Can we help?
the impact on entrepreneurial
performance of publicly funded
business advisory services.
Eileen Fischer
Schulich School of Business
York University
All countries want to foster
“entrepreneurship”
• But what do we mean by that?
– Decreasingly: small business support
– Increasingly: entrepreneurial performance
– Entrepreneurial performance arises from
“enterprising human action in pursuit of the
generation of value, through the creation or
expansion of economic activity, by identifying and
exploiting new products, processes or markets”
(OECD, 2007)
Entrepreneurial performance arises
when opportunities
to create something new
are created/identified and exploited
The problem is that entrepreneurial
performance can vary considerably…
so public policies and investments are
made to attempt to “support”
entrepreneurial activities
The question considered here is whether
publicly-funded interventions
(specifically advisory services) can increase the
likelihood that entrepreneurial
opportunities are realized in manner that leads to
sustainable, profitable growth at the firm level
and thereby to
regional or national benefits at the economy level
Advisory services
• Also known as consulting, coaching, guiding…
• Offered at different stages
– Pre-founding; early stage; critical growth points, …
• Varied in terms of
– Customization
– Amount
– Delivery timing (continuous, episodic)
– Type, degree of qualifications of service providers
What have others found?
Documented impact of
advisory service
Was judged as satisfactory
by recipients of services
positive
Chrisman and Katrishen
(1994)
mixed positive and null
results
Smallbone (1993).
Null results
Had a direct impact on
entrepreneurial performance
(growth in sales or employment)
Chrisman, McMullen, Hall (2005)
(curvilinear relationship)
Hart, Roper and Saal (2008)
(intensive advising more
effective than occasional)
Labrecht and Pirnay (2005)
Roper and Hart (2003);
Roper and Hart (2005)
What’s the problem?
• Advisee characteristics?
– Growth intentions
– Growth potential
• Advising characteristics
– Amount
– Timing
– Expertise
Can advising be done (cost)
effectively? A local case study
• Unique dataset from Investment Network
– Affiliated with Innovation Synergy Center, Markham (ISCM)
– Thanks to Catarina von Maydell (detailed records)
– Paper available: Douglas Cumming and Eileen Fischer (2010)
• Examine the impact of advisory hours on entrepreneurial outcomes
–
–
–
–
Sales
Patents
Financing
Alliances
• Control for endogeneity and selection effects
The clientele
• Focus on companies that:
– Are generating revenue or will generate revenue within 12
months
– Have the capacity to generate a minimum of $2M in revenue
within 3 to 4 years
– Have a sustainable competitive/technical advantage
– Have a current company valuation of less than $2M
– Will be looking for up to $500,000 in financing within 24 months
• Appropriate program to assess impact of advisory services
on entrepreneurial outcomes among firms with growth and
innovation intentions and potential
The advising
• A mix of classes and customized advising
• Offered over a period of several months
• Delivered by people who have successfully
obtained funding for multiple ventures
themselves
Data obtained
• 101 entered the Investment Network Program, 2006-Q4 to 2009-Q2
• Types of Variables (over 100 variables in dataset)
– (1) dependent variables
• sales, patents, financing, alliances
– (2) factors that influence whether or not the firm is part of the Investment
Network
• Referral sources, market conditions
– (3) value added provided by advisors
• Hours spent, number of mentors, number of companies advised / mentor
– (4) entrepreneurial firm characteristics
• Industry, incorporation date, business acumen, coachability, etc
– (5) top management team characteristics
• Age, race, experience, etc.
– (6) market conditions
• Public market returns over investment horizon, year effects, etc.
Comparison Tests
This table presents comparison of means and medians tests for high (>20) versus (<20) number of hours that the
advisor(s) spent with the firm. Percentage changes for sales are for the subset of firms (48 in total) that had sales in 2008.
Advisors >20 hours
Variable
Advisors <20 hours
Compar
Compar
ison of
ison of
Proporti
Means
ons
Number of
Observatio
ns
Mean
Sales 08/09
28
106.67
4
72.321
20
360.91
35.417
5
Financing
53
0.755
1
48
0.583
1
1.834*
Patents
53
0.887
1
48
0.542
1
3.870
***
Strategic Alliances
53
0.472
0
48
0.375
0
0.981
Median
Number of
Observations
Mean
Media
n
104.282
***
Compa
rison
of
Media
ns
P<=
0.000
***
Key findings from econometric tests
• Additional advising hours  greater sales
– Regardless of controls
• Move 10-11 hours increases sales by 13.3%
• Move 20-21 hours increases sales by 6.8%
• Additional advising hours  higher probability of
financing
– Regardless of controls for endogeneity
• Accounting for the possible endogeneity of hours
spent:
– Hours spent do not statistically increase the probability of
patents or alliances
Take-aways specific to the case study
• This program could be considered cost
effective means of influencing SOME
entrepreneurial outcomes:
– firms had raised $6,545,000 in financing
– The program costs were totaled at $662,360
– Ratio of financing raised per dollar of cost is $0.10
• What's working here?
– Selecting firms with high potential
– Intensive advising rather than minimal advising
But are public investments in advising
widely warranted?
??
?
Advisory Services
Conclusions
• Ideally, we need more research with larger panels
and equal attention to data collection
• Record keeping (and likely advice) differs across
advisors / programs
• Need to be willing to target selective firms; can't
expect advising to pay off equally for all types of
firms
• Need to recognize that minimal advising is likely to
have minimal payoffs;
• UP TO A POINT, more is better