Abstract
This paper presents a conceptual framework for investigation of the factors influencing the failure of small and medium enterprises (SMEs) as well as the level of their recovery. Based on the review of literature, all the factors are classified either as individual characteristics of entrepreneurs or non-individual characteristics, that is, characteristics related to SMEs. Having in mind various factors identified by different researchers in their studies, the authors of this paper formed a basic hypothetical framework as well as a qualitative framework for evaluation of the most significant factors influencing SME failure and recovery. Accordingly, a preliminary questionnaire was designed in order to collect the attitudes of entrepreneurs regarding the impact of particular factors. The results of the survey were used for further quantitative analysis and as a base for the formation of a structural equation model for testing the proposed hypotheses.
Using the structural equation model to derive results, the authors have found that all the analysed factors except the factors related to private time activities of entrepreneurs/owners of SMEs have a statistically significant influence on SME success, with external non-individual factors having the greatest influence. Furthermore, the results indicate that the level of recovery, business life cycle stage and the sector of a failed SME impact on the ranking of the factors leading to SME failure. The study points to the necessity of improving the conditions under which SMEs operate, primarily by removing the obstacles that hinder growth and development of SMEs as well as by developing the appropriate system of support for entrepreneurs. In addition, having a clear vision of the factors of failure can help SMEs to become more resistant to the adverse effects of these factors and deal with them more effectively.
Acknowledgements
The authors feel indebted to the company Visual Decision Inc. Montreal, Canada, for software package Decision Lab 2000 provided to them free of charge. The authors also wish to thank Enisa Nikolić, a lecturer of English at the Technical faculty in Bor, the University of Belgrade for her assistance with the translation of this paper.
Appendix
The questions from the survey, classified into groups of factors.
| Group | Abbreviation | Mean value | Question | |
|---|---|---|---|---|
| Individual factors/private time activities | I1 | I1Q1 | 4.3 | If I had more time for private activities I would spend it with my family. |
| I1 | I1Q2 | 3.8 | If I had more time for private activities I would spend it with my friends. | |
| I1 | I1Q3 | 3.3 | If I had more time for private activities I would spend it on my hobby. | |
| I1 | I1Q4 | 3.9 | If I had more time for private activities I would spend it going on vacation. | |
| I1 | I1Q5 | 2.3 | If I had more time for private activities I would spend it on voluntary work. | |
| I1 | I1Q6 | 2.7 | If I had more time for private activities I would spend it doing socially responsible work. | |
| Individual factors/Personal characteristics of entrepreneur and owner of SME | I2 | I2Q1 | 3.9 | Self-confidence is the most important personal characteristic of an entrepreneur for SME success. |
| I2 | I2Q2 | 3.0 | The need of achievement is the most important personal characteristic of an entrepreneur for SME success. | |
| I2 | I2Q3 | 3.6 | Risk taking is the most important personal characteristic of an entrepreneur for SME success. | |
| I2 | I2Q4 | 4.0 | Creativity is the most important personal characteristic of an entrepreneur for SME success. | |
| I2 | I2Q5 | 3.9 | Internal locus of control is the most important personal characteristic of an entrepreneur for SME success. | |
| I2 | I2Q6 | 3.8 | Independence is the most important personal characteristic of an entrepreneur for SME success. | |
| Individual factors/Motivation for SME start-up | I3 | I3Q1 | 3.9 | My motivation for SME start-up was a desire to be independent. |
| I3 | I3Q2 | 4.1 | My motivation for SME start-up was of financial nature. | |
| I3 | I3Q3 | 3.8 | My motivation for SME start-up was job satisfaction. | |
| I3 | I3Q4 | 3.8 | My motivation for SME start-up was self-fulfilment. | |
| I3 | I3Q5 | 3.1 | My motivation for SME start-up was based on good business connections. | |
| External non-individual factors/PESTEL analysis | E1a | E1aQ1 | 3.3 | Political issues, as an external factor, can affect SME operation. |
| E1a | E1aQ2 | 3.9 | Economic issues, as an external factor, can affect SME operation. | |
| E1a | E1aQ3 | 3.0 | Social issues, as an external factor, can affect SME operation. | |
| E1b | E1bQ1 | 2.9 | Technological issues, as an external factor, can affect SME operation. | |
| E1b | E1bQ2 | 2.3 | Environmental issues, as an external factor, can affect SME operation. | |
| E1b | E1bQ3 | 3.4 | Legislative issues, as an external factor, can affect SME operation. | |
| External non-individual factors/Infrastructural issues | E2a | E2aQ1 | 3.3 | Transportation system is an important infrastructural issue of the region in which my SME suffered from failure. |
| E2a | E2aQ2 | 3.5 | The supply of electricity is an important infrastructural issue of the region in which my SME suffered from failure. | |
| E2a | E2aQ3 | 3.2 | Enough qualified work force is an important infrastructural issue of the region in which my SME suffered from failure. | |
| E2b | E2bQ1 | 3.0 | Possibility of increasing capacity is an important infrastructural issue of the region in which my SME suffered from failure. | |
| E2b | E2bQ2 | 3.5 | Existence of markets for products/services is an important infrastructural issue of region in which my SME suffered from failure. | |
| E2b | E2bQ3 | 2.6 | Availability of suppliers for the necessary production materials is an important infrastructural issue of the region in which my SME suffered from failure. | |
| Internal non-individual factors | E3 | E3Q1 | 3.2 | Management of receivables/payables as an internal factor can affect SME operation. |
| E3 | E3Q2 | 2.7 | Delays in loan repayments as an internal factor can affect SME operation. | |
| E3 | E3Q3 | 2.9 | Drop in motivation as an internal factor can affect SME operation. | |
| E3 | E3Q4 | 3.1 | Difficulties in obtaining new technologies as an internal factor, can affect SME operation. | |
| E3 | E3Q5 | 2.8 | Inability to find new potential shareholders/partners as an internal factor can affect SME operation. | |
| E3 | E3Q6 | 2.0 | The level of unencumbered fixed assets as an internal factor can affect SME operation. | |
| E3 | E3Q7 | 2.3 | The level of clearing/barter transaction as an internal factor can affect SME operation. | |
Ranking of the factors affecting SME failure based on groups of factors.
| Fully recovered SMEs | SMEs that have not recovered | All respondents | |||||
|---|---|---|---|---|---|---|---|
| Group name | Factor group | Mean value of factor rank | Factor | Mean value of factor rank | Factor | Mean value of factor rank | Factor |
| Individual factors/Personal characteristics of entrepreneurs and owners of SME | I2 | 4.7 | I2Q1 | 3.8 | I2Q1 | 4.0 | I2Q4 |
| 4.7 | I2Q5 | 3.8 | I2Q4 | 3.9 | I2Q1 | ||
| 4.7 | I2Q6 | 3.7 | I2Q3 | 3.9 | I2Q5 | ||
| 4.6 | I2Q4 | 3.6 | I2Q5 | 3.8 | I2Q6 | ||
| 3.5 | I2Q3 | 3.5 | I2Q6 | 3.6 | I2Q3 | ||
| 3.4 | I2Q2 | 2.7 | I2Q2 | 3.0 | I2Q2 | ||
| Individual factors/ Motivation for SME start-up | I3 | 4.8 | I3Q2 | 4.0 | I3Q2 | 4.1 | I3Q2 |
| 4.7 | I3Q1 | 3.6 | I3Q3 | 3.9 | I3Q1 | ||
| 4.4 | I3Q4 | 3.6 | I3Q4 | 3.8 | I3Q3 | ||
| 4.3 | I3Q3 | 3.5 | I3Q1 | 3.8 | I3Q4 | ||
| 4.2 | I3Q5 | 2.7 | I3Q5 | 3.1 | I3Q5 | ||
| Non-individual external factors/PESTEL analysis | E1 | 4.4 | E1aQ2 | 3.6 | E1aQ2 | 3.9 | E1aQ2 |
| 3.6 | E1aQ1 | 3.6 | E1bQ3 | 3.4 | E1bQ3 | ||
| 3.6 | E1aQ3 | 3.0 | E1bQ1 | 3.3 | E1aQ1 | ||
| 3. 2 | E1bQ1 | 3.0 | E1aQ1 | 3.0 | E1aQ3 | ||
| 3.0 | E1bQ3 | 2.8 | E1aQ3 | 2.9 | E1bQ1 | ||
| 2.1 | E1bQ2 | 2.4 | E1bQ2 | 2.3 | E1bQ2 | ||
| Non-individual external factors/Infrastructural issues | E2 | 3.6 | E2bQ1 | 3.8 | E2aQ2 | 3.5 | E2aQ2 |
| 2.9 | E2aQ2 | 3.5 | E2bQ1 | 3.5 | E2bQ2 | ||
| 2.9 | E2bQ3 | 3.4 | E2bQ3 | 3.3 | E2aQ1 | ||
| 2.8 | E2aQ1 | 3.3 | E2aQ1 | 3.2 | E2aQ3 | ||
| 2.6 | E2aQ3 | 2.6 | E2aQ3 | 3.0 | E2bQ1 | ||
| 2.1 | E2bQ2 | 2.5 | E2bQ2 | 2.6 | E2bQ3 | ||
| Non-individual internal factors/factors of business environment | E3 | 4.3 | E3Q1 | 2.9 | E3Q1 | 3.2 | E3Q1 |
| 3.8 | E3Q3 | 2.8 | E3Q4 | 3.1 | E3Q4 | ||
| 3.2 | E3Q4 | 2.8 | E3Q3 | 2.9 | E3Q3 | ||
| 2.8 | E3Q2 | 2.7 | E3Q2 | 2.8 | E3Q5 | ||
| 2.7 | E3Q5 | 2.5 | E3Q5 | 2.7 | E3Q2 | ||
| 2.2 | E3Q7 | 2.2 | E3Q7 | 2.3 | E3Q7 | ||
| 2.0 | E3Q6 | 2.0 | E3Q6 | 2.0 | E3Q6 | ||
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Articles in the same Issue
- Blowing Smoke? How Early-Stage Investors Interpret Hopeful Discourse within Entrepreneurially Oriented Business Plans
- Investigation of the Factors Influencing SME Failure as a Function of Its Prevention and Fast Recovery after Failure
- Firms’ Proactiveness During the Crisis: Evidence from European Data
- Innovation Culture in SMEs: The Importance of Organizational Culture, Organizational Learning and Market Orientation
- The 4 I’s of Entrepreneurship: A Study of the Entrepreneurial Perspectives behind A Failed Large-Scale Distributed Research Infrastructure
Articles in the same Issue
- Blowing Smoke? How Early-Stage Investors Interpret Hopeful Discourse within Entrepreneurially Oriented Business Plans
- Investigation of the Factors Influencing SME Failure as a Function of Its Prevention and Fast Recovery after Failure
- Firms’ Proactiveness During the Crisis: Evidence from European Data
- Innovation Culture in SMEs: The Importance of Organizational Culture, Organizational Learning and Market Orientation
- The 4 I’s of Entrepreneurship: A Study of the Entrepreneurial Perspectives behind A Failed Large-Scale Distributed Research Infrastructure