Interpreting Performance in Small Business Research

For obvious reasons, researchers and policy-makers alike have an interest in assessing the performance of small firms as well as in understanding the factors that contribute to it. Attaining such knowledge is not a trivial undertaking. Researchers have pointed out that the performance of small firms can be difficult to assess (Brush & Vanderwerf, 1992)—e.g., because reliable data cannot be obtained—and also difficult to predict (Cooper, 1995). In this paper I will discuss the equally important and difficult issue of how research results regarding small business performance and its predictors can or should be interpreted. In particular, I will discuss whether commonly used performance indicators like survival vs. non-survival and growth vs. non-growth really reflect ‘good’ vs. ‘bad’ performance, as is commonly assumed. Although theory and other researchers’ findings will also be used to some extent, my exposition will rely primarily on experiences and illustrations from a number of research projects I have been directly involved in during the last 20 years. The paper proceeds as follows. I will first question the assumption that business discontinuance—often called ‘failure’—is a ‘bad’ outcome that best should be avoided from the aggregate perspective of the economic system. I will then continue to discuss ‘failure’ from more of a micro-perspective, arguing that most instances of discontinuation of new or emerging firms are not associated with substantial financial losses and do not necessarily represent efforts that should have been avoided. Staying at the micro level I will then turn to the issue of firm growth and the conditions under which growth represents a ‘good’ outcome from the perspective of the firm’s principal stakeholders. I will then return to the aggregate level and discuss the extent to which firm level employment growth translates to net increases of employment in the economy. Finally, the implications of the issues raised in the paper will be restated and discussed in the concluding section of the paper.