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Summary SMEs and Entrepreneurship KUL Brussels
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This is a summary of the SMEs and Entrepreneurship class of MBA program KU Leuven Brussels
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Entrepreneurship refers primarily to an economic function that is carried out by individuals,entrepreneurs, acting independently or within organizations, to perceive and create new
opportunities and to introduce their ideas into the market, under uncertainty, by making decisions
about location, product design, resource use, institutions, and reward systems. The entrepreneurial
activity leads ultimately to economic growth and human welfare.
Large business = business with a growth-oriented strategy
Habitual entrepreneurs = serial and portfolio entrepreneurs
Nascent entrepreneurship =
Fuckpreneurs =
Authorpreneurs =
SME’s are crucial for fostering competitiveness and employment. Listening to SME’s is key towards
the successful implementation of the Lisbon goals.
European Quantitative definition of SME’s
Qualitative characteristics of SME’s:
More difficult to access finance
Shares are not usually publicly
traded
Not developed management
team – flat organizational
structure
More difficult to influence
environment
SME shareholder characteristics: limited number, know each other, personal lifelong relationships,
shares important part of wealth, difficult to exit, different types of owners.
Schumacher: Small is beautiful (1973)
Too many SE cause growth crisis in southern European countries
Even if the number of companies in the EU compared to the US are similar in percentage, the
difference is made at the number of employees: in US we can see a big difference in the people hire
in large enterprises. Which from the Economist perspective it is an important taxes and revenue
source for the economy.
Risk of failure decreases if a company gets larger.Be careful not to confuse exit with failure.
Causes of failure among established SME’s: 1. Internal: lack of strategic management; 2. External:
beyond mgm control – customers’ default of payment; 3. Personal: characteristics of the business
leader/owner: financial, conflict, leadership style
Causes of failure according to liquidators: 1. Lack of financial management - Self-employed business
people are good in their profession, but they usually know little or anything about the administrative
part behind their business. In addition, law and regulations are constantly changing. And because
they don’t have the time and knowledge for it, they depend on others. For that reason they risk
1
,that others (accountants, bankers, …) will make the wrong choices for them or that they get in
contact with the wrong people; 2. Direct competition of large firms. 3. Divorce and conflict between
business partners.
Causes of failure among established SME’s: lack of strategic management, the chase for growth
NEVER TAKE ADVANCE PAYMENT ON THE FUTURE. Sometimes is better to cherish what you have,
than to grow just because of growth, importance of strategic change, importance of coporate
governance (BoD, AC);
HAVE KNOWLEDGE ABOUT THEIR BUSINESS OPERATIONS – the importance of financial
knowledge.
Most of the companies in Belgium are small firms, based on services B2B, family owned and older
than 10 years. 58% almost more than half are active internationally, most of them working to a large
extent in innovation, and have an active board of directors and advisory council. Only 25% of them
have an external members in their council/board.
Some of the challenges are: customers always looking for new. Be careful that your business does
not depend on only one person. If one person drops the basket, then all eggs will be broken, improve
the middle management.
Four D’s: death, disability (also long illness), departing, divorce.
Importance of corporate governance: supports long term value creation, gives a company a
professional image in the eyes of all parties concerned, is an advantage in the recruitment market,
plays an important role in guaranteeing the continuity of a company, can contribute to increasing
the profitability of a company.
TASKS OF THE BOARD OF DIRECTORS:
- Taking decisions regarding important strategic issues, such as approving the strategy
- Ensuring that the management and shareholders take initiative that fall within their competence
- Appointment of the managing director, the executive committee and the management
- Advising the managing director, the executive committee and the management
- Financial and operational control, including introducing and monitoring an internal control
system
- Outlining the dividend policy which will then put forward for approval by the AGM (annual
general meeting).
- Preparing for and organizing the succession of the managing director, the executive committee
and the management
- Safeguarding the interests of the firm in the event of crisis and conflict.
Example: Strategy- initiating (CEO and management), approving (Board of directors), Executing (CEO
and management), Monitoring: board of directors
Advantages of the outside directors: objective view of the enterprise, give impartial advice, are a
sounding board for the entrepreneur, help increase discipline and sense of responsibility regarding
reporting, can play important role in crises situations, ensure the succession of the managing
director, share their networks and relations with enterprise, ensure the transfer of experience and
knowledge.
Regular meetings are needed to function properly:
- at least 4 annually
- At least once a year extraordinary meeting with only long term thinking on the agenda
- determines if board only exists on paper.
2
,ADVISORY COUNCIL:
- No decisions taken but recommendations made
- Serves as a sounding council/think tank
- Concentrates primarily on discussing strategy
- Meets at least 4 times a year
- Creates balance between internal (CEO + principal shareholders) and (at least 2) external
members (neither belong to management nor to controlling shareholder).
SME main challenges|: large sales declines because of the pandemic, logistics and supply disruption,
late payments, operating at a loss, digitalization.
The Small Business Act (SBA) is an overarching framework for the EU policy on Small and Medium
Enterprises (SMEs). It aims to improve the approach to entrepreneurship in Europe, simplify the
regulatory and policy environment for SMEs, and remove the remaining barriers to their
development.
- Adopted in 2008,
- Promoting entrepreneurship
- less regulatory burden
- access to finance
- access to markets and internationalization.
• 10 principles:
1. Create an environment in which entrepreneurs and family businesses can thrive and
entrepreneurship is rewarded
2. Ensure that honest entrepreneurs who have faced bankruptcy quickly get a second chance
3. Design rules according to the “Think Small First” principle
4. Make public administrations responsive to SMEs’ needs
5. Adapt public policy tools to SME needs: facilitate SMEs’ participation in public procurement and
better use State Aid possibilities for SMEs
6. Facilitate SMEs’ access to finance and develop a legal and business environment supportive to
timely payments in commercial transactions
7. Help SMEs to benefit more from the opportunities offered by the Single Market
8. Promote the upgrading of skills in SMEs and all forms of innovation
9. Enable SMEs to turn environmental challenges into opportunities
10. Encourage and support SMEs to benefit from the growth of markets
Loan rejection: funding is very complicated for the SME’s in the long run.
Support measures: win-win loan, subordinated loans, guarantee for capital loans, public
guarantees for new additional loans and credit lines, national interest deduction system: reduces
tax discrimination between debt and equity financing.
Innovation = getting things done -> role of entrepreneur
An inventor generates ideas, an entrepreneur puts things into practice.
Innovation: Schumpeter: creative destruction – capitalism, socialism, and democracy (1942)
Big enterprises contribute more to creating a living standard than to destroying
Disappearance of entrepreneurial function, because innovation became routine
Personally and perseverance of less importance in an environment used to economic
change
Economic progress will become unpersonal and automatic, and suppress individual action
and vision
Critical remarks:
o Entrepreneurship myth (Isenberg, 2013)
3
, o Innovation > R & D
o Different types of innovation
o Not all innovation is disruptive (Christensen et al., 2015; Kim & Mauborgne, 2019)
o ‘Innovation is like the ‘Lady of Lourdes’. Everybody talks about her, but only a few people
have actually seen her.’
o ‘Nobody ever got fired for choosing IBM’ (Peter De Keyzer, De Tijd, 2 October 2015)
FBs Perspective – Family business perspective
vs
The majority of our businesses are family businesses. They are the backbone of
our economy. FB – two way sword – emotions are involved
Can be difficult to discover the degree of family influence in private SME’s: they do
not have publicly disclosed information, families are very keen on their privacy,
many FB come out of the shadows
Recurring elements: family in ownership, fam in management, transfer to next
generation, self-perception, commitment, shared values and vision
Distinction between:
Structural definitions
Behavioral definitions
System definitions
= ‘components-of-involvement’ approach
Advantage: observable (tangible)
Disadvantage:
-no reliable results on distinction FB and non-FB
-2 FB with same level of involvement in ownership/leadership -> other perception on being a FB
-solution: trying to capture whether business behaves as FB, is it a FB in ‘essence’ = ‘essence’
approach
The family business is a business governed and/or managed with the intention to shape and pursue
the vision of the business held by a dominant coalition controlled by members of the same family or
small number of families in a manner that is potentially sustainable across generations of the family
or families.
→ family involvement = ability
→ family essence = willingness
- Taking into account unique character FB: ‘familiness’:
• Unique capabilities/resources resulting from involvement of family in
business
• See e.g. culture sub-scale of F-Pec scale
Measures for influence of family on
business: F-PEC scale
P Power
Power/influence in hands of the
family by means of:
o Ownership (% shares directly
or via holding)
o Management (% family)
o Governance (% family)
E = Experience
o NUMBER of family members
actively and passively involved
4
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