UNDERSTANDING ENTERPRISE,ENTREPRENEURSHIP ANDSMALL BUSINESS

UNDERSTANDINGENTERPRISE,ENTREPRENEURSHIPAND SMALL BUSINESS

Simon BridgeKen O'Neill

andStan Cromie

~~I.-\C~I [LL.-\\Business

©Simon Bridge, Ken O'Neill and Stan Cromie 1998

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First published 1998 by MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG2l 6XS and London Companies and representatives throughout the world

ISBN 978-0-333-68348-4 ISBN 978-1-349-26171-0 (eBook) DOI 10.1007/978-1-349-26171-0

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• Contents

List of Tables viii

List of Figures ix

List of Boxes xAcknowledgements xii

Preface xiv

Introduction xvi

PART I THE CONCEPT OF ENTERPRISE

Introduction 1

1 Why Talk About Enterprise? 3

2 What Does Enterprise Mean? 13Examples of 'Enterprise' Usage 14Narrow and Broad Meanings of Enterprise 22

3 Enterprise in Individuals ?-7Introduction 37Why are Some Individuals More Enterprising than Others? 42Personality Theories 42Behavioural Theories 50Economic Approaches 53Sociological Approaches 54Other Approaches 55Integrated Approaches 56Entrepreneurial Profiling and Enterprise Prediction 58Postscript 58

4 The Culture of Enterprise 60Introduction 60Judgements on Enterprise 60The Influences on Enterprise and Economic Performance 63National and Social Culture 66Political Conditions 74Economic Conditions 75Other Examples of Influence 78Postscript 79

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838391

5 Other Aspects of EnterpriseSome Enterprise AssociationsThe Drawbacks of EnterpriseThe Future of Enterprise 93

PART n ENTERPRISE AND SMALL BUSINESS

Introduction 99

6 Small Business Categories and Variations 101Definitions 101The Stages of Small Business Development 104The Variety of Small Business 127The Implications of Being Small 132In Conclusion 134

7 Distinctive Features of Small Businesses 136The Nature of Small Business 137Differences Among Small Businesses 145Understanding SpecificSmall Business Issues 146Small Business Statistics 155In Conclusion 159

8 Business Growth 162Why Growth? 162Some Statistics on Growth 164The Meanings of Growth 165The Components of Growth 166The Entrepreneur - Motivation and Aspiration 169The Business 173External Environment 178Targeting Growth 184

9 Intrapreneursbip 188Intrapreneurship and Related Problems 189The Barriers to Intrepreneurship 191Facilitating Intrapreneurship 194Postscript 202

PART m PROMOTING ENTERPRISE

Introduction 205

10 Why Intervene? 207An Obvious Argument 207

Contents vii

The Benefits Sought 209Obstacles and Barriers - Market Failures? 211Why, and Why Not 216Interventions Exists 218

11 Theories and Assumptions (that might guide intervention) 222Categories 222Enterprise Culture 223Preparation 226Start-Up and Growth 227Decline and Termination 229In Conclusion 229

12 Intervention Methods (objectives, structures and approaches) 233Introduction 233Objectives 234Structures for Intervention 234Approaches 237Areas of Intervention 242Forms of Assistance 251

13 Intervention Evaluation and Results 261Introduction 261Requirements 262Methods 265Problems 267Results - The Current State of Knowledge 270In Conclusion 276

AFTERWORD

14 Science, Art, or Magic? 281

Notes and References 285

Index 297

• List of Tables

1.1 Self-employed and employers in the UK 72.1 Summary of approaches for describing entrepreneurship 262.2 Entrepreneurial or enterprising attributes 272.3 Influences on the development of entrepreneurial ideas and

ambitions and different stages of life 282.4 The focus of learning 292.5 Entrepreneurial v. corporist management: some contrasts 303.1 Change management competencies 533.2 Attributes and resources, and how they are acquired 584.1 Key differences between collectivist and individualist societies 725.1 Autonomous and community entrepreneurs compared 906.1 The five stages of business growth 1066.2 The self-employment spectrum 1136.3 The four dimensions of management development 1146.4 Barriers and incentives to training 1156.5 An analysis of a start-up business 1176.6 Business survival rates 1267.1 Debt structure by country (percentage of total borrowings) 1528.1 Yardsticks for business growth 1668.2 Some of the influences on a business 1688.3 Management weakness as a constraint on growth: internal barriers

to growth (percentage of respondents citing factor as important) 1778.4 Constraints on small business growth 183

10.1 The why and how of intervention 20910.2 Objectives of small firm policy 21111 .1 Schema of small business intervention strategies 22712.1 UK government SME policies 23812.2 Policy fields and instruments 24012.3 A taxonomy of small firm initiatives 24112.4 Overview of SME start-up support policy in the EU 25813.1 Major UK small business policy questions 26214.1 Reasons for the re-emergence of small businesses 282

Vlll

• List of Figures

1.1 UK unemployment (millions) 52.1 Components of enterprise culture 293.1 The role of innovation 403.2 Three types of small business owner 503.3 Framework for identifying enterprise competency 513.4 Intentions model for entrepreneurial potential 563.5 Attributes-and-resources, and how they are acquired 574.1 Impact of external influences on enterprise 664.2 Influences on national economic performance 694.3 The triangle of enterprise 796.1 Business paths from conception to death 1076.2 Growth process as reflected in possible growth paths 1076.3 Diverse trajectories of a cohort of business 1086.4 Model of new enterprise formation 1106.5 Vickery's model 1116.6 Another model 1116.7 Entrepreneurial success 1126.8 The resource/credibility merry-go-round 1186.9 Types of business termination 1267.1 The layers of the small business support network 1397.2 The influences on a business 1397.3 Early stage small business finance 1548.1 Influences on a business 1678.2 Nature of the path to growth 1688.3 Management factors and stages 1749.1 Manager mindset and behaviour for innovation 200

12.1 Small business policy analysis framework 243

ix

• List of Boxes

1.1 The right to a job 31.2 The bare facts for the UK 51.3 Contracting out 82.1 Enterprise 132.2 Pathfinder initiatives - 1 152.3 Enterprise in action 212.4 The enterprising individual 252.5 Possible models of the distribution of entrepreneurial attitudes 322.6 Enterprise and happiness 323.1 An achiever 444.1 However . . . 624.2 Culture and learning 664.3 Mental programming 674.4 Levels of culture 674.5 The five dimensions of culture 684.6 Cultural re-inforcement 694.7 Entrepreneurship and culture 714.8 Different structures for enterprise 724.9 The history of regional difference 734.10 Employment: the system and the individual 764.11 The unwelcome entrepreneur 775.1 Learned helplessness 875.2 Network capitalism 885.3 Devalued enterprise 926.1 Some official definitions of a small business 1016.2 Model X: the list 1066.3 Starting a business 1127.1 The failed plan 1518.1 Previous academic approaches to understanding small business

growth 1699.1 The Ten Commandments of innovation 1909.2 Who is the intrapreneur? 196

10.1 An analogy? 21810.2 Four main objectives in SME policy pursued by EU Member

States 21912.1 Pathfinder initiatives - 2 24612.2 Enterprise education 24712.3 Graduates and small businesses 255

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List of Boxes xi

12.4 Leverage 25612.5 What is the best thing to do if you want to harvest more? 25913.1 Monitoring and evaluation 26313.2 The Macnamara fallacy 26413.3 Economic appraisals 26613.4 A negative effect of grants 27213.5 Training and Employment Councils 27513.6 The evidence of businesses 276

• Acknowledgements

The author and publisher gratefully acknowledge the following for permission toreproduce copyright material in this book.

Chapter 1: the bare facts for the UK, from C. Handy, The Future of Work(Oxford: Basil Blackwell, 1984) pp. 16-17; and an excerpt from T. Peters, 'Travelthe Independent Road' , Independent on Sunday ©, 2 January 1994.

Chapter 2: excerpts from the University of Ulster's material on Enterprise inHigher Education; J. B. Cunningham and J. Lischeron, 'Defining Entrepreneur­ship', Journal ofSmall Business Management (January 1991)p. 47; entrepreneur­ial or enterprising attributes, from A. A. Gibb, 'Enterprise Culture - Its Meaningand Implications for Education and Training', Journal of European IndustrialTraining (1987) p.6; influences on the development of entrepreneurial ideas andambitions at differentstages of life from Gibb (1987) ibid., p. 13; the componentsof enterprise culture from Gibb (1987) ibid., p. 14; the focus of learning fromGibb (1987) ibid., p.17; entrepreneurial v. corporatist management - some con­trasts.from Gibb (1987)ibid., pp. 21-2; 'Hunting the Heffalump in the World ofthe Enterprise Industry' by F. Coffield, from The Independent © 29 August 1990.

Chapter 3: promotional material used by the Department ofTrade and Industry;three types of small business owner, from R. W. Hornaday, 'Dropping theE-Words from Small Business Research' , Journal of Small Business Manage­ment, vol. 28, pp.22-33; framework for identifying enterprise competency, fromS. Caird , 'Problems with the Identification ofEnterprise Competencies ', Manage­ment Education and Development vol. 13, (1992) p.16, © Sage Publications;change management competencies, from D. Buchanan and D. Boddy, TheExpertise ofthe ChangeAgent (Hemel Hempstead: Prentice Hall, 1992)pp. 92-3;intentions model of entrepreneurial potential, from N. F. Krueger, Prescriptionsfor Opportunity: Communities Can Create Potential for Entrepreneurs (Washing­ton, DC: Small Business Foundation of America, Working Paper 93-03, 1995).

Chapter 4: various short excerpts from pp. 10, 63, 74, Ill, 117and 159 and selec­tions from tables on p. 67 and p. 73, from G Hofstede, Cultures and Organisations(London: HarperCollins Publishers 1994), © G. Hofstede; G. Redding, 'ThreeStyles of Asian Capitalism'; in Mastering Enterprise, no. 7, Financial Times ©, 13January 1997,p. 10; the triangle of enterprise, from O. R. Spelling, 'Enterprise in aCultural Perspective', Entrepreneurship and Regional Development, vol. 3 (1991)p.39, © Taylor & Francis Publishers.

Chapter 5: network capitalism, from G. Redding, 'Three Styles of AsianCapitalism', in Mastering Enterprise, no. 7, Financial Times ©, 13January 1997,

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Acknowledgements X111

p. 11; autonomous and community entrepreneurs, adapted from B. Johannissonand A. Nilsson, 'Community Entrepreneurs: Networking for Local Devel­opment', Entrepreneurship and Regional Development, vol. 1, no. 1 (1989)p.5; W. Hutton, 'Ethics Man Finds No Place in the Enterprise Era', fromGuardian ©, 21 March 1994; K. Gold, 'Must We Buy Schooling from Marksand Spencer?', The Observer ©, 21 January 1990.

Chapter 6: the five stages of business growth, from N. C. Churchill and V. 1.Lewis, 'Growing Concerns: The Five Stages of Small Firm Growth', HarvardBusiness Review, May-June 1983, pp.31 , 32, 33 and 34; growth process asreflected in possible growth paths, from E. Garnsey, A New Theory of theGrowth ofthe Firm, 41st World Conference ofICSB, Stockholm (June 1996)p.4;diverse trajectories of a cohort of businesses, from E. Garnsey (1996) ibid., p. 18;influences on the entrepreneurial decision, from A. C. Cooper, 'TechnicalEntrepreneurship; What Do We Know?', R&D Management, vol. 3 (1973)pp.59-64; Vickery's model from B. Gamier and Y. Gasse, An Experience inTraining in the Area of Entrepreneurship and Starting a Business in Quebec: TheProject 'Becoming an Entrepreneur', October 1986; entrepreneurial success fromR. Peterson and R. Rondstadt, 'A Silent Strength: Entrepreneurial Know Who' ,The 16th ESBS, efmd IMD Report, (86/4) p. 11; the self employment spectrumfrom R. Lessem, 'Getting Into Self-Employment', Management Education andDevelopment (Spring, 1984) p. 31, © Sage Publications; an analysis of a businessstart-up, from M. Scott and R. Bruce, 'Five Stages of Growth in Small Business',Long Range Planning (1987) vol. 20, p. 48, © 1987ElsevierScience Ltd; businesssurvival rates: percentage of enterprises surviving after 1, 2 and 5 years, from The3rd Annual Report of the European Observatory for SMEs (Netherlands: ElMSmall Business Research and Consultancy, 1995) p. 87.

Chapter 7: the layers of the small business support network from A. A. Gibb ,'Towards the Building of Entrepreneurial Models of Support for Small Busi­ness', paper presented at the National Small Firms Policy and Research Con­ference (Cambridge, 1988); six phases of reaction to unemployment , fromJ. Hayes and P. Nutman, Understanding the Unemployed (London: Tavistock,1981); debt structure by country, from P. Bums and O. Whitehouse; FinancingEnterprise in Europe 2 (Milton Keynes: 3i Enterprise Centre, 1995).

Chapter 8: previous academic approaches to understanding small business growthfrom A. A. Gibb and 1. Davies 'In Pursuit of Frameworks for the Development ofGrowth Models for the Small Business', International Small Business Journal,vol. 9, 1990 pp.16-17; managing factors and stages from N. Churchill, 'The SixKey Phases of Company Growth', in Mastering Enterprise; © Financial Times,20 February 1997, p.3; management weaknesses as a constraint on growth:internal barriers to growth (percentage of respondents citing factor as important)from Binder Hamlyn and the London Business School 'The Quest for Growth',reprinted from Managing to Grow (London: CBI, 1995) p. 11; constraints forsmall business growth, from ESRC Centre for Business Research, The State ofthe British Enterprise (Cambridge Small Business Research Centre, 1992).

XlV Acknowledgements

Chapter 9: who is the entrepreneur?, adapted with permission from G. PinchotIII, Intrapreneuring (New York: Harper & Row, 1985) pp.54-6, by GiffordPinchot III; manager mindset and behaviour for innovation, from © The Fore­sight Group Diagram, S Hamngatan 37, 41106 Goteborg, Sweden.

Chapter 10: objectives of small firm policy, from D. J. Storey, Understanding theSmall Business Sector (London: ITBP, 1994) p.260.

Chapter 12: UK government SME policies, from D. J. Storey, Understanding theSmall Business Sector (London: ITBP, 1994), p.269; SME policy areas, fromEuropean Network for SME Research, The European Observatoryfor SMEs 2ndAnnual Report (European Network for Zoetermeer; ElM Small BusinessResearch and Consultancy, 1994); policy fields and instruments, from K. deLind Van Wijngaarden and R. Van der Horst, 'A Comparison ofSME Policy inthe EU Member States', Business Growth and Profitability. vol. 2, no. 1 (March1996) p.4O; overview of SME start-up support policy in the EU, from K. deLind Van Wijngaarden and R. Van der Horst (1996) ibid., p .43.

Chapter 13: monitoring and evaluation, from the work of the late R. Scott basedon his work at Northern Ireland's Department of Economic Development.

Note: the Ten Commandments of Innovation (pp.190-1) is based on materialpresented at a Department of Trade and Industry presentation on innovationsbut we have been unable to trace the owner of the copyright. Every effort hasbeen made to contact all the copyright-holders, but if any have beeninadvertently omitted the publishers will be pleased to make the necessaryarrangements at the earliest opportunity.

• Preface

Over the last two decades in many countries a new industry has developed. It isthat of enterprise promotion and support. The world has been changing, and therole of the individual has become increasingly more important, with individualinitiative becoming increasingly necessary for economic success. This process hasbeen referred to as the development of an enterprise culture, and its benefits havebeen widely sought. Enterprise and its associated concepts of entrepreneurshipand small business are all widely promoted and their development supported.This has been done by government departments, by local economic and enter­prise agencies, by community initiatives, by private ventures and by academicorganisations. This process is also being repeated in countries, such as manyof those in Eastern Europe, with less well-developed market economies andwhere enterprise development seems therefore to be an attractive route toeconomic growth.

For those working in this field, however, especially when they are new to it,there can be considerable confusion about what is involved. The new industryhas developed policies, practices and a language of its own, but often without aclear objective or strategy. For those unfamiliar with it, and even for many whohave some familiarity, it is hard to grasp what is being done and why.Nevertheless, employment in the industry is already substantial and is stillgrowing, and those working in it or close to it need to try to make sense of it.

Comprehensive overviews of the subject have not been available, however.There has been considerable research done, but it has of necessity been ratherspecialised, often not very widely published and of a piecemealnature. Guides inthe form of books and pamphlets that are available for enterprise and smallbusiness often turn out to be about how to start a small business: a useful subjectfor those who are doing just that, but not for those who seek a wider insight intoenterprise and its associated concepts in order better to promote or support it.This book therefore attempts, for the first time, to address their needs. It istargeted at policy makers, staff of business support organisations, researchers,staff and students of further and higher education establishments and theinformed public. Its content is relevant in countries with developed ordeveloping economies: where people, for whatever reason, wish to know moreabout enterprise and its context. It seeks to present them with a soundintroduction to the key concepts and issues as a grounding for understandingand work in this area and as starting point for further explorations of morespecialised aspects.

In our work of writing it we have been conscious of many people who havehelped and encouraged us. We owe them considerable thanks . We wouldhowever like especially to highlight the patience and support shown by our

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XVI Preface

wives, who have had to put up with many evenings and weekends of work andmany late phone calls and interruptions. We are very grateful to them. Wewould also like particularly to thank Ella Bennett for her superhuman patiencein dealing with phone calls, faxes, urgent typing requests, meetings to bearranged, messages to be passed and many, many other small (and not so small)tasks which made our work much easier.

Belfast SIMON BRIDGEKEN O'NEILLSTAN CROMIE

• Introduction

This book seeks to introduce the concepts of enterprise, entrepreneurship andsmall business and their interrelationships. It is not intended to be acomprehensive theoretical study, but instead it tries to provide a practicalguide to the subject for those working in this field, be they promotion andsupport agency staff, civil servants, advisers, counsellors, trainers or academics.It aims to provide a beginner's guide to the key facts, ideas, theories andthinking about enterprise and entrepreneurship, to look at their relationship tosmall businesses, and to consider the methods that are taken to promote them.

Enterprise

Entrepreneurship

The word 'enterprise' is, at present, much used in a variety of contexts andwith a wide range of meanings. Within this range there are narrow meanings ofthe word specifically related to business and there are wider meanings indicatinga way of behaving that can apply in a variety of contexts, including business.The narrower meanings are closely linked to entrepreneurship, and, in turn, theconcepts of enterprise and entrepreneurship embrace much that would beconsidered to be expressions of small business activity. Indeed, the wordsenterprise, entrepreneurship and small business often appear to be used

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xviii Introduction

interchangeably, but it is also argued that there are many small businesses thatdo not demonstrate much enterprise.

The variety of usesmade of the word 'enterprise' and the variety ofcontexts inwhich it is applied are indicative of the appeal of the concept and its variousapplications. Evidently, the main reason for this appeal of enterprise is jobs.Small businesses are frequently net creators ofjobs, more so than big businesses.Those, therefore, who wish to encourage and promote more jobs are interestedin small businesses and often in what can be done to develop more of them. It isthis interest, and these aspects of it, that this book seeks to inform .

The book consists of three parts. Part I starts with an examination of why theconcept of enterprise has been presented by many people as something desirableand worth pursuing in practice. It explores the variety of ways in which the wordis used and the spectrum of meanings it can have. In particular it refers to thenarrow and broad definitions. It presents a number of theories about enter­prising behaviour in individuals and it looks at the external environment inwhich individuals and groups operate and at the influences that cultural,economic and political conditions can have on enterprise.

In Part II small businessesare explored. They are often the reason why peopleare interested in enterprise. There are many varieties of small business, whichdiffer from each other as much as they differ from larger businesses. Small busi­nesses are not, however, smaller versions of large businesses. They have manydistinctive features, and those who wish to understand and influence thedevelopment ofsmallbusinessesneed to be aware ofthese distinctions. A popularcategory of small business is the 'growth' business, because this is frequently seenas offering the best job-creation prospects. Therefore small business growth isconsidered, as is the issue of 'intrapreneurship' or the application of enterpriseinside larger businesses.

If enterprise and small business are beneficial then there will be a desire to havemore small businesses. In the third part the issues of how, and why, to promoteenterprise are explored. Small business is important for a variety of reasons,including diversity, social stability, and to support the competitiveness of otherbusinesses. Particular attention has however been focused on them because ofthe indicated links between small business and job creation. Governments,especially in times of high unemployment, want more jobs. They are thereforeprepared to intervene to secure the development of more enterprise.

Intervention is the subject of Part III of the book. We start by considering thereasons for intervention and the benefits sought from it. We then consider anumber of theories and assumptions about the nature of the enterprise processin order to see how intervention might work and what intervention might besuccessful. The possible areas for intervention and the forms it might take arethen examined, and this is followed by a look at the issues of evaluatinginterventions and the results indicated by some of the relevant research.