Description
Description talk about triggers and barriers affecting entrepreneurial intentionality.
Triggers And Barriers Affecting Entrepreneurial
Intentionality: The Case Of Western Australian Nascent
Entrepreneurs
Thierry Volery, Noelle Doss, Tim Mazzarol and Vicki Thein
Curtin Business School
Curtin University of Technology
Abstract
This paper sheds light on the process leading to new enterprise
formation while identifying the triggers and barriers to business
start-ups. A new approach was used to conduct the study as the
analysis focused on the pre-decision stage, i.e. the intention
and characteristics of nascent entrepreneurs. In addition to the
"usual" triggers to start-up, the research highlighted a more
intriguing one: the will to invest savings in a business venture
which will provide the investor with a job and the satisfaction
of being rewarded on merits. It was suggested that this trigger
matched the profile of mid-career professionals who wanted to
become self-employed. Underlying barriers related to the lack of
resources, compliance costs, and the hard reality of "going into
business".
Introduction
More than ever the driving force in the modem economy remains
entrepreneurship. Entrepreneurs are meeting our economic needs
through the creation of thousands of new businesses each year.
While larger corporations have instituted "downsizing" or
"outsourcing" programs, job creation and economic growth have
become the domain of the new ventures and the entrepreneurs who
create them. If small businesses are to make the uttermost
contribution to the economy, it is therefore incumbent on policy
makers, trainers and business advisers to pay attention to the
factors impeding and fostering their start-up.
This paper attempts precisely to identify the triggers and
barriers to small ventures formation. In doing so, it focuses-
in contrast to numerous past studies- on the person who has the
intention to start a business, i.e. the nascent entrepreneur.
We will therefore look at what the entrepreneur does to indicate
this intention (intention indicators), as well as the triggers
and barriers affecting the intention to set up a business
venture.
As considerable research has already been undertaken about the
start-up process, the first section of the report presents a
review of the literature and a theoretical framework of startup.
In section 2, the methodology used to carry out the project is
presented. The intention indicators displayed by nascent
entrepreneurs are outlined in section 3. The triggers are
discussed in section 4, and the barriers are detailed in section 5.
Review Of The Literature
Definition Of A Business Start-Up
The definition of a new firm or new enterprise is an ambiguous
issue. Mason (1983) identifies four aspects which should be
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considered when defining a new firm:
* Start-up date. The definition of the start-up date is
arbitrary. Approaches in the literature have included the
date the company registers; the date the first sales occur;
and, the date the first employee is hired. Obviously, a firm
can "start-up" before any of these events take place.
* Changes in activity. If a company starts as a service firm
and then switches to manufacturing, is it a new firm?
* Independence. Independence usually means the firm has no
obvious parent. Under this definition, new franchises are not
new firms.
* Newness. The term is related to the "changes in activity"
aspect listed above. Is the company new if the owner bought
an existing business and changed some of its activities?
Katz & Gartner (1988) addressed some of these difficulties in
relation to definition with a compromise. They suggest four
indicators showing that an organisation is in the process of
coming into existence: (1) the intention to create an
organisation (distinct goals); (2) the resources to create an
organisation; (3) the development of an organisational boundary
(e.g. registration); and, (4) the exchange of resources across
the boundary (e.g. sales). When studying organisation creation,
they suggest using at least one of these properties as a sampling frame.
Consequently, franchise businesses were not included in the scope
of the study because of obvious independence problems in the
franchiser-franchisee relationship. However, owners who bought
an existing business and changed some of its activities were
included in the research. This study considered that a new
business has effectively stained if the first sales have occurred.
Previous Research On Start-Ups
A number of researchers have attempted to identify relevant
outcomes linked to organisation formation. In the early
empirical research this interest was very much focused on the
psychological characteristics of business founders, although the
research was not closely linked to contemporary developments in
psychology. A trait approach was often adopted, and almost
endless lists of entrepreneurial traits were suggested (Hornaday, 1982).
For example, such factors as need for achievement (McClelland, 1961),
risk taking propensity (Brockhaus, 1980), locus of control
(Brockhaus, 1982), tolerance of ambiguity (Schere, 1982), and
desire for personal control (Greenberger & Sexton, 1988) have
been identified and examined as possible traits associated with
entrepreneurial behaviour.
This approach eventually reached a dead end as it could only
partially answer the question: "What makes people found new
firms?" It has been convincingly argued that personal background
characteristics have a more reliable influence on the decision to
found one's own firm than psychological traits (Reynolds, 1991;
Stanworth, Blythe & Stanworth, 1991). Discussion has also
addressed numerous other background factors linked to the
personality, for example, previous employment (Storey, 1982;
Ronstadt, 1988); family background (Scott & Twomey, 1988;
Matthews & Moser, 1995); gender (Buttner & Rosen, 1989;
Kolvereid, Shane, & Westhead, 1993); education (Storey, 1982);
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ethnic membership (Aldrich, 1980); and religion (Weber, 1930).
A response to the limited success of the trait approach has been
to view enterprise creation in context. One way of doing this is
to apply a more aggregate level of analysis and to look for
regional or national level variables that can explain variations
in the rate of new enterprise formation (Aldrich, 1990). This
approach has been relatively successful and fairly strong
relationships have been established. In her literature review,
Specht (1993) distinguishes five main contextual factors
affecting organisation formation and these include social,
economic, political, infrastructure development and market
emergence factors.
Within the social environment, the impact of networks (Marett,
1980; Gartner, 1985; Aldrich & Zimmer, 1986; Johannisson, 1988)
and the support of sociopolitical elites, along with the cultural
acceptance (Gartner, 1985; Bull & Winter, 1991), are of
particular importance. The economic environment studies focus on
capital availability (Cross, 1981; Storey, 1982; Gartner, 1985),
aggregate economic indicators (Walton, 1977), economic recessions
(Delacroix & Caroll, 1983; Gould & Keeble, 1984; Shutt &
Whittington, 1987), and unemployment (Pennings, 1982; Gould &
Keeble, 1984). The political environment concerns mainly the
support of public or semi-public agencies (Delacroix & Caroll, 1983;
Gartner, 1985; Young & Francis, 1989; Walker & Greenstreet, 1990).
Infrastructure development encompasses numerous variables such as
the education system (Gartner, 1985; Romanelli, 1989; Bull &
Winter, 1991), nature of local labour market (Pennings, 1982;
Gartner, 1985; Mason, 1989), incubator organisations (Gartner, 1985;
Young & Francis, 1989), information accessibility (Romanelli, 1989),
and availability of premises (Cross, 1981; Storey, 1982; Gould &
Keeble, 1984; Mason, 1989). Finally, market emergence integrates
both concepts of niche emergence (Boeker, 1988; Delacroix & Solt, 1988),
and technological innovation (Cross, 1981 - Gould & Keeble; 1984;
Mason, 1989).
Methodology
Virtually all the above mentioned studies focused on
owner/managers of new businesses, not on persons who were in the
process of starting a new business. These studies did not
address Learned's (1992) observation that not all of those
attempting to form an organisation will succeed. In order to get
a comprehensive picture of entrepreneurship, it is not sufficient
to approach only those who have fulfilled their objectives.
Therefore, there is still a need for a desegregate level of
analysis which can shed light on the process leading to new
enterprise formation.
In this perspective, the analysis should focus on the pre-
decision stage, i.e. interest, entrepreneurial career preference,
and characteristics of nascent entrepreneurs (Bird, 1988;
Krueger, 1993; Boyd & Vozikis, 1994). Given that the decision to
found a firm can be regarded as a reasoned or planned behaviour,
the relationship between intentionality and actual behaviour
should be fairly strong (Ajzen, 1991).
The unit of analysis of this research focuses on the start-up
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process and more specifically on the actor at the core of this
process: the person who has the intention to start a business,
i.e. entrepreneurial intentionality. Intentionality is defined
by Bird (1989: 8) as "... a conscious state of mind that directs
attention (and therefore experience and action) toward a specific
object (goal) or pathway to achieve it (means)". This concept
goes beyond the one of entrepreneurial propensity: Individuals
with the intention to start a business not only have a propensity
to start, but in addition, adopt a rational behaviour to reach
their goal. They have therefore already taken some steps (e.g.
gathered some information; established a business plan; saved
some money) toward this goal.
Figure 1 presents a schematic overview of the start-up process
and focuses on the assumption that the triggers and barriers
influence the intention, and ultimately the decision, to launch
the business (triggers prevail over barriers) or to give up the
idea (barriers prevail over triggers). As there is a time lag in
the start-up process, both those who effectively founded a new
venture and those who abandoned the idea needed be approached to
gather the information on barriers and triggers. For the purpose
of policy decisions aimed at stimulating new enterprise
formation, it is as useful to learn why individuals failed to
implement their intentions (the barriers to start-up), as to
study only those who carried them out (the triggers).
A total of 93 entrepreneurs were interviewed. Among them were 48
"starters", i.e. entrepreneurs who effectively launched a
business venture over the last two years; and 45 " non-starters",
i.e. potential entrepreneurs who abandoned the idea to launch
their business at least for the moment. Different SMEs services
providers such as the Small Business Development Corporation, the
Business Enterprise Centres, and the Women's Economic Development
Organisation assisted in the random selection of entrepreneurs.
The Dun & Bradstreet data base of new businesses was also used to
identify the starters.
Figure 1: A Model Of Organisation Formation
PERSONAL BACKGROUND:
Age
Gender
Previous employment DECISION:
Family and ethnic group FOUND (Triggers > Barriers)
Education
ENVIRONMENT: INTENTIONALITY
Industry
Social DECISION:
Economic ABANDON (Triggers < Barriers)
Political
Infrastructure development
Data were collected with a semi-structured interview integrating
closed questions (to gather demographic information and
facilitate cross-case analysis) as well as open-ended questions
(to gain a wider and more dynamic perspective). The interview
provided in-depth information, through a "360 scanning" of the
entrepreneur personality and his/her perception of the environment.
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Intention Indicators
The focus of analysis in this study is entrepreneurial
intentionality. We have clearly established that, in order to
gain an insight into the barriers and triggers to start-up, it is
vital to integrate in the research the nascent entrepreneurs who
failed to set up their own business venture along with the
successful ones.
With an expression of intention ("I am going to try to start a
business"), the entrepreneur begins the process of founding the
business. Intention implies action. Several indicators can
reflect entrepreneurial intentionality, this conscious state of
mind which directs attention toward the goal of establishing the
new organisation. Table 1 shows the actions taken by starters
and non-starters in our sample.
Although some differences appeared among the actions taken, it is
important to notice at this stage that non-starters and starters
took some similar steps to launch their business. As there are
almost the same number of starters (48) and non-starters (45) in
the sample, it should be noticed that in general they both:
* Gathered some information on business start-up from various
organisations (e.g. Small Business Development Corporation or
Business Enterprise Centre), their family, or their friends.
* Prepared a business plan.
* Looked for facilities or equipment.
* Were saving money to set up their business.
Table 1: Intention Indicators Of Starting A Business
While you were in the process of examining Non-starters Starters
your business launch you... N (%) N (%)
Bought/rented facilities/equipment 12 (26.6) 34 (70.8)
Attended a course in business management 27 (60) 17 (35.4)
Developed models/prototypes 13 (28.8) 16 (33.3)
Organized a start-up team 10 (22.2) 23 (47.9)
Devoted full time to the project 7 (15.5) 28 (58.3)
Sought financial support 14 (31.1) 24 (50.0)
Invested my own money 21 (46.6) 38 (79.1)
Looked for facilities/equipment 32 (71.1) 35 (72.9)
Were saving money to start your business 17 (37.7) 22 (45.8)
Prepared a business plan 31 (68.8) 36 (75.0)
Gathered information (e.g. market, cost) 42 (93.3) 45 (93.7)
Applied for a licence/regsitration 10 (22.2) 31 (64.5)
Triggers To Business Start-Ups
A graph of the mean importance of the triggers listed in the
questionnaire is offered as Figure 2(omitted). Notably there is a
large spread for the means which are quite evenly distributed
between 'not important at all' and 'very important'.
Further, a factor analysis was performed to identify underlying
triggers among the list of items proposed. Factors were extracted
with a principal components analysis, followed by a varimax
rotation. The rotated factor matrix presented in Table 2 shows
six main triggers to set up a business venture. Overall, the six
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factors explain 63.6 per cent of the variance - a middling
performance. The reliability of the factors was also tested, and
Cronbach alpha coefficients range between .65 and .91 which is a
meritorious level.
Table 2: Rotated Factor Matrix Of The Triggers
Variable 1 2 3 4 5 6
The need for a job .71
Invest my personal savings .65
Receive a salary based on merit .65
Invest super/redundan. package .61
Take advantage of my talents .83
Have an interesting job .74
Create something .72
Realise my dream .54
Work at a location of my choice .79
Make my own hours .78
Be my own boss .71
Follow the example of a person .82
Increase my status/prestige .59
Maintain a family tradition .59
Take advantage of a mkt opport .86
Positive economic indicators .75
Keep a large part of the proceeds .88
Earn more money .74
Eigenvalue 4.50 2.42 1.79 1.58 1.33 1.07
Percent of variance explained 22.5 12.1 9.0 7.9 6.7 5.4
Cumulative percent 22.5 34.6 43.6 51.5 58.2 63.6
Cronbach alpha .69 .77 .68 .65 .91 .66
Only loadings > .5 are shown
1=Invest
2=creativity
3=Autonomy
4=Status
5=Mkt Opport.
6=Money
The first factor, Invest, encompasses the following motives to
start a business: "The need for a job"; "To invest my personal
savings"; "To receive a salary based on merit"; and "To invest my
superannuation/redundancy package". The typical profile of
entrepreneurs who would put forward such motives appears to be
mid-career professionals who have some savings and who want to be
rewarded according to their effort. The combination of both the
impression that their merits are recognised/rewarded and that they
have money to walk away with, constitutes a powerful trigger for
these people to set up their own business venture. In relation to
some of these professionals who were made redundant, "The need for
a job" together with the opportunity "To invest a superannuation
or redundancy package" also correlated with this factor.
The second factor, Creativity, has been intimately associated with
entrepreneurship in the literature. This factor encompasses
variables such as "To take advantage of my own talents"; "To have
an interesting job"; "To create something new"; and "To realise my
dream". Altogether these variables translate the desire and the
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ability to bring something new into existence. Potential
entrepreneurs would like to take advantage of their own talents,
or in other words do what they do best and what they like. Some,
however, would like to have a more interesting job - which would
enable them to create something and realise their dream at the
same time.
Factor 3, Autonomy, reflects the willingness of independence of
entrepreneurs, in that they want to work their own hours at a
location of their choice. The desire to be one's own boss further
reflects this autonomy. This factor has also been referred to
during the interviews by such statements as: "I want to work with
a person of my choice", or "I want to be free to start at 10 am or
to take an afternoon off when it is convenient for me". The
autonomy allows a greater flexibility.
Factor 4, Status, encompasses the following variables: "To follow
the example of a person I admire"; "To increase my
status/prestige"; and, "To maintain a family tradition". All these
variables are external to the person. The launch of a business
may be triggered by social forces, as shown by this factor; and
these are either related to the current image (i.e. status or
prestige of the entrepreneur) or to an historical image (i.e. to
maintain a family tradition).
Factor 5, Market Opportunity, is a trigger resulting from the
conjunction of two variables: an opportunity identified in the
market place together with positive economic indicators. It should
be noted, however, that the opportunity itself is not sufficient;
because there also needs to be a conducive environment in order for
the intention to set up a business enterprise to eventuate.
Factor 6, Money, underpins the financial drive often mentioned by
entrepreneurs. Keeping a larger proportion of the proceeds and
the desire to earn more money in turn are certainly reasons to
start a business. However, it was not the most important factor
in this study.
Barriers To Business Start-Ups
Figure 3(omitted) displays the mean importance of the barriers to
launching the business as perceived by sample respondents. The
variance of the means is much smaller than that of the triggers
(see Figure 2 omitted).
Overall the barriers to establish a new business venture were
perceived to be minimal in the study, in that, almost all
barriers mentioned were ranked in the category "not so important"
to " average importance". Only three barriers ("risks greater
than initially expected", the "lack of own savings or assets",
and 'a more difficult task than expected') appeared to be
slightly more important than the average.
A factor analysis was also performed for the barriers to small
business start-up. Factors were extracted with a principal
components analysis, followed by a varimax rotation. The rotated
factor matrix presented in Table 3 highlights three barriers to
set up a business venture.
Table 3: Rotated Factor Matrix Of The Barriers
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Variable Factor 1 Factor 2 Factor 3
Lack of Compliance Hard
Resources Costs Reality
Lack of marketing skills .83
Lack of managerial/financial expertise .78
Lack of info on business start-up .64
Difficulty in obtaining finance .64
Lack of suitable premises .60
High taxes and fees .75
Finding suitable labour .74
Compliance with govern. regulation .67
No one to turn to in order to help me .61
Risks greater than initially expected .80
Task was more difficult than expected .77
Uncertainty of the future .63
Fear of failure .59
Eigenvalue 7.88 1.50 1.46
Percent of variance explained 43.8 8.4 8.1
Cumulative percent 43.8 52.2 60.3
Cronbach alpha .84 .78 .79
Only loadings > .5 are shown
The first factor, Lack of Resources, encompasses different
shortages perceived by "would-be entrepreneurs". They often
recognise themselves that they do not master the necessary skills
in marketing, management, and finance. These personal
deficiencies are further worsened by a lack of information on
business start-ups. Finance and suitable premises are two other
types of resources which are also correlated to factor 1 and
which constitute an additional barrier.
The second factor, Compliance Costs, encompasses the high taxes
and fees, as well as the compliance, associated with government
legislation. Interestingly enough, finding suitable labour is
also correlated with this factor. This shows the difficulty
finding qualified employees and, labour may also appear as an
"administered price", i.e. determined to a certain extent by
legislation and the unions. All of these variables are linked to
government regulations (legislation, taxes and fees)or policies
(education and training to produce qualified and affordable
employees). Also, they create hurdles for business start-ups and
confusion for potential entrepreneurs, who appear to have the
impression of being lost in this 'red tape' situation and have no
one to turn to in order to help them.
The third factor, Hard Reality, indicates that setting up a
business is often harder and with more risks than initially
expected. It suggests that tasks appear more difficult and that
risks are usually greater than expected when the time comes to
launch the business. The future is perceived as very uncertain
and, as a result, a certain fear of failure is also associated
with this factor.
The Relative Importance of the Factors
Following the factor analysis each of these nine dimensions were
developed into derived variables comprising a composite mean of
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the original variables which were found to identify the factors.
An examination of the overall importance of these nine factor
variables to the respondents was then undertaken using t-tests of
the differences between their mean scores.
Of interest was the finding that no significant differences (at
the 5% level) could be found between the importance placed on
these variables by the two sub-populations of starters versus
non-starters. This finding suggests that these triggers and
barriers are viewed with equal degrees of importance regardless
of whether the individual proceeded to foundation of their
business or not.
A comparison of how the nine factors variables were ranked in
terms of their relative importance to the entire sample found a
hierarchy. Table 4 shows the results of this analysis.
Table 4: Relative Importance Of The Factors
Factor variable Mean Std.Dev t-value
1 =not important at all,
5=very important
1. CREATIVITY (Trigger) 4.17 0.78
2. AUT0NOMY (Trigger) 3.89 0.85 2.98*
MONEY (Trigger) 3.77 0.89
3. HARD REALITY (Barrier) 3.18 0.97 4.25*
MARKET OPPORTUNITY (Trigger) 3.16 1.06
4. INVEST (Trigger) 2.75 0.83 3.40*
LACK OF RESOURCES (Barrier) 2.63 1.22
COMPLIANCE COSTS (Barrier) 2.53 1.25
5. STATUS (Trigger) 2.03 0.88 3.76*
* indicates significant at the 5% level between the mean scores
above and below the broken line.
As shown in Table 4 the most important factor was the "Trigger"
CREATIVITY. This suggests that both starters and non-starters
view the ability to use their talents, have an interesting job,
create something or realise their dreams as the most important
potential motivation to small business formation.
In second place were the two factors of AUTONOMY and MONEY.
These two "Triggers" are somewhat related. The ability to be
one's own boss and have autonomy is only possible if financial
success has been achieved.
Third place was shared by the "Barrier" factor HARD REALITY and
the "Trigger" factor MARKET OPPORTUNITY. These two factors are
likely to relate to each other in terms of a trade off of one for
the other. The motivation to found a business in the fight of a
perceived market opportunity must be weighed against the risks
and difficulties involved.
In equal fourth place were the "Trigger" factor INVEST and the
"Barrier" factors LACK OF RESOURCES and COMPLIANCE COSTS. Once
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again this may indicate a trade off between these triggers and
barriers. Having money to invest in a potential business to
secure future wealth must be considered against the lack of
resources (particularly finances) and the costs of establishment.
Finally, in last place was the "Trigger" factor STATUS. This
suggests that the desire to emulate others or follow family
traditions are not particularly strong motivations for nascent
entrepreneurs in Western Australia.
Conclusion
The objective of this paper was to shed light on the process
leading to new enterprise formation while identifying the
triggers and barriers to business start-ups. A great deal is
known about the characteristics of owner-managers and the motives
that urged them to set up a business venture. However, virtually
all previous studies focused on owner-managers of new businesses,
not on persons who are in the process of starting a new business.
In order to get a comprehensive picture of entrepreneurship (and
of the triggers and barriers affecting start-ups), it is not
sufficient to approach only those who have fulfilled their
objectives. This study took a new approach in that it focused on
people who had the intention to start a business.
Several triggers - possibly a combination of triggers - appeared
to be at the root of startups. These triggers were the level of
creativity, the need for autonomy, the achievement of social
status, the response to a market opportunity, and the drive for
money. In addition to these "usual" triggers, the research also
highlighted one intriguing trigger: the will to invest savings in
a business venture which will provide the investor with a job and
the satisfaction of being rewarded on merits. It was suggested
that this trigger matched the profile of mid-career professionals-
some of whom were made redundant - who wanted to become self-employed.
This constitutes an emerging trend in entrepreneurship. Business
advisers along with training institutions should better target these
professionals who want to redirect their career toward running their
own business and provide them with an ad hoc turnaround strategy.
The good news which came out of this research was that nascent
entrepreneurs did not perceive any barriers which would
significantly impede their start-up. This implies that they did
not face any hurdle at all (otherwise all those who had the
intention to start a business would have succeeded). In relation
to those who did not proceed with starting up of their own
business, three underlying barriers were identified: the lack of
resources (knowledge, finance, and premises); compliance costs
(high taxes and fees, finding suitable labour, compliance with
government regulation); and, the disillusions associated with the
hard reality of "going into business" (risks greater than
initially expected, task more difficult than expected,
uncertainty of the future, fear of failure).
The remedy for these problems are known and include: a better
education and training (to improve the lack of managerial and
marketing skills), an improvement of the services provided to
nascent entrepreneurs (to improve the lack of information on
business start-up and address the difficulty in obtaining
finance), and a reduction of 'red tape' and taxes (to curtail
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compliance costs). Last, but not least, nascent entrepreneurs
themselves should be more self-confident and persevering when
they face the hard reality of establishing their own business.
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doc_214527740.pdf
Description talk about triggers and barriers affecting entrepreneurial intentionality.
Triggers And Barriers Affecting Entrepreneurial
Intentionality: The Case Of Western Australian Nascent
Entrepreneurs
Thierry Volery, Noelle Doss, Tim Mazzarol and Vicki Thein
Curtin Business School
Curtin University of Technology
Abstract
This paper sheds light on the process leading to new enterprise
formation while identifying the triggers and barriers to business
start-ups. A new approach was used to conduct the study as the
analysis focused on the pre-decision stage, i.e. the intention
and characteristics of nascent entrepreneurs. In addition to the
"usual" triggers to start-up, the research highlighted a more
intriguing one: the will to invest savings in a business venture
which will provide the investor with a job and the satisfaction
of being rewarded on merits. It was suggested that this trigger
matched the profile of mid-career professionals who wanted to
become self-employed. Underlying barriers related to the lack of
resources, compliance costs, and the hard reality of "going into
business".
Introduction
More than ever the driving force in the modem economy remains
entrepreneurship. Entrepreneurs are meeting our economic needs
through the creation of thousands of new businesses each year.
While larger corporations have instituted "downsizing" or
"outsourcing" programs, job creation and economic growth have
become the domain of the new ventures and the entrepreneurs who
create them. If small businesses are to make the uttermost
contribution to the economy, it is therefore incumbent on policy
makers, trainers and business advisers to pay attention to the
factors impeding and fostering their start-up.
This paper attempts precisely to identify the triggers and
barriers to small ventures formation. In doing so, it focuses-
in contrast to numerous past studies- on the person who has the
intention to start a business, i.e. the nascent entrepreneur.
We will therefore look at what the entrepreneur does to indicate
this intention (intention indicators), as well as the triggers
and barriers affecting the intention to set up a business
venture.
As considerable research has already been undertaken about the
start-up process, the first section of the report presents a
review of the literature and a theoretical framework of startup.
In section 2, the methodology used to carry out the project is
presented. The intention indicators displayed by nascent
entrepreneurs are outlined in section 3. The triggers are
discussed in section 4, and the barriers are detailed in section 5.
Review Of The Literature
Definition Of A Business Start-Up
The definition of a new firm or new enterprise is an ambiguous
issue. Mason (1983) identifies four aspects which should be
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considered when defining a new firm:
* Start-up date. The definition of the start-up date is
arbitrary. Approaches in the literature have included the
date the company registers; the date the first sales occur;
and, the date the first employee is hired. Obviously, a firm
can "start-up" before any of these events take place.
* Changes in activity. If a company starts as a service firm
and then switches to manufacturing, is it a new firm?
* Independence. Independence usually means the firm has no
obvious parent. Under this definition, new franchises are not
new firms.
* Newness. The term is related to the "changes in activity"
aspect listed above. Is the company new if the owner bought
an existing business and changed some of its activities?
Katz & Gartner (1988) addressed some of these difficulties in
relation to definition with a compromise. They suggest four
indicators showing that an organisation is in the process of
coming into existence: (1) the intention to create an
organisation (distinct goals); (2) the resources to create an
organisation; (3) the development of an organisational boundary
(e.g. registration); and, (4) the exchange of resources across
the boundary (e.g. sales). When studying organisation creation,
they suggest using at least one of these properties as a sampling frame.
Consequently, franchise businesses were not included in the scope
of the study because of obvious independence problems in the
franchiser-franchisee relationship. However, owners who bought
an existing business and changed some of its activities were
included in the research. This study considered that a new
business has effectively stained if the first sales have occurred.
Previous Research On Start-Ups
A number of researchers have attempted to identify relevant
outcomes linked to organisation formation. In the early
empirical research this interest was very much focused on the
psychological characteristics of business founders, although the
research was not closely linked to contemporary developments in
psychology. A trait approach was often adopted, and almost
endless lists of entrepreneurial traits were suggested (Hornaday, 1982).
For example, such factors as need for achievement (McClelland, 1961),
risk taking propensity (Brockhaus, 1980), locus of control
(Brockhaus, 1982), tolerance of ambiguity (Schere, 1982), and
desire for personal control (Greenberger & Sexton, 1988) have
been identified and examined as possible traits associated with
entrepreneurial behaviour.
This approach eventually reached a dead end as it could only
partially answer the question: "What makes people found new
firms?" It has been convincingly argued that personal background
characteristics have a more reliable influence on the decision to
found one's own firm than psychological traits (Reynolds, 1991;
Stanworth, Blythe & Stanworth, 1991). Discussion has also
addressed numerous other background factors linked to the
personality, for example, previous employment (Storey, 1982;
Ronstadt, 1988); family background (Scott & Twomey, 1988;
Matthews & Moser, 1995); gender (Buttner & Rosen, 1989;
Kolvereid, Shane, & Westhead, 1993); education (Storey, 1982);
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ethnic membership (Aldrich, 1980); and religion (Weber, 1930).
A response to the limited success of the trait approach has been
to view enterprise creation in context. One way of doing this is
to apply a more aggregate level of analysis and to look for
regional or national level variables that can explain variations
in the rate of new enterprise formation (Aldrich, 1990). This
approach has been relatively successful and fairly strong
relationships have been established. In her literature review,
Specht (1993) distinguishes five main contextual factors
affecting organisation formation and these include social,
economic, political, infrastructure development and market
emergence factors.
Within the social environment, the impact of networks (Marett,
1980; Gartner, 1985; Aldrich & Zimmer, 1986; Johannisson, 1988)
and the support of sociopolitical elites, along with the cultural
acceptance (Gartner, 1985; Bull & Winter, 1991), are of
particular importance. The economic environment studies focus on
capital availability (Cross, 1981; Storey, 1982; Gartner, 1985),
aggregate economic indicators (Walton, 1977), economic recessions
(Delacroix & Caroll, 1983; Gould & Keeble, 1984; Shutt &
Whittington, 1987), and unemployment (Pennings, 1982; Gould &
Keeble, 1984). The political environment concerns mainly the
support of public or semi-public agencies (Delacroix & Caroll, 1983;
Gartner, 1985; Young & Francis, 1989; Walker & Greenstreet, 1990).
Infrastructure development encompasses numerous variables such as
the education system (Gartner, 1985; Romanelli, 1989; Bull &
Winter, 1991), nature of local labour market (Pennings, 1982;
Gartner, 1985; Mason, 1989), incubator organisations (Gartner, 1985;
Young & Francis, 1989), information accessibility (Romanelli, 1989),
and availability of premises (Cross, 1981; Storey, 1982; Gould &
Keeble, 1984; Mason, 1989). Finally, market emergence integrates
both concepts of niche emergence (Boeker, 1988; Delacroix & Solt, 1988),
and technological innovation (Cross, 1981 - Gould & Keeble; 1984;
Mason, 1989).
Methodology
Virtually all the above mentioned studies focused on
owner/managers of new businesses, not on persons who were in the
process of starting a new business. These studies did not
address Learned's (1992) observation that not all of those
attempting to form an organisation will succeed. In order to get
a comprehensive picture of entrepreneurship, it is not sufficient
to approach only those who have fulfilled their objectives.
Therefore, there is still a need for a desegregate level of
analysis which can shed light on the process leading to new
enterprise formation.
In this perspective, the analysis should focus on the pre-
decision stage, i.e. interest, entrepreneurial career preference,
and characteristics of nascent entrepreneurs (Bird, 1988;
Krueger, 1993; Boyd & Vozikis, 1994). Given that the decision to
found a firm can be regarded as a reasoned or planned behaviour,
the relationship between intentionality and actual behaviour
should be fairly strong (Ajzen, 1991).
The unit of analysis of this research focuses on the start-up
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process and more specifically on the actor at the core of this
process: the person who has the intention to start a business,
i.e. entrepreneurial intentionality. Intentionality is defined
by Bird (1989: 8) as "... a conscious state of mind that directs
attention (and therefore experience and action) toward a specific
object (goal) or pathway to achieve it (means)". This concept
goes beyond the one of entrepreneurial propensity: Individuals
with the intention to start a business not only have a propensity
to start, but in addition, adopt a rational behaviour to reach
their goal. They have therefore already taken some steps (e.g.
gathered some information; established a business plan; saved
some money) toward this goal.
Figure 1 presents a schematic overview of the start-up process
and focuses on the assumption that the triggers and barriers
influence the intention, and ultimately the decision, to launch
the business (triggers prevail over barriers) or to give up the
idea (barriers prevail over triggers). As there is a time lag in
the start-up process, both those who effectively founded a new
venture and those who abandoned the idea needed be approached to
gather the information on barriers and triggers. For the purpose
of policy decisions aimed at stimulating new enterprise
formation, it is as useful to learn why individuals failed to
implement their intentions (the barriers to start-up), as to
study only those who carried them out (the triggers).
A total of 93 entrepreneurs were interviewed. Among them were 48
"starters", i.e. entrepreneurs who effectively launched a
business venture over the last two years; and 45 " non-starters",
i.e. potential entrepreneurs who abandoned the idea to launch
their business at least for the moment. Different SMEs services
providers such as the Small Business Development Corporation, the
Business Enterprise Centres, and the Women's Economic Development
Organisation assisted in the random selection of entrepreneurs.
The Dun & Bradstreet data base of new businesses was also used to
identify the starters.
Figure 1: A Model Of Organisation Formation
PERSONAL BACKGROUND:
Age
Gender
Previous employment DECISION:
Family and ethnic group FOUND (Triggers > Barriers)
Education
ENVIRONMENT: INTENTIONALITY
Industry
Social DECISION:
Economic ABANDON (Triggers < Barriers)
Political
Infrastructure development
Data were collected with a semi-structured interview integrating
closed questions (to gather demographic information and
facilitate cross-case analysis) as well as open-ended questions
(to gain a wider and more dynamic perspective). The interview
provided in-depth information, through a "360 scanning" of the
entrepreneur personality and his/her perception of the environment.
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Intention Indicators
The focus of analysis in this study is entrepreneurial
intentionality. We have clearly established that, in order to
gain an insight into the barriers and triggers to start-up, it is
vital to integrate in the research the nascent entrepreneurs who
failed to set up their own business venture along with the
successful ones.
With an expression of intention ("I am going to try to start a
business"), the entrepreneur begins the process of founding the
business. Intention implies action. Several indicators can
reflect entrepreneurial intentionality, this conscious state of
mind which directs attention toward the goal of establishing the
new organisation. Table 1 shows the actions taken by starters
and non-starters in our sample.
Although some differences appeared among the actions taken, it is
important to notice at this stage that non-starters and starters
took some similar steps to launch their business. As there are
almost the same number of starters (48) and non-starters (45) in
the sample, it should be noticed that in general they both:
* Gathered some information on business start-up from various
organisations (e.g. Small Business Development Corporation or
Business Enterprise Centre), their family, or their friends.
* Prepared a business plan.
* Looked for facilities or equipment.
* Were saving money to set up their business.
Table 1: Intention Indicators Of Starting A Business
While you were in the process of examining Non-starters Starters
your business launch you... N (%) N (%)
Bought/rented facilities/equipment 12 (26.6) 34 (70.8)
Attended a course in business management 27 (60) 17 (35.4)
Developed models/prototypes 13 (28.8) 16 (33.3)
Organized a start-up team 10 (22.2) 23 (47.9)
Devoted full time to the project 7 (15.5) 28 (58.3)
Sought financial support 14 (31.1) 24 (50.0)
Invested my own money 21 (46.6) 38 (79.1)
Looked for facilities/equipment 32 (71.1) 35 (72.9)
Were saving money to start your business 17 (37.7) 22 (45.8)
Prepared a business plan 31 (68.8) 36 (75.0)
Gathered information (e.g. market, cost) 42 (93.3) 45 (93.7)
Applied for a licence/regsitration 10 (22.2) 31 (64.5)
Triggers To Business Start-Ups
A graph of the mean importance of the triggers listed in the
questionnaire is offered as Figure 2(omitted). Notably there is a
large spread for the means which are quite evenly distributed
between 'not important at all' and 'very important'.
Further, a factor analysis was performed to identify underlying
triggers among the list of items proposed. Factors were extracted
with a principal components analysis, followed by a varimax
rotation. The rotated factor matrix presented in Table 2 shows
six main triggers to set up a business venture. Overall, the six
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factors explain 63.6 per cent of the variance - a middling
performance. The reliability of the factors was also tested, and
Cronbach alpha coefficients range between .65 and .91 which is a
meritorious level.
Table 2: Rotated Factor Matrix Of The Triggers
Variable 1 2 3 4 5 6
The need for a job .71
Invest my personal savings .65
Receive a salary based on merit .65
Invest super/redundan. package .61
Take advantage of my talents .83
Have an interesting job .74
Create something .72
Realise my dream .54
Work at a location of my choice .79
Make my own hours .78
Be my own boss .71
Follow the example of a person .82
Increase my status/prestige .59
Maintain a family tradition .59
Take advantage of a mkt opport .86
Positive economic indicators .75
Keep a large part of the proceeds .88
Earn more money .74
Eigenvalue 4.50 2.42 1.79 1.58 1.33 1.07
Percent of variance explained 22.5 12.1 9.0 7.9 6.7 5.4
Cumulative percent 22.5 34.6 43.6 51.5 58.2 63.6
Cronbach alpha .69 .77 .68 .65 .91 .66
Only loadings > .5 are shown
1=Invest
2=creativity
3=Autonomy
4=Status
5=Mkt Opport.
6=Money
The first factor, Invest, encompasses the following motives to
start a business: "The need for a job"; "To invest my personal
savings"; "To receive a salary based on merit"; and "To invest my
superannuation/redundancy package". The typical profile of
entrepreneurs who would put forward such motives appears to be
mid-career professionals who have some savings and who want to be
rewarded according to their effort. The combination of both the
impression that their merits are recognised/rewarded and that they
have money to walk away with, constitutes a powerful trigger for
these people to set up their own business venture. In relation to
some of these professionals who were made redundant, "The need for
a job" together with the opportunity "To invest a superannuation
or redundancy package" also correlated with this factor.
The second factor, Creativity, has been intimately associated with
entrepreneurship in the literature. This factor encompasses
variables such as "To take advantage of my own talents"; "To have
an interesting job"; "To create something new"; and "To realise my
dream". Altogether these variables translate the desire and the
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ability to bring something new into existence. Potential
entrepreneurs would like to take advantage of their own talents,
or in other words do what they do best and what they like. Some,
however, would like to have a more interesting job - which would
enable them to create something and realise their dream at the
same time.
Factor 3, Autonomy, reflects the willingness of independence of
entrepreneurs, in that they want to work their own hours at a
location of their choice. The desire to be one's own boss further
reflects this autonomy. This factor has also been referred to
during the interviews by such statements as: "I want to work with
a person of my choice", or "I want to be free to start at 10 am or
to take an afternoon off when it is convenient for me". The
autonomy allows a greater flexibility.
Factor 4, Status, encompasses the following variables: "To follow
the example of a person I admire"; "To increase my
status/prestige"; and, "To maintain a family tradition". All these
variables are external to the person. The launch of a business
may be triggered by social forces, as shown by this factor; and
these are either related to the current image (i.e. status or
prestige of the entrepreneur) or to an historical image (i.e. to
maintain a family tradition).
Factor 5, Market Opportunity, is a trigger resulting from the
conjunction of two variables: an opportunity identified in the
market place together with positive economic indicators. It should
be noted, however, that the opportunity itself is not sufficient;
because there also needs to be a conducive environment in order for
the intention to set up a business enterprise to eventuate.
Factor 6, Money, underpins the financial drive often mentioned by
entrepreneurs. Keeping a larger proportion of the proceeds and
the desire to earn more money in turn are certainly reasons to
start a business. However, it was not the most important factor
in this study.
Barriers To Business Start-Ups
Figure 3(omitted) displays the mean importance of the barriers to
launching the business as perceived by sample respondents. The
variance of the means is much smaller than that of the triggers
(see Figure 2 omitted).
Overall the barriers to establish a new business venture were
perceived to be minimal in the study, in that, almost all
barriers mentioned were ranked in the category "not so important"
to " average importance". Only three barriers ("risks greater
than initially expected", the "lack of own savings or assets",
and 'a more difficult task than expected') appeared to be
slightly more important than the average.
A factor analysis was also performed for the barriers to small
business start-up. Factors were extracted with a principal
components analysis, followed by a varimax rotation. The rotated
factor matrix presented in Table 3 highlights three barriers to
set up a business venture.
Table 3: Rotated Factor Matrix Of The Barriers
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Variable Factor 1 Factor 2 Factor 3
Lack of Compliance Hard
Resources Costs Reality
Lack of marketing skills .83
Lack of managerial/financial expertise .78
Lack of info on business start-up .64
Difficulty in obtaining finance .64
Lack of suitable premises .60
High taxes and fees .75
Finding suitable labour .74
Compliance with govern. regulation .67
No one to turn to in order to help me .61
Risks greater than initially expected .80
Task was more difficult than expected .77
Uncertainty of the future .63
Fear of failure .59
Eigenvalue 7.88 1.50 1.46
Percent of variance explained 43.8 8.4 8.1
Cumulative percent 43.8 52.2 60.3
Cronbach alpha .84 .78 .79
Only loadings > .5 are shown
The first factor, Lack of Resources, encompasses different
shortages perceived by "would-be entrepreneurs". They often
recognise themselves that they do not master the necessary skills
in marketing, management, and finance. These personal
deficiencies are further worsened by a lack of information on
business start-ups. Finance and suitable premises are two other
types of resources which are also correlated to factor 1 and
which constitute an additional barrier.
The second factor, Compliance Costs, encompasses the high taxes
and fees, as well as the compliance, associated with government
legislation. Interestingly enough, finding suitable labour is
also correlated with this factor. This shows the difficulty
finding qualified employees and, labour may also appear as an
"administered price", i.e. determined to a certain extent by
legislation and the unions. All of these variables are linked to
government regulations (legislation, taxes and fees)or policies
(education and training to produce qualified and affordable
employees). Also, they create hurdles for business start-ups and
confusion for potential entrepreneurs, who appear to have the
impression of being lost in this 'red tape' situation and have no
one to turn to in order to help them.
The third factor, Hard Reality, indicates that setting up a
business is often harder and with more risks than initially
expected. It suggests that tasks appear more difficult and that
risks are usually greater than expected when the time comes to
launch the business. The future is perceived as very uncertain
and, as a result, a certain fear of failure is also associated
with this factor.
The Relative Importance of the Factors
Following the factor analysis each of these nine dimensions were
developed into derived variables comprising a composite mean of
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the original variables which were found to identify the factors.
An examination of the overall importance of these nine factor
variables to the respondents was then undertaken using t-tests of
the differences between their mean scores.
Of interest was the finding that no significant differences (at
the 5% level) could be found between the importance placed on
these variables by the two sub-populations of starters versus
non-starters. This finding suggests that these triggers and
barriers are viewed with equal degrees of importance regardless
of whether the individual proceeded to foundation of their
business or not.
A comparison of how the nine factors variables were ranked in
terms of their relative importance to the entire sample found a
hierarchy. Table 4 shows the results of this analysis.
Table 4: Relative Importance Of The Factors
Factor variable Mean Std.Dev t-value
1 =not important at all,
5=very important
1. CREATIVITY (Trigger) 4.17 0.78
2. AUT0NOMY (Trigger) 3.89 0.85 2.98*
MONEY (Trigger) 3.77 0.89
3. HARD REALITY (Barrier) 3.18 0.97 4.25*
MARKET OPPORTUNITY (Trigger) 3.16 1.06
4. INVEST (Trigger) 2.75 0.83 3.40*
LACK OF RESOURCES (Barrier) 2.63 1.22
COMPLIANCE COSTS (Barrier) 2.53 1.25
5. STATUS (Trigger) 2.03 0.88 3.76*
* indicates significant at the 5% level between the mean scores
above and below the broken line.
As shown in Table 4 the most important factor was the "Trigger"
CREATIVITY. This suggests that both starters and non-starters
view the ability to use their talents, have an interesting job,
create something or realise their dreams as the most important
potential motivation to small business formation.
In second place were the two factors of AUTONOMY and MONEY.
These two "Triggers" are somewhat related. The ability to be
one's own boss and have autonomy is only possible if financial
success has been achieved.
Third place was shared by the "Barrier" factor HARD REALITY and
the "Trigger" factor MARKET OPPORTUNITY. These two factors are
likely to relate to each other in terms of a trade off of one for
the other. The motivation to found a business in the fight of a
perceived market opportunity must be weighed against the risks
and difficulties involved.
In equal fourth place were the "Trigger" factor INVEST and the
"Barrier" factors LACK OF RESOURCES and COMPLIANCE COSTS. Once
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again this may indicate a trade off between these triggers and
barriers. Having money to invest in a potential business to
secure future wealth must be considered against the lack of
resources (particularly finances) and the costs of establishment.
Finally, in last place was the "Trigger" factor STATUS. This
suggests that the desire to emulate others or follow family
traditions are not particularly strong motivations for nascent
entrepreneurs in Western Australia.
Conclusion
The objective of this paper was to shed light on the process
leading to new enterprise formation while identifying the
triggers and barriers to business start-ups. A great deal is
known about the characteristics of owner-managers and the motives
that urged them to set up a business venture. However, virtually
all previous studies focused on owner-managers of new businesses,
not on persons who are in the process of starting a new business.
In order to get a comprehensive picture of entrepreneurship (and
of the triggers and barriers affecting start-ups), it is not
sufficient to approach only those who have fulfilled their
objectives. This study took a new approach in that it focused on
people who had the intention to start a business.
Several triggers - possibly a combination of triggers - appeared
to be at the root of startups. These triggers were the level of
creativity, the need for autonomy, the achievement of social
status, the response to a market opportunity, and the drive for
money. In addition to these "usual" triggers, the research also
highlighted one intriguing trigger: the will to invest savings in
a business venture which will provide the investor with a job and
the satisfaction of being rewarded on merits. It was suggested
that this trigger matched the profile of mid-career professionals-
some of whom were made redundant - who wanted to become self-employed.
This constitutes an emerging trend in entrepreneurship. Business
advisers along with training institutions should better target these
professionals who want to redirect their career toward running their
own business and provide them with an ad hoc turnaround strategy.
The good news which came out of this research was that nascent
entrepreneurs did not perceive any barriers which would
significantly impede their start-up. This implies that they did
not face any hurdle at all (otherwise all those who had the
intention to start a business would have succeeded). In relation
to those who did not proceed with starting up of their own
business, three underlying barriers were identified: the lack of
resources (knowledge, finance, and premises); compliance costs
(high taxes and fees, finding suitable labour, compliance with
government regulation); and, the disillusions associated with the
hard reality of "going into business" (risks greater than
initially expected, task more difficult than expected,
uncertainty of the future, fear of failure).
The remedy for these problems are known and include: a better
education and training (to improve the lack of managerial and
marketing skills), an improvement of the services provided to
nascent entrepreneurs (to improve the lack of information on
business start-up and address the difficulty in obtaining
finance), and a reduction of 'red tape' and taxes (to curtail
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compliance costs). Last, but not least, nascent entrepreneurs
themselves should be more self-confident and persevering when
they face the hard reality of establishing their own business.
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