3 Growth behaviour among SMEs: Underlying motivations
The key aim of this study was to identify steps that could be taken to encourage business growth. Drawing on the COM-B model of behavioural change (see Chapter 2) the research considered growth enablers and barriers in relation to three key dimensions – motivation, capability and opportunity – the theory being that motivation, capability and opportunity are all required in order to achieve a desired behaviour; in this case, developing and growing a business. Where one or more dimension is lacking, the COM-B model can be used to identify appropriate targeted interventions.
This initial chapter focuses predominantly on the motivational dimension of the COM-B model, exploring underlying endogenous factors that caused participants to start and (where relevant) grow their business – whether or not a business has the capability and opportunity to grow is almost irrelevant if the internal motivation is lacking. The chapter first considers what motivated participants to go into business, before exploring why they wanted (or did not want) to try to grow the business. Towards the end of the Chapter, a growth typology is presented to summarise and facilitate understanding of the ways participants segmented along motivational lines.
3.1 Motivations and aspirations in starting a business
Participants’ reasons for starting a business were multifaceted but, in broad terms, fell into one of three main categories:
1. Unplanned or opportunistic reasons – typically articulated in terms of ‘falling into’ business ownership by taking over an existing business from a family member, friend or employer; or by deciding on impulse to go into business, with little (if any) advance consideration or planning.
2. Work-life balance considerations – a desire for a more flexible, more enjoyable and less stressful job than they had had previously. Although these business owners wanted to make a success of their business, they tended to have fairly modest aspirations.
3. More material motivations – a desire to build a successful, sizeable business that could generate a substantial income.
It was clear that the first two type of reason described above were by far the most common among the business owners who took part in the research. In other words, a considerable proportion of participants did not go into business with the primary intention of being very successful in growth terms. This is not to say that they did not want to grow their business – indeed, some had grown and some had aspirations and or/plans to do so – simply that this was commonly not a strong driver for them.
3.1.1 Falling into” business ownership
Participants who had effectively fallen into business divided into two main groups – those who had inherited or taken over a family enterprise, or had been offered the opportunity to buy a business from a friend or employer; and those who had started a business in a very impulsive way, with little (if any) advance consideration or planning.
“Falling into” business ownership often meant the participants concerned were not particularly driven or growth-orientated. Those who had inherited or taken over a business commonly said that they were not the “type of person” who would have started their own business from scratch as they did not have the “confidence to take risks”. Further, they tended to articulate their aspirations for the business in terms of wanting to stabilise or maintain its current position, as opposed to building it or making it more successful.
Those who had started a business on impulse, with little advance consideration, tended to be similarly unclear as to whether or how the business might grow and develop. They typically reported having decided just to “give it a go” – or as one person described it – to fly by the seat of their pants, and had not given any consideration to such issues as the likely market for their product or service.
“It was a shop previously that was closing down, so I thought ‘right, okay, I'm going to give that a go to keep that business’. So I just went into the premises and opened one up that's almost identical”.
(Sole trader, Wholesale, retail and repairs, North East Scotland, 1-5 yrs, F)
“The shop happened to come up for sale while I was thinking about what I wanted to do [after taking time out to have a family] and I just kind of bought it on the spur of the moment”.
(Small enterprise, Manufacturing, Mid Scotland and Fife, 1-5 yrs, F)
3.1.2 Work-life balance considerations
Business owners motivated predominantly by work-life balance considerations tended to embark on business ownership in the hope that it would offer a more enjoyable, less stressful or more flexible option than employment (though they commonly reflected that this had not turned out to be the reality). Specific catalysts often took the form of:
- family changes – in particular, having children and wanting a greater degree of flexibility to fit work around childcare
- ‘push’ factors relating to their previous employment – for example, being in a job that was stressful or unenjoyable, or being made redundant
- difficulty finding employment in a role they wanted – this was particularly true of recent graduates seeking careers aligned with their university degrees.
Older people who were at, or approaching, retirement age were another group that fell into the category of having been more motivated by work life balance considerations. They were typically looking for something to fill their free time and/or supplement their income rather than to start a business with the intention of growing it.
It was notable that participants motivated primarily by work life balance considerations had often started a business linked to an interest or hobby. Rather than deciding that they wanted to become a businessperson and identifying a gap in a market that had high revenue potential, they would consider whether they could ‘make a go of’ earning an income from an activity they enjoyed. That said, there were a small number of people who had set up in response to a market gap that they had experienced. For example, one participant had suffered skin problems and had been unable to find any products that helped. She started making her own products, which worked for her, and decided to start selling them.
3.1.3 Ambition and financial motivation
An appreciably smaller number of participants entered into business primarily because they wanted to be successful entrepreneurs. Specific motivators for this group were:
- the autonomy that business ownership offered to fulfil their potential and ambition
- the standing associated with being a successful businessperson
- seeing the positive impact of their business – for example in terms of providing a service or product that was highly valued by customers
- the potential financial rewards.
A key distinction between this group and those more motivated more by lifestyle factors was that they self-identified as “entrepreneurs” or “businesspeople”, and often talked about having always wanted to have their own business, almost as if it was innate or ‘in their blood’. Those more motivated by lifestyle factors in contrast tended to describe themselves by their profession, for example, as “a florist”, “a farmer” or “a videographer”.
While there were some in the ambitious group who started a business relating to a hobby or personal interest, their primary motivation was usually to have a viable, successful business, whatever the focus of this might be. In other words, success was the desired end in itself, not working in a specific field that interested or was important to them.
It was common for young business owners to be particularly ambitious. Their desire to go into business had often been sparked by university projects requiring them to develop a product or other business idea which they had then been encouraged and supported – by the university and initiatives such as Sporting Change and Entrepreneurial Spark – to pursue.
“I wanted to be someone like Richard Branson, but younger.”
(Sole trader, Administrative and support services, Glasgow, 6-10 yrs, M)
“I want to be a millionaire by 2020.”
(Sole trader, Other service activities, Lothians, 1-5 yrs, M)
3.2 Attitudes towards business growth
As is implicit in the foregoing, participants’ main reasons for entering into a business had implications for the extent to which they were motivated to grow the business. Other factors too were important in this respect, including their personality – for example, their willingness to take risks, their attitudes towards responsibility/being in control and debt, and the extent to which they derived enjoyment from trying new things and being challenged – their previous life or business experience; and their lifestage.
Figure 3.1 presents a typology of business owners’ attitudes towards growth that takes these various factors into account. The typology comprises three main groupings: The Growth Averse (those who did not want to grow their business); the Ambivalent (those who wanted to grow their business but slowly/not too much, who were hoping that their business will simply grow organically or who were unsure about growing their business but could be persuaded); and the Ambitious (those who actively wanted to grow their business). While there was some overlap between the categories in terms of attributes, particular attributes were more or less strongly associated with one rather than the others.
Figure 3.1: Growth motivation typology
Both the Averse and Ambivalent categories predominantly comprised those participants who had been driven to start a business on the basis of work-life balance considerations and those who had “fallen into” business ownership. Being reactive, risk averse and wary of getting into debt were attributes associated with these business owners. In addition, their initial aspirations for their businesses tended to be fairly low and/or unfocused.
In terms of what distinguished the two groupings, the Averse, more so than the Ambivalent, tended to be affected by compounding factors that meant they actively did not wish to grow their business beyond its current position or what they considered necessary to deliver an acceptable income level. These factors included: being older; being financially secure and viewing the business as a means of supplementing income in retirement; and simply wanting ‘something to do’. Negative effects of the recession – both financial (for example, being worried about borrowing money having previously experienced a decline in turnover or getting into debt) and psychological (not wanting to put themselves in a position that could cause them stress; for example, having to make staff redundant) – were also at play here.
Encouraging growth among businesses in the Averse group is likely to be challenging, given the number and nature of barriers to growth reported. For this reason, their experiences and views are not discussed further in the remainder of this report, and the focus is on the Ambivalent and Ambitious groupings, and how they might best be encouraged to grow their businesses.
Case study: ‘Growth Averse’
Robert (62) retired from the army 10 years ago. He then worked in catering for a while but felt disillusioned working for someone else as he felt he could run the business better himself.
He decided that he would like to try owning a café and bought suitable premises in a small town eight years ago. His motivation was primarily to have something to do as he felt that he was just “waiting to die”. He was not financially motivated as he could live comfortably on his army pension.
The business has achieved relatively slow and steady organic growth, reflecting the size of the local market. He has tried a small number of unsuccessful planned growth initiatives, including the introduction of ‘slush drinks’ machines, and he engaged with Business Gateway during the recession, who were able to reassure him that he was doing the right things. However, he feels the business’s growth has plateaued.
He considers his mindset to be the main barrier to further growth. He enjoys owning the business and treats it as a hobby. He does not need the business to make a profit and is therefore not driven to make changes. He describes himself as being stuck in his ways and even less likely to make changes now he’s getting “long in the tooth”.
The Ambivalent grouping accounted for the largest proportion of those who participated in the research. A defining characteristic of this group was that they wanted their business to achieve a level of growth but were so busy with its day-to-day operation that their growth (to the extent that they had experienced any) had largely been organic rather than planned.
Like the Averse, people who fell into the Ambivalent category were often people who had started a business based on a hobby or interest; a factor that appeared in part to account for low growth among the group: It meant a) they had knowledge and skills in the product or service but not in running (and, by extension growing) a business; and b) they were more motivated by their enjoyment of the product or service than by being successful so were not always inclined to step away from day-to-day operation activities to focus on growth activities.
Other barriers to growth among the Ambivalent included: being risk averse (for example, concerns about employing people and borrowing money/getting into debt); and a desire to remain in full control of all aspects of the business due to concerns about a potential decline in the quality of the product or service were they to cede any control.
Encouragingly, and as is discussed more fully elsewhere in this report, there is likely scope to influence those in the Ambivalent group to grow their business. Indeed, there were business owners who had started off in this category but had become more motivated and able to grow their business substantially over time.
Case study: ‘Growth Ambivalent’
Michael (34) was working in a job he didn’t enjoy in the manufacturing sector. In 2011, the opportunity arose to buy a bike shop from a friend for a lower price than the business was worth. Michael’s passion was for bikes so he decided to ‘give it a go’.
He had no previous business experience so he decided to put together a business plan - he’d read a few books which suggested he should do this. The business has grown steadily but slowly, and not in line with the trajectory set out in the business plan – which in retrospect Michel described as “nonsense” based on the fact he had no experience of running a business when he wrote it.
Growth has been largely organic although Michael has made a number of (reactive) operational changes aimed at increasing profits: changing opening hours, moving to larger premises, product changes and price increases.
Michael doesn’t want to grow the business much further, just keep it going, as he isn’t really motivated by money and doesn’t want any additional stress. (He is about to add an additional service offer to the business – not because he thinks it will make a profit but to indulge a personal interest). A further barrier to growth for Michael is a flat rate growth scheme which saves him 3% of his annual turnover - if his turnover exceeds £280,000, he will no longer be eligible for it.
The Ambitious group comprised people who were very motivated to grow a highly successful business and tended to have started their business for this reason. Participants often talked about ambition as just part of who they were – for example, not being the “type of person who can just reach a goal and then stop”, getting a “buzz” out of being successful, “having caught the business bug”, and being “entrepreneurial’. They were also comfortable taking risks, an attribute they identified as being very important in business ownership.
Case study: ‘Ambitious’
Gordon (47) started his first business when he was 24. He saw a gap in the market and started a fairly successful building company which he sold when he and his wife relocated. Five years ago, they relocated again and were looking for a new business venture. At that point he had been unable to imagine working for anyone else as he had worked for himself for such a long time.
He felt that a letting agency would be a good fit in terms of his previous experience and heard through word of mouth that a small but successful letting agency was up for sale. Gordon and his wife bought the business and had high growth aspirations. Gordon describes himself as very ambitious and wants the business to make enough money in order that he doesn’t have to ‘work forever’.
Since Gordon and his wife took over the agency it has grown rapidly through acquisitions and they have plans for further such acquisitions – Gordon has identified that there may be letting agencies up for sale when the new landlord registrations come in in October. Gordon is comfortable taking risks and feels this is essential for business growth.
Younger business owners tended to be particularly ambitious, often aspiring to grow their business quickly. Whether or not their ambition is sustained is another question, however. Indeed, there were examples of older business owners who described having had high growth ambitions for their business when they first set it up but having become less motivated over time due to changes in their circumstances, for example, because they started a family and so had less time to focus on work.
The following chapter moves beyond underlying motivational factors impacting on business’ growth behaviour to explore enablers and barriers to growth associated with the ‘capability’ and ‘opportunity dimensions’ of the COM-B mode. As noted above, the focus of the chapter (and subsequent chapters) is on businesses that fell into the Ambivalent and Ambitious segments of the growth typologies, as it is among these segments that any interventions are most likely to have an impact.