An Inter-Industry Examination of the Impact of Owner Experience on Firm Performance

INTRODUCTION In most areas of managerial endeavour, the experience of an individual is seen to have an important influence on that person's performance. Prescribed educational requirements, apprenticeships, conventional career paths stemming from entry-level positions, and professional development programs are common features in many organizations, and are designed explicitly to standardize performance by standardizing individuals' experience with work-related activities. However, requirements and programs such as these do not exist for business owners. The backgrounds of business owners are heterogeneous, which has led to the suggestion that differences in the experiences of owners might explain variance in the performance of their firms. The question of whether owners' experience impacts firm performance is an important one. There are implications for lenders, policy makers, educators, researchers and business owners themselves if experience, or certain kinds of experience, are found to be predictive of firm performance. The relevant types of experience could be used as criteria in evaluating business plans or loan applications, and as a basis for tailoring development, incubation, and educational programs aimed at business owners. They could also be used as control variables in further research on the factors that influence firm performance. In addition, prospective and new business owners would have some criteria against which to assess their own readiness for ownership or to identify further experience which they might want to develop, as well as gaining insights on ways to capitalize on the experience they do have, such as entering certain industries. There is evidence that individuals who finance new ventures weigh the owners' experience significantly when making financing decisions (Goslin and Barge 1986; MacMillan, Siegel and SubbaNarasimha 1987); yet, studies which seek to find a direct relationship between experience and performance have found mixed results. Reuber, Dyke, and Fischer (1990) argue that such mixed findings may be due to the fact that various kinds of experience are relevant to entrepreneurship, and that the relevance of a specific kind of experience may vary in different contexts, such as in different industries. This argument is supported by findings which indicate that different types of management practices are used in different industries (Covin, Slevin, and Covin 1990). Thus, to develop a fuller understanding of the impact of experience on firm performance, it is important to study a variety of types of experiences and to investigate their impact across industries. This is the objective of this study. This article reports the findings from a project that collected data on firm performance and seven kinds of owner experience from firms in five different industries. In the next section, the previous literature on experience and performance is reviewed, in order to highlight the experience variables examined. Following the review is a discussion of the research method used and the results. The article concludes with a discussion of the implications of the findings. PREVIOUS LITERATURE ON EXPERIENCE Previous studies which have examined the relationship between the experience of the owner-manager and firm performance are summarized in table 1. The kinds of experience studied are shown in the table. Most of these relate to experience acquired before ownership of the current firm. Individuals with previous management experience are generally found to own more successful firms, although the relationship was insignificant in two of the studies shown. The results are more mixed for owners with previous industry experience (prior work experience in firms which provide the same products or services as does the current firm). Examining only one type of firm (technology-based companies and educational software companies respectively), Keeley and Roure (1990) and Van de Ven, Hudson, and Schroeder (1984) did not find a significant relationship between industry experience and firm performance. …