A theory of serial entrepreneurship

The contribution of serial entrepreneurs to entrepreneurial activity is significant: in Europe, 18–30% of entrepreneurs are serial; in the US, their contribution is about one-eighth. Yet, theories of entrepreneurship and industry dynamics presume that all firms are launched by novice entrepreneurs and firm failure is synonymous with exit from entrepreneurship. We propose a theory of serial entrepreneurship in which an entrepreneur has three occupational choices: maintain his business in operation, shut it down to enter the labor market to earn an exogenous wage, or shut it down to launch a new venture while incurring a serial startup cost. In equilibrium, a high-skill entrepreneur shuts down a business of low quality to become a serial entrepreneur, launching and subsequently closing firms until a high quality business is found; a low-skill entrepreneur shuts down a business of low quality to enter the labor market, never to become a serial entrepreneur. A decrease in the wage or serial startup cost, or an increase in the startup capital, enhances the contribution of serial entrepreneurs to entrepreneurial activity and promotes new firm formation (by increasing entrepreneurship and the number of new firms that survive), but its effect on the exit rate of new firms is ambiguous. We show the model is consistent with evidence relating to the impact of an entrepreneur’s characteristics and prior experience in entrepreneurship on the survival of his firm and his entry into and survival in entrepreneurship.     

The role of networks in the entrepreneurial process

The extent to which the entrepreneur interacts with the networks in his local environment during the process of starting a new firm was studied. This study was based on the premise that, during this process, he is seeking not only the resources of equipment, space, and money, but also advice, information, and reassurance. Consequently the help and guidance received from both the formal networks (banks, accountants, lawyers, SBA) and the informal networks (family, friends, business contacts) will influence the nature of the firm substantially.The study was conducted in St. Joseph County, Indiana, a county that has experienced the same economic problems as many other towns in the midwest smoke-stack belt during the 1970s. In 1982, in response to this general decline in the business climate, a fund was raised to create and manage a new industrial strategy. Before this, there was no collective strategy for nurturing either the small firm or the new firm. Therefore, in order to determine the extent to which an interventionist strategy was appropriate, a research project was designed that posed three basic questions: what does the environment look like; does it need changing; and, if so, in what ways? This article reports part of that study—a survey of firms that had started in the county in the previous five years (1977–1982). It was concerned with two issues: the characteristics of the St.Joseph County entrepreneur and the usage of the formal and informal networks.The results of the survey show that the aggregate characteristics of the St. Joseph County entrepreneur are similar to those found in other studies. The new firms were founded by local people from small firms who started their small firms in similar industries that were local in nature. Moreover, the majority (90%) not only started small, but also grew very little subsequently—firms that have been classified elsewhere as life-style ventures. It is to be expected that such people would have a strong local network, both formal and informal, particularly in a county with a population of only 220,000. However, the results of the second part of the study showed that the main sources of help in assembling the resources of raw materials, supplies, equipment, space, employees, and orders were the informal contacts of family, friends, and colleagues. The only institution that was mentioned with any regularity was the bank, which was approached towards the end of the process when many of the resources were assembled and the elements of the business set in the entrepreneur's mind. This was not because the formal sources were unwilling to offer guidance, but rather that the entrepreneur and his social network appeared to be unaware of what was available. Moreover, in using only business contacts, family, and friends, the entrepreneur was likely to re-create the elements of previous employment, even when he was starting business in an entirely new market. Further, there was no significant difference between growth and no-growth firms. It would appear that in this county, the formal network was uniformally inefficient.This research shows that a major aim of the new strategy should be to increase the awareness of the community to the formal sources and types of help that are available. However, whilst most of the institutions are prepared to solve specific problems, they are not in the business of diagnosis or counseling. The network needs a hub or an enterprise office.The data on the start-up process and the role of networks in relation to new firms are very sparse and often anecdotal. This study was conducted in one environment, a small midwest county with a jaded entrepreneurial tradition. Further studies are necessary. Research questions include the extent to which networking is crucial in the start-up process, the length of time it took for the sophisticated networks of Boston's Route 128 and California's Silicon Valley to develop, and the effect of different geographic, cultural, and economic conditions. Only in this way is it possible to determine the extent to which regional, regeneration strategies for new firm creation should be county specific rather than state or country wide.     

Entrepreneurial failure and discrimination: lessons for small service firms

This paper draws lessons from a case decided by the USA Supreme Court, wherein the firm failure was perceived by the minority entrepreneur as an outcome of racial discrimination. Implications of this case are significant because the failure rate of minority-owned US businesses has been consistently higher than the average failure rate of US business. We argue that the impact of discrimination by a customer is greater for small service firms. Through the Domino's Pizza case, we assert that issues relating to equal employment, inter-company contracting and choice of business organisation must be managed by the owner of a service firm.     

Networks and Local Environmental Characteristics in the Survival of New Firms

This study seeks firstly to clarify which networks at start-up situation and early in life influence the survival of new firms. Secondly the study examines regional differences in the success of new firms. The subjects were firms which had closed down during their fourth to sixth year of operations, and they were compared with firms continuing in business. The results indicate, firstly, that it is networks internal to firm that create competitive advantage, innovation and efficiency. Secondly, management based on working in groups was emphasized in the firms that continued in business. In a typical family enterprise, ownership, management and family are united in a single entity. In other types of firms networks are seen as participating in the strategic management of the firm. Thirdly, close-downs were often caused by uncontrolled risks. A firm which fails after a successful start-up often tends to grow rapidly in the beginning, leaning on its product idea, but this rate of growth is too high from the viewpoint of the financing and the management of the firm. In firms which closed the growth objectives were too ambitions compared with the resources of the entrepreneur.     

Become Independent! The Paradoxical Constraints of France's “Auto‐Entrepreneur” Regime

The Law on Economic Modernization of August 4, 2008, introduced a new form of individual entrepreneur, the “auto‐entrepreneur,” the goal being to enhance the competitiveness of the French economy by promoting entrepreneurial spirit. This paper proposes to discuss the “auto‐entrepreneur” model with reference to the fundamentals of the theory of the firm and the legal variants of the “auto‐entrepreneur.” The argument will be structured around the criterion of independence, and its various interpretations, which will be used to put the auto‐entrepreneur model to the test. Three forms of autonomy are given precedence: productive, concerning the availability of sufficient financing and material to provide professional services; managerial, which measures the ability to assume the risks inherent to business, regarding both interested and third parties; and financial, or the chances of earning enough money to subsist upon. The result, highlighted in the conclusion to this paper, is that the “auto‐entrepreneur” regime is contrary to every referenced approach to the firm. This business model appears best adapted as a means of supplementing income from another, unrelated activity or in retirement.     

Early international entrepreneurship in China: Extent and determinants

We use data on 3,948 Chinese firms obtained from the World Bank’s Investment Climate Private Enterprise Survey to investigate early international entrepreneurship (international new ventures) in China. The extent of early international entrepreneurship in China is significant: 62% of the exporting firms start export operations within 3 years. Foreign shareholders within the firm and an entrepreneur with previous exporting experience are noted to significantly increase the probability that a firm internationalizes early. We find marked differences in the behaviour of indigenous and foreign-invested firms, and between direct and indirect exporters. For example, for an indigenous firm the more foreign experience its entrepreneur has, the less likely it is to start exporting early. As far as indirect exporting is concerned, business networks are significant determinants of the extent of such exporting, but delays the internationalization process of indigenous firms. The more firms in China export, the more time their managers need to spend on government regulations, although perhaps counter-intuitively, this was not found to discourage exporting. Overall, the findings suggest that exporting by indigenous Chinese firms is often due to challenging or adverse domestic conditions.     

The ambitious entrepreneur: High growth strategies of women-owned enterprises

During the last two decades, researchers have sought to develop categories of entrepreneurs and their businesses along a variety of dimensions to better comprehend and analyze the entrepreneurial growth process. Some of this research has focused on differences related to industrial sectors, firm size, the geographical region in which a business is located, the use of high-technology or low-technology, and the life-cycle stage of the firm (i.e., start-up vs. more mature, formalized companies). Researchers have also considered ways in which entrepreneurs can be differentiated from small business managers. One of these classifications is based on the entrepreneur's desire to grow the business rapidly. This is the focus of our study.To date, the media have paid considerable attention to rapidly growing new ventures. However, still lacking are large-scale research studies guided by theory through which we can expand our knowledge of the underlying factors supporting ambitious expansion plans. Some research has identified factors that enhance or reduce the willingness of the entrepreneur to grow the business. Factors include the strategic origin of the business (i.e., the methods and paths through which the firm was founded); previous experience of the founder/owner; and the ability of the entrepreneur to set realistic, measurable goals and to manage conflict effectively.Our study attempted to identify the strategic paths chosen by entrepreneurs and the relation of those paths to the growth orientation of the firm. The entrepreneurs sampled in this study are women entrepreneurs across a wide range of industrial sectors. Recent reviews of entrepreneurship research have suggested the need for more studies comparing high-growth firms with slower-growth firms to better delineate their differences in strategic choices and behaviors.Our study sought to answer the following questions: What characterizes a “high growth-oriented entrepreneur?” Is this distinction associated with specific strategic intentions, prior experience, equity held in previous firms, the type of company structure in place, or success factors the entrepreneur perceives are important to the business? Do “high growth” entrepreneurs show greater entrepreneurial “intensity” (i.e., commitment to the firm's success)? Are they willing to “pay the price” for their own and their firm's success? (i.e., the “opportunity costs” associated with business success and growth). Other relationships under investigation included different patterns of financing the business' start-up and early growth. Do “high-growth” entrepreneurs use unique sources of funding compared with “lower-growth” entrepreneurs?Eight hundred thirty-two entrepreneurs responded to a survey in which they were asked to describe their growth intentions along nineteen strategic dimensions, as well as respond to the foregoing questions. Some of the strategic activity measures included adding a new product or service, expanding operations, selling to a new market, and applying for a loan to expand operations. Actual growth rates based on sales revenues were calculated, and average annualized growth rates of the industrial sectors represented in the sample were obtained. This study showed that high-growth-oriented entrepreneurs were clearly different from low-growth-oriented entrepreneurs along several dimensions. The former were much more likely to select strategies for their firms that permitted greater focus on market expansion and new technologies, to exhibit greater intensity towards business ownership (“my business is the most important activity in my life”), and to be willing to incur greater opportunity costs for the success of their firms (“I would rather own my own business than earn a higher salary while employed by someone else”).The high-growth–oriented entrepreneurs tended to have a more structured approach to organizing their businesses, which suggests a more disciplined perception of managing the firm. In summary, results showed the group of high-growth–oriented entrepreneurs, labeled “ambitious,” as having the following distinctions: strategic intentions that emphasize market growth and technological change, stronger commitment to the success of the business, greater willingness to sacrifice on behalf of the business, earlier planning for the growth of the business, utilization of a team-based form of organization design, concern for reputation and quality, adequate capitalization, strong leadership, and utilization of a wider range of financing sources for the expansion of the venture. The purpose in uncovering these differences is to enable entrepreneurs and researchers to identify more clearly the attributes of rapid-growth ventures and their founders and to move closer to a field-based model of the entrepreneurial growth process which will help delineate the alternative paths to venture growth and organizational change.     

Corporations and entrepreneurs: Paradox and opportunity

The intrapreneur is the corporate entrepreneur. But some people consider “corporation” and “entrepreneur” so opposite that “intrapreneur” is an oxymoron, a contradiction in terms. Not so, says the author, who argues that an organization without an entrepreneurial spirit becomes a bureaucracy. On the other hand, the small firm cannot depend on entrepreneurship alone. Without professional management it may stay small—or worse, go broke.     

The Impact of Collaboration Between Industry and Academia on SME Growth

One important aspect in the small firm sector is the increased provision of training available to encourage small businesses to expand and develop their knowledge base. In the belief that new small firms can generate a number of new jobs at a time of high unemployment, the UK government in the early 1980s developed public policy to encourage small firm formation and growth. Measures have been enacted to assist small firms in the UK in areas of taxation, education, funding and placement schemes. (Cross 1983). Although Curran (1986) describes this as a 'heading plunge' into a policy of discrimination in favour of the small enterprise, and is critical of the effectiveness of many of these actions, the measures are a clear indication that public policy and funds are firmly committed to support the small firm sector (Marlow 1992). Since then local support agencies, such as The Training and Enterprise Councils (TECs), and Local Enterprise Councils (LECs) in Scotland, funded by the Department of Trade and Industry and European Union offer professional consultancy advice and training to small firms and their owners. Such agencies offer help in the form of business start-up support and training, management skills and any aspect, which can aid growth in the small firm. However, the indications from the agency consultants have found that not enough owner/managers are utilising this enterprise network to assist business growth (Marlow 1992, Choueke and Armstrong 1998).     

Revealing Entrepreneurial Talent

A society’s allocation of working time to entrepreneurial, organizational and learning activities is the main factor behind technical change and economic growth. Building on Lucas (1978) and Kihlstrom and Laffont (1979), in this paper I offer evidence that the amount of working time spent by small business owners in entrepreneurial activities affects the performance of the business and reveals their entrepreneurial talent. The intuition is that it is reasonable to allocate more of our time to those activities where we realize we are more productive. As actual consumption choices reveal consumer preferences, the varying entrepreneurial content of the activities performed is a signal of an individual’s ability as entrepreneur. The results obtained suggest that the allocation of working time by small business owners: (a) throws light on their behavioral patterns; (b) is related to the owner’s human capital and to firm size; and (c) has a significant correlation with business performance. The main finding of my analysis, confirming previous studies on this topic, is that education is an important part of entrepreneurial human capital. Moreover, the latter is the main factor that can sustain small firms’ competitiveness in a globalizing economy. The entrepreneur is at the same time one of the most intriguing and one of the most elusive characters in the cast that constitutes the subject of economic analysis (Baumol, 1965, p. 64). I would like to acknowledge valuable comments from T. Cameron, G. Gagliani and two anonymous referees. The usual disclaimer applies.     

A proclivity for entrepreneurship: A comparison of entrepreneurs,small business owners,and corporate managers

Despite intensive inquiry, relatively little is known about the entrepreneur, the central figure in entrepreneurship. The question of how an individual who operates his or her own business differs from a corporate manager remains unanswered. In addressing this question, the primary purpose of this study was to investigate the potential of psychological constructs to predict a proclivity for entrepreneurship. The research model includes three classic themes in the literature: achievement motivation, risk-taking propensity, and preference for innovation.A survey of 767 small business owner-managers and corporate managers was assembled from a 20-state region, primarily the southeastern United States. The participants completed a questionnaire composed of the Achievement Scale of the Personality Research Form, the Risk-Taking and Innovation Scales of the Jackson Personality Inventory and questions pertaining to numerous individual and organizational variables. Respondents were first divided into two groups, managers and small business owner-managers. Subsequently, due to the often cited variations in entrepreneurs, the owner-managers were further categorized as either an entrepreneur or small business owner, using the widely cited Carland et al. (1984) theoretical definitions. Entrepreneurs are defined by their goals of profit and growth for their ventures and by their use of strategic planning. Alternatively, small business owners focus on providing family income and view the venture as an extension of their personalities. In this study, both groups of owner-managers were simultaneously compared with managers using hierarchical set multinomial LOGIT regression.The results indicated that the psychological constructs are associated with small business ownership, but with some important caveats. As hypothesized, those labeled entrepreneurs were higher in achievement motivation, risk-taking propensity, and preference for innovation than were both the corporate managers and the small business owners. This profile of the entrepreneur as a driven, creative risk-taker is consistent with much of the classic literature concerning the entrepreneur. Nonetheless, not all of the owner-managers fit this profile. When compared with managers, the small business owners demonstrated only a significantly higher risk-taking propensity. In terms of the constructs studied, the small business owners were more comparable to managers than to entrepreneurs.In addition to theoretical and methodological implications, the results presented here have important implications for small business owner-managers of both types. A major issue is the connection between the owner’s psychological profile and the characteristics of the venture, including performance. It would appear that psychological antecedents are associated with owner goals for the venture. Some owners will be more growth oriented than will others, and performance should be assessed in light of the owner’s aspirations for the venture. Moreover, owners should be aware of their own personality sets, including risk preferences, which may be more or less suited to different venture circumstances, including those with relatively high levels of risk.Planning in small businesses appears to enhance venture performance. Research has demonstrated the connections between psychological factors and planning behaviors in small businesses. Those labeled entrepreneurs in this study have goals of profit and growth, and tend to engage in more planning. An awareness of these psychological preferences and concomitant attention to planning behaviors have the potential to improve the performance of the venture, irrespective of owner aspirations.Venture teaming is becoming more popular among entrepreneurs. Balanced venture teams appear to improve the chances of entrepreneurial success (Timmons 1990), but a common source of conflict among venture team members is inconsistent or ambiguous motives for the new venture. Awareness of venture partners’ psychological predispositions in areas such as risk-taking could be used to identify and reconcile areas of potential conflict, and enhance the planning process in the small firm. In sum, an individual’s awareness of his or her psychological profile provides a number of advantages, not only to existing entrepreneurs, but also to aspiring entrepreneurs who should assess their perceived entrepreneurial opportunities against the backdrop of their psychological proclivity for entrepreneurship.     

Effects of Unemployment on New Firm Formation: Micro-Level Panel Data Evidence from Finland

This paper aims to provide a comprehensive insight into the role that unemployment plays in influencing new firm formation. Panel data models and micro-level data are used to help achieve this objective. We endeavour to identify simultaneously the separate effects of personal, regional and national unemployment on new firm formation in Finland for the period 1987–1995. The results indicate considerable evidence for a positive and non-linear effect of personal unemployment on the likelihood of an individual to become an entrepreneur. The findings also indicate that the economic situation has an effect on firm formation: times of low unemployment and business prosperity favour entrepreneurship. On the other hand, the analysis gives no clear evidence of the regional unemployment situation affecting the likelihood of founding a business.     

The impact of habitual entrepreneurial experience on new firm closure outcomes

In this paper, we argue that it is difficult for habitual entrepreneurs to use their experiential knowledge to develop a more viable new firm than novice entrepreneurs. Hindered by the difficulty of disentangling how actions lead to outcomes in low predictive environments such as new firm settings; hampered by the novelty and uncertainty of new firm closure; and misguided by subjective beliefs about their ability, we contend that habitual entrepreneurs close their new firm just as quickly as novice entrepreneurs and are just as likely to go bankrupt. Using large-scale panel data that track new firm closure amongst 7400 new German firms, we find that the new firms run by habitual entrepreneurs close just as quickly as those run by novice entrepreneurs. We also find that habituals are just as likely as novices to see their new business go bankrupt.     

Entrepreneurial Characteristics,Strategic Choice and Small Business Performance

Notions of entrepreneurship are central to accepted explanations of small business performance. The majority of studies exploring the growth implications of different entrepreneurial characteristics tend, however, to be partial or lack any formal structural framework. This leads to uncertainty concerning the mechanisms by which different entrepreneurial characteristics influence firm performance and the size of any effect.This paper develops a structural model of the relationships between entrepreneurial characteristics, firms' strategic choices and performance. The determinants of firms' strategic choices are then subjected to extensive empirical analysis. The results suggest a marked difference between the determinants of strategic initiatives related to management and control and those related to products, markets or managerial systems. Firms' propensity to make management and control initiatives depends almost exclusively on the characteristics of the entrepreneur. Firms' propensity to undertake initiatives related to new products, markets or management systems depends partially on the background of the entrepreneur but also reflects the firm's strategic targets, its market position and the likely operating environment.     

Performance and Strategy: Simultaneous Equations Analysis of Long-lived Firms

A simultaneous equations model of performance, strategy and size is tested using fieldwork evidence on long-lived firms in Scotland. Estimation is by I3SLS, with correction for sample selection bias. The contributions of this paper are that it: (a) grounds estimation on fieldwork evidence; (b) calibrates performance and competitive strategy; (c) tests and models endogeneity; and (d) computes robust trade-off elasticities between firm size and performance. It shows how this trade-off provides the entrepreneur with two strong incentives: (i) to seek greater efficiency typically by an increase in the human capital of the ‘core’ workforce; (ii) to achieve higher levels of performance by adopting more diverse competitive strategies.     

The rise and fall of the Merlin-Gerin Foundry Business: A case study in French corporate entrepreneurship

This case study discusses the history of the creation and development within an established French electrical firm of a new business, a high-tech foundry, by a dynamic entrepreneur. We follow the trajectory of this internal venture from launch to apogee, divestment, and closure over a period of 26 years.First, we outline a framework for the selection of the external and internal variables that will allow us to interpret the case within the present theories and practices of internal corporate venturing. This framework is also useful for analyzing some particular aspects that may be attributed to the specific culture and environment of the Merlin-Gerin company. Second, we present the case history, which can be summarized briefly as follows. In 1959, the foundry of Merlin-Gerin, a leading French manufacturer of electrical apparatus, could not compete with outside suppliers. Roger Huet, an expert in aluminum casting, was hired to revitalize the business with new technologies and develop the PRECIAL (PRECIsion ALuminum) process. In 1967, he was able to market low-weight, high-strength parts to European airplane manufacturers with sales reaching $10 million. In 1970, McKinsey recommended that scarce capital resources should be reserved for the core business and that the foundry should be sold. Amazingly, this decision was not implemented for 12 years, because Huet convinced management that the foundry was profitable and had a brilliant future thanks to its unique technological skills. The foundry was sold to Alcoa in 1982 and closed down in 1985. Table 1 highlights the main events and the key corporate and entrepreneurial actions and reactions that determined the evolution and the ultimate fate of the internal venture. Third, we discuss the key factors that contributed first to the success and then to the demise of the venture, such as the culture and climate of the Merlin-Gerin and the Alcoa companies, major changes in corporate strategy and policy, discontinuities and schisms in technology and market strategies, and the leading role of the entrepreneur.Fourth, we analyze, in retrospect, whether this internal venture made a contribution to the Merlin-Gerin Company and whether the 12-year delay in implementing the divestment recommendation by McKinsey was financially and socially justified. Finally, we compare the processes observed in this company with models of corporate entrepreneurship previously developed by scholars and draw conclusions about the critical factors of success for an internal corporate venture.In our opinion, there are two unusual aspects, in addition to the international setting, that make this case interesting for both scholars and practitioners.

1. 1. This internal venture continued for 26 years, an unusually long period compared to most corporate ventures (Fast 1979; Sykes 1986; Kanter et al. 1990, 1991b, 1992). The main reasons were the personality of the entrepreneur, his close relationship with the president, the unique technology, the initial market successes, the profitability and positive cash flow of the foundry, and, finally, corporate inertia.

2. 2. The recurring shift from agreement to disagreement of business goals and strategies between the corporation (first Merlin-Gerin and then Alcoa) and the entrepreneurial venture, which, in turn, led to alternate phases of cooperation and tension between the two parties.

Table 2 summarizes the evolution of the corporate and internal venture strategies and shows the gradual shift from strategic congruence to conflict that inevitably led first to the divestment and then to the closure of the foundry. Thus, some lessons could be drawn from this case on how to survive, if not to succeed, in the difficult game of corporate entrepreneurship.

1.

2.

     

Economics Perspectives on the Entrepreneurial Decision

The pervasiveness of the entrepreneurial phenomenon draws scholars’ attention to what determines the decision to become an entrepreneur. Entrepreneurial decisions imply judgemental decisions. Different approaches in economics conceive such judgemental decisions as firm entry, or real investment in the creation of a new business, or making a career choice in favour of a particular type of self-employment. In this paper, the literature on entrepreneurs’ features, motives, and markets is enriched with theoretical and empirical results from industrial organization, financial economics, and labour economics.     

Identifying and Differentiating Key Employees from Owners and Other Employees in SMEs

This research examines how to identify and differentiate key employees from small and medium‐sized enterprises (SME) owners and other employees and how their characteristics influence firm success factors. Interviews are conducted with 14 matched pairs of entrepreneurs and key employees operating Canadian SMEs. The study develops a profile whereby the key employee typically (1) corresponds to the key success factors of the SME, (2) is willing to undertake a moderate amount of risk, and (3) differs in education and experience from the entrepreneur/owner. Although employees are important to firm strategy and culture, this is one of the first to examine key employees in small business.     

An econometric test of the self-employment model: The case of Italy

In this paper the authors put forward their attempt to test a self-employment model using an Italian data set which collects information about 78 Italian provinces (out of 95) over the period of 1985–1988. The self-employment model is introduced as a useful way to explain the formation of new small firms and subsequently previous econometric studies based on this model are discussed and compared.Once the empirical definitions of the variables are clarified, the econometric specification is introduced in Section 4 and results are discussed in Section 5 and 6.The general outcome of the estimates backs to a certain extent the self-employment approach which has already been tested with good results both in the U.K. and in the U.S. As far as the income choice is concerned, it turns out to be important in explaining the birth of new small firms. With regard to the role of job-losses, they also turn out to be significantly correlated with the high rates of firm formation.On the other hand, the discussion reported in Section 5 underlines the importance of other environmental factors which were not included in the original specification of Section 4. In particular, if the numerosity of the existing small firms is taken into account, self-employment relationships lose some of their significance. p]The laborer asks what he thinks the entrepreneur will be able to pay, and in any case will not accept less than he can get from some other entrepreneur, or by turning entrepreneur himself. In the same way the entrepreneur offers to any laborer what he thinks he must in order to secure his services, and in any case not more than he thinks the laborer will actually be worth to him, keeping in mind what he can get by turning laborer himself.Knight, 1921, p. 273