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Start-Up Size Strategy and Risk Management: Impact on New Venture Performance

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Listed:
  • André van Stel
  • Andrew Burke
  • José Maria Millán
  • Concepcion Roman

Abstract

Start-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.

Suggested Citation

  • André van Stel & Andrew Burke & José Maria Millán & Concepcion Roman, 2013. "Start-Up Size Strategy and Risk Management: Impact on New Venture Performance," Scales Research Reports H201207, EIM Business and Policy Research.
  • Handle: RePEc:eim:papers:h201207
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    File URL: http://www.entrepreneurship-sme.eu/pdf-ez/H201207.pdf
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    References listed on IDEAS

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    4. 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.
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    Cited by:

    1. Jolanda Hessels & Brigitte Hoogendoorn & Peter van der Zwan & Nardo de Vries, 2013. "Global Entrepreneurship Monitor The Netherlands 2012," Scales Research Reports H201314, EIM Business and Policy Research.

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