ERC Theme 1: Entrepreneurial Ambition and Growth

Reference Group Update for November to June

08 July2015

1.2 and 1.3: Entrepreneurial Ambition, Resources and SME Growth: UK and International Comparisons Publications since October 2014

• Grant, A. Pooley, E., Levie, J and Botham R. (2015). Business Growth Ambitions amongst SMEs – changes over time and links to growth (Interim report) BIS Research Paper No. 215, March (presented at BIS research conference, March)

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/408404/bis-15-152-business-growth-ambitions-among-SMEs.pdf

1.2 and 1.3: Entrepreneurial Ambition, Resources and SME Growth: contd

Research output since October 2014

• Levie, J. and Hart, M. ISBE Conference Paper, Nov: Exporting by Male and Female Entrepreneurs over the Business Cycle

• Mickiewicz, T., Estrin, S. (LSE) and Korosteleva, J. (UCL) ERC research conference paper, June: “New Ventures’ Strategy, Knowledge Spillovers and Firm Growth Aspirations

• Levie, J. and de Borst, J. Book chapter accepted “The more the merrier: How owner-manager team size influences the potential economic contribution of owner-managed businesses across the world”

1.2 and 1.3: Entrepreneurial Ambition, Resources and SME Growth: UK and International Comparisons

Research Output since October 2014 contd.

• Ambition, People and Places: Opening Video of State of Small Business Britain Conference, June (Hart, Mickiewicz)

• Work in Progress on Final Report on Ambition and Growth Three Year Follow-up Study (Levie)

1.2 and 1.3: Entrepreneurial Ambition, Resources and SME Growth: UK and International Comparisons Examples of Engagement Output since October 2014

• ERC Research Conference, February

• BIS Research Conference, March

• Opening Video of State of Small Business Britain Conference, June

1.4 Entrepreneurial Ambition, Resources and SME Growth -Identifying bottlenecks in UK Systems of Entrepreneurship

Headline Activity since October 2014

• Theory and methodology development – Conference Paper: Hard Facts or Soft Insights? Fact-

based and Participative approaches to Entrepreneurship Ecosystems Policy Analysis and Management (Autio, Levie, November and December)

• Engagement

– Scotland, Estonia (Switzerland, Upper Saxony, Athens, Thailand, Turkey...)

Ambitious Entrepreneurship and Mobility

A Multi-Level Study across the Local Authorities in England and Wales

Mark Hart & Tomasz Mickiewicz

Introduction • Cross-border migration is a highly charged issue that dominates

current political debates in developed countries. Much of that discussion is focused on economic benefits versus economic cost of migration. However, public conversations are based on thin evidence and speculation.

• Migrants tend to be entrepreneurial. Yet little is known and understood about both the motivation and the aspirations of the immigrants-entrepreneurs; aspects which are crucial predictors of the economic implications of the new ventures.

• Moreover, focus on cross-border flows of people results in too little attention being paid to the related issue of inter-regional migration, again in particular in the context of the entrepreneurial motivation and aspirations (Levie and Hart, 2013).

Research Questions

• Is mobility associated with entrepreneurship?

• Are (internal and cross-border) migrants pull- or push-driven entrepreneurs?

• Are they high aspirations, ambitious entrepreneurs, whose aim is to create ventures that have economic impact beyond creating employment for those who start them?

• Are these individual effects or local externalities?

• Is it ethnicity or mobility that matters?

Push factors In entrepreneurship

• Entrepreneurship is an occupational choice that may be a result of push or pull factors.

• Push: self-employment is chosen because other labour market

opportunities are limited. This often leads to imitation; type of activity and business model are borrowed from already existing businesses. It still creates a positive competitive pressure, but may mostly result in crowding out existing ventures, leading to limited net economic impact.

• Applying this description to new entry by immigrants, leads to

portraying them as economic agents taking over jobs from ingenious entrepreneurs; if so, the logic of it amounts to little more than a zero-sum game.

Pull factors In entrepreneurship

• Pull factors: entry is attractive because of perceived opportunities of realising a unique, inimitable project that leads to quasi-rents.

• Rather than taking a share of the existing market from other

economic agents, an entrepreneur creates a new market (or some elements of it). In this case, a resulting competitive pressure may in fact be even stronger, but remains less direct, and it is counterbalanced by strong economic value generated by new ways of doing things and by new products or services.

• Importantly, any quasi-rents associated with market innovations are

temporary: knowledge spills over to other businesses in the neighbourhood and only a fraction of the economic rent can be retained by the innovator - owner of new venture.

• Migrants who enter into entrepreneurship along the pull-

opportunity route are less likely to provide arguments for those who build their political programme on resistance to migration.

Growth Ambitions

Motivation:

– Theoretical: Growth starts with attitudes and characteristics of those who run companies: what owners-managers think matters first and foremost (Penrose, 1959)

– Empirical: evidence of significant positive correlation between aspirations and growth outcomes

– Practical: longitudinal datasets are narrow and typically cannot tackle selection problem - by focusing on aspiration we get a wider empirical base

Defining Ambitious Entrepreneurship

• GEM - Early stage entrepreneurs (i.e. either involved in start-ups or owners-managers of young companies up to 42 months)…

• who aim to increase employment by 50% or more over the next five years, and…

• will employ 10 people or more

• This definition combines two characteristics used alternatively in earlier literature: – Looking at the expected level of employment after 5 years (but

companies could start large, hence no dynamism) – Looking at expected percentage change, controlling for initial level

(but a self employed adding an employee produces lots of dynamics but little impact)

High-low ambition versus pull-push factors

• High-low growth distinction cannot be reduced to the opportunity-push dimension discussed earlier.

• In particular, an opportunity driven entry may still be associated with little dynamism, if the entrepreneur lacks self-efficacy or is highly risk averse.

• Thus, it is best to look at both dimensions, when trying to assess what economic impact may be associated with entrepreneurial entry by migrants.

Hypotheses: Push and Pull (Necessity and Opportunity) Entrepreneurship

• H1a. Immigrants are more likely to enter necessity-motivated entrepreneurship than non-migrants.

• H1b. Internal migrants are more likely to enter necessity-motivated entrepreneurship than non-migrants.

• H2a. Immigrants are more likely to enter opportunity-motivated entrepreneurship than non-migrants.

• H2b. Internal migrants are more likely to enter entrepreneurship with the opportunity motive than non-migrants.

Hypotheses: High and low aspiration entry

• H3a. Immigrants are more likely to enter low growth aspirations entrepreneurship compared to non-migrants.

• H3b. Regional migrants are more likely to enter low growth aspirations entrepreneurship compared to non-migrants.

• H4a. Immigrants are more likely to enter high growth aspirations entrepreneurship compared to non-migrants.

• H4b. Internal migrants are more likely to enter high growth aspirations entrepreneurship compared to non-migrants.

Data and Estimator • Combined data from Global Entrepreneurship Monitor

(GEM) UK: representative sample of working age population.

• 2003-2013 data, 81k-283k observations used in estimations, with location of respondents attributed to one of 326 local authorities (LA) & one of 39 LEPs at a higher level

• We apply a multilevel multinomial logit models, estimating a likelihood of – being engaged in high ambition entrepreneurship versus

low ambition entrepreneurship, with non-active in entrepreneurship (GEM defined)

– being engaged in push and pull entrepreneurship.

Developing an Appropriate Analytical Framework

• Multi-level analysis (an extension of linear regression analysis) seeks to control for a set of independent variables which operate at the individual level (i.e., age, gender education, attitudes etc)

• …..and those which operate at a ‘higher level’ (i.e., LEP or LA – contextual variables) and in particular to control for the fact that individual observations share joint factors across space.

• It is perhaps a reasonable starting assumption to make that the characteristics of a population in a particular local area differ from those in another.

Specifications: explanatory variables

• Indicator variables for being an immigrant and for being a regional migrant

• Indicator for being a graduate • Initial labour market status • The LA average of graduates (density of people with HE) • Ethnicity (8 categories) • Being female • Age (categorised into 7 intervals) • Annual dummies • Dummy for inner London • Random intercepts for LA areas

Results on Motivation • Both immigrants and regional migrants are more likely to be engaged in

opportunity (pull) entrepreneurship compared with non-migrants • Regional migrants are also more likely than non-migrants to be engaged

in necessity (push) entrepreneurship; the immigrants aren’t;

• Thus, it is opportunity entrepreneurship that is characteristic for immigrants

• Contextual factors: the impact of quality of local human capital is highly significant for opportunity entrepreneurship, but not for necessity entrepreneurship

• Highest income groups dominate for opportunity entrepreenurship • Black respondents most likely to enter opportunity entrepreneurship

(controlling for individual characteristics) • Ethnic Pakistani and Bangladeshi respondents most likely to enter

necessity entrepreneurship (controlling for individual characteristics)

Results on Aspirations • Both immigrants and regional migrants are more likely to be

engaged in high aspiration entrepreneurship compared with non-migrants

• Regional migrants are also more likely than non-migrants to be engaged in low aspiration entrepreneurship; the immigrants aren’t;

• Thus, it is high aspiration entrepreneurship that is characteristic for immigrants

• Contextual factors: the impact of quality of local human capital dominates: robust over different specifications; highly significant; stronger for high ambition entrepreneurship

• Highest income groups dominate for high aspiration entry • Being in Inner London is associated with high aspiration

entrepreneurship • Black respondents have highest aspirations (controlling for

individual characteristics)

More results / Robustness checks • We introduced control for ethnic diversity measure (calculated as a local

Herfindahl index of ethnic distribution): no effect • Results on migration robust over the business cycle; they do not change

significantly over time • We introduced a proxy for local dynamism: percentage change in

population, no effect (albeit measured at higher, LEP level)

• Interactions between migration and education (individual effects): higher education matter less for migrants

• Interactions between migration and education (contextual effects): an environment that combines human capital and presence of migrants is the most conducive to high aspirations entrepreneurship

• We explored if there are either overcrowding or wave effects: migration indicators interacted with local authorities migration averages – little evidence

• …but the interaction models could be over-specified or masking some other nonlinear effects

Business Growth Ambitions amongst SMEs

Changes over time and links to growth

Andrew Graves and Emma Pooley, TBR Professor Jonathan Levie, Enterprise Research Centre

and University of Strathclyde Dr Ron Botham

Ambition and Growth Three Year Follow-up

• Re-survey of 1,250 SME owner/managers surveyed in 2011 for BIS by TBR

• Approximately half have participated in the follow-up

• Secondary data search and phone calls to get employment and status around end 2014 for 100% of firms originally surveyed

• Only way of verifying a link between ambition and subsequent growth

What We Want to Know

• How does ambition among SMEs change over time and what influences this?

• What is the relationship between SME ambition and SME business performance?

Three Levels of Ambition • Substantive ambition – respondents have the highest level of personal ambition for business growth (10 out of 10 on a Likert scale) and intend to grow their business significantly larger than its current size.

• Low ambition – respondents have a low level of personal business growth ambition (5 or lower on a Likert scale), or a medium level ( 6 or 7) AND do not intend to grow their organisation and view the ideal size of their business as being no higher than current size.

• Moderate ambition – all others

The 2012 Study’s Findings

• Based on recall of ambition 3 years previously:

– Growth was not confined to firms with substantial ambition

– Firms with substantial ambition more likely to grow more rapidly, but also to decline (in employment and turnover)

Ambition and Growth Follow-up study interim results

• Follow-up in Nov/Dec 2014 of 1,250 senior executives of SMEs originally surveyed in Jan/Feb 2012

• 503 firms re-surveyed

• Legal status and employment in 2014 identified for all 1250 firms

Follow-up Survey of 503 Surviving Firms

• 57%: no change in ambition level

• 24%: ambition level dropped

• 17%: ambition level increased

• Most of these change one level only, into or out of the middle

• Only one in forty (2.4%) move significantly - from substantive to low, or vice versa

Why ambition changed

• Why Ambition level dropped

– Reason #1: Changed market conditions (28% of sample)

• Why ambition level increased

– Reason #1: Changed market conditions (37% of sample)

Many individual reasons given for change

NB: This does NOT mean that ambition has declined among SMEs!

Follow-up Survey of 503 Surviving Firms

• Firms with substantive ambition in 2012 were more likely than firms with low ambition to have

– Innovated

– Invested in training and development

–Developed new strategic goals

–Made investments or acquisitions

– Exported.

Follow-up Survey of 503 Surviving Firms

• Firms that grew between 2012 and 2014 were more likely than other firms to have

– Innovated

– Invested in training and development

–Developed new strategic goals,

–Made investments or acquisitions,

– Exported.

Follow-up Survey of 503 Surviving Firms

• Dual effect feedback from past business performance and major business events onto current growth ambition (i.e. in 2014)

– for some firms these have a positive effect

– for others these have a negative feedback effect

Tracking Study of All 1,250 Firms Ambition level 2012

2014 legal status outcome Substantive Moderate Low

Dead/not trading 9% 7% 10%

Phoenix/owner change 10% 7% 5%

Continuing (includes status change) 81% 87% 86%

Total 100% 100% 100%

2014 employment outcome Substantive Moderate Low

More employees 41% 38% 32%

No change in employee numbers 17% 20% 20%

Fewer employees 34% 34% 37%

No employees (includes dead firms) 8% 8% 11%

Total 100% 100% 100%

1250 Firm Tracking Study Summary

• Firms with low ambition more likely to reduce employment and less likely to increase it

• The chances of changing owners/phoenix rises with ambition level

• Results generally support the first study

Further Engagement & Output in 2015

• Engagement events

– Any suggestions?

• Possible Insight papers (short 4 pagers) 1. Export propensity and gender over the business cycle (Levie, Hart)

2. What drives entrepreneurial aspirations? (Autio, Mickiewicz)

3. Growth intention: migrant and family business effects (Levie, Hart)

4. Characteristics of highly aspirational entrepreneurs (Mickiewicz, Hart)

5. Cultural Influences on entrepreneurial entry and growth aspiration (Autio)

6. Ambition and Growth (Levie)

• White Paper (longer more in depth report) – Factors affecting high aspiration entrepreneurship in the UK: a

Multilevel study (Mickiewicz, Hart)

Discussion

• Other related issues we should be looking at that are of interest to you and where you would wish to be engaged?

• Do you have data or research evidence on these topics you can share with ERC?

• Are there other organisations we should be talking to?

Contact us: If you would like any more information about Theme 1 and any of its activities please contact the Theme Lead, Jonathan Levie at j.levie@strath.ac.uk

or Mark Hart at mark.hart@aston.ac.uk

or Tomasz Mickiewicz at t.mickiewicz@aston.ac.uk

or Erkko Autio at e.autio@imperial.ac.uk

More details about the activities of the ERC and our latest events can be found at:

www.enterpriseresearch.ac.uk