Entrepreneurs: Interrelationships Between Their Characteristics, Values, Expectations, Management Practices and SME Performance

Abstract

This original research seeks to identify unique predictive relationships between the characteristics, values and expectations of entrepreneurs in small and medium sized enterprises (SMEs) and the management practices they choose; and then, the relationships between those practices and business performance. It adds to the current understanding of the impact of entrepreneurs on the performance of their businesses and has also led to the development of two new tools for assessing the performance of SMEs. Growth of the SME sector is important to the public policy agendas of governments, like those in Australia, that are seeking to optimise the employment opportunities associated with an SME sector in which "success" is the norm because SME failure, or underperformance, is associated with many social costs; costs that include reduced earnings for proprietors, potential job loss for staff and financial hardship for suppliers, as well as a reduction in the average per capita spending power of the community in which the failed or under performing business is based. For the SME, business strategy development and implementation is often the role of the entrepreneur owner-manager. The characteristics, values and expectations of entrepreneurs in SMEs may thus influence their choice of management practices and thereby the performance of their businesses. As Cooper (1998) argued: "the primary motivations of the entrepreneur bear upon not only the decision to start but also upon the decisions about how to manage, including whether or not to grow the firm aggressively" (p. 247). Johnson (1990) suggested that there is a strong need to focus future research on the motivation mechanisms of entrepreneurs as drivers of the entrepreneurial process. Johnson's view supports the entrepreneurial trait school of thought that development of an understanding of the individual entrepreneur's characteristics, values and expectations might provide worthwhile insight into her or his behaviour and its relationship to SME success and failure. The purposes of this research, therefore, were, first, to determine the importance of the attributed and attained characteristics of the entrepreneur on the formation of his or her values and expectations; second, to determine the influence of those values and expectations on the choice of management practices; third, to determine the degree to which those management practices influence business performance; and last, to develop a scale of measurement for entrepreneur characteristics, values and expectations that can be used to predict business performance. To enable limited comparison with Kotey's and Meredith's (1997) findings and to control for between industry and between state influences, the chosen context for the research was the furniture industry in Queensland. To add to current knowledge in SME management practices and performance, two new measurement tools were developed for this research. The first quantifies the positiveness of the business intentions of the entrepreneur. The second is a scaled index of perceived performance that takes account of the importance given by an entrepreneur to eight common business objectives and the degree to which he or she is satisfied with the performance of the business for each objective. Both tools are important additions to the limited existing armoury of tools available to researchers seeking to understand and predict SME performance. For the first time, the findings of this research indicate negative relationships between parent occupation skill levels and the importance given by entrepreneurs to the values of responsibility, honesty and competence and the negative role of the entrepreneur's achieved highest qualification on the importance given to values of affection, compassion, religion and national security. The findings thereby highlight the important role played by an entrepreneur's attained characteristics on the formation of his or her values. As well, the results show the important role played by values such as power and responsibility, as well as by high internal locus of control, on an entrepreneur's selection of planning, marketing and future management practices. In turn, the impact of those practices on business performance, as measured by the overall satisfaction of the entrepreneur and the newly created Scaled Index of Perceived Performance, is demonstrated. In so doing, the results shed more light on the complex relationships between entrepreneurs, the management practices they choose, and business performance. For the furniture industry in Queensland, the findings confirm Cooper's (1998) view that there is an empirical relationship between business founding processes and the performance of the business. Also supported is Kotey's and Meredith's (1997) broad finding for the furniture industry in New South Wales that "personal values of owner/managers, the strategies they adopt in operating their firms, and the performance outcomes of their businesses are empirically related" (1997, p. 59). Future research is needed to develop a causal model for those relationships in a variety of SME and other contexts.