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*Corresponding author: E-mail: [email protected];

British Journal of Economics, Management & Trade

17(3): 1-28, 2017; Article no.BJEMT.31399ISSN: 2278-098X

Approach to Assess and Select Small and MediumEnterprises (SMEs) for Incubation on the Base ofAngel Model – a Case on Developing Economies

and ENGINE Program

Joseph Asare1*

1Department of Management and Administration, University of Economics and Law ‘KROK’, Ukraine.

Author’s contribution

The sole author designed, analyzed and interpreted and prepared the manuscript.

Article Information

DOI: 10.9734/BJEMT/2017/31399Editor(s):

(1) Chen Zhan-Ming, School of Economics, Renmin University of China, Beijing, China.Reviewers:

(1) Shih-Wei Wu, National Taipei University of Technology, Taipei, Taiwan.(2) Ayse Kucuk Yilmaz, Anadolu University, Turkey.

(3) Vasileios Rizos, Energy and Climate Change Unit, Centre for European Policy Studies, Belgium.Complete Peer review History: http://www.sciencedomain.org/review-history/19185

Received 3rd January 2017Accepted 15th February 2017

Published 24th May 2017

ABSTRACT

One key strategy to achieve economic development is to grow the Small and Medium Enterprises(SMEs) sector of the economy. Small and Medium Enterprises (SMEs) scalability (growth orexpansion) have become an area of concern for economic growth in developing economies. In viewof this many researchers have attempted to come up with some of the indicators that can be used todetermine SMEs success. This research literatures reviewed on small and medium enterprises(SMEs) revealed that all SMEs go through different stages of growth, commonly termed as lifecycles. Also, a careful study of business theories and common approaches used by institutions toselect SMEs for incubation has well established that many factors contribute to SMEs success. Thecritical question is, “do Business Plan and or other business documents contain all the factors thatdetermine SMEs success?” This study through the use of the Project Angel Model and the ChaosTheory [1,2] has conducted a careful study into what determines SMEs success and found that nosingle business document can be used as a perfect gauge of SMEs success. Further, this studyhas developed SMEs Success Prediction Model and SMEs Business – Project Success Rater to

Original Research Article

Asare; BJEMT, 17(3): 1-28, 2017; Article no.BJEMT.31399

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help gauge SME success. This study also summarizes the many determinants of enterprise growthand classifies them into ten (10) dimensions. The study also proves that individual competenciessuch as SME owners’ innovativeness, technical knowledge, growth motivation and many morecontributes to SMEs success, and enterprise’s scalability (its preparedness to grow) is found to havea positive impact on a firm’s success but not a business plan.

Keywords: Small and medium enterprises; nongovernmental organization; project funding; incubation;business plan; enterprise success determinants; innovativeness.

1. INTRODUCTION

Small and medium enterprises (SMEs) are animportant job originator [3]. Hence, a study intothe determinants of SMEs success is importantfrom government policy and NGOs interventionprograms perspective. It’s very common over thelast two decades that, these determinants havebeen studied in various disciplines such aseconomics, project management, strategy,finance, network theory and innovation. On theother hand, it is observed that knowledge of firmgrowth is still limited [4]. Further studies haveshown that growth is an organizational outcomeresulting from the combination of firm-specificresources, capabilities and routines [5]. It mustbe noted also that an enterprise growthopportunities are highly related to its currentorganizational production activities and that path-dependency is an important theme of firm growth[6]. Additionally, a firm growth is also uncertain,therefore environmental conditions such ascompetition and market dynamics play theirroles, and a small firm growth is also influencedby personal desire of an entrepreneur such asinnovativeness and technical knowledge.

Enterprises growth is an important gauge of abooming economy. Realization of this hasmotivated national governments, state agenciesand nongovernmental organizations to introduceseveral interventions to help promote the SMEssector of the economy. One major interventionaimed at promoting the SME sector of mostdeveloping economies is ‘SMEs IncubationPrograms’ run by most nongovernmentalorganizations (NGOs) operating in developingeconomies. Evidence has shown that mostNGOs operating in developing economiesbelieves SMEs are the ENGINE for growth ofevery economy. This conviction has seen mostinternational NGOs operating in developingeconomies providing various forms of support(like projects funding, business managementand business plan writing training, mentoring,product development, marketing, cashmanagement etc.) under their SMEs incubationprograms.

Most international donors (such as governments,state agencies, private organizations andindividuals) who provide funding to NGOs thatsupport SMEs in developing economies believesthat ‘SMEs incubation programs’ are that bestway they can contribute to grow the sector.Further, most donor agencies that fund NGOprojects have approved SMEs incubationstrategy and in most cases they have made it apolicy requirement to be adopted by all NGO’sthey fund. Most NGOs that initiate developmentprojects through SMEs support in developingeconomies, select SMEs for incubation throughmany processes such as ‘SMEs Business PlanCompetition’. Successful SMEs who get selectedfor incubation are those who are able to presenta well and convincing business plan to the‘Selecting Committee’ set up by the NGO. Thisprocess of selecting SMEs for incubation couldbe prone to many flaws, biases and in mostcases could leave the most promising SMEs outof the competition.

The factors influencing the success of SME’scannot be gauged based on a well presentedbusiness plan. The reasons for these are inthree-fold. First, the project model clearly showsthat certain factors influences a project success,while the chaos theory make it known that social,ecological, and economic systems also tend tobe characterized by nonlinear relationships andcomplex interactions that evolve dynamicallyover time. Secondly, growth of every firm isgradual and a vital source of job creation. Thirdly,firm growth is influenced by a number of factorswhich has attracted much research interest. It isvery paramount to note that none of theresearches reviewed did suggest that a wellpresented business plan is an indication of afirms’ success.

2. STATEMENT OF THE PROBLEM

A Firm’s success (growth and scalability) can bemeasured by several indicators such asinnovation, level of technology, economic factors,management team, environmental factors, age


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1. INTRODUCTION








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1. INTRODUCTION








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and firm size, government policies, businessstrategies, resources, competitive advantage,personality traits. A global market rapid growthhas been observed over the last decade, thisrapid growth has stimulated competition in bothdeveloped and developing countries, forcingnongovernmental organizations and policymakers to adopt growth-oriented policies to helppromote the SME sector. The rapid changes inthe global market have caused much instability tothe various indicators which determine a firm’ssuccess. The fact that the number of SMEs hasincreased in most countries suggests thatefficient SMEs have actually been able to set upnew strategies that enable them to grow, andface competition in the current knowledgeeconomy. Formerly defined, a knowledgeeconomy is characterized with the generationand adoption of new knowledge created byscientific research, technological development,investments in intangible assets, adoption of bestpractices, and openness to socio-economic, andcultural innovations [7]. Currently, some SMEsoperating in developing economies aresuccessful, while others are not. One majorfactor that could be attributed to this success isthe innovative behavior of the entrepreneur;which the study found as not having anyconnection with their skills in developingsuccessful business plan.

Also, the significant contributions of SMEs toeconomic growth have motivated a considerablenumber of international NGOs operating indeveloping economies to device several non-scientific means to select SMEs for incubation.This mode of selecting SMEs for incubation lacksuniformity and credibility because they are notbased on any scientifically proven theory ormodel. Further, there are many factors that allowan enterprise to move from one stage to another.History has revealed that factors affecting SMEsdiffers in terms of characteristics, agencies (suchas market, government, etc) and geography, allthese factors also influences SMEs growth. Itmust be noted also that the determinants ofSMEs growth have been studied in variousdisciplines, but integrated analysis on thesedeterminants have not been presented in acomprehensive model. These knowledge gapshave created a lot of challenges to NGOs indetermining which SMEs would be success to beselected for incubation. Even though pastresearches indicated that many factorsdetermine firms chances of growth, those factorshave not been put into a comprehensive modelto serve as a measure of SMEs success.

3. ACTUALITY OF THE STUDY

Small and Medium Enterprise development isone key issues in the cooperation betweendeveloping countries and international NGOs. Itmust be noted that, every leading businessorganization has had the experience of startingtheir business as an SME. The development ofthe SME sector is dependent on supports fromgovernment, academic scholars, internationalNGOs and other stakeholders’ participation. Thecontributions of SMEs to economic growthcannot be overlooked, OECD estimates thatSMEs account for 90% of firms and employ 63%of the workforce in the world, Munro (2013). Thiscontribution of SMEs to national economy hasprompted many governments to focus theirdevelopment programs at promoting the SMEssector through partnership with internationalNGOs to rollout many interventions.

Furthermore, economic growth has long been thegoal of all governments and most internationalNGOs, only recently have scholar devoted muchof their works to reveal the key role play bySMEs, and to what constitute SMEs success. Ifeconomists and scholars claim that small andmedium enterprises are the backbone of theeconomy, how come they don’t have a universaldefinition of SME, and a well-accepted modelthat allows for gauging the success of SMEs? Itis unfortunate to mention that most governmentand international NGOs who are passionateabout SMEs growth do not have a uniformmeans of assessing SMEs success. This lackhas compelled most international NGOs to adoptcertain none scientific-base methods such asbusiness plan competition to select SMEs forincubation. This study can state that none of theliteratures reviewed did mention that a businessplan can be used to determine SMEs success.Benson H. & Mikael S. [8] in their study stronglyopposed the use of business plan to predict afirm’s performance. They concluded that‘business plans are not a reliable predictor forventure level performance’. They furtherindicated that those that do plan appear to beloosely coupled, in that their planning activitiesfail to coordinate with their operational outcomes.They also stated that even changing (constantupdate) of business plans had little or no effecton firm’s performance [8]. Also, Honig [9] statedclearly that planning gives a false illusion ofcontrol and yields potentially harmful predictionsdue to the inability to gather and analyzeinformation about the future. Honig furtherindicated that business planning interferes with


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the efforts of time-constrained Entrepreneurs toundertake more efficient activities in the nascentprocess [9]. Furthermore, Bhide [10] argues thatthere are often more efficient uses ofentrepreneurs’ time than writing a business plan.Bhide went a step further and gave an examplethat particularly in new markets for novelproducts/services it is not possible to gaugecustomer demand, unless one actually tries tosell to them. Bhide also indicated that businessplans are a poor means of reducing uncertainty[10]. Further, Honig and Karlsson [11] alsoindicated that this widespread writing of businessplans by entrepreneurs has more to do withcoercive and mimetic forces to legitimize theirbusiness venture; that the expectation amongstoutside agents is that new ventures ought tohave a business plan because of an isomorphicimperative to mimic other organizations [11]. Thepoints above clearly prove that most informationcontained in business plans may not to berealistic. These therefore, suggest that businessplan competition cannot be used as a reliabletool for selecting SMEs for incubation.Additionally, not much study has been conductedon the project angel model and the chaos theoryto prove how well the two help to determineSMEs success. These knowledge gaps calls fora research to be conducted on ‘approach toassess and select small and medium enterprises(SMEs) for incubation on the base of angelmodel’

This research summarizes all the determinants ofSMEs success to provide a clear picture of whatdetermines SMEs success. Also, the studythrough the Project Angel model and the Chaostheory has developed ‘SMEs Success Predictionmodel’. This is a scientific model that would helpnational governments and NGOs gauge at aglance which SMEs will be success whensupported. Further, the study through thedeveloped model has proved that business plancompetition is not a perfect gauge to determineSMEs success or selection for incubation.Additionally, this study contributes to help closethe knowledge gap on what determines SMEssuccess, and its information are very useful fornational governments and NGOs who want topromote SME growth.

4. DESK REVIEW

Related literatures reviewed revealed thatpredicting the success of a business depends onits stage. That is, start-up or existing business,and each of it requires a different approach.

However, the indicators and theories foranalyzing SMEs success cannot be wellunderstood without an understanding of whatSMEs mean, since it is very crucial to this study.Despite the huge contributions of SMEs toeconomic growth such as job and marketcreation and income generation, there is nouniversally accepted definition of SMEs. Thedifferences in SME definition extend in threeflanks: Definitions by international institutions,definitions by national laws and by industrydefinitions. Finding a universal standard poses asharp and acute critic to institutionalists,economists, academics and industrialists [12].Studies have shown that small and mediumenterprises in most cases are defined byadjectives indicating size, for instanceeconomists tend to divide them into classesaccording to some quantitative measurableindicators. However, the most common decisivefactor to distinguish between large and smallbusinesses is the number of employees [13].

The Bolton Report, 1971 is one of the firstattempts to provide a definition of SMEs [14].The Bolton report suggests two approaches todefine SMEs: quantitative approach andqualitative approach. Most Internationalinstitutions, academics, statistical agencies andpolicymakers, mainly apply quantitative criteria indefining SMEs. The European Commissiondefines small enterprise as having 10 to 50employees and medium enterprise as having 51to 250 employees, with an annual €10 millionand €50 million respectively [15]. However, thecase is different in most developing economies.In Ghana for instance, the Registrar General’sDepartment of Ghana define Small enterprisesas those employing between 6 and 29employees and with fixed assets of up to onehundred thousand dollars ($100,000), whilstmedium enterprises as those employing between30 and 99 employees with fixed assets of up toone million dollars ($1,000,000) [16].

Most SMEs operations entails activities whichcan be describe as development project. Despitethe billions of dollars spent on economicdevelopment assistance each year by nationalgovernments and donor agencies, there is stillvery little known about the actual impacts ofthese interventions on the SME sector. TheIPMA define a project as a unique, temporary,multidisciplinary and organized endeavor torealize agreed deliverables with predefinedrequirements and constraints [17]. This meansthat every support from the government or NGO


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to SMEs should acknowledge certain predefinedrequirements and constraints. Manygovernments institutions, NGOs and SMEmanagers are reluctant to carry out impactevaluations on the support they offer to SMEsbecause they are deemed to be expensive, timeconsuming, and technically complex, andbecause the findings can be politically sensitive,particularly if they are negative. Manyevaluations have also been criticized becausethe results come too late, do not answer the rightquestions, or were not carried out with sufficientanalytical rigor. A further constraint is often thelimited availability and quality of data [18]. Yetwith proper SMEs incubation selection processand early planning, the support of NGOs toSMEs would be very impactful and effective inpromoting the SME sector for economic growth.

In an attempt to establish what determines SMEssuccess, this study discovered that SMEdevelopment requires a crosscutting strategy thattouches upon many areas (e.g. ability ofgovernments to implement soundmacroeconomic policies, capability ofstakeholders to develop conducivemicroeconomic business environments, inter alia,through simplified legal and regulatoryframeworks, good governance, abundant andaccessible finance, suitable infrastructure,education, sufficiently healthy and flexibly skilledlabour as well as capable public and privateinstitutions, and the ability of SMEs to implementcompetitive operating practices and businessstrategies). Thus, SME development strategymust be integrated in the broader nationaldevelopment strategy and or poverty reductionand growth strategy of transition and developingcountries [19]. The above shows that no singlebusiness plan or business document can beused to determine the success of SMEs.

The ‘Noisy’ Selection Theory: one key factor toconsider when analyzing the success of a firm isits start-up and operating costs. Boyan Jovanovic(1982) indicated that costs are random, anddifferent among firms. For each firm, the meansof its costs may be thought of as the firms truecost, Boyan further indicated that the distributionof true costs among a potential firm is known toall, but no firm knows what it’s true cost is. If thefirm has low true costs, it is likely that theevidence will be favorable, and the firm willsurvive, if the costs are high and the evidenceadverse, the firm may not waste time to withdrawfrom the industry [20]. It is a well kwon fact thatall international NGOs and other stakeholders

who support SMEs pay critical attention to thefinancial aspect of the SMEs business plan tomake informed decisions. But if we are to go bythe above theory, one can conclude that thefinancial aspect of a business plan is a ‘falsehope’. Other studies have revealed that there isno relationship between a firms size and growthrate [21,22] On the contrary, another study foundthat the growth and survival of a firm seem to beproportional to their size because adjustment ofcosts with constant return to scale have proventhat firms should grow in proportion to their size[23]. This study shows that the prediction of afirm’s success is very delicate and goes beyondjust the analysis of a business plan.

Johan W and Dean A. Shepherd (2009) alsoindicated that there is agreement in existingliterature on how to measure firms growth, andthat some of the common elements that scholarshave used to measures firms’ growth potentialare growth of sales, employees, assets, profit,equity etc. and the time span, over which growthis analyzed, varies considerably and ranges fromone to several years. They further suggested thatthe attitudes, industry, task environment,entrepreneur’s resources, firm resources,network resources, firm age, subsidiary growthand entrepreneurial orientation play key role infirms’ success and growth. Also, Aldrich andAuster [24]. suggested that the strategy of asmall business with respect to entrepreneurialorientation affects its growth to a substantialdegree, even when other factors are taken intoaccount. Most often, there is this feeling thatsmall firms are subjected to strong environmentalpressures that determine their development andperformance. But Carroll and Hannan [25] makesus believe that the future growth of the small firmis largely a function of previous growth due toinertia and path dependence. Once the firm hasbeen launched in a particular environment,managers can do little to affect the future of thefirm due to environmental pressures and internalinertia. Ecological research has also proved thatfindings of researchers have influence onpurposeful action on firm outcomes, and can belargely attributed to methodological artifacts.

The model for SME sector development bySaburo K [26], maintain that finance,management reform, strengthening ofmanagement infrastructure, environment andmicro enterprises are fundamental determinantsof SMEs success. Saburo further indicatedfinance as fundamental to SMEs growth, anddescribe these factors as tools for SME


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development [27]. In financing SMEs there is theneed to examine the success of the SME and itsbusiness-project or activities. Gordon M, [1]stated that there is no singular definition ofproject finance, and that the financing of a projectis said to be nonrecourse when lenders arerepaid only from the cash flow generated by theproject or, in the event of complete failure, fromthe value of the project’s assets. He furtherindicated that government, project sponsors andowners, the project company (the SMEsbusiness), contractor and operators (SMEsworkers), suppliers, customers, financialinstitutions, the capital markets, equityinvestment funds, multilateral agencies andexport credit agencies play a crucial role indetermining projects success. This approach toanalyze SMEs growth and projects successmakes it clear that the success of SMEs isgradual, runs through time and involves manyactors. However, these models failed to paydetailed attention to the key role that technologyplays in SMEs success in this current knowledgeeconomy. However, with the right technologicalapplication, not much finance and many actorswould be needed to boost SMEs growth. It isbased on this conviction that this study woulddevelop SME success prediction model thatcaptures all the elements that determines SMEssuccess and growth found in most studies.

Also, Miroslav and Yanko [28] stated that manydifferent theories have attempted to identify themain factors underlying firm growth, and thatthey can be divided into two main schools: thefirst addresses the influence of firm size and ageon growth, while the second deals with theinfluence of variables such as strategy,organization and the characteristics of the firm’sowners or managers. They further mentionedthat when firm size is proxy by a firm’s number ofemployees the observed effect is marginal.Rather, firm’s specific characteristics such asleverage, current liquidity, future growthopportunities, internally generated funds, andfactor productivity are found to be importantfactors in determining a firm’s growth andperformance. And that age and ownership do notseem to be able to explain firm growth [29].Further, Najib H. [30] revealed that the principalfactors promoting firm growth are businessstrategies that are focused on productdiversification and market share expansion;Location in large urban centers; Legal status as alimited liability company; The presence of pricecompetition; presence in markets with highdemand; and certain government policies such

as labor regulations, anti-trust and environmentalpolicy. He further indicated that the principalfactors impeding firm growth are lack of accessto qualified workers and managers; Location insmaller population centers; and certain othergovernment policies such as regulation of foreigntrade and policies that promote domestic pricevolatility [31].

It is very paramount to state that enterprisegrowth can be identified in four theoreticalperspectives: The resource-based perspective,the motivation perspective, the strategicadaptation perspective and the configurationperspective. The resource-based perspectivefocuses on the enterprises' resources likeexpansion of business activities, financialresources, educated staff, etc. the resource-based theory holds that there are unlimitedsources of opportunities in the marketplace.Therefore, it is essential to manage the transitionpoint at which the resources are beingreconfigured by deploying firms' resources toidentify and exploit the next growth opportunity[32]. Also, Pajarinen et al. [33] stated thatentrepreneurs with higher academic backgroundare more innovative and will use moderntechniques and models to do business.Schumpeter [34] also indicated that anentrepreneur needs to be innovative, creative,and should be able to take risk. Further,Barringer and Bluedorn [35] describedentrepreneurs as individuals who can explore theenvironment, discover the opportunities, andexploit them after proper evaluation. Thesestudies clearly show that the success of SMEslargely also depend on owners capabilities ratherthan a business plan.

Analyzing the success of a new business is animportant venture that entrepreneurs need toundertake before they seek funding. We all knowthat no business investor will want to fund aproject that does not have evidence for potentialgrowth. Go4funding [36] stated that the severalcommon components that predict the success ofa new business are strength of the managementteam, efforts of entrepreneurs, competitiveadvantage, marketing surveys, simulated testmarkets, web analysis and area of industry [37].In other to achieve economic development, it iscritical for SMEs to create, apply, and introduceinnovation [38]. Other researchers have alsoproved that in the past, only 60% of theinnovations were in the SME sector, but most ofthem were not successful due to lack ofprofessionalism and inability to collaborate with


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other enterprises [39-41]. However, the currenttrend has shown that innovativeness andcreativity is very vital to the survival of all SMEs.To sustain in today's market and meetcustomers', it has become important fororganizations to differentiate themselves on thebasis of capabilities and competencies. Theyneed to compete on different dimensions such asdesign and development of products,manufacturing, cost, distribution, communication,and innovative ways of marketing. Thesechallenges call for reorientation of SMEs, so thatthe demand for high dynamism, flexibility, andinnovativeness can be met [42].

The key role innovation play in determining SMEsuccess cannot be underestimated as elaboratedin the work of Stenholm P. and Renko M. [43].However, the dynamics in the market offer newgrowth opportunities, which may be exploited ininnovative ways [44]. Also, Cho, Hee-Jae &Vladimir Pucik; Kirzner I; and Lumpkin, G.T. &Dess, G.G [45-47], mentioned that new market–product combinations, changes in demand andyet to be recognized market niches providepotential revenue generating and growthopportunities. However, research has shown thatit may be impossible for SMEs to exploit theseopportunities given its current resources and thedynamics in the business environment. In orderto take advantage of the opportunities or toadjust its actions to configure them, SMEs needto focus on renewal and rethinking of the presentand to act innovatively [48-50]. When analyzedcritically these studies, the chaos theory’s andproject finance angle model, this study canassert that our environment is characterized bymany dynamics which makes it very difficult togauge the success of SMEs and its future.

Most scientific studies have shown a positiverelationship between the growth intentions offirms’ owner and the actual growth of the firm[51-55]. However, according to Saemundsson2003; Wiklund and Shepherd 2003, theconnection appears to be somewhat weak,meaning that the success of SMEs is alsoaffected by other factors. Covin and Slevin 1997and Sexton and Bowman-Upton 1991 maintainedthat the relationship between aspiration andactual growth is likely to be moderated by marketconstraints, entrepreneurial capabilities, andorganizational resources. On the other hand,Covin and Slevin 1997; Davidsson 1991;Morrison, Breen, and Ali 2003; Sexton andBowman-Upton 1991; Toivonen, Stenholm, andHeinonen 2006 indicated that two further

fundamentals abilities and opportunities, aredecisive. They indicated that the fundamentalsfor firm growth, abilities, refer to the firmresources and managerial skills that are neededin pursuing growth, this has been supported byBrown and Kirchhoff 1997; Gibb and Davies1990; and Penrose 1959. Further, Barney 1991;Sexton and Bowman-Upton 1991; Wernerfelt1984 makes it clear that managerial skills arenecessary for directing and acquiring othergrowth-related assets, such as human resources,organizational routines, and financial resources.

In addition, Mazzarol 2003, and Le Brasseur,Zanibbi, and Zinger 2003, affirms also affirmsthat firm growth typically requires the delegationof managerial tasks and the fostering of potentialnew external relationships with customers andbusiness partners. Furthermore, managerialskills are crucial in recognizing growthopportunities and in generating the growthstrategies [56]. All these literatures reviewedpoint to the fact that, there are many factors toconsider when analyzing, gauging or predicting afirm’s success and growth. Therefore, this studysee it as very necessary to merge all the factorsidentified through data collection and literature todevelop a model based on the Chaos Theory,the Project Angel Model and the four theoreticalperspectives of enterprise growth to prove that,business plan or document do not guarantee asuccessful SMEs business neither can it be usedto predict SME success.

5. THE PURPOSE OF THE RESEARCHAND THE RESEARCH QUESTIONS

This study is conducted to systematically identifyand examine the factors to consider beforeselecting SMEs for incubation. Also, this study isconducted to prove whether a business plan orother business documents are the best tools forassessing the success of SMEs. Further thisstudy is intended to combine all the factors thatdetermine SMEs success to develop a modelbased on the chaos theory, project angel modeland the four theoretical perspectives ofenterprise growth. Additionally, the study isconducted in other to come up with SMEsSuccess Prediction Model and SMEs Business –Project Success Rater to help gauge SMEsuccess. In other to achieve these, the study willtry to find answers to the following five keyquestions:

What are the key factors that determineSMEs success in a developing economy?


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Does a business plan contain all thefactors that determine SMEs success?

How can those factors that determineSMEs success and growth be developedinto a model?

To what extent does a business plan helpsto predict an SME success?

What business model would be ideal forpredicting an SME success and growth inthe constantly changing knowledgeeconomy?

6. THE RESEARCH METHODOLOGY

This is a scientific study which uses a wellstructured survey, which describes the state ofaffairs as it prevails at the time of study, andanalytic, thus, uses the already available factsand information and analyze them to make acritical evaluation of the subject [57]. Thequestionnaires to this research were given to aselected sample from a specific population ofstate institution, staff of the ENGINE program ofTechnoserve in Ghana and some SMEs owners.The term ‘survey’ as applied to this research is amethodology designed to collect data from aspecific population, or a sample from thatpopulation and typically utilizes a questionnaireor an interview as the survey instrument [58]. Aquantitative questionnaire was used to obtaindata from individual respondents aboutthemselves, their work (factors that have provedto have strong influence on SMEs success suchas age and tenure of work). Further, some of therespondents were interviewed to allow forprobing questions, the number of interviewsconducted were less because the distinctadvantages in using a questionnaire versus aninterview methodology is that questionnaires areless expensive and easier to administer thanpersonal interviews. Studies have also shownthat questionnaires often lend themselves togroup administration, and allow confidentiality tobe assured [59].

Further studies have revealed that mislaid dataand chaotic mistakes in data collection are oftenthe leading causes of error in a survey [60]. Inother to avoid mistake, the primary data of thisstudy was gathered by means of interviews andquestionnaire and involved quantitativetechniques. A significant number of face-to-faceinterviews were conducted with state institutionsand some ENGINE program heads andemployees operating in Ghana. Also, someselected SMEs were interviewed, alongside wellknown academic professionals. Specific line of

questions which are not different form thequestions in the questionnaire were asked duringthe interview and responses were enteredagainst each question asked. All date collectedwere validated in excel to restrict the type of datathat are entered into cells and to also ensure noinvalid data is entered. Two different sets ofquestionnaires were given to each group as partof the data collection. Also, the interview andquestionnaires were administered through e-mails, field visit, and phone calls. This study isbelieved to be a social study that employsempirical statements and methods. An empiricalstatement is a descriptive statement about what“is” the case in the “real world” rather than what“ought” to be the case [61]. Moreover, thequantitative aspect of the study consists ofnumerical data. The study used mathematicallybased methods to collect and analyze all datacollected. All data collected from eachpopulation is presented separately to enable thestudy attain the desired results and level ofimportance. Further, analysis of all relevant datawas done using models, charts, tables andMicrosoft Excel software for both qualitative andquantitative analysis.

7. DEMOGRAPHIC PROFILE OF THERESPONDENTS

It is very important to justify that the quality of astudy is often better with sampling than with acensus. This study used a simple randomsampling to select 40 respondents, consisting of3 heads of state institutions, 27 NGOs heads andemployees who facilitate the process of selectingSMEs for incubation, 3 academic professionalswho have well studied SMEs business climate inGhana, and 3 SME owners who failed and 4who passed the NGOs incubation selectionprocess. The Table 1 represents thedemographic characteristics of all therespondents.

The Table 1 which represents gender and agedistribution, various positions, educational leveland tenure of work of all the respondentsindicated that male dominates the stateinstitutions and international NGOs supportingthe SME sector in Ghana. Same trend wasobserved under academic professionals who areknowledgeable in the SME sector in Ghana. Thestudy also showed that male dominates theSME industry. The above demographicTable 1 revealed that male was the majority,72.5% while; 27.5 of the respondents werefemale.


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Table 1. Demographic characteristics of the respondents

Profile Category Number Frequency %State institutions Local and international

NGOsAcademicprofessionals

Successful SMEowners

Filed SMEsowners

Gender Male 3 20 2 3 1 72.5Female 0 7 1 1 2 27.5

Total 3 27 3 4 3 100.0

Ages20-39yrs 0 16 0 0 0 40.040-49yrs 2 8 1 2 2 37.550 yrs+ 1 3 2 2 1 22.5

Total 3 27 3 4 3 100.0Position Deputy country Coordinators, directors,

managers, project officers, supporting staffLecturers andresearchers

SME Owner SME Owner

EducationalLevel

No Educ. 0 0 0 0 2 5.0Certificate /Diploma

0 6 0 1 1 20.0

Degree 0 13 0 3 0 40.0Master / PhD 3 8 3 0 0 35.0

Total 3 27 3 4 3 100.00Tenure ofWork

Below 5yrs 2 15 1 1 0 47.56-10yrs 1 12 2 2 2 47.511-15yrs 0 0 0 1 1 5.016 yrs + 0 0 0 0 0 0.0

Total 3 27 3 4 3 100.0


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7.1 Age Distribution

Table 1 showed the age distribution andpositions of the respondents as follows: Majorityof the respondents were within the age group of20-39 years, representing 40.0%. This isfollowed closely with those within the age bracket40-49 years. This group makes up 37.5% of therespondents. Lastly, 22.5% respondent belongsto the 50 years and above category.

7.2 Positions Help

Respondents from the state institutions,international NGOs, academic professionals andSMEs hold various positions as deputy countrycoordinators, directors, managers, project fieldofficers, supporting staff, lecturers, researchers,and SME owners.

7.3 Educational Level

Also, form Table 1 the level of education of therespondents revealed that only 2, representing5% out of a total of 40 respondents do not holdany academic qualifications. 20.0% of therespondents hold certificates or diplomaqualifications, this is followed by a further 40.0%of the respondents who hold bachelors degree.Additionally, a 35.0% of the respondents werefound to hold either masters degree or PhD.These figures indicate that 95.0% of therespondents could read, write, and clearlyunderstood the research topic, and everyquestion posed to them. Further, the 5% whohold no higher academic qualification could readand write and clearly understood the purpose ofthis study.

7.4 Tenure of Work

Figures from Table 1 indicate that 47.5% of therespondents have worked below five years, whilesame percentage was recorded for those whohave worked between 5-10 years. These figuresindicate that majority of the respondents havethorough knowledge in the SME sectors. Thisfigure is followed by those with 11-15 yearsworking experience, constituting only 5.0% of thetotal respondents. Interestingly, only 2.5% of therespondents were found to have worked in theSME sector for more than 15 years. Thesedynamics with regards to the demographiccharacteristics of all the respondents havegiven the data gathered much credibility. Thedate recorded from all the respondents clearly

shows that all the respondents havethorough knowledge on the research topic andwere able to provide adequate and rightinformation.

8. DATA COLLECTION AND ANALYSIS

The collection of primary data for this study wasgathered through questionnaire, face-to-face andphone interviews. The weighting method ofHorvitz and Thompson, 1952 was used toanalyze the numbers that was assigned to eachSME success indicator. This method wasadapted to ensure the quality of this study’s data.On a Likert scale of 1 to 5, with 1 being the leastand 5 highest, respondents were asked to assignweights to ten key identified determinants ofSMEs success to indicate the extent to whichthey agree that those indicators contributes toSMEs success in developing economies. All thevarious weights were assigned to the indicatorsaccording to the individual respondent’s level ofagreement to the extent of influence it has onSMEs growth. A simple regression analyses wasuse to assess teach data. The dependentvariable is firm success (scalability and orgrowth). The weight of W j as used in this studywas to ensure that the weights reflect a productof likelihood P, from intricate multistageselections and a response rate rj in Wj = 1/Piri.This shows that this research used meanstatistics to normalize with the sum of weights asin yw = ∑Wiyi / ∑wi and in ∑wiyix / ∑wi and ∑wiyi

2 /∑wi. Additionally, several reproductions wereconducted to reduce the degree of variances inthe individual weighting (Kalton, 1983).

Further, an inter-correlation matrix wasconstructed to find out how the various keyindicators of SME success indicated in theproject angel model, chaos theory and thetheoretical perspective of firms growthdimensions. The logic behind this is to find outthe possibility of collinearity in the regressionmodel of data analysis. In testing thehypotheses, a t-test of significant difference levelwas performed on the mean of all the keyindicators. A further independent t-test, whichassumes unequal variance, was performed at95% confidence interval to determine whether abusiness plan or any business documentcontains all the indicators that helps to gaugeSMEs success, as against the indicators ofproject angle model, chaos theory and thetheoretical perspective of firm’s growthdimensions.


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Form Table 2 is the difference between the meanscores of elements that determine SMEssuccess that are dependent on the project angelmodel, chaos theory and the theoreticalperspective of firms growth dimensionselements. The T-values are significant at .02levels for creativity & innovativeness, use ofTechnology, economic factors, managementcompetencies, environmental factors, age andfirm size, government policies, businessstrategies, competitive advantage, andpersonality traits to help gauge SMEs success.Further, a T-value amount of creativity &innovativeness, use of Technology, economicfactors, management competencies,environmental factors, age and firm size,government policies, business strategies,competitive advantage, and personality traits aresignificant at .05 levels. This result clearly showsthat the elements have significant impacts ingauging SMEs success in developingeconomies. Also, Table 2 shows the mean andstandard deviation of the elements thatdetermines SMEs success in developingeconomies.

Also, the Table 3 further attempts to predict thefactors that determine SMEs success.

The Table 3 measures the predictor of SMEssuccess through the project angel model andchaos theory and the theoretical perspective offirm’s growth dimensions. This measure revealsa positive significant correlation between the totalscores of SMEs success prediction indicators (P˂ 0. 02). Additionally, the results in Table 3 showa significant P-value =0.000 (less than 0.05) forthe prediction relation between the indicators andSMEs success.

Further, Table 4 confirms the occurrence of aprediction relation between the factors used togauge SMEs success and the dependentvariable (project angle model and the chaostheory).

One key point drawn from the relationship of thefactors is shown in the above Table 4 with thehelp of the values of intercept (0.582) and slopefor SME success regression line (0.880). Thissuggests that to gauge the success of an SME,

Table 2. Indicators of SMEs success

N Factor N Mean SD T1 Creativity & Innovativeness 40 20.9 .578 5.74.2 Use of Technology 40 20.7 .516 4.433 Economic Factors 40 19.1 .306 2.524 Management Competencies 40 20.3 .415 5.205 Environmental Factors 40 18.6 .254 3.226 Age and Firm Size 40 16.4 .203 2.107 Government Policies 40 18.4 .343 3.588 Business Strategies 40 20.2 .543 4.789 Competitive Advantage 40 18.9 .432 3.8710 Personality Traits 40 20.4 .466 5.34

P˃.05, P˃.02

Table 3. Predictor of SMEs success

Model Sum of squares Df Mean squares F SigRegression 32.528 1 32.548 187.230 .000Residual 53.251 189 0.354Total 88.779 189

Table 4. Dependant variable: SMEs projects financing gap

Un-standardized coefficient Standardizedcoefficients

T Sig

B Std error BetaSMEs Success Factors 0.880 0.038 0.564 16.264 .000


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the respective investors or funds providers(NGOs) can significantly predict 0.880 (88%)chances of an SME succeeding based on theabove stated indicators. Auxiliary, a slope of0.564 for SME success factor is formed when thetest applies standardized independent anddependent variables. To measure the influenceof a forecast relation through ‘Beta’ couldindicate some vulgar results. Due to this aconventional measure ‘coefficient ofdetermination’ was calculated. The SMEssuccess scores on prediction factorsexhibit nearly high positive association (r =0.564) with those factors that predict theirsuccess.

Last of all, shown in Table 5 is the summaryregression for SMEs success prediction factorsand SMEs success determinants.

The Table 5 revealed the presence of a well-builtpositive relationship between SMEs success andthe determinant factors; This proves that SMEssuccess can be predicted based on the elementsidentified in this study. The above table furthershows an ‘R’ value of 0.564, indicating that56.4% of the variance in SMEs successprediction can be overcome by paying a criticalattention to those determinants stated in thisstudy.

8.1 SMEs Incubation Selection Process

Data gathered through this study revealed thatmost NGOs operating in developing countrieshave adapted a common non-scientificallyproven process for predicting SMEs success andselecting them for incubation. The NGOs dothis through common practices such asbusiness ‘plan competition’. The incubationselection process used by most NGOs is shownin Fig. 1.

The Fig. 1 describes the process used by mostNGOs in developing economies that supportSMEs. This study through literature review andcareful data analysis has uncovered that theabove process used to determine thesuccess (scalability) of SMEs has no scientificverification or prove. The above process is also

not based on any well proven business theory ormodel. This study further discovered that theabove process is prone to biases, mostoften leaves a more promising SMEs frombeing selected, does not conduct detailed risksand other business feasibility analysis andignores the pivotal role that all the indicators ofbusiness success play in gauging SMEssuccess.

Also, data collected and analyzed revealed thatcreativity & innovativeness, Use of Technology,economic factors, management competencies,environmental factors, age and firm size,government policies, business strategies,competitive advantage, and personality traitsare the key indicators of predicting SMEssuccess. The Fig. 2 is a bar chartrepresentation of a percentage degree of impactthat each of determinant have on the successof SMEs.

The bar chart in Fig. 2 was drawn based on datecollected and it represents the various elementsand the percentage level of impact each elementhas when predicting or analyzing SMEs success.The study revealed that the above element whenanalyzed in detail is the most perfect indicator fordetermining SMEs success. The study revealedthat innovativeness and creativity has greaterimpact on SMEs success, constituting 20%. Thiswas followed closely by technological application,with a 17.5% contribution to SMEs success. Thestudy further uncovered that a business plan is asub-element under business strategies whichcontributes 12.5% to SMEs success. This samepercentage was recorded for managementcompetencies. This is a clear indication thatmanagement competence level is directly linkedto the level of business strategies developed andapplied. Also, personality traits and economicfactors had 10% and 9% impacts respectivelyin determining SMEs success. The resultshowever proved that external environmentalfactors and government polices has 6% and6.5% impacts respectively on SMEs success.Lastly, the above Fig. 2 through this study hasproved that competitive advantage and firms ageand size has 3.5% and 2.5% contribution impactrespectively on SMEs success.

Table 5. Summary regression for Knowledge economy factors

R R square Adjusted R square Std. Error of the estimate0.564 0.446 0.454 0.3462


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Fig. 1. SMEs incubation selection process used by NGOs

Fig. 2. SMEs success factors


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8.2 Development of SMEs SuccessPrediction Model

The true representation, achievements and realapplication of the chaos theory, the project angelmodel and the theoretical perspective of firm’sgrowth dimensions in multiple fields of study iswhat informed my decision to use them in thisstudy. These theories and data gathered clearlyshows that each factor that influence SMEssuccess has the ability to demonstrate how eachsimple set can form a deterministic relationshipand reproduce unpredictable outcomes. Also, thechaotic factors in SMEs operations whichdetermine their success never return to the sameexact state, however they multiply over timebecause of the nonlinear relationships and thedynamic, repetitive nature of those chaoticfactors. As a result, such factors tend to beextremely sensitive to initial conditions, whichmake prediction of SMEs success very difficult.The logic behind this analysis also proves thatSME owners not only find it difficult to forecastbut also do not even know their own costs.Therefore, the Fig. 3 presents SMEs SuccessPrediction Model to show the interconnectivity ofall the various factors and their percentageimpacts on SMEs success.

8.2.1 Government policies (legal andpolitical)

The head of the model below in Fig. 3 of thisstudy is the Government. The government isseen to have greater influence on tax laws,political and legal requirements, trade promotionlaw, specific SME sector growth strategies andfiscal Policy. Also, Yusuf [62] points out that inmost developing economies; Satisfactorygovernment support has been shown to beimportant for small firm success. It is a worryingsituation to note that, dealing with legalrequirements has forced most SMEs to allocatesignificant amount of financial resources due tocorruption and bribery practices. Further,Mazzarol & Choo [63] maintained that legalaspect is often used in selection weapon and indecision making process by the government inorder to ensure future business success. Thisstudy revealed that government constitutes 6.5%of SMEs success.

Government influence includes: Approval of SMEbusiness-projects, control of the state companyand NGOs that sponsors the SMEs business-project, responsibility for operating andenvironmental licenses, tax holidays, supply

guarantees, industry regulations or policies andproviding operating concessions. Most oftencertain government policies tends to believe thatSMEs must sponsors their own business-project,however, it is possible for a single localgovernment institutions, a consortium or an NGOto sponsor SMEs business-project. Typicalsponsors include foreign multinationals, localcompanies, contractors, operators, suppliers orother participants. The World Bank estimatesthat the equity stake of sponsors is typicallyabout 30 percent of project costs. Also, politicalrisks such as changes within the country’spolitical landscape, changes in national policies,change of administration, and laws regulatoryframeworks. Further, certain environmental laws,tax policies, and energy policies are particularlyimportant to SMEs growth. Additionally, mostSMEs in developing countries continue to facesignificant political risks, such as marketrestrictions, working permits, negotiation ofcontracts etc. The model below has shown thatgovernment has 6% influences on personalitytraits and also proves clearly the crucial rolesthat government play when predicting SMEssuccess.

8.2.2 Personality traits

From the model in Fig. 3 shows that whenpredicting the success of an SME, personalitytraits of the owners play a crucial role in the SMEsuccess and constitute 10%. These traits includethe individual competencies, growth intentions,self efficacy, extraversion, personal background,risk taking propensity, locus of control andexperiences. Personality traits of theentrepreneur are the most importantdeterminants that determine the success ofSMEs [64]. Also, Hollenback & Whitener, andMcClelland D. [65,66] stated that traits areimportant predictors of venture growth, whichwork primarily through competencies, motivationand strategy. According to Blackman (1991) thecharacteristics of an entrepreneur whichcontribute to firm’s success can be grouped intotwo namely: Attribute, the attributes arecharacteristic that is in itself an entrepreneur, andincludes religion, ag, family influence, andgender. The second characteristic is attained,this include education and experience of theowner/manager. Also, [67] indicated that severalinternal and external factors such as family,education, personal values, and work experienceinfluence firm’s success. The 10% resultsrecorded for personality traits showed that all theabove mentioned individual factors focuses on


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the effects that environmental factors have on afirm’s strategy.

Further, Miller & Rice [68] affirms that differentexternal environments require different strategiesmatched with complementary internalenvironments and structures in order to promotesuccess. Additionally, Endi Sarwoko & ChristeaFrisdiantara [69] also indicated that the strategyof innovative differentiation for instance, is mostlikely to be pursued in uncertain environmentsand correlates with the use of technocrats andliaison devices. And the strategy of cost

leadership is associated with stable andpredictable environments and is correlatedwith the use of control. Furthermore,Cunningham J.B & Lischeron J. [70] stated thatpeople who possess entrepreneurialcharacteristics will have a higher potential toperform entrepreneurial acts and can beidentified by traits of personalities or‘psychological characteristics’ that promoterisk-taking. These are clear indications of thecrucial role that personality traits play indetermining SMEs success which this studyfound.

Fig. 3. SMEs success prediction model


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8.2.3 Industry-specific environment andenvironmental factors

This study recorded that 6% of SMEs success isdetermined by the environmental factors withinarea of operations. Most studies have provedthat it is very difficult to predict firm’s success. Itfurther proved that the unpredictability of firmsuccess rates may also differ from industry toindustry, depending upon the kind of competitionand type of the product, etc. A study conductedby Dunne, Roberts, and Samuelson [71] showed thatfirms' success rate vary significantly amongdifferent industries in the manufacturing sector inthe United States. Also, a study by Harhoff D etal. [72] in Germany confirms sectoral differencesin success rate. The study also showed that firmsin the services sector in particular arecharacterized by above-average employmentgrowth. Another study by Johnson, Baldwin andHinchley [73] discovered a close connectionbetween success dynamics within a sector andfirms' success rates. They further indicated thatfirms’ success rates in a growing sector must behigher than those of firms in languishing sectors.

Other researchers have shown emergingmarkets portray low barriers to entry and exit.This therefore gives individual firms diversegrowth opportunities depending on the sector.Also, Barney, and Penrose [74,75] makes usunderstand that a firm’s ability to accessresources influence its success andperformance. They further stated that a firm‘scapabilities in accessing and connectingresources enables them to achieve a sustainedhigh performance. Further, the Resource-Baseapproach view competitive advantage of a firmand its success as the result of the portfolio ofresources it is able to connect for its performancewithin the industry. The above stated pointsclearly show that the success and challengesfaced by SMEs varies from sector-to sector, andhas greater effects on SMEs success. Thecrucial role both internal and externalenvironment factors play in firm success has longbeen noted. Factors such as government andother stakeholder support, and legalityframeworks, cultural values, resources, andsocial networks within the environments are thekey strategic dimension in business success.According to Kristiansen [76] networks representa means for entrepreneurs to reduce risks andtransaction costs and also to improve access tobusiness ideas, knowledge and capital.Kristiansen further stated that a social networkconsists of a series of formal and informal ties

between the central actor and other actors in acircle of acquaintances and represents channelsthrough which entrepreneurs get access to thenecessary resources for business start-up,growth and success.

8.2.4 Innovativeness, creativity and use oftechnology

This study discovered that innovation constitutes20% of the success of every SME, while use ofmodern technology constitutes 17.5% to thesuccess of SMEs. This proves that theinnovativeness of the business owner and theowner’s ability to acquire and use moderntechnology is very crucial in accelerating growthand success. This research accepts the notionthat entrepreneurship and business creation iscrucial for employment generation. Therefore,entrepreneurship must be innovation-driven andmust also apply modern technology to helpgenerate solutions to the economic problems ofmost developing economies. Innovation is at theheart of the spirit of enterprise. It means thatsuccessful SMEs are those who strive or areable to perform activities differently or performsactivities differently to enable their businessdeliver a unique mix of value. Being innovative,the entrepreneur must be able to bring the bestideas into reality, and the idea must trigger acreative idea or generate a series of innovativeevents. This study also discovered thatsuccessful SMEs are those who are able totransform new ideas into new value forcustomers. It must be noted that no entrepreneurcan be innovative without being creative. Withoutinnovation the entrepreneur and what heprovides will become obsolete.

Innovation and creativity also play a significantrole in start-up businesses and it is regarded asthe key driver in developing a business idea,organising resources, and creating a business tobring new product or service into the market. Inmost competitive business environment theentrepreneur must demonstrate the ability tocome up with opportunities and convert them intonew products or services. The concept ofinnovation in SMEs should aid the entirebusiness create a competitive edge in themarket. According to Joseph Schumpeter [77]the use of invention to create a new commercialproduct or service is the key force in creatingnew demand and thus new wealth. Josephbelieves innovation creates new demand andentrepreneurs bring the innovations to themarket. When analyzing the innovativeness of


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the entrepreneur there is the need to considerthe form it takes. Innovation in SMEs can takethe form of processes, which includes changesand improvement to methods of production or theentire business operation. This often leads toincreases in productivity, lower cost and helps toincrease demand. Also, the innovation must be inproducts or services. Most progressiveinnovation tends to be predominant, radical,opens up new markets and in most cases leadsto increases demand, investment andemployment. Further, the innovation must be inmanagement and work organization, and theexploitation of human resources, together withthe capacity to anticipate techniques [78].

Technology, also in this study, it became evidentthat technology constitutes 17.5% of SMEssuccess. Elegant entrepreneurs are those whoview technology as a means to an end, and notan end of itself. According to Jim Collins (2001)technology is an accelerator; this means thattechnology can accelerate both good and awfulideas towards success or failure. However thisstudy discovered that most entrepreneurs whoput good ideas or bad ideas into thetechnological accelerator are able to achievesuccess. All the above clearly shows that whenanalyzing the success of SMEs, critical attentionmust be given to the innovativeness andcreativity of the entrepreneur.

8.2.5 Economic factors

This study noted that economic factors constitute9% of SMEs success. Olena Arefyeva (2004)stated that the activity of economic agents inemerging market relations requires a rapiddetermination of factors conditioning theavailability of economic security of businesses,adaptation to dynamics of external environmentthrough liquidation of existing threats are crucialto ensure every business success. Olena furtherindicated that elements of the state economicfactors are reduction of science-basedproduction; lack of developed banking andinsurance system, as well as guarantees fromtrust organizations; state budget deficit; theoutflow of capital; high taxes on producers; lowlevel of economic statistics credibility; weak lawenforcement agencies and mass media; povertyand misery of the majority of population; strikes.Further included in the economic factors are lackof legislative framework that regulates the rightsand duties of the regions; Lack of the regionalbanks network; failure to change local taxes andcharges; failure to compile a free regional

financial balance sheet; lack of economicinfrastructure or its insufficient level ofdevelopment.

Also, consumer confidence, employment, interestrates, inflation and GDP growth rate play a keyrole in SMEs success. The consumer confidencewhich is an economic indicator that measuresoverall consumer optimism about the state of theeconomy, also tend to measure the willing ofcustomers to spend money shows thatconsumers with low confidence are more likelynot to spend and business tend to prosper whenconsumer confidence is high. Additionally,employment in an economy tends to follow abusiness cycle of economic booms followed byperiods of stagnation or decline. During boomperiods, jobs tend to be plentiful, sincecompanies need workers to keep up withdemand. When unemployment is low, consumerspending tends to be high because most peoplehave income to spend. Further, high interest ratetends to affect business profitability. Most SMEsrely on loans from banks or other financialinstitutions as a source of financing. Higherinterest rates result in higher total businessexpenses. Also, high interest rates can alsoreduce consumer spending, because high ratesmake it more expensive for consumers to takeout loans to buy things in the market. On theother hand, inflation causes increases inbusiness expenses such as rent, utilities, andcost of materials used in production [79].

8.2.6 Management team

Through this study it came to light that teaminvolved in the management of every SMEcontributes or must contribute 12.5% to itssuccess. This study also discovered thatmanagement team is the main human capital ofthe business. Empirical research have shownthat a manager’s primary challenge is to solveproblems creatively and should viewmanagement as the art of getting things donethrough the efforts of other people. The principlesof management, then, are the means by whichleaders actually manage, that is, get things donethrough others - individually, in groups, or inorganizations. Formally defined, the principles ofmanagement are the activities that plan,organize, ad control the operations of the basicelements of people, materials, machines,methods, money and markets, providing directionand coordination, and giving leadership to humanefforts, so as to achieve the sought objectives ofthe enterprise. The Neoclassical, Organization,


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and Human Relations management theorieshave made it clear that the management of asuccessful organization require managers whohave the ability to achieve the organizational goalthrough employees [80,81]. Let us not forget thenumerous challenges that managers face as theycoordinate organization’s activities can largely beattributed to the current knowledge economy.

Most organisations that are able to effectivelyexploit the cognitive abilities of their humanresources can assure its economic security andsuccess. Analoui et al. [82] stated that for anorganization to achieve continuity and success,that organization must be innovative, creativeand strategic when thinking in providing itsservices and products. According to Liu Y. andRavichandran [83] managerial human capital ismade up of the ability and knowledge embeddedin the organization’s managers, upper levelperspective posits that managerial characteristicsof top managers, such as education, age, andexperiences, can predict the strategic outcomesof organization. More so, Gupta andGovindarajan [84] have argued for the need tolink managerial characteristics with jobrequirements. Further, Radell [85] stated thatwhen managers leave an organization, they takewith them their embodied skills, knowledge, andexperience. Those skills, knowledge, andexperience are accumulated, where, individualsgain more experience in organizing andexecuting work. All the above clearly proves thatthe success of every SME largely depend on themanagement team.

8.2.7 Business strategies

This research proved that business strategiescontribute 12.5% to SMEs success. It must benoted that the scores of business strategies andmanagement team are the same (12.5% scorefor both), meaning there is a direct connectionbetween the qualities of the management teamand the effectiveness of the business strategiesthat are put forward to run the SME. According toRaymond and Croteau [86] SMEs must developthemselves strategically in order to remaincompetitive, grow and prosper in the currentcomplex environment; they further stated that thebiggest challenge lies in SMEs taking advantageof the enlarged economic area. They concludedthat SMEs need to adopt new planning andcontrol tools to secure and strengthen theircompetitiveness. Also, O’Regan and Ghobadian[87] indicated that the business environment hasbeen more challenging, as increased change

brings greater uncertainty. The impact of policydirections tends to be short-lived, as theenvironment continues to assume its own form;all these require SMEs to act strategically.

Also, Kenneth Andrews [88] defines Corporatestrategy as the pattern of decisions in a companythat determines and reveals its objectives,purposes, or goals, produces the principalpolicies and plans for achieving those goals, anddefines the range of business the company is topursue, the kind of economic and humanorganization it is or intends to be, and the natureof the economic and non-economic contribution itintends to make to its shareholders, employees,customers, and communities. Further, Szabo [89]stated that, the main restriction faced by SMEs isa lack of managerial, marketing andentrepreneurial skills. These lacks are more likelyto affect the conduct of SMEs in general and inimplement strategies. Szabo also mentioned thatwhile most SME owners and start-upentrepreneurs are experts in terms of theirproducts and services, they often lack widermanagerial skills which hinder their long termsuccess, strategic planning, identification ofcustomers, acceptance that they will not get richwithin a short time, medium term vision,patience, marketing, management of innovation,commitment to quality, knowledge of qualitysystems, knowledge of foreign languages, cashflow management, and information technology,all of which are critical skills in confronting thechallenges in the knowledge economy [91].These clearly proves that the success of everySME largely depend on the ability of themanagement team to develop effective businessstrategies and acts strategically.

8.2.8 Age and size of the firm

This study discovered the age and size of anSME contributes 2.5% to its success. Accordingto the theory of noisy selection, by Jovanovic [90]state that efficient firm grows and survives whileinefficient firms decline and fail. From the aboveresearch findings and the finding this research; Ican conclude that the old age of a firm is ajustification of its efficiency. Jovanovic furthermaintained that entrepreneurs are unsure abouttheir ability to manage a new firm (startup) andtheir prospects for success. In spite the fact thatentrepreneurs may launch a new business basedon an unclear sense of expected post-entryperformance, they only discover their true abilityafter operating for some time in terms ofmanagerial competence. Most entrepreneurs


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base their businesses on an idea that is viable onthe market after their business is established.Those entrepreneurs who discover that theirability exceeds their expectations expand thescale of their business, whereas thosediscovering that their performance is less thanappropriate with their expectations will possiblyexit from the sector. Also, Audretsch [91]recognized that the likelihood of a new entrantsurviving is quite low, and added that thelikelihood of survival is positively related to firmsize and age. Additionally, Caves (1998) in hiswork found that firm growth was scientificallyrelated to certain firm specific characteristics. Allthe above studies affirm the findings of thisresearch which has proved further by assigningthe percentage contributions of firms’ size andage to its success.

8.2.9 Competitive advantage

This study recorded that competitive advantageof a firm contributes 3.5% to its success. Thisfigure is 1% higher than the contribution of afirm’s size and age to its success, an indicationthat the contributions of firm’s size and agealways yield a direct 1% competitive advantageper each additional year of operations. Moststudies have proved that there is a well-built linkbetween a firm’s unique advantage and its sales.Also most studies have concluded that there isan affirmative link between the uniqueadvantages of a firm and its performance. Astudy by Wang & Lo [92] proved the relationshipof competitive advantage and the salesperformance of a firm by measuring profitability,return on investments, sale growth, yield, productadded value, share in market and performanceby the level of sale revenue. Also, according toRaduan et al. [93] there is a positive relationbetween competitive advantage and firm’ssuccess. Raduan further stated that thecompetitive edge enables a firm to significantlypredict the variance in its performance. It alsoestablished that the resource-based View of thefirm’s competitive advantage is one of the key ofstrategic management theories related to explainthe organizational consequences. Additionally,Ismail, Rose, Abdullah et al. [94] stated that thecompetitive advantage is a part of a firm’s highlevel performance, and further added that thisrelationship will be exaggerated by moderatingvariables such as age and size of firms. Themoderating effects of these variables provideprecious information about strategicmanagement in the attainment of unique edge

and to increase performance. Another study byKing and Zeithaml [95] suggested thatcompetitive advantage has a reasonable effecton the association between the ambiguity andthe performance of a firm. The above studiesconducted by high leveled academic scholarsalso justify the logical findings of this study onSMEs competitive advantage.

9. SMEs SUCCESS RATING SCORECARD

One of the objectives of this study was todevelop an SME success rating score card,which is based on the developed SMEs successprediction model. A snapshot of the developedSMEs Success Rater excel sheet program ispresented in Fig. 4.

The expected scores from the above SuccessRater Card would help to gauge whether an SMEwould be successful or not. The figures to beused in computing the actual scores column ofthe above score card would be generated fromthe Success Score Card Assessment Forms,which is found in appendix one (1) of this study,a snapshot of an excel sheet program I havedeveloped through this research findings.Section ‘A’ of the success score cardassessment form contains seven (7) keyindicators which this study discovered contributeto and also helps to predicts the success ofSMEs. This study also revealed that thoseindicators are internal and inherent, that is couldbe controlled by SMEs owner or inborncharacteristics of SMEs owners. Further, section‘B’ of the success rater card contains three (3)major indicators which this study revealedcontribute to and also helps to predict SMEssuccess. The study also discovered that theseindicators are external or with limited controloptions, because of the chaotic nature of thebusiness environment within which theentrepreneurs operate. Also, Fig. 5 represent thelikely expected outcome of success rate scoresthat the SMEs business-project success RaterCard is capable of generating, depending on theentrepreneur’s data imputed.

The Fig. 5 below makes it so clear that any startup or existing business that score 0.7 - 1 has allit takes to be successful and have or is fullyutilizing all those success potentials. Also, ascore rate of 0.5 - 0.69 indicates that the start upor existing business has all the potentials neededto succeed but those potentials are not fully


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SMEs business – project success raterSuccess measuring indicators Standard

score (SS)Actualscore (AS)

Successscore(AS/SS)

Success ratescore(SS/STSSS)*100

Remarks

Section‘A’

Internal indicators:

i. Personality Traits 10ii. Innovativeness and

Creativeness20

iii. Use of Technology 17.5iv. Management

Competencies12.5

v. Firm Strategies 12.5vi. Competitive

Advantage3.5

vii Age and Size 2.5Total standard scores (TSS) TSS = 78.5 TAS =78.5 TSSS = 7 TSRS = 70Section‘B’

External indicators:

viii. Legal and Govt.Policies

6.5

ix. Economic Factors 9X Environmental

Factors6

Total standard score (TSS) TSS = 21.5 TAS =21.5

TSSS = 3 TSRS = 30

Sum of A and B STSS =100

STAS =100

STSSS =10

STSRS = 100

Fig. 4. SMEs business-project success rater

RATE ZONES Indication0.70 - 1 A Active Success / Scalability Would be successful with or

without any external support.70% - 100%0.50 - 0.69 B Inactive success / Scalability Potentials Requires moderate external

support to become successful.50% - 69%0.35 - 0.49 C Marginal availability of success /

scalability potentialsHave some forms of uncertaintiesthat require special attention andsupport to succeed.

35% - 49%

0.20 - 0.34 D Evidence of likely unsuccessfulness / noscalability potentials

Requires intensive support insome aspects of the business tobecome successful

20% - 34%

0.10 - 0.19E

Manifestation of unsuccessfulness / noscalability potentials

Requires extensive support in allaspect of the business.10% - 19%

Fig. 5. SMEs business-project success rate zones

unutilized, this requires moderate externalsupport. Further, any score between 0.35 - 0.49is a sign of the existence of no growth potentialsor potentials that are not needed to succeed inthe current sector the entrepreneur finds himself.This calls for NGOs, government institutions andother private organizations that are experts in theSME sector to act swiftly to make it morecompetent. This also calls for an immediateshort-term support. Additionally, a score of 0.2 –0.34 means the entrepreneur lacks certain keycharacteristics needed to succeed. This calls foran immediate medium-term support to help solve

the challenge. Lastly, a score of 10 – 0.19 is aclear indication that the business has failed andtherefore requires an immediate long-termexternal support.

10. CONCLUSIONS

This study has systematically conducted ascientific research analysis on the approach toassess and select small and medium enterprises(SMEs) for incubation on the base of angelmodel. This was done through the use of theProject Angel model, the Chaos Theory, the


21

Noisy Selection theory and other theories. Thestudy has developed SMEs Business– ProjectsSuccess Prediction Model and SMEs SuccessRater. Also, the study has developed an excelprogram to help NGOs, government agenciesand other organizations who support SMEsbusiness to easily gauge SMEs success. Further,the many determinants of enterprise growth andsuccess has been classified into ten (10)dimensions, namely: SME owner personalitytraits, government, Economic factor, Innovation,Use of technology, Management team, FirmStrategies, Competitive Advantage, Age andSize and environmental factors. Furthermore,empirical studies of this research have provedthat a well-presented business plans or businessdocuments do not guarantee SMEs success.However, individual ones such as SME owners’innovativeness, technical knowledge, growthmotivation and many more do. Additionally, anenterprise’s scalability (its preparedness to grow)is found to have a positive relationship with afirm’s success.

The study has also proved that the many factorsinfluencing SMEs success can effectively andaccurately be gauged base on the developedSMEs success rater card. Further, factors suchas social, ecological, and economic systems tendto be characterized by relationships and complexinteractions that evolve dynamically over timeand tend to affect business growth. More so,growth of every firm is gradual and a vital sourceof success which requires a holistic analysisbecause it is influenced by a number of factorsthat are not captured in business plans ordocuments. Additionally, a business plan is partof the strategies entrepreneurs adapt, therefore,to accurately predict SMEs success or selectionfor incubation one must use the SMEs Business–Projects Success Prediction Model and SMEsSuccess Rater; an excel program which is theoutput of this study. Lastly, NGOs, governmentagencies and private organizations whichsupport SMEs must conduct thorough businesssuccess feasibility analysis based on the modelsthis study has developed rather than the use ofbusiness plan competition and other nonescientific-based methods. This is because whatdifferentiates successful and unsuccessfulentrepreneurs are the presence and theunderstanding of business success indictorswhich this study has identified.

COMPETING INTERESTS

Author has declared that no competing interestsexist.

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APPENDIX 1

Success indicators scores calculator

Indicating factors Weight Actual scores

Section‘A’

InternalIndicators:

i. PersonalityTraits

Individual Competencies 2 Growth intentions 1 Self efficacy 1 Extraversion 1 Personal Background 1 Risk taking propensity 2 Locus of control and

Experiences2

Total = 10ii. Innovativeness

andCreativeness

Understanding of Creativeprocess

4

Relative advantage 1 Compatibility 2 Complexity or simplicity 3 Trialability 1 Observability and

Proactivity3

Opportunistic mindset 1 Social capital 2 Newness 3

Total = 20iii. Use of

Technology Method of production /

activities4

Low cost of production 3 Human vs machines at

work5

Low cost of technologyapplied

3

E-market (use of internet,social media etc.)

2.5

Total = 17.5iv. Management

Competencies Growth motivation 2 Passion for work and

Tenacity2

Organisational Knowledge 2 Client Focus Influencing 1 Analytical Thinking 2 Managing Resources 1 Teamwork 2.5

Total = 12.5v. Strategies Strategic Goals / Plans 2

Tactical Goals / Plans 2 Strategic Networking skills 2 Strategic Thinking 2 Competitive Strategies 2.5 Other strategic Actions 2


27

Indicating factors Weight Actual scores

Section‘A’

InternalIndicators:

(Marketing, distributionetc.)

Total = 12.5vi. Competitive

Advantage Dynamic capabilities

(differentiation, costleadership etc.)

1.5

Firm specific resource 2Total = 3.5

Vii Age and Size Day One – One Year / Small 1Above One Year – Four Years /Medium

1

Above Four Years / Large 0.5Total = 2.5

Standard Total Score (ETS) = (iv+v+vi+vii+viii+xv+x) ----- ETS = 78.5Section‘B’

Externalindicators:

Weight Actual score

viii. Legal and Govt.Policies

Tax laws 1 Political and Legal

requirements1

Trade promotion law 1 Gov. Specific SME sector

growth strategies2

Level of Political risk 0.5 Level of Knowledge and

expertise on Legal and GovPolicies

1

Total = 6.5vx. Economic factors Funding opportunities 1.5

National Economy growth 0.5 Interest rates 1 Inflation 1 Market availability 2 Economic/ Business risks 1 Knowledge on economic

info and analysis skills1

Knowledge on Accountingand financial info analysisskills

1

Total = 9x. Environmental

Factors Industry specific

Environment Level of Risks2

Growth barriers 1.5 Resources 1 Customers / Suppliers 1 Competitors 0.5

Total = 6Standard Total Score (ETS) = (viii+vx+x) = ETS = 21.5

Sum of Totals (Section ‘A’ + Section ‘B’) = 100


28

APPENDIX 2

Full meanings of Abbreviations

Index AbbreviationStandard Scores SSActual Score ASSuccess Score SSSSuccess Rate Score SRSTotal Standard Score TSSTotal Actual Score TASTotal success score TSSSTotal success rate score TSRSSum of total standard score STSSSum of total actual score STASSum of total success score STSSSSum of total success rate score STSRS

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