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Start-Up Size Strategy and Risk Management: Impact on New Venture Performance

André van Stel (), Andrew Burke, Jose Maria Millan () and Concepción Román

No H201207, Scales Research Reports from EIM Business and Policy Research

Abstract: Start-up size is a key strategic decision for entrepreneurs. Should entrepreneurs start up close to minimum efficient scale or should they take less risks and start-up on a smaller scale? Previously, this strategic decision appeared to be one of simply making a choice between a higher risk/reward larger start-up versus a lower risk/reward smaller scale start-up. However, recent research on the relationship between risk management and performance (Burke, 2009) indicates that in situations of greater uncertainty and where innovation is incremental, a lower risk small start-up size can enable greater reward through enhanced post start-up flexibility and agility. In this paper we provide the first statistical test of the efficacy of start-up size strategies. We focus on employer businesses that provide jobs. We find that employer businesses that originally adopted a small scale (own-account) start-up strategy have higher survival chances and entrepreneurial incomes than employer businesses that employed personnel immediately from start-up. We also find that prior entrepreneurial experience positively affects firm survival and entrepreneurial incomes. Given the high failure rates among start-ups and the associated difficulty for new enterprises to create sustainable jobs, the research results highlight how strategic choice in relation to firm start-up size and risk management can have an important bearing on new venture performance.

Pages: 31 pages
Date: 2013-06-10
New Economics Papers: this item is included in nep-bec, nep-cse, nep-ent, nep-rmg and nep-sbm
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