Understanding entrepreneurial exit at smaller businesses is a really complex and important topic given the aging entrepreneurial population of most developed economies. While the term "exit" in entrepreneurship is most often reserved for high-growth companies with large outside equity investors that want to cash out an investment, the majority of "exits" happen in small firms in manners which we know very little about. The topic is most important in family-owned firms but in reality it should be relevant in all businesses, particularly with the
aging of new entrepreneurs in the U.S. over the last decade.
One of the first pieces of research that I remember reading in my current position at the Foundation that caused a bit of an ah-ha moment for me was a
piece by Brian Headd at the Small Business Administration about the need to redefine success (and really failure) in entrepreneurship research. Brian’s main point was that when we look at firms that go out of existence the common perception is that the only outcome which can be deemed positive from a business demography perspective is one in which the firm continues to survive, not one in which the firm ceases to exist. But in reality, close to 30 percent of U.S. business owners whose business had ceased to operate still reported the business as being a success at closure. For me, this study was one of the first that really helped to challenge my own assumptions in building surveys because it made me realize that I was implicitly assuming all business exits were failures and I would have at the time used the terms interchangeably.
In hindsight, probably our biggest failing in the design of the
Kauffman Firm Survey was of the questions asked businesses who reported having exited the marketplace. Only through dialogue with researchers like
Fabrice Cavaretta has it become apparent to me how much more effort we should have put in determining what type of exit a firm had. But anyone that has tried to talk with a respondent about something which has failed, like a business, will know that it’s often not an easy conversation. Indeed, most of the times we have attempted to collect more information from exited businesses, our survey vendor on the project, Mathematica, has not had much success.
I haven’t come across many surveys specifically targeting recently exited businesses in the course of this job, but I did come across
one recent effort from Belgium which looks only at recently exited microbusiness owners. In general, I’ve seen a lot more interest in Europe in understanding how today’s business owners plan to transition their ownership stakes as many near retirement. I suspect that this research emerges (or at least was funded) to support policy efforts in this regard.
I am not sure that I have a lot more to say on the subject at this time but I am hoping others out there can point me to similar efforts internationally or more work here in the U.S. NFIB has some interesting factoids from a couple of their small business polls that I’d like to end with.
Families in Business, Volume 2, Issue 6, 2002, ISSN - 1534-8326
- Forty-eight (48) percent of family business owners would like to have a family member eventually take over operation of their venture. The number rises to five in eight among those whose firm employs 20 or more people. However, just 13 percent believe it is “very likely” that a family member actually will take over, though another 23 percent believe it is “likely.” Yet, only 7 percent of all operating businesses were inherited.
- About 9 percent intend to transfer business ownership to one or more family members within the next five years. Those planning the transfer average a little less than 60 years of age.
- Thirty-nine (39) percent say that they originally went into the business with one or more family members. Almost three-quarters of inherited businesses were transferred to more than a single family member.
Owners and Managers, Volume 8, Issue 8, 2008, ISSN - 1534-8326
- The principal owner still works for professionally-managed businesses in 55 percent of cases. He/she is semi-retired or retired in 19 percent of them; 17 percent work in another business that he/she owns; and 6 percent work for an organization that they do not own.
- Sixty-one (61) percent of professional managers think that it is “highly likely” that they will own and operate their current business at some point and another 11 percent think it is “possible.” However, just 35 percent of owners who are not managers in professionally-managed firms think that the professional managers in their enterprises are “highly likely” to own and operate the firm some day and another 8 percent think it is possible. It appears a considerable number of professional managers will not realize their quest.
- Twenty-eight (28) percent of professional/paid managers are family members of one or more current owners. Family members are much less likely to think they will eventually take-over (own) the business than non-family managers.