Factors influencing small business start-ups A comparison with previous research

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. 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 International Journal of Entrepreneurial Behaviour & Research, Vol. 5 No. 2, 1999, pp. 48-63. © MCB University Press, 1355-2554 Small business start-ups 49 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