Effect of Enterpreneur and Firm Characteristics on the Business Success of Small and Medium Scale Enterprises in North Central, Nigeria

Adamu Garba Department of Business Administration, Nasarawa State University, Keffi, Nasarawa State

ABSTRACT: This study examined the effect of entrepreneur and firm characteristics on the Business success of small and medium scale enterprises in selected States in North Central, Nigeria The researcher used primary data for the study from population of one hundred and fifty (150) registered small and medium scale enterprises in three (3) selected States in North Central, Nigeria. A questionnaire was used as the instrument of data collection. The data collected were analyzed using multiple regression analysis. Also, the hypotheses of the study were tested using the probability value of the regression estimates. The result of the regression analysis indicates that Creativity (CRT) has a positive effect on the Business success of Small and Medium Scale Enterprises in North Central Nigeria (SSM) and the effect is statistically significant (p <0.05). Self-confidence (SFC) has a negative effect on the Business success of Small and Medium Scale Enterprises in North Central Nigeria (SSM) and the effect is not statistically significant (p >0.05). Firm size (FMS) has a positive effect on the Business success of Small and Medium Scale Enterprises in North Central Nigeria (SSM) and the effect is statistically significant (p <0.05) and in line with a priori expectation. Profitability (PRF) has a positive effect on the Business success of Small and Medium Scale Enterprises in North Central Nigeria (SSM) and the effect is statistically significant (p <0.05). It was concluded that all the variables of the study except self confidence have positive and significant effect on the Business success of small and medium scale enterprises in the study area. It was recommended among other that management of the small and medium scale enterprises should ensure that all the strategies are put in place to boost the profit of the enterprise, become creative in its business approach so as to become successful

Keywords: Entrepreneur, Strategies, SMEs, Firm, North-Central, Nigeria.

I Introduction

The small and medium scale enterprises (SMEs) sector contributes highly to the country’s economy, contributing to the gross domestic product (GDP) by reducing the level of unemployment, reduction in poverty levels and promotion of entrepreneurship activity. As important as this role of small and medium scale enterprise is in the development of any country, entrepreneur and firm and firm characteristics play a very significant role in the success or otherwise of small and medium scale enterprises. The role of SMEs in the development of the country is significant. Small and medium enterprises across the globe still encounter many challenges, despite their importance and significance of small and medium enterprises and their contribution to economic growth which hinder business growth. It is obvious that hurdles in the business success are far more than it was previously. The environments, as well as some factors, are very complex and dynamic. Firm characteristics of small enterprises including ownership type, size, profitability, firm age, and sector of firm could influence the business success.

In an effort to enhance development of small and medium scale enterprises, increasing numbers of public, private and academic institutions have extended considerable support to SMEs across various sectors To make such support successful, the investigation of factors affecting success of small and medium scale enterprises has broadened from largely focusing on institutional arrangements to analyzing the effects entrepreneur and firm characteristics have on success of such small and medium enterprises. Literature indicates that entrepreneur characteristics with effects on small and medium scale enterprises success include creativity, self-confidence, gender, age, education, work experience, and managerial competence; while firm characteristics include period an SME has been in business, size of SME, profitability, source of capital, sector and location (Islam, Khan, Obaidullah and Alam, 2011).

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It has been noted by the numerous empirical studies on factors influencing success of small and medium scale enterprises that the variables of creativity, self-confidence, size of small and medium scale enterprises are important variables to bring about the success or growth of any small and medium scale enterprises. Duh (2003) examined the primary factors significant in affecting success of small and medium scale enterprises and found that owners’ or managers’ characteristics; enterprise characteristics and the contextual elements of small and medium scale enterprises development were significant factors. From a management perspective, the concept of success often refers to the enterprise’s financial performance. However, there is no universally accepted definition of success and as such; business success is interpreted in numerous ways from various dimensions. Different dimensions that are covered by the concept of success include survival, profit, sales growth and number of employees. Based on the findings from previous research, the factors affecting success of SMEs can be categorized into entrepreneur characteristics, enterprise or firm characteristics, management and know-how, customers and markets resources and finance (Swierczek and Ha, 2003), and external environment.

Researchers indicated that most of the core processes of human resource management; particularly recruitment and selection, performance appraisal, and training and development have significant positive impacts on success of small and medium scale enterprises The study of Keh, Nguyen and Ng (2007) reported a significant positive relationship between information utilization and success of the firm. With regards to age, a study by Reynolds et al. (2000) found that individuals ranging between 25 to 44 years old were the most successful entrepreneurs. In respect of business management experience, Kolvereid (1996) found that businesses that were run by entrepreneurs with prior entrepreneurial experience and creativity scored significantly higher success levels than those without such experience. Researchers classified small business success was classified into three (3) categories of antecedents; namely entrepreneur characteristics, firm characteristics and environmental characteristics. The entrepreneur characteristics covered age, education, managerial competence and industry experience. From the dimension of firm characteristics, factors that affect success of small and medium scale enterprises include length time an enterprise has been continuously operating, size of the enterprise, sector and source of capital and profitability of the firm McMahon (2001) found that enterprise size had a significant effect success of small and medium enterprises

In business life, success is a key term in the field of management, although it is not always explicitly stated. Success and failure can be interpreted as measures of good or indifferent management. The idea of success is often used to refer to a firm’s financial performance. There are at least two (2) important dimensions of success: 1) financial vs. other success; and 2) short- vs. long-term success. Hence, success can have different forms, e.g. survival, profit; return on investment, sales growth, number of employed, happiness, reputation, and so on. In other words, success can be seen to have different meanings by different people. In spite of these differences, people generally seem to have a similar idea of the phenomenon, i.e. of what kind of business is successful. Size of enterprise. Size of enterprise reflects how large an enterprise in employment terms. McMahon (2001) found that enterprise size significantly linked to better business performance. Larger enterprises were found to have a higher level of success.

Success in any human endeavors has closely been associated with the achievements of goals and objectives (Ngwangwama, Ungerer, and Morrison, 2013), however, success in business studies though crucial in managerial decision-making, firms especially small and medium enterprises (SMEs) are not able to explicitly document them. For a large proportion of authors, business success has been defined in terms of firm performance that is often characterized by such firm’s capacity to generate acceptable outcomes and actions. However, according to Mohammed et al. (2017), the use of firm performance to measure success comes with complications and can be interpreted from different dimensions. In general, the debate on business success indices has been limited to two (2) broad concepts: (i) economic (financial) and (ii) non-financial (non-pecuniary) success. Financial measures for business success or growth include return on assets, sales growth, profits, employee growth, and survival rates while non-pecuniary measures include intangible constructs such as customer satisfaction, personal development, achievement, corporate reputation, happiness, and market share (Islam et al., 2011). In this study, business achievement is used as a proxy for measuring business success The use of non-pecuniary measures for this study is as a result of the non availability of financial data from the small and medium scale enterprises in the study area to carry out analysis using the financial measures. It is as a result of the above that this study examined the effect of entrepreneur and firm characteristics on the Business success of small and medium scale enterprises in selected States in North Central, Nigeria. The specific objectives of the study are to: i. assess the effect of creativity on the Business success of small and medium scale enterprises in selected states in North Central, Nigeria.

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ii. ascertain the effect of self-confidence on the Business success of small and medium scale enterprises in selected states in North Central, Nigeria.

iii. determine the effect of firm size on the Business success of small and medium scale enterprises in selected states in North Central, Nigeria.

iv. examine the effect of profitability on the Business success of small and medium scale enterprises in selected states in North Central, Nigeria.

II Methodology

A survey research design was utilized for this study This research design begins with a procedures in which investigators administer a survey to a sample or to the entire population of people to describe the attitudes, opinions, behaviours, or characteristics of the population. For this study, the population of the study comprises Small and Medium Scale Enterprises in three (3) purposively sampled states of Benue, Nassarawa and Kogi all located in the North Central region of Nigeria Multistage sampling technique was used for the study. At the first stage, purposive sampling technique was used to purposively pick three (3) out of the seven (7) states that make up the North Central States and fifty (50) Small and Medium Scale Enterprises in each of the selected States. At the second stage, simple random sampling technique was used to select fifty (50) respondents and to give equal chances of being included in the study to every respondents in the study. Therefore, the population of the study comprise of one hundred and fifty (150) small and medium scale enterprises in the three (3) selected states in North Central, Nigeria. Validity

of Instruments

The instrument for our data was subjected to factor analysis to determine its validity. A pilot test was conducted and the input variable factors used for this study were subjected to exploratory factor analysis to investigate whether the constructs as described in the literature fits the factors derived from the factor analysis.

Source: SPSS Result Output, 2020

Table 1 indicates that the KMO (Kaiser-Meyer-Olkin) measure for the study’s variable items is 0.870 with Barnett's Test of Sphericity (BTS) value to be 10 at a level of significance p=0.028. Our KMO result in this analysis surpasses the threshold value of 0.50 as recommended in literature. This indicate that the sample for this study is adequate

Table 2: Total Variance Explained

Extraction Method: Principal Component Analysis.

Source: SPSS Result Output, 2020

As shown by the result of the Total Variance Explained table, the variance is divided among the five (5) possible factors. Three (2) of the factors have Eigenvalues (a measure of explained variance) greater than 1.0, which is a common criterion for a factor to be useful. When the Eigenvalue is less than 1.0 the factor explains less information than a single item would have explained. Table 2 shows that the Eigenvalues are 1.427, 1.177 and 1.086 are all greater than 1. Component one produced a variance of 27.949, component 2 a variance of 23.873 while component three produced the variance a variance of 21.985. The cumulative of the rotated sum of squared loadings section indicates that three components i.e

Table 1: KMO and Bartlett's Test

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component 1, 2 and 3 accounted for 73.807 percent of the variance of the whole variables of the study. This shows that the variables have strong construct validity.

Source: Author Computation, 2020

As shown in the figure 1 above, the scree plot and the Eigenvalues support the conclusion that the five (5) variables used in the study can be reduced to three (3) components. The scree plot is downward sloping and show that after the first three components, differences between the Eigenvalues decline sharply (the curve flattens), and they are less than 1.0. This again supports a three components solution.

Cronbach's Alpha Cronbach's Alpha Based on Standardized Items

Source: SPSS Result Output, 2020

of Items

Table 3 shows the reliability statistics which indicates that the Cronbach Alpha value is 0.861. Reliability Cronbach Alpha statistics of 0.70 is considered adequate and reliable for study. Hence, the variable of this study falls above the limit of a reliable instrument for this study.

Source: SPSS Result Output, 2020

As shown in Table 4, an item-total correlation test is performed to check if any item in the set of tests is inconsistent with the averaged behaviour of the others, and thus can be discarded. A reliability analysis was carried out on the variables of the study values scale comprising five (5) items. Cronbach’s Alpha showed the questionnaire to reach acceptable reliability, α = 0.861. All items appeared to be worthy of retention, resulting in a decrease in the alpha if

Figure 1: Scree Plot

Table 3: Reliability Statistics

Table 4: Item-Total Statistics

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deleted. There is no exception to this in all the variables of the study as none of the items if deleted will improve the overall Cronbach alpha statistics. As such, none of the variables was removed. A correlation value less than 0.2 or 0.3 indicates that the corresponding item does not correlate very well with the scale overall and, thus, it may be dropped.

Model Specification

Multiple regression analysis was employed to determine the effect or outcome of the relationship between dependent and the independent variables.

The implicit model form of the model is as shown below:

SSM = f (CRT, SFC, FMS, PRF)- - - - - - - - (1)

Where,

SSM = Success of Small and Medium Scale Enterprises

CRT= Creativity

SFC = Self-confidence

FMS = Firm size

PRF = Profitability

The explicit forms of the formula above are depicted below:

SSM = b0 + b1CRT + b2SFC + b3FMS + b4PRF + Ut- - - - (2)

Where: b0 = intercept value of the dependent variable

b1 - b4 regression coefficients

Ut = random error term

A priori expectations

b1> 0, b2 > 0, b3> 0. b4 > 0

Methods of Data Analysis

In this study, the multiple regression analysis was used to determine the effect of independent (entrepreneur and firm characteristics) variables on the predictor variable (success of small and medium scale enterprises) To test the study hypotheses, the probability value of the estimate were used with the decision rule that If the probability values of the estimate is less than the critical value. we reject the null hypothesis, that is, we accept that the estimate bi is statistically significant at the 5 percent level of significance if not vice versa.

III Results and Discussion

Fig 2: Regression Standardized Residual

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Source: SPSS Result Output, 2020

The figure above shows a histogram of the residuals with a normal curve superimposed. The residuals look close to normal, implying a normal distribution of data. Here is a plot of the residuals versus predicted dependent variable of Business Success of Small and Medium Scale Enterprises (SSM).The pattern shown above indicates no problems with the assumption that the residuals are normally distributed at each level of the dependent variable and constant in variance across levels of Y.

a. Predictors: (Constant), PRF, FMS, SFC, CRT

b. Dependent Variable: SSM Source: SPSS Result Output, 2020

Table 5 shows that the result of the coefficient of determination R2 for the study is 0.723 or 72.3 percent. This indicates that 72.3 percent of the variations in the model can be explained by the explanatory variables of the model while 27.7 percent of the variation can be attributed to unexplained variation captured by the stochastic term.

a. Dependent Variable: SSM

b. Predictors: (Constant), PRF, FMS, SFC, CRT Source: SPSS Result Output, 2020

The F-ratio in the Analysis o Variance (ANOVA) table above tests whether the overall regression model is a good fit for the data. The table shows that the independent variables statistically significantly predicts the dependent variable F (4, 15) = 1.123, p <0.038b (i.e., the regression model is a good fit of the data)

a. Dependent Variable: SSM

Source: SPSS Result Output, 2020

As shown in Table 7, Creativity (CRT) has a positive effect on the Business success of Small and Medium Scale Enterprises in North Central, Nigeria (SSM) and the effect is statistically significant (p <0.05) and in line with a priori expectation This means that a unit increases in Creativity (CRT) will cause a corresponding increase in the Business Success of Small and Medium Scale Enterprises in selected States in North Central, Nigeria (SM) by a margin of 47.5 percent. Using the probability value of the estimate, we reject the null hypothesis, that is, we accept that the estimate b1

Table 5: Model Summary

Table 6: Statistical Significance of the Model

Table 7: Regression Coefficients

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is statistically significant at 5 percent level of significance. This implies that Creativity has a statistically significant effect on the Business Success of Small and Medium Scale Enterprises in selected States in North Central, Nigeria

Self-confidence (SFC) has a negative effect on the Business success of Small and Medium Scale Enterprises in North Central, Nigeria (SSM) and the effect is not statistically significant (p >0.05) and in also not in line with a priori expectation. This means that a unit increases in Self-confidence (SFC) will cause a corresponding decrease in the Business Success of Small and Medium Scale Enterprises in selected States in North Central, Nigeria (SM) by a margin of 26.1 percent. Using the probability value of the estimate, we accept the null hypothesis, that is, we accept that the estimate b2 is not statistically significant at 5 percent level of significance. This implies that Self-confidence has no statistically significant effect on the Business Success of Small and Medium Scale Enterprises in selected States in North Central, Nigeria This finding is contrary to that of Kolvereid (1996) who found that businesses that were run by entrepreneurs with prior entrepreneurial experience and creativity scored significantly higher success levels than those without such skills. The negative effect obtained in the current study could be attributed to differences in business climate which implies that beyond self confidence, so many factors could alter the success of small and medium scale enterprises and cause a negative effect to manifest in the face of entrepreneurial and enterprise characteristics. As shown in Table 7, Firm size (FMS) has a positive effect on the Business success of Small and Medium Scale Enterprises in North Central, Nigeria (SSM) and the effect is statistically significant (p <0.05) and in line with a priori expectation This means that a unit increases in Firm size (FMS) will cause a corresponding increase in the Business Success of Small and Medium Scale Enterprises in selected States in North Central, Nigeria (SM) by a margin of 42.1 percent. Using the probability value of the estimate, we reject the null hypothesis, that is, we accept that the estimate b3 is statistically significant at 5 percent level of significance. This implies that Firm size has a statistically significant effect on the Business Success of Small and Medium Scale Enterprises in selected States in North Central, Nigeria. This is in line with the findings of McMahon (2001) who found that enterprise size had a significant effect success of small and medium enterprises.

Profitability (PRF) has a positive effect on the Business success of Small and Medium Scale Enterprises in North Central Nigeria (SSM) and the effect is statistically significant (p <0.05) and in line with a priori expectation This means that a unit increases in Profitability (PRF) will cause a corresponding increase in the Business Success of Small and Medium Scale Enterprises in selected States in North Central, Nigeria (SM) by a margin of 49.8 percent. Using the probability value of the estimate, we reject the null hypothesis, that is, we accept that the estimate b4 is statistically significant at 5 percent level of significance. This implies that profitability has a statistically significant effect on the Business Success of Small and Medium Scale Enterprises in selected States in North Central, Nigeria Islam, Khan, Obaidullah and Alam (2011), found similar result.

IV Conclusion and Recommendations

The study examined the effect of entrepreneur and firm characteristics on the Business success of small and medium scale enterprises in selected States in North Central, Nigeria The researcher examined the variables of the research construct namely entrepreneur and firm characteristics to determine if they influence the success of the small and medium scale enterprises in the study areas. The findings indicates that all the variables except self confidence have positive and significant effect on the Business success of small and medium scale enterprises in the study area. This implies that owners of small and medium scale enterprises must ensure that they become creative in the bid to carrying out their business activities. Size of business also determines success but it has to be in conjunction with being creative. Small-business owners must have a creative approach towards their products or services, be willing to be personally involved in it, be willing to stick with the business, be able to define the market clearly and pay attention to details.

Also, the result of the study indicates that firm specific attributes such as profitability is a sign of a successful business and hence, management of the small and medium scale enterprises should ensure that all the strategies are put in place to boost the profit of the enterprise. Successful firms were likely to spend more time communicating with partners, customers, suppliers, employees. The proportion of SMEs led by an entrepreneurial team was high among successful SMEs and low among failed SMEs, so fostering the formation of entrepreneurial teams in starting up businesses is recommended. It is suggested that future researchers should increase the sample size by studying all the Small and Medium Scale Enterprises in the whole of North Central States of Nigeria

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REFERENCE

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[6.] Ngwangwama, M. M., Ungerer, M., and Morrison, J. (2013). An exploratory study of key success factors for business success of companies in the Namibian tertiary industry. International Journal of Innovations in Business, 2(6), 604–629.

[7.] Reynolds, P. D., Hay, M., Bygrave, W. D., Camp, S. M., and Autio, E. (2000). Global Entrepreneurship Monitor 2000 Executive Report: Babson College, Kauffman Center for Entrepreneurial Leadership, and London Business School.

[8.] Swierczek, F. W., and Ha, T. T. (2003). Entrepreneurial orientation, uncertainty avoidance and firm performance: an analysis of Thai and Vietnamese SMEs. International Journal of Entrepreneurship and Innovation, 4(1), 46-58.