Start-Up Size Strategy and Risk Management: Impact on New Venture Performance
AbstractStart-up size is a key strategic decision for entrepreneurs. Should entrepreneurs start up close to minimum efficient scale or should they take less risks and start-up on a smaller scale? Previously, this strategic decision appeared to be one of simply making a choice between a higher risk/reward larger start-up versus a lower risk/reward smaller scale start-up. However, recent research on the relationship between risk management and performance (Burke, 2009) indicates that in situations of greater uncertainty and where innovation is incremental, a lower risk small start-up size can enable greater reward through enhanced post start-up flexibility and agility. In this paper we provide the first statistical test of the efficacy of start-up size strategies. We focus on employer businesses that provide jobs. We find that employer businesses that originally adopted a small scale (own-account) start-up strategy have higher survival chances and entrepreneurial incomes than employer businesses that employed personnel immediately from start-up. We also find that prior entrepreneurial experience positively affects firm survival and entrepreneurial incomes. Given the high failure rates among start-ups and the associated difficulty for new enterprises to create sustainable jobs, the research results highlight how strategic choice in relation to firm start-up size and risk management can have an important bearing on new venture performance.
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Bibliographic InfoPaper provided by EIM Business and Policy Research in its series Scales Research Reports with number H201207.
Length: 31 pages
Date of creation: 10 Jun 2013
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-27 (All new papers)
- NEP-BEC-2012-10-27 (Business Economics)
- NEP-CSE-2012-10-27 (Economics of Strategic Management)
- NEP-ENT-2012-10-27 (Entrepreneurship)
- NEP-RMG-2012-10-27 (Risk Management)
- NEP-SBM-2012-10-27 (Small Business Management)
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