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Financial bootstrapping in small businesses: Examining small business managers' resource acquisition behaviors
Halmstad University, School of Business, Engineering and Science, Centre for Innovation, Entrepreneurship and Learning Research (CIEL).
Halmstad University, School of Business and Engineering (SET).
2001 (English)In: Journal of Business Venturing, ISSN 0883-9026, E-ISSN 1873-2003, Vol. 16, no 3, p. 235-254Article in journal (Refereed) Published
Abstract [en]

In recent years, small businesses have received much attention from policy makers and researchers, in that these businesses are considered important for economic growth and job creation. At the same time small businesses are assumed to face major problems in securing long-term external finance, which is regarded as restraining their development and growth. Small business managers are assumed to use institutional finance as a means of meeting the need for resources, and as a consequence the major part of the research on small business finance has focused on constraints in the supply of institutional (market) finance. As we see it, most small business managers handle the need for resources using means other than external finance by applying different kinds of financial bootstrapping methods. Financial bootstrapping refers to the use of methods for meeting the need for resources without relying on long-term external finance from debt holders and/or new owners. However, these other means of resource acquisition have, with few exceptions, not been focused on within earlier research on small business finance. Against this background, the purpose of this study is to describe small business managers' use of different financial bootstrapping methods, and, more importantly, to develop concepts that can help Its better understand small business managers' financial bootstrapping behaviors. The research process was initiated with a number of unstructured interviews conducted with small business managers, accountants, consultants, bank officials, and researchers, in order to identify different financial bootstrapping possibilities. On the basis of the interviews and an earlier study on financial bootstrapping, resulting in the identification of 32 bootstrapping methods, a questionnaire was constructed and sent to 900 small business managers in Sweden. Given the limited knowledge within the area of financial bootstrapping, the study is based on explorative factor analysis and cluster analysis. From the cluster analysis six clusters of bootstrappers were identified differing from each other with respect to the bootstrapping methods used and the characteristics of the business. On the basis of this information the different clusters were labeled: (I) delaying bootstrappers; (2) relationship-oriented bootstrappers; (3) subsidy-oriented bootstrappers; (4) minimizing bootstrappers; (5) non-bootstrappers; and (6) private owner-financed bootstrappers. The groups of financial bootstrappers show differences in their orientation toward resource acquisition, representing different aspects of art internal mode of resource acquisition a social mode of resource acquisition, and a quasi-market mode of resource acquisition. We find that the delaying bootstrappers, private owner-financed bootstrappers, and minimizing bootstrappers all represent an internal mode of resource acquisition. The relationship-oriented bootstrappers follow a socially oriented mode of resource acquisition, whereas the subsidy-oriented bootstrappers apply quasi-market oriented resource acquisition. This study contributes to our empirical understanding by providing knowledge about the financial bootstrapping methods used in small businesses Furthermore, by developing concepts this study contributes to the conceptual development of our knowledge about financial bootstrapping. The implication of this study is that financial bootstrapping is a phenomenon which deserves more attention in future research on small business finance. At the same time, financial bootstrapping behavior is probably a more general phenomenon appearing in different contexts, such as R&D activities in large businesses, financing startups, etc. Finally, the study points out implications for small business managers, consultants, teachers, etc. Practitioners often tend to focus on market solutions to resource needs. This study shows, however, that this strong focus cart be questioned. Resources needed in small businesses can in many situations be secured using financial bootstrapping methods, referring to internally oriented and socially oriented resource acquisition strategies.

Place, publisher, year, edition, pages
New York, N.Y.: Elsevier , 2001. Vol. 16, no 3, p. 235-254
Keywords [en]
Small businesses, Financial bootstrapping, Finance, Management
National Category
Business Administration
Identifiers
URN: urn:nbn:se:hh:diva-3553DOI: 10.1016/S0883-9026(99)00055-5ISI: 000165954300002Scopus ID: 2-s2.0-0043228502OAI: oai:DiVA.org:hh-3553DiVA, id: diva2:284873
Available from: 2010-01-08 Created: 2009-12-01 Last updated: 2018-03-23Bibliographically approved

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Winborg, Joakim

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Citation style
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