ACTA UNIVERSITATIS DANUBIUS Vol 16, no 6, 2020

A Quantitative Analysis of Selected Variables on their Impact to

Small Business Growth in the eThekwini Region

Tinaye Mahohoma1, Albert Tchey Agbenyegah2

Abstract: Over the years researchers and academics have used several terminologies to elucidate
small business growth. However, underlining events which each entity undergo still remains more or
less the same. The purpose of this quantitative study was to investigate the impact of selected
variables on the growth of small businesses in the eThekwini Region of KwaZulu Natal in South
Africa. From a total population of 220 small businesses with more than ten years of active business
operations within the research settings, a sample of 119 owners- managers were randomly selected to
provide empirical data. Data collection was based on primary data, by using closed ended
questionnaire as the main research instrument. The bivariate correlation analysis is employed to
ascertain the set study objective. The final outcomes revealed that business growth might not be
positively linked to educational achievement of owner-managers. The researchers recommend that
entrepreneurial education should be introduced and be prioritised to every grade 12 learners across the
educational settings in the research settings. Further collaboration is required between educators and
trainers of potential industry-based entrepreneurs across the eThekwini Region to enable all the role
players utilise the rich experiences of members. The level of collaboration could be of utmost benefits
to educators in all the learning institutions throughout the region in designing entrepreneurial training
programmes and education curriculum in all the schools.
Key words: Small business growth; business size; business age; entrepreneurs; e-Thekwini
JEL Classification: C20

1. Introduction
In any country, small businesses are the major drivers of vibrant economic
development, employment creation as well as vigorous economic growth (Nafukho
& Muya, 2010). Entrepreneurs are those individuals who intend to manage such
enterprises. Hence, entrepreneurship is that kind of proprietorship which focus on a
new arrangement so as to manufacture fresh goods and services. Small business,
according to Seda (2016) are deemed to create about 80% of all new job

1 Durban University of Technology (DUT), South Africa, Address: ML Sultan Campus, Durban,
South Africa, E-mail: tinasm@12gmail.com.
2 Durban University of Technology (DUT), South Africa, Address: Riverside Campus,

Pietermaritzburg, Durban, South Africa, Corresponding author: alberta@dut.ac.za.

AUDOE, Vol. 16, No. 6/2020, pp. 38-53
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opportunities and more than 70% of the South African workforce is employed in
this sector.
Despite the enormous role played by small business the economy, they continue to
face serious threats associated with the establishment, growth and development and
some these threats include growth challenges of small businesses. Lack of financial
resources; lack of managerial skills; inadequate equipment and technology;
legal/regulatory issues, and poor/limited access to markets (Abor and Quartey
2010). These are some of the hindrances to growth and development of small
businesses.
South Africa faces tremendous socio-economic challenges, and many of these
challenges are, to a large extent, linked to the high level of unemployment.
According to the Quarterly Labour Force Survey (2019), the unemployment rate
for the third quarter of 2019 was approximately 29%. Despite the role played by
small business in terms of employment creation, innovation, economic growth and
development the failure rate is very high in South Africa (Lings 2014) cannot
account for the needed economic growth, especially with proportional to the
challenge of employment creation.
Studies conducted in other countries (Lucas & Laverde, 2018; Sajilan et al., 2015)
also highlighted the important role of demographic factors on the small business
growth. In South Africa little research was conducted to determine the impact of
selected variables on small business growth. In an attempt to partially address this
gap, the authors seek to discuss the impact of business age, educational
qualification and business size on small business growth through quantitative
analytical tools.

2. Theoretical Framework
The theoretical background is utilized with a view to formulate the overall structure
of specific theory that underline this study. The following section give an account
of a theoretical framework that explains the research problems. This empirical
study employs the Penrose’s firm growth theoryat the main starter to provide
solutions to the phenomenon.

2.1. Penrose’s Firm Growth Theory

Growth refers to a change in size or magnitude from one period of time to another
(Wieland 1998) Penrose (1959) provided some key characteristics that regulates
and standardise the growth of small businesses and the level at which these
enterprises grow successfully. The small businesses create a linkage between
internal environment and external resources in order to enhance the increase in the
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size of the entity and to attain the competitive advantage (McKelvie & Wiklund,
2010). Penrose’s growth theory defines resources as the physical things a firm
buyS, leases or produces for its own use and the labour force that make them
effectively part of the firm. Johannisson (2017) defines the contribution these
resources can make to the productive operations of the firm as services.
The primary objective of private firm is the desire to accumulate significant
amounts of profit margin as expounded in the Penrose growth theory (Penrose,
2019). Given the general perspectives of the growth theory, every individual firm is
to demonstrate particular productive prospect that stands out to demonstrate the
firm’s distinctiveness. The Penrose growth theorem views the sizes of entities as
incidence to potential growth processes (Gupta et al., 2013). Coad et al. (2016)
postulate that effective and innovative managerial resources results in the small
business growth (in the main assumption of Penrose growth theory). Penrose
argued that differential aspect among firms in the same industry occurs because
even firms with similar resource quantities can configure them in unique
combinations that yield a variety of services (Burvill et al., 2018). According to
Penrose (2019), “Firm growth occurs because of the availability of excess
resources-such excesses develop because of the lumpiness and indivisibilities of
the resources that firms acquire”. In contrast, lack of capabilities causes internal
obstacles to growth.

2.2. Characteristics of Small Businesses

Yazdanfar et al. (2014) posit that small business general use a large percentage of
lowly skilled and unskilled people than larger organisations and they become
labour intensive sector. The labour intensiveness of small business promote a more
equitable distribution of income than larger organisations (Olawale and Garwe,
2010). In terms of relationships, Biekpe (2011) argues that small businesses have a
more direct relationship with the local community, and they often reside in a single
city or region and become a familiar presence in that area (Biekpe 2011). During
turbulent market conditions small businesses tend to be are more flexible and they
can easily adapt (Sánchez et al., 2013). Additionally, in terms of organisational
structure, the small businesses have a very simple rather than complex, often
requiring flexibility from employees to adapt their competences and skills to
different tasks in their daily duties (Ogbokor 2012).
Established small businesses often own their facilities and equipment outright,
which, in addition to other factors, helps to keep costs lower than more leveraged
businesses (Olfert 2012). Arend (2014) and Nicolini (2001) in their work argued
that small businesses mainly rely on the personal assets of owners and management
as long sources of finance the company. Walker and Brown (2004), as well as
Radipere and Dhliwayo (2014) argue that small businesses have unique products or
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services, such as their own designs, products, systems or some other aspect, which
sets them apart. As one of their shortcoming, Coad, Segarra and Teruel (2013)
stated that small businesses have limited bargaining power when purchasing inputs
from suppliers; hence, they receive lower volume discounts and trade discounts
than larger organisations (Boubakary, 2015). In small business, according to Xiang
and Worthington (2015) the owner is part of the management team, and is often
responsible for many different tasks and important decisions. Small businesses due
to their size, are not in a dominant position compared to their suppliers, and this
results in small businesses having less bargaining power with their suppliers than
larger companies (Radipere and Dhliwayo 2014; Chowdhury et al., 2013).

3. Empirical Literature
3.1. Empirical Findings on Business Growth of Small Businesses
The terms “growth”, “success” and “performance” are closely linked and often
interchangeable (Reijonen & Komppula, 2007). However, in this study the authors
are concerned of small business growth as such the concept of growth is defined in
the ensuing section. While the definitions of these terms are seemingly intertwined,
the term business growth is applied in this study. Singh et al. (2008) outline the
measurement of business growth is done through analysing the ration between the
twin concepts of outputs and inputs.
Scholars like Gupta and Batra (2016) and Zimon (2018) define business growth as
the general improvement in sales, profit or market share. This line of definition is
supported by Ruigrok and Wagner (2003) who categorised business growth into
two core dimensions: financial and operational (nonfinancial). Anggadwita and
Mustafid (2014) elaborate that efficiency, financial results, level of production and
number of customers are some of quantified business growth measures (Alpkan et
al., 2007). Furthermore, Sheehan (2013) and Gopang et al. (2017) add that
achievement goals, leadership style, employee behaviour, customer satisfaction,
and innovative process, organisational and marketing innovation as qualitative
indicators. Yazdanfar et al. (2014) contend that qualitative techniques of business
growth may be obtained by ranking or scaling variables (based on individual
perceptions), such as knowledge and business experience, the ability to offer
quality products and services, the capacity to develop new products and processes,
the ability to manage and work in groups, labour productivity, and corporate
responsibility to the environment (Sarwoko et al., 2013). Drawing from these
definitions, the authors made the decision to adopt both financial and non-financial
indicators of business growth.

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4. The Conceptual Framework and Hypotheses Formulation

The conceptual framework of this study was driven by extant scientific evidence
that consisted of selected dependent and independent variables of demographic
factors and small business growth. In this paper the selected variables that were
used to model the conceptual framework features the business age, educational
qualification and number of full time employees. Figure 1 below depicts the related
variables that formed the foundation of this study.

Figure 1. Selected Demographic Model on Small Business Growth

Source: Compiled for the Study
4.1. The Relationship between Business Age and Small Business Growth
In African countries the study between business age and growth are very limited
(Hui, et al. 2013). Storey (1994) as well as, Delmar et al. (2003) observed that
business age and growth are inter-dependent variables. Business age is defined as
the number of years that an enterprise has been operate within the confinements of
law as indicated by most studies (Abu Bakar 2011; and LiPuma et al., 2013). The
study conducted by Wiklund and Shepherd (2005) and Radipere and Dhliwayo
(2014) reflected positive relationships between business age and business growth.
Urban (2004) emphasised that business age leads to positive business growth but
up to a certain size where they become sluggish.
Bhayani (2010) conducted quantitative data analysis through regression analysis,
the results showed that older small business performs better than the younger firms.
This finding are supported by the study conducted by Chang et al. (2002) that
concluded that older firms enjoy great benefit from their greater business
experience, and therefore experience higher growth than younger firms. Older
firms tend to build good network business partners and customers, and have good
relationship with financial institutions. Opposite to the above mentioned findings,
in this study conducted in India, Gaur (2011) examined the link of business age and
growth, it was proved that the business age is statistically insignificant. Agarwal

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and Gort (2002) pointed out a negative correlation between business age and
growth due to the fact that business age leads to poor growth. Loderer and
Waelchli (2010) and found that as the firm ages its growth drops, thus firm age
having a negative effect on growth. Business age in this study was measured
through the following categories: less than 5 years; 5-10 years; 11-15 years; 16-20
years and 20 years and more. Given the above discussions, the authors define the
formulated hypotheses (null hypothesis (H0), and alternative hypothesis as H1) as
follows:
H0a: There is no statistically signification relationship between business age and
growth.
H1a: There is statistically signification relationship between business age and
growth.

4.2. The Link between Business Size and Small Business Growth
Business size can be defined as the number of full time employees (work force)
(Takalashi, 2009; GEM, 2010). Recent study by Alasadi and Abdelrahim (2007)
observed that small business growth depends on business size and also business
size depends on business growth. As the business grows, it increases the operations
that requires a lot of employees (Takahashi 2009). Small business size is associated
with how the entity has access to both the resources and the operational costs
incurred by the firm (Arend, 2014; Nicolini, 2001). Firm size as an internal factor
of a company has been considered a very important attribute of profitability.
Driffield et al. (2005) contend that business size has great influence to the level of
economic activities and the possible economics of scale enjoyed by the firm. Anton
and Onofrei (2016) argues that entities that enjoys greater business size generate
higher business growth. Anton and Onofrei (2016) revealed the positive correlation
between growth and business size. However, Gibrat’s law (1931) states that the
business size plays no role in influence the success of the business. Research by
Mateev and Anastasov (2010) found evidence that business size and growth. In this
study the business size was measured through the following categories: less than 50
employees; 51-100 employees; 101-150 employees; 151-200 employees and above
200 employees. Given the above discussions, the authors define the formulated
hypotheses as follows:
H0b: There is no statistically signification relationship between business size and
growth.
H1b: There is statistically signification relationship between business size and
growth.

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4.3. The Association between Education and Small Business Growth
Radipere and Dhliwayo (2014) in agreeing with Chowdhury et al. (2013) noted that
educational qualifications of entrepreneurs are critical factor that leads to the
success of small business in complex environments. In order to achieve
entrepreneurial development, a good quality education enhance an individual’s
level of self-efficacy and self-confidence (GEM, 2012). Vallabh and Mhlanga
(2014) emphasised that education aids the process of building cognitive thinking of
owners/managers such as confidence, psychology, knowledge and skills which will
impact the growth of the business. Fatoki (2014) emphasised that education plays a
critical role in distinguishing high growth and low growth small firms. Panda
(2002) indicated that formal educational qualification of entrepreneurs has no
significant impact to the level of business growth. This was echoed by Gupta and
Muita (2013) who undertook a study in Jordon, which concluded that the
entrepreneur’s level of education positively influences the success of his/her
business. Similarly, Kokeno and Muturi (2016) proved that education had positive
effect on firm growth the study was conducted in Nairobi. In contrast, some studies
(Gottesman and Morey 2010; Clarke et al., 2013) failed to establish the relationship
the level of education and business growth. The findings indicated that education
does not influence firm growth. Given the above discussions, the authors define the
formulated as follows:
H0c: There is no statistically signification relationship between education and
growth.
H1c: There is statistically signification relationship between education and growth.

5. Research Methodology
The research employed a quantitative technique as empirical data was collected
through closed ended questionnaire. Nardi (2018) postulates that quantitative
research is generally deductive and particularistic through the formulation of the
research questions and verifying them empirically on a specific set of data and this
is favoured by positivism philosophy. Parahoo (2014) supports that objectivism is
well achieved in positivism since the researchers’ own values, biases, and
subjective preferences are subdued. Corry et al. (2019) noted that the importance of
positivism, particularly logical positivist explanation, is recognised as one of the
most viable approach to explain a phenomenon. The quantitative research involved
gathering data through the use of a structured questionnaire (Sekaran & Bougie,
2016; Cooper & Schindler 2014), which was electronically mailed to the chosen
sample.

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5.1. Sample Profile
Two hundred and forty eight (248) respondents were identified and approached for
the survey. These respondents represented the target population of the
owners/managers residing in the eThekwini region of KwaZulu-Natal in South
Africa. The sample respondents of the target population were randomly sampled
using a random number table.

5.2. Research Instrument

This study is quantitative; thus, a 5-point Likert-scale questionnaire was utilized to
measure the dependent and independent variables. This study made use of closed
ended questionnaires to ensure that empirical data gathered allowed the authors not
only to perform credible statistical evaluations but to also ascertain insightful data
interpretations (Creswell, 2014). Greater considerations regarding how the
proposed variables should be evaluated to realise the study objectives were well
thought off. As such, relevant scales of measurement were identified and
operationalized in line with extant literature review

5.3. Reliability and Validity

Mohajan (2017) defines reliability as the uniformity and standardisation of results
provided by the independent but comparable measures of the same object or
construct. Cronbach’s alpha was used as the primary measure of reliability in this
study and the value was 0.76. Creswell and Clark (2017) refer validity as to the
degree at which the measurement process is free of both systemic and random
errors. The face validity of the questionnaire was tested using experts (in the areas
of small businesses), who analysed and interrogated the questionnaire to establish
whether it covered the study objectives.

6. Data Analysis
In data analysis, the raw data (unprocessed information) is ordered and organised
to enable the extraction of useful information from it. In this study the data from
the 119 respondents was captured and coded on Microsoft Excel spreadsheets, and
was processed using the Statistical Package for the Social Sciences (SPSS), version
25, software. In this study the descriptive statistical tools that were used were
frequency distribution tables. Correlation and regression analysis are the inferential
techniques that were employed to measure the strength of the association and
relationship between selected demographic factors and small business

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7. Empirical Results
7.1 Descriptive Statistics
Table 1. Measures of Central Tendency
Statement/ Item Valid Missing Mean Median Mode
To which does your business belong 119 5 6.19 7.00 7
No.of (full of time) employees 119 8 2.64 2.00 2
How long have you owned your current 119 11 2.62 2.00 2
enterprise
Indicate your highest of level of formal 119 9 2.15 2.00 2
education
Which of the following measures do you 119 13 2.23 200 2
use to evaluate the business growth of
the organisation
Business growth trend over the past 2 119 13 1.38 1.00 1
years
The rate of business growth 119 13 1.71 2.00 2
In terms of which business sector does the enterprise belong, the mean value of
five (5) is lower than the mode and median values, the implication is that most
enterprises belong to the catering and accommodation sector. In terms of the
number of full time employees, the mean is greater than the median and the mode,
this indicate that on average owners-managers has labour force ranging from 101 to
150. From the results displayed in the Table 1 above, it can be concluded that the
average duration period of the firms is between 11-15 years. This contradict that
most of small business cannot survive for more than 2 years. The respondents
indicated that they possess Diploma/ Degree. This shows that most of the owners-
managers had received formal education. Net income is the mostly used as a
measure of business growth. The study indicate the majority owners-managers
prefer financial measures in defining their business growth. The study indicate that
the financial measures has increased in the last 2 years. Finally, the results of the
study indicate that most of SMEs were successful in the last 2 years.
7.2. Inferential Statistics
Table 2. Bivariate Pearson Correlation (R)
Statement/ Item N R
No. of full time employees 119 -0.091
How long have you owned your current enterprise 116 -0.113
Indicate your highest level of formal education 119 -0.044
Which of the following measures do you use to evaluate the 119 -0.071
business growth of the organisation
Business growth trend over the past 2 years 119 0.363
The rating of business growth 119 1

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The results displayed in Table 2 indicates a weak negative relationship is depicted
on business size and business growth. This implies that the small businesses are
also adopt the use of technology and starting to be capital intensive in nature. The
relationship between business age and business growth is a negative weak
relationship. This implies that the success of an enterprise does not depend if the
business is young or old. There is negative weak relationship between education
qualification and business growth rate. This implies that formal education does not
have any role to play in improving the success rate, so uneducated owners-mangers
may be very successful than the educated ones. The results also indicate that a
negative weak relationship is depicted between the business growth measures and
the success rate. This implies the use of either financial or non-financial measures
does not influence the success of the business. Lastly, a moderate positive
relationship exists between the growth trend of and the growth rate. This implies
that the daily growth significantly impacts on the business success in the long run.
Table 3. Model Summary
Model R R Square Adjusted R Square Std. Error of the Estimate
1 .190a .036 001 .659
The correlation of the whole mode shows a weak positive relationship. This
implies all the three selected variables that is business age, business size and
education had less significant impact on the small business growth. In terms of
coefficient of determination, 3.6% variation in the rating of the business growth is
explained by the stated independent variables. This implies that 96.4% variation in
the business growth rate is explained by other factors that are not included in this
model and hence the model is very weak to ascertain if these three selected
demographic factors possess great influence on small business growth.
Table 4. Regression Equation
Model Unstandardized Coefficients Standardized t Sig.
Beta Std Error Beta
(Constant) 1.871 .290 6.448 .000
No. of (full-time) -.048 .066 -.070 -.719 .474
employees
How long have you -.053 .059 -.089 -.903 .369
owned your current
enterprise
Indicate your -.022 .088 -.023 -.246 .806
highest level of
formal education
Conceptualising of the Variables
Let:
𝛽0 𝑟𝑒𝑝𝑟𝑒𝑠𝑒𝑛𝑡𝑠 𝑐𝑜𝑛𝑠𝑡𝑎𝑛𝑡
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𝛽1 denotes the coeffiecient of number of full time employees (business size)
𝛽2 𝑑𝑒𝑛𝑜𝑡𝑒𝑠 𝑡ℎ𝑒 𝑐𝑜𝑒𝑓𝑓𝑖𝑒𝑐𝑖𝑒𝑛𝑡 𝑜𝑓 𝑏𝑢𝑠𝑖𝑛𝑒𝑠𝑠 𝑎𝑔𝑒
(ℎ𝑜𝑤 𝑙𝑜𝑛𝑔 ℎ𝑎𝑣𝑒 𝑦𝑜𝑢 𝑜𝑤𝑛𝑒𝑑 𝑡ℎ𝑒 𝑐𝑢𝑟𝑟𝑒𝑛𝑡 𝑒𝑛𝑡𝑒𝑟𝑝𝑟𝑖𝑠𝑒)
𝛽3 denotes the coeffiecient of education
BS 𝑟𝑒𝑝𝑟𝑒𝑠𝑒𝑛𝑡𝑠 𝑏𝑢𝑠𝑖𝑛𝑒𝑠𝑠 𝑠𝑖𝑧𝑒
BA 𝑟𝑒𝑝𝑟𝑒𝑠𝑒𝑛𝑡𝑠 𝑏𝑢𝑠𝑖𝑛𝑒𝑠𝑠 𝑎𝑔𝑒
EDU 𝑟𝑒𝑝𝑟𝑒𝑠𝑒𝑛𝑡𝑠 𝑒𝑑𝑢𝑐𝑎𝑡𝑖𝑜𝑛
BG 𝑟𝑒𝑝𝑟𝑒𝑠𝑒𝑛𝑡𝑠 𝑏𝑢𝑠𝑖𝑛𝑒𝑠𝑠 𝑔𝑟𝑜𝑤𝑡ℎ 𝑟𝑎𝑡𝑒 (𝐵𝑢𝑠𝑖𝑛𝑒𝑠𝑠 𝑔𝑟𝑜𝑤𝑡ℎ)
BG = 𝛽0 + 𝛽1 BS + 𝛽2 BA + 𝛽3 EDU
𝑌 = 1.871 − 0.048BS − 0.053BA − 0.022EDU
Discussions
The model above reflects without modifications the independent variables. The
business growth is 1.871 when there is no influence all independent variables.
Regarding business size, the coefficient of -0.048 implies that small sized firms
performs better than the larger size ones (measured by number of full time
employees). The results of the study contradicts the assertion of Anton and Onofrei
(2016) who argued that entities that enjoys greater business size generate higher
business growth. In terms of the business age, a negative relationship is depicted on
the business growth. This implies that younger firms perform better than older
firms. This can be attributed to the notion that when the firm is small the
owner/manager has greater control of all the functions of manager and decision are
made without delay. Agarwal and Gort (2002) is in agreement with the findings of
the study as the authors pointed out a negative correlation between business age
and growth due to the fact that business age leads to poor growth.
A negative relationship between the level of education and business growth is
revealed in this study. This implies that managers who attained lower level of
education are likely to perform better in contrast to holders of post graduate
qualifications. This is supported by recent research commissioned by Panda (2002),
Gottesman and Morey (2010), and Clarke et al. (2013) which revealed that formal
educational qualification of entrepreneurs has no significant impact to the level of
business growth. This finding is very contradictory since the general notion is that
higher education achievement is associated with higher growth (Gupta and Muita,
2013); Alkali, 2012).

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8. Discussions and Conclusions

The aim of this research was to determine the impact of the three selected variables
(business size, business age and education) to the small business growth. The
research analysis was conducted on the small business that resides in eThekwini
Region, Kwa-Zulu Natal in South Africa. The total number of firms included in the
analysis amounted to 248. Small business was chosen due to its significant
contribution to the economy in terms of total production (56%) and total
employment (70%), as well as due to the overall data availability. Based on the
findings from this study, it has been shown that the three demographic factors
(education, business age and business size) had negatively influence the business
growth. Thus, education by the owners-managers might not be relevant to
positively influence the business growth.
Based on the findings, the researchers suggested a number of recommendations.
Initially the researchers recommend that entrepreneurial education should be
introduced to all learners. Furthermore, there should be ongoing collaborative
effort between educators and industry-based entrepreneurs to provide educators
with business related curriculum assistance to educators and training programmes.
Lastly, government should redefined the definition of SME in terms of market
capitalisation or the general business asset values using US dollar as denomination.
Further researches may be oriented towards the investigating the impact of
entrepreneurial education on the business growth in the small businesses with the
inclusion of additional explanatory variables (excluding business size, business
age).

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