Challenges in Developing New Small Businesses: Evidence from Ethiopia
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Date
2020-06
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A.A.U
Abstract
This dissertation discusses the challenges that effect the development of new businesses in a developing economy. The study focuses on challenges related to the different phases in a new business’ development in a developing economy including product development, resourcing a new business, and market development. Through case studies of seven new businesses, I make sense of the process of developing a new business in Ethiopia. My findings stress that a new small business uses government support provided by the SMEs Development Agency to overcome the challenges. This support effects the process of developing a new business in different ways. It helps a new business overcome its lack of resources in its start-up phase. Most new businesses start operations with no or limited resources. They also face challenges in connecting with customers and other relevant stakeholders. The government’s support helps the new businesses to overcome challenges related to the “liabilities of newness and smallness”. A new business with low or no resources, aligns its choice of product ideas with the government’s priorities. The founders search for a product from among the government’s priority areas that matches their experience. The process of developing a product in a new business with government support starts with the founder (s)’ limited initial knowledge. The government’s support enhances this search by encouraging the founders of new businesses to take risks and try their products with customers. Additional knowledge is acquired through interactions with stakeholders as the new business’ development unfolds. In addition, the government provides the business with training on how to develop its product. Suppliers and customers contribute to the founders’ knowledge. As a new business aligns more with government policies, it gets more resources, earns more legitimacy, and establishes market connections faster. A new business formed under the SMEs development policy’s directives has the possibility of achieving early market connections. The government facilitates connections between a new business and its potential customers. However, a reliance on government support has negative effects as well. When the support stops, the new business has to deal with the challenges of finding new customers. As a result, a new business faces major problems in generating enough revenue to cover its costs, facing the liability of early market scaffolding. The findings of my dissertation have implications for both the founder(s) of new businesses and the SMEs development policy. This dissertation contributes to broadening the understanding of the founders of new businesses when they take decisions and undertake activities as the new business’ development process unfolds. The findings of this dissertation will also help policymakers to take informed decisions on the contents of the SMEs support package.
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New Small Businesses, New business in Ethiopia