The prevalence of multiple owners and directors in the SME sector: implications for our understanding of start-up and growth

Abstract

The contribution of portfolio entrepreneurs to the business birth rate has not been systematically researched. To explore this a triangulation approach is adopted involving three data sets: an analysis of a one year's new company incorporations in Scotland; a re-analysis of a survey of 600 male- and female-owned businesses in three industry sectors; and an analysis of a practitioner selected data set of successful Scottish entrepreneurs (‘local heroes’). The paper reports that multiple ownership and cross-linkages between firms are extensive (up to 40% of limited companies may be involved) and occur in reduced frequencies in sole traders and partnerships. There is also a strong gender effect with men much more likely to diversify their business portfolios than women. Failure rates were also low in associated companies, implying that growing clusters of companies rather than single ones may be more efficient. The highest rates of inter-company links were found in the sample of high growth companies. The study confirms the prevalence and importance of inter-firm links to the process of new firm creation, but more research is required to explore multiple directorships as a proxy for business ownership or portfolio entrepreneurship. There are policy implications of shifting the unit of analysis from the firm to the entrepreneur. On the one hand perhaps ‘no policy’ is best, if the business community is adequately recreating and growing by itself through these ownership, control and transference mechanisms. On the other hand, there may be a need for better segmentation, to identify true novice entrants who are not linked to the business community. Further, picking winners and losers may not be possible at the level of the firm, but may be more feasible at the level of entrepreneurs.

Keywords:

• Habitual Entrepreneurs Portfolio Entrepreneurs Ownership Small Business