From Entrepreneurial Aspiration to Business Start-up: Evidence from British Longitudinal Data. Andrew Henley *

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1 From Entrepreneurial Aspiration to Business Start-up: Evidence from British Longitudinal Data Andrew Henley * January 2005 Abstract Are those who proceed successfully from entrepreneurial aspiration to new venture start-up different from unsuccessful nascent entrepreneurs? Research using longitudinal British data tracks individuals from entrepreneurial aspiration into self-employment. The analysis reveals that while aspirations towards entrepreneurship are widespread, few aspiring entrepreneurs are successful. Aspirations appear to be driven by displacement factors such as low satisfaction with current employment, rather than personal resources associated with educational attainment, parental background and financial status. Aspiring entrepreneurs do not appear to engage in preparatory behaviour such higher active saving in advance of launching a new venture. Apparently they prefer to rely on, for example, housing wealth or debt finance. Author keywords: self-employment, entrepreneurship, entrepreneurial intentions, longitudinal data * School of Business and Economics, University of Wales Swansea, Singleton Park, Swansea, SA2 8PP, UK; tel +44 (0) ; a.g.henley@swansea.ac.uk

2 From Entrepreneurial Aspiration to Business Start-up: Evidence from British Longitudinal Data Executive Summary This paper reports research on the drivers of entrepreneurial aspirations and on evidence for transition from entrepreneurial aspiration to new venture creation. Very little previous research has been undertaken using longitudinal data, tracking a representative sample of the population through from the formation of entrepreneurial aspirations into possible new ventures (as capturing by transition into self-employment). Previous research has highlighted the heterogeneity of potential entrepreneurs, in terms of personal characteristics, the organisation, the environment and the nature of the business. Nascent entrepreneurs typically report multiple motivations for wanting to start a new business. It is true by definition that entrepreneurship is an intentional activity however this raises important questions about the way in which and the timescale over which those intentions are formed. The literature has highlighted the distinction between an entrepreneurial event as a displacement caused by a change or deterioration in the status quo ante, and new venture creation as the result of a process of assessing self-efficacy by the potential entrepreneur. Given that transition to entrepreneurship is a dynamic process, it is essential that any assessment be conducted using longitudinal rather than cross-sectional information. The present research makes use of a nationally representative longitudinal survey for Great Britain, the British Household Panel Survey. This allows us to examine transitions from entrepreneurial intention to venture creation without relying on recall. It also allows us to 1

3 compare successful intending entrepreneurs with the unsuccessful as well as with those with no entrepreneurial intention. However because we make use of a general household survey, rather a survey dedicated specifically to the investigation of entrepreneurs, we are limited in the extent to which we can address hypotheses about the process of new venture creation and the precise steps which intending entrepreneurs initiate prior to new venture establishment. The analysis reveals that while entrepreneurial aspirations are widespread few of those who would like or would intend to start a new business venture do so. Entrepreneurial aspirations appear to be driven by displacement considerations rather than any individual assessment of self-efficacy. Aspiring entrepreneurs do have different demographic characteristics to nonentrepreneurs, and they do also appear to differ in some respects in terms of financial and other resources. Specifically dissatisfaction with hours of work and pay seems to promote aspirations towards entrepreneurship. There is only limited evidence that aspiring entrepreneurs are more like to have had entrepreneurial parents. Nor is entrepreneurial aspiration strongly associated with educational background, or with the strength of financial resources. For those we term reluctant entrepreneurs (individuals who expect to start a new business but don t particularly want to) there is stronger evidence to support self-efficacy. An important conclusion is that aspiring entrepreneurs do not appear to engage in planned behaviour such as higher active saving in advance of a new start-up. They appear more likely to rely on the possibility that the value of their homes will provide sufficient collateral for loan finance. Indeed aspiring entrepreneurship is associated with greater personal debt, which may indicate a greater willingness to take on borrowing to establish a new venture, or that entrepreneurship is seen as a potential escape route from financial difficulty. 2

4 New venture creation is an intentional activity, in that for many those intentions are formed at least a year in advance of new venture creation. Nevertheless the majority of actual transitions into self-employment appear to be conceived and planned within a time scale of less than 12 months. While these hasty new venture creations do not appear to be disadvantaged in terms of profit achieved, they are significantly less likely to have resulted in the creation of jobs for those other than the business owner. Successful transitions from entrepreneurial aspiration to new venture creation appear rather difficult to predict, with the exception of various demographic factors, confirming previous research which finds that entrepreneurs are highly heterogeneous. So overall it seems that many new ventures are hastily conceived, and to the extent that they follow from well-formed entrepreneurial aspirations, these aspirations are driven by displacement factors such as low job satisfaction. Entrepreneurial aspiration does not appear to be associated with intentional activity such as active saving, or correlates of personal efficacy such as financial wealth, educational and parental background. Thus publicly-sponsored business support services should address the issue of translating entrepreneurial aspiration into more careful planning and preparation, in order to improve start-up success. 3

5 1. Introduction This paper is concerned with the transition from nascent entrepreneurship to business start-up. While a considerable body of previous research has examined the entrepreneurial intentions of representative samples of individuals, there has been virtually no analysis of the extent to which those intentions translate into actual business start-ups. This is because such an investigation requires the analysis of an appropriate longitudinal data source, which tracks the career decisions of sampled individuals. The present research makes use of household panel survey data for Great Britain to track individuals from a position of entrepreneurial aspiration particularly within paid employment through to self-employment after one or more years. Entrepreneurial aspiration refers to a stated desire to start a new venture, or an expectation that one will be started. The research seeks to identify key characteristics of such nascent entrepreneurs and to investigate if those influences also affect subsequent transition into self-employment. The central research questions motivating this study are the following: what are the scale of entrepreneurial aspirations, and how many of those with entrepreneurial aspirations actually start a new business; are the characteristics of those with stated entrepreneurial aspirations different from those without; and are the characteristics of those with stated entrepreneurial aspirations who subsequently engage in business start-up different from those without. The remainder of the paper is structured as follows. Section 2 discusses the background to the paper and reviews the relevant previous literature. Section 3 provides further details on the data source employed. Section 4 presents information on levels of nascent entrepreneurship among those in the household survey. Section 5 describes and 1

6 evaluates the level of transition from stated entrepreneurial aspiration to business start-up. Section 6 presents an assessment of the results obtained and overall conclusions. 2. Background and Conceptual Issues As Gartner (1985) points out in his widely-cited paper on the conceptual basis to new venture creation, a major thrust of the entrepreneurship literature is that entrepreneurs are different from non-entrepreneurs. Gartner s thesis is that entrepreneurs themselves may be a highly heterogeneous group with at least as much variation within them as a group as between them and non-entrepreneurs. He proposes a four-dimensional framework focusing on the characteristics of the individual, the organisation, the environment and the business. The subsequent literature on new venture creation has focused broadly on cognitive issues (the how s and why s behind the emergence of the business venture); on competency issues (what skills and background resources are deployed and developed in order to bring the venture into existence); and on the constraints and opportunities of the external environment (access to finance, market opportunity etc.). Heterogeneity amongst entrepreneurs in the reasons given for new venture creation is a strong theme in the work of Birley and Westhead (1994). Indeed many owner-managers may cite multiple motivations for new venture. As an organising framework Katz and Gartner (1988) propose, derived from McKelvey s (1980) work on the definition of an organisation, the following attributes for the process of forming a new venture: the intention to create, the assembly of resources, the definition of organisational boundary and the exchange of resources across that boundary. Each of these has in turn attracted considerable research effort. The present research is, in particular, concerned with intentionality, while addressing the relationship between resources and intention. 2

7 International evidence highlights a considerable level of entrepreneurial intention in many countries, and variation across nations and cultures (for example Scheinberg and MacMillan, 1988; Shane et al., 1991; Reynolds et al., 1994; Delmar and Davidsson, 2000; Blanchflower et al., 2001). Psychological research claims that intentions are a crucial predictor of subsequent planned behaviour (Bagozzi et al. 1989). Consequently entrepreneurial intention is an important phenomenon, and one that has attracted substantial cognitive research. Krueger et al. (2000) begin with the presumption that any decision to form a new business venture is planned rather than being a conditioned response. They contrast a model of planned behaviour (Azjen, 1991), in which the potential entrepreneur s assessment of their own competence or self-efficacy (Bandura, 1986) predicts the initiation of a new venture, with Shapero s (1982) model of the entrepreneurial event in which an event, such as job loss, displaces the inertia that dominates human behaviour and choice. Nevertheless in both models a contrast is made between potential for entrepreneurial activity and intention. An individual may have potential but not make the transition into entrepreneurship because of a lack of intention. Evidence drawn from a sample of university business students supports the entrepreneurial event model. On a different tack, Birley and Westhead (1994) find evidence to support a range of motivations, which cover instrumental motivations (wealth), the desire for personal development and the need for approval and esteem. Gatewood et al. (1995), examining cognitive factors which may influence new venture creation, suggest that external perceptions are stronger for men (perception of a market opportunity) than for women, whereas women are more likely to cite internal explanations (such as the desire to be one s own boss). Support for self-efficacy (high locus of control) is not found, a conclusion supported by the subsequent research of Krueger et al. (2000). 3

8 A further strand of the literature has looked in detail at the sequence of events leading to entrepreneurial start-up (Carroll and Mosakowski, 1987; Reynolds and Miller, 1992; Carter et al., 1996). With the exception of some personal (financial) commitment from the nascent entrepreneur, the absence of any particularly common sequence of events is a common conclusion to emerge from this research (Reynolds, 1997). Some gestations are very quick; others appear to take years. The reasons given for choosing entrepreneurship as a career do not appear to be strongly different from those given by those who have chosen other occupations. Carter et al. (2003) provide a detailed review and discussion of recent research, including their own work. Other research has focused more closely on the personal and environmental characteristics influencing or associated with business venture creation. A wide-ranging literature models self-employment as an occupational choice (see Le, 1999; Parker, 2004 for recent surveys), identifying a range of demographic characteristics as being associated with the choice to operate a business venture. A common theme is that new venture creation is a male-dominated activity, although there are a variety of opinions to explain this, including financial, institutional and psychological. Demographic characteristics may be associated with particular choice of business activity or sector (Bates, 1995). A well-established finding is that access to capital is a key driver (Evans and Leighton, 1989; Evans and Jovanovic, 1989); while other work points to the positive example provided by parental entrepreneurship (for example de Wit and van Winden, 1989; Matthews and Moser, 1995). Previous experience of self- or family employment suggests a strong degree of inertia in self-employment as a choice (Carroll and Mosakowski, 1989; Henley, 2004). In general while this research identifies factors associated with self-employment or small business ownership as a state, it offers few 4

9 clues as to what factors are associated with nascent entrepreneurship or with the transition from nascent to actual entrepreneurship. The move from nascent entrepreneurship to new venture creation is a dynamic transition, and so any thorough empirical investigation must rely on the analysis of a longitudinal study. The absence of longitudinal analysis in much previous work is a serious limitation (a notable exception being the University of Michigan Panel Study of Entrepreneurial Dynamics, drawn representatively from the US population see Reynolds, 2000; Carter et al., 2003; Reynolds et al., 2004). Results from research which relies on crosssectional analysis of existing entrepreneurs may be contaminated by recall bias (retrospection), and may provide only limited clues concerning causality in the relationship between new venture creation and associated traits and factors. Furthermore studies of nascent entrepreneurs, which do track through to success or otherwise in new venture creation, do not provide an assessment against a control group of non-entrepreneurs (for example Gatewood et al., 1995). So while such studies may be informative about differences between successful and unsuccessful nascent entrepreneurs, such comparisons do not control for the inherent selection bias that arises because nascent entrepreneurs (successful or unsuccessful) are not a random sample of the population at large. Consequently the question of the relationship between the determinants of entrepreneurial intent and those of entrepreneurial realisation are not addressed. In the present research we address these concerns by examining data drawn from a longitudinal household survey. This allows us to examine transitions from entrepreneurial aspiration to venture creation without relying on recall. It also allows us to compare successful aspiring entrepreneurs with the unsuccessful as well as with those with no 5

10 entrepreneurial aspiration. However because we make use of a general household survey, rather a survey dedicated specifically to the investigation of entrepreneurs, we are limited in the extent to which we can address hypotheses about the process of new venture creation and the precise steps which intending entrepreneurs initiate prior to new venture establishment. Taking into account the nature of the data available to us (of which further discussion in the next section) we formulate (null) hypotheses as follows for investigation: H1: Those with entrepreneurial aspirations share the same demographic characteristics and other background attributes as those without aspirations. H2: Those with entrepreneurial aspirations have the same resources, in terms of human capital and access to finance, as those without aspirations. As it is posited that new venture creation is an intentional activity, we would anticipate that those aspirations are based on an assessment by the individual of their self-efficacy. This assessment may take cognisance of background influences such as the degree of cultural acceptance of entrepreneurship as an occupational choice, the strength of family influence on choice of occupation, as well as an assessment of ability to access or raise sufficient financial resources to meet start-up costs. However, as noted above, other individuals may have similar potential to initiate a new venture but do not so because of a lack of intention. This argument would offer a priori support for the null hypotheses, H1 and H2. H3: Those with entrepreneurial aspirations enjoy the same experience and satisfaction in current employment as those without. 6

11 This proceeds from Shapero s (1982) notion that occupational choice is inertial and that it may take some form of displacement before an entrepreneurial event is initiated. Our suggestion here is that dissatisfaction with recent employment may act as a catalyst to displace individuals into initiating a new venture. H4: Those with entrepreneurial aspirations are as equally likely to be engaged in a new business venture after 12 months as those without. This (null) hypothesis encapsulates the idea a new business venture is a planned activity rather than a conditioned response (perhaps to changing circumstances). In particular planned entrepreneurial activity, which may take cognisance of personal efficacy, is more likely to lead to the creation of a new venture than entrepreneurial activity which is hastily conceived and executed. H5: Those who start a new venture on the basis of prior entrepreneurial aspiration perform equally as well as those who start without prior, or with hastily conceived, intentions. This (null) hypothesis reinforces the previous notion that a planned entrepreneurial event, which may be on the basis of an assessment of self-efficacy, is more likely to be effective than one which is misconceived or hastily conceived (meaning within a period of less than 12 months). 7

12 3. The British Household Panel Survey data source The empirical analysis in this paper draws on a major British social science research resource namely the British Household Panel Survey (BHPS). This is a nationally representative survey funded by the UK Economic and Social Research Council. Households are sampled according to a stratified random cluster sample drawn from the population of British household postal addresses on the island of Great Britain, south of the Caledonian Canal. 1 The original household sample was recruited in 1991, and follow-on rules are established to track newly forming households involving originally-enumerated household members. 2 The survey instrument is a questionnaire involving a household section, containing among other things a schedule on housing, and sections administered to all adult household members (including new household members at each wave). The individual section contains a core of modules concerning demography and fertility, education, employment, health and finances, along with a rotating set of questions on values and opinions. Households have been re-interviewed annually and, at present 12 annual waves of data are available to researchers. From Wave 8 (1998) onwards all adults who are economically active are asked about entrepreneurial aspirations, as part of a prospective question concerning career plans. The precise wording is as follows: 1 The far north of Scotland was excluded because of the prohibitive costs of sampling. The original survey excludes Northern Ireland, although along with booster samplers for Wales and Scotland, a subsequently recruited sample for Northern Ireland, is excluded from the analysis. Technical details are provided in Taylor et al. (2004). 2 Sample attrition rates in the BHPS are generally low and certainly comparable to those achieved in other similar household panels. As is typical with household panels the highest attrition rate of individuals was between Waves 1 and 2 (12%). Attrition between Waves 2 and 3 was 7% of the original individuals and subsequently averaged 2.4% of the original sample between waves. In common with nearly all previously published research using this data source, we treat attrition as a random event. 8

13 (E101) I am going to read out a list of things which you may or may not want to happen to your current employment situation. For each one can you please tell me whether you would like this to happen to you in the next twelve months. Would you like to Start up you own business (a new business)? A further question is also asked to enquire about unwanted but likely career events: (E102) (Even though you would not like this to happen) Do you think this actually will happen in the coming twelve months? Start up your own business (a new business)? The second question in effect identifies those individuals who may not have positive entrepreneurial aspirations, but who intend to adopt entrepreneurship as a career choice, perhaps as a result of lay-off or changes in personal circumstances. Up to five annual observations on the answers to these questions are available for analysis. Since the survey records the career status of every individual, assuming that they remain in the sample from one particular year to the next, up to four observations per individual matching entrepreneurial aspiration or intention to actual new venture creation are available. Table 1 summarises the proportions of respondents with entrepreneurial intentions ( aspiring entrepreneurs ) for each of the five available survey waves from 1998 to We restrict the sample to those between the ages of 18 and 64 years. In percent of those in work would like to start a new business (column 1). This includes those currently selfemployed who may wish to move into a new venture. The rate declines over the following four years to around 11 percent. Amongst those currently in employment (i.e. excluding those 9

14 currently running one venture who would like to start a different or additional venture) the rates of intention are lower but not much lower, from 13.0 percent in 1998 falling to 10.8 percent in 2002 (column 3). One possible explanation for the decline over the period is that rates of sample attrition are greater amongst those with entrepreneurial aspiration however this seems unlikely and we can find no evidence for any systematic attrition which may have impacted differentially on those with entrepreneurial aspirations. The period in question of one of sustained economic growth in the British economy, and so a more plausible explanation is that economic conditions improve (and therefore the availability and quality of paid employment) entrepreneurial aspirations lessen. As an indicator of nascent entrepreneurship these rates are high, but it is important to note that the question refers to the desire to start a new business and does not solely capture those who are actively taking steps to start a new business. So for example, when considering the proportions who are actively taking steps towards creating a new business venture, Delmar and Davidsson (2000) report rates between two and four percent of all individuals in Norway, Sweden and the United States. Reynolds et al. (2004) estimate 6.2 attempted startups per 100 of population in the United States (some individuals may be attempting more than one start-up at the same time). On the other hand Blanchflower et al. (2001) report much higher proportions in response to the question in the International Social Survey Programme would you prefer to be self-employed (rather than an employee): Norway 27%; Sweden 39%; Great Britain 45%; USA 71%. Columns 2 and 4 of Table 1 report the proportions of those who expect to start a new business venture, even though they do not want to ( reluctant entrepreneurs ). Possible explanations for such behaviour include being obliged to consider self-employment as a result 10

15 of impending lay-off or as result of a decision by an employer to force greater reliance on external sub-contracting. Typically the proportion of the sample who expect to be in this position is between three and four percent. There is no evidence for a decline in the proportion as the level of economic activity improves towards the end of the period. 4. Nascent Entrepreneurship and Entrepreneurial Aspirations In order to begin an investigation of hypotheses 1 and 2 a univariate analysis is conducted to compare mean background characteristics and human and financial resources of those who state entrepreneurial aspirations and those who do not. The sample is for pooled observations over each survey wave between 1998 and The results of this are reported in Tables 2 and 3. Table 2 reports comparisons for those who report that they would like to start a new business within the coming 12 months, with those who do not. Aspiring entrepreneurs are on average younger by over three years. They are much less likely to be female (37% of aspiring entrepreneurs compared to 52% of others). They are nearly twice as likely to be members of an ethnic minority (6% compared to 3% of others). They are slightly, but statistically significantly less likely to be married. There are however no significant differences apparent in educational attainment. All survey members are asked about the occupation of both father and mother when they were 14 years of age, and from these responses it is possible to identify those whose parents were entrepreneurs (self-employed) and who were also employers of other people. However the univariate analysis in Table 2 finds no significant difference in the likelihood that an aspiring entrepreneur had an entrepreneurial parental background. 11

16 Although family and educational background do not seem to be associated with entrepreneurial aspirations, a very different picture emerges for perceptions of current employment. Aspiring entrepreneurs are more likely to report that they would like to work both longer hours and fewer hours in their current employment. Dissatisfaction with long hours, in particular is associated with entrepreneurial aspiration. Almost 40% of aspiring entrepreneurs would like to work fewer hours, compared to 34% of others. Over 8% would like to work more hours compared to 6% of others. This indicator of dissatisfaction with current employment spills over to differences in mean values of other indicators of job satisfaction. All those in current employment are asked to evaluate aspects of their current employment pay, job security, work and an overall indicator. Answers are on a centred Likert scale from 1 (completely dissatisfied) to 7 (completely satisfied). Both aspiring entrepreneurs and others report scores showing satisfaction (i.e. mean scores above 4). However in all cases mean scores are significantly lower for aspiring entrepreneurs than for others. Scores for satisfaction with pay are lower, despite average gross pay for aspiring entrepreneurs being over 60 per month higher. The only reported aspect of current employment which does not appear to be associated with entrepreneurial aspiration is long journey times to work. The possibility that entrepreneurship may allow individuals to work from home does not appear to figure here as a possible motivation. Turning to financial resources, the table reveals some significant, but unexpected, differences particularly for housing wealth. While previous research has commonly associated actual entrepreneurship with higher levels of wealth and access to business collateral, these results suggest that aspiring entrepreneurs report significantly lower levels of housing wealth, measured either as gross or net of outstanding mortgage loans (housing equity). In fact the difference in means is greater for housing equity ( 5402) than for gross value ( 2810), 12

17 revealing that aspiring entrepreneurs are on average more indebted than others. This difference is seen also in mean non-mortgage debt (observed only in survey wave 10 (2000)), although here the difference is not statistically significant. Aspiring entrepreneurs appear also significantly less motivated to save (average active saving of 69 per month compared to 76 per month for others). However they may have higher levels of financial wealth, but the difference is not statistically significant. Aspiring entrepreneurs enjoy a less secure position in the housing market, as seen in housing tenure they are less likely to owners and outright owners with no mortgage liability, and more likely to be in rental tenures. Table 3 reports the same analysis for those we term reluctant entrepreneurs. While this group is much smaller in number (Table 1), many of the differences revealed in Table 2 are maintained, notably demographic differences, poorer reported job satisfaction and housing tenure. There are some additional differences. Reluctant entrepreneurs are significantly more likely to have had entrepreneurial parents, and generally have higher levels of educational attainment (at age 18 and college level). They also have significantly higher levels of wealth, both held as housing and in the form of financial wealth. Overall these results point to rejection of null hypotheses H1 and H2. Aspiring entrepreneurs do differ from those without entrepreneurial aspirations in several important respects. They are younger, more likely to be male, over-representative of ethnic minorities and more likely to be single. However for those who actively desire to start a new business venture we observe no difference in educational or parental background. Aspiring entrepreneurs appear to be motivated by dissatisfaction with paid employment across various dimensions. Hypothesis H3 is therefore also rejected. We have also found that aspiring entrepreneurs may be less well resourced to start a new venture than those with no aspirations. 13

18 In particular aspiring entrepreneurs do not appear to prepare to start a business by engaging in higher active saving behaviour. All this points against self-efficacy as a driving influence on entrepreneurial intentions, and is consistent with earlier research. On the other hand displacement may well stimulate entrepreneurial ventures a key form of displacement being job dissatisfaction. In some respects entrepreneurial aspirations appear to represent a triumph of optimism over realism. However those we have termed reluctant entrepreneurs do have stronger backgrounds (education) and parental resources on which to draw. This leaves open the question of why they are reluctant to start new ventures, even though they anticipate a transition into entrepreneurship. One explanation may be that they feel pressured by external (for example, parental) expectations. Univariate analyses ignore potential correlations amongst the various drivers considered. The appendix reports a correlation matrix for the set of variables discussed. In particular it reveals strong correlations between the various measures of job satisfaction, and amongst the various indicators of financial and housing capital resource. Table 4 reports multivariate regression (probit) models of the probability that a particular individual observation is for an aspiring or a reluctant entrepreneur. Reported marginal effects show the effect, other factors remaining constant, of a particular variable (a discrete change in the case of the dichotomous variables) on the probability of entrepreneurial aspiration. Demographic characteristics retain their strong association with entrepreneurial aspiration. So, for example, a woman is 6 percentage points less likely to be an aspiring entrepreneur than a man. Educational attainment is now significantly (negatively) associated with entrepreneurial aspiration. Someone with a college degree is 2 percentage points less likely to be an aspiring entrepreneur than someone without a degree. While the possession of a college diploma remains significantly associated with reluctant entrepreneurship, post-compulsory schooling 14

19 attainment at age 18 (A-levels) reduces the probability of being an aspiring entrepreneur by 2 percentage points. As observed in the univariate analysis education is positively associated with reluctant entrepreneurship. The multivariate results reveal that having a self-employment parent raises the probability of entrepreneurial aspirations by 2 percentage points. The results also allow a more precise identification of the elements of job dissatisfaction that are associated with entrepreneurial aspiration. Hours of work remain important (both too high and too low). Specifically it is the pay element of job dissatisfaction that correlates with entrepreneurial aspiration, although job insecurity appears to drive reluctant entrepreneurship. However marginal effects are small. The latter result is not surprising anticipated job loss may be the key displacement driver that leads to entrepreneurial intention. Gross housing wealth is positively associated with entrepreneurial aspiration in both cases. Again marginal effects are small an increase in housing wealth of 10,000 is associated with an increased in the probability of being an aspiring entrepreneur of 0.1 percentage point. However, outright ownership of one s home is associated with a reduction in the probability of entrepreneurial aspiration. Higher active saving is negative associated with being an aspiring entrepreneur although again the marginal effect is small. Table 5 reports further results from models which include data on stocks of nonmortgage debt and financial wealth in the year These show that both aspiring and reluctant entrepreneurship is associated with significantly higher levels of financial wealth and higher levels of non-mortgage debt. Again this casts doubt on self-efficacy explanations for entrepreneurial intentions, in that, while intending entrepreneurs may be better prepared in terms of financial wealth (and therefore offsetting the adverse effect of lower active saving) 15

20 they appear to have higher financial commitments from previous spending decisions. In fact debt may be a motivating displacement factor in that some may seek new venture creation as a instrument to increase earnings and therefore allow the repayment of debt. This would explain why debt correlates with reluctant entrepreneurship. Paid employment may be preferable but is not sufficiently lucrative. An alternative explanation is that higher levels of debt may correlate with a greater willingness to accept risk. 5. Transition from Entrepreneurial Aspiration to New Venture Creation Do those who state that they would like to start a new venture within the next 12 months actually achieve that aspiration? Table 6 reports numbers and rates of establishment of new business ventures (as indicated by a transition into self-employment) after 12 and 24 months according to entrepreneurial aspiration, pooling data from up to four available year to year transitions (from to ). Panel a) of the table provides information on aspiring entrepreneurs. The vast majority (94.5%) of aspiring entrepreneurs do not succeed in starting a new business venture after 12 months. Even allowing for some optimism in the stated 12 month time-scale, the results show that 92.5% of aspiring entrepreneurs are not in self-employment after 24 months (although some of these may have established a new venture and then failed to survive). However transition rates into self-employment are even lower for those who do not state an aspiration towards entrepreneurship only 1.4% after 12 months, and 2.0% after 24 months. Analysis of variance reveals that the transition rates for aspiring entrepreneurs and those without stated aspirations are significantly different. So, although the vast majority of aspiring entrepreneurs are unsuccessful, hypothesis H4 is rejected. 16

21 Panel b) of table 6 reports the same analysis for reluctant entrepreneurs. Here transition rates into new business ventures are higher (16.2% after 12 months; 20.7% after 24 months). Nevertheless the majority of those who intend, albeit with reluctance, to start a new venture do not in fact do so. Differences between reluctant entrepreneurs and others are more pronounced, and again ANOVA confirms rejection of hypothesis H4. Table 7 provides a multivariate analysis of the transition from entrepreneurial intention to new venture start-up. The approach adopted is to estimate a bivariate probit model (Greene, 2003, pp ). This technique allows for simultaneous modelling of the two decision processes. The estimated marginal effects of different factors on the probability of transition into a new business venture are calculated as conditional on the possession (or not) of entrepreneurial aspiration. 3 Consequently it is possible to compute marginal effects for each of four possible probability combinations. We can denote each conditional probability as Pr=[intent=X, self-employed t+12=y] where X and Y can be either zero or one, leading to combinations [1,1] ( successful aspirers ), [0,1] ( successful non-aspirers ), [1,0] ( unsuccessful aspirers ) and [0,0] ( non-entrepreneurs ). Marginal effects for each are reported in columns (1) through to (4), along with indicators of statistical significance. The positive reported value for the error correlation at the foot of the table reveals the strength of the interrelationship between the two choices. Its estimate is strongly significant. Turning first to associations with demographic factors the results show that the probability of transition from aspiration to new venture declines with age. An increase in age of one year increases the probability of being in the non-entrepreneurs cell, by 0.3 percentage 3 The analysis is only conducted for aspiring entrepreneurs. The small numbers of reluctant entrepreneurs who successfully launch a new venture render the multivariate analysis fragile. 17

22 points, and reduces the probability of being in the other cells by up to 0.3 percentage points. Women are 6 percentage points more likely than men to be non-entrepreneurs and less likely to be in the other cells 5 percentage points less likely in the case of unsuccessful aspirers. Ethnic minority members, on the other hand, are 6 percentage points more likely to be unsuccessful aspirers and 7 percentage points less likely to be non-entrepreneurs. They are slightly more likely than whites to be successful aspirers. Both being married and being divorced are negatively associated with being non-entrepreneurs, and positively associated with being in other cells, particularly unsuccessful aspirers. Educational background does not appear to be strongly associated with successful entrepreneurial aspiration. The only exception is for those with college diplomas (typically qualifications of a more vocational nature), but the marginal effect is small. These results do not suggest any particularly significant association between transitions from entrepreneurial aspiration to new venture creation and parental background. The only significant marginal effect suggests that there may be a very small negative association between having a parent who was an employer and the conditional probability of being a successful aspirer. This is a result which seems difficult to rationalise, unless in fact the experience of parental entrepreneurship was an unhappy one (long hours, few family holidays, etc.) and therefore unappealing. As with the earlier analysis there is in Table 7 a strong association between entrepreneurial intention and current employment circumstances. A desire to work fewer hours raises the likelihood of being an unsuccessful aspirer by 1.3 percentage points, and reduces that of being a non-entrepreneur by 1.5 percentage points. A desire to work more hours raises the likelihood of being an unsuccessful entrepreneur by 3.6 percentage points, 18

23 and reduces that of being a non-entrepreneur by 3.4 percentage points. Higher job satisfaction is also associated with an increased likelihood of being a non-entrepreneur, and a lower of being an unsuccessful entrepreneur. The strength of any association between job satisfaction and successful new venture start-up is weaker. However an increase of one unit in the overall job satisfaction score is associated with a 0.1 percentage point reduction the probability of being a successful aspirer. Higher pay in current employment is also associated with a reduced probability of transition to self-employment but both successful aspirers and successful non-aspirers. In fact the association is stronger for the latter group (marginal effect 0.4 percentage points). Saving and financial status do not appear to be associated with transition to entrepreneurship. However there is an association with housing status and wealth. Higher gross house value, in the case of owner-occupiers, is associated with a small increase in the likelihood of being a non-entrepreneur and a small fall in the likelihood of being an unsuccessful aspirer. However, outright owners are 3 percentage points less likely to be unsuccessful aspirers and 3 percentage points more likely to be non-entrepreneurs. Private or social sector rental, rather than home-ownership status, is associated with an increased likelihood of being a successful aspirer. For private sector renters there is an also increased likelihood of being a successful non-aspirer, and a significantly reduced likelihood of being a non-entrepreneur. Overall these results confirm earlier conclusions that successful entrepreneurial aspirations are driven more by elements of dissatisfaction with current employment (hours of work, pay, and have less to do with parental background, educational background and the strength of the individual s financial status. Indeed individuals in the seemingly less secure 19

24 situation of being home-renters rather than home-owners are more likely to translate entrepreneurial aspiration into start-up success. How does the subsequent performance of new business ventures compare between successful aspirers, successful non-aspirers and other existing ventures. Table 8 reports a comparison of both mean incomes from self-employment (profit) and employment levels for these three groups. The employment data is reported in the survey as a categorical variable (see Henley, 2005 for further discussion and analysis). In terms of profit successful aspirers report a mean figure of 983 per month, whereas successful non-aspirers report a mean of 1103 per month. Both of these are lower than the reported mean income for existing entrepreneurs (i.e. those whose ventures were established more than 12 months previously). However an analysis of variance reveals no significance in these differences. In terms of employment generated, the results show that nearly 75% of successful aspirers are operating as sole-traders, with nearly 18% managing to create at least three jobs within the first year of business. For successful non-aspirers a higher proportion (78%) are operating as sole-traders, and only 9.5% managing to create at least three jobs. However by comparison with existing entrepreneurs both groups are much more likely to be operating as sole-traders and less likely to be employing others. Analysis of variance in this case reveals that these differences are statistically significant. So in the case of employment we are able to reject hypothesis H5 that those who start a new business without prior aspiration (or with hastily conceived intention) perform equally as well as those who have stated aspirations. However H5 is accepted in the case of income levels. 20

25 6. Conclusions An investigation of longitudinal data on the transition from entrepreneurial aspiration to new venture creation for British entrepreneurs has shed some new light on the process of new venture creation. While entrepreneurial aspirations are widespread (at least among a minority of the economically active population) very few of those who would like or would intend to start a new business venture do so within a proposed time scale (in the present case 12 months). Entrepreneurial aspirations appear to be driven by displacement considerations rather than any individual assessment of self-efficacy. Aspiring entrepreneurs do have different demographic characteristics to nonentrepreneurs, and they do also appear to differ in financial and other resources. We find strongest evidence to reject the null hypothesis that aspiring entrepreneurs share the same experience and degree of satisfaction with current employment as those without aspirations. Specifically dissatisfaction with hours of work and pay seems to promote aspirations towards entrepreneurship. The analysis presented finds little support for any suggestion that budding entrepreneurs are following in the footsteps of entrepreneurial parents. Nor is entrepreneurial aspiration strongly associated with educational background, or with the strength of financial resources. For those we term reluctant entrepreneurs (individuals who expect to start a new business but don t particularly want to) there is stronger evidence to support self-efficacy. For aspiring entrepreneurs one conclusion to emerge is that they do not appear to translate aspiration into planned behaviour such as higher active saving in advance of a new start-up. They appear more likely to rely on the possibility that the value of their homes will provide sufficient collateral for loan finance. Indeed aspiring entrepreneurship is associated 21

26 with greater personal debt, which may indicate that would-be entrepreneurs might be identified by a greater willingness to take on borrowing, in the anticipation that a transition from paid employment to new venture creation will yield a higher income stream. Those with entrepreneurial aspirations are significantly more likely to have started a new business venture after 12 months, than those without. This confirms the view that new venture creation is an intentional activity, in that those intentions are formed at reasonable time duration from the point of new venture creation. Nevertheless sizeable numbers of transitions into selfemployment are observed from those with no previous entrepreneurial aspiration. In fact the majority of actual transitions into self-employment appear to be conceived and planned within a time scale of less than 12 months. While these hasty new venture creations do not appear to be disadvantaged in terms of profit achieved, they are significantly less likely to have resulted in the creation of jobs. Successful transitions from entrepreneurial aspiration to new venture creation appear rather difficult to predict, with the exception of association with various demographic factors, confirming Gartner s (1985) suggestion that entrepreneurs are highly heterogeneous. Overall this research suggests that many new ventures are hastily conceived, and to the extent that they follow from well-formed entrepreneurial aspirations, these aspirations are driven by displacement factors such as low job satisfaction. Entrepreneurial aspiration does not appear to be associated with intentional activity such as active saving, or correlates of personal efficacy such as financial wealth, educational and parental background. Insofar as many governments seek to promote the formation of entrepreneurial intentions, this research points to the need for business support services to address important issues of translating entrepreneurial aspiration into more intentional planning and preparation. 22

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