Title: Exploring success and failure in small firm business transfers
Abstract: The main purpose of this dissertation is to identify the factors that explain success and failure in SME business transfers. Three key concepts have been defined in our research framework: firm resources, capabilities (of predecessor and successor) and (successor’s) strategic renewal. Firm resources originate from the resource-based view and are necessary to compete, to survive and to attain competitive advantage. The owner capabilities/human capital, such as education, experience and entrepreneurial capabilities are necessary to allocate the available firm resources. The successor’s renewal actions, including organizational changes and innovations, are vital to renew and adapt the firm to market situations. Altogether these three key concepts serve as predictors for the transfer outcomes: exit choice, transfer duration, obtained price, satisfaction and the post-transfer firm performance. The empirical results of this dissertation suggest, although not tested in one comprehensive dataset, that these three key concepts are complementary in SME business transfers. This is illustrated by the answers to main research questions. 1. Do firm resources or owner capabilities predict the exit choice for a sale or liquidation? 2. Do firm resources and owner capabilities predict performance during the transfer process? 3. Do renewal actions of the successor by themselves predict post-transfer firm performance? 4. Which kinds of capabilities predict success in business transfers? The results generate practical implications for government policy, advisors and entrepreneurs. The efforts of the Dutch government to stimulate start-ups may be less beneficial to the economy than spending the same budget and energy on potential (young) firm acquirers. Previous research shows that business transfers outperform start-ups in all fields and generate more employment. This dissertation shows that firm founders tend to liquidate their firm, whereas acquirers are more inclined to transfer their business. The Dutch government is advised to concentrate more on (young) firm acquirers and shift their budgets from start-ups, which have a relative low rate of survival, to acquiring a firm. The research outcomes lead one to question the relevance of succession planning for SMEs in transfer situations. Not only this study, but also most studies in the past two decades fail to provide evidence on the usefulness of succession planning. Both government agencies and advisors should reconsider their campaigns, which generally emphasize long term planning. Turnover, dependency on (few) customers and dependency of the firm on the owner, together with entrepreneurial flexibility, market awareness, years of ownership and familiarity with the successor are all better predictors of positive transfer outcomes such as an exit choice to sell (vs. liquidate), shorter transfer duration, greater satisfaction by the seller and obtained price. Furthermore, both advisors and the Dutch government seem to forget that 90% of all firms are micro firms and these firms are not served with corporate planning, corporate strategies or corporate finance to stay in business. How to optimize their firm value and to look at their firm as an outsider could be a more interesting focus for small firm owners. The outcomes on firm size counter the prejudice against micro firms with employees that they are unfit for business transfers. Past research shows, however, that service to this group has been neglected; the market has failed to advise micro and small firms adequately regarding exit options. Accountants and bookkeepers are not well equipped to advice on ownership transfers. Experienced business brokers tend to focus on larger clients, who can support higher fees, ignoring the majority of small business owners. This study recommends government agencies to step into the market for transfer advice. Firm owners may benefit from results of this dissertation. The research results show that acquisition experience, making the firm less dependent on the owner and having a low dependency on (a few) customers improve the likelihood of a sale. If firm owners really want to sell their firm, adopting an acquirer’s perspective might help them. Also, having a replacement or employees which are allowed to decide on day to day matters, could help to make the firm less dependent on the owner/manager’s daily presence. Flexibility is the most important capability, since it speeds up the transfer and is associated with greater satisfaction. For potential buyers five aspects seem important. First, knowing a good relationship with the predecessor may ease the transfer process, but this may come at a price: the transfer duration is longer and the price to pay for the firm may be higher. Secondly, buying a smaller firm predicts a better post-transfer performance. This probably indicates that it is easier to realize change in smaller firms. Thirdly, it seems rewarding to buy during periods of economic decline. Post-transfer performance is better in declining economic conditions than in average or economic growth conditions. So patience is rewarded if one waits for the right time to buy. Finally, the findings show that renewal after succession pays off. This means renewal by successors in general seems to benefit and revitalize small firms. Innovation and reorganization together give the better results than reorganization alone. These findings are consistent with recent findings on large companies: companies that cut costs and lower their investments clearly underperform compared to companies that cut costs and keep on investing.
Publication Year: 2007
Publication Date: 2007-01-01
Language: en
Type: article
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Cited By Count: 6
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