Has Firm Level Analysis Reached its Limits? Time for a Rethink

Abstract

Entrepreneurship research has concentrated almost exclusively on small organizations and the firm as the unit of analysis. As a result, researchers have overlooked the real wealth-creating activities of established business owners. Current work does not pay enough attention to ownership patterns and the accumulation, control, and transmission of capital, which should be central questions in a free enterprise, capitalist economy. Argues that small and medium-sized enterprises are part of the process of wealth creation and capital accumulation, which is entrepreneur based and operates at all scales. Underlying most research to date are four assumptions: the firm (rather than the entrepreneur) is the unit of definition and analysis, the differences between large and small firms are paramount; starting and growing firms is the best way to conceptualize wealth and job creation; and starting firms is separate from firm growth. The thesis herein is that the process of wealth creation and capital accumulation is entrepreneur- rather than organization-based, and that the process and all stakeholders should be the focus of study. Research into multiple business owners (portfolio entrepreneurs) in Scotland in 1994-95 was designed to establish the contribution of existing business to new firm creation. Of 7,316 new companies, 45 percent had directors of other companies; people starting new companies are significantly associated with activities of existing businesses; and a substantial number of new firms interlock with existing companies, forming clusters. While individual firms in a cluster may not grow, the cluster does. Diversification may be a growth and survival strategy. Starting and growing new firms may be a form of capital accumulation. Focus at the level of small firms overlooks the political and social aspect of business: the issues of who owns and controls, gains and loses power and jobs, and how capital is structured. The new awareness will provide better answers and make clearer the real contributions of entrepreneurs to the economy, as well as the implications of taxation and regulation. (TNM)

Keywords: Entrepreneurship research, Spinoffs, Firm gestation, Clusters, Established firms, Startups, Firm control, Portfolio entrepreneurs, Wealth creation, Capital formation, Firm ownership, Growth strategies, Entrepreneurial environment