Equipping under-represented SME leaders with the skills and resources to identify and plan for key future risks will not only improve their firms’ resilience – it will also deliver ongoing wider economic benefits. These are some of the takeaways from our latest research report, supported by the JPMorgan Chase Foundation – Building resilience in under-represented entrepreneurs: A European comparative study
But first, why this matters. Let’s face it – small and medium-sized enterprises (SMEs) are the backbone of the European economy. According to EU statistics, in 2017 these firms accounted for 99.8% of businesses, 66.4% of jobs and 56.8% of value added. However, ERC Research shows that some entrepreneurs, including females and individuals from ethnic-minority groups, experience more challenges in starting up their own firms, and that once launched, their businesses tend to be more precarious, with lower turnover and survival rates.
Despite this, according to a recent ERC Review, we know relatively little about the ways in which SMEs in general, and businesses run by entrepreneurs from under-represented groups in particular, experience challenges that threaten their survival. Given the turbulent economic environment we now face, understanding how small firms experience and respond to adversity, and what support agencies and policymakers can do to help to improve the resilience of these firms, is vital. Our major new report, resulting from a two year, five-country study into small business resilience, addresses just this.
As well as examining the crisis experiences of SMEs in general, we wanted to understand whether female and ethnic-minority entrepreneurs face particular challenges related to their status, and if so, what can be done to address these challenges. The research, which was carried out in late 2018 and 2019 in London, Frankfurt, Milan, Madrid and Paris, used mixed methods to establish statistically robust findings with a survey, and explored specific issues in depth via face-to-face interviews with entrepreneurs. Some of the key findings were:
Entrepreneur business objectives
Female and ethnic-minority SME leaders run their businesses differently: Female and ethnic-minority leaders are more likely than their counterparts in all five cities to express socially and environmentally-focused objectives for their firms. Ethnic leaders generally seek less external advice, and both ethnic and female leaders are more likely to consult informal sources of advice (such as from friends and family members) than non-ethnic and male leaders. This may be due to lower participation in business networks by female and ethnic leaders, but also because these leaders do not see the support on offer as directly relevant to their circumstances. We also see variation in the types of advice accessed by city, which suggests that contextual factors are at play.
Threats to SME survival
Ethnic-minority firms are more likely overall to experience crisis, but again this varies by city: Overall, ethnic-minority-led firms were more likely to have experienced a crisis in the preceding five years that had threatened the survival of their business, but while in London and Frankfurt ethnic-minority-led firms were more likely to have experienced such a crisis, in Milan and Madrid non-ethnic-led firms were more likely to have done so. Ethnic and non-ethnic led firms in Paris were similarly likely to have experienced a crisis.
SME leaders worry about the wrong things and do not prioritise planning for future crises: In all cities, for ethnic-minority and female-led firms, the top risks that firm leaders identified differed from the actual causes of crises, suggesting that leaders struggle to identify the most potent risks to their firms. Also, whereas most risks identified tended to be internal to the firm, for example staff issues and illness, most of the actual causes of crisis were from external factors, such as loss or failure of a major customer and cost rises. Firm leaders say they lack the time, resources and skills for crisis planning, because they are preoccupied with day-to-day running of their businesses.
What should we be doing to foster resilience practices in small firms?
Interventions designed to improve the resilience of SMEs, particularly those led by underrepresented entrepreneurs, need to take account of variations in leader characteristics and location of firms. It’s a complex area, but we offer three key thoughts which could inform future policy:
Promoting resilience, especially for underrepresented entrepreneurs, requires responsive, locally-informed approaches: There is no single blueprint for running a resilient SME: firm leaders have diverse business objectives, access different types of advice, and employ varied approaches to crisis. For example, female leaders tend to seek more advice, but more from informal networks, potentially reflecting and contributing to disparities in their levels of social and human capital compared to male leaders but also indicating need for new, tailored models of support. Ethnic minority leaders tend to use less external advice than non-ethnic-minority leaders, reflecting lower formal network participation, but also opportunities to engage in novel ways. Bespoke initiatives that help to identify and engage female and ethnic-led firms to ensure advice and support is appropriate and relevant may be key.
Crisis planning can encourage entrepreneurs to assess a wider range of risk factors that may not otherwise be on their radar. The difference between the perceived future risks that female and ethnic firm leaders articulate and the actual causes of crises suggests that initiatives to help identify the most potent future risks and develop a response plan may be appropriate. While it does not necessarily follow that crisis planning will make companies immune to risk, planning initiatives may encourage firms to look beyond their immediate internal environment to external factors which have the potential to derail their businesses.
Strong networks which can facilitate peer exchange and expert input would help engage those entrepreneurs less experienced in engaging with formal sources of advice. In London, for example, our study pinpoints the lack of sector context delivered by generic government-backed business support offerings, and we did not observe compelling evidence that there was effective engagement or sign-posting for ethnic-led businesses or for those located in low-income boroughs in particular.
Maria Wishart, Research Fellow, ERC
You can find more information about the study and access all the research outputs here
Please note that the views expressed in this blog belong to the individual blogger and do not represent the official view of the
Enterprise Research Centre, its Funders or Advisory Group.