Survival and Failure of Small Businesses Arising Through Government Privatization: Insights from Two New Zealand Firms

Redundancies of personnel arising from the corporatization and even subsequent privatization/closure of several federal departments have contributed to the number of small businesses in New Zealand, a phenomenon that will likely be mirrored at least partially as other nations progressively liberalize their economies. Small businesses with such origins would appear to be especially prone to failure in a progressively liberalized trading environment; their precursors in the parent government departments or agencies would have been cocooned from immediate market conditions through budgetary allocations and a lack of competition. However, the scholarly literature on the behaviour of such small businesses is scant. Accordingly, we report the findings from a comparative investigation of two businesses that arose in the wake of the failure/closure of a corporatized federal service agency in New Zealand; one of the two businesses was much more successful than the other. Our major finding is that a small firm with such origins is likely to survive to the extent it avoids becoming complacent and being ‘stuck in the mud’ of the legacy of the failed federal parent. A predictor of such ability is the timing of small business formation: a small business that is formed by members who depart from the dying federal parent organization when the latter's closure is apparent, is more likely to survive than a business whose formation is precipitated by the demise of the federal parent and whose members remain in the parent organization until its formal closure.