Size Of Investment, Opportunity Choice And Human Resources In New Venture Growth

Description
In this particular detailed elucidation about size of investment, opportunity choice and human resources in new venture growth.

SIZE OF INVESTMENT,
OPPORTUNITY CHOICE
AND HUMAN RESOURCES
IN NEW VENTURE GROWTH:
SOME TYPOLOGIES
SANJAY PRASAD THAKUR
Management Development Institute,
New Delhi, India
EXECUTIVE
SUMMARY
Adiversity of factors encompass entrepreneurshipphenomena. Anoverview
of theory and research in the ?eld shows that entrepreneurship covers (1)
number of start-up ?rms, (2) growth of the ?rm, (3) growth of the industrial
economy, (4) individual mobility, and (5) social transformation. This paper
tries to advance, through a partially developed formal model, an integration
of some of the important aspects of entrepreneurship. Based on nearly 50
case studies carried out in the course of ?eld work over North India, it examines the interplay of resources,
opportunities and capabilities in new venture growth. The ?ndings suggest that resource access may itself
limit the range of opportunity choice and growth potential. Within these limits, managerial capability,
as related to human resources in particular, could be more signi?cant than hitherto recognized. Aprelimi-
nary effort is made to develop a typology of ?rms based on the varying proportion of factors in?uencing
growth of a venture. Further, a model of entrepreneurial ?rm stabilization and human resources is out-
lined. Apath-basedtypology of newventure growthandhumanresource management is described. These
include the use of family labor or supervisory resources, an empathetic leadership style and the presence
of entrepreneurial teams.
The ?ndings in this paper result from a project to document pro?les of entrepreneurs who have
emerged through interactions with support systems, including entrepreneurship and small business devel-
opment training programs in India. The states were divided into categories based on per-capita income
and level of industrial development or backwardness. Ajudicious mix of purposive and randomselection
of cases was used. Criterion for selection included “extent of break from the past,” that is, non-business
social origin of the entrepreneur and high-growth rate of the ?rm. Locationally, cases in a particular
state have been selected from a) major urban center, b) smaller, more interior center, and c) small, re-
mote center.
The argument for small new ventures in developing countries lies in their positive employment and
Address correspondence to Dr. S.P. Thakur, 21/1 Cavalry Lines, University of Delhi, Delhi-110 007, India.
Tel: 91-11-725 7575; Fax: 91-11-725 7183.
Journal of Business Venturing 14, 283–309
© 1998 Elsevier Science Inc. All rights reserved. 0883-9026/99/$–see front matter
655 Avenue of the Americas, New York, NY 10010 PII S0883-9026(98)00002-0
284 S.P. THAKUR
income generating effects. The claim rests on the presumed better ef?ciency of factor use in small enter-
prises—(surplus) labor in particular. Since the 1970s and the 1980s in the developed countries, too, new
?rms are acknowledged as being vital to an economy. The outlook for an individual new ?rm, however,
can vary. High rates of sickness and mortality are also widely reported. Small ?rm start-ups are thought
to play a role in widening the entrepreneurial base of a given society. It is an important expression of social
mobility, as well as structural change, in a developing country context. At the micro-enterprise level, limited
resources can restrict choice of opportunity to low growth ones. These represent a bad business idea, subsi-
dized by family resources, including labor—the true self-employment cases. There could be a middle
‘growth zone’ where higher investment size widens opportunity choice.
This slab represents the seedbed for ?rms with high-growth potential and merits the focus of policy
makers, promotional agencies and advisory services. The strategic behavior of these ?rms can provide
valuable insights into how ‘sweat equity’ is generated in growth ventures. There is a signi?cantly sharp
decrease in the number of ?rms in the third or highest, investment slab, approaching medium size. At
this level, the size of the margin money required from the potential entrepreneur would limit the number
of new entrants and their catchment sources. From a social transformation point of view, this may not
be the desirable outcome. In the absence of developed markets for venture capital, this would render
weak, the case for complete withdrawal of countervailing state assistance in industrially backward or
depressed regions, which would favor those already advantaged. © 1998 Elsevier Science Inc.
INTRODUCTION
There is a widening interest in entrepreneurship as a vehicle of transformation and re-
covery in developing societies as well as post-socialist and market economies. By entre-
preneurship we mean the carrying out of new combinations (of the factors of produc-
tion) and the creation of a newbusiness venture. In a late industrializing economy, these
new units may be based largely on the backlog of technologies and products already
existing inthe global pool. They havethus beendescribedas imitative innature (Baumol
1988). These new units could nevertheless represent considerable departures from the
past, at the local/regional and country economy levels as well as in a social context. En-
trepreneurship is an important expression of occupational and social mobility in the
structural transformation of developing countries. At the heart of newventure creation
is a complex interplay of resources, capabilities and opportunities. These relationships
merit a closer examination. More recently, there has been equal concern with managing
survival and growth in new ventures.
The right choice of opportunity or project feasibility, is said to be a major part of
the battle won in new enterprise creation. The successful exploitation of opportunities
however, requires putting capable systems into place. On one hand, resources (usually
scarce) are needed for the creation of organizational form, although a rudimentary
structure is necessary to generate the resources. This, in fact, is the vulnerable phase
of new venture creation. Thus, there is a high degree of ‘simultaneity of causation’ in
the venturing process (see Figure 1). The combination of in?uences on individual ?rm
start-ups would obviously vary. Is it then possible to develop a typology of ?rms, based
on the relative proportion of in?uences operating on ?rm start-up and growth? This
is the main question that this paper attempts to address.
The classical economists, with varying emphasis, identi?ed three central aspects of
entrepreneurship: (a) uncertainty and risk, (b) managerial competence, and (c) creative
opportunismor innovation (Herbert and Link 1982). Modern theories of entrepreneur-
ship have ranged from those emphasizing psychological factors to ones describing the
sociological dimensions. The former highlight aspects of individual restlessness: the
INVESTMENT, OPPORTUNITY AND HUMAN RESOURCES 285
FIGURE 1 New venture development process.
need for independence, approval, unique achievement or status, the results of material
deprivation and the in?uence of childhood or family experiences. The latter theories
emphasize the role of relative social status of certain groups in different societies, the
beliefs and values of certain sects or communities and overall social structures, value
systems and the dynamics thereof (Kilby 1971). Modern economic theory is concerned
with overall macroeconomic factors and the operation of the price mechanism in factor
and product markets. This affects the individual ?rmas a pro?t maximizing “black box,”
and the entrepreneurial aspects are subsumed under “residual factors” (Barreto 1989).
A fourth strand of theory has tried to develop models of ?rm growth, examining the
entrepreneurial and/or managerial competence aspects at different stages of the new
venture development process (McMullan and Long 1990).
Thus entrepreneurship appears to be a link between (a) number of start-ups, (b)
growth of the ?rm, (c) growth of the economy, (d) individual mobility and (e) social
transformation. However, there are limitations to the explanatory power of each strand
of entrepreneurship thought, by itself. The position of the entrepreneur in modern eco-
nomic theory has attracted considerable dissatisfaction (Barreto 1989). Psychological
explanations also break down on application to large samples, despite spirited attempts
at validation (McLelland et al. 1987). The in?uence of psychological factors cannot be
denied, but a survey of empirical results is likely to end in equivocal conclusions (Chell
1991). Sociological theories appear to have receded to the background, in the wake of
the homogenizing juggernaut of western capitalism since the early 1980s. There is an
anecdotal saying in India, about the dif?culty of six blind men trying to describe the
actual shape of an elephant by touching different parts of the creature. Thus, an interdis-
ciplinary integrationof various strands of entrepreneurshipthought has eludedthe ?eld.
286 S.P. THAKUR
This paper is an attempt, based on empirical observations, to integrate some important
aspects of the entrepreneurship phenomenon.
EARLIER RESEARCH
Entrepreneurial ?rms generate ‘sweat equity’ under conditions of resource constraint,
inthe process of creatingnewwealthinsociety. It is recognizedthat, withinsociety, these
?rms mobilize dormant material resources and human effort in economic development
(Ray 1988). However, the precise patterns along which family or other resource use
occurs is less explored.
1
But the precise patterns of human resource use, whether managerial or labor-re-
lated, givengrowthopportunities onone hand, withvarying levels of resource constraint
on the other, has received less attention fromresearchers. Sidney Pollard observed that,
“the industrial entrepreneur typically must hire a group of men whose labor he must
organize and direct” (Pollard 1965, pp. 4–5). Much earlier, Nicolas Badeau (circa 1767)
noted that “the entrepreneur is a leader of men, a manager of resources and innovator
of ideas, including new scienti?c ideas.”
Adam Smith treated pro?t and interest as coterminous and dispensed with the en-
trepreneurial role, as being no different from that of the capitalist. J.B. Say, in turn,
described the uncommon managerial capabilities required of the entrepreneurial func-
tion, in addition to risk-taking and coordination. He also separated pro?t from interest,
hence the entrepreneur from the capital provider. Say emphasized the human industry
function or the role of labor in the productive process. This was divided into three steps:
(a) theory or knowledge, (b) application, carried out by the entrepreneur and (c) execu-
tion by manual labor. The entrepreneur in Say’s conception, could originate from any
strata of society and was not con?ned to the traditional divide between the ‘owning and
the laboring classes.’ Marshall hinted at the differing capabilities required for business
creation and its subsequent continuance, respectively. But the undifferentiated treat-
ment of pro?t meant, that the entrepreneur was reduced to management: a special vari-
ety of skilled labor. Schumpeter distinguished between ‘directed and directing labor’
as well as between entrepreneurship and ‘routine’ management. Directing labor stood
higher in the hierarchy of the productive process: ‘this direction and supervision of the
“executing labor” appears to lift directing labor out of the class of other labor.’ Further,
directing labor “has something creative in that it sets itself its own ends.” Schumpeter
accorded directing labor, distinguished by its decision making function, the position of
the third fundamental factor of production (Schumpeter 1934, pp. 19-20). Froman orga-
nization theory viewpoint, too, new ventures are social units (or human groupings) de-
liberately constructed to seek speci?c goals. Modern forms of these are marked by divi-
sion of labor, power and substitution of personnel (Etzioni 1986). Newventure creation
also involves mobilizing resources and commitment, of stakeholders, to the venture
idea.
The importance of managerial slack as a crucial factor in ?rm growth was recog-
nized early (Penrose 1959). It was observed, that ?rms are able togrowand develop only
when excess ‘managerial services’ are released to exploit the productive opportunity of
the?rm. Penrose theorizedthat the managerial limits on?rmgrowthcouldnot be simply
overcome by hiring in the market. Growth limits are placed by the time required for
organizational learning and social integration, within an extended management or hu-
1
Whether personnel or working capital obtained through mortgage of bridal jewelry, etc.
INVESTMENT, OPPORTUNITY AND HUMAN RESOURCES 287
man resource group. There is evidence, that limited managerial time and resources con-
strain a firm’s growth or it’s capacity to respond proactively to environmental changes
(Gibb and Scott 1985). But surprisingly, there is little data on how entrepreneurs could
overcome this constraint, as the high-growth ones surely must. What could be the possi-
ble mechanisms by which‘managerial services’ are released, toenable ?rmgrowth? This
is another aspect of the subject that this paper tries to uncover. The question of the
effective leadership style in growth ventures also merits examination here. The human
resource aspect has showed up, though tentatively, in a few mailed-questionnaire stud-
ies of entrepreneurial ?rms. One study compared newbusinesses which grewin the sec-
ond year of their existence versus those which declined (Dunkelberg et al. 1987). It sug-
gests that entrepreneurs in the ?rst category spent more time on planning and dealing
with employees. Whether such activity by the entrepreneur, is a function of growth or
is a in?uencing factor in growth, is however unclear. Discovering the lines of causation
is complicated by the inclusion, of increase in employee numbers as a criterion for mea-
suring ?rm growth. Thus, whether growth is in?uenced by the number of employees,
or by an ‘employee system’ being put in place, or is it merely a function of enterprise
growth, remains unclear. Another study compared ?rms that have discontinued after
three years with those that have survived. The survivors were more likely to have had
full-time partners. Interestingly, these ?rms were also larger, having more initial em-
ployees and more capital (Cooper et al. 1988). The presence of founding teams, has also
beenobservedtobe associatedwithgreater likelihoodof venture success (Vesper 1980).
The relationshipbetween initial size—bothcapital andhuman resources—andsub-
sequent survival or growth performance has also been examined, with results favoring
the larger ?rms (Cooper et al. 1988, 1994). It has been noted, that initial resources in?u-
ence the range of choices tobe considered by the entrepreneur. It couldshape strategies,
which turn upon the capabilities that could be developed in the small new ?rm. Initial
resources could cushion the ‘liabilities of newness and smallness’. But how do speci?c
human and capital resources drive performance remains an unanswered question.
The stage model theorists of business development have some valuable insights
on view(Churchill 1983). The present paper’s observations, on the stabilization process
of nascent ?rms, are concerned with the ?rst three and half stages of the above schema:
‘existence, success and take-off.’ Our description however, emphasizes the transition
processes which may bring a ?rm to the take-off stage. How does a ?rm reach the stage
of survival from merely coming into existence? How does it go on to the next stage:
success? What are the processes by which a new venture is taken to a stage where the
entrepreneur can be free fromday-to-day operations, as the enterprise is ready for take-
off? These are some of the grey areas between neat conceptual stages which the present
paper examines. Studies using mailed or telephonic questionnaire-based surveys de-
rived from the existing literature, predominate entrepreneurship research. This may
often appear to merely reproduce the limitations of earlier studies, in a modi?ed form,
with equivocal outcomes. It may be fruitful to return to the entrepreneur, with the ap-
proach of an early anthropologist perhaps, and actually spend time with the phenome-
non. In understanding the process of new venture creation, this may help us to answer
the question: what do entrepreneurs really do?
METHODS
The ?ndings presented here result, in part, from a project to document pro?les of entre-
preneurs who have emerged through interactions with support systems, including entre-
288 S.P. THAKUR
preneurship and small business development training (ESBDT) programs, in India. All
the states of northern and eastern India, i.e., the largest part of the Indian sub-continent,
were covered. The states were divided into four categories on the basis of per-capita
income and level of industrial development or backwardness. Sample size for each state
was determined in proportion to the number of ESBDT programs conducted. A judi-
cious mix of purposive and random selection of cases was resorted to.
Training institutions were asked to identify cases on the basis of several criterion.
These included “extent of break from the past,” that is, non-business social background
of the entrepreneur and alsohigh-growth rate of the ?rm. Those belonging totraditional
business communities/families were also included, if they were doing something signi?-
cantly different from the family. Apart from ?exibility with regard to size when a new
venture was socially relevant, or in the context of a backward region, unique, several
criterion have brought in the purposive element. Cases thus included covered profes-
sional/employee-turned-entrepreneur, educated-unemployed/underemployed, less ed-
ucated, low-income group, backward/weaker sections and minorities. A conscious bias
in case selection has been kept towards those ?rms which are relatively ‘bigger’ in terms
of current size of capital employed and sales turnover. These could be considered more
entrepreneurial, generating signi?cant capital accumulation and employment, as
against the merely self-employed or survivors. Smaller cases have also been included
where they represent signi?cant departures from the past in a social sense, that is, non-
business community and lowincome/social background of the business-owner or where
they are typical backward region cases. Locationally, cases in a particular state have
been selected from (a) major urban/industrial/administrative center, (b) smaller/more
interior center and (c) small/deep interior/remote center.
Initial data for this study came through ?eld research over a period of more than
six months. In-depth interviews around a semi-structured guide are the main source of
inferences drawn for this article, apart from observations. Field notes were analyzed
for gaps and clues which required clari?cation and counter-checked with local sources.
Field observations and statements of entrepreneurs conveyed some weak signals re-
garding the subject of this paper. The tentative hypotheses were further discussed with
entrepreneurs participating in a management development program. The qualitative
data was then subjected to content analysis and tabulation to discern patterns, if any.
Pattern matching, replication through multiple case studies and locational spread of
cases accounts for sampling (Yin 1984). The cases provide dynamic, ‘context-embedded
data’ and form the basis for some generalizations (Eisenhardt 1989). Corroboration of
a ‘snapshot’ kind is provided by reference to a national level sample survey covering
657 ?rms (NCAER - FNSt 1993) and other secondary sources.
As a measure of size and growth, capital employed was felt to be more relevant
from an entrepreneurship point of view.
2
There are some inevitable inconsistencies in
the data reported. For purposes of ?scal and other bene?ts, government classi?cation
uses ?xed investments in plant, machinery, land and building as a measure of size. In
interviews, entrepreneurs tend to report total capital employed as the current “invest-
ment,” including working capital. For a dynamic picture, initial capital employed is cer-
tainly relevant. But often units have been started on family owned land or building or
rented premises. Further, many have diversi?ed into other product lines or entered new
2
The utility of capital employed as a measure is anticipated by the World Bank survey, too (Little et
al. 1987) and its dif?culties noted.
INVESTMENT, OPPORTUNITY AND HUMAN RESOURCES 289
TABLE 1 Size Distribution of Firms by Current Employment
No. of Employees No. of Firms
?5 6
6–25 26
26–50 3
50–100 3
100? 1
businesses. These complicate the problem of de?ning the venture, it’s size and growth.
Growthinsales turnover—20%or greater increase insales over previous years reported
as extremely fast growth ina national study—is also used as a rough measure, apart from
initial capital employed compared with current. The purposive element has brought in
a larger number of high-growth ?rms in our sample (Tables 4, 5, 6). Non-reporting and
under-reporting of sales ?gures in tune with duty-evasion habits meant that rough esti-
mates have beenresortedtoincertaincases. Ina fewcases, current worth(market value)
has been reported as current total investment, that is, entry cost. Our sample of cases
results in an average capital employed ?gure of Rs.1,431,221 (n ? 36), (U.S. Dollars
1/- ?approx. Rupees 30/-). This is slightlyhigher thanthe national average Rs.1,353,000,
reported in a recent national level sample survey (NCAER-FNSt 1993). With n ? 37,
the ?gure turns out to be Rs.1,554,702. This con?rms our conscious bias towards “big-
ger” small units. The highly skewedstructure of the small enterprise sector was apparent
even at the time of case selection and shows up in our sample distribution of ?rms in
terms of capital employed and the number of employees (see Tables 1 and 2). There
are a very large number of tiny units, in terms of investment as well as employment,
and a few big units accounting for a disproportionate share of total production and em-
ployment. For our sample a few tiny artisanal/cottage enterprise cases were included
for illustrative/insight purposes. Focus was more on the small modern manufacturing
units, factory and non-factory type, where accumulation/growth could occur.
FIRM GROWTH PATHS AND HUMAN RESOURCE TYPOLOGIES
Our data and observations, as well as supporting inferences drawn from other surveys,
suggest some reasonably distinct typologies of entrepreneurial ?rm organization and
growth. Units in the lowest investment slabtypically represent a lowgrowthopportunity
subsidized by the use of family labor. The current cost of entry into such businesses
would roughly be up to Rs.200,000 in terms of capital employed. These are essentially
artisanal/cottage units with ?ve or less employees which are estimated to comprise
around 28% (15% in our sample) of all small enterprises. In this slab, output as well
as labor productivity is low. It can be inferred that manual production processes domi-
nate in more than 56% of these units and role of the family in decision making is very
important: 86.52% (NCAER-FNSt 1993). This supports our characterization of such
units as a poor business idea—surviving through the help of family labor, i.e., subsidized
by family resources. Here, the “entrepreneur” himself/herself is an underdeveloped hu-
man resource. It appears that limited investment capacity and low levels of education/
skill are combining to determine choice of business opportunity—usually a low growth
one. These then are the true self-employment cases. If you can’t sell your product, at
least it can be eaten!
290 S.P. THAKUR
TABLE 2 Size of Initial Capital Employed and Distribution of Firms
Rupees (000’s)* No. of Firms
?200 8
200–500 7
500–1,000 3
1,000–3,500 14
3,500–5,000 2
?5,000 3
*at current prices
Micro-Enterprise
There is however, enough cause for cautious optimism with regard to micro-enterprise
in a developing economy context. Since capital investment is low, if there is suf?cient
local product demand to sustain sales for a given time period, return on investment can
be fairly high (see Case 2 in Appendix A). Net pro?t as a percentage of total assets
by ?xed investment is estimated to be 45% for units within the slab up to Rs.200,000
and 35% for the slab Rs.200,000-Rs.500,000 (NCAER-FNSt 1993). Thus, suf?cient in-
come can be generated fromthese micro-enterprises to maintain and uplift current stan-
dards of living and provide hope of social mobility for a family, by making possible
higher levels of education for a family member etc., as illustrated in Case 1. This is apart
from indirect effects on the economy. A second path is illustrated by Case 2, where
income could be generated for a suf?cient period of time to enable accumulation for
entry into a similar newbusiness if/when growth or pro?tability limits are reached in the
original business. The possibility of such micro-tiny enterprises developing into small
industry in a real sense, or even becoming a stepping stone for the individual to develop
into a small industrialist, however, appears remote, particularly in the absence of educa-
tion/training and capital outreach. High rates of mortality are per se not discouraging
as long as start-up rates remain high and multiple start-up capability is internalized in
individual cases. Invariably however, poor choice of opportunity as in?uenced by re-
source constraint, is much of the battle lost in new venture creation, as far as micro-
enterprises are concerned.
Initial Size and Growth Threshold
The second category of ?rms with 6 to 25 employees (66%of our sample and 67%of the
national survey) represents moderate to high-growth opportunities. By initial capital
employed in the higher slab of Rs. 1,000,000 - Rs. 3,500,000, 20% of national sample
(33% of our sample, excluding low growth cases), these represent the potential ‘growth
zone.’ Non-matching of cross tabulation with employment size re?ects inter-industry
variations in labor intensity (see Tables 1 and 2). Higher levels of education, matriculate
and above, plus signi?cant numbers of entrepreneurs with post-school technical educa-
tion or college degree, are found in this cluster. The high-growth cases, also report grasp
over marketing, via prior experience, training or the ‘hard knocks school of discovery.’
Thus, individual capability, as a factor, begins to exercise in?uence in this strata of ?rms.
The social origins of entrepreneurs in this cluster also provide some evidence of socio-
logical phenomenon at play. One set of entrepreneurs, belonging to socially ascribed
lower status groups, appears to be motivated by the urge for status enhancement. A
INVESTMENT, OPPORTUNITY AND HUMAN RESOURCES 291
second group consists of entrepreneurs originating from strata traditionally considered
to be superior in status. For this group, choice of business careers appears to be a status
defense mechanism in the absence or inability to obtain suitable jobs, commensurate
with their family or social status in traditional society.
These ?rms are in industries where there is growth in demand and markets are
developing, but competition is also becoming more intense. Stabilization and growth
of these ventures can occur, provided the requisite managerial skills, ‘directing and di-
rected labor,’ that is, human resource skills and quality of human resources, come into
play. Business growth here can take several alternative paths: (a) the ?rm can remain a
one-man-show, withtheentrepreneur strugglingtostagnate- “running harder toremain
where you are” - unable to attend effectively to neither factory nor market, illustrated
by Case 3, (b) a more humanistic management style combinedwith some family supervi-
sion as a transitory mechanism, can help the ?rm stabilize, illustrated by Case 4, (c) a
human resource management approach can help stabilize a ?rm in its vulnerable phase
and enable effective exploitationof a growth opportunity, as illustrated by Case 7. Cases
3 and 4 together represent same businesses but different management styles, in similar
industrially backward, low-income environments. Cases 4, 5 and 6 together represent
same location, different businesses and varying management styles.
Afourth type of ?rm, in this middle sized investment slab, is where the exploitation
of high-growth opportunities has been facilitated by the placement of family members
in functional managerial positions, the family management team. Here, too, there are
variations. Take the case of Dinesh Shah, in the state of Gujarat in western India:
A chemistry graduate with a knack for experimentation, Shah started a small dye-
stuffs unit with a Rs.50,000/- bank loan. With the business doing suf?ciently well,
he decided to go in for an ambitious new unit for H.Acid. To his dismay, there were
some gaps in his technical knowledge. It was a near total loss and he almost went
out of business. A chance enquiry brought an export order for 340 metric tons (MT)
of black dye to be met in 4 months. The unit’s capacity was only 10 MT/ month. Shah
mobilized the workers, his friends and family with the idea that “we either sink or
swim together.” In these 3 months, the team actually lived in the factory. There were
no holidays and no working hours. The order was executed and repeat orders came.
After this, 15 days leave was given to workers and he also took them on an out-of-
town excursion. Unlike the traditional approach, Shah feels that employees had to
be treated as an asset rather than as a cost. The business depends critically on a core
of highly motivated and committed workers, several trained by Shah himself. His
retired father looks after of?ce administration. Production is managed by one
brother while another who is a practicing Chartered Accountant looks after ?nance
related matters. An in-house R & D cell has been initiated. The ?rm also sponsors
Ph.D. students in the University for research in Chemistry, particularly on non-toxic
substitutes. Shah feels that without investment in education, research and training,
he would not be able to compete internationally. The total investment is now $1.7
million with a turnover of $8.3 million. The ?rm is one of the leading exporters of
dyestuffs and in 1995 successfully ?oated a public issue.
This case illustrates an enlightened human resource management approach, com-
bined with family members in management functions. The case of Suneel Baxi, in the
state of Haryana in northern India, illustrates high-growth opportunity exploitation
with human resource management, without family management:
292 S.P. THAKUR
Baxi, a tool-room technician by training, produces sheet-metal auto components for
manufacturers such as Eicher Motors, Maruti-Suzuki and Lucas TVS. Products
meeting exacting Japanese standards at a cheaper price have been developed by his
unit. The vendor rating is 99%and components have been developed with 0.1%vari-
ation in quality. As a manager, Baxi with one glance can see where work has been
slow in the factory. He tries to practice an open system of management where every-
body is his own boss and the focus is on team work. Except for one person, all the
workers are raw recruits. This means spending time and energy on human resource
development. When a mistake is made, instead of giving vent to anger or showing
his authority, Baxi tries to treat it as a learning opportunity. The results are sincerity,
pride in work, quality consciousness, loyalty to the ?rm and less need for control or
supervision. Under the laws in Haryana, if a worker leaves employment on his own,
he is not entitled to gratuity. But Baxi has paid workers who have worked in the
lean periods also. This generates con?dence and a sense of security in the others.
He gives a good salary and provides incentives for not taking leave, etc. Monthly
schedules are put up on the walls after a participant-driven decision-making process.
If there is a fault in a product, they try to discuss the reasons for it. In?uenced of course,
by the “Japanese” culture of parent companies like Maruti-Suzuki, the workers have
learnt to be quality conscious. They are disturbed if a batch is rejected, though there
is no punishment for it. Production is now against stable orders. Baxi has set up a
second unit. There is a plan to set up a plastic molding unit also, for in-house supply
of a sub-component, being purchased from the market at present. According to him,
in this line of business those who exploit labor are also the ones who exploit custom-
ers by compromising on quality and get orders through bribes. They never grow.
Baxi was recently awarded the National Science & Technology Entrepreneur of the
Year award and has a current turnover of more than $1.75 million.
The ?fth type of business venture, which in our view has the maximum growth po-
tential, is characterized by the presence of entrepreneurial teams. Representing 7.6%
of our sample (n ? 39), these cases have shown spectacular growth. Interestingly, two
of these cases are located in two of the industrially most backward, low per-capita in-
come states of India: Bihar and Orissa. Partnership ?rms have been shown to perform
better elsewhere too (World Bank 1993 & NCAER-FNSt 1993).
3
Our cases however,
refer to entrepreneurial teams of three or more persons. These ventures with small be-
ginnings have grown into diversi?ed business groups. For example, K.P. Singh, in the
state of Bihar in eastern India:
K.P. Singh and six other engineer friends got together with Rs.10,000/, each ($1,500/-)
and started two businesses, a Precision Blanking unit, only the second of its kind in
India, as well as a housing development company. The second business alone grew
to a turnover of Rs.60 million ($2 million). Though the friends have parted ways now,
the group turnover is estimated to be above Rs.200 million ($6.75 million). Singh
has now purchased a fruit processing unit, apart from his construction/development
company. The group built eight residential complexes and a mini-township, in a re-
gion where the earlier culture was for individuals to build their own houses.
A similar case is that of J.K. Rath, in the state of Orissa in eastern India:
While still an undergraduate science student, Rath made up his mind to do business
someday. He realized that in an industrially backward, low per-capita income state,
it would be dif?cult for an individual struggling alone. He thus teamed up with a
3
Though it is unclear whether this is because of the presence of a team or a healthier capital base.
INVESTMENT, OPPORTUNITY AND HUMAN RESOURCES 293
FIGURE 2 Firm growth and human resource typologies.
friend who was a commerce graduate. Later, two more engineer friends were roped
in. On a very small scale, in a small rented room on the outskirts of town, they began
manufacture of high-value-added specialized aromatic chemicals. Within 2 to 3 years
they captured maximum possible market share at the national level. Moving next
into ?ber-reinforced plastics (FRP), they developed a market in eastern India, for
a wide range of FRPapplications: water storage tanks, engine covers, boats, etc. They
are now fabricating ocean going steel vessels. The group has also entered the manu-
facture of electronic telephone exchanges in a joint venture with the state govern-
ment. Even trainee engineers or managers are recruited with the understanding that
they could achieve a stake in the group, or even hive-off independent businesses,
should the entrepreneurial zeal be there.
The typology we have attempted to describe above can be conceptualized in the
formof a model (see Figure 2). Agreat number of the micro-enterprises are in the lower
left quadrant—low growth opportunity/low human resource. The variation here is that
some ?rms, in a lowto moderate growth opportunity zone, can stabilize with the help of
family supervisory resources. Amoderate to high-growth opportunity can be effectively
exploited after stabilization through family members as part of the managerial team
(lower right quadrant)—as against family labor or partial/transitory supervisory use of
family resources. However, the family management team can also constrain effective
exploitation of a high growth potential opportunity beyond a point, due to the need
to retain close control, emotional boundaries etc., as is well known. A one-man-show
(entrepreneur-owner-manager) combined with human resource management (HRM)
practices can have a multiplicative effect, not only in stabilizing the business, but also
294 S.P. THAKUR
FIGURE 3 Growth potential corridor.
enabling effective growth. The ideal of course, is the entrepreneurial management team
(upper right quadrant). Effective division of managerial effort in this case can success-
fully exploit even moderate growth opportunities, as a base from which to diversify.
This particular HRMtypology can reduce the problemsolving time in operational, day-
to-day business matters. It also enables the business organization to behave more strate-
gically, withbetter scanningof theenvironment for potential high-growthopportunities,
as well as for possible threats to the current business. The dif?culty of getting together
a team, not to mention an ideal team, as anyone with business experience will testify,
means that such an organizational form is found rarely.
The dotted diagonal “G” in the cuboid of Figure 3, can be considered an idealized
index of the base potential for growth of a venture, at a given point in time. For a ?rm
characterized by an entrepreneurial management team, base potential for growth is ob-
viously high. Degree of deviation from line G, the ‘corridor of growth,’ will bring varia-
tions in growth performance. Extreme deviations from the ‘growth corridor’ indicate
non-entrepreneurial zones, or situations wherein human resources or opportunities in
isolation, i.e. by themselves, in the absence of resource access, mean nothing. In a dy-
namic perspective two possible growth paths have been indicated, along which ?rm’s
would cluster (see Figure 4). A one-man-showwith the multiplicative effect of a human
resource management orientation, can be developed into a dynamic organization ap-
proximating the behaviors of an entrepreneurial management team, described above.
INVESTMENT, OPPORTUNITY AND HUMAN RESOURCES 295
FIGURE 4 Venture growth paths.
Afamilymanagedventurecanalsobe developedintoa high-growthone, if professional-
ism can be effectively brought in.
The highest investment slab, approaching medium-sized ?rms, is a signi?cant
threshold. In this third category of ?rms, it can be inferred that the sheer size of the
promoters-own-equity required would deter the number of new entrants. It could sig-
ni?cantly discourage the ?rst generation, ?rst-timer new entrant. This has extremely
signi?cant implications from the social transformation point of view. At this investment
level, resource barriers would favor start-ups fromthe ‘catchment zone’ of those already
privileged, in a given society (Thakur 1991). This is borne out from our sample distribu-
tion of cases, the number of ?rms in the highest size group is signi?cantly lower, both
by quantum of investment and number of employees. At this level, ?nancial strength
could, to some extent, enable the ‘creation of competencies’ and the relevant manage-
ment capabilities or systems could simply be purchased, hired or installed.
Entrepreneurship, Venture Stabilization and Human Resources: A Model
An entrepreneurial venture in the sector we have examined, in the early stages, tends
to be essentially a one-man-show. In fact, 89.5%of small enterprises in a recent national
296 S.P. THAKUR
TABLE 3 Agewise Distribution of Firms
Years No. of Firms*
3–5 23
6–10 9
11–16 8
*Excluding less than 3 years old
level survey reported that the “entrepreneur-owner was himself carrying out all the
managerial functions,” including routine activities (NCAER-FNSt 1993, p.134). This
may of course, simply re?ect the preponderance of tiny units within the small enterprise
sector at any given point in time. In the absence of ?rm level growth data, whether the
‘bigger’ small enterprises grow from tiny origins or are relatively larger from the start
itself, remains unclear in the survey. These 89.5%of ?rms are, of course, not necessarily
all high-growth ?rms. In fact, they account for less than 25% of the total production
in the small enterprise sector. The purposive element in our study and the sampling
bias thereof, has thrown up cases which display a different typology (see Tables 3 and
2). There is evidence that the ‘bigger’ small enterprises tend to be older ones—10 to
15 years old—suggesting that they originate from the middle size slab identi?ed above.
Our sample of case studies also provides support for such a view.
“The entrepreneur-manager at the end of the day is left with little or no time to
plan ahead, analyze business and monitor it well. The problems are tackled as and when
they come up” (NCAER-FNS 1993). Most commonly, in ?eld observations, the entre-
preneur himself obtains raw-material supplies, supervises production, goes to the mar-
ket to obtain orders as well as to collect payments. All this, while interest on the loan
is accruing from the day of disbursement. The duration for which credit has to be ex-
tended to the buyers, is almost always more than the initial calculations. Initially, raw-
materials are almost always obtained against cash payment. Often it is the case that
the entrepreneur is unable to attend satisfactorily to any one of these areas. (If you meet
an entrepreneur at this stage, you may feel lucky that you have a job!) Not surprisingly,
sickness is found to be common in newer ?rms of up to 3 years old. Factor and product
market imperfections unfavorable to the small new ?rm can present highly adverse
thresholds and barriers to mobility (Patibandla 1993). With macro-economic policy fa-
voring heavy-industry led growth, even support programs for small ?rms can create ac-
cess barriers to limited resources (Mead 1991). It may also spawn low productivity and
‘leakages’. Imitative entrepreneurship based on technology imports would favor larger
established ?rms too.
Identifying a growth opportunity is said to be a large part of the success in new
venture creation (Megginson et al. 1991). However, effective exploitation of growth
opportunities requires puttingcapablesystems inplace. Onone hand, resources (usually
scarce) are required for the creation of effective organizational form. Although on the
other hand, a rudimentary structure is necessary to generate the resources. This in fact,
is the vulnerable phase of new venture creation. In generating the ‘sweat equity’ to
bridge this gap, new ventures often fall back on rudimentary structures borrowed from
the family and its resources. In its absence, several organizational possibilities present
themselves to view. In this phase, it is less a matter of applying management skills and
more a matter of discovering the skills required to manage for survival. The classic work
of Edith Penrose on the growth of ?rms clearly recognizes the importance of managerial
INVESTMENT, OPPORTUNITY AND HUMAN RESOURCES 297
slack as a crucial factor in ?rmgrowth. Howlimited managerial time and resources con-
strain a firm’s growth or its strategic capability is known too. But there is surprisingly
little data on how entrepreneurs could overcome such constraints. In the prescriptive
literature on small enterprise management, this is described as the “delegation crisis”
(Buchele 1967). However, in a developing country context, the term “delegation” is an
oversimpli?cation. Entrepreneurs often report theft and fear of theft as a serious prob-
lem in going for night shift production, for instance. With large portions of the popula-
tionbelowthe povertyline, ‘trust’ is not soeasily establishedinthe non-traditional idiom
of business culture. Whom does one delegate to? A manager, family member, near kin,
friend or employee?
To bridge the vulnerable phase of new venture development requires the creation
of a self-sustaining enterprise. Mobilizing commitment to a new venture idea, coupled
with resources and capability for opportunity exploitation, is the core process. The ?rst
task in this, in our observations, is to make the production unit relatively self-managed.
This is the ?rst stage in the structural elaboration of organizational form in a growth
venture. For the predominant majority of ?rms managed by the entrepreneur-owner,
the crucial aspect here, is that of ?nding or developing the appropriate human resources
and strategies for managing the same. We have found case after case illustrating this
phenomenon (see Case 7 in Appendix A).
The familiar practice of poaching workers from other units on payment of transfer
costs and higher wages or obtaining them through the machinery suppliers is common.
But this is not always a successful strategy, nor one that has worked for long. A more
workable solution has been the discovery of the strategy of recruiting raw labor and
investing in their training and development. They may also leave, but human resource
management skills could make a difference, in retaining and motivating the work force
to sustain the enterprise in its vulnerable phase. Even where skilled personnel are re-
quired, often it is the fresh diploma-holder who is preferred, despite the lack of experi-
ence. The returns on this investment take the form of trust, stability, commitment, a
concern for quality and an internalization of the goals of the ?rm. This may mean work-
ing beyond hours, on holidays if required and other ways of facilitating managerial ?ex-
ibility, including sometimes, delay in wage payments. Other investments include distress
aid, advances, loans, gifts, rewards for performance, etc. This is not to paint a tinted
picture of labor relations in the small ?rm or the growth venture, in the parlance of
the ‘poor cousins’ and the ‘happy family’ analogy. To be sure, a study of labor turnover
(usually high) in small ?rms reported that only 14% of the sample ?rms were free of
this malady (Rao 1993). The reasons cited were (i) satisfactory wage and salary (ii) sym-
pathetic understanding of employee’s problems and appropriate remedies and (iii) as-
surance of job security. Interestingly, both employers and workers, in this study, agreed
that close supervision was not a solution. Employees stressed the importance of sympa-
thetic and understanding supervisors.
Field observations and pattern matching of case data suggest, that the leadership
style in the stabilized growth ?rm is characterized by an approach which incorporates a
modicumof human “empathy” in work place relations and outside of it. This essentially
means sensitivity to the individual’s needs, at both the physical and psychological levels.
This style may be characterized as having shades of both, what has been called the ‘con-
sultative’ type as well as that of the ‘benevolent autocrat,’ in the organizational behavior
literature. Encountered as the archetypal ‘elder brother’ ?gure in the Asian context,
it can also be described as the ‘nurturant task leader’ style (Sinha 1981).
298 S.P. THAKUR
FIGURE 5 Entrepreneurial ?rm stabilization and HRM: a model.
It is only with production requiring relatively less direct supervision, that the entre-
preneur is ‘released’ todevotemoreattention(time) toselling, market development and
following up on payment collections (resources). These are strategic areas of enterprise
management from the point of view of survival and stabilization. In fact, the liquidity
crisis commonly reported as the primary cause of sickness in small entrepreneurial ?rms
is partly certainly due to inadequate availability of working capital ?nance. But it is also
in our view, partly a crisis of general management, manifesting as cash ?ow problems.
The creation of a smoothly functioning business system is a somewhat more complex
task than the term “delegation” may indicate. Effective human resource management
todeal with‘routine’ business tasks inways that donot require frequent conscious direc-
tion, is only one aspect. One can extend the meaning of human resource management,
to include mobilizing commitment to organizational goals from persons outside the en-
terprise as well. This implies bringing the new venture to a stage where stable boundary
relationships have been built up. This makes it possible for the entrepreneur, without
constant interventions, to ensure a smooth cycle of in?ow of raw materials, orders and
cash. This is what is meant by a relatively stabilizedself-sustaining enterprise (see Figure
5, center).
Two levels of activities or decision-making which typically occur in an entrepre-
neurial ?rmhave beentraditionallyidenti?ed: the tactical or the ‘routinized’ operational
level and the ‘entrepreneurial’ or strategic level. The ?rst, refers to activities involving
the day-to-day operations of an enterprise. The second, refers to activities which may
take the form of a fundamental or structural response with a bearing on the long-term
prospects and identity of the ?rm. At the pre-start-up stage, entrepreneurs typically
engage in activities classi?ed as being strategic in nature. The exploration of various
INVESTMENT, OPPORTUNITY AND HUMAN RESOURCES 299
opportunities and their examination from the viability point of view, is an illustration
of such activities, which are more conceptual in nature. Subsequent activities could be
called tactical. These include securing of ?nance, location, purchase or construction of
physical facilities, ordering machinery, contacting raw-material suppliers, developing
the prototypes, etc. Effective managerial capability, with regard to human resources
in particular, could determine at this stage, the extent to which the entrepreneur can
move from the tactical to the more strategic areas of activity. In as much as entrepre-
neurship comprises ‘directing and directed labor,’ ?rm growth is a question of the effec-
tiveness with which the entrepreneur co-ordinates the movement between the strategic
and tactical arenas of enterprise management. In a sense, the entrepreneur has to sepa-
rate the managerial aspect of his role and engage it in operations. Role clarity and stress
is, thus, an important dimension of ?rm growth in a typical one-man-show unit. The
option is to establish complementary managerial mechanisms of the kind described in
the human resource typologies above. Directing labor has to direct its own labor, too!
Initially, fromthe survival point of view, strategic considerations may meanlooking
at marketing, developing the appropriate sales and distribution networks and managing
adequate cash-?ows. With sustainability established, such strategic activities may en-
gage the entrepreneur, which may take the venture on a high-growth path and allow
for possible diversi?cation. These activities may include, capture of signi?cant market
share, exploration of green?eld markets, expansion of production capacity, infusion of
better technology, expansion of product range and diversi?cation of business itself. In
the course of new venture development, the human resource aspect may seem strategi-
cally less important to the casual observer. But in our observations of the entrepreneur-
ial ?rm, in fact, it appears as the central feature—that which enables a strategic perspec-
tive top be maintained—facilitating stabilization and creating conditions for growth to
occur. It could determine the extent to which an entrepreneur can bring a venture to
a self-sustaining stage, taking it across the ‘gulf of vulnerability,’ as it were, to create
the conditions necessary for growth (see Figure 5). It is through such mechanisms of
‘stretch and leverage’ that the entrepreneurial role, as a bearer of uncertainty and con-
comitant risk, is ‘released’ for information gathering and growth. However, this is not
to overemphasize the supply side of new venture management. At least one case was
found, of a pharmaceutical salesman-cum-entrepreneur, who, withmarkets andcustom-
ers in hand, was simply hiring out production from the excess capacity of established
manufacturers. This is not the common case however, and it is speci?c to the regulatory
regime for an essential commodity. Of course, a disaggregated analysis would reveal,
at the industry level, the in?uence of factors on the demand side, on ?rm growth. The
role particularly, of inter-?rm linkages and the nature of competition could be signi?-
cant. This however, is beyond the scope of this essay at present, as the data is under
process, although the substratum of explanatory logic for venture growth remains that
of opportunity choice.
POLICY IMPLICATIONS
The argument for small new ventures in developing countries lies in their positive em-
ployment effects, in terms of both the entrepreneur, earning more than the average
lower middle class wage, and the labor he or she may employ. The claim rests on the
presumed better ef?ciency of factor use in small enterprises, (surplus) labor in particu-
lar. Since the 1970s and the 1980s in the developed countries too, new?rms are acknowl-
300 S.P. THAKUR
edged as being vital to an economy. The outlook for an individual new ?rm, however,
can vary. High rates of sickness and mortality are also widely reported. Are these ?rms
however, to represent merely alternative employment for the entrepreneur and labor,
creating indirect effects in the economy, but rarely becoming the locus of signi?cant
new wealth creation in society? Small ?rm start-ups are thought to play a signi?cant
role inwidening theentrepreneurial base of a givensociety. It is animportant expression
of social mobility as well as structural change, in a developing country context.
The small enterprise sector broadly appears to have a multi-layered, plural struc-
ture. At the micro-enterprise level, limited resources can restrict choice of opportunity
to lowgrowth ones. These represent a bad business idea, subsidized by family resources,
including labor—the true self-employment cases, or self-exploitation at a lowlevel equi-
librium. There could be a middle ‘growth zone’ where higher investment size widens
opportunity choice. This slab represents the seedbed for ?rms with high-growth poten-
tial and merits the focus of policy makers or promotional agencies. The strategic behav-
ior of these ?rms could yield valuable insights into the leadership style and managerial
heuristics of how ‘sweat equity’ is generated in growth ventures. Technical ef?ciency
also appears to operate within a ‘middle zone,’ rising with size up to a point then either
declining or showing no signi?cant trend (Little et al. 1987). There is a signi?cantly sharp
decrease in the number of ?rms in the third or highest investment slab, approaching
medium size. At this level, the size of the margin money or promoter’s equity required
from the potential entrepreneur would limit both the number of new entrants and their
catchment sources. Particularly, in the absence of developed venture capital markets.
From a social transformation point of view, this may not be the desirable outcome. This
would render weak the case for complete withdrawal of countervailing state assistance
in industrially backward regions, which would favor those already advantaged.
4
The case of the ‘missing middle,’ that is, the infrequency of occurrence of medium-
sizedbusinesses withinthepopulationof ?rms, is familiar toobservers of industrial orga-
nization in developing economies. This is in contrast to the ‘Mittelstand’ in Germany
or the medium sized ?rms of the ‘third Italy,’ considered to be the backbone of these
advancedeconomies. InIndia, the ‘bigger’ small ?rms approaching mediumsize, though
much fewer in number, have a disproportionately higher share of manufacturing output
and value addition in the small enterprise sector. These ?rms tend to be relatively older
ones, and our ?ndings suggest that they originate in the middle growth zone of the size
distribution of ?rms in the small enterprise sector. Interventions related to awareness or
information, management training, advisory services and credit infusion, at appropriate
venture stages, could be of considerable relevance for these ?rms. Institutional innova-
tions such as bill discounting and factoring services, though not immune to misuse, could
also cushion the ‘liabilities of newness and smallness’ for new entrants vis-a` -vis estab-
lished larger firms and ease mobility barriers for these ventures. Supply-side interven-
tions and corrective protection for small ?rms in the controlled economy era yielded
mixed or limited results in India and elsewhere (Hussain 1997). Elaborate support sys-
tems functioned in the backdrop of macro-economic policies which favored ‘heavy in-
dustry led growth.’ Bureaucratization created rent seeking leakages, dependency syn-
4
Note the recent experiences of post-socialist economies with the nomenclature, former security per-
sonnel and black marketeers.
INVESTMENT, OPPORTUNITY AND HUMAN RESOURCES 301
drome and high levels of ‘engineered insolvency.’ However, in a liberal and globalizing
economy, with the diffusion of information technology and other ?ows, high-caliber
support interventions for target strata of ?rms could assume renewed signi?cance.
CONCLUSIONS
The human resource aspect, of course, is central to the entrepreneurship phenomenon.
The coupling of dormant human energies with scarce material resources, in generating
signi?cant new wealth in society, is the chief claim for new ventures. This paper takes a
cue fromBadeau’s notion of the entrepreneur as ‘a leader of men, manager of resources,
effectively managing productive operations and an innovator of ideas,’ Say’s emphasis
on the ‘industry function or the role of labor in the productive process’ with it’s stages
of ‘knowledge, application and execution,’ Schumpeter’s distinction between ‘directing
and directed labor’ in the entrepreneurship process and the formulation of Penrose that
growth of the ?rm depends on the ‘release of managerial services.’ Indeed, “in many
respects the rational and methodical management of labor was the central management
problem in the industrial revolution, requiring the ?ercest wrench from the past” (Pol-
lard 1965, p. 161). Building on the threads above, this paper has examined an aspect
of entrepreneurship hitherto somewhat neglected in research. A typology has been de-
scribed of the mechanisms by which managerial services are released to optimize the
entrepreneurial function, during the formative stages of a venture.
Emphasis has been placed on the analysis of human resource management capabil-
ity at two levels. Firstly, the elaboration of rudimentary organizational structures while
simultaneously building boundary relationships, in stabilizing the new venture. And,
following from this, the entrepreneur’s management of self as a human resource, in
terms of role clarity, leadership style and maximizing engagement in the strategic arena
of enterprise management. Facility of movement between strategic and operational do-
mains will in?uence venture stabilization in the vulnerable phase, and subsequent
growth. To the extent the entrepreneur dwells in an enlarged strategic space or horizon,
greater will be theintensityof informationgathering andother uncertainty or riskreduc-
tion activities, as well as opportunity sensing and exploitation, for survival and growth.
The forging of mechanisms by which the entrepreneurial function is optimizedin oppor-
tunity exploitation, mobilizing complementary human resources, under conditions of
resource constraint, has been highlighted.
Classical thought identi?ed creative opportunism or innovation as one of the main
attributes of the entrepreneurial role. Resource mobilization and coordination ability
are the additional requirements. As the popular mythology goes, the proverbial entre-
preneur not only gets a bright idea, but also moves heaven or earth for the resources
required and then successfully ‘manages’ to exploit the idea. In our view however, this
places an excessive burden of history on the entrepreneur and seriously limits the natu-
ral supply of this crucial agent of social transformation. Contrary to conventional wis-
dom, we infer that opportunity choice is itself constrained, in the ?rst place, by resource
access barriers. Resource access and opportunity choice together, operate as the twin
fundamental constraints, which, given managerial capability, de?ne the growth poten-
tial of the ?rm. Within these constraints, managerial capability in devising mechanisms
302 S.P. THAKUR
by which the entrepreneurial role is released, becomes crucial to the entire process of
creation, survival and growth of new ?rms.
Expressed symbolically,
IG ? f(N, FG, x)
Where,
N ? Number of New Entrants
FG ? Firm Growth
x ? other factors; indirect effects
IG ? Industry Growth
Further,
FG ? f(RA, OC, MC)
Where,
RA ? Resource Access, that is, margin money (promoter’s equity); credit
OC ? Opportunity Choice, that is, demand and supply gaps
price differeces(inter-regional), technological substitution
(existing), innovation (novel)
MC ? Managerial Capability, that is, time spent in strategic domain
Economic models do provide comprehensive explanations of development based
on macro factors such as savings, capital formation and inter-sectoral transfer of labor.
These however, do not always capture the political economy aspects or the larger social
transformationdimensions of atraditional society basedonascriptionandcharacterized
by occupational and status immobility. These ascriptive barriers could be based on eco-
nomic class, caste, religion or regional differences or combinations thereof. The re-
source access dimensioncannot be underemphasized fromtwo angles (i) if the consider-
ation is to ‘widen the net’ for sources of entrepreneurship as well as increase the number
of new entrants (N), and (ii) widen the range of opportunity choice, that is, growth po-
tential (FG). Penrose, somewhat ambiguously, notes the problem:
It is, of course, true that ‘capital-raising ingenuity’ is the most easily recognized by
it’s results, for it is dif?cult to say whether a given entrepreneur possesses the ability
to raise capital if he has not yet demonstrated it by raising capital. Therefore it would
not be very helpful, even if true, to say that small ?rms fail to raise capital because
they do not have the ability to do so, and I do not mean to argue in this way (Penrose
1959, p. 38–39).
Further, she quotes, in a footnote to the same passage, a contemporary management
consulting ?rm: “Thus the size of the capital requirement is not in itself a barrier if a
genuine opportunity exists. The larger the amount required, however, the smaller
may be the number of prospective entrants who will be able to gain the con?dence of
investors. . . .”
To underscore the above, it is worth describing, in the present day context in India,
the spectacular growth, within the lifetime of the entrepreneur, of Reliance Industries
Limited (RIL). It’s founder, Dhirubhai Ambani, while working as a gas station atten-
dant for Shell, in Aden in the 1960’s, as the legend goes, visualized the potential for
INVESTMENT, OPPORTUNITY AND HUMAN RESOURCES 303
an integrated petrochemical, textile and energy giant in India. With no money however,
he started his business career as a petty yarn trader. He then entered textiles, outsourc-
ing manufacturing from thousands of dispersed powerloom operators in the informal
sector. Along the way, Ambani practically created in the 1980s, the public market for
money and the ‘equity cult’ in India, circumventing banks and term lending agencies,
which symbolized high cost and inaccessibility of capital. Starting with a modest public
share issue in 1977 of $3.5 million as a textile ?rm, the RIL group pioneered the use
of convertible debentures in India. It is now worth $5.4 billion in assets and a market
capitalization of $6 billion, with a sales turnover of $2.25 billion. For ten years in row,
agrowthrate of 15%has beenmaintained. More interestingly, with2.6millioninvestors,
RILhas perhaps the single largest dispersal of stock owners in the world. It also became
in 1997, the ?rst Asian corporate ever, to successfully launch a 100-Year Yankee Bond
issue worth $100 million in the U.S.A. Today, RIL occupies ?rst rank in pro?ts, second
in turnover and is the third largest corporation in India in terms of assets. It is also the
lowest cost producer of polyester globally, the largest producer of paraxylene in the
world and is setting up the largest ever petroleum re?nery, headed towards the Fortune
‘Global 500’ list of companies.
5
It would be interesting to examine in this regard, the
changing composition of business ownership in India, particularly the origins of new
entrants, since the economy began liberalizing in 1991. Thus, the resource access vari-
able in the model above is one where modi?cations could have signi?cant in?uence in
several directions. Infact, this may be an important factor inthe disproportionate prolif-
eration of the services sector, in the top underdeveloped economies, relative to indus-
trial development, due to lower entry barriers for service businesses.
In one way or another, entrepreneurs universally give expression to the need for
status enhancement: “Then there is the will to conquer: the impulse to ?ght, to prove
oneself superior to others, to succeed for the sake, not of the fruits of success, but of
success itself” (Schumpeter 1934, p. 93). The overall process of entrepreneurship can
also be modeled in terms of ‘push and pull’ factors bringing opportunities and individu-
als together in ?rms entering the business arena. Sociological factors and the role of
individual psychological motivations at the ?rm level, have not been incorporated in
the formal model above, as the data is under process. The inferences based on ?eld
observations can, however, be described: At the micro-enterprise level, it is more a case
of push factor entrepreneurship, triggered by distress, poverty and lower status. In the
middle size zone, both status enhancement, the natural motivation of all entrepreneurs,
as well as status defense appear tobe operating. It canbe described as the ‘repositioning’
of the middle and upper strata of a traditional society, where the basis for power and
status structures have been disturbed by democracy, accentuated by a liberalizing
economy.
For individuals withmembershipingroups characterizedby relativestatus depriva-
tion, entrepreneurship is only one of the many vehicles for social and occupational mo-
bility. These individuals often display considerable status ambiguity. Several cases were
found of successful entrepreneurs continuing to simultaneously try for a ‘respectable’
government jobor a higher education degree, particularly inregional milieu where busi-
ness is still not perceived as a ‘superior’ activity. Where lower social status and economic
class combine, mobility ?nds expression in a wide range of occupations. However, it
is in the cases characterized by relative economic prosperity but lower social status, that
5
Business Standard 1000, India’s Corporate Giants, November, 1997; Business India, January 1998.
304 S.P. THAKUR
entrepreneurship tends to occur, as far as lower status groups are concerned. Many in-
stances were found, of engineering educated entrepreneurs who, as sons of traditional
petty traders or village shopkeepers-cum-moneylenders, were inclined neither towards
the family business nor salaried jobs, but wished to do something ‘modern’ in an indus-
trial sense.
Status withdrawal, following Hagen’s theory of social change, was also found to
be an important trigger for entrepreneurship. However, the time lag between the two
events was found, in many instances, to be much shorter than the several centuries of
‘incubation of shame’ visualized by Hagen (Kilby 1971, chapter 6). As a trigger, status
withdrawal appears to operate as much at the level of immediate, i.e., the same or next
generation, personal or family circumstances for approval seeking, as it does for social
groups as a whole. Although, evolving long-term in?uences cannot be underestimated.
More interestingly however, the threat of ‘imminent’ status withdrawal appears to be an
immediate push factor for entrepreneurship, for individuals with membership in groups
traditionally enjoying relatively higher social and economic status. A number of cases
were found of ‘upper caste’ individuals belonging traditionally to priestly, warrior or
land-owning groups, being pushed into business careers, in the absence of alternative
employment avenues: particularly, jobs with the status and income levels equivalent to
those held by their fathers. In those instances of entrepreneurship, where status is a
non-issue—by virtue of an individual’s social background, position in the family, educa-
tion and capability, favorable job prospects or attainments—it is primarily a case of indi-
vidual restlessness and creativity of the classical kind: “Finally, there is the joy of creat-
ing, of getting things done, or simply of exercising one’s energy and ingenuity”
(Schumpeter 1934). In terms of the in?uence of social role models and value systems,
a theory of entrepreneurship has to incorporate changing values consequent to the deep
and wide penetration of the electronic media since the 1980s in India and the ideological
disarray, globally, of contending social frameworks, in the same era. The sociological
perspective could have continuing relevance in an examination of ethnic or minority
entrepreneurship in the advanced economies as well.
This paper has tried to advance—through a partially developed formal model
which describes the complex ‘web of dialectic’ at the interface of (1) Growth of the
Firm(s), (2) Growthof the Economy, (3) Individual Mobility and(4) Social Transforma-
tion—an integration of entrepreneurship phenomena as a link between these dimen-
sions. Schumpeter observed, that in the normal course of things the ‘circular ?ow of
economic life’ is complete. He hinted that opportunities could arise from imperfections
in the circular ?ow (Schumpeter 1934, p. 31). These imperfections in turn, when com-
bined with entrepreneurial ingenuity, result in the release of material resources for re-
deployment in novel ‘combinations,’ in the process of economic development.
We have argued, that left to natural devices, the release of resources from the ex-
isting circular flow of economic life, for new combinations, could be a slow and painful
process. There could be a case for ‘engineered imperfection’ in the formof a continuing
role for countervailing state assistance in the absence of developed venture capital mar-
kets. The widening interest in entrepreneurship world-wide, partly re?ects the erosion,
to some extent, of the hiatus of mistrust predicated on the polarities of the colonizer/
colonized, haves/have-nots or capital and labor. It is an acceptance, of the utility of an
arena for differential reward for creativity, effort and uncertainty bearing, and the dis-
tinct possibility of mobility in modern society. If the underlying notion is a broadening
INVESTMENT, OPPORTUNITY AND HUMAN RESOURCES 305
TABLE 4 Distribution of Firms by Industry
Industry No. of Firms
Chemical, Pharma. and Paint 9
Plastics and Rubber 9
Metalworking and Fabrication 7
Electronics and Electricals 4
Printing and Packaging 4
Auto Parts 2
Construction 2
Agri-Business 1
Services 3
Textiles 2
TABLE 5 Size of Current Capital Employed and Distribution of Firms
Rupees (000’s) No. of Firms
?200 6
200–500 7
500–1,000 9
1,000–3,500 12
3,500–5,000 1
5,000? 5
TABLE 6 Average Increase in Sales/Year and Distribution of Firms
No. of times increase* No. of Firms
Negative–0 5
0–0.25 1
0.25–0.50 7
0.50–0.75 5
0.75–1.00 4
1.00–2.00 2
2.00–3.00 2
3.00 and greater 10
*unadjusted
of the channels by which entrepreneurial capabilities are brought into play, in the eco-
nomic life of societies, then there could be some cause for concern on inequity criterion.
A satisfactory theory of entrepreneurship has to ?nd the middle ground, between the
compulsion of the ‘social fact’ on one hand, as Durkheim put it, and the in?uence of
individual or ‘human action’ on the other, as Mises emphasized.
APPENDIX A
Case 1: Sujata Ray, Gayatri Knitting & Stitching, Orissa.
Sujata wants to do business on a larger scale. But trained workers are dif?cult to get.
Her family members have helped. But over all demand is low. There is competition
fromcheap Tibetan (refugee) pullovers. During the off season she has started a training
center, after a second machine was bought in 1990. Stocking up on wool requires work-
ing capital. Renting a sales counter in a market is also beyond her means. She wants
to buy a punching card machine which can enable better designs. Business has been
306 S.P. THAKUR
growing steadily, meanwhile the sole breadwinner of the family died in 1991. The family
is continuing to stay at the government quarters allotted to her late father on humanitar-
ian grounds as several of the children are still in school. Sujata dropped out after 10th
class. One brother is about to complete college.
Case 2: Usha Rani Baishya - Angita Candles, Assam.
Usha Rani’s younger brother, a commerce graduate, could help in all the paper work.
She often switches roles with him, alternating between production and marketing. He
has received payment in kind fromhis sister. Nowhe is setting up his own spice grinding
unit with Usha Rani’s help. There are 85 to 95 candle-making units in Assam state with
30 in the town itself. Because of power shortages and load-shedding there is suf?cient
demand for candles. Candles are compared on the basis of weight, quality and price.
The earlier experience of selling handloom fabric woven at home door to door, helped
in the hard work of gaining an entry in the local market. Usha Rani got orders almost
immediately. In 1991 and 1992 candles were sold in the neighboring state of Meghalaya
and traders started visiting the unit for supplies. Usha Rani’s school-age son sometimes
deals with them. She is now looking for an industrial shed or at least a concrete shelter
to shift from the current make-shift shanty on a hillock behind a residential area. There
are two core employees, while others are hired on contract when needed. Her husband
is an industrial worker.
Case 3: Manoj Bhattacharya - Star Printers, Assam.
Managing labor has been a serious problem. Labor has to be trained at the unit after
which they leave for another press. There is often absenteeism for 3-4 days after salary
day. It is not easy to turn out a worker either, because of labor laws. There is the All-
Assam Union of Printing Workers. There is no union in the press . . . . over the past
5 years and there has been only one core employee. Manoj cannot depend on the assis-
tant he has recently hired either. But a new person knows even less. Manoj is often not
able to get away from the press as it requires his close supervision. If out, he worries
about what is happening back at the press. A younger brother who is an engineering
graduate used to occasionally look after the press in Manoj’s absence. But the business
does not have scope to employ both the brothers full-time. Initially (1986 to 1987) there
were twoemployees; in1992 and1993, there were eight tonine employees. This includes
a full-time accountant andproofreader. Anadditional 10 to20 laborers canbe employed
in the busy season, on contract. The market is expanding, but there is local, state and
regional level competition—500 local and 1,000 units in the state, and businessmen from
as far away as Calcutta can bag lucrative government orders through contacts or the
‘invisible hand.’
Case 4: Anup Bhatt - Shri Gyan Printers, Uttar Pradesh.
Initially there was a lot of labor trouble, as they were very moody. But Anup himself
does not feel like working on some days. Therefore, he does not feel the need to force
people to work and has never sacked anyone. He pays the workers well and keeps them
happy. Anup made marketing his specialization, while his mother began to supervise
production in his absence, as home was nearby. Anup is a soft spoken person who empa-
thizes with the labor and is not afraid to soil his hands. Initially hardly any customer
INVESTMENT, OPPORTUNITY AND HUMAN RESOURCES 307
turned up and there were no orders. The workers became restless. Anup now started
from one end of the locality and began calling on each and every shop. He also visited
each government of?ce with a resolve to fetch orders for visiting cards, if nothing else,
once he entered a building. After about 4 months from the start of the business, money
started coming in. The workers became busy and the mother was able to look after
production. Now she occasionally checks up on progress over the phone. Meanwhile,
Anup has installed two personal computers in his home and started a desk-top printing
unit. He wants to add an offset press, but is cautious so that a heavy investment is not
made in a machine which may become obsolete.
Case 5: Chandra Bhan Singh - Saraswati Plastic Works, Uttar Pradesh.
“No matter what you do, labor does not work.” Managing labor has been dif?cult even
when Chandra Bhan Singh brought boys from his own village. Later on an experienced
craftsman was found. Nothing seemed to work. After attending a 2-week management
training program, he admits that he is handling labor better. He has learned something
about how to motivate them, provide incentives, etc. Most of them are now working
on piece-rates. In 1992, for 5 months there was no labor and he almost gave up. He
had to handle the machines himself and even thought of taking up some job. Chandra
Bhan is tough by nature as well as by the reputation of the district he originates from.
He resisted the “tax” demanded by local hoodlums. Payment collection is so dif?cult
that he has evengot into?sticuffs at times. One of his brothers has joinedhiminbusiness,
while Chandra Bhan supports other brothers’ education.
Case 6: Mamta Mittal - Aveetee Electronics, Uttar Pradesh.
Mamta had set up Aveetee Digitals, as a partnership with a lady friend. It all started
out with Mr. and Mrs. Mittal both being ardent electronics hobbyists. This grew into
a small but reputable hobby-cum-training center. Some of the products assembled by
the students could be sold. After several years, Mamta decided to go into the business
of assembling and developing versions of Digital Electronic Display clocks. Initially,
Mamta and her partner did the soldering of circuits themselves. This gave an idea of
how much output to expect from workers. Later, eight to nine skilled workers were
employed. There is also a carpenter to make cabinets, one sales person and a watchman.
If necessary the team works the whole night, with Mr. Mittal also lending a hand in
painting the logo on the components with a silk screen. A nagging problem was that
workers did not work without direct supervision. When work does not get done or out-
put is slow, Mamta becomes very angry and does the work herself, in a mood to dismiss
workers. Mamta looks after correspondence, marketing, purchases and manufacturing.
Payments from institutional buyers/government is very slow, because Mamta is not al-
ways able to go out. Sales turnover has remained around Rs. 500,000 every year. “I
appoint honest workers though they may not be very hard working, because I have to
look after home and business both.” Mamta wants the business to grow, but does not
wish her family to suffer as a result.
Case 7: Satyanarain Gupta - Yashika Engineers, Rajasthan.
Immediately after starting commercial production, this wiremesh weaving unit began
facing dif?culties on almost all fronts. Skilled and reliable labor proved dif?cult to get.
308 S.P. THAKUR
The machinery was not working to the desired accuracy. The product also turned out
to be of uncertain quality. Gupta went to local hardware shops but in the initial 6 months
found it dif?cult to sell. Meanwhile the labor ran away. Initially, skilled labor was
brought from Delhi through the machinery suppliers, on payment of advance amount.
After sometime this labor vanished. Gupta then had to directly bring labor fromAnand
Parbat andWazirpur industrial area inDelhi, againonpayment of Rs.5000/- toRs.6000/-
cashadvance. Oncemore many problems wereencountered. The labor wouldidle, if not
run away, give lowproduction at night and the unit couldnot go for 24 hours production.
Gupta decided to recruit rawlocal labor fromnear his village and train themup. Initially
they earned Rs.400/- per month. Now they get up to Rs.2000/- to Rs.5000/- per month.
The Delhi manufacturer advised him to give the workers advances, loans and gifts of
up to Rs.10,000/- at a time. Being indebted, they keep working hard and remain tied
down. They have been provided living quarters in the factory compound itself. Since
mid-1992 the unit has had no major problem with regard to labor. In fact, Gupta no
longer needed to visit the factory everyday as most of the production problems could be
solved over the phone, earlier he had to spend 12 to 18 hours at the factory as a routine.
REFERENCES
Baumol, W.J. 1988. Is Entrepreneurship Always Productive? Journal of Development Planning
18:85–94.
Barreto, H. 1989. The Entrepreneur in Microeconomic Theory: Disappearance and Explanation.
Routledge: London and New York.
Buchele, R.B. 1967. Business Policy in Growing Firms. Scranton, Pennsylvania: Chandler.
Buskirk, R.H. and Vaughn, P.J., Jr. 1976. Managing New Enterprises. St. Paul: West.
Chell, E. et al. 1991. Entrepreneurial Personality: Concepts, Cases and Categories. London: Routledge.
Churchill, Neil C. 1983. Entrepreneurs and Their Enterprises: A Stage Model. Frontiers of Entrepre-
neurship Research. Babson College, MA.
Cooper, A.C., Dunkelberg, W.C., Woo, C.Y. 1988. Survival and Failure: A Longitudinal Study. Fron-
tiers of Entrepreneurship Research. Babson College, MA.
Cooper, A.C., Gimeno-Gascon, F.J. and Woo, C.Y. 1994. Initial Human and Financial Capital as Pre-
dictors of New Venture Performance. Journal of Business Venturing 371–395.
Dunkelberg, W.C., Cooper, A.C., Woo, C.Y. and Denis, W. 1987. NewFirm Growth and Performance.
Frontiers of Entrepreneurship Research. Babson College, Massachusetts.
Eisenhardt, K.M. 1989. Building Theories from Case Study Research. Academy of Management Re-
view 14(4):532–550.
Etzioni, A. 1986. Modern Organizations. New Delhi: Prentice-Hall.
Gibb, Allan A., and Scott, M.G. 1985. Strategic Awareness, Personal Commitment and the Process
of Planning in the Small Business. Journal of Management Studies XXII-6.
Herbert, R.F. and Link, A. 1982. The Entrepreneur: Mainstream Views and Radical Critiques. New
York: Praeger.
Hussain, A. 1997. Report of the Expert Committee on Small Enterprises: New Policy Directions. Delhi:
Ministry of Industries, Government of India & J.M. Jaina.
Kilby, P. 1971. ed., Entrepreneurship and Economic Development. New York: The Free Press.
Little, I.M.D., Mazumdar, D. andPage, J.M. Jr., 1987. Small Manufacturing Enterprises: AComparative
Study of India and Other Economies. Washington: The World Bank.
McLelland, D.C., Mans?eld, R.S., Spencer, L.M. Jr., and Santiago, J. 1987. The Identi?cation and As-
sessment of Competencies And Other Personal Characteristics of Entrepreneurs in Developing
Countries. Boston: McBer and Company.
INVESTMENT, OPPORTUNITY AND HUMAN RESOURCES 309
McMullan, W.Ed. and Long, W.A. 1990. Developing New Ventures: The Entrepreneurial Option. Or-
lando: Harcourt Brace Jovanovich.
Mead, D.C. 1991. Small Enterprises and Development, Economic Development and Cultural Change,
January 1991, pp. 409–420.
Megginson, L.C., Scott, C.R. andMegginsonL.W. 1991. Successful Small Business Management. Home-
wood: Irwin.
National Council of Applied Economic Research & Friedrich Naumann Stiftung (NCAER-FNSt)
1993. Structure and Promotion of Small Scale Industries in India. New Delhi: monograph.
Patibandla, M. 1993. Factor and Product Market Distortions, Production Ef?ciency and International
Trade, Economic and Political Weekly, November.
Pollard, S. 1965. The Genesis of Modern Management: A Study of the Industrial Revolution in Great
Britain. London: Edward Arnold.
Penrose, E.T. 1959. The Theory of the Growth of the Firm. Oxford: Blackwell.
Rao, M.M. 1993., ed. Human Factor in Small Industry. New Delhi: Discovery.
Ray, D. 1988. The Role of Entrepreneurship in Economic Development. Journal of Development Plan-
ning 18:3–18.
Sinha, J.B.P. 1981. The Nurturant - Task Leader: A Model of the Effective Executive. New Delhi:
Concept.
Schumpeter, J.A. 1934. The Theory of Economic Development: An Inquiry into Pro?ts, Capital, Credit,
Interest, and the Business Cycle. Cambridge, Massachusetts: Harvard University.
Thakur, S. 1991. The Early Labor Market, Urbanization and Industry: A Study in the Delhi Region,
in James G. Scoville, ed., Status In?uences in Third World Labor Markets. Berlin: Walter de
Gruyter, pp. 29–48.
Vesper, K. 1980. New Venture Strategies. Englewood Cliffs: Prentice Hall.
Yin, R.K. 1984. Case Study Research: Design and Methods. Beverly Hills: Sage.

doc_951166769.pdf