Small firms: owners and entrepreneurs

Editorial

Small firms: owners and entrepreneurs*

This is the final editorial in the series of three, on aspects of smallfirms and their management.

In the study of the small firm, the majority of research has beendevoted to the entrepreneur and owner–manager. There are exten-sive references to entrepreneurship and the composition of theentrepreneurial personality, together with associated research as tohow owner–managers perform their role. This emphasis is not sur-prising since it reflects major cultural and political preoccupationswidespread in our society.The entrepreneur is portrayed as an eco-nomic hero with special and particular responsibility for wealthcreation through new commercial activity (Weber, 1965, 1978;Binks and Coyne, 1983).

However, at the time of publication of the Bolton Report in theUK (1971), the entrepreneur in particular, and the small businesssector in general, had lost a great deal of the prestige in relation tothe economy and economic progress. The prevailing orthodoxywas the perception of the large enterprise under professional corporate management as the preferred vehicle for the efficientdelivery of economic progress.The entrepreneur and the small firmhad been marginalized and ignored.

As to the social standing of the independent businessman, itis our impression that it may now be lower than it has everbeen. (Bolton Report, 1971: 24)

The report presaged the start of the revival in the status andimportance of the small firm and those involved in its formationand management, and this interest has continued to the presentday (DTI, 1998; Cooney, 2002). This rejuvenation of interest andattention has as much to do with the disillusionment of the per-formance and perception of the large organization that had con-tributed to many of the ills of modern society. Nevertheless, thisrevival of interest in the small firm has centred to a large extent on

Copyright © 2003 John Wiley & Sons, Ltd. Strategic Change, Jun–Jul 2003

Strat. Change 12: 177–183 (2003)Published online in Wiley InterScience(www.interscience.wiley.com). DOI: 10.1002/jsc.625 Strategic Change

*Correspondence to: Graham Beaver, Nottingham Business School, Chaucer Building, Burton Street Nottingham NG1 4BU.

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those who start and manage the enterprise. Much of the academicwork has embodied an essentially psychological perspectiveemphasizing the centrality of the role of the owner–entrepreneur,often to the neglect of the organizational fabric of the business(Stanworth and Curran, 1973; Curran et al., 1986; Stanworth andGray, 1991).

Although the term ‘entrepreneur’ has attracted scores of differ-ent definitions, it usually refers to business behaviour related toinnovation and growth (Schumpeter, 1934; Bolton, 1971; ACOST,1990; Storey, 1994; DTI, 1998). Many researchers seem to pick thedefinition that best suits the area that they are working on and thishas been extended to the public and non-profit sectors (Gartner,1990; Stanworth and Gray, 1991; Gray, 1998; Chell, 2001).

However, for the purpose of this editorial, an important conceptual distinction is made between entrepreneurs andowner–managers. Discussion of the small firm by academics, policymakers and others frequently uses the term ‘entrepreneur’ veryloosely and invariably as a synonym for ‘small business owner’. Theterm ‘entrepreneur’ is a halo term and a flattering and glamorouslabel.The term is positively charged and its attachment to any activ-ity invests with it all the cultural meanings and approval to be foundin a society that values the formation and development of eco-nomic activity and the accompanying difficulties that have to beovercome. Such a label is often attached to activities that on closeinspection are quite prosaic. The great majority of those who start,buy or inherit a small firm should not be seen as ‘entrepreneurs’in any strict meaning of the term. As Curran (1986) rightly notes:

If the term ‘entrepreneur’ is to have a meaning commensuratewith the distinctive cultural resonance that it evokes, it mightbe more properly reserved for those who create a new suc-cessful enterprise based on a novel product or service and/ora novel organizational means for producing a good or pro-viding a service and/or the novel marketing or distribution ofgoods and services. Most small business owners are simplycloning an existing, well proven form of enterprise. To fail tomake a distinction, means that the person who creates a wholenew mass market through producing, say, a cheap home com-puter, is treated as being the same as the person who runs acorner newspaper and confectionary shop. (Curran, 1986)

While academics and policy makers often regard self-employment as a major career change, likened to entrepreneurialactivities, for many of those buying a shop or entering other simple forms of enterprise it is simply another way of earning aliving — an alternative job, with few, if any, barriers to entry or risk-taking involved (Baker, 1985; Jones and McEvoy, 1986; Storey,1994; Jennings and Beaver, 1997; Gray, 1998).

Much of the academic literature on entrepreneurship and smallbusiness still treats these terms as interchangeable and synonymous


and often fails to make the above distinction (Bridge et al., 1998).Further, it does not accept explicitly that the attributes linked tothe successful management of a small firm in one economic sectormay be very different from those required in another. As Curran(1986) again notes:

This is an important point given the exceptionally wide rangeof economic activities in which small scale enterprises haveemerged and the very large number of people who might beconsidered ‘enterprise makers’ in some sense or another.Almost1 in 10 of the active labour force is currently classified as self-employed in Britain and although some of these are onlynominal occupants of the category, discussing the remainderin terms of a single comprehensive perspective is clearly over-simple. (Curran, 1986)

Curran’s observation still holds good today.For the purpose of this editorial, entrepreneurs are defined as

those individuals that start and manage a business with the inten-tion of developing the enterprise, and possessing the leadershipand managerial capacity for achieving their goals, often in the faceof vigorous competition from other firms, large and small. Suchindividuals often practise risk-taking strategic management activ-ities and innovative managerial behaviour (Grieve-Smith and Fleck,1987; Jennings and Beaver, 1997; Chell, 2001; Beaver and Prince,2002). This then provides a framework for examining such phe-nomena as competitive advantage, innovation, economic changeand business development, which are familiar topics in entrepre-neurship policy and research.

In most small firms, especially the small micro-firms (fewer thanten employees), the owner–manager is the principal actor. It hasbeen shown from a wide variety of research evidence that apartfrom the start-up phase, most small firm owner–managers are moreconcerned about survival and independence as primary motivesthan growth per se and are often not especially entrepreneurialonce they feel that the firm is established (Foley and Green, 1989;Stanworth and Gray, 1991; Storey, 1994; Gray, 1998; Davidsson,2001).

The essence of Schumpeter’s (1934) approach is that entrepre-neurs are competitive and always strive to gain a competitive edgeover their competitors. When they begin to consolidate andbecome indifferent to growth prospects, perhaps adopting a man-agerial complexion, then in Schumpeter’s terms, they assume aposture that is more risk-averse and no longer entrepreneurial.Thusattitudes to innovation, risk-taking, strategy, leadership, marketchanges and information, organizational improvement, growth andthe continued attainment of business development opportunities,are essential ingredients of entrepreneurship. Not surprisingly, aconsiderable amount of research on entrepreneurship has con-

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centrated on finding the characteristics that determine both theentrepreneurial person and firm (Chell, 1985, 1999, 2001; Kets deVries, 1977; Caird, 1990).

Much of the early research in this area centred on the notion ofachievement motivation, closely associated with the work ofMcClelland (1961) and the accompanying assumption that entre-preneurs, as distinct from owner–managers, had a particular psy-chological profile. This perspective generated a considerablevolume of research and many attempts at conceptual refinement,but not surprisingly, the existence of a direct relationship betweenbusiness formation and growth and those people having such aprofile was difficult to establish (Brockhaus, 1982; Curran, 1986;Stanworth and Gray, 1991; Storey, 1994).

Apart from the difficulties in establishing a representative popu-lation robust enough to achieve reliable and valid results andthereby establishing causality, entrepreneurial behaviour itself isusually situated in a particular context. This means that influencesof location, industry, stakeholders and market environment have tobe taken into account as well as personality sets.

The quest to find the set of qualities, characteristics and traitsthat constitute the ‘ideal type’ model of entrepreneurial personal-ity, and to relate this to business performance and longevity, is onethat has been on the research agenda since the Bolton Report waspublished.The principal difficulties in this type of approach are notso much methodological as epistemological. As mentioned above,attempts to link personality traits with entrepreneurial behaviouroften ignore the situation of the actors and the influences that theyare subject to. Further, the isolation of particular psychologicaltraits and their associated behaviour has been undermined inrecent psychological theory (Chell, 1985).

This is not to imply that the personality characteristics of bothentrepreneurs and owner–managers are of little relevance, as thatwould be an absurdity given the nature and centrality of the rolein small firm formation and management. Equally, it would beunwise to dismiss research findings that claim a strong correlationbetween personality characteristics and business endeavour. Whatis required is a synthesis that accommodates both approacheswhere entrepreneurship and business ownership is placed in abroader context that includes other conditioning factors.

Other approaches have examined the social context of theowner–manager and the entrepreneur and suggested a ‘sociallymarginal’ explanation for business ownership (Stanworth andCurran, 1973; Curran et al., 1986). The roles and implications ofgender, ethnicity, clusters, networking, community enterprise andother forms of new business such as franchises, cooperatives andmanagement buy-outs have all shed light on our understanding ofentrepreneurship, ownership and enterprise performance.

There is considerable research evidence to show that many smallfirms and the entrepreneurs that drive them that could be


described as entrepreneurial, fall victim to management routinesthat eventually become shackles of outmoded practice (Gray, 1998;Thomson and Gray, 1999). Indeed, routines that work quicklybecome embedded in most organizations, often to be perceived asbest practice (Levitt and March, 1988; Blackler, 1995; Grant et al.,2002). This can be a source of competitive advantage (Hamel andPrahalad, 1994) but the fact that they work and the firm survivesmay reinforce a resistance to learning new ways or ideas on thepart of owner–managers of very small firms. These are clearly notthe entrepreneurial firms that stay ahead of the competition byintroducing innovations and become part of the stock of firms thattrade and perhaps make good profits, but do not grow (Storey,1994).

It only takes performance in one stage of the value chain to fallbelow the norms of the industry or local competition and thewhole firm underperforms, or is put at risk (Porter, 1985). Suc-cessful and sustained entrepreneurship implies a high level of managerial competence and ability throughout all aspects of thevalue chain, an openness to learning from experience, and a highcompetence in social and commercial interactions both inside andoutside the firm.

It has also to be emphasized that entrepreneurship is for manyan escape valve from salaried employment and the perceivedincongruity that many individuals have about their personal attrib-utes and the roles they hold in the wider society (Stanworth andCurran, 1986; Gray, 1998). Many small firm proprietors and entre-preneurs have chosen business ownership as the preferred vehiclefor constructing an alternative lifestyle and this may be put at riskthrough the continuous pursuit of growth opportunities. As a con-sequence, many small firm owners are not interested in growthbeyond a certain level (Beaver, 1984; Rainnie, 1989; Foley andGreen, 1989) and most must be considered in the Shumpeteriansense as non-entrepreneurial. It is not surprising that entrepreneursare relatively rare.

It would seem that to understand entrepreneurship better it isessential to know more about the processes and drivers of change,such as what distinguishes early adopters from the bulk of main-stream small firms and those that embrace growth, from those thatengage in satisficing behaviour and resist change and further devel-opment (Beaver and Jennings, 1995, 2000). It is also necessary toknow more about the communications and social processes of the value chain.

A more thorough investigation of the dynamics of the value chainand the processes associated with it is more likely to reveal moreabout the process and vagaries of entrepreneurial success and in-novation than an academic obsession with the mysterious qualityof ‘entrepreneurship’ which in the majority of cases is a labelapplied ex-post to small firms that have demonstrated dramaticgrowth, or simply enjoyed a lucky break.

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The elusiveness of the goal of establishing what is distinctiveabout those who enter self-employment and their impact on enterprise performance and growth remains, even if considerableadvances have been made.

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Graham BeaverEditor

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Small firms: owners and entrepreneurs