Dr Tim Vorley and Prof Ute Stephan - Entrepreneurs as Employers: Barriers to taking on first employees

Entrepreneurs as Employers:Barriers to taking on first employees

Dr Tim VorleyUniversity of Sheffield

Prof Ute StephanAston University

Research Foci

To understand the real and perceived barriers to entrepreneurs taking on employees and how entrepreneurs have sought to manage and overcome these barriers

Research Context & Rationale

• Project undertaken initially with BIS Enterprise Directorate designed to investigate barriers to entrepreneurial growth

• Policymakers interested to highlighting interventions to support entrepreneurs and very small businesses employing staff

Context: Academic Literature

• Extensive literature on entrepreneurship and growth (reviews by Davidsson et al., 2010; Wright & Stigliani, 2013), but much left to do, e.g. – Often lack of clear definition of growth (intention to grow,

actual growth, growth in revenues vs. employees)– Surprisingly little research on the role of the entrepreneur,

their mindsets and decision-making processes

Impact of employment regulation on taking on employees treated as highly rational, strategic decision

Yet entrepreneurs known to rely on heuristic (biased) decision-making

processes including influence from informal network (Baron et al., 2012; Markman & Baron, 2003)

Context: Academic Literature

• Quantitative research exploiting variation in regulation across countries suggests negative relationship with the intention to employ (e.g. Estrin et al., 2013; Levie & Autio, 2011), but – intention ≠ action– UK seems to have relatively ‘light’ regulation

• Qualitative research paints a more differentiated picture: opportunities emerging from regulation (Kitching, Hart & Wilson, 2013)

• Taking on first employee = particular psychological threshold, learning effect for hiring subsequent employees

Emerging Research Questions

• What are the reasons, incentives and disincentives for entrepreneurs to employ?

• What barriers do entrepreneurs and very small businesses foresee/have experienced in taking on first employees?

• What approaches do entrepreneurs adopt to overcome these real and perceived barriers?

• What forms of support are available to entrepreneurs in employing – and what more might be done?

Empirical Project

• Initial pilot project involved focus group with entrepreneurs in Sheffield from CDIT/professional services with the Entrepreneur in Residence from BIS

• Review of secondary data from the one-off very small business survey undertaken by BIS

• Two phases of qualitative project:– Pilot study in Sheffield (16 interviews)– Extended study across the SCR (48 interviews)

• Interviews double blind coded

Emerging Findings

Mind-set about Employing• Transition to becoming employer had positive and negative implications for work

and continuing development• Main concerns orientated around quality assurance and issues of control, rather

than around day-to-day line management

Entrepreneurs prefer to focus on business development

than management

Recognition by entrepreneurs about the conscious shift to become a people manager

Emerging Findings

Perceptions on Employing & Employment Needs • Entrepreneurs demonstrated desire for growth and intention to employ (esp

technical roles) but didn’t see employment as a preference to grow.

Ambition to grow was high among the entrepreneurs

and employment necessary

Translating ambition into the reality of becoming an employer is difficult

Networks and close contacts are valuable when trying to identify potential recruits – but suggests

limited options and knowledge

Emerging Findings

Views on Employment Rights • Need for an appreciation of broad employment rights and regulations – but they

are largely a responsive issue• Particular issues around maternity rights; redundancy entitlements; unfair

dismissal tribunals; abuse of sickness entitlement

Regulation is often not regarded as problematic

by entrepreneurs

Limited concerns about the cost, process

and implication of regulatory compliance

Fear of the ‘unknown’ or the imperfectly

understood.

Emerging Findings

Supporting Entrepreneurs• Networks were highly valuable when seeking advice but also restrictive• Difficulty identifying trusted sources of advice and support – preference for

informal unless matters escalate• No substitute for experience – been there and done that• Difficult to identify single most authoritative sources

Entrepreneurs have limited time but are eager to seek and use support

Advice and support services are fragmented – don’t

know where to go / information too technical

Source and forms of information are critical -

in real time in an accessible format

So What?

• That many of the issues and barriers facing entrepreneurs are perceived as opposed to real

• Regulation generally seen as negative and not in the interest of employees

• The regulatory environment is less of a problem than the asymmetries around understanding the regulatory environment

• Frequent changes to regulation – even if well-intended – can be a challenge for entrepreneurs to keep up

• Support for entrepreneurs is fragmented and there is a need for more consolidated and accessible in real-time