A Predictive Model of Small Business Success

By Gray, Judy H. | Academy of Entrepreneurship Journal, July 1999 | Go to article overview

A Predictive Model of Small Business Success


Gray, Judy H., Academy of Entrepreneurship Journal


BACKGROUND

The entrepreneurial sector plays a vital role in the design of strategies for economic recovery and growth in many nations. According to Hornaday (1992:12) ". . . the desperate desire for economic growth among developing countries has placed the spotlight squarely on entrepreneurship as a major factor in the success of capitalist economies." Further, it is well recognised that small business development provides one of the few opportunities for employment growth to counter high rates of unemployment (Lumpkin & Ireland, 1988). In Australia, economic dependence on small business has increased in recent years as a result of retrenchments in the public sector and by large organizations (Kotey & Meredith, 1997). However, growth in the number of new businesses will not alter significantly the employment rates, particularly when the failure rate for new enterprises is considered to be as high as 60 per cent in the first three years of operation (Williams, 1987, cited in Reynolds, Savage & Williams, 1989:23). Therefore, a major hope for employment growth is that successful small businesses will expand and generate extra jobs.

Extensive research has been conducted to delineate the characteristics, behaviors, and managerial skills which may identify potentially successful small businesses. Studies of entrepreneurial personality characteristics have not yielded a clear picture (Boshoff, Bennett & Owusu, 1992). In addition, personality traits are not reliable predictors of future behavior (Gartner, 1989). Thus, attempts to develop a personality profile of a typical entrepreneur have been largely unsuccessful (Low & MacMillan, 1988). Further, a census-taking approach focuses mainly on documenting and reporting the occurrence of entrepreneurs or their personality characteristics with little attempt to uncover causal relationships or to explore implications for practice (Low & MacMillan, 1988). The current study addresses this deficiency evident in past research.

Research has attempted to identify key success factors that enhance the chances of survival in business (Huck & McEwen, 1991; Vesper, 1990). Some of the conditions that affect business success include level of education, previous work experience, availability of venture capital, the economic environment, role models, and access to support services (Birley, 1989a). Entrepreneurial competencies identified for success include management, planning, and budgeting skills (Huck & McEwen, 1991). However, previous studies have not examined the combination of perceptual factors which may explain how some entrepreneurs utilize resources to build successful businesses.

Locus of control (Rotter,1966) is a perceptual variable which holds promise in predicting small business success (Brockhaus,1986a; Gilad, 1982; Nwachukwu, 1995). Kuypers (1971) claimed that those who experience an internal locus of control believe that they can affect the outcomes of events in their lives and score higher on measures of coping. Phares (1976) noted that in contrast to externals, internals exert greater efforts to control their environment, exhibit better learning, and make better use of information in complex decision-making situations. A more recent study by Howell and Avolio (1993) of 78 managers in a large Canadian financial institution found that internal locus of control significantly and positively predicted business-unit performance. The current study examined this trend in the context of small business performance (success).

Several researchers have examined the decision-making characteristics of managers in large organizations (Buttner & Gryskiewicz, 1993; Mosley, O'Brien, & Pietri, 1991). However, the use of various business and economic principles that assist in explaining corporate manoeuvres may be of little assistance in understanding the successes and failures of small business. Although the importance of decision-making in emerging ventures has been recognized (Hambrick & Crozier, 1985; Mosley, O'Brien, & Pietri, 1991), little attention has been paid to styles of decision-making and their relationships to success in small business. …

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