What Makes a New Business Start-Up Successful?
AbstractThis paper seeks a good measure of new business performance, and then explains this measure by various dimensions of business strategy. Three criteria are used to create a one dimensional ordinal ranking of high, medium and low performance for new business starts: employment growth; return on capital employed;and labour productivity. It is shown that statistical cluster analysis provides a convincing separation of a sample of new business starts into high, medium and low performance categories, using a minimum distance criterion for clustering. An ordinal logit model (with selection) is then used to explain this performance ranking. The results indicate that many widely discussed features of small business strategy have little, or even negative, impact on performance. Of the numerous aims that owner managers may adopt (survival, growth etc), only one appears to have a major impact on performance; the pursuit of the highest rate of return on investment. Many entrepreneurial perceptions of their own capabilities appear false or unimportant, with the exception of organisational features and systems.
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Bibliographic InfoPaper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 9618.
Date of creation: Oct 1996
Date of revision:
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New businesses; performance; ordered logit with selection; cluster analysis;
Other versions of this item:
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- M13 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - New Firms; Startups
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
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