant.
One middle-aged male respondent who was a government employee and
successful business founder said that his decision to enter self-employment was
motivated by a realisation that he could progress “no further in his current job”
and that he “did not feel that he was contributing anymore”. He also wished to
control his own destiny financially and felt that by establishing his own
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business he would be contributing to the economy. Another government
employee who successfully established her own business was an experienced
public servant who felt that she “was getting old” and “had to do something she
always wanted to do” in setting up her own business.
To fully explain these issues is likely to require additional research. The
“cultural” background of the former government employee may be an
important influence. Does the work environment and organisational culture
commonly associated with public sector employment adequately prepare an
employee for the rigours of small business self-employment? Further, does
recent redundancy leave a former employee adequately prepared in a
psychological sense for self-employment? Redundancy tends to harm the
recipient’s self-image which is likely to serve as a detrimental influence on small
business formation. These are important issues for public policy. The largescale public sector redundancies which have been a feature of the “efficiency
drives” of both Australian governments both state and federal over recent years
may do potential harm to the unemployment levels within the economy. If
retrenched workers, particularly former government ones, are unable to find
suitable employment they may choose to remain unemployed rather than found
small businesses.
Conclusion
This research study has highlighted the potential importance of three
demographic variables:
(1) gender;
(2) previous government employment; and
(3) recent redundancy
as potential negative influences on small business formation.
As discussed, the overall picture of the effect of demographic factors on small
business start-up is “fuzzy” and requires additional research. The findings of
this study suggest that women, the retrenched and the public sector employees
may require special attention by both academic researchers and public policy
makers in the future if high rates of small business formation are to be achieved.
Three main policy implications stem from this research. First, there is a need
for government authorities to consider specialist outplacement services or their
equivalent when retrenching public servants. Such services need to devote
attention to the mental preparation of retrenched employees to orient them
towards self employment. Second, this same issue is likely to be as relevant for
large private firms, e.g. BHP, when it retrenches workers en masse at its
steelworks in Newcastle, Australia. These workers are not psychologically
prepared for self-employment, and a period of adjustment is required to get
them ready. Third women also may need special assistance, more specifically in
the development of role models and specific business advisors. Networking
groups for existing (and potential) women entrepreneurs is another option.
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