182
SYMBOLIC CHANGE OF ENTREPRENEURS AND ORGANIZATIONS
ARIZONA STATE UNIVERSITY
ENT 305 - PRINCIPLES OF ENTREPRENEURSHIP
WEEK 7
13.1 INTRODUCTION:
"Grow or die." (Rodale 1987). "If we don't keep growing, we will die. This company
has to keep growing" (Olson and Terpstra 1992). Growth makes headlines in various public
business journals such as The Harvard Business Review, Fast Company, Fortune, Inc. and
many more. The dynamics of the competitive environment, the executive (or entrepreneur),
and the company itself impact and are impacted by the process of successful growth of an
organization. There are many studies that explore the overall growth process. Less examines
the critical process of transforming a small, simply structured entrepreneurial firm into a
functionally structured and professionally managed company. Many entrepreneurs echo XM's
observation: "We fell because we did not know how to focus on development in line with
growth" (Solymossy and Penna 2001). Growth presents challenges for entrepreneurs,
employees, and organizations. Growth requires change, and successful change is facilitated by
developing task-focused attitudes, behaviors, and organizational processes that lead to a
successful and mature organization.
Background:
Organizations emerge and subsequently undergo various changes in the process of
achieving success. Many do not succeed. Research shows that more than half of businesses
cease operations within a year and a half of their inception, regardless of industry, culture or
country. Even among those companies that survive, only a few manage to achieve growth.
Most are still small businesses. While business failure can have many causes, failure to grow
is generally associated with management's inability to respond adequately to crises (Olson and
Terpstra 1992; O'Neill 1983; Scott and Bruce 1987). As a business grows, leadership duties
and responsibilities change, functional duties change, employees are impacted, and the
organizational structure of the company changes. The competencies of the entrepreneur and
the managerial requirements of the firm change as the business grows. Some authors report
183
that more than 90% of small business failures can be attributed to a combination of
managerial incompetence and lack of appropriate experience (Carland and Carland 1999).
13.2 ANALYZE A GROWING ORGANIZATION:
Organizations evolve in cycles, and are affected by external circumstances (e.g.
markets, technology, competition) and internal factors (e.g. personnel, competencies,
resources). Businesses are warned to "adapt, evolve, or die." Originally expressed by Michael
Powell (Chairman of the FCC) at the 2004 National Broadcasting Conference in Las Vegas,
this injunction was echoed in the mass media, and virtually accepted as a mantra legislation
for the business world. Organizational stability and existence are threatened when strategies
and structures are not changed to accommodate the consequences of growth. As organizations
grow, they exhibit distinct characteristics that are reflected in changes to their structure.
Structure refers to how work activities are defined and organized for coordination, control and
continuity.
Experts have explored the most appropriate organizational structure, and the degree of
flexibility each firm is expected to have to accommodate possible future changes or growth.
Successful evolution requires organizations to design appropriate structures and sophisticated
measurement and control systems to handle various challenges (Olson and Terpstra 1992).
Pugh et al. (1968), analyzed variables that can be used to categorize evolving organizations.
These include specialization, standardization, formalization, centralization, configuration, and
flexibility. Structure is dependent on strategy, and changes in both require changes in
management. Business people design strategic responses to environmental opportunities and
organizational capabilities, and structure themselves in the most effective way to support the
achievement of their desired strategy. Personal preferences, analysis of the environment and
organizational capabilities and intended strategies contribute to the design and implementation
of structures that are essential to the achievement of organizational goals.
Successful growth requires a combination of applied (e.g., human resource
management) and conceptual (e.g., competitive strategy) capabilities. Therefore, managers
must adjust their individual objectives, operational capabilities, managerial capabilities, and
strategic capabilities (Churchill and Lewis 1983). To accommodate growth, leaders must
develop their management skills (Stevens 1988), apply the right management style at the right
time (Johnson 1989; Olivier 2004; Waldrop 1987), and make adjustments to their behavior
and attitudes based on changing circumstances. Inventive and innovative entrepreneurs
eventually evolve into executive managers with organizations that are constantly evolving and
184
growing.
13.3 LIFE CYCLE THEORY AND STAGES
Managerial and structural changes are interrelated and almost inseparable within the
framework of life cycle theory. Organizations assume a "life" comparable to that of living
organisms, and their growth and development follow an orderly and predictable sequence.
Quinn and Cameron point out that "changes that occur in organizations follow a predictable
pattern that can be characterized by stages of development. These stages are sequential; occur
as a hierarchical progression that is not easily reversed; and involve a variety of organizational
activities and structures" (1983, p. 33).
Developmental stages reflect identifiable activities and organizational structures
(Dodge et al., 1994; Hanks et al., 1993; Quinn and Cameron 1983). Reporting relationships,
decision making, information processing, departmentalization, and procedures Operations are
interdependent, and change over time from one stage to the next. As the company progresses
through various stages (or reaches certain milestones), changes in the problems it faces create
the need for organizational change. Management and structure, where necessary, become
unable to cope with the dynamics of change brought about by growth, and become obstacles
that limit further growth. In addition, the entrepreneur's dominant personality and established
patterns of behavior within the firm can be a barrier to the necessary transition (Hizon et al.,
2004). This indicates a mismatch with the organizational environment. The company's lack of
efficiency or inability to achieve its goals threatens its survival.
Developmental stages and their descriptive dimensions vary depending on
researcher. Therefore, there are a variety of models, some focusing on events, some focusing
on occurrences, and some stages between events and occurrences. The simplest framework is
Schumpeter's, with two frameworks: entrepreneurially managed and functionally managed
firms (1983).
Other less complex models have three stages (Downs 1967; Smith et al., 1985) or four
stages (Baird and Meshoulam 1988; Chandler 1962; Hanks et al., Kazanjian 1988; Quinn and
Cameron 1983). More detailed models use five or six stages (Churchill and Lewis 1983;
Greiner 1972; Miller and Friesen 1984). Models can be found for twelve (Pinchot 1985;
Vesper 1990), and even fourteen stages or milestones (Carter et al., 1996). The importance of
the early stages is demonstrated by a more in-depth analysis of the formation activities in
more comprehensive models. A review of previously proposed models is beyond the scope of
this chapter; however, Quinn and Cameron (1983) reviewed eight models, providing an
185
integration between them. Six additional models were reviewed by Lee (2005). Even these
two reviews are not comprehensive.
Regardless of the number of stages, each author describes a similar developmental
progression in greater detail. Although the names and labels change, the underlying picture of
the organization's activities and configuration is relatively consistent. A company emerges
(first stage), achieves some success and growth, (second stage) and at each subsequent stage
shows growth or expansion and a different structural configuration.
Structural changes result from revised growth strategies implemented in response to
various crises and environmental gaps. Each stage of business growth is associated with a
crisis point (Greiner 1998; Scott and Bruce 1987) (see Figure 13.1). Combining the
frameworks of Greiner, Chandler and others, an organization emerges at the beginning and
evolves over time through various stages. Each transition between stages represents a series of
crises, which in turn cause the organization to seek new managerial and structural
configurations.
The nature of each crisis brings attention to the lack of coordination, communication
and control. These deficiencies must be addressed for growth to resume. A crisis becomes
apparent when management realizes that they are unable to efficiently manage increased
operations and still remain flexibly responsive to changing opportunities and challenges in the
business environment. If the organization is to grow, it must change. For this to be successful,
the change strategy must integrate structure, process and personnel. As argued by Kilzer and
Glausser (1984), crises can be successfully overcome by careful time and growth planning,
contingency planning, tactical planning, maintaining an operating budget, and fair treatment
of all stakeholders: in other words, focusing on every aspect of the business. Given that
organizational structures and processes are integrated, one cannot be changed without
changing the other, and both are influenced by company leadership.
13.4 DISCUSSION OF STAGES AND TRANSITIONS
The early stage or existence stage is characterized by the founding entrepreneur
working to commercialize and make the company viable. In entrepreneurial organizations, the
entrepreneur is the leader, the embodiment of the firm's strategy, and the initiator of all
subsequent structural configurations. Staff is absent or few, and the entrepreneur performs
multiple functions. As the firm establishes legitimacy and survival is assured in the second
stage, the firm grows. Employees are added to accommodate the growth, and the increasing
size of the firm forcing entrepreneurs to become supervisory managers. Additional employees
186
make good communication and consistency essential. More and more entrepreneurs are
functioning as managers, directing the work of others while still being productive members of
the organization. With growth and complexity, entrepreneurs can no longer oversee
everything personally. This requires a change from "hands-on" management to "hands-off"
delegation. Tasks, processes and authority must be transferred to others causing the
entrepreneur to sacrifice his personal control.
This is where the difficulty arises, when others start directly supervising employees
productive. Many businesses fail at this stage, because the directive managerial style (personal
guidance) that drove early success, conflicts with the "let the manager do his job" approach
necessary for sustainable growth. The crisis that identifies this stage is one of limited
managerial resources: the impossibility of one person managing the entire operation. This is
solved by delegation and additional managerial depth. But this leads to the next crisis; the
difficulties caused by loss of control. This fourth stage relies on establishing or strengthening
systems of communication, coordination and control. The fifth stage, with continuous and
accelerated growth, which promotes efficiency and control, is characterized by hierarchical
structures and bureaucracy. Bureaucracy relies on standardization and procedural formalities.
But bureaucracies are inflexible and unresponsive to rapidly changing market and customer
opportunities. This crisis leads to the sixth stage; revitalization and renewal of growth,
generally through some form of alliance or network.
13.5 CRITICAL TRANSITION POINT:
The literature may lead us to conclude that no one transition is more important (for the
subsequent success of the company) than another. Organizational growth includes several
periods of relatively smooth growth interrupted by periods of crisis, upheaval and radical
change. The implication is that each crisis is comparable and is a matter of life or death for the
company. In each case, the advice is the same: Adapt, evolve, change, or die. Corrective
action must be taken otherwise the company's performance will decline, growth will be
stunted, and the company will stagnate or die. This is true, but the crisis that causes an
entrepreneurial company to transform into a traditionally managed organization is what
matters most, given the magnitude of the changes to individuals, people, and processes, and
how successful this transition puts the company on the next stage.
Entrepreneurial behavior is driven by opportunity, resulting in the formation of new
ventures that replace previous products and processes. Schumpeter (1983), referred to the
process of new venture formation as "creative destruction", identified the role of entrepreneurs
187
in economic change, and noted that a critical stage in the evolution of entrepreneurial behavior
is the formation of new ventures.
Company size occurs when a company changes from an innovative organization to a
traditionally managed organization. Peter Drucker (1999) found that the size of the company
does not fundamentally change its business or purpose, but it does affect the management
structure, requiring different behaviors and attitudes. Small business executives can multi-task
simultaneously, but not as the company grows. A change in size that highlights the inability to
solve management problems is the "most serious" and most difficult change to achieve
according to Drucker. As an organization progresses from startup to growth stage, it becomes
increasingly complex, formal, and decentralized (Miller and Friesen 1984; Olivier 2004). It
undergoes fundamental changes in the way things are done (Hayes and Wheelwright 1979)
and must implement organizational systems and structures (Lee 1989). Prescriptive advice has
been offered to help entrepreneurs, ranging from the need to recognize the various
psychological phases (Grego 1996), the need to communicate vision and values (Baum et al.,
1998), relying on others (Fenn 1996) giving up-power to allow others to take over tasks and
responsibilities (O'Neill 1983; Stevens 1988), acquiring and building specific management
skills (Johnson 1989), and changing management styles (Waldrop 1987). The dynamic
combination of an individual's needs and the needs of the business determine the most
appropriate management style (Johnson 1989), and also whether the individual is competent,
able and willing to provide the leadership necessary to guide the organization to the next level
of growth. Each of these caveats is valid, yet does not adequately convey
symbiotic relationship between entrepreneurial personal change and organizational change.
Interviews with entrepreneurs support Schumpeter and Drucker's assessment. All
future stages of growth depend on the success of this stage due to the magnitude of the impact
on the entrepreneur, the company, and the company's employees. Growth adds employees and
increases managerial duties. Sustained growth requires additional management, usually
between the entrepreneur and other employees. The small, informally managed organization
transitions into a functionally managed company. The entrepreneur continues to manage the
company, but no longer directly supervises the employees. This transition point is shown in
Figure 13.2 where a simple and informal entrepreneurial structure develops, and transitions to
the first stage of a functionally and hierarchically structured three-tier organizational structure.
188
13.6 PROFESSIONAL MANAGER INTRODUCTION
New and emerging organizations seek to establish legitimacy in the marketplace.
Because attention is focused on short-term oriented problems and challenges, long-term
strategic orientation is almost non-existent. Since the entrepreneur personally oversees and
directs all activities, there is little need to articulate decision-making criteria and
organizational priorities to other employees. As firms begin to introduce professional
managers, resource acquisition and technology development become more important than
personal control (Kazanjian and Drazin 1990).
Nonetheless, the psychological characteristics and competencies of leaders
influence the growth and culture of the firm (Eggers 1999). Successful companies are not
entirely dependent on the credibility and competence of their leaders (Fenn 1996; Osborne
1994), but organizations cannot change and grow without change within the entrepreneur.
This requires strategic intent, task shifting, delegation of responsibilities, and managerial
leadership. Over time, the initially simple and informal structure evolves into a formally
structured hierarchy with appropriate structures and processes, human resource practices, and
processes to facilitate sustainable growth and success (Jaques 1992). Managerial layers are
created and deliberately structured to achieve necessary tasks, matching individuals with
specific tasks within functional areas to maximize value within each task (Jaques 1990).
13.7 CHALLENGES FACING GROWING ORGANIZATIONS
As an organization grows, money is needed to purchase additional equipment,
inventory, and expand facilities. Money is also needed to add employees and production
capabilities. In small and young organizations, spending consumed available cash; and
accounting systems were either non-existent or incapable of handling the sophisticated needs
of increased volumes. Growth requires proper planning and implementation of financial
systems to synchronize capital management with operations. This requires realistic sales
projections, cash flow analysis, budgets, and systematic and orderly financial reports for every
important aspect or department of the organization. Day-to-day operations take precedence,
and financial systems are rarely implemented in the early stages. Through growth, the need
for financial systems becomes increasingly urgent, and requires more sophistication and
detail. A higher level of task-specific managerial competence is required, which often leads to
a dedicated finance manager reporting to the CEO.
Growth is made possible by market changes (as the market evolves),
However, market changes also lead to changes in competition and the organization's
189
competitive strategy. Growth causes markets to expand, which introduces new competitive
elements and market phenomena. Challenges to a company's ability to differentiate itself may
result in further innovation or price reductions to protect competitive advantages to maintain
market position. Gaining or maintaining a competitive advantage as a company grows
becomes increasingly difficult. Similar to the financial system, the development and
implementation of a marketing plan starts with the entrepreneur. However, as the company
grows, this is usually delegated to a dedicated marketing manager or marketing professional.
New employees must be added to enable growth and accommodate the increased
volume due to growth. The costs associated with hiring the "wrong" people are substantial
both financially and in terms of time wasted. Recruiting, selecting and retaining qualified
people for a small company does not require a full-time professional, and is often done by
entrepreneurial managers. While a company is young (small, and simply structured), each
employee may be treated uniquely (e.g., in terms of salary and benefits calculation methods).
But as the company grows, individualized human resource policies are replaced by formal,
standardized policies designed to ensure fair and equal treatment of all employees. Size also
makes companies subject to federally mandated policies, which are cumbersome to
implement. While it is possible to outsource these activities, companies often hire a human
resources professional. The human resources professional or department will manage the
recruitment, compensation, benefits administration as well as training of employees in
preparation for subsequent changes in their duties and responsibilities.
Behavior, attitudes and cognition must change to accommodate growth, especially in
entrepreneurial executives. Different levels of cognitive ability are seen in different situations
and at different points of growth and organizational hierarchy. Elliot Jaques (1986) found that
a manager's intellectual abilities fall into several levels based on the complexity of their tasks.
Changes in companies require changes in the behavior of both employers and the workforce.
The intellectual capabilities of entrepreneurs enable growth in organizations, and they must be
developed to handle increasing complexity.
Improved cognitive processes increase intellectual ability, which in turn increases
managerial leadership competence. Entrepreneurs' cognitive processes change and evolve as
managerial tasks change. Founders take on different roles as the company grows, and must
relinquish and delegate authority. Cognitive skills and abilities must be developed (or
acquired) sequentially to achieve success. This results in a multilevel approach to building
executive competencies, organizational strategies, and subsequent structures to ensure success
(Hay and Williamson 1991).
190
13.8 STRUCTURE ACHIEVEMENT PROCESS
Organizational processes, such as how activities are structured, how control and
authority are distributed within the organization, and the existence (and size) of personnel and
supportsystems of the organizationare some of the key operational areas affected by the
structural configuration of the company. . Structural configuration itself is measured relatively
based on specialization, standardization, formalization, centralization, and configuration.
Growing organizations are becoming more complex. The increasing number of tasks and
activities accompanied by the need for increased efficiency leads to a division of labor that
favors specialization. Limited by how many tasks can be accomplished by a single individual,
tasks and activities must be organized in a way that is efficient, logical for the processes
required, while still matching the appropriate tasks to people who have the necessary
knowledge, skills, and abilities. Efficiency is more likely to occur when individuals work on
specialized tasks rather than multiple tasks. With continued growth, more people will be
required to perform the same or similar tasks, requiring standardization of processes to ensure
uniformity. Therefore, everyone performing the same task must perform the task in the same
way. Standardization and specialization are methods to improve cost efficiency with improved
quality. With the growth and increase in the number of tasks and activities, the configuration
of the company itself reflects an increase in complexity which is generally manifested in more
logically separated departments or work groups Managerial control is maintained by assigning
responsibilities to work groups.
Growth and complexity are accompanied by documentation, or formalization. In the
beginning, a company is loosely organized and there are no policies other than verbal
directions. However, as it grows, the company requires written documentation, policies, and
procedures. Entrepreneurial executives pass on values and decision-making criteria to
subsequent managers, and document processes and procedures that further reinforce the
structural dimensions of specialization, standardization, and formalization Configuration.
Growing challenges can be minimized by establishing a managerial framework that guides
and enables employees to recognize and react appropriately to emerging situations. The
process of articulating values, tasks and goals unifies the company and serves as the
foundation for a management system that will evolve as the company grows. It also serves as
a managerial toolkit that enables future managers to cope with new and evolving
circumstances.
191
13.9 HELPING ENTREPRENEURS CHANGE:
Successful growth depends on the entrepreneurial leader, and the personal changes
required of him coincide with the growth of the company. The size of the organization does
not fundamentally change the responsibilities of managers or what the company does, but it
does impact the complexity of managing the company. Faced with increasing complexity,
entrepreneurs may want to maintain "hands-on" control. Entrepreneurial habits can be an
impediment to growth, leading to reactive, crisis-triggered decisions without strategic
consideration or without seeking the opinions of others. As a company grows, it can no longer
rely on a single individual. Many entrepreneurs form and nurture a company, but they refuse
or do not know how to hand over control at the right time. Many avoid or are skeptical of
planning, policies and procedures, viewing money as a universal solution to crisis rather than
recognizing the need to develop managerial skills and change themselves. Developing
managerial infrastructure often requires fundamental changes within the entrepreneur. Their
tasks, areas of responsibility, personality and behavior must change. Changes in the
entrepreneur complement changes in the organization, and can be monitored and guided in
four areas: documentation, functioning, motivation and cognitive processes (Solymossy and
Penna 2001).
1) Documentation: Developing the habit of recording in writing is the first step in the
process of promoting entrepreneurial and organizational growth. Documentation
facilitates change within the entrepreneur and generates several benefits for the
organization. Entrepreneurial executives who systematically keep a journal, (recording
their instructions to employees as well as work events) successfully make the
transition to a functionally managed enterprise (Penna 2000). Written records are a
prerequisite for the documentation required for job analysis, policies, procedures and
training materials. The introduction of documentation has several effects. It changed
the expectations and culture of the company from reactive, emotional, and verbal to a
systematic and value-based culture. It provides employees with increased task
direction and instruction. Tasks are completed more consistently and solidly, and lead
to higher standardization of work.
2) Function: An entrepreneurial journal records the executive's duties and obligations and
the relative time spent on each. It becomes an inventory of tasks that reflect the
various functions of a manager (e.g., design, sales, bookkeeping, inventory, etc.). The
journal indicates the importance of the task, and whether it is a new task for the
entrepreneur, requiring the development of new knowledge, skills and abilities6
192
(Solymossy and Penna 2001). In the early stages, more time is spent on functional
tasks, and less time on managerial tasks. As the company grows, more time is required
to perform managerial tasks. An important transition point occurs when the time
demands for managerial and functional tasks exceed the entrepreneur's personal
capacity. When one's capacity is exceeded, both functional and managerial tasks must
be delegated to others.
3) Motivation: Environmental factors are recorded by documenting the issues that require
the entrepreneur's attention, and noting their level of importance and urgency.
Entrepreneurs are often reactive, and are often drawn out of their areas of strength to
react to situations that become "major distractions" (Fenn 1996; p. 98). Identifying the
motivational forces acting on the entrepreneur through the growth of the company
(journal function), will reveal a range of motivational influences. Recognizing and
tracking whether the motivating force (or trigger event) is self-induced or caused by
environmental factors is critical. For example, an entrepreneur may want to reduce his
or her involvement with the company to engage in other activities (self-induced
trigger), rather than overworking because sales and production growth is beyond the
entrepreneur's managerial capabilities (environmental trigger). Unusual environmental
issues will occur occasionally. However, changes in entrepreneurial motivation and
behavior caused by sustained environmental pressures signal a crisis and transition
point.
4) Cognitive Process: An entrepreneur's way of thinking will change as tasks and roles
change, and their managerial skills are developed and expanded. This is aided by
introspection, reflecting on the changes experienced. Changes in cognitive processes
will be reflected in journal entries. These may include changes in activities and tasks,
changes in time allocation, evidence of planning, and development of measurement
and control schemes. Reactive thinking will change to proactive planning. An example
is the development of an inventory control system. A series of activities can trace the
change from occasional visual observations, development of schedules, combination
of observations and schedules, documentation of physical inventory, and eventually
delegation of physical control of inventory to other individuals. Changes will also be
seen in the development of strategic processes, and the entrepreneur's ability to
articulate and communicate strategy and vision to employees. Changes in the
entrepreneur's behavior as he or she progresses to become an executive in the A
functionally and hierarchically structured organization can be seen as reflected in Table 13.1.
193
Conclusion
The successful growth of an organization from a small, simply structured company to
a large, structured, functional organization depends on many factors, but it principally
depends on changes involving the entrepreneur, the founding manager. Entrepreneurs and
organizations are in a symbiotic relationship; both need each other, and they must change
together. Organizations exhibit evolutionary and sequential steps in their growth, with each
transition marked by a period of crisis (events that strain the managerial capabilities of the
firm, and require organizational restructuring in order to effectively deal with impending
threats). The most critical of these stages is the one that burdens the entrepreneurial founder,
and the solution is the expansion of managerial capabilities by increasing the hierarchy within
the company. This move brought fundamental changes to entrepreneurial tasks, cognitive
processes, and methods of interacting with employees and customers. The initial pattern of
short-term reactive management changes, evolving into a long-term strategic orientation that
enables company growth. The vision, values, and decision-making processes used by the
entrepreneur, through the documentation process become the foundation of policies and
procedures that guide the decision-making of managers and other employees to ensure
consistency and maintenance of the establishment's goals. Without changing the focus of the
entrepreneur and facilitating changes in organizational behavior and processes, the company
will not achieve successful growth, or growth will occur by replacing the entrepreneur with a
professional manager. Not all entrepreneurs are able to make the transition to professional
managers (see Appendix, Cases 1 and 3), but those who are successful recognize that growth
occurs through others, not solely due to the entrepreneur's mastery of a specific set of
knowledge, skills, and abilities.
Appendix Case Studies in Small Enterprise Transition
Case 1: Unable to Grow Further, Resulting in an Exit Purchase
E-MU Systems (http://www.emu.com/corporate/) was founded in 1971 by two
childhood friends. The company had a simple strategy; according to Scott Wedge (Kimberly
and Miles 1980); the goal was: "Build a synthesizer, sell it. Build another one, sell it.
Redesign, build, (and) sell." (Kimberly and Miles 1980, p. 35). They continued small
operations for the first 10 years, until they invented digital sampling techniques that allowed
musicians to record and modify any sound. Attention focused on the company after Michael
Jackson used the experimental synthesizer to create Thriller, which was released in 1982. This
ushered in a period of accelerated growth that was difficult to manage. Orders overwhelmed
194
the company, and they had to move to larger premises several times over the next few years.
This rapid growth highlighted the weaknesses of the company's informal business style. While
this was appropriate and beneficial in the early stages of the company, it was insufficient for
managing a growing and complex company. "The company had grown so large that we
couldn't keep track of the whole operation and do research at the same time" said Wedge
(Kimberly and Miles 1980). Scott Wedge transitioned from R&D to the role and
responsibilities of being president.
However, the transfer and change of function was not enough. E-MU's growth
continued (with around 100 employees), and this drew attention to the need for operational,
financial and managerial systems. Rather than hiring additional management, they used
consultants. Systems were implemented, but the complexities of the systems (e.g., inventory
control) were not understood by the employees, and required specialized training. Training
allowed the founders to communicate their perspective and philosophy to the employees. This
was an important phase in the evolution of the company. As they progressed, they began to
organize The company formalized, dividing production operations into separate departments.
As it grew, the combination of a more formal structure and an increased workforce required
more levels of management. Increased bureaucracy stifled innovation and morale declined.
Profit-sharing and employee ownership programs were implemented to boost morale and
revive innovation. This period of growth was characterized by E-MU Systems being named
one of Inc.'s 500 fastest growing companies in 1988. However, the organization's growth was
reaching its peak. With insufficient monetary resources to fund further expansion, the
company stopped growing, limiting its product line, putting additional constraints on future
growth. According to Scott Wedge, "We had 20 products we wanted to work on, but we could
only fund the development of one or two. It's frustrating." Unable to secure venture capital
funding, the E-MU system was sold to Creative Technology Ltd. Singapore in 1993.
Case 2: System Implementation to Facilitate Growth:
CFDay (http://www.cfday.net/) was established in 1995 to provide contracting
services to the government, mainly in manufacturing and logistics. As a contract specialist, its
permanent staff consists of one person: Charles Day, while field operations were managed by
contract employees. Over the first 10 years, growth was gradual and incremental, driven by
the increased credibility and legitimacy of successfully completing contracts. With four
permanent employees, and a growing variety of contract opportunities, Charles saw the need
to grow the company. To facilitate growth, managerial expertise was sought. A part-time
195
contract operations manager was hired in 2004, and within six months, converted to a full-
time manager. In 2006, with 22 permanent employees, an experienced business systems
manager was appointed. One of the actions taken was the implementation of management
systems, including a Human Resource Management system.
To maximize their resources, they worked with the regional University to design the
program as a starting point. Systems deemed critical (e.g. information technology) are
managed entirely in-house, while less critical support functions (e.g. payroll and tax) are
subcontracted. In this way, the company can focus its limited resources on areas that can be
leveraged to enable sustainable growth.
Case 3: Divesting Rather than Relinquishing Control:
ANE7 was originally established as a spin-off business in 1979 to provide engineering
and construction services. Outside investor owners were not involved in the company's
operations, and management did not participate in ownership. The company was relatively
stable with four full-time employees and up to 15 casual employees until the economic crisis
in 1982. On the verge of bankruptcy, the owner brought in an aggressive outside manager
with technical expertise and entrepreneurial experience. A drastic change in managerial style
and direction resulted in 100% employee turnover within six months. Within a year, sales
increased by 100%, with no change in overhead costs. However, as soon as bankruptcy
seemed to be averted, the owners balked at further risk.
To resolve the conflict of organizational vision between owners and managers, the
company was sold to new managers. This marked a period of considerable growth. Within
five years, sales increased by more than 500%, staff grew to 14 permanent employees, and
100 specialized contract employees, with two new ventures as additional business units.
Increased competitive pressure forced margins to decline. Constant vigilance was required to
minimize unnecessary additional costs and protect profitability. Due to regulatory oversight
by many state and federal agencies, operational requirements were stringent. Measurement,
planning and control systems were designed and implemented. Some employees were unable
to make the transition to new procedures and new supervisors. Employees who were
comfortable with the initial loose and responsive operating style felt constrained by increased
formality and what they perceived as procedural bureaucracy. The strain of managing a
growing company was also evidenced by the owner. As the owner stated, "I was tired of
working 16 and 18 hours a day, six days a week. I can recruit engineers easily, but I can't find
people who can run the business well." At the same time, the growth in financing through
196
operations caused the business to experience erratic customer payment cycles, without leaving
enough money to fully fund increased overhead costs. Approaching burnout, the owner began
selling his business units in 1998, and by 1992 had divested all of his business units.
Discussions with the owner revealed that not only was he a serial entrepreneur, but he also
had a historical pattern of business formation and subsequent divestment. Of the six
entrepreneurial ventures, two were divested within 2-3 years, three within 3-4 years, and one
within 6 years. In each case, the frustration was caused by the inability to fully relinquish
control. The combination of growth, competition, and changes in the business environment
necessitated a major change in the way the business was managed. In his words, business was
"not fun anymore". While it still makes a profit, success is not measured financially but based
on whether or not personal goals are achieved.
Case 4: Psychological Impact of Growth:
Hemodynamia went through a difficult period beginning in 1983. Two young,
achievement-oriented surgeons had the opportunity to open an independent diagnostic and
treatment clinic affiliated with a local hospital. Business was smooth and relatively stable.
The complexity of evolving technologies in the medical field and the increasing opportunities
(partly due to increased public awareness of health issues related to heart attacks and strokes)
made Hemodynamia's business successful and partly due to effective marketing) brought the
small company to the realization that growth was necessary and that business success required
professional managerial skills, not just medical skills. As the company added employees, day-
to-day procedures were gradually delegated to employees while the two partners split
administrative and managerial duties, and began pursuing other business opportunities. The
second clinic opened in 1995.
The third clinic, in partnership with another hospital, opened in 2000, and the fourth
clinic opened in 2004. All administrative tasks were centralized, and the partners personally
supervised all employees. After 20 years, the company had 12 employees, and had achieved
financial success and significant growth, but experienced another crisis; one of direction.
Success had allowed both partners to pursue the business in different directions. One partner,
Adolph, the "administrator", developed an interest in the prestige of administration and the
stability of established structures and coordination. The other, Carlos, recognized his passion
for entrepreneurial initiative and personal and organizational growth. A clinic in a neighboring
town was nearing completion and brought their philosophical differences to the fore. Adolph
chose not to be a partner in this new venture, but this was not enough to calm the disturbance.
197
Unable to resolve their differences, the two partners went their separate ways, each retaining
control of one hospital and one clinic. Parting ways with a company they had spent almost a
lifetime building was not easy for them or their twelve employees.
The company's momentum stalled, and the negative energy of the split impacted
employees, resulting in a split in loyalty. The psychological impact on the spouses was
traumatic. The support that each party had been able to rely on for the first 23 years of the
company's existence was shattered. Similar to the emotional turmoil of a divorce, the split had
emotional and psychological consequences. At 55 years old, no one was mentally and
psychologically prepared. Adolf was now content; he had leveraged his business position to
become a hospital administrator, and had the stability and prestige he craved. For Carlos,
starting in a new direction and reorienting himself to be a CEO rather than a partner was a
challenge. Therapy, management coaching and reflection were invaluable aids in his
successful change. For him, reflection enables the transformation of situations into learning
and growth experiences. Carlos has recovered his intention to grow the company. He spends
more time on strategic and administrative tasks than treating patients. A clinic in his
neighboring community opened in 2006, and he now works at another clinic in another city.
WOMEN ENTREPRENEURSHIP
14.1 INTRODUCTION:
There has been increasing interest in women's entrepreneurship in recent years.
Initially, there was an awareness of the lower participation of women compared to men in the
creation and growth of new ventures. More recently, there has been recognition that women's
entrepreneurship can have a positive impact on economic well-being. This chapter discusses
the importance of women's entrepreneurship to the economy as well as some of the additional
barriers women face in starting a business such as finance, management skills, networks and
confidence.
Entrepreneurs start businesses for many reasons, some may see an opportunity, some
may be motivated by the desire to make money or flexible working hours, others may want to
employ family members or feel they have no other choice. Starting a business under any
circumstances can be difficult, but there is evidence that some groups may find it more
difficult. Women, in particular, may face some additional issues in trying to start a business.
Access to resources, including finance, skills and access to markets, may be more difficult for
some women.
198
There are various factors that can explain the disparity in the number of males and
women who start businesses. One of the biggest challenges for women is obtaining resources,
especially funding for their new ventures. Women have traditionally had difficulty raising
funds and only a small percentage of women have successfully raised venture capital (Brush
et al., 2002). Interest in women's entrepreneurship in particular has increased worldwide and
women are now playing an increasingly important role in entrepreneurial activity.
The Global Entrepreneurship Monitor (GEM) report on Women and Entrepreneurship
(Minniti et al., 2005) found that men are twice as likely as women to engage in
entrepreneurial activities. There are also sectoral differences as women are more likely to be
involved in consumer-oriented sectors than men. Overall, the share of male business owners
in the UK is 14.24% and female 5.82%. Among those with established businesses, the highest
rates of female participation in the GEM survey were Thailand at 13.2% and China at 10.3%
(Minniti et al., 2005).
According to the GEM report (Minniti et al., 2005) fewer women than men
men who know other entrepreneurs and believe they have sufficient skills to run a business.
This suggests that men are more confident in their abilities than women and also have better
business networks. Therefore, network availability and upskilling for women entrepreneurs
may be particularly important. Developing confidence on women entrepreneurs and
addressing their fear of failure may also be important.
Increased female entrepreneurship is likely to provide positive impact on economic
development. Around the world, women are successfully starting new business ventures.
Entrepreneurial activity varies by country and there are different motivations for starting a
business. Women's business ventures are more likely to be in service industries, such as retail,
health and beauty. Education and training may be an important factor in providing more
resources and confidence to women entrepreneurs.
The perspectives presented in this chapter illustrate several important points. First, the
problems faced by women in trying to run their own businesses. This chapter discusses
various issues concerning women. First, what is meant by stereotypical views and are they
justified? Second, do they face additional barriers such as fundraising? The reasons why there
are fewer women entrepreneurs than men are also investigated due to the different ways they
develop their businesses, use networks and develop management skills.
14.2 BUSINESSWOMAN:
Traditionally, it has been assumed that women entrepreneurs face different problems
199
and have different attitudes to men, which is why there are fewer of them. Most research has
focused on the discrimination women face when they want to start a business and some of the
additional hurdles they have to overcome. However, in recent years, the economic
contribution that women entrepreneurs can make has grown in importance and this has
provided the impetus to encourage women to start their own businesses.
For women, their aspirations may be low as they tend to start small-scale local
businesses in retail and service industries that provide them with income but flexibility so that
they can still make time to fulfill family commitments. Women state that providing an income
for the family, having a flexible schedule, solving social problems and doing meaningful work
are important to them (Brush 1992).
Perceptions of women's roles in the workplace and business may be influenced by
their education, society, media, family and experiences. Even if both parents work, women are
more likely to take care of children, cooking and household chores, while men are more likely
to take care of maintenance and repairs. Education also plays a role in developing gender
stereotypes as a lower percentage of women study science and technology than men. The
main reasons given by women for starting a business (Brush et al, 2004, p. 80) are learning
and personal achievement, while flexibility and economic reasons are less important. Brush et
al (2004) found in a survey of 800 budding entrepreneurs that 24% of male respondents
wanted to own as big a business as possible, yet only 15% of women reported the same.
One of the problems faced by women entrepreneurs is that, while there are
Despite major advances in workplace legislation and equal opportunities, women still earn
only 70% of what men earn. In addition, fewer women reach higher levels of management and
are generally underrepresented at board level. One way to avoid the glass ceiling in the
workplace is to become an entrepreneur and more and more women are taking this path in
recent years.
There are several ways to measure female entrepreneurship including the percentage
of women entrepreneurs in the labor force as well as the percentage of total entrepreneurial
activity. Female entrepreneurship varies from country to country. Countries with high levels
of entrepreneurial activity typically have higher rates of women starting their own businesses.
In the US, the female entrepreneurial activity rate is 13% compared to 5.82% (Table 14.1).
In all countries surveyed by GEM, men are more likely than women to engage in
entrepreneurial activity. Middle-income countries such as Venezuela and Thailand have the
highest early-stage female entrepreneurial activity at 23.8% and 19.3% respectively, while
high-income countries such as the Netherlands and Japan have the lowest early-stage
200
The low rate of female self-employment may be due to the sectoral distribution of self-
employment, difficulties in raising funds, and the fact that women are more likely to be the
primary caregivers for children and the elderly and take over the main household
responsibilities (Barclays 2000). However, the growth rate of women wanting to start a
business has been higher than that of men since 2003 (Harding 2007).
The gap between male and female entrepreneurs is gradually narrowing as more
women start their own businesses. In the UK, entrepreneurial activity was undertaken by 3.9%
of working-age women compared to 8.1% of men. Male entrepreneurial activity fell from
9.8% in 2003 to 8.1% in 2005. The gap is narrower in the early stages of a business, where
men are 52% more likely to start a business up to 3 months old, but 72% more likely to have a
business that is more than 42 months old (Harding 2007).
One of the factors that can influence the decision to start a business is low levels of
confidence or risk aversion which can particularly affect women. Women are more worried
about failure than men with 37% of women stating that fear of failure would prevent them
from starting a business compared to 32% of men (Harding 2007). Some groups may favor
advice and networking involving people with similar backgrounds. Carter et al (2001)
identified six main themes in women's entrepreneurship research. These themes were
reviewed in 2006 (Carter and Shaw 2006) and found that they have changed over time (Table
14.2).
During the five years from 2001 to 2006, there was a large body of research on
women's entrepreneurship and, as a consequence, an increased focus on specific areas.
Research on women's entrepreneurship can be divided into two parts, first comparing male
and female entrepreneurship, and second comparing two or more groups of women business
owners. However, the research focuses on specific areas including economic context, social
capital such as networks, finance, and business performance.
14.3 DEFINITION:
In general, the definition of women entrepreneurs is based on majority ownership,
typically 51% of the business. Carter and Shaw (2006) define a women-owned business as
one that is majority owned by one or more women. Other definitions include roles performed
by women entrepreneurs such as setting up the business, or strategizing. Moore and Buttner
(1997) define a female entrepreneur as someone who has used her knowledge and resources to
develop or create a business opportunity, is involved in its management, owns at least 50% of
the shares and has been operating for more than 12 months. Marlow and Patton (2005, p. 718)
201
state that this refers to women who 'have started a business, are actively involved in its
management, and own a majority stake in it'. It is generally understood that a women-owned
enterprise is one that is established and owned and managed by one or more women.
Characteristics:
The majority of research on self-employment has, in the past, focused on men and
only recently has there been discussion of the characteristics of women. Birley (1989)
observed three factors influencing women entrepreneurs including the influence of
predecessors including background, motivation, education and skills; incubator organizations
that provide experience to entrepreneurs before starting a business; and environmental factors,
which include the availability of capital, role models and other support. Environmental issues,
such as difficulties in obtaining funding, remain an important factor and can result in lower
performance of male entrepreneurs (Marlow and Patton 2005).
However, it is possible that women entrepreneurs are less ambitious than men and they
may have different priorities especially in relation to risk and family commitments. Langowitz
and Minniti (2007) found that attitudes towards entrepreneurship matter especially self-
confidence, perceived opportunities, and the likelihood of starting a new business. DeTienne
and Chandler (2007) found that women showed significantly lower patterns of entrepreneurial
self-efficacy, i.e. confidence in having the necessary skills to run a business, than men in
MBA schools and programs and this reflects gender-based role expectations. . Birley (1989)
concluded that women's roles evolve as society changes and they will increasingly approach
the characteristics of male entrepreneurs.
14.4 ECONOMIC CONTEXT:
One of the reasons given by the EU (European Commission 2002, p. 3) for
encouraging women's entrepreneurship is that women are a source of 'economic growth and
new jobs' and that the barriers they face in setting up and running businesses should be
addressed. There is an understanding that entrepreneurs in general contribute to economic
growth, especially in terms of job creation and also in terms of innovation. Therefore, if the
number of entrepreneurs can be increased by bringing the level of female entrepreneurship on
par with male business owners, it will help the economy. In the US, women entrepreneurs
account for 38.8% of all privately owned firms (Minniti et al, 2005) and this is seen as one of
the reasons for the high GDP compared to countries with lower levels of female participation.
One of the dramatic changes in the labor market over the past 50 years is the
202
increasing participation of women in the workforce. Alongside this, more and more women
are starting and running their own businesses. Entrepreneurship is generally considered a
flexible way to generate income for women with family responsibilities. It is also a way to
overcome the 'glass ceiling', which is a barrier to promotion in large organizations.
There has been increasing interest in the field of women's entrepreneurship in recent
years. Some countries have higher rates of female entrepreneurship than others. For example,
the United States, Canada, New Zealand and Australia have relatively high rates of women-
owned businesses. Other countries such as Spain, Portugal, Italy and Greece have high rates
of female self-employment but lower rates of women-owned businesses.
Finance:
Research also shows that women face additional problems when trying to raise funds.
Men are more likely to use external funding for their businesses than women (Carter et al,
2001). Brush et al (2004) found that women invest less in their businesses than men because
they do not have the same financial resources. One reason for this is that women earn on
average 70% of the average salary of men and this gender gap widens the higher up the
management hierarchy. In addition, a large proportion of the female workforce spends time
outside the workplace caring for children or working part-time. While women are closing the
salary gap, there is still a gap in salary and promotion prospects. This income gap means that
women tend to have less savings and financial resources to start a business.
Women generally start their businesses with less capital than men. Men generally
contribute two-thirds of the start-up capital, while women contribute half. Fewer women than
men apply for loans to finance their businesses, but they have lower failure rates in obtaining
overdrafts and unsecured loans (Harding 2007). Fundraising is seen as one of the barriers
women face that may prevent them from starting a business, although other factors such as
lack of confidence may also be important.
Funding sources are becoming more accessible to women. In general,
Women still tend to rely on more accessible sources of finance such as credit cards and are
generally less likely to seek bank financing than men. However, when women do choose to
seek bank financing, the owner's credit risk and prospects become more important than gender
(Brush et al., 2004). As women generally have less savings to start a business, they are more
likely to rely on friends and family to help them get started. Women often take a more
cautious approach to fundraising. This may be because they are less risk-averse than men.
However, women are more likely to secure funding if they have achieved a higher level of
203
education.
According to Brush et al (2004), women entrepreneurs in the U.S. receive less than 5% of
their
of all venture capital financing in the 1990s. Although only a small proportion of all firms,
whether run by male or female entrepreneurs, receive venture capital funding, the impact on
growth is considerable.
The reason why women raise less venture capital than men may be due to a number of
factors, including their business potential, their attitude, their willingness to go through the
process, or lack of skills. It may also be the attitude of venture capital providers towards
women. Perceptions of women entrepreneurs may have an impact on their ability to raise
sufficient funds to grow their business. Management experience is often important for raising
funds and, as women are at a disadvantage in reaching the higher echelons of management,
there may be a perception that they do not have sufficient skills or experience. This may be
reinforced by the subjects women choose to study which focus more on arts and social
sciences than engineering and technology.
Brush et al (2004) found that women were more likely to successfully attract
outside equity investment if they previously used bootstrap funding to build their business.
Bootstrapping can include a variety of methods that are all designed to keep the amount of
capital used in the business as low as possible. These techniques can be effective for both
male and female entrepreneurs. However, female entrepreneurs may be more likely to use
bootstrapping techniques to start and grow their business as they may be more reluctant to
raise funds for their business or find it difficult.
Venture capitalists usually concentrate on one industry sector such as IT,
biotechnology, software, etc. The majority of women starting businesses in these sectors is
very low as they generally tend to focus on the service industry, although the number of
women starting technology-based businesses is growing. There are of course many examples
of women developing retail businesses such as Laura Ashley and Anita Roddick with Body
Shop but they develop their own products. Women, in general, make up a small proportion of
decision makers in the venture capital industry. According to Brush et al (2004, p. 226),
highly qualified women still have difficulty raising venture capital because they 'don't know
the right people and don't know the ropes'.
Growth:
Women-led companies are generally smaller in size and also generate less revenue
204
than businesses owned by men. They also tend to employ fewer people. One reason why
owner-led companies are smaller may be that men are more motivated to grow their
companies. Men generally have higher growth expectations than women, with 49% more
likely to have high growth expectations as they intend to create 19 or more jobs in the next
five years. Women only expect to create three jobs in the next five years compared to five
jobs for men. Expectations of worker turnover are also higher for men than women over five
years (Harding 2007).
An entrepreneur can control the growth of his firm by limiting his resources in terms
of time, finances, and not hiring additional personnel or opening new markets. Other factors
associated with growth are education and entrepreneurial background. Owners with better
education and previous business experience are more likely to grow their companies. Women
with less business experience may lack the confidence to grow their firms. Another reason
may be that women tend to start their businesses in low-growth industry sectors. These
businesses may be easier for women to enter as they may have lower capital requirements and
require fewer skills. Women may also have smaller enterprises due to family commitments,
such as young children or elderly relatives.
The majority of women-led businesses are still relatively small. One reason for this
may be sector choice. Women entrepreneurs have traditionally chosen service industries such
as health and beauty, retail, and hospitality and tourism. One reason why they focus on low-
growth service industries such as shops and hairdressers is that women entrepreneurs focus on
creating and maintaining income rather than growing the business. However, this decision
may be due to a lack of opportunities. However, women are increasingly developing
businesses in high-tech, high-growth sectors including manufacturing and technology.
Although the number of female entrepreneurs has increased considerably in recent
years, women rarely achieve the same level of success as male entrepreneurs. This may be due
to a number of reasons, including the fact that women tend to focus on low-growth, low-tech
sectors where there is a high level of personal interaction with customers. One reason may be
that women find it difficult to raise the financial resources necessary for growth, particularly
venture capital.
One of the fundamental issues in growth is that the business concept must be scalable,
otherwise it will remain a small local firm. Brush et al (2004) found that networks and social
capital and the ability to use them effectively are important in ensuring the availability of
financial, human and technological resources. However, women often use these skills
differently from men, as do the attitudes of the entrepreneurs themselves.
205
Women entrepreneurs may face additional barriers in building relationships with
customers, suppliers, bankers and others. One area that has been widely discussed and
researched is whether women entrepreneurs find it difficult to raise funds for their business
ventures. Women entrepreneurs generally tend to have smaller businesses and employ fewer
employees. There is a question as to whether this is due to a lack of capital to grow their
business.
Men may have different aspirations to women because women entrepreneurs may be
less ambitious in their business, and want more in terms of social aspirations. However, the
fact that women have, in the past, focused on low-growth and low-scale businesses does not
mean that they will not take advantage of opportunities to grow and use technology. However,
one factor that may limit the capacity of a female entrepreneur to expand her business is
family considerations, especially if she has young children.
14.5 MANAGEMENT SKILLS:
Entrepreneurs, whether male or female, require specific skills if they want to set up a
new business or expand an existing one. They need to ensure that they have adequate
resources, in terms of skills, finances, space, equipment, human resources, etc., that they need
to run their business. Often, they need to be able to start very small. Entrepreneurs need to
ensure that their ventures can be scaled up if they want to achieve high growth and high value.
How do women differ from men in terms of skills? Often, it is not the skills themselves that
define female entrepreneurs, but their management experience, technical education and
attitude towards success.
Walker and Webster (2006) sought to identify women participants' current level of
managerial competence participation at two points in time, namely when they started their
business and their perception of their current managerial competence. Women generally had
less time in business than men and had higher levels of education. Women generally rated
themselves much higher in customer service, human resource management, and computer and
internet skills. This may reflect previous administrative experience (Winn 2005).
Relevant experience in an industry can provide entrepreneurs with knowledge and
contacts and often people start businesses where they have worked or in which they have an
interest. Previous management experience is also thought to help entrepreneurs run their
businesses effectively and efficiently. Women are less likely to gain the necessary relevant
experience as they are less likely to reach top management positions due to the glass ceiling,
although this situation is slowly changing.
206
A management team is essential to building a business. Skills such as marketing,
finance, human resources, operations are all needed to grow a business. A good team will
bring together different skills and experiences and will also provide access to different
networks. Women may find it more difficult to recruit the right personnel as they are not part
of the business network and lack previous management experience. There is evidence that
women are less likely to share ownership than men. Both men Both women are more likely to
recruit people who are similar to themselves so women tend to form women's teams.
The vast majority of businesses in the UK are family businesses and a large proportion
are run by a husband-wife team. It is difficult to define the role of women in the business.
Some are very active and provide strategic leadership, while others are only peripherally
involved and provide support to their husbands. Entrepreneurs often use their social contacts
to build their business management team, including family and friends as well as business
contacts. However, utilizing family and friends may not be the best option for the business if
they do not have the right skills. Using family and friends does have an advantage as it is
easier to keep the team together when the going gets tough if they already know each other.
Women may find it easier to hire family and friends, especially if they don't have management
experience or business contacts which can work against them when building a management
team to grow the business.
14.6 TECHNOLOGY AND INNOVATION:
Although the number of girls taking up subjects such as medicine, business and law
has increased over the past 20-30 years, fewer girls are studying science and technology than
boys. The low percentage of women studying science, engineering and technology may have
an impact on their ability to develop innovative new ideas for their businesses. Innovation is
critical to the success of a new business and can be in the form of new products,
improvements to existing products or the development of new markets.
One of the fundamental research questions about female entrepreneurship is the extent
to which they differ from men. Two areas that show differences are growth and technology.
Although women have the same growth expectations as men, in reality they grow more slowly
than male-led new businesses and hire fewer employees (Minniti et al., 2005). Matthews and
Human (2000) found no differences with respect to growth expectations and Kollinger and
Minniti (2005) found little support for the theory that women are more prone to 'fear of
failure' (Wagner 2004). Previous research in North America (Carter and Brush 2004; Menzies
et al, 2004) found that women tend to major in health while men are more likely to study
207
science, computers and technology. There is evidence to suggest that women are more likely
to use existing technology and use less start-up capital (Minniti et al, 2005).
Menzies et al (2006) in a study of nascent entrepreneurs in Canada found significant
differences in university education with men choosing applied and computer sciences, while
women focused on health-related subjects. Men estimated a greater likelihood of that their
business will be operational within five years and men have more experience starting a
business, are more likely to own their own home and have more friends and neighbors who
own businesses. Not surprisingly, women spend more time on household tasks. The study
seems to confirm stereotypical views of male and female entrepreneurs, namely that men are
more interested in science and technology, especially when choosing a university degree.
Women are also more likely to focus on local customers than men who are more optimistic
about having international clients. Other factors such as the completion of a business plan,
hiring employees or the duration of pregnancy activities are the same for both male and
female entrepreneurs. However, one important factor seems to be a higher level of confidence
among male entrepreneurs. This confidence may be due to the fact that male entrepreneurs are
more likely to own a home, be less burdened with household responsibilities, have
expectations that their business will succeed in the long run, use technology, have greater
networking opportunities, etc. They are more likely to achieve a running business and are
better prepared, especially if they are team members.
Traditionally, men are considered to be the ones who innovate and women generally
register fewer patents than men. Some innovations created by women include disposable
diapers, among others. It is difficult to measure the effect of technology and science education
on innovation, but in general, men are considered to have more innovative new ideas than
women.
14.7 WOMEN IN RURAL AREAS:
Warren-Smith and Jackson (2004) found that there are strong incentives for self-
employed women to create new employment opportunities and additional farm income for
rural families. Networks such as WIRE (Women in Rural Enterprise) provide support for
women rural entrepreneurs who can provide support for rural women in self-employment.
Women entrepreneurs in rural areas may still be far from the market and may need to
use information technology. Women are more likely to use new technologies than men, with
20.9% of women starting a business using a technology that did not exist in the last year
compared to 10.6% of men (Harding 2007), mainly because technology can give them the
208
opportunity to work from home. This may be important for women who have young children
at home and those in rural areas.
Networks and Social Capital:
Networks can help entrepreneurs in a variety of ways, by providing access to
information and resources that are not available in smaller firms. There are different types of
networks in business, both formal and informal. Social networks, for example, are important,
especially for women. Business networks can provide access to legal and professional advice
and support from people such as lawyers and accountants. Women may find it difficult to
break into some business networks that have always been associated with men.
Formal networks include professional organizations with paid memberships,
industry associations, chambers of commerce or business clubs. They usually hold regular
meetings or events and will also disseminate information. Even if a woman joins these groups,
she may be a minority and feel like an outsider. Menzies et al (2004) found no difference
between male and female entrepreneurs in their social contacts. (Daniel 2004) found that
women have better networking skills than men, especially in building relationships with
others. Women have a tendency to form social networks and interact in different ways. They
will join social networks for emotional support and friendship, rather than to support their
business. Education and social group may have an influence on network choice and whether
or not a woman will feel accepted.
It has been found that women communicate in a different way than men. Women are
more likely than men to express doubts about their abilities or future business prospects,
which can be interpreted as a lack of confidence. Women are also less likely to boast about
their achievements. Men will talk about sports, politics or the news, whereas women will talk
about their personal and family lives. Men will also bring up their problems when they want a
solution, whereas women will talk about their problems to build relationships. These
differences can then have an impact on how they use the network.
Social capital is the goodwill you accumulate through interactions with other network
members, be it social or business networks. A favor given by one person can be reciprocated
or given to another. Entrepreneurs generally need a lot of social capital because they make
withdrawals rather than deposits (Brush et al, 2004). Friends and family can provide moral
and financial support. Other support groups such as clubs, charities and communities can also
provide sources of social capital such as customer bases. Entrepreneurs draw on social capital
built up over many years when they start a new venture. Women are particularly good at
209
building social capital but they tend to focus on family and friends, whereas men build
networks with people who can help their business.
14.8 GOVERNMENT POLICY:
One of the main drivers of government support for women entrepreneurs is an
awareness of the contribution they can make to the economy as well as an intention to reduce
the gap between male and female business owners. There are various issues that can be
explored in relation to the government's policy for women entrepreneurs encouraging
women's entrepreneurship. These include finance, training, general corporate support and
networking. The question of whether policies for women entrepreneurs should be the same as
those for men is a difficult one and there are few initiatives aimed specifically at women
although the number of these initiatives is increasing with the recognition of the different
challenges women entrepreneurs face when starting a business.
In the UK, the government published the Strategic Framework for Women's
Entrepreneurship in 2003. The aim of the strategy is to close the gap between entrepreneurial
activity in the UK and America. Proposed actions include business support, mentoring,
coaching and training and improved access to finance. In addition, a Women's Enterprise Task
Force was announced in November 2005. The three main objectives of the 2003 Strategic
Framework are:
1) To address the underlying issues affecting women's entrepreneurship
2) To develop customer-focused services
3) To change attitudes towards women's businesses through media, schools and
communities.
The government's goal is to increase women's participation at the US level, increase
business support and encourage strategic partnerships. The policy is based on evidence that
women are less entrepreneurial than men because they lack business support, have less access
to finance and have additional responsibilities such as childcare. Other factors include
difficulties in transitioning from income support to self-employment and a lack of role
models.
Harding (2007) notes three problems with government policies to promote women's
entrepreneurship. The first is the regionalization/decentralization of support which is
considered to undermine a cohesive strategy. Second, the focus on disadvantaged groups
rather than mainstreaming support and third, viewing women as a homogenous group. What is
210
clear is that women entrepreneurs are not a homogenous group and may require specialized
support designed to meet their needs.
Conclusion:
It is clear that female entrepreneurs face greater challenges than male entrepreneurs.
Many women study business and management subjects at university, but the number studying
science and technology remains relatively low. This puts women at a disadvantage when it
comes to raising funds for their ventures, especially venture capital, as such funds are geared
towards high-growth, high-tech ventures. However, women can bring organizational and
marketing skills to the business. While it is now easier for women to get funding for new
businesses, especially from banks, they are underrepresented when it comes to raising venture
capital.
Women and entrepreneurship has become an increasingly popular topic over the past
few years. The contribution that women entrepreneurs can make to economic well-being is
now recognized and there is a better understanding of some of the barriers they may face in
trying to set up their own businesses. Women are generally underrepresented as business
owners, and even when they start a business, their incomes and number of employees are
lower than those of male entrepreneurs. There are currently many initiatives, support and
training programs to help women enter the business world. There are many other issues to
consider when dealing with women entrepreneurs in terms of setting up and growing a
business. Some reasons include that men are more confident and, although women are better
at social contacts, men have better business networks.
Although women seem to have a similar entrepreneurial orientation, men seem to
achieve the same or better performance. Women generally earn less than men and so may
have fewer financial resources to start and grow a business. They are less likely to expand
their businesses and hire fewer employees than their male counterparts. Women entrepreneurs
are more likely to base their businesses on retail and service industries. They are also more
likely to use bootstrap funding and other sources such as their own savings and credit cards.
Generally, they are less ambitious than their male counterparts. Reasons may include
difficulty in raising funds, lack of confidence and managerial competence. Women also
generally network for social reasons, focus more on family and friends, and may have other
responsibilities such as childcare. It is clear that women entrepreneurs may require additional
support to start a business and this has implications for government policy and future research.
