Does Support Predictive of Start-Up Success?

Abstract

This paper aims to answer this question “Does support necessarily predictive of the success of a start-up?” This paper conceptualizes support into four key dimensions: finance, soft, technology, and market-related. This paper conducts a qualitative approach based on the practical experiences of the CEOs of SMEs. An in-depth interview with 20 successful SMEs CEOs who have run their businesses for more than five years in Malaysia was carried out. The CEOs were being asked about the success of their start-up and how support (finance, soft, technology, and market-related support) helped in their start-up success. This paper provides evidence that i) support matters to start-up success, ii) finance-related support is the critical resources for start-up growth and survival. Finance-related support can provide particular interventions that effectively protect start-up. It acts as a buffer, allows the start-up to engage in developmental activities without having to confront directly to the potential threats; iii) soft-related support is increasingly important to better performance of start-up, and iv) start-up have had low accessibility to technology and market-related support due to lack of expertise and knowledge. The research on start-up is still in the infancy stage. This paper provides insights that support can potentially increase or decrease the success rate among start-up, and these effects are contingent on the type of support or resources received by the start-up. This paper also suggests that there is a need that attends to mechanism and conditions by which support is likely to alter the start-up success rate.

Keywords: Start-up successTechnology-related supportFinancial-related supportMarket-related supportSoft-related support

Introduction

Today, entrepreneurship and start-up growth contribute substantially to the net and gross job growth. Start-up is effective boosters for economic growth, incubators for eco-innovation, and it creates employment opportunity and new market. The term “start-up” which refers to the early stage of entrepreneurship has gain popularity in the field of entrepreneurship. Many researchers have widely employed Blank and Dorf (2012)’s definition of a start-up as an organization formed to search for a repeatable and scalable business model. However, in this paper, a start-up is defined as a young and new venture that operates five years or less in operation. The term of start-up is based on a firm’s maturity rather than firm size. SME Corp Malaysia (2018) defined start-up as business that is less than six months in operations while Organization for Economic Co-operation and Development (OECD) referred start-up as a subset of young businesses within the first three years of operation. The OECD (2018) distinguishes between young firms (5 years and less) and mature firms (more than 5 years). Based on OECD’s definition of start-up, OECD considered a business that is over three years is no longer a start-up. It is not uncommon in Malaysia that firms that are more than three years old are in start-up mode and still struggling to find their business model. The researcher of the present study took OECD’s definition of young and mature firms and defined a start-up as “a young and new venture that operates five years or less in operation”. While start-up success refers to the ability of a business to run the operation and survive in the market for more than five years.

In the global industry, start-up contributed 39 percent of the total revenue. However, start-up faces challenges and difficulties in sustaining and surviving as the failure rate range between 50 percent to 95 percent, especially in emerging countries such as Malaysia. OECD (2000) reported that less than 50% of the start-up survive for more than five years. According to Giardino et al. (2014), start-up is known for its high risks and failure rates. They argued that approximately 60 percent of start-up businesses fail in their first five years of businesses. This is further supported by Arasti, Zandi, and Bahmani (2014) who pointed out the failure rate among start-up within the first five years is more than 50 percent. Hence, this paper considers the first five years is the most vulnerable period for a start-up business. Start-up is facing with key challenges and obstacles such as lack of awareness in terms of resources, lack of information in terms of business opportunities, inadequate networking, and absence of business supports (Aggarwal, 2012; Kee, Effendi, Talib, & Rani, 2011). Additionally, the start-up is categorized by the insufficiency of resources and are regularly failing to perform or growth (Cohan, 2012).

Start-up support has not received deserving research attention although it is an integral element of the start-up ecosystem that provides resources and services in the form of various supports to start-up. There is still a need to explore the effectiveness of various start-up supports because the question as to whether such supports contribute to start-up success remains unanswered. Hence, this paper aims to answer this question “Does support necessarily predictive of the success of a start-up?”

This paper conceptualizes support into four key dimensions: finance, soft, technology, and market-related. Technology-related support refers to the availability of technology support for execution and management of research and development (R&D), technological consultancy, search for R&D cooperation partners and availability of providing infrastructure to create a conducive environment for the growth of the start-up business (Heydebreck, Klofsten, & Maier, 2000; Akinruwa, Awolusi, & Ibojo, 2013). Market-related support is defined as the assistance in the marketing of products and technologies, a search for customers and suppliers, and assistance with new products launches (Heydebreck et al., 2000). Finance-related support refers to the support in accessing external financing sources like venture capital funds and direct financial support and many more (Heydebreck et al., 2000; Dwivedi & Mishra, 2013). Lastly, soft-related support is identified as networking, mentoring, raising awareness, education, training, consultancy, problem-solving skills and acquiring learning capabilities (Heydebreck et al., 2000; Falk, 2007). This soft-related support typically assists the start-up businesses in developing a network and enhancing their know-how (Heydebreck et al., 2000).

Concurrently, with this recognition of the economic importance of start-up, are findings that start-up is fragile. Therefore, it is important for start-up in developing countries to identify if support is necessarily predictive of their success. To achieve start-up success, the start-up would require to carefully assess their decision and options to identify what is critical for the survival of the businesses. With this, the goal of this paper is three-fold: (a) to examine the relationship between the support and start-up success; (b) to gain a better understanding of the types of support (finance, soft, market and technology) within start-up setting in order to recommend the effective application of support to bring out the best in start-up success; and (c) to draw conclusions on the possible implications of the relationships established through this research specifically for the young entrepreneurs in Malaysia.

Problem Statement

In entrepreneurship literature, entrepreneurial support could be found as institutional supports, professional support or start-up support that would enable young entrepreneurs to develop their business ventures by endowing them with resources necessary for a successful venture. Support may take many forms such as mentoring programs, incubation facilities, research support for product or technology, and financial support such as funding, loans, and venture capitals and so on. Generally, many governmental or private agencies provide support to start-up by providing both financial and non-financial resources, advice in the form of coaching, mentoring, and training, professional assistance, accelerating programs and sharing sessions by successful entrepreneurs. Yusof (2014) suggested that an evaluation of the impact of assistance programs is an important contribution to the practice of and research on entrepreneurship policy. Henry and Treanor (2013) argued that current support for new venture creation continues to be under-utilized, under-evaluated and not entirely aligned to the needs of aspiring and existing new ventures and calls for academics to be involved in objectively evaluating the effectiveness of existing initiatives. Hence, this paper focuses on understanding the contribution of start-up support initiatives on start-up success. It is important for start-up in developing countries to identify specific support that matters to their success. To achieve start-up success, start-up entrepreneurs would require to carefully assess their decision and options to identify what is critical for the survival of the businesses. They should be aware of the support in the ecosystem.

Research Questions

The paper aims to answer the research questions as follows:

Purpose of the Study

This paper aims to answer this question “Does support necessarily predictive of the success of a start-up?” This study attempts to seek empirical evidence on the relationships between support and start-up success. The researcher of the present study believes that support is an important factor and is critical for the survival of the businesses. Young entrepreneurs or CEOs who intend to do their business successfully can work on their resources such as identifying the availability and accessibility of the support provided by government or private agencies. Figure 1 presents the research framework of the paper.

See Full Size >

Research Methods

An in-depth interview with 20 successful SMEs CEOs who have run their businesses for more than five years in Malaysia was carried out. The sample of SMEs was selected from the list of SME Corp. This paper mainly focuses on the practical experiences of the CEOs of SMEs. The CEOs were being interviewed individually about the success of their start-up and how to support (finance, technology, market and soft-related support) helped in their start-up success. The standard format set of questions were used in the interview. The key findings of this paper are herewith reported.

Findings

The research on start-up is still in the infancy stage. To the understanding of the researcher, this is the first qualitative research that involved SMEs CEOs who provided comments on their experiences on start-up. This paper provides meaningful insights that support can potentially increase or decrease the success rate among start-up. These effects are contingent on the type of support or resources received by the start-up. The findings of the interview were summarized below.

Conclusion

In conclusion, this paper provides insights that support can potentially increase or decrease the success rate among start-up and these effects are contingent on the type of support or resources received by the start-up. This paper also suggests that there is a need that attends to mechanism and conditions by which support is likely to alter the start-up success rate. Hence, this paper calls for further research that continues to examine the conditions by which support is likely to alter the start-up success rate. Since support can potentially predictive of start-up success, the government should extend their efforts to more complex and made support accessible to the start-up. While the start-up should increase their expertise and knowledge about the accessibility and make full use of this support.

Acknowledgement

This paper receives funding from the Malaysian Technology Development Corporation.

References

1. Aggarwal, R. (2012). Research on the state of business incubation system in Rwanda: Lesson for African countries, Journal of US-China Public Administration, 9(6), 707-717.
2. Akinruwa, T. E., Awolusi, O. D., & Ibojo, B. O. (2013). Determinants of Small and Medium Enterprises (SMEs) Performance in Ekiti State, Nigeria: A Business Survey Approach. European Journal of Humanities and Social Sciences, 27(1), 1-14.
3. Arasti, Z., Zandi, F., & Bahmani, N. (2014). Business failure factors in Iranian SMEs: Do successful and unsuccessful entrepreneurs have different viewpoints? Journal of Global Entrepreneurship Research, 4, 1-14.
4. Blank, S. G., & Dorf, B. (2012). The startup owner’s manual: The step-by-step guide for building a great company. K & S Ranch Inc.
5. Cohan, P. S. (2012). Hungry start-up strategy: creating new ventures with limited resources and unlimited vision, Berrett-Koehler Publishers, California, CA.
6. Dickel, P., Horisch, J., & Ritter, T (2018). Networking for the environment: The impact of environmental orientation on start-ups’ networking frequency and network size. Journal of Cleaner Production, 179, 308-316.
7. Dwivedi, N. T., & Mishra, T. (2013). Women-empowerment through women entrepreneurship (A study of Faizabad Zone Of Uttar-Pradesh), 2(2), 50–55.
8. Falk, R. (2007). Measuring the effects of public support schemes on firms’ innovation activities: Survey evidence from Austria. Research Policy, 36(5), 665-679.
9. Giardino, C., Unterkalmsteiner, M., Paternoster, N., Gorschek, T., & Abrahamsson, P. (2014). What do we know about software development in start-ups? IEEE Software, 31(5), 28-32.
10. Henry, C., & Treanor, L. (2013). Where to now? New directions in supporting new venture creation. Journal of Small Business and Enterprise Development, 20(2), 249-257.
11. Heydebreck, P., Klofsten, M., & Maier, J. C. (2000). Innovation Support for New Technology-based Firms: the Swedish Teknopol Approach. R&D Management, 30(1), 89-100.
12. Kee, D. M. H., Abdullah-Effendi, A., Talib, L. A. A., & Rani, N. A. B. (2011). A preliminary study of top SMEs in Malaysia: Key success factor vs government support. Journal of Global Business and Economics, 2(1), 48-58.
13. OECD (2000). Small and Medium-sized Enterprises: Local Strength, Global Reach. http://www.oecd.org/cfe/leed/1918307.pdf
14. OECD (2018) Enabling SMEs to scale up. SME ministerial conference plenary session 1, 22-23 February 2018 Mexico City.
15. SME Corporation Malaysia (2014), SME Corp. Malaysia Annual Report 2014, available at http://www.smecorp.gov.my/index.php/en/resources/2015-12-21-11-07-06/sme-corp-malaysia-annual-report/book/63-sme-corp-malaysia-annual-report-2014/4-sme-corp-malaysia-annual-report
16. SME Corp Malaysia (2018). http://www.smecorp.gov.my/index.php/en/definition-of-startups
17. Yusuf, J.-E. W. (2014). Impact of start-up support through guided preparation. Journal of Entrepreneurship and Public Policy, 3(1), 72-95.