Investigation of the Factors Influencing SME Failure as a Function of Its Prevention and Fast Recovery after Failure

Abstract

This paper presents a conceptual framework for investigation of the factors influencing the failure of small and medium enterprises (SMEs) as well as the level of their recovery. Based on the review of literature, all the factors are classified either as individual characteristics of entrepreneurs or non-individual characteristics, that is, characteristics related to SMEs. Having in mind various factors identified by different researchers in their studies, the authors of this paper formed a basic hypothetical framework as well as a qualitative framework for evaluation of the most significant factors influencing SME failure and recovery. Accordingly, a preliminary questionnaire was designed in order to collect the attitudes of entrepreneurs regarding the impact of particular factors. The results of the survey were used for further quantitative analysis and as a base for the formation of a structural equation model for testing the proposed hypotheses. Using the structural equation model to derive results, the authors have found that all the analysed factors except the factors related to private time activities of entrepreneurs/owners of SMEs have a statistically significant influence on SME success, with external non-individual factors having the greatest influence. Furthermore, the results indicate that the level of recovery, business life cycle stage and the sector of a failed SME impact on the ranking of the factors leading to SME failure. The study points to the necessity of improving the conditions under which SMEs operate, primarily by removing the obstacles that hinder growth and development of SMEs as well as by developing the appropriate system of support for entrepreneurs. In addition, having a clear vision of the factors of failure can help SMEs to become more resistant to the adverse effects of these factors and deal with them more effectively.

Evaluation of economic potential of business environment development by comparing sector differences: perspective of SMEs in the Czech Republic and Slovakia

“…They found out that the level of legal and personal risk in Serbia is higher than in the V4 countries. Nikolic et al (2019) also made some interesting findings. They state that individual characteristics of an SME entrepreneur, along with non-individual internal SME characteristics and non-individual external characteristics of the environment in which an SME operates, contribute to SME failure.…”

Entrepreneurial Marketing Theory: Current Developments and Future Research Agenda

“…The start-up phase of a business is always crucial as the conditions are mostly uncertain with a high-risk factor. Research and statistics have also shown that the greatest number of businesses shut down during the first few years of their operations (Hendrickson et al, 2015;Mishra 2015;Nikolić et al, 2019; SBA 2019; Shin & Kim 2017; Van Scheers 2011). These failing businesses also cause low job creation and affect the unemployment rate and economy (Bakhtiari 2017).…”

“…These failing businesses also cause low job creation and affect the unemployment rate and economy (Bakhtiari 2017). For such business failures, marketing is a dominant reason and its seen as one of the greatest problems faced by SMEs during the start-up phase (Harrigan et al, 2012;Mitchell et al, 2015;Nikolić et al, 2019), but simultaneously one of the most important activities for their growth and survival (Franco et al, 2014). In the current review, only two studies have explored the start-up phases of businesses (i.e., Kannampuzha & Suoranta 2016;and, Mayers & Hammerling 2009), whereas, remaining all papers have studied EM in the firms that were already well established from at least a few years.…”

The Influence of Some Factors of Competitiveness on Business Risks

“…These businesses are generally managed by the business owner. The individual characteristics of the entrepreneur are important for the management of the company and its market survival (Nikolic et al, 2019;Ključnikov et al, 2019;Kozubíková et al, 2015) and play an important role in SME risk management (Falkner & Hiebl, 2015). Because of their size, SMEs are very flexible and adaptable in responding to current market needs (Konstantopoulou et al, 2019), independent and based on individual creativity (Mustafa et al, 2019).…”