Understanding Enterprise

Entrepreneurship and Small Business, fourth edition

by Simon Bridge and Ken O'Neill

Case study: chapter 1

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The following case study is designed to illustrate how untested assumptions can lead to individuals and groups drawing inaccurate conclusions and ultimately basing decisions on incorrect information. Students are asked to highlight the assumptions made in the case study and keep in mind the consequences that they may have.

The local authority for a small rural area in Brittany was becoming increasingly concerned about the growing trend of younger members of the community emigrating. This was unfortunately a national trend with the country losing approximately 1,000 young people per week as the global economic crisis took its hold. As the community was overwhelmingly employed in the farming industry it was assumed that the declining profitability of the sector was forcing the young to search further afield for employment. The majority of the area's inhabitants were employed in the agricultural sector and it was envisaged that by making a career in farming a more attractive prospect financially, they could stop and eventually reverse the migration pattern of young men and women from the county.

After a long brainstorming session the local authority decided to provide grants to local farms that were interested in either diversifying their income by starting an additional business or growing an existing side businesses to a level that would provide a significant second source of income. Each successful applicant would be provided with a cheque for 5,000 Euros and would be audited at the end of the year to ensure the funds were in fact spent on the enterprise in question and to see whether or not the initiative had the desired effects in terms of reversing the migration trend and making the each farm more profitable.

A year later it was time to find the results of the project and unfortunately things had not gone to plan. From the very beginning applications for the grant had been disappointingly low despite the perceived success of the launch of the project and the ongoing marketing campaign that followed. Only 10% of participants had applied for funds to grow their business and of the 90% who applied in order to start a new enterprise, only 5% were still trading. The study did show that a number of individuals had returned although net emigration was still up overall and none of the returning community had done so as a direct result of the initiative. On further investigation it appeared that the majority of participants felt that their business ventures had failed due to their own lack of expertise at different stages of the start up process. Examples of this included the inability to design a marketing campaign that would effectively target their customers and a lack of experience in bringing a new product to market. While the lack of support explained why the vast majority of newly established businesses had failed, it did not explain why general uptake for the project had been disappointing.

Having consulted with a number of farmers who had not applied for the grant the local authority uncovered some interesting opinions. First of all it appeared that of the farmers who had already diversified by starting up side-businesses, none had any intention of growing them to a larger scale. Farming is at the best of times a labour intensive job and the additional stress, resources and time it would take to expand an additional enterprise was enough to put them off the idea. These obstacles were also cited by farmers that had not diversified and believed that by doing so they would be taking resources from a viable, albeit struggling business, and pouring them into a risky and untested venture.

Suggested solutions

The following assumptions were made by the local authority:
  • a) Emigration was caused mainly by the unattractiveness of the farming industry. While not an unreasonable assumption the local authority failed to consider the fact that the aspirations of the younger generation did not necessarily mirror that of their predecessors. The fact that most of the graduates who left took up employment outside the farming industry could suggest that there are other factors rather than purely financial ones at work which would warrant further investigation.
  • b) Farmers were interested in diversifying. As highlighted above the demand for the programme was not there and this would have become obvious from the beginning had potential programme participants been consulted and questioned regarding their own perceived needs and areas where the local authority could provide support.
  • c) Farmers that had diversified wanted the business to grow. While a number proportion of the farming community had decided to diversify, their intentions with regard to the future of these businesses were very different from those of the local authority. For many farming was their passion and while they enjoyed the extra income provided by their side-businesses, the desire to grow them with all the added complexity and stress that it would involve was not appealing.
  • d) Access to financial capital was the only constraint. While start-up capital would have been a big factor for many programme participants, it is clear that many of the individuals in question needed support in areas such as marketing and operations. With this in mind it could be argued that the programme would have been more beneficial had it aimed to help participants achieve greater efficiencies in their core business rather than spread their resources.
The consequences of acting on incorrect information in this case could vary from the local authority having its budget cut for the next quarter, to public confidence in elected officials sharply declining. It is worth remembering that while having as much relevant information as possible during the decision-making process, it will be practically impossible to account for every possible outcome. As a result it is important to weigh up the costs of the resources spent collecting and analysing data, and the benefits that such an exercise will provide.