Understanding growth in microbusinesses

Abstract

Introduction This research report advances the evidence base on the factors that affect the performance and growth of very small businesses (those with 0-9 employees). Recent academic thinking in this area has moved beyond simple analyses of business characteristics to develop more powerful explanatory models that incorporate the values, beliefs and aspirations of business owners. Therefore, as well as describing patterns of growth and the more concrete factors that affect these this report also considers the mindsets of owners and their beliefs about growth. Objectives In order to achieve its aims this research project sought to: i. Identify the specific obstacles to growth that affect very small businesses and consider how they differ to those experienced by larger businesses. ii. Assess why and how these obstacles are problematic for growth in very small businesses. iii. Assess the extent to which these obstacles are based on misperceptions or misinformation. Ultimately the project seeks to identify a rationale for policy development in this area and assess any policy options that might be used to encourage and enable very small businesses to achieve higher levels of growth. Method The research involved three inter-related sequential elements. A literature review informed the development of the telephone survey by showing how psychological factors can serve to limit business owners’ appetite for and approaches to growth. A further key theme in the literature relates to the distinctiveness of non-employing businesses, especially one person businesses (OPBs). Following the literature review, a 25 minute telephone survey was conducted during October and November 2012 involving 1,000 microbusinesses; 325 with no employees, 398 with 1-4 employees and 277 with 5-9 employees. The survey collected information on business and owner demographics, growth performance and ambitions, internal capacities and capabilities as well as views on obstacles to growth faced by their business and steps taken to attempt to overcome these constraints. The information collected led to the construction of an index of 31 obstacles associated with a range of material factors as well as the mindsets of the business owners. These data were analysed to define three distinct types of constraint - Vision, Capacity and Market. Finally, eight focus groups of business owners were conducted to explore myths or misperceptions associated with growing a business. In particular, these groups were used to contrast the experiences and mindsets of businesses that had and had not grown.