Lack of general skills leads to small business demise: Statscan

OTTAWA — Financial and management skills are the keys to business success — more so than asset and equipment growth — says a new study by Stats Canada.

This new report, released in The Canadian Economy in Transition series, summarizes the findings of the research program at Statistics Canada that has explored the link between knowledge capital and business performance.

This program came about in response to an earlier set of studies that examined the amount of competitive restructuring that occurs in industrial populations. The new research complements these earlier studies by linking competitive outcomes to the adoption of corporate innovation strategies, says Stats Can.

It’s a shortage of management skills that keeps
small business from taking the next step

While investments in physical capital, such as machinery, equipment and production facilities, are often seen as hallmarks of growing companies, all these surveys point to the importance of developing intangible, knowledge capital-organizational capabilities associated with the growth process, according to the agency.

“In young small firms, this knowledge capital often involves general business skills or basic capabilities related to management, financing and marketing that young firms require if they are to survive their early years,” states a summary of the report. “Successful entrants report a strong emphasis on ‘getting the fundamentals right’ across a wide range of strategic areas.

“In contrast, many small firms that have exited the marketplace report that their demise was due to deficiencies in general skills, notably in financial and general management.”

As young companies grow and mature, specialized competencies related to innovation and technology management emerge as the core forms of knowledge capital, says Stats Can. Innovation capabilities related to research and development and advanced technology use are often what set high-growth firms apart from low-growth firms.

Such capabilities also discriminate between more and less successful firms when examining more comprehensive measures of business performance, such as changes in productivity, profitability and market share.

A core finding runs through many of these studies: “Innovation results from an active, driven process. Innovative firms make substantial investments in developing their innovation capabilities, often emphasizing a range of complementary business skills.”

The research paper “Innovation capabilities: The knowledge capital behind the survival and growth of firms” is now available from the Publications module of our website as part of the Canadian Economy in Transition (item number: 11-622-MIE2006013) series.