Continued entrepreneurship: Ability, need, and opportunity as determinants of small firm growth

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Abstract

The purpose of this research was to enhance our understanding of the growth or non-growth of individual small businesses, growth here being regarded as an indication of continued entrepreneurship.

Taken together, earlier studies have suggested a very large number of determinants of entrepreneurship and growth. Yet no very strong explanatory factors emerge. It is argued here that all of the specific lowlevel explanatory variables that have previously been used can be regarded as aspects of either of three major determinants: Ability, Need, and Opportunity.

A model based on these three major factors is developed, and the results of previous studies are reviewed in the light of this more abstract model. In the model, objective factors are separated from their subjective counterparts, and it is suggested that subjective factors—or reality-as-perceived—influence Growth Motivation and direct behavior. Although objective factors only partly determine subjective perceptions, they can have important direct effects on outcomes, i.e., Actual Growth.

Using survey data from more than 400 Swedish small firms and applying Partial Least Squares analysis, which is a technique for analyzing structural relations among indirectly measured concepts, the parameters of the model are empirically estimated. The results largely lend support for the usefulness of the model.

More specifically, the analyses suggest that: (1) objective measures of Ability, Need, and Opportunity can explain a substantial share of the variation in Actual (historical) Growth rates; (2) objective and subjective measures of these three factors can explain a substantial share of the variation in Growth Motivation; (3) in both cases, Need-related issues appear more important than Ability and Opportunity (which would mean that satiation is the major reason why small firms stop growing); (4) subjective factors contain growth-relevant information that is not captured by objective measures; (5) direct effects of objective variables on Actual Growth can be traced; (6) some relations are consistent whereas others seem to vary considerably across industries; and (7) while the model largely gains support, the analyses also suggest some additional relations that are theoretically reasonable and may deserve consideration in future studies.

Finally, it is argued that for the advancement of entrepreneurship research, conceptual models at a higher level of abstraction like the one developed in this article are needed. Such models can add meaning to empirical facts and have the virtue of reducing complexity without assuming away too many potential contingencies. It is also suggested that entrepreneurship is a matter of degree and can show itself in different ways, such as start-up, growth, innovation, etc. In practice, the sole measure of entrepreneurship has often been a person's current status as being or not being the founder or owner-manager of a small firm. In future studies the use of a composite measure of the degree of entrepreneurship may prove more fruitful than the comparison-of-characteristics approach has been.

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    This work was made possible through financial support from Jan Wallander's Foundation and Ruben Rausing's Foundation for Research on Innovation and New Business Venturing, whom I hereby thank. I am also indebted to Professors Clas Wahlbin and Karl-Erik Wärneryd for their valuable comments on earlier versions of this manuscript.

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