In the context of recent events like the COVID-19 pandemic and Brexit, the ability of a business to survive a crisis is of heightened interest to many, including business leaders, support agencies and policymakers. Previous research examining the resilience of firms – their ability to survive adversity and potentially to emerge stronger – has considered a range of factors which may encourage firm resilience, including the kind of business model they adopt, the characteristics of their employees and their connections to other businesses. Some studies have contemplated the ways in which a business leader’s personal characteristics can influence business outcomes and have found positive links between leaders and firm survival and ongoing performance. However, most of this work has focused on the ways in which leaders respond to crisis situations.
Clearly, the ability to rebuild or to pivot the business model in response to adversity matters once a crisis has hit – but what about the role of the firm leader in anticipating and heading off a crisis before it has the chance to make an impact on the firm? Entrepreneurs that proactively avert the onset of a crisis have rarely been the focus of resilience research, perhaps because the outcome of their proactive effort is the averting of a crisis, and such non-events are difficult to observe and are therefore typically understudied. In the context of business crisis, however, non-events are highly desirable outcomes!
One way that entrepreneurs can avoid or limit the impact of an adverse event is through business resilience planning. This essentially involves formulating crisis plans to enhance the preparedness of a firm. These plans can help them to avoid potential threats, or to deal with adverse events in a way that limits their impact. Crisis management research has linked resilience planning with a lower incidence of crises, business longevity and greater financial success. Indeed, a recent survey by PwC found that organisations with a crisis response plan are better able to respond effectively to business crisis and to adapt their business operations more swiftly.
New analysis just carried out by the ERC contributes to this debate with the finding that some leaders, by virtue of their own psychological resilience characteristics, are likely to be better than others at fostering resilience in their firms. Past studies have found that resilient entrepreneurs often possess two key psychological traits – optimism and self-control beliefs. These traits mean that resilient entrepreneurs are more likely to view threats positively, and to believe that they will be able to deal with them effectively. Drawing on a new data set of more than 800 entrepreneurs, we have found that entrepreneurs that score highly in these resilience character traits are also significantly more likely to lead firms that engage in proactive resilience planning. This effect is slightly amplified in entrepreneurs based in deprived areas.
Our findings underline the importance of leaders’ characteristics in the development of crisis plans in small firms, and offer insight into why some small firms undertake resilience planning and others do not. In policy terms the results suggest that interventions such as training in resilience for entrepreneurs may be potentially valuable in encouraging a more proactive approach to resilience planning in their firms. Given the potential for entrepreneurial psychological resilience to be more important in deprived areas, the findings also have implications for policy more broadly and could be an element important to the delivery of the levelling up agenda.
Maria Wishart and Halima Jibril, ERC Research Fellows
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