Casinos offer a better guide to fostering successful business start-ups than any of the ‘self-help’ business books that emphasise experience and networking, according to a senior UK academic.
David Storey, professor of enterprise at Sussex University, has written a paper entitled Optimism and Chance: The Elephants in the Entrepreneurship Room, which claims that theories based on “one way bets” – such as learning from past mistakes or clever networking – cannot explain why only 26 per cent of small businesses ever grow. Nor can they explain why these businesses fail to sustain their expansion for any considerable period of time.
“Networking, education, learning, attitudes and prior experience are all examples of one-way bets in the sense that they explain growth,” Storey said. “What they do not explain is declines or flatline performance.”
Optimism and chance (OC) are better ways to explain why some entrepreneurs succeed when others fail, according to Storey, who has studied small business behaviour for the last 30 years.
“We see entrepreneurship as akin to a chance event – such as purchasing a lottery ticket or gambling at a roulette wheel in a casino,” he said. “To be eligible for a prize, the individual has to buy a ticket. This attracts optimistic individuals.”
Storey said OC theory also helped to explain why societies that make it easier for would-be founders to buy the “lottery ticket” of starting a business – or restarting after a failure – have more successful fast-growing start-ups.
“Optimism in particular is increasingly recognised as a dominant characteristic of business owners,” Storey said. “But the novelty of OC theory is to link this with chance and so derive a much clearer understanding of the dominant temporal performance characteristic of new and small firms.”
OC theory can explain why there may be more people in the US than in Europe who initially failed in business but ultimately became highly successful, claimed Storey.
“The merit of this insight is that it does not rely on cultural or attitudinal differences between countries, implying that policymakers wishing to change matters can do so by changing the rules of the game,” he said.
Storey added that his comments were ultimately a call for “greater humility” on the part of those who try to develop models for business growth based on looking back at those that succeeded rather than why so many others failed.