Journal of Small Business and Enterprise Development

Entrepreneurship, resistance to change and growth in small firms

Colin Gray,
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Entrepreneurship,
resistance to change
and growth in small
firms
Colin Gray
The author
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Colin Gray is Head, Centre for Innovation, Knowledge
and Enterprise, Open University Business School,
Milton Keynes, UK.
Keywords
Entrepreneurs, Small firms, Innovation, Growth
Abstract
The focus of this paper is on existing small firms, with
fewer than 50 employees, and their attitudes to change,
using data from regular quarterly small firm surveys
conducted by the Small Business Research Trust,
especially from the 1,212 respondents to the fourth
quarter of 1999 (15:4, motivation, objectives and targets)
and the 812 respondents to the first quarter 2000 survey
(16:1, changes). The overlap between the respondents to
these successive surveys allows their responses to be
cross-tabulated. It was expected that there would be
strong positive links between growth-orientation, the
setting of financial objectives (as opposed to lifestyle
goals), propensity to introduce changes and actual
growth, and that age and size of firm effects will also be
present and likely, as intervening variables, to influence
these relationships. The findings confirm these
expectations (and the mirror image of resistance to
change linked to non-entrepreneurial performance).
Electronic access
The current issue and full text archive of this journal is
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Journal of Small Business and Enterprise Development
Volume 9 . Number 1 . 2002 . pp. 61±72
# MCB UP Limited . ISSN 1462-6004
DOI 10.1108/14626000210419491
61
Managerial and policy implications
. Policy makers and SME support agencies
should look more closely at how small
firms perceive risk and the effects of
uncertainty on SME behaviour.
. More attention should be paid to
confidence building and structural
support for existing firms rather than
focussing on new product innovation by
start-ups.
. There is a case for supporting existing
firms that are early adopters of change
and technology in boosting their sales
rather than focussing on employment
effects.
Introduction
Although the term ``entrepreneur'' has
attracted scores of different definitions, this
article uses it to refer to individuals who
manage a business with the intention of
expanding that business and with the
leadership and managerial capabilities for
achieving their goals. In the tradition of
Schumpeter (1934), entrepreneurs are seen as
the small business owner-managers who keep
ahead of competitors through better
management and the introduction of new,
innovative products and processes. Although
policy has focused on fresh start-ups, many
feel that existing SMEs offer the best scope
for innovation and sustained employment
(Storey, 1994). It is fair to say that the start-
up phase in a firm's life cycle is generally
entrepreneurial but there needs to be a
sustained progression from that phase if the
firm is to survive and prosper (Flamholtz,
1986).
The re-assessment of the role of small firms
in the sustainable development of a sound
and growing economy dates back in the UK
some 30 years ago to the publication of the
Bolton (1971) report. Since then, various
Conservative and Labour governments have
emphasised different features of the small and
medium enterprise (SME) sector as they
formulated and justified their small business
policies. Generally, there have been two main
themes (which have not always been
compatible):
(1) social policy, where the small firm is seen
as a creator of new jobs and absorber of
unemployment; and
 Entrepreneurship, resistance to change and growth in small firms
Colin Gray
(2) competition policy, where the new firm is
seen almost entirely in terms of its
entrepreneurial and innovative powers,
the source of brilliant new products,
services and processes of the future.
There has also been another recurring theme
that is currently enjoying a second lease of
life: the social ``missionary'' role as a model
for a new ``enterprise culture''. The focus of
this article is on the second of these themes,
the entrepreneurial role of small firms with
fewer than 50 employees as agents for
economic change and innovation and on
reasons why most small firm owner-managers
seem reluctant to accept this challenging role.
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Entrepreneurship
There are literally dozens and dozens of
different definitions of ``the entrepreneur''
and the concept of ``entrepreneurship''.
Researchers and writers often seem to pick
the definition that best fits the area they are
discussing (HeÂbert and Link, 1989; Gartner,
1990; Stanworth and Gray, 1991; Gray,
1998; Chell, 2001). Leaving to one side the
fact that individuals working in the public and
non-profit sectors can be very enterprising,
usually entrepreneurship refers to business
behaviour related to innovation and growth
(Schumpeter, 1934; Bolton, 1971; Advisory
Council on Science and Technology, 1990;
Stanworth and Gray, 1991; Storey, 1994;
DTI, 1998). Thus, for the purposes of this
article, entrepreneurs may be broadly defined
as individuals who manage a business with the
intention of expanding that business and with
the leadership and managerial capacity for
achieving their goals, generally in the face of
strong competition from other firms, large
and small. This provides a framework for
examining such phenomena as competitive
advantage, economic change and innovation,
which are familiar topics in entrepreneurship
policy and research (Davidsson, 2001). In
most small firms, especially the very small
microfirms (fewer than ten employees), the
leading manager is also the principal owner. It
is now widely accepted that, apart from the
start-up phase, most small firm owner-
managers are more concerned about survival
rather than growth per se and are often not
especially entrepreneurial once they feel that
they are established (Davidsson, 1987;
62
Journal of Small Business and Enterprise Development
Volume 9 . Number 1 . 2002 . 61±72
Storey, 1994; Gray, 1998). Consequently, a
lot of research in this field has focussed on
finding the characteristics that determine the
entrepreneurial person or firm.
For instance, Chell (1985, 1999, 2001), a
social psychologist, has examined numerous
psychological trait-based approaches and
sociological type-based approaches to suggest
that, whilst psychological aspects such as
``entrepreneurial intention'' and the ``ability to
recognise opportunities'' generally appear to
be linked to an entrepreneurial approach,
entrepreneurial behaviour itself is usually
situated in a particular context. This means
that influences of location, industry and size
have to be taken into account as do those of
the business cycle. Indeed, Chell (2001)
points out that many, if not most, small firms
deal with other firms rather than directly with
consumers, which means that their customers
are subject to similar influences as well.
Entrepreneurial firms that deal directly with
consumers are, of course, rather more
immediately exposed to switches in consumer
tastes. Thus, entrepreneurship reflects
complex interactions between the individual
and the situation. Perceptions and judgement
are key elements in this process. Chell (1999)
cites Casson's (1982) focus on ``judgement''
as one of the qualities that distinguishes the
successful entrepreneur from the much larger
group of non-entrepreneurial small firm
owners.
While these concepts are clearly useful in
analysing entrepreneurial behaviour and
entrepreneurial events, the focus in this article
treats the entrepreneur as an economic
phenomenon. A great deal of public policy in
Britain and the rest of the EU has been
focussed on broad socio-psychological issues
such as creating an ``enterprise culture'' and
encouraging the unemployed to seek self-
employment; there has however, also been a
strong economic development line which has
focussed on factor-market flexibilities,
innovation and the application of new
technologies (Advisory Council on Science
and Technology, 1990; Bangemann, 1994;
DTI, 1998). With this in mind, the definition
of entrepreneurship adopted here draws on
the influential work of Austrian economist
Joseph Schumpeter (1934), who defined the
entrepreneur simply as someone who acts as
an agent of change by bringing into existence
a ``new combination of the means of
production''.
 Entrepreneurship, resistance to change and growth in small firms
Colin Gray
New combinations include process,
product and organisational innovations. The
means of production includes capital,
equipment, premises, raw materials, labour
and, more recently, knowledge. Currently,
knowledge can be seen as the capability for
understanding and being able to use
information and processes. This includes
explicit, taught knowledge (often in the form
of shared understandings common to an
industry, profession or locality) and the tacit
knowledge, acquired through experience of
markets, products and business behaviour
(including an embedded, almost instinctive,
knowledge of the firm's own routines and
capabilities). It is this second type of
knowledge that is increasingly seen as the
main source for competitive advantage of
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firms in the new millennium. Paradoxically, it
is the source of the noted flexibility of small
firms yet also of ingrained habits that can later
often stifle growth. The essence of
Schumpeter's approach is that entrepreneurs
are competitive and always strive to gain an
edge over their competitors. When they begin
to consolidate and slow down, they revert to
being managers and, in Schumpeter's terms,
are often more risk-averse and no longer
entrepreneurial. Thus, attitudes to
innovation, change, growth and the continued
attainment of growth are essential elements of
entrepreneurship.
Figure 1 outlines the flow of routines that
draw on different types of knowledge at
various stages of the value chain that is typical
of many small firms. At each stage, there is
scope for entrepreneurial firms to achieve
advantages over their competitors through the
introduction of innovative changes.
Generally, managers learn from their
experience and the firm as a whole
(organisational learning) collectively develops
routines for using available capabilities and
Figure 1 Value chain of knowledge needs in the small firm
63
Journal of Small Business and Enterprise Development
Volume 9 . Number 1 . 2002 . 61±72
resources to manage each stage in its unique
way. There are many differences, due to size,
location, industry, management styles and so
on, as to how firms create and exchange
value. However, in the very small microfirms,
owner-managers are usually involved in all
stages and it is little wonder that they
complain of lack of time and, may be wary of
growth and change. Indeed, routines that
work quickly become embedded in most
organisations (Granovetter, 1985; Levitt and
March, 1988; Blackler, 1995). This can be a
source of competing advantage but the fact
that they work and that the firm survives may
reinforce a resistance to learning new ways or
ideas on the part of many owner-managers of
very small firms. It only takes performance in
one stage of the value chain to slip below the
norms of the industry or local competition
and the whole firm under-performs or is put
at risk. It is not surprising that entrepreneurs
are relatively rare (Gray, 1998). Successful
and sustained entrepreneurship implies a high
level of managerial competence in all the five
stages in Figure 1, an openness to learning
from experience and a high competence in
social and commercial interactions both
inside the firm and outside the firm with other
firms, regulators and, above all, customers
and consumers.
The examples of knowledge drawn on at
each stage are far from exhaustive yet it is
clear from looking at even this simplified
model that entrepreneurship implies a large
degree of practical, technical and business
experience. It requires a considerable amount
of tacit experience to spot ``intuitively'' an
opportunity and to have the confidence to act
on that ``hunch''. It also implies a persistence
in managing change and growth. Because the
business environment is turbulent and often
unpredictable, many hunches will not work so
the entrepreneur has to have the strength and
 Entrepreneurship, resistance to change and growth in small firms
Colin Gray
self-confidence to manage failure and to
persist. In turn, this raises issues of motivation
and business strategies. According to
Schumpeter's model, technological changes
are transmitted into and transform the
economy basically through individual
entrepreneurs pursuing a growth strategy
based on their perceptions of new production
and market opportunities (which Schumpeter
saw as mainly a result of new applications of
technology).
Schumpeter believed that changes were
bound to be discontinuous and uneven
because they are based on individual
entrepreneurial perceptions and
implementation and because the process of
technological application and change is
uneven. The discontinuity of these changes
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has the aggregate effect of pushing the
economy into disequilibrium thus creating
opportunities for entrepreneurs with swift and
flexible reactions but making it difficult for
less agile SME managers. Indeed, many non-
innovative firms would inevitably be driven
out of business. This process, which he
believed to be essential for general economic
development, growth and progress,
Schumpeter termed ``creative destruction''.
The main motivation for entrepreneurs to
overcome the barriers of economic pressure
and uncertainty, according to Schumpeter
(who was writing in the 1930s), were the
prospects of upward social mobility into the
capitalist class. Nowadays, in our so-called
post-modern societies which are much
wealthier than the Europe of the 1930s, there
may be more lateral pressure into particular
lifestyles and the upward drive for social
status may be less intense (though still
present). However, many lifestyles are averse
to continuous growth, or the economic goals
to achieve the lifestyle are relatively easy to
attain. As a consequence, many SME owners
are not growth oriented and most must be
considered in the Schumpeterian sense as
non-entrepreneurial (Gray, 1998).
Resistance to change
It has long been observed that many managers
prefer the comfort of the familiar and are
reluctant to ``think outside the box'' in seeking
new solutions to problems (Cyert and March,
1992). Just as many mid-level managers have
been seen to be resistant to organisational and
64
Journal of Small Business and Enterprise Development
Volume 9 . Number 1 . 2002 . 61±72
technological change within large
organisations so too have many small firms
been set in their ways. Indeed, risk-aversion
generally appears to be stronger and more
common than the acceptance of risk and
change, and this so-called ``endowment
effect'' (fear of loss being strong than
attraction of potential gain) appears to
operate independently of wealth or income
effects (Kahneman et al., 1991). However,
there are some indications of size effects in
that, compared with group decisions,
individuals are often more risk-averse, less
confident of their decisions and less likely to
implement their decisions (Sniezek and
Henry, 1989). Thus, self-employed and
owner-managers of very small microfirms
may be more likely to exhibit endowment
effects and be more likely to show resistance
to change. There can be many causes of
resistance to change such as loss of hard won
status or privilege, fear of the unknown, lack
of trust, cultural or age-related conservatism,
different perceptions of external dangers or
disagreement over the proposed strategy or
changes. From his studies into resistance to
technological and organisational change in
organisations, Maurer (1996) claims that only
one-third of major technological changes in
organisations succeed, mainly because of
resistance to change. He has identified three
main levels of resistance to change:
(1) Informational ± where there is not enough
information or understanding of what is
required;
(2) Gut reaction ± emotional, psychological
and even physiological individual
reactions;
(3) Cultural ± when there is a past history of
failure or problems and strong negative
organisational memory.
Maurer attributes most failures to a
misunderstanding by managers in that they
generally believe change problems to be
informational (level 1) whereas most are
emotional (level 2). This is likely to be as true
of owner-managers of very small firms as it is
of managers in large firms. Indeed, given their
strong personal identification with their firm,
small firm owner-managers may be even more
prone to level 2 resistance. Furthermore, the
smaller the firm the more disproportionate
amount of time is spent on compliance with
regulation (Bannock and Peacock, 1989).
There is also likely to be an inverse
 Entrepreneurship, resistance to change and growth in small firms
Colin Gray
relationship between firm size and the costs of
obtaining information at level 1. On this last
point, it is worth noting that most self-
employed sole traders and very small family
firms do not employ external capital or
labour. Roughly three-quarters of the self-
employed, notwithstanding that many of
them are extremely energetic and inventive,
function as atomised individuals never
developing into more complex organisations
(Selden, 1999). Although a lot of small firm
owner-managers belong to informal networks,
many find it difficult to collaborate with other
firms. Their main business challenges are
usually connected with survival.
Thus, at level 3, it is clear that few small
firms and even fewer self-employed are
seriously interested in growth. Their primary
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motives are not financial but to retain their
autonomy and independence (Gray, 1998).
The most important constraint on SME
growth lies in these non-growth career
motivations and personal expectations of
individual small firm owner and manager. If
an owner wants to earn no more than a living
as an individual or as a household then
growth past that level of income is highly
unlikely. Furthermore, if the mode of earning
a living is also bound up with a certain
lifestyle (informal, anti-bureaucratic,
alternative, loose, individualistic, etc.), many
decisions will be based on non-business
criteria (Gray, 1998). This is not a milieu
conducive to the establishment of good
management, innovation or entrepreneurship.
It also suggests certain links with personal life-
cycles associated with youth, family
commitment and retirement concerns. By
contrast, successful small businesses are more
likely to face up to, even welcome, the
challenges of new product development, more
efficient management of social relations,
juggling scarce or costly physical resources
and resolving routine business problems
effectively. Certainly, managers in growth
SMEs are more likely to adopt a more
structured and strategic approach to their
businesses and to the development of staff,
including managers (Thomson and Gray,
1999). It appears that the organisational
complexities associated with growth and
innovation, plus the non-economic personal
motivations of many SME owner-managers
present real external and internal
psychological barriers to sustained
entrepreneurial behaviour in most SMEs.
65
Journal of Small Business and Enterprise Development
Volume 9 . Number 1 . 2002 . 61±72
Methodology
The literature suggests good reasons for
expecting there to be strong size effects in
entrepreneurial behaviour and aversion to
introducing changes (which is related to, if
not the same as, resistance to implementing
innovations). The expectation is that the
smaller the firm, there will be a stronger
resistance to the related areas of
entrepreneurship, introducing changes and
growth. Furthermore, in line with the
definition of the entrepreneur given above, it
is also expected that the intention to grow will
be linked to actual growth and to openness to
implementing changes. These relationships
are examined through an analysis of national
postal surveys conducted by the Small
Business Research Trust (SBRT). The SBRT
is an independent non-profit organisation that
conducts regular quarterly surveys of small
firms in the UK. For the past 18 years the
SBRT has monitored SME performance and
main problems. The 4,000 SBRT national
database of SMEs has been recruited from a
variety of sources including the main SME
representative bodies. Like most databases in
the volatile SME sector, it does not claim to
be fully representative. It is primarily a
database of owner-managers of established
small firms ± companies, partnerships and
self-employed ± as opposed to new, young
start-up firms. In line with analyses of owner-
managers in the Labour Force Survey, the
average age is in the mid-1950s but with 18
per cent of the 2000:Q1 sample in
manufacturing (LFS is 11 per cent) and 30
per cent distribution, hotels and restaurants
(LFS is 25 per cent), the sample is under-
represented in the traditional areas of self-
employment ± transport and construction.
Experience indicates that the surveys based
on the SBRT database provide robust
responses that are consistent over time and
compatible with the government's very large
scale surveys. The SBRT conducts a number
of regular surveys of SMEs, the longest
running (since 1984) is the NatWest/SBRT
Quarterly Survey of Small Business in Britain
(SBRT, various). Apart from occasional
references to points from various quarterly
surveys, this paper draws mainly on the
findings of the fourth quarter 1999 on
motivation, business objectives and attitudes
towards growth (1,121 respondents) and the
first quarter of 2000 on changes and
 Entrepreneurship, resistance to change and growth in small firms
Colin Gray
innovations (812 respondents). The
respondents vary from survey to survey but
there is a common pool of respondents
(roughly 60 per cent) so it is possible to track
responses over time and link the surveys in
order to examine more closely variables such
as business strategy, actual and anticipated
sales and employment performance, as well as
attitudes towards growth and change. The
analysis uses cross-tabulations of different
independent variables to consider the
motivational and attitudinal findings,
followed by findings on small firm growth and
change. Where relevant, Chi-square is used as
an indication of the significance of the
patterns of findings. The final stage of analysis
identifies different measures of small business
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performance as dependent variables in order
to explore the relationships between the main
explanatory variables through regression
analysis. Implications for future research in
this area are then discussed.
Findings
Motivational factors
As mentioned above, a proper analysis of
entrepreneurship and, indeed, of the routines
and strategies of small firm owner-managers
in general, requires an understanding of their
work motivations. The over-riding motivation
that inspires small firms, especially the self-
employed, is the desire to be independent
(Gray, 1998). The surveys conducted by the
SBRT also confirm this as the dominant
feature of SME motivation in general as
Table I shows.
The need for independence is reported by
small firm owners as a long way ahead of
financial gain as a motive. However, it needs
to be borne in mind that these are self-reports
and that a sufficient revenue is seen by many
small firm owner-managers as instrumental in
Table I SME main personal career motivation 1990-1999
1990 1996
Independence/be own boss (per cent) 50 52
Make money (per cent) 19 16
Security for future (per cent) 9 10
No alternative/avoid unemployment
(per cent) 6 11
Family tradition (per cent) 5 5
Other (per cent) 11 8 10
Sample size (n) 1,349 753
Journal of Small Business and Enterprise Development
Volume 9 . Number 1 . 2002 . 61±72
achieving their goal of independence.
Furthermore, the need of independence is
actually a composite construct . A 1995
survey (Gray, 1996) conducted among 2,518
SMEs by the Open University Business
School (OUBS) and SBRT found that most
(52 per cent) owner-managers (especially the
smaller microfirms and self-employed) saw
this as ``be my own boss''/``make my own
decisions'' whereas the more growth-minded
and managers of slightly larger SMEs tended
to view it as ``manage my own autonomous
operation'' (28 per cent). Further analysis
revealed that, while this latter group were not
keen to accept outside advice or the burdens
of very large contracts, they were more open
to working in joint ventures, sharing equity
with external investors and delegating to staff.
They are less concerned about the need to
preserve a defensive independence which
implies a stronger propensity to work with
other firms, network and be open to new
ideas. These patterns of behaviour are also
reflected in the strategic objectives set for
their firms as Table II shows.
The prevalence of the objective of
supporting a preferred lifestyle among SME
owners is stable and consistent with other
SME research (Gray, 1998). Together with
the household-related objectives of building
future assets for the family and improving the
standard of living, these three objectives
which relate to personal concerns suggest that
non-economic objectives dominate the
agenda in many SMEs. Again, these non-
business strategic objectives were much more
prevalent among the self-employed and the
microfirms. The slight decline in the more
``business-minded'' objectives (increase
profits/sales) from 1990 (28 per cent of
respondents) to 1999 (22 per cent) may be
Table II Main SME strategic objectives 1990-1999
1990 1996 1999
Support preferred lifestyle (per cent) 30 35 33
Build assets for the future/the family
1999 (per cent) 16 15 21
46 Increase profits (per cent) 21 21 17
17 Improve personal standard of living
14 (per cent) 16 8 9
Innovate/develop new products
8 (per cent) ± 7 5
5 Increase sales (per cent) 7 6 5
Other (per cent) 10 7 9
1121 Sample size (n) 1,349 753 1,121
66
 Entrepreneurship, resistance to change and growth in small firms Journal of Small Business and Enterprise Development
Colin Gray Volume 9 . Number 1 . 2002 . 61±72

due to cultural shifts in career expectations in
society or life cycle (ageing) influences (see
Table III). What is clear in Table II, and
consistent with Table I, is that SME owners
generally set non-financial objectives for their
businesses and that the entrepreneurial firms
which set more classical financial strategic
objectives are in the minority. The effects of
size differences, measured in terms of
workforce size, underlie the patterns in the
above two tables and are also clear in SME
attitudes towards introducing changes. Table
IV shows the size differences with respect to
propensity to introduce changes in the firm.
The first point to note is that only a
minority of firms (16 per cent) are reluctant to
introduce changes. Second, this resistance to
change does seem to be linked to size of firm,
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minor change for a 25-employee firm may be
a major change for a microfirm).
Nevertheless, less than half of respondents
(46 per cent) report that they are constantly
making changes or making occasional major
changes. It is here that the entrepreneurs are
likely to be found and here there are clearer
size effects. Still, the links between the
propensity to introduce changes, growth and
entrepreneurship are not clear from these data
and need to be examined more closely.
SME growth
Given the prevalence of ``non-business''
motivations and the unending challenge most
small firms face in managing the value chain,
it is not surprising that Schumpeter's

observation that most firms settle for a non-

though, in absolute terms, it should be noted
entrepreneurial stability is supported by the
that a clear majority of firms of all sizes are
findings. Table V summarises the findings on
involved in introducing changes in their firms.
growth orientation from 1991 to 1999.
Most respondents appear to actively manage
their value chain (Figure 1) and introduce Table V SME growth intentions 1991-1999
changes to products and processes as
1991 1995 1996 1999
required. Third, it should be noted that the
survey did not ask in what areas of the value Growth-oriented (per cent) 37 62 33 41
chain were changes most likely to be Growth averse (per cent) 38 30 37 23
introduced. Nor is there any measure of the Exit/sell/merge/other (per cent) 25 9 30 36
degree of change involved (what may be a Sample (n) 1,719 2,517 753 1,121

Table III Attitudes to growth by age of owner, 1999/Q4

<40 40-49 50-59 60+ Total (%) SMEs (n)
Growth-oriented 70 45 38 29 41 445
Sell/merge 11 18 25 30 23 250
Static 11 21 24 26 22 239
Growth averse 8 16 13 15 14 152
Sample (n) 108 287 425 265 1,085
Row % 10 26 39 24 100
2
Notes: Chi = 34.352; df = 9; p < 0.0000. All figures are percentages unless otherwise stated

Table IV SMEs and change by workforce size 2000/Q1

Occasionally Occasionally
Constantly introduce introduce Change
introduce major minor only when Avoid
change changes changes necessary change Total (%) SMEs (n)
Sole-trader 6 11 16 22 16 13 105
Microfirm (< 10) 51 52 55 47 66 54 436
10-24 employees 22 25 18 25 13 21 170
25-50 employees 14 10 9 6 3 10 81
50+ employees 6 2 2 ± 2 3 24
Column totals (n) 219 155 302 64 68 808
Row % (n = 808) 27 19 37 8 8 100
2
Notes: Chi = 45.407; df = 16; p < 0.0000. All figures are percentages unless otherwise stated

67
 Entrepreneurship, resistance to change and growth in small firms
Colin Gray
There is a general pattern of growth-aversion
though the effects of the prevailing economic
climate are also clear. During 1991 the British
economy was still in recession but by 1995 it
was peaking in a boom (hence the growers
dominate). This serves to highlight the
uncertainty under which most SMEs operate
(and most SME researchers as well; owner-
managers' attitudes, judgements, sentiments
and strategies tend to be strongly influenced
by the economic climate). It is this
uncertainty, together with the more defensive
``independence'' effects discussed above, that
pose the biggest barriers to SME participation
in networks and longer term collaborative
ventures. There is also likely to be a
detrimental effect on personal and
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organisational learning. Firms can and do
expand in an unplanned way without any
conscious intention to grow but few grow, or
seek to develop the management abilities and
skills required for growth or innovation in the
face of an intention not to grow. Looking
once again to size effects, Table VI cross-
tabulates the size bands used in Table IV
against growth intentions for the final quarter
1999.
The strength of size effects are confirmed.
The very smallest firms, the sole-traders, tend
very strongly to be growth averse. The micro-
firms are not quite so growth averse but share
with the sole-traders a desire for the status
quo, a ``non-change'' state. The larger small
firms are clearly more growth oriented though
it is interesting that those in the 10-24
employee band seem particularly keen to cash
in on all or some of their investment in their
firms. This is likely to be linked to their own
personal life cycle (as may some of the smaller
firms' growth aversion). Table III cross-
tabulates growth motivation by age of
the owner.
Table VI SME attitudes to growth by workforce size 1999/Q4
Growth
oriented Sell/merge
Sole-trader 8 4
Microfirm (< 10) 43 51
10-24 employees 29 33
25-50 employees 14 11
50+ employees 6 ±
Column totals (n) 448 247
Row % (n = 1,093) 41 23
2
Notes: Chi = 124.771; df = 12; p < 0.0000. All figures are percentages unless otherwise stated
68
Journal of Small Business and Enterprise Development
Volume 9 . Number 1 . 2002 . 61±72
Clearly, in Table III, the intention to grow
decreases with age. Also, the desire to sell or
maintain a static position also increases.
These are factors that must be taken into
account when analysing SME growth or
entrepreneurial behaviour. These strong age
effects are not unexpected. The 1991 SBRT
survey on growth intentions had revealed a
positive balance of 18 per cent more growth-
oriented SME owners than growth averse for
those aged below 44 years compared with a
negative balance of 17 per cent (i.e. growth
averse) for those over 45 years (a significant
35 per cent overall difference). Although risk-
aversion increases with age, it is useful to bear
in mind that so too does experience and,
often, accumulated personal capital. It is also
worth noting that, while the balance between
growth orientation and aversion is a very high
62 per cent for the under-40s, it is still
positive (14 per cent) for the over-60s. It is
clear that age is a factor in the determination
of growth orientation but it is not clear what
the relationship is between growth-orientation
and propensity to introduce changes. Table
VII contrasts these two factors by cross-
tabulating 551 common responses to growth
motivation in 1999 with those to propensity
to introduce changes in 2000.
As expected, there is a stronger propensity
to introduce constant or major changes
among the growth-oriented and, to a lesser
extent, those trying to sell or merge their
firms. Those who want to stay as they are or
to actively avoid growth also want to only
introduce changes when absolutely necessary
or avoid them altogether. These links between
growth orientation and propensity to
introduce changes fit the entrepreneurial
profile described above in
``Entrepreneurship''. There also appears to be
a relation between both age and firm size as
reported in Tables III and VI.
Growth
Static averse Total (%) SMEs (n)
19 27 12 131
61 45 50 547
15 18 25 273
4 5 10 109
2 4 3 33
303 95 1,093
28 8 100
 Entrepreneurship, resistance to change and growth in small firms
Colin Gray
Table VII SME attitudes to growth by propensity to introduce change 1999/Q4 x 2000/Q1
Growth
oriented
Constantly introduce change
Occasionally introduce major changes
Occasionally introduce minor changes
Change only when necessary
Avoid change
Column totals (n)
Row % (n = 551)
2
Notes: Chi = 33.890; df = 12; p < 0.001. All figures are percentages unless otherwise stated
Entrepreneurial performance
Entrepreneurship, according to the definition
used here consists of both the intention to
grow and the managerial capability to manage
actual growth. It is difficult, indeed not
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appropriate, to judge managerial capability
through self-reported survey responses but a
reasonable proxy is the actual reported
performance over the past year in sales (the
preferred measure of owner-managers
themselves ± Gray, 1998) and in changes in
staff levels (a key indicator favoured by policy
makers). To further explore the links between
these findings and to identify fruitful areas for
future research focus, a number of stepwise
regression analyses were conducted on four
measures of growth:
(1) self-reported past annual sales
performance 2000;
(2) self-reported past annual employment
2000;
(3) actual differences in sales turnover bands
1999-2000; and
(4) actual differences in reported total
employment 1999-2000.
Merging the data from the last quarter 1999
with the first quarter 2000 yielded 551
common respondents with full data sets (see
Table VII).
Preliminary analysis of the data, based on
correlations of the variables revealed some
interesting relationships between these
measures of growth and a number of
potentially explanatory variables. The first
confirmed a common finding in economic
research that past performance is a good
predictor of both future performance and
expectations for the future. This holds true
for the actual annual performance in both
employment and sales. The second is that,
whilst the two measures of growth are clearly
related, they are by no means identical
Journal of Small Business and Enterprise Development
Volume 9 . Number 1 . 2002 . 61±72
Sell/ Growth
merge Static averse Total (%) SMEs (n)
32 31 17 19 26 143
26 17 14 15 19 105
30 38 46 44 38 209
6 8 10 13 8 44
9 7 13 10 9 50
219 131 153 48 551
40 24 28 9 100
(indeed, many entrepreneurial firms would
like to increase sales without increasing costs,
including labour costs). The third interesting
point is that growth intentions appear to be
the main psychological factor associated with
actual performance. Business objectives and
age appear to have no link with actual
performance but they are quite strongly, and
apparently independently, linked to growth
intentions. The propensity to introduce
changes is significantly linked to actual sales
performance but much more strongly to
growth intentions (one of the main defining
features of the entrepreneur as discussed
earlier). Only the findings from the
regressions based on the second pair of
growth measures, which are normally
distributed continuous variables (albeit with
high modes and narrow variances), are
summarised below (Table VIII). The
explanatory variables were firm size (numbers
of full time employees), growth-orientation
and the other variables which had significant
correlations with the first pair of performance
measures. Instead of ``age'', which was
measured by bands, the number of years
spent running a business, not just the current
business, has been included as the continuous
variable ``experience''. Table VIII summarises
these results of this stepwise regression which
only accepted variables that explained a
difference to a p < 0.05 significance level.
Although significant overall, the R2 in each
case is so small that clearly other factors need
to be included to get anywhere near
explaining small firm growth. Indeed, because
the items in the regressions were gathered in
different time frames and not for the purpose
of explaining the dependent variables, only
the variables that made a significant
contribution to explaining the variance have
been included (and their coefficient values
have been omitted). The intention to grow
69
 Entrepreneurship, resistance to change and growth in small firms
Colin Gray
Table VIII Summary of regression equation results on two growth performance measures
Dependent variable Explanatory variables
Employment differences Total staff size 1999 + Sales turnover 1999 +
Q4/1999-Q/21000 growth-orientation
Sales turnover differences Sales turnover 1999 + Introduce changes + Expected
Q4/1999-Q1/2000 recruitment Q4/99 + experience + growth-orientation
was significant at the 5 per cent level of
confidence while the other listed variables
were significant at a 1 per cent level.).
Employment growth seems to be strongly
dependent on firm size at the start of the
period (by both employment and sales
turnover measures). This, and the findings
presented in Tables IV and VI, support the
expectation that firm size is itself a
determining factor in business behaviour. A
Downloaded by UNIVERSITY OF JYVASKYLA At 12:35 02 April 2018 (PT)
firm's small size and time constraints can
impede information search and gathering and
a low capital base may make access to factor
markets extremely difficult. However, one
area for future research focus should be
whether information and communications
technologies are altering this for small firms.
With respect to sales growth, past experience
is again the best predictor but other more
dynamic factors also have to be taken into
account. The findings of these regression
analyses supported the expectation that future
increases in staff depend on sales performance
and that sales performance is influenced by
past performance, expectations, accumulated
experience and the propensity to introduce
changes, which suggests a more dynamic
management of the value change (see Figure
1). Conversely, resistance to change is
associated with poor or declining sales. Thus,
the significance of sales turnover to any
analysis or understanding of small firm
performance is crucial. However, in times of
change and economic uncertainty, it may well
be that past performance is not a particularly
helpful predictor of innovation or
entrepreneurship.
Conclusions
The effects of size on SME performance are
clear. Given the constraints associated with
limited resources, capabilities and time
associated with size, this is not surprising.
Referring back to the value chain diagram in
Figure 1, these particular resource constraints
are more likely to be experienced more
70
Journal of Small Business and Enterprise Development
Volume 9 . Number 1 . 2002 . 61±72
R2 F p
0.043 11.855 < 0.000
0.050 6.916 < 0.000
strongly in the left side of the diagram (input
and transformation phases). However, the
hidden but nonetheless real costs on the right
side (performance and the learning feedback
loop) are that many small firms do not have
the time to reflect or learn effectively from their
experiences. This is likely to reinforce their
reluctance to introduce changes until they are
forced to by circumstances. Many run the risk
that their familiar routines may eventually
become shackles of outmoded practice. These
are clearly not the entrepreneurial small firms
that stay ahead of their competition by
introducing innovations. It would seem that to
understand entrepreneurship better, we need
to understand more about the processes and
drivers of change ± such as what distinguishes
early-adopters from the bulk of mainstream
small firms and those mainstream firms from
those that resist change. We also need to know
more about the communications and social
processes of the value chain. The main impact
of the more psychological factors relate to
expectations of future sales, business
confidence and in perceptions of risk. It is in
these areas, as well as in the propensity to
innovate and introduce technology that
resistance to change has to be taken into
account. Pessimism breeds caution and
provides a poor climate for innovation but is a
rational reaction to adverse external economic
conditions. The opposite appears to also hold
true. A buoyant economy supports business
success and optimism at the firm level. This is
consistent with the findings presented in
Tables I, II, IV, VI and VII. This is the ``gut
reaction'' resistance to change described by
Maurer (1996) as level 2 and is picked up in
the ``change only when necessary'' and overt
rejection of change categories in Tables IV and
VII. These are linked strongly to growth
aversion and small size of firm. It is worth
noting that, even though the economy was
quite strong during the period of these surveys,
the smallest microforms and self-employed
sole-traders were reporting negative balances
on actual and expected employment and sales.
If anything, their economic prospects have
 Entrepreneurship, resistance to change and growth in small firms
Colin Gray
worsened in recent months and past
performance may soon begin to predict a
downward spiral for many small firms.
The more general level 3 cultural type of
resistance to change is clearly evidenced in the
growth-aversion of SME managers who set
the support of a preferred lifestyle as their
business objective. These also tend to be the
smaller firms but this effect is present in all
sizes and industries and will have blurred the
size effects to some extent. Nevertheless, the
expectation that the smaller the firm the
greater resistance to change and growth has
been broadly upheld. If this is found to be
strongly related to time pressures, current
concern over ``redtape'' and compliance costs
may well be justified. Certainly, the smaller
the firm the more time spent on complying
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with regulation (Bannock and Peacock,
1989). This study, however, did not examine
workload or time effects but focussed more on
growth intentions, growth performance and
the links with the propensity to introduce or
resist changes. Strong links between sales
performance, high adoption of changes and
growth intentions were found. However, the
link to employment increases was not so
firmly established because most firms are very
functional in their attitudes towards taking on
new staff, usually only when the volume of
work justifies it. The external business
environment tends to determine sales and
recruitment activities in most small firms.
Innovation and entrepreneurial activities have
to take into account current and anticipated
market conditions. This is where effective
information and communication is very
important and Maurer's level 1 resistance to
change effects are experienced. These are
implicit in Figure 1 but have not been picked
up in the survey data used in this analysis. A
measure of the external business environment
and economic climate is clearly needed
though it would need to be appropriate to
small rather than large firms. A more
thorough investigation of the value chain
dynamics and processes are more likely to
reveal more about the process of
entrepreneurial success and innovation than
focus on the mysterious quality of
``entrepreneurship'' which, in most cases, is a
label applied ex-post to small firms that have
grown dramatically during the current or
immediate past period.
As well as the policy implications, there
were also interesting implications for small
71
Journal of Small Business and Enterprise Development
Volume 9 . Number 1 . 2002 . 61±72
firm development and support bodies. There
are clearly a number of points in Figure 1
where the development of appropriate
management skills are relevant and likely to
have a beneficial impact. However, if
resistance to change is also linked to
resistance to learning (which it may very well
be), then the very firms that need help in
improving their knowledge base (as outlined
in Figure 1) will be the firms most resistant to
changing their approach or to acquiring new
knowledge or skills. Unfortunately a false
dichotomy has sprung up between experience
and learning when, in fact, experience is
usually based on a combination of
observation, reflection, trial-and-error and
learning. Equally unfortunately, a false
equation is developing which views learning
as being almost synonymous with training,
whereas small firms generally adopt a more
functional and less formal approach to their
skills development except, once again, in the
comparatively few cases where there is an
explicit and strategic development policy
(Thomson and Gray, 1999). This poses very
clear challenges to policy makers and to SME
researchers. The issues raised in this paper
clearly need more focussed and structured
research because they lie at the heart not only
of entrepreneurship and innovation but also
of the low participation by most SMEs in
various public support initiatives. One of the
main keys to the optimism that supports
entrepreneurship and innovation is clearly in
having healthy and rising sales. However, this
area is firmly the responsibility of the firm's
management in response to market changes
and largely, except in a limited macro-
economic sense, outside the control of policy
makers. On an upbeat note, however, it is also
clear that there is a vigorous minority of
SMEs which are innovative, appear to
embrace change and are clearly able to rise to
the challenges of a rapidly changing business
environment. The most effective enterprise
policy may be simply to accept the self-
selection and to build on and reward existing
success.
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