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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, socio-
economic 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
International Journal of
Entrepreneurial Behaviour &
not sufficient enough to approach only those who have fulfilled their objectives.
Research, Vol. 5 No. 2, 1999,
pp. 48-63. © MCB University Press,
This study brings forth a new approach, by focusing on this other group as
1355-2554 well. The goal of this research was to identify the demographic characteristics
of selected demographic variables likely to affect small ventures formation. As Small business
considerable research has already been undertaken about the start-up process, start-ups
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 49
issues are outlined in section seven.
INTENTIONALITY DECISION
ABANDON
PERSONALITY
Methodology
In order to examine the factors likely to motivate an individual to establish a
small business, a study was undertaken with entrepreneurs in Western
Australia. The purpose of this study was to identify the factors important in
serving as either barriers or triggers to small business start-up. A joint venture
between the Institute for Small Business Research and the Institute for
Research into International Competitiveness of the Curtin Business School, the
study drew a sample of 93 respondents. Forty-eight of these entrepreneurs had
successfully established a small business within the previous two years prior to
interview. The remaining 45 individuals had given serious consideration to
establishing a business (e.g. they had attended a small business training
program or demonstrated a strong desire to found a business) within the
previous two years, but had not proceeded for some reason.
The sample was drawn from a range of sources including the Small Business
Development Corporation, business enterprise centres, the Women’s Economic
Development Organisation and Dun & Bradstreet databases. Following
prequalification all respondents were interviewed face-to-face with an initial
semi-structured approach using open-ended questions which focused on
reasons motivating their intentions to found a business. Following this, a series
of closed ended questions were asked which explored potential barriers and
triggers for small business establishment drawn from the literature.
Of the respondents, 54 were male and 48 female. Just over half (54 percent)
had parents who were previously self-employed or in small business, and 58
percent had relatives who were. Of the respondents 42 percent had been born Small business
overseas and 55 percent had at least one parent who was born overseas. Forty- start-ups
two percent had been educated to university degree level, 17 percent held
diploma level qualifications from other post-secondary institutions, a further 17
percent held trade qualifications and the remaining 23 percent had school
education with 7 percent having completed only ten years of education. The
average age of the respondents was 38 years. 53
Of the respondents, 29 percent had no previous experience in the field of
business in which they had either founded the business or sought to do so. The
average length of experience in the chosen field of business was eight years
prior to business start-up. About half the respondents (51 percent) had held
permanent employment before commencing or considering to commence their
business ventures. A further 26 percent had been unemployed, 3 percent were
students and the remainder had either casual or some other form of
employment (e.g. homemakers). Fourteen percent of the sample had been made
redundant within the previous two to three years before either commencing or
considering the commencement of the business.
Of the respondents, 65 percent had had previous experience of employment
in small business, about half (49.5 percent) had experience of employment in
large business organisations, and 41 percent had previous employment
experience in government agencies.
Franchise businesses were not included in the scope of the study because of
obvious independence problems in the franchiser-franchisee relationship.
However, owners who bought an existing business and changed some of its
activities were included in the research. This study considered that a new
business has effectively started if the first sales have occurred.
To determine the influence of demographic variables on the decision to
establish a small business, a logistic regression analysis was undertaken.
Logistic regression is suitable when a categorical variable is regressed against
any combination of discrete and continuous variables (Hosmer and Lemeshow,
1989, p. 1). The sample was clearly divided into two groups:
(1) those respondents who had established their business; and
(2) those who had not proceeded to foundation.
The presence of a dichotomous dependent variable precluded the use of linear
regression. The chosen form of analysis for the study was therefore logistic
regression.
Predicted Total
Actual Starters Non-starters (%)
Prior probabilities
Starters 47 0 100.0
Non-starters 41 0 0.0
Classification accuracy of prior probabilities 53.41
Posterior probabilities
Starters 34 13 72.34 Table II.
Non-starters 14 27 65.85 Classification table
Classification accuracy of posterior probabilities 69.32 for the logistic model
IJEBR p. 262). The results of applying the model to the data are shown in the bottom
5,2 half of Table II. This shows that the model correctly classified 69.32 percent of
the 88 cases. This may be seen as a reasonable goodness of fit of the model.
Married + x o x o
Divorced + o o o o
Education + x x + x
Children x x x o o
Unemployed + x + o +
Previous wage – x o o +
Experience x o o + x
Age x + x x x
Ethnicity x x x x x
Gender x + x x +
Social class o + o o o
School type o + o o o
Region/urban x o x + x
Inheritance/liquidity + o + o –
Personality o o + o o
Manager o o x x o
Family in business o o x o x
Key: + = variable is statistically positively significant in the study; – = variable is statistically
negatively significant in the study; x = variable included in the equation, but not shown to be Table III.
significant; o = variable not included in the equation Factors influencing small
Source: Storey (1994) business formation
IJEBR Forty-two percent of the sample reported having been born overseas and 55
5,2 percent reported having at least one parent who was a migrant. Forty-one
percent reported having parents who had family members who were self-
employed. Despite this, family background and ethnicity were not strongly
associated with small business foundation which is in contrast to other studies
using empirical analysis (Curran and Burrows, 1988a; Meager, 1991). The
58 variety of testing procedures employed in these studies, the variations in their
samples and the characteristics of their countries are all likely to contribute to
the differences which are found in their findings. Such differences create a
somewhat “fuzzy” picture of what factors are important to motivating small
business foundation (Storey, 1994).
Conclusion
This research study has highlighted the potential importance of three
demographic variables:
(1) gender;
(2) previous government employment; and
(3) recent redundancy
as potential negative influences on small business formation.
As discussed, the overall picture of the effect of demographic factors on small
business start-up is “fuzzy” and requires additional research. The findings of
this study suggest that women, the retrenched and the public sector employees
may require special attention by both academic researchers and public policy
makers in the future if high rates of small business formation are to be achieved.
Three main policy implications stem from this research. First, there is a need
for government authorities to consider specialist outplacement services or their
equivalent when retrenching public servants. Such services need to devote
attention to the mental preparation of retrenched employees to orient them
towards self employment. Second, this same issue is likely to be as relevant for
large private firms, e.g. BHP, when it retrenches workers en masse at its
steelworks in Newcastle, Australia. These workers are not psychologically
prepared for self-employment, and a period of adjustment is required to get
them ready. Third women also may need special assistance, more specifically in
the development of role models and specific business advisors. Networking
groups for existing (and potential) women entrepreneurs is another option.
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