Start-up size and subsequent growth : english and spanish new businesses compared

The aims of this research are to determine and to compare the factors which influence start-up size and the subsequent employment change of new businesses over four years. A comparison between new firms started in selected areas of England and Spain is made. Data was collected by face-to-face interviews with 231 English and 182 Spanish firm founders using the same questionnaire in the two countries. In order to provide a full explanation of start-up size and employment change, explanatory variables are based on conditions observable at the pre-, atand post-start stages. First, a multiple regression analysis is estimated to identify the determinants of initial size of the firm. Results show that start-up size is strongly influenced by the starting resources of the entrepreneur and industry effects. However, different human capital variables influence start-up size in the two selected countries. Second, four groups of firms are identified in terms of their employment change in both samples. Surprisingly, the biggest firms at start-up are those that have job losses. These firms converge over time with a group of slow growers. Neutral employment change is observed in a group of mainly sole owners and there is also a group of fast growers. The determinants of these four employment change patterns are then analysed using an ordered probit model. Results show that start-up size is highly significant in explaining all patterns of change. Fast-growing firms are reflected in the same factors in both countries, such as formal planning, workforce training and owner managerial skills. Different results are found regarding founder-specific characteristics, use of external advice and sources of finance. Findings indicate that new firms learn as they age and there is therefore an adjustment process of firm size over time. Findings also suggest that new firm growth will depend on the entrepreneur’s ability to acquire skills through learning-by-doing. 1 We thank Andrew Burke, Stuart Fraser and David Storey for helpful comments and suggestions. 2 Departament d’Economia de l’Empresa, Universitat Autònoma de Barcelona. E-mail: joanlluis.capelleras@uab.es 3 Centre for Small and Medium Sized Enterprises, Warwick Business School, University of Warwick. E-mail: kevin.mole@wbs.ac.uk