Long live the small firm

Factors which affect the survival or demise of small firms have been revealed by a University of St Andrews economist. Professor Gavin Reid, together with Bernadette Power, Lecturer in Economics at University College, Cork, have been examining how some small firms can survive as long as 25 years and others collapse within months of launching.

The work is supported by a grant of IR£4,800 from Enterprise Ireland under its International Collaboration Programme which focuses on what the social sciences can contribute to an understanding of the application of science and technology within business and, in particular, its impact on industrial development. The work involved looking at the ups and downs of Scottish small firms which have been in existence for a long time. These have previously participated in enterprise studies conducted by Professor Reid since the early 1980s.

The findings will be fed into the process that determines enterprise policy in Ireland and will also be a part of ongoing research work into small business in peripheral economies. Small firms make up over 90% of businesses in both Ireland and Scotland and are an important source of employment and innovation.

Professor Reid, Director of the Centre for Research into Industry, Enterprise, Finance and the Firm (CRIEFF) said, ‘We now doubt the effectiveness of a small business policy that only emphasises start- ups. New firms may rapidly fail, if they do not pursue effective strategies. On the other hand, long-lived small firms make a continual contribution to employment, and help to promote enterprise more generally, like starting new businesses or buying existing businesses. Experienced staff move on, and carry the entrepreneurial spirit into other firms, or even found their own businesses.

“In our work, we find that primarily three factors influence the performance of long-lived businesses. First they must be agile. They must adapt with minimum fuss to the drivers of change. Second they must be speedy. They should be quick to adapt to drivers of change. These are positive influences. The third factor is a negative influence. This is turbulence. It refers to the total amount of ‘trimming’ of its activities that the firm undertakes. We find that too much ‘trimming’ reduces performance. For example, it wastes resources, and suggests false or imprudent moves, which then require correction. The smart approach is to stage the commitment of resources to a new strategy. This allows you to pull back if things don’t pan out as you expected. Technically, it increases the “option value¿ of the small firm.”

Meanwhile, Bernadette Power said, “There are many similarities between the Irish and the Scottish economies. In Scotland, you are further along the line than us in Ireland in some aspects of enterprise policy, which support small business. Our work on long- lived Scottish small firms provides a kind of “laboratory test” of ideas that are relevant to Ireland. It’s been very informative, visiting entrepreneurs from Moffat to Wick. In passing, it’s let me see how beautiful parts of Scotland are!”

ENDS

NOTE TO EDITORS –

Full report available at http://www.st- and.ac.uk/institutes/crieff/papers/ dp0207.pdf

Jpeg photograph of Reid/Power available from Claire Grainger – contact details below.

Issued by Beattie Media on behalf of the University of St Andrews For more information please contact Claire Grainger on 01334 462530, 07730 415 015 or email [email protected] Ref: small firm/standrews/chg/12june2002