Chapter 11 Flashcards
Business exits can happen because
1.The business ‘fails’ – the business closes involuntarily because it can no longer pay its bills, 2. The entrepreneur ‘fails to make a go of it’ – the entrepreneur voluntarily decides to close the business, 3. The business ‘succeeds’ – business ownership is transferred to others.
survivorship bias
individuals only look at a small subset of evidence rather than the broader picture
problem with seeing if a business is dead
There are different ways to measure, some may transfer to another method, some pass the business on, so there are also different definitions of a business “dying”
dark triad
the 3 negative personality traits entrepreneurs are associated with: being manipulative (Machiavellianism), lacking empathy with others (psychopathy) and having heightened selfregard (narcissism).
creative destruction
one consequence of innovation and creativity is that the old order is destroyed. Business departures, therefore, can have positive impacts such as improving competition and promoting innovation. They signal to existing and potential companies that the business model adopted might not work and potentially free up resources for other uses.
‘spin-off’ theory of the formation and development of regional economies
suggests that what is core to regional economic development is a cluster of high-performing spin-offs, seeded from a few key early businesses. (This contrasts with the regional advantage resulting from localised ‘agglomeration’ advantages due to large pools of labour, specialist suppliers and the advantages of knowledge spillovers)
three reasons business age affects closure is more ambiguous
- The ‘liability of newness’ – young businesses are more likely to close, 2. The ‘liability of adolescence’ – incidences of closure follow an inverted ‘U’ shaped pattern (initially low, increasing after the ‘honeymoon’ period is over, before falling back), 3. The ‘liability of obsolescence’ – older businesses are just as susceptible to closure as younger businesses.
liability of novelty
being creative can be a good thing but it is difficult to establish the legitimacy of the product or process to outside suppliers, customers and financiers. this outweighs the advantages, which can lead to creative businesses having shorter lifespans.
why is it hard to distinguish characteristics
studies rely on different geographies, sectors, measure closure in different ways or use different statistical techniques, such as binary logistic or hazard survival models, in their analysis.
correlation of age, unemployment, ethnicity, male, and Education on business succes
Unemployment: negative because may like the resources and skills needed to make a business successful.
Age: positive, younger people often lack financial, social and human capital, relative to those who are around 40–50 years old.
ethnicity: ethnic minorities often become entrepreneurs out of necessity and, subsequently, are more likely to exit self-employment and return to unemployment.
Male: male are more likely, discrimination, that women often enter hyper-competitive service sectors, start up with too few financial resources and the expectation that women ‘ought’ to perform poorly in business (slowly changing)
Education: to a degree positive – helps with survival, but this is not uniform. Those with a degree are less likely to stay in business but are also more likely to be in employment for longer. (more likely to exit successfully and not bankrupt)
association succes with Industry experience, Management experience, and Entrepreneurial experience
- prior industry experience promotes survival because it provides valuable ‘how to’ industry knowledge
- It should benefit as it provides task-based expertise in, for example, how to manage people, budgets and organise production. However, managing a business is not the same as setting up and running a business
3.Being in business before provides access to entrepreneurial competencies about how to recognise an opportunity, identify and target customers and beat the competition. (you learn from doing)
why entrepreneurial experience is not strongly associated with business survival
- It is hard to learn from experience : Entrepreneurial contexts are uncertain and ‘simultaneous, messy and iterative, self-justification biases, the mere fact of failing [does] not result in learning effects, and Experienced entrepreneurs are no better at forecasting their performance than novices
- No two business contexts are the same.
- Entrepreneurial ‘expertise’ is uncommon
Succession in family-run companies can be easier than non-family businesses because
They have a long-term ‘patient’ view of the business, They may avoid some principal-agent problems (manager-shareholder), Family businesses act as a crucible for entrepreneurship.
why do a high percentage still fail
because they are just small local community businesses.
What are some reasons describing the difficulties of family business succession
The blood heir to a business lacks the necessary motivation or abilities to take on the business, Nepotism (favouring friends and family) has negative side-effects, Conflict and discord, Mixed incentives, Altruism?
