What makes a new business start-up successful?

Gavin C. Reid, Julia A. Smith

Research output: Contribution to journalArticlepeer-review

92 Citations (Scopus)

Abstract

This 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.
Original languageEnglish
Pages (from-to)165-182
Number of pages18
JournalSmall Business Economics
Volume14
Issue number3
DOIs
Publication statusPublished - 31 May 2000

Keywords

  • business performance
  • business strategy
  • statistical cluster analysis

Fingerprint

Dive into the research topics of 'What makes a new business start-up successful?'. Together they form a unique fingerprint.

Cite this