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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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
Date of revision:
Contact details of provider:
Postal: P.O. Box 7001, 2701 AA Zoetermeer
Phone: (+31) 79 341 36 34
Fax: (+31) 79 341 50 24
Web page: http://www.entrepreneurship-sme.eu/
More information through EDIRC
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)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Evans, David S., 1986.
"The Relationship Between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries,"
86-33, C.V. Starr Center for Applied Economics, New York University.
- Evans, David S, 1987. "The Relationship between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 567-81, June.
- Reid, Gavin C., 1991. "Staying in business," International Journal of Industrial Organization, Elsevier, vol. 9(4), pages 545-556, December.
- Franco Peracchi, 2002. "The European Community Household Panel: A review," Empirical Economics, Springer, vol. 27(1), pages 63-90.
- Kihlstrom, Richard E & Laffont, Jean-Jacques, 1979. "A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 719-48, August.
- Ardichvili, Alexander & Cardozo, Richard & Ray, Sourav, 2003. "A theory of entrepreneurial opportunity identification and development," Journal of Business Venturing, Elsevier, vol. 18(1), pages 105-123, January.
- Jovanovic, Boyan, 1982. "Selection and the Evolution of Industry," Econometrica, Econometric Society, vol. 50(3), pages 649-70, May.
- José Millán & Emilio Congregado & Concepción Román, 2012. "Determinants of self-employment survival in Europe," Small Business Economics, Springer, vol. 38(2), pages 231-258, February.
- Dunne, T. & Roberts, M.J. & Samuelson, L., 1988.
"The Growth And Failure Of U.S. Manufacturing Plants,"
1-87-5, Pennsylvania State - Department of Economics.
- Dunne, Timothy & Roberts, Mark J & Samuelson, Larry, 1989. "The Growth and Failure of U.S. Manufacturing Plants," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 671-98, November.
- Andrew Burke, & Holger Görg, & Aoife Hanley, . "The Impact of Foreign Direct Investment On New Firm Survival in the UK: Evidence For Static v. Dynamic Industries," Discussion Papers 07/09, University of Nottingham, GEP.
- Mata, Jose & Portugal, Pedro, 1994. "Life Duration of New Firms," Journal of Industrial Economics, Wiley Blackwell, vol. 42(3), pages 227-45, September.
- Bygrave, William D., 1993. "Theory building in the entrepreneurship paradigm," Journal of Business Venturing, Elsevier, vol. 8(3), pages 255-280, May.
- Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
- Audretsch, David B., 1995. "Innovation, growth and survival," International Journal of Industrial Organization, Elsevier, vol. 13(4), pages 441-457, December.
- Burke, Andrew & FitzRoy, Felix & Nolan, Michael A., 2006.
"What Makes a Die-Hard Entrepreneur? Beyond the ‘Employee or Entrepreneur’ Dichotomy,"
IZA Discussion Papers
2307, Institute for the Study of Labor (IZA).
- Andrew Burke & Felix FitzRoy & Michael Nolan, 2008. "What makes a die-hard entrepreneur? Beyond the ‘employee or entrepreneur’ dichotomy," Small Business Economics, Springer, vol. 31(2), pages 93-115, August.
- Burke, Andrew E & FitzRoy, Felix R & Nolan, Michael A, 2000. " When Less Is More: Distinguishing between Entrepreneurial Choice and Performance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(5), pages 565-87, December.
- José Millán & Emilio Congregado & Concepción Román, 2012. "Erratum to: Determinants of self-employment survival in Europe," Small Business Economics, Springer, vol. 38(2), pages 259-263, February.
- Blanchflower, David G & Oswald, Andrew J, 1998.
"What Makes an Entrepreneur?,"
Journal of Labor Economics,
University of Chicago Press, vol. 16(1), pages 26-60, January.
- Corbett, Andrew C., 2007. "Learning asymmetries and the discovery of entrepreneurial opportunities," Journal of Business Venturing, Elsevier, vol. 22(1), pages 97-118, January.
- Parker,Simon C., 2009. "The Economics of Entrepreneurship," Cambridge Books, Cambridge University Press, number 9780521899604, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Webmaster EIM).
If references are entirely missing, you can add them using this form.