Academic journal article Journal of Small Business Management

Entrepreneurship and Management

Academic journal article Journal of Small Business Management

Entrepreneurship and Management

Article excerpt


A phenomenal increase in small business activity has occurred in the U.S. in recent years. In 1964, there were about 198,000 business incorporations. That number increased to roughly 319,000 in 1974 and 635,000 in 1984.(1) This dramatic growth is due not merely to expansion in the high-technology fields. In fact, many incorporations and new proprietorships and partnerships are in the restaurant, health care, and financial services fields.

* "This study was supported by an A. Darius Davis Free Enterprise Award, University of Idaho.

1 Dun and Bradstreet, Inc., "Monthly New Incorporations' (various issues).

Although various positive economic effects are associated with new business entries, one negative consequence is that many more new ventures fail than succeed. Some of the reasons firms fail were examined in two recent publications. Clute and Garman2 studied the effects of federal policy on three areas: variations in the money supply, the volume of bank loans, and changes in interest rates. Based on a regression analysis of 92 quarters of data, they concluded that two of the variables (money supply and bank loans) have an inverse, lagged relationship with the business failure rate. In a study restricted to smaller firms, Peterson, Kozmetsky, and Ridgway3 surveyed successful owners and managers, who reported that, in their opinion, the major cause of small business failure is a lack of management skills.

2 D. C. Clute and G. B. Garmon, "The Effects of U.S. Economic Policies on the Rate of Business Failure,' American Journal of Small Business (July-September 1980), pp. 6-12.

Dr. Olson is professor of management in the Department of Business, College of Business and Economics, University of Idaho.

3 R. A. Peterson, G. Kozmetsky, and N. M. Ridgway, "Perceived Causes of Small Business Failures: A Research Note,' American Journal of Small Business (July-September 1983), pp. 15-19.

This article focuses on the start-up and growth phases of entrepreneurial small businesses in order to identify desirable characteristics of key personnel and organizational design for both phases. In general, it appears that although it is not essential for an entrepreneurial small business to employ people with highly developed management skills (marketing, production, finance, and human resources) in the start-up phase, these talents are much more important during the rapid expansion of the growth phase.

An entrepreneur is defined here as a risk-taking, innovative individual who establishes and manages a business for purposes of profit and growth, and an entrepreneurial small business is likewise an innovative firm created for profitability and growth.4 Small business owners who are not innovative and who do not concentrate on growth for their firms are not considered entrepreneurial.

4 These definitions resemble the ones proposed by J. W. Carland, F. Hoy, W. R. Boulton, and J. C. Carland, "Differentiating Entrepreneurs from Small Business Owners: A Conceptualization,' Academy of Management Review (1984), pp. 354-359.

Key people and organizational design traits desirable for the start-up phase of an entrepreneurial small business are examined in the following section. The discussion then centers on the key people and design characteristics important for a firm's growth phase, and differences between the two stages are noted. Finally, case studies are presented to illustrate the proposition that managerial expertise is particularly important in the growth phase of entrepreneurial firms.


The principal goals of an entrepreneurial small business are profitability and growth. These broad terms describe a firm's overall value system. Of course, more specific operative goals also exist and provide additional guidelines for decision making.

Likely start-up phase operative goals include the creation and development of innovative products, services, or processes, and it is toward such goals that the entrepreneurial firm's initial activities and resources are directed. …

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