This fifth edition Entrepreneurship and Small Firms continues our policy with this text of using the new editions as an opportunity to revise all the chapters and to introduce new material, reflecting current issues, research and academic debate on entrepreneurship and small firms. For example, in this edition, the reader will find new a chapter on ‘Social entrepreneurship’, reflecting the increased importance that has been given to this area in research, academic study and policy. We have taken the opportunity to revise completely some of the chapters, those that have undergone a complete rewriting with new material include; Chapter 2 on ‘Diversity on entrepreneurship’ with new material on women’s enterprise, including new case studies; Chapter 4 on ‘Debt finance’ with new material from recent research on the banks’ processes; Chapter 7 on ‘Information and communications technologies and e-business’ with new case material; Chapter 8 on ‘Entrepreneurial and growth firms’ which has been extensively rewritten; Chapter 9 on ‘International entrepreneurship’ which has also been extensively rewritten with new material, and Chapter 12 on ‘Issues in business start-up’ has been revised to include recent changes in UK government support for small firms.

At the time of writing, October 2008, the ‘credit crunch’ had burst within a short period into a major global financial crisis, starting with the collapse of famous names in the USA, such as Lehman Brothers, and spreading to the UK, with the major commercial banks having to be ‘rescued’ by unprecedented government measures to inject capital through taking partial nationalisation of at least two of the main UK commercial banking groups after previously brokering a takeover of HBOS by Lloyds TSB and to guarantee liquidity. These measures were estimated to account for a £400 billion injection into the financial system in the UK alone. These were followed by similar measures introduced across Europe and in the USA, with some commentators saying that the developed nations had narrowly averted complete financial meltdown. These events are reviewed and referred to in more detail in Chapter 4. Despite these seismic events, the point is made in the chapter that the basic principles of lending to entrepreneurs and firms still hold. In a similar vein, as we enter a period of likely downturn in global economies and deepening recession, the basic principles underpinning all the chapters in Enterpreneurship and Small Firms will still apply; economic and financial context changes, but entrepreneurs will still seek and exploit opportunities, small firms will still be at the forefront of innovation and our future prosperity will depend upon their increasing importance in our economy.

Readers familiar with previous editions will find that we have kept faith with the chapter sequence which has now evolved into the current format represented in this fifth edition, with the exception of the new Chapter 11 on ‘Social entrepreneurship’. The overall style has been retained, with many of the features introduced in the third edition, such as ‘Entrepreneurship in action’ boxes, case studies and suggested assignments. In response to reviewers suggestions, we have taken the opportunity in this fifth edition to remove some of the more lengthy and detailed case material to the online student resource centre, replacing it with shorter new case material such as that for the ‘Entrepreneurship in action’ boxes. To get the most benefit from this edition, students should consult this online resource material, which now contains a significant amount of additional material to supplement the case material. We have, of course,retained and revised the tutors’ online resource material, which contains lecture slides and additional material not available to students.

In March 2008 the UK government published a new Enterprise Strategy(1) as a supplement to the March 2008 Budget. In this document the government reiterated its commitment as part of renewed enterprise vision to make the UK the best place for entrepreneurs to start a new business,

'This strategy sets out the Government’s renewed enterprise vision to make the UK the most enterprising economy in the world and the best place to start and grow a business.'

This commitment represents a continuing emphasis for government policy on the importance of entrepreneurship and small firms for the vitality of the UK economy. As discussed in Chapter 2, this is something that has become a characteristic of policy for the European Union (EU) member nations, embodied in the publication of the EU Green Paper on entrepreneurship.(2) Of course, placing the importance of entrepreneurship and small firms at the ‘heart of policy’(1) is one thing, creating an environment in which entrepreneurship can thrive is another matter. The publication of the Government’s new Enterprise Strategy(1) is a welcome attempt to identify some of the barriers to increased entrepreneurial activity in the UK, and the role that support bodies and the network of support agencies can take in encouraging entrepreneurial activity and improving the environment, especially in deprived areas, where entrepreneurial activity is more difficult.

Having an integrated approach is something that will be important at all levels in society, hence we have seen the development of enterprise initiatives in education, in deprived areas and with targeted groups, such as women and ethnic minorities, and related policy measures such as changes in taxation, incentives and regulation. Some of these initiatives are discussed in the text, especially in Chapters 3 and 12. The UK government also published at the same time as the new Enterprise Strategy an integrated joint statement(3) with the UK’s main commercial banks that was designed to support additional measures to improve entrepreneurs and small firms’ access to finance; including strengthening the Small Firms’ Loan Guarantee Scheme and additional targeted capital funds. A detailed discussion of small firms and their access to capital is of course provided in Chapter 4.

The increased attention given to education, through a number of enterprise initiatives is something that is taken up in Chapter 12. The discussion of the importance of the financial environment is taken up in Chapters 4 and 5, technology, innovation and ebusiness is covered in Chapters 6 and 7, and Chapters 8 and 9 focus on growth and international entrepreneurship. All these topics reflect the importance of creating an appropriate infrastructure at all levels of society if the government is eventually going to achieve the aim of making the UK the best place in the world for entrepreneurship and small firms.

This fifth edition has retained the learning and pedagogical features that were introduced with previous editions. Learning outcomes are given at the start of each chapter; boxed examples, titled ‘Entrepreneurship in action’, are provided throughout the text, and review questions are also incorporated to review the material and to allow the reader to reflect upon the material and develop alternative concepts. Suggested assignments are given for each chapter; some of these incorporate or draw upon the additional material available in the student online material. Finally, the reader should find that the references have been completely updated, reflecting recent changes and the policy agenda discussed briefly above, and also that the recommended reading sections have been updated and are included at the end of each chapter.

Using the text

This text is aimed at undergraduate and postgraduate students of entrepreneurship, enterprise, small firms and business venturing. Comments on using the text are provided here for students and lecturers.

Students will find that the text has been designed to be read in digestible sections. Chapters are broken up with highlights such as the ‘Entrepreneurship in action’ features and with review questions at the end of the chapter. These questions do not treat each of these sections in isolation; rather they try to encourage the student to consider some of the implications raised in the chapter’s content and material, and attempt to get them to think further and perhaps link the material to that in other chapters of the text. Hints are given to enable them to do this. Suggested answers to the review questions are provided in the student’s online resources material. These are not meant to be prescriptive, but provide an indication of the ways to think about the questions set, which may be in a discussion form.

The text is designed to cover entrepreneurial and small-firm theory, concepts, evidence, policy and practice. It is designed to link these areas together. For example, discussion of entrepreneurial concepts is followed by practical mini-case examples or discussion of theoretical issues in small-firm development; discussion of the growth of small firms is followed by a discussion of evidence; discussion of business creation is followed by discussion of some of the policy implications and policy measures, as well as practical examples. You are encouraged to link these distinct elements together through the review questions and suggested assignments. For example, you may be asked to relate entrepreneurial concepts to a practical case study.

The detailed case studies, most of which are in the online student resources for this edition, are all real entrepreneurial cases. In some of them, names have been changed to preserve anonymity. They are designed to take you to a decision point in the case study, to put you in the place of the entrepreneur. This may form part of a class group discussion in which you discuss the different paths the entrepreneur(s) may take and give a recommended course of action. It is important to realize that there is ambiguity in entrepreneurial decision-making. An ability to recognise different options can be as important as the actual decision made. A number of options can be equally valid courses of action; in other words, there is not necessarily one right answer. However, there are, for some of the detailed case studies, further sections provided in the online student learning material and further information in the online tutors’ material (some of this information is available for registered tutors only).

While much of the material in this text is designed to enable you to understand entrepreneurship and small-firm and enterprise development, to apply concepts, to understand case studies and to understand new policy developments, Chapter 13 also provides a guide to preparing for entrepreneurship through the coverage of research, design and writing of business plans. Of course, other chapters of the book also provide an opportunity to develop skills and to prepare for entrepreneurship through the discussion of case material and practical examples, but Chapter 13 focuses specifically on sources of information, research methods and theplanning process. Throughout the text, we combine a focus on understanding with doing; a combination of enterprise skills should be developed if you use the review questions, material, case studies and assignments in the book throughout your course. These enterprise skills include problem-solving, creative thinking, research and information gathering, presentation and strategic planning. The value of developing these enterprise skills is that they are transferable, whatever career is undertaken. Increasingly employers are seeking graduates with transferable enterprise skills, who can think entrepreneurially, be creative and innovative, and communicate new ideas. This is part of the reason for the increased emphasis governments are placing on enterprise education initiatives. We believe that this book will help you to develop those skills and apply them in different problem-solving situations, whether you decide to follow an entrepreneurial career or not. More important, research indicates that most entrepreneurial students do not wish to enter entrepreneurship when they graduate, rather they intend to enter entrepreneurship or self-employment after a period of employment, but having undertaken study of entrepreneurship and small firms they are better prepared for such a change of career.

Lecturers will able to use this text for undergraduate and postgraduate courses in entrepreneurship and small firms. As discussed above, it combines concepts and theory with practical entrepreneurial case studies and examples, although the more detailed in-depth cases have now been placed in the student online resources to create additional room in this edition for the discussion of concepts and content on additional topics, such as the new chapter on ‘Social entrepreneurship’ (Chapter 11). It also has policy-related sections, where these are relevant, so that the material is placed in the context of recent developments in entrepreneurship and economic development. As indicated above, additional case material and suggested answers to the review questions are available to students through the online student resources.

For this fifth edition, we have retained the tutor online material, but revised for this edition. This provides additional course lecture slides and material for teaching purposes, which can be used in teaching alongside this text. The online resource for tutors also contains further information on using the case material in the text. Apart from these additional features, lecturers familiar with previous editions should find that we have rewritten the text to take account of new developments, new research and new policy initiatives in field.

Other users should find that they are able to use this text for a variety of purposes; for example, for training courses for new entrepreneurs, for an understanding of new developments in entrepreneurship and for an appreciation of concepts applied to practical examples. We hope that this new text will continue to appeal and be of use to a large and varied audience, including potential entrepreneurs, trainers, policy makers and other users with an interest in entrepreneurship and small firms.

Chapter content

The first two chapters are foundation chapters, covering entrepreneurship (Chapter 1) and small firms (Chapter 2); they provide the underlying theory and concepts for much of the material presented in the text. Chapter 1 provides a foundation for many of the concepts on entrepreneurship. It examines the three approaches to entrepreneurship: from economic writers, from a psychological perspective and the socio-behavioural view. Alternative paradigms are also considered. Although the emphasis of the chapter is on different conceptual approaches, underlying evidence to support these approaches is considered with a critical review that emphasises the importance of entrepreneurial learning and entrepreneurship as a process. Chapter 2 builds upon this foundation by covering the importance of small firms and entrepreneurial activity for European economies, with comparisons of importance in different European countries, including those of Eastern Europe. Measures of entrepreneurial activity are considered with a critical examination of the relationship between entrepreneurial activity and economic performance.

Chapter 3 provides an assessment of the importance of diversity of entrepreneurship. The chapter has been rewritten to cover the issues of women’s enterprise and ethnic minority entrepreneurship and examines some of the factors that affect the participation of women and ethnic minorities in entrepreneurial activity. New case material, for example, on women in business has been included. Diversity is a theme running through much of the material of the text and, therefore, this chapter provides a further important step in understanding the nature and importance of entrepreneurship and small firms.

The next two chapters, 4 and 5, discuss the nature of the financial environment for entrepreneurs and small firms, focusing on the UK, although with some international comparisons. As with previous editions, the first of these chapters focuses mainly on debt finance – that is, the banks – and the latter on equity finance – that is, formal and informal venture finance. Chapter 4 makes reference to the global financial crisis of Autumn 2008 and its impact on the commercial banks and the impact on their policies and lending practices to entrepreneurs and small firms.

Chapters 6 and 7 discuss the nature of rapidly changing environments and concepts in entrepreneurship and small firms concerned with innovation and e-business. Chapter 6 discusses the relationship between innovation and entrepreneurship, building on and developing many of the concepts that were introduced in Chapter 1. The chapter develops additional concepts in innovation and examines the advantages of small firms in the innovation process. Chapter 7 has been completely revised to update material on e-business, an increasingly important dimension for all entrepreneurs and small firms, and to include new case material. The chapter examines the role of information and communications technologies (ICT) in small firms and examines how entrepreneurs can take advantage of ICT and e-business.

Two entrepreneurial processes are examined in Chapters 8 and 9, those of growth and internationalization. The nature and process of entrepreneurial growth firms is discussed in Chapter 8, with discussion of both theory and evidence on growth firms. Chapter 9 now includes updated new material on ‘economies in transition’ including the increasingly important Chinese entrepreneurs. The chapter examines the process of internationalisation of firms, again with discussion of theory and evidence. The two chapters draw out some of the similarities to be found in models of the two processes, which, of course, are not mutually exclusive.

Chapter 10, on family businesses, examines the nature of relationships in family businesses, which are now an important part of modern entrepreneurial economies. The chapter also examines specific issues in this area, notably succession planning, with a discussion of general principles applied to specific case studies.

Chapter 11 is a completely new chapter on social entrepreneurship. The chapter discusses the increasingly important ‘third sector’ of the economy which includes social, voluntary and charitable organisations. The chapter reviews their importance and factors in their success anddevelopment. New case material on social enterpreneurs has been specially written for this chapter.

The last two chapters focus on business start-up and creation. Chapter 12 discusses issues in business start-up, including creativity, opportunity recognition and business development. This chapter provides the basis for the more practical approach of Chapter 13, which focuses on the planning process for business start-up, including the design, writing and implementation of business plans. The material in the final two chapters, especially in Chapter 12, has been revised and updated for the fifth edition.