Demoz Bekele

GREAT COLLEGE
MASTEROFBUSINESSADMINISTRATION
ANALYSIS OF THE SUCCESS FACTORS OF MICRO AND SMALL BUSINESS

ENTERPRISES IN ADDISABABA
By DEMOZ BEKELE
ATHESISSUBMITTEDTOTHESCHOOLOFGRADUATESTUDIESOFGREAT
COLLEGEINPARTIALFULFILLMENTOFTHEREQUIREMENTSFORTHEDEGREE
OFMASTERSOF BUSINESSADMINISTRATION
ADVISOR:
ABEBAW (ASS PROF)
August ,2023
AddisAbaba,Ethiopia
GREAT COLLEGE
MASTEROFBUSINESSADMINISTRATION
ANALYSIS OF THE SUCCESS FACTORS OF MICRO

ANDSMALLBUSINESSENTERPRISESINADDISABABA
By:
DEMOZ BEKELE
ApprovedBytheBoardofExaminers
1.
Advisor Signature Date
2.
Examiner Signature Date

Acknowledgments
I am greatly thankful of the support from my friend for his unreserved helpand encouragement.
I’m also thankful to individuals working in Micro and Small BusinessEnterprises development
Agency of Arada and Gulele Sub City Administrations and AddisAbaba City Administration for
making available all the information necessary for the completionof the thesis.
My heartfelt gratitude goes to my supervisor DrTufil Ahmad, for the
guidance,supportandtheencouragementneeded forthesuccessfulcompletion ofthis thesis.
i
Table of Contents
Acknowledgments...........................................................................................................................................................1
ListofAcronyms..............................................................................................................................................................2
ABSTRACT..................................................................................................................................................3
CHAPTER ONE.............................................................................................................................................................1
1. INTRODUCTION....................................................................................................................................1
1.1. BackgroundoftheStudy.............................................................................................................................1
1.2. StatementoftheProblem.............................................................................................................................2
1.3. ObjectiveoftheStudy.................................................................................................................................3
1.4. ScopeoftheStudy.......................................................................................................................................4
1.5. ConceptualFramework..............................................................................................................................4
1.6. Hypothesis.................................................................................................................................................6
CHAPTER TWO............................................................................................................................................................7
2. REVIEWOFLITERATURE.....................................................................................................................7
2.1. Introduction...............................................................................................................................................7
2.2. MicroandSmallEnterprises(MSEs)...........................................................................................................7
2.2.1.Definitions..............................................................................................................................................................7
2.3. SuccessFactorsandPerformanceofMSEs.................................................................................................10
2.3.1. DefiningSuccess......................................................................................................................................11
2.3.2. MeasuresofSuccess.................................................................................................................................12
2.4. TheSuccessFactors..................................................................................................................................13
2.4.1. PersonalRelatedFactors...........................................................................................................................14
2.4.1.1. Education................................................................................................................................................14
2.4.1.2. Age..........................................................................................................................................................15
2.4.1.3. PriorBusinessandIndustryExperience.....................................................................................................16
2.4.1.4. PriorManagementExperience..................................................................................................................17
2.4.1.5. MarketingSkillofBusinessOwners..........................................................................................................19
2.3.3.2.BusinessRelatedFactors....................................................................................................................................20
2.4.2.1. PlanningandPerformanceinSmallEnterprises..........................................................................................20
2.4.2.2. RecordKeepingandFinancialControl.......................................................................................................20
2.4.2.3. FormofOwnership...................................................................................................................................21
3. METHODOLOGYANDDATA..............................................................................................................22
3.1. Introduction.............................................................................................................................................22
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3.2. SampleDesign.........................................................................................................................................23
3.3. VariablesandMeasures............................................................................................................................23
3.4. Questionnaire..........................................................................................................................................24
CHAPTER FOUR.........................................................................................................................................................27
4.DATAANALYSISANDINTERPRETATIONS........................................................................................................27
4.1. Introduction.............................................................................................................................................27
4.2. ResultsandDiscussion.............................................................................................................................28
4.2.1. DemographicandEnterprisesProfileRelatedData....................................................................................28
4.2.2 DescriptiveStatisticsResultsandDiscussionabouttheMainVariables.......................................................30
4.2.3 ANOVAResultsandDiscussion...............................................................................................................43
5. CONCLUSIONANDSUGGESTIONS...................................................................................................51
5.1. Conclusions.............................................................................................................................................51
5.2. Suggestions.............................................................................................................................................52
5.3. LimitationsandFutureResearch...............................................................................................................53
References 54
iii
ListofAcronyms
MSEs = Micro and Small Business
EnterprisesMoTI=MinistryofTradeandIndustry
CSA = Central Statistics
AgencyILO = International
Labor
OfficeGDP=GrossDomesticProd
uct
iv
ABSTRACT
The research study evaluated the relation between personal related success factors and
businessrelated factors on the performance of MSEs in Addis Ababa. This is with a view to
identify thesepersonal and business related factors that have a favorable relation to the
performance of theenterprises business performance. Primary data, through structured
questionnaire, were collectedfrom the samples of 73 MSEs randomly selected from among those
industries engaged in Foodand Beverage; Textile and Garment, Wood and Metal, and
Merchandise and Retail shop. Datawere analyzed using descriptive and inferential statistics with
the aid of Statistical Packages forSocial Scientists (SPSS). Also, analysis of variance was carried
out to examine the variation inthe performance of enterprises related to the variation in each of
the independent variables of thestudy. The ANOVA result indicates there is no significance
variation on the performance ofMSEs in relation to the variations to each of the eight
independent variables of the study. But thedescriptive statistics result shows better performance
for enterprises owned by individuals withbetter education level, have prior management and
industry experience. In addition it also showsbetterperformanceforthoseenterprisesthat
usesplanningandrecordkeeping.
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CHAPTER ONE
1. INTRODUCTION
1.1. BackgroundoftheStudy
Research on Micro and Small Enterprises (MSEs) has grown during the last decade. Majority
offirms worldwide are dominated by businesses of small and medium enterprises. These
enterprisesplayasignificantroleintheeconomythroughinnovationandemploymentcreation.Conseque
ntly,theperformanceofaneconomyofanationiscloselyassociatedwiththeperformanceofMSEs.
In developing countries the informal sector that mainly constitutes microenterprises is the
majorsource of employment and income for the urban population.ILO (2000) estimated the share
ofinformalemploymenttothetotalnon-
agriculturalemploymentaccountsfornearlyhalformoreinallregionsofthedevelopingworldandabout7
2%insub-SaharanAfrica.Besidesemployment creation, they also play a very important role in the
developing world economy. Forexample, in Sub Saharan Africa, the contribution of the informal
sector in non-agriculture GrossDomestic product (GDP) is about 41 %. Hence, their efficiency
matters in determining overalleconomicperformanceand povertyreduction.
Despite their potential to improve economic growth, micro and small enterprises (MSEs)
indeveloping countries lack serious attention. They produce largely for the low income group
andemploylowerlevelsoftechniques.Manyofthemareself-
employedtypewithalowtransformationrateintohighersizecategoriesandtheirinnovativeactivitiesarel
imited(Gebreeyesus,2009).
Small and Medium Enterprises are widely acknowledged to contribute towards promotion
anddevelopmentofinventions,andtherebygenerateemploymentopportunitiesinEthiopia.MSEsare
particularly important in the context of the country’s poverty-reduction strategy because theyare
seedbed for the development of medium and larger enterprises, and because they
absorbagriculturallyunder-employedlabor,anddiversifythesourcesofincomeforfarmingfamilies.
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In this respect, Ageba (2006) reported that, the role of the MSE sector in employment
creation,economic growth and poverty alleviation has received the recognition it deserves as
opposed
tobeingviewedasmarginalandunproductive,taxevader,andwithlimitedcontributiontoeconomic
growth.
Recognizing the significance of this sector, the Ethiopian Government issued the National
Microand Small Enterprises Strategy in 1997 and established the Federal Micro and Small
EnterprisesDevelopment Agency in 1998. The country’s industrial policy in 2003 and the poverty
reductionstrategy in 2006 have singled out MSEs as major instruments to create a productive and
vibrantprivatesectorandreducepovertyamongurbandwellers.Thesedocumentsreiteratedtheimportan
ce of MSEs, promotion through the provision of finance, training, and
infrastructureservicesamongotherthings.
It is natural to say that every small business owner starts with high hopes of success, but it is
ausual phenomenon that each year firms go out of businesses. Although failure is not the
solereason for enterprises to leave the business, many enterprises do fail each year. Thus, the
odds offorming a profitable venture are a critical issue for those weighing the risk of starting a
business(DennisandFernald,2001),andunderstandingofwhyfirmssucceediscrucialtothestabilityand
health oftheeconomy(Pompeand Bilderbeek,2005).
However,discoveringwhichfactorsorpracticesleadtobusinesssuccessisanunfulfilledpurposeofbusin
ess research (Rogoff2004).
1.2. StatementoftheProblem
The Micro and Small Enterprises Sectors contribute to the economy of nations’ by
creatingemploymentopportunities,productionofgoodsandservicesandothervalueaddedactivities.Th
e existence of a strong small business sector is necessary for the boosting of the
economy.However, the transition of this sector to medium and large business sectors is as crucial
topreserve theflow of new small businesses intothe economy.Inaddition, such transition
orgrowthwillfurtherreducetheunemploymentrateandincreasethenumberofproductsorservicesoffere
dtothesociety. Hence, growthofMSEsconsideredassynonymouswithsuccess.
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There are a lot of factors that affect the performance of MSEs either positively or
negativelywhich in turn will determine their fate in the competitive business environment. These
factorswhich contribute to the success of the enterprises are mainly related with the personal
attribute oftheowners’and attributes relatedto theenterprises.
Given the importance of small business for an economy, the survival, success and performance
ofthese enterprises in this sector is an issue of continuous concern. Research that can lead to
theidentification of those factors associated with small business performance is therefore of a
greatinteresttopolicymakers, owner-managers andtheiradvisors(Alasadiand Abdelrahim,2007).
Shonesy and Gulbro (2004), reported from their review of literatures on small business
successstudies, ‘there have been several studies, which seek to identify the critical success factors
forsmallbusinesses. However, there appearsa problemtodevelopa commonlistof the
factorswhichcontributeforsuccessofsmallbusinessperformanceoperatinginvariousbusinessenviron
ments and regions’. It is important to define these factors for any new business, as
theownershould beconcerned aboutthechancesforsuccess.
Understanding of why some firms succeed and others not is crucial to the stability and health
ofthe economy. Despite this fact, however, which factors are the most important to the success
ofMSEssectorinEthiopian has notbeen adequatelystudiedempirically.
So this study tries to examine the relationship between selected success factors identified
fromliterature with the performance of Micro and Small Business Enterprises operating in
AddisAbaba.
1.3. ObjectiveoftheStudy
In the literature of small enterprises, some variables are identified as they are very important
fortheir success in the business area they are involved in. From these variables identified in
previousworks of different authors; age of the business owner, education, planning, record
keeping
andfinancialcontrol,managementexperienceofowners,priorbusinessandindustryexperience
3
marketing skill, and ownership type of the enterprise are taken as independent or
explanatoryvariablestoseethevariationintheperformanceof enterprisesinrelationtothesevariable.
Thenthepurposeofthis surveystudyis;
❖ Toanalyzetherelationoftheabovementionedvariables(successfactors)withtheperformance
of MSEs operating in Addis Ababa by taking the variation of enterprisesperformancein
relation to thesevariables.
1.4. ScopeoftheStudy
This study delineates its scope only to those enterprises which are Micro and Small
Enterprisesaccording to the Ethiopian Ministry of Trade and Industry (MoTI) definition. Also it
takes thesample of the study only from those Micro and Small Enterprises operating in two Sub
CityAdministrationsin AddisAbabainvolvingonlyinfourmajorsectors.
1.5. ConceptualFramework
Previous studies investigating factors behind small business success have all lead to the
validassumption that there is a common set of underlying success factors, whose effect tend to
varydepending on the cultural context in which small businesses operate. Accordingly several
studiesin this regard were conducted in different countries all over the world, very few of which
wereconducted in developing countries. Hence, the essence of this study is to contribute the
literatureofsmallbusinesssuccessbyidentifyingthesuccessfactorsandtheireffectivenessorrelationwit
h small business performance operating in Addis Ababa, Ethiopia, which relies heavily
onsmallprivatebusiness forits economicdevelopment.
In this study, the researcher has chosen eight success factors to investigate. These are:
principalowners’ educational background, ownership form of the business, record keeping and
financialcontrol practice of the enterprises , the use of planning, principal owners’ age, owners’
previousmanagementexperience,owners’experienceofestablishingrelatedenterprise,andthemarketi
ngskills ofowners’.
Someoftheliteraturesourceswrittenbydifferentauthorsinthefieldthathelptoinsightthesmallbusinesss
uccessfactorsconsidered inthis studyare;Lussier(1995);Praag(2003);
4
Shonesy andGulbro(2004); Walker and Brown (2004); Lussier and Halabi (2010) and soon.
Themost extensive work was that of the Lussier’s (1995) ‘perceived causes of small business
successfactors and failure factors’, because his work examined the efficacy of the 15 variables
identifiedfrom20 priorstudies onthesubject ofsmall business.
To make each of the independent variables selected for this study more clear, one can see
theexplanationsand research finding reported by Lussier(1995). He hasdiscussed these
eightvariablesin relationto theireffect onsmall businesssuccess asfollows:
Record keeping and financial control: Businesses that keep updated and accurate records
andusesadequatefinancialcontrolshavea greaterchanceofsuccessthanfirmsthatdo notuse.
Industry Experience: Businesses managed by people with prior industry experience have
agreaterchanceofsuccessthanfirmsmanagedbypeoplewithoutpriorindustryexperience.
Management Experience: Businesses managed by people with prior management
experiencehaveagreaterchanceofsuccessthanfirmsthataremanagedbypeoplewithoutpriormanageme
ntexperience.
Planning: Businesses that develop specific business plans have a greater chance of success
thanfirmsthat do not.
Education: People without any college education who start a business have a greater chance
offailingthan peoplewithoneormoreyears ofcollegeeducation.
Age: Younger people who start a business have a greater chance to fail than older people
startingabusiness.
Partners: A business started by one person has a greater chance of failure than a firm started
bymorethan oneperson.
Marketing: Business owners without marketing skills have a greater chance of failure
thanownerswith marketingskills.
The independent variables of this study which are listed above can be categorized into two
majorsubgroups ofpersonalandbusiness related factors.
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Personal Related Factors: The personal factors include those variables that are
specificallyrelated to the owner of the small business. These encompass variables such as age of
owner,education, management experience of owner, prior business and industry experience of
owner,andmarketingskills oftheowner.
Business-Related Factors: The business-related factors focus on those variables that are
directlyrelated to the daily operation and make-up of the business. Variables include, planning,
recordkeepingand financial control,and ownership form ofthebusiness.
1.6. Hypothesis
After careful consideration of all independent variables and the dependent variable of the
study,the following hypotheses are developed to be tested using Analysis ofVariance
(ANOVA)statisticaltechnique.Thefirstfivehypothesesofthisstudyareabouttherelationshipbetweenfi
ve personal related independent variables and performance of the enterprises in relation to
them.And the rest three hypotheses are about the relationship between three businesses related
factorsandtheperformanceofenterprises.
HO1: There is no significant difference on the performance of enterprises operated by

ownerswithdifferent agegroup.
HO2: There is no significant difference on the performance of enterprises in relation to
thedifferenceon the education leveloftheprincipal owners ofthebusiness.
thedifferenceinthemanagementexperienceoftheprincipalownerofthebusiness.
thedifferencein priorindustryexperienceoftheprincipal ownerofthebusiness.
thedifferencein themarketingskills oftheprincipalownerofthebusiness.
thedifferencein planningpracticeoftheenterprises.
thedifferenceinusingrecordkeepingandfinancialcontrol mechanismwithin them.
thedifferencein thetypeofownershipoftheenterprises.
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CHAPTER TWO
2. REVIEWOFLITERATURE
2.1. Introduction
In this part of the review of related literature, the first part begins by defining what micro
andsmall business enterprises are in general and in Ethiopian context in particular .In addition
itdiscusses the criteria used to differentiate them from other business activities. Then the
literaturereviewfocuses ondefiningwhat successmean and howit ismeasured.
These success factors which will be discussed in the sections here after are independent
variablesof the study which is assumed to have relation and contribution to the performance of
enterprises.Then the literature ends with on reviewing those studies that relate the independent
variables anddependentvariableofthestudy.
2.2. MicroandSmallEnterprises(MSEs)
2.2.1.Definitions
There is a consensus among policy makers, economists, and business experts that Micro
andSmall Enterprises (MSEs) are drivers of economic growth. A healthy MSE sector
contributesprominently to the economy through creating more employment opportunities,
generating
higherproductionvolumes,increasingexportsandintroducinginnovationandentrepreneurshipskills.
As Gebreeyesus (2009) citied from Dababneh and Tukan (2007), the characteristic of MSEs
notonly reflectsthe economic patternsofa country butalsothe socialandculturaldimensions.These
differing patterns are noticeably reflected within different definitions and criteria of
MSEsadoptedbydifferentcountries:whereassomerefertothenumberofemployeesastheirdistinctive
criteria for MSEs, others use invested capital, and some other use a combination of
thenumberofemployees,invested capital,sales and industrytype.
Rigorously defining small business has always been difficult, even controversial. The term
coversa variety of firms and most writers use it rather loosely based on their purpose of study.
AsGebreeysus(2009)adoptedthedefinitionofsmallbusinessfromPeterson,Albaum,andKozmetskys(
7
1986)‘asmallbusinessisonewhichisindependentlyownedandoperated,and
8
whichisnotdominantinitsfieldofoperation’.Researchersandotherinterestedpartieshaveused specific
criteria to operationalize the small business as a construct: value added, value ofassets, annual
sales, and number of employees. The latter two criteria are most often used todelimitthecategory.
A study done by , Commission on Legal Empowerment of the Poor (2006), conducted in

AddisAbaba reported that; size of employment, capital investment or turnover is used as criteria
tocategorize enterprises along scales of operation and define micro, small, medium and
largeenterprises. This categorization is important for functional and promotional purposes to
achievethedesired levels ofdevelopment.
In the case of Ethiopia, there is lack of uniform definition at the national level to have a
commonunderstanding of the MSE sector. While the definition by Ministry of Trade and Industry
(MoTI)uses capital investment, the Central Statistical Authority (CSA) uses employment and
favorscapitalintensivetechnologies asayardstick.
The definition used by MoTI, which uses capital investment as a yardstick, has been
developedforformulatingmicroand small enterprisedevelopment strategyin1997.
AccordingtoMoTI:
• Micro enterprises are those businesses enterprises, in the formal and informal sector, with a
paidup capital not exceeding Birr 20,000 and excluding high tech consultancy firms and other
hightechestablishments.
• Small enterprises are those business enterprises with a paid up capital of above Birr 20,000
andnot exceeding Birr 500,000 and excluding hightech consultancy firms and other high
techestablishments.
Ontheotherhand,CSAcategorizesenterprisesintodifferentscalesofoperationonthesizeofemploymentan
d thenatureofequipment.
AccordingtoCSA:
• Establishmentsemployinglessthantenpersonsandusingmotoroperatedequipmentareconsideredas
small scale manufacturing enterprises.
9
• Enterprises in the micro enterprise category are subdivided into informal sector operations
andcottage industries: Cottage and handicraft industries are those establishments performing
theiractivities by hand and using non power driven machines. The informal sector is defined
ashousehold type establishments or activities, which are non registered companies and
cooperativesoperating with less than 10 persons. All enterprises employing ten or more workers
are grosslyconsideredas medium and largeenterprises.
In light of the above definitions and taking into consideration the Ethiopian situation, micro
andsmallenterprises (MSEs)maybedefined in the followingway:
• Micro enterprises are business activities that are independently owned and operated, have
smallshareofthemarket,are managed bytheownerandemployingfiveorlessemployees.
• Small businesses are those enterprises that employ 6 to 49 employees. They share the
samecharacteristicswith micro enterprisesin otheraspects.
• Medium scale enterprises are those enterprises which have a relatively higher share of
themarket, are independently or jointly owned or managed by the owner or by appointed
executivesandemploy50 to 99 persons.
• Those enterprises that employ more than 100 persons could be considered as large
enterprises.Nevertheless,thereislackofclarity,inconsistency,lackoforganizedinformationandconsist
enthistoricaldatais lacking in Ethiopia.
The features that distinguish MSEs from larger scale enterprises include greater owner
influence,dominance ofoneperson, more subjective decisiondue tocentralizationof
decisionmaking,close contact of the top management with employees at lower levels and greater
concern withfinancialmattersduetodifficultyof attributablefundsetc(Gebreeysus,2009).
Clusters under the umbrella of MSEs are numerous activities – street vendors, shop
keepers,construction,woodandmetalwork,foodprocessing,textileandgarments,urbanfarm
,municipality service , bars, shops, groceries, hairdressers, wholesale and retail traders,
exportimport traders and small scale industries etc. Most of these enterprises in the country are
largelyconfined to trade and services and to small scale manufacturing and handicrafts, which
constituteanimportant subset ofsmall scaleenterprises.
10
The definition of small scale industries adopted by the Federal Micro and Small
EnterprisesDevelopmentAgency(FeMSEDA)inproclamation 124/77 isas follows:
A small scale manufacturing activity and engineering service establishment is a

manufacturingestablishment -except handicrafts- which has a fixed location within urban center;
uses eithermanually operated machinery and equipment move power driven machinery and
equipment andengaged in the mechanical-chemical transformation of substances into new
products and in thefabrication, assembly, reconstruction, alteration and repair activity; employs at
least one personother than the owner/owners, unpaid family workers and/or apprentices; and has
fixed assets ofvaluenotexceedingBirr200,000excludinginvestments madeonland andbuildings.
2.3. SuccessFactorsandPerformanceofMSEs
Micro and small enterprises considered as a vital component of the socio-economic
developmentof both developed and developing countries, usually some of these enterprises
collapse within thefirst few years of their start-up. Of those operating, some grow rapidly, while
others grow slowly.So, it is important to identify the cause factors of success because it helps new
entrants of thesector to consider the factors and use for their future in the business (Alasadi and
Abdelrahim,2007).
These factors could vary from one country to another due to the economic, geographical
andculturaldifferences.Thiskindofinvestigationofthesuccessfactorisveryimportantfordevelopingco
untrieslikeEthiopiabecausetheresearchconclusioncouldbeusefulfortheeconomic development
planners as well as to individual entrepreneurs and business owners in thecountriesconcerned.
To date, there is no unified theoretical model on firm success. There are, however, several
modelsthatshed light to theissues from various perspectives.
The success of a firm is motivated by external opportunities, such as promising demand

prospectsforthefirm'sproduct,and/orinternalinducements,suchasashifttoamoreefficientutilization
11
of existing resources of the firm. On the other hand, external and internal factors may
alsofunctionas obstacles togrowth andsuccess.
As far as external success determinants are concerned, demand for thefirm’s products is themajor
factor. Second, the market actions of competitors, the supply of production factors and
thefeaturesofthelocal businessenvironment aretypicallyexternalto asmall firm.
Internal success determinants include the features of the firm itself and the attributes of
thebusiness owners of the enterprises. In this research the internal success factors of the
enterprisesareunderconsideration.
In the theory context of micro and small enterprises, empirical work has found several factors
todetermine the success of firms .But before going to review what other researchers have done
oneach of the success factors, it is more appropriate to define what success mean and how it can
bemeasuredassmall enterprises concerned.
2.3.1. DefiningSuccess
Beaver (2002), has commented there are very real problems with the term success and its
variousinterpretationsand perceptions inthesmall firm sector.
The subject of success factors in small businesses has become more popular in recent
yearsamongst business researchers and entrepreneurs, each attempting to provide a definitive
formulafor success (Beaver, 2002). Success is often viewed in terms of growth or profitability,
but thisbecomesmorecomplicatedwhentryingtodeterminethefactorsthatleadtowardsit.Itisimportant
to recognize that while a common measure of success in business is still to be defined,there are
some general factors found to influence the success potential of businesses (Beaver,2002).
Previous research into the relationships between various factors and small business success
hasbeenlackingacomprehensivetheoreticalframework,andmanysmallbusinessownersare
12
aiming to discover the management strategies, business objectives and personal
characteristicsmostcloselylinkedto small businesssuccess (WalkerandBrown,2004).
2.3.2. MeasuresofSuccess
Business success is usually measured in terms of economic performance. As Walker and
Brown(2004), small business success can be measured by financial and non-financial criteria
althoughthe former has been given most attention in the literature. Traditional measures of
businesssuccess have been based on either employee numbers or financial performance, such as
profit,turnover or return on investment. Implicit in these measures is an assumption of growth
thatpresupposesallsmall businessowners wantorneedtogrowtheirbusinesses.
Forbusinessestobedeemedsuccessfulthesefinancialmeasurementsrequireincreasesinprofitor
turnover and/or increased numbers of employees. As Walker and Brown (2004) cited from
thestudy of Hall and Fulshaw (1993), ‘the most obvious measures of success are profitability
andgrowth’.Ineconomictermsthisisseenasprofitmaximization.Economicmeasuresofperformance
have generally been popular due tothe ease with which they can be administeredandapplied
sincetheyareverymuch hard measures.
Furthermore Walker and Brown (2004) suggested, ‘all businesses must be financially viable
onsome level in order to continue to exist’. However, given that some businesses have no interest
ingrowth, thereby implying that financial gain is not their primary or only motivation, then
theremust therefore be other non-financial criteria that these small business owners use to
measuretheirbusiness success.
In smaller, entrepreneurial and independent firms, measures of success may have more
complexdimensionsthan justfinancial performance(Mohan-Neill2009).
Non-financialmeasuresof success used by business owners, such as autonomy, job satisfactionor

the ability to balance work and family responsibilities (Walker and Brown, 2004; Mohan-
Neill2009)aresubjectiveandpersonallydefinedandareconsequentlymoredifficulttoquantify.The
13
hard measures previously mentioned therefore, are easier to understand and can be used in
acomparativewayagainst existingdataand asbenchmarks forfuturemeasures.
Non-financial measures are based on criteria that are personally determined by the
individualbusiness owner although commonalties within the partners of small business owners
occur. Thesenon-
financialmeasurespresumethatthereisagivenleveloffinancialsecurityalreadyestablished; it may be
that this is within the business, or that the small business owner does notrequirethebusinessto be
theprimarysourceofincome(Walker and Brown,2004).
The selection of performance measures that reflect the true situation of small businesses
withsome degree of certainty and reliability is indeed a crucial process. The lack of
universallyaccepted standard performance measures left the door open to business organizations
to decideand choose its own performance measure that might not truly reflect its performance
(Alasadi andAbdelrahim,2007).
Such performance measures include but not limited to: market share, sales volume,
companyreputation, return-on-investment (ROI), profitability, and established corporate identity.
Whilesomemightarguethatmostoftheseperformancemeasuresareappropriateforlargecorporations,th
eyarenotalways perfectlyapplicableto small businesses.
In this study as MSEs concerned, the financial measure of success that is the growth of
totalcapital of the enterprises is used since it is better than the non financial measures in terms
ofreducingthesubjectivityofthemeasurement results.
2.4. TheSuccessFactors
There can be various factors like socio-economic, political and motivational factors that affect
thesuccess of small business in general and MSEs in particular. Searching on the literature of
MSEssuccessacross theworld,wecanfindvarious factorsaffectingtheirsuccess.
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In the following section of the review of related works of previous researchers regarding each
ofthe independent variables (success factors) of this study, they are presented and discussed
undertwomain sub topicsofpersonal andbusiness related factors.
2.4.1. PersonalRelatedFactors
2.4.1.1. Education
Some business owners are highly educated and extremely successful whereas others have yet
tocomplete their high school but are equally successful. In many instances, it may depend on
theindividual himself/herself. Nevertheless, education level can have an effect on the
performance ofabusiness as noted in manystudies.
A reason for supposing it would do so is that education improves literacy, quantitative

training,and social and communication skills. And of course specialized education is necessary
for manyoccupations.
The study of Lussier (1995) suggested that ‘people without any college education who start
abusinesshaveagreaterchanceoffailingthanpeoplewithoneormoreyearsofcollegeeducation.
Education can provide the skills set and knowledge, which can help owner/managers with
tools,like technology literacy, which helps to increase productivity and success. ‘If education
cultivatescomprehensive literacy, this would help owner/managers to integrate relevant
information to doeffective planning and to make well-informed decisions, which would
ultimately enhance theorganization’ssuccess’(Mohan -Niell,2009).
Thapa and Goswami and Joshi (2008) in their study they found that the education of owners
haspositive effect on entrepreneurial and small business success. Similarly Rose, Kumar and
Yen(2006), in their study of the ‘Dynamics of Entrepreneurs Success Factors’,reported that,
highereducation level helps the business owners to have better knowledge and skills which
contributetothesuccessoftheirventure.Workingexperiencealsoassiststheentrepreneurswithinformati
on and understanding about the industry and thus, assisted them in venturing into
thecurrentbusiness theyarein.
15
AnotherresearchbyCharneyandLibecap(2000),foundthatentrepreneurshipeducationproduces self-
sufficient enterprising individuals. Furthermore, they found that
entrepreneurshipeducationincreasestheformationofnewventures,thelikelihoodofself-
employment,thelikelihood of developing new products, and the likelihood of self-employed
graduates owning ahigh-technologybusiness.
2.4.1.2. Age
Entrepreneurs very in age from young to old in many instances, an individual may begin
abusinessasahobbyorsecondarysourceofincomeandhaveitgrowintoaprofit-
drivenenterprise.Anumberofstudieshavefocusedontheentrepreneurialcharacteristicsoftheowners/
managersofsmallbusinessesaskey factorstosmallbusinesssuccess.Ageoftheowners/managers was
one of the most important characteristic that was repeatedly used to predictsmallbusiness
performanceand success(Lussierand Pfeifer,2001).
Lussier (1995) also argued the relationship of the business owner’s age and its effect on
theperformanceoftheenterprises.Hereportedinhisstudy
that,‘youngerpeoplewhostartabusinesshavea greaterchancetofail than
olderpeoplestartingabusiness.’
Similarly, Praag (2003), in his study of business survival and success of young small
businessowners, younger small business starters have a lower success and survival probabilities
than olderstarters. The chance of both voluntarily and forced exit from the business is higher to
youngstarters. Fromthis one can understand that the age of small businessowners have its
owncontribution to the success and failure because individuals learn not only from formal
educationbutalso from theirwalksoflife.
Alasadi and Abdelrahim (2007), in their study of Small Business Performance in Syria
alsoreported that, as the age of the business owner increase it contributes to the success of
theenterprises performance. From the study result of Alasadi and Abdelrahim, it may be argued
thatincreased age brings with it a sufficient levelof accumulated knowledge or experience of
acertaintradeto trygoing intoselfemployment alone.
16
2.4.1.3. PriorBusinessandIndustryExperience
Prior to starting their businesses, entrepreneurs are involved in a number of different fields
ofworkandforavarietyofreasonssuchasdesire,flexibility,independence,andfamilycommitments
decide to open their own businesses. In most instances, they start a business in anarea in which
they feel comfortable. However, there are also a number of individuals who haveabsolutelyno
experience in agivenfield,but\start businessesnevertheless.
Because prior business experience is useful training to both a prospective entrepreneur and to
thatperson’sprospectiveemployers,theempiricaleffectofsuchexperienceonbusinesssuccessisnotenti
relyunambiguous.
Praag (2003), reported that experience as in the same industry as a business venture gives
betterchancesandsodoesexperiencewithinthesameoccupation.Relevantexperiencehelpstobecomeas
uccessful business ownerandto survive.
Shonesy and Gulbro (2004) cited from the study of Beckman and Marks (1996) and reported
that,business experience is a factor in the success of small firms. Dyke, Fischer, and Reuben
(1992)also found that management experience may be a significant factor in achieving success
orsuccessful performance in the small business environment. In their study they stated that
‘would-be business owners should be concerned to gain related industry, management, and start-
upexperience regardless of the type of industry in which they plan to operate’. It was also
noted,however,thatwhileexperiencewasasignificantfactor,itcouldvarybyindustryinimportance.
Lafuente and Rabetino (2011), in their study of the importance of human capital in small
businessgrowth in Romania using employment level as a measure of small enterprises success,
reportedthat previous work experience of small business owners is an important factor for the
success oftheenterprises theyoperates in.
This finding reinforces the argument about the importance of clearly identifying the
enterpriseowner’scapacitytoputintopracticehis/herspecificknowledgeinday-to-dayandsound
17
decisions, in order to effectively evaluate the relationship between the benefits derived
frompreviouswork experienceand successfullymanagetheenterprisesoperations.
InadditiontotheabovestudiesPolitisandGabrielson(2002),intheirstudy supportstheargument that

prior experience from starting up new ventures showed a significant and positiveassociation with
increased opportunity recognition. Consequently, previous start-up experienceseems to impact
the mindset and knowledge base of the entrepreneurs, which in turn enable themtoidentifyandact
on furtherbusiness opportunities.
Previous start-up experience and cross-functional experience seem to provide individuals

withknowledge that improve their ability to recognize new venture opportunities. Previous
smallbusiness management experience and varied management experience seem on the other
hand toprovide individuals with knowledge that increase their ability to handle liabilities of
newness inthenewventurecreationprocess(Politisand Gabrielson,2002).
2.4.1.4. PriorManagementExperience
Management experience may provide entrepreneurs with prior knowledge of markets, ways
toservemarkets,and ofcustomerproblems.
Zeleke (2009) conducts a study on the efficiency of management as a determinant of long-

termsurvival in micro, small and medium enterprises in Ethiopia, and his research ascertains that
highlevel of managerial skills significantly promotes long-term survival and profitability in
smallbusinesses and enterprises. Successful businesses are significantly associated with the
ability togenerate profit on a sustainable basis. Profitability has enabled successful businesses to
achievetheirnext levelofgrowthas wellas thepotential tostaycompetitivein business.
The main reason for failure is inexperienced management. Managers of bankrupt firms do
nothavetheexperience,knowledge,orvisiontoruntheirbusinesses.Indiagnosingtherootcausesofsmall
firmfailureitshouldnotbesurprisingthatthisturnsouttobethemanagementinefficiencyofowner-
managers (Zeleke2009).
18
Managerialeffectivenessinfluencesevery aspectof a businessand isoften believed to be
themostimportantfactorcontributingtosmallbusinessfailure.Themanagementskillsandmanagement
concepts of business founders are deemed much more important than their technicalskills and
their concern about production which has resulted in an overall positive
organizationalperformance (Linand Yeh-Yun 1998).
In contrast, the study report of Rose, Kumar and Yen (2006), indicates ‘management
experienceprior owning business’ was found not significant for the success of small enterprises.
Apparentlyindividuals who were found successful in their small business venture were less
dependent upontheir previous business skills. In addition their study shows that; marketing
functions such as‘promoting company and its product and services’, ‘understanding market
needs’, ’customerfeedback’ and‘marketanalysis’ensurethelongtermsuccess ofbusinessventures.
In addition Temtime and Pansiri (2004) also reported in their study managerial of background
haslesssignificanceonthesuccessoftheenterprises.Thismay arisefromthefactthatmostmanagers of
failed enterprises do not accept the fact that their lack of managerial education andexperienceis
also responsibleforfailure.
LinandYeh-Yun(1998),intheirstudyof,Successfactorsofsmallandmediumsizedenterprises,
suggested that the management skills and management concepts of business foundersare much
more important than their technical skills and their concern about production which hasresulted in
an overall positive organizational performance.They argued in theirstudy that,‘although technical
skills may guarantee the survival of a given SME, for an enterprise to trulythrive, founders need
to enhance their capabilities in carrying out contemporary managementconcepts, such as
satisfying employees' growth needs, delegating responsibility, and participativemanagement’.
Another study done by O.Okpara (2011), on MSEs operating in Nigeria supports the
argumentthat, lack of management experience of the small business owners is the other major
reason tosmallbusinessfailure.Asthefindingsofthisstudyshowsthat,mostbusinessownerswhodonot
19
have management experience and adequate training and skills to operate a business faces
aproblemofcollapseoftheirbusinesses.
2.4.1.5. MarketingSkillofBusinessOwners
The study of Lussier (1995), and Lussier and Pfeifer (2001) emphasizes on the importance
ofmarketing skill of the business owners as one factor to the success and better performance
ofsmallbusinesses.
Marketing skills, such as identifying new prospects, showing effective corporate

positioning,customer handling, finding ways to efficiently advertise, and the ability to come up
with newideas are very important factors that micro and small business enterprises should possess
to besuccessfullongterm survival in thefuture.
TemtimeandPansiri(2004)alsoreportedintheirstudyofSmallbusinessCriticalSuccess/Failure Factors
in Developing Economies, in Botswana shows that; marketing activitiessuch as product
marketing, market research, and demand forecast and so forth have a greaterimpact on the
success of small businesses performance. In this study customer relationship alsoreported as one
of the important success factors of the small business owners. From this studyreportone can
understand the importance of marketing skillsof the businessownersto besuccessfulin
theircompetitiveenvironment.
Pulendran, Speed and Widing (2002), suggest that the quality of marketing planning is
associatedwith a higher level of market orientation. Perhaps one can argue that, better quality
planningassists managers seeking to implement a market orientation to achieve their goal, or
conversely,marketorientationassistsplanningbyprovidingaclearandunambiguousgoalthatservestofo
custheplanningeffort.
This study also indicates that managerialfunctions in small enterprisesare limited to routineshort
term focused activities, and very little emphasis is given long term competitiveness
whichinternhasan impacton thelong-termsuccess andprofitabilityoftheenterprises.
20
2.3.3.2.BusinessRelatedFactors
2.4.2.1. PlanningandPerformanceinSmallEnterprises
PlanningwasalsorecognisedbyseveralstudiesasakeyfactortosmallbusinesssuccesssuchLussier
(1995),Lussier and Pfeifer(2001),Alasadiand Abdelrahim(2007).
A business often begins with an idea that is acted upon. However, togetfrom the idea stage tothe
actual business start-up generally involves considerable Planning. In many cases, the amountof
actual Planning done is dependent on the willingness of the entrepreneur to do it.
Someentrepreneurs prepare business plans as a means to attain financing for their businesses
whileothers usea plan toget all their ideas down onpaper toassess whethertheir business idea
issoundand viable.
Ahmed, Shahbaz and Mubarak (2008) suggested that no one should start a business in
today’seconomy without a business plan. They argued that success for small businesses is
achievedthroughplanning,commitment,andtime,nurturing,financing,andpositioningtoseizeopportu
nities. Many of these activities must be done on a continual basis as the environment
inwhichbusinesses operateis continuouslyevolving.
Another fact rarely considered is that the majority of new businesses fail within a few
yearsmostly due simply to poor planning or no planning at all. Most people who go into business
entera field related to their current employment or a favorite hobby. They don't do a market study
firsttoseewhetherthedemandfortheirproductorserviceisgrowing,decliningorstagnating.
2.4.2.2. RecordKeepingandFinancialControl
Poor record keeping can also lead to strained relationships with vendors which may result
indifficulty in obtaining and receiving merchandise.Inadequate working capital decisions
andaccountinginformationhavebeenreferenced consistentlyascausesofsmallbusinessfailure.
The study of Lusseir (1995) supports this fact. In his study, he reported that ‘businesses that
donot keep updated and accurate records and do not use adequate financial controls have a
greaterchanceoffailurethan firms that do.
21
However, the study of Rose, Kumar and Yen (2006) did not show any significant
relationshipbetween small business performances and the record keeping, and financial control
practices oftheenterprises.
2.4.2.3. FormofOwnership
Theotherstudy
reportofLafuenteandRabetino(2011)indicatestherelationshipbetweenenterprisesperformanceandfo
rmsofownership.Theyreportedthatratherthanthosefirmswitha single-tier leadership structure
(entrepreneur-manager), the presence of entrepreneurial teamsincreases firm’s resources and
capabilities, a fact that enhances employment growth indicatingthat the presence of
entrepreneurial teams improve internal decision making processes leading tohigher growth rates .
Similsrly the study of Lusseir (1995), supports the fat that enterprises which are owned by
morethan one owners have a higher chance of success than those enterprises owned and managed
by asingleowner.
22
CHAPTER THREE
3. METHODOLOGYANDDATA
3.1. Introduction
The main purpose of this study is to examine the relation of eight success factors
(independentvariables) identified in the literature of small enterprises to the performance of
MSEs operating inAddisAbaba.
The sample was drawn from registered Micro and Small Businesses Enterprises in the
privatesectorinAddisAbaba.Thesampleenterpriseswereselectedbasedonthefollowingcriteria:
1. Enterprises with initial total capital up to 500, 000 Birr which includes both Micro and
SmallEnterprises. This criterion is based on the guide line given by MoTI to separate Micro and
SmallEnterprisesfrom Medium andLargeEnterprises.
2. Enterprises located in Addis Ababa. Addis Ababa is the capital city and is considered
theprimarybusiness areainEthiopia.
3. Enterprisesownedbyownermanager(s)whohadalldecisionmakingrights.
4. Firmshavebeeninbusinessforaminimumof2 year.
The main participants and the dominant activities in the small enterprise sub-sector are in the
areaof food and beverage, textile and garment, wood and metal, merchandise and retail shop, and
insectors categorized in ‘other’ industries. Therefore, the focus of this study were 73
randomlyselected sample Micro and Small Business Enterprises engaged in food and beverage
processing,textile and garment, wood and metal products, merchandising and retail shop and
‘other’ sectorsinAradaandGuleleSubCityAdministrationsin Addis Ababa.
Data were analyzed by using descriptive and inferential statistics. Descriptive statistics
involvedthe use of frequencies and mean. Inferential statistics were used to see the variation in
theperformanceofenterprisesinrelationtothedifferentlevelsofeachoftheexplanatory(independent)
variables with the aid of Statistical Packages for Social Scientists (SPSS).
Analysisofvariance(ANOVA)isusedtotestthehypothesesstatedinthisstudyregardingtheperformance
ofenterprisesinrelationtoeachoftheindependentvariablesofthestudy.
23
3.2. SampleDesign
In Addis Ababa City Administration there are ten Sub City Administrations. Each of the
CityAdministrationhastheirownMicroandSmallBusinessDevelopmentAgencieswitharegistrationli
st ofMSEs operatingwithin them.
Among the ten Sub City Administrations, Arada and Gulele Sub City Administration
wereselectedbasedontheirnearnessandconveniencetocollectdatainshorttime.InthetwoSubCity
Administrations, there are 727 registered MSEs operating in wood and metal, food
andbeverage,merchandiseandretailshops,textileandgarmentandsectorthatlabeledby
theAgenciesas‘other’.
For the purpose of this study, from the 727 MSEs registered and now in operation in the two
SubCity Administrations, 73 sample enterprises were taken for data collection purpose. The
samplesize is approximately ten percent of the total MSEs operating in the two Sub Cities in
differentindustries.
3.3. VariablesandMeasures
The selection of performance measures that reflect the true situation of small businesses
withsome degree of certainty and reliability is indeed a crucial process (Alasadi and
Abdelrahim,2007). The lack of universally accepted standard performance measures left the door
open tobusiness organizations to decide and choose its own performance measures that might not
trulyreflecttheirperformance.
Such performance measures include but not limited to: market share, sales volume,
companyreputation, return-on-investment (ROI), profitability, and established corporate identity.
Whilesomemightarguethatmostoftheseperformancemeasuresareappropriateforlargecorporations,th
eyarenotalways perfectlyapplicableto small businesses.
24
In this study, the growth in total capital of enterprises is used as dependent variable to
measureperformance. Here the change in capital growth as ratio data is used as the measure of
thedependentvariableperformanceoftheenterprisesinvolvedin thesurvey.
The reason to use this change in total capital as performance measurement is because
enterprisesare generally suspicious to disclose information related to revenue and profit and it
would bedifficultto get responsefrom respondents asit is demanded.
Also growth in employment level of the enterprises would not be another appropriate
alternativemeasure of performance because this micro and small enterprises are primarily
established as asourceofselfemployment.
3.4. Questionnaire
Thequestionnairewasthemaininstrumentofthestudy;theresearchquestionnairewasadministered to a
random sample of 73 Micro and Small Business owners. The sample frame ofthe study in which
the enterprises were chosen at random was accessed from a record archive ofArada and Gulele
Sub City Micro and Small Business Development Agency. To enhance theresponse rate, the
questionnaires were delivered by hand to the enterprises randomly approachedand convinced to
participate on this study. The participants of this study fill up most of
thequestionnairesbythemselvesbutwhennecessarythedatacollector(theresearcher)gaveassistanceby
elaborating and explainingtheideaofthequestions.
This kind of distribution and collection has done to minimize the problems of non response
errorof respondents to some questions which they considered sensitive as well as to those
questionstheydo not understand inawayas theyintended to bein thequestionnaire.
Thequestionnairewasdesignedastoencompasstwosections:thefirstpartofthequestionnaireis about
the demographic information of the principal owners and profile information about
theparticipantenterprises.Thesecondpartofthequestionnairewasaboutthedependentaswellas
25
the independent variables of the study. Both open ended and cloth ended questions were used
toextracttherequired datafrom respondents.
Performance of the enterprises is the dependent variable of this study. Total capital growth
ofMSEs is used to measure the performance of the sample enterprises from their establishment
todate. To this end open ended questions about the enterprises total initial capital used to start
theventureandtheamountofthetotalcapitalenterprisescurrentlyhavewasincludedinthequestionnaire.
Then based on the data from these two questions, the capital growth of eachparticipant
enterprises from establishment to date were calculated and then this growth index as
aratiodatawas taken asindicatorofenterprises performance.
The independent variables in this study are eight factors obtained from the literatures of
smallbusiness: age of the principal owner, education level of the principal owner, prior
managementexperience of the owner, industry experience of the owner, marketing skill of the
owners, plan,recordkeepingandfinancialcontroland formsofownershipoftheenterprises.
To measure the independent variable age, a discrete random data about the age of the
enterpriseownersiscollectedthenthisdiscreterandomdataofrespondents’agehaschangedintocategori
caldataatthetimeofdataanalysisinordertoseethevariationinperformanceintermsofcapitalgrowthfore
nterprisesundereachofthe agecategories.
The other independent variable education of the enterprise owners was collected as a
discreterandom data for education levels 10 th grade and below by asking respondents the
education levelthey completed. For owners who have an education level above 10 th grade,
ordered categoricalmeasurementscaleisgiven to choose.
Management experience shows the year in which principal owners spent in a managerial
positioneitherbeingemployedinotherorganizationsormanagingtheirownindependententerprisebefor
ethecurrentone.Thentomeasurethisvariablecontinuesrandomdataiscollectedbyasking the
respondents their management experience in year. The continuous data elicited in thiswayhas
changed to categorical formforthedataanalysis.
26
Industryexperienceoftheownersshowsthenumberofrelatedindependententerprisesrespondents
established before the business they are operating now. To measure this variablediscrete random
data is collected by asking respondents the number of independent enterprisesthey established
and operate before the current one.Finally this data obtained from respondentshaschanged
tocategoricalform forthe analysis purpose.
The other variable of this study is the marketing skill of the business owners obtained either
informal education or other alternative options like training. Data about this variable is collected
incategoricalform byprovidingrespondentsayes,no choice.
The variable plan indicates the time coverage of the plan enterprises prepare in their
businessoperation. Then a continuous data about this variable is collected by asking the
respondents
thetimecoverageoftheirplan.Finallythiscontinuousdataaboutthetimecoverageoftheenterprisesplan
has changedtocategorical form.
Ownership form of the business indicates the way that the enterprises are possessed either by
oneindividual or sole proprietor or more than one co owners. In this case data about the
ownershipform of the enterprises was collected in a categorical form by providing respondents
two choicestoselect.
The last independent variable is record keeping and financial control. It indicates the
internalpractice of the enterprises’ use of formal system to record their day to day operation and
financialinflow and out flow data. Then a categorical yes, no choice is given to the respondents
regardingtheuseofthis system in theirinternal operation.
27
CHAPTER FOUR
4.DATAANALYSISANDINTERPRETATIONS
4.1. Introduction
The sample for this study consisted of 73 MSEs which were randomly selected from Arada
andGulele Sub City Administrations as they were registered by the City Administrations Small
andMicro Business Enterprises Development Agency. The criterion used for selecting the
sampleenterprises is based on criteria defined by the Ministry of Trade and Industry (MoTI)
which usescapitalinvestment as ayardstick.
In this definition of MoTI, Micro enterprises are those enterprises which have a paid up
capitalbelow Birr 20,000. Whereas enterprises which fall in the category of Small Enterprises are
thosewhohaveapaid up capital ofBirr20,000to 500,000.
AquestionnairewasdistributedtotheMSEsprincipalownersofeachofenterpriseincludedinthe sample.
To enhance the response rate, the questionnaires were delivered by hand to theenterprises
identified for the study and collected by hand immediately after they completed thequestionnaire.
For those respondents not able to finish it immediately the questionnaire wascollectedon
ascheduledpick-up date.
A total of 73 questionnaires were distributed, and 70 questionnaires returned, representing

96percent response rate. From the 70 questionnaires returned, 8 questionnaires are not included
inthe analysis just because the responses received were incomplete and not relevant for the
analysispurpose.Therest oftheresponses,representing62MSEs,wereused inthestudy.
In this section of data analysis and interpretation, the first part presents and discuses
descriptivestatics results related with the demographic factors and the independent variables of
the study andthen followed by analysis of variance to examine in the variation on the
performanceMSEs inrelationto theeight variables ofthestudy.
28
4.2. ResultsandDiscussion
PriortorunningANOVAtotestthenullhypotheses,descriptivestatisticsanalysisandinterpretation of
the sample enterprises’ responses with regard to the demographic and the eightmainresearch
variables ofthis studyisperformed.
Table 4.1 given below show the count and percentages of the responding enterprises in relation
tothe demographic and enterprises profile data and the remaining eight tables provides
informationaboutthedescriptivestatisticsresultregardingeachoftheeightindependentvariablesofthest
udy and the performance of the sample enterprise. The last table indicates the ANOVA result
ofthisstudyregardingtheeightindependentvariablesandtheperformanceof theenterprises.
4.2.1. DemographicandEnterprisesProfileRelatedData
AsitisdepictedinTable4.1majority oftheenterprises46(74.2%)wereMicroEnterpriseswitha total

capital less than Birr 20,000 while the rest of the sample 16 (25.8%) of the respondententerprises
are in the category of small businesses enterprise which have total capital within therangeof Birr
20,000to Birr500,000accordingto theclassificationscheme ofMoTI.
The other demographic character is sex of the respondents or owners, in this regard 30
(48.40%)of the respondents were male business owners while 32 (51.6%) were female business
ownerswhichmakes therespondents inthis studysomewhat proportionalin termsofsex.
Also from Table 4.1 one can easily identify the type of the industry that the enterprises
engagingin. Majority of the enterprises 44 (71.0%) involved in a business that can be included in
fourmajorindustrytypenamely,Merchandise&RetailBusiness,FoodandBeverages,Textile&Garmen
t and , Wood and Metal. While the rest of the enterprises in the sample 18 (29.0%)
areengagedindifferentbusinessactivitiessuchasinternetrentservice,barbershops,mobilemaintenance
, gift shops, video rentals ,electronics equipment service, home appliance
productionandmaintenancebusiness.Seethedataagain.
29
In this study the sample respondents included for the analyses are those enterprises that stay
inbusiness at least two years since establishment. In this regard, the majority of the enterprises
57(91.9 %) have the age of 2 to 10 years since establishment while the rest, 5 (8.1%) of
therespondententerpriseshavestayedin businessformorethan 10years.
When we classify the enterprises involved in this study on the bases of the number of
employeesas they initially established, one can get the following facts in Table 4.1 below. 24
(38.7%) of theenterprises were operated only by the principal owner of the business as self
employed solebusiness owner. But majority of the enterprises in this study 30 (48.4%) were
started theirbusiness with 2 to 5 employees including the principal owners of the enterprises. The
remainingenterprises in the sample, 8 (12.9%) have started their business with 6 and more
employeesincludingtheprincipal ownerofthebusiness.
Table 4.1. Countand percentage of thedemographiccharacteristicsofthe

respondentsandprofilesoftheenterprises
DemographicVariables Frequency Percentage Cumulative

percentage
Sex oftheprincipalbusinessowner
Male 30 48.4 48.4

Female 32 51.6 100.0
Total 62 100.0
ThetypeofindustryEnterprisesoperating
FoodandBeverages 14 22.6 22.6

Merchandise&retailbusiness 16 25.8 48.4
Textile&wearingbusiness 9 14.5 62.9
WoodandMetal 5 8.1 71.0
Others 18 29.0 100.0
Total 62 100.0
AgeoftheBusinessEnterprises
30
Enterpriseswithin2-5years 39 62.9 62.9
Enterpriseswithin6-10years 18 29.0 91.9
Enterprisesmorethan10years 5 8.1 100.0
Total 62 100.0
Numberofinitialemployeesoftheenterprisesincludingtheowner
Oneemployee 24 38.7 38.7
2-5employees 30 48.4 87.1
6-10employees 6 9.7 96.8
Morethan10employees 2 3.2 100.0
Total 62 100.0
Currentcapitaloftheenterprises
Currentcapitalbelow10,000Birr 33 53.2 53.2
10,000-20,000Birr 13 21.0 74.2
20,001-500,000Birr 16 25.8 100.0
Total 62 100.0
4.2.2 DescriptiveStatisticsResultsandDiscussionabouttheMainVariables
The discussion here after is related to the descriptive statistics result of the eight
independentvariablesin relationto theperformanceofMSEsoperatinginAddis Ababa.
The first variable considered in this study as the success factor for performance of MSEs is
theage of the principal owner of the enterprises. To examine the variation in the performance of
theenterprises in different age categorizes, the sample is grouped into three age groups as
depicted inTable4.2 below.
Asitisindicatedinthe table, fromthe totalsample taken21enterprisesare possessedbyprincipal

owners with the age of 29 years old and below. When we look at the capital growth ofthe
enterprises in this age category on average they show a total capital growth of 1.157
or115.7%from thetimeofestablishment todate.
31
32
The other 32 MSEs in this study are owned by individuals with the age range of 30 to 45
yearswhichroughlyshowstheadultagegroupofthepopulationinEthiopia.TheperformanceofMSEs
under this age category in terms of average capital growth is about 8.38 or 838% from
theyeartheyhavebeen established to date.
The remaining 9 enterprises have owners with age above 45. In terms of the total capital
growthof the enterprises possessed by individuals in this age category, on average they grow by
5.37 or537%sinceestablishment to date.
Over all from this descriptive statistics result, those MSEs owned by individuals with the age
of30 to 45 shows higher average capital growth than those enterprises owned by individuals
withage 29 and below and those individuals with age above 45 years old. The possible argument
forthe better performance of those enterprises owned by individuals with this age bracket would
be,firstbusinessownersinthisagecategorywouldhavebetterchanceofacquiringbusinessexperience
compared to those 29 years and below on the other hand relative to business
ownersabovetheageof45thisagecategorywouldbemoreenergetictospendmoretimeintheir
business. These two conditions may in turn makes enterprises owned by those individuals in
thisagecategoryperform better.
33
Table4.2EnterprisesCapitalGrowthInrelationtoDifferentAgeCategoriesofOwners
No Mean Std. Std. 95% Min Max

Deviation Error ConfidenceInterv
Ageof Capital (CG) (CG)
alforMean(CG)
MSEs (CG) (CG)
Growth
owners Lower Upper
Bound Bound
29years 21 1.1569 1.94409 .42424 .2720 2.0419 -.70 9.00

old
andbelo
w
30 to 32 8.3841 15.03348 2.65757 2.9640 13.8043 .00 65.67
45yearso
ld
Above45 9 5.3732 13.00956 4.33652 -4.6268 15.3732 -.53 39.77
yearsold
Total 62 5.4991 12.21272 1.55102 2.3977 8.6006 -.70 65.67
CG-capitalgrowthoftheenterprises
The other independent variable of this study is the education level of the principal owners of
theenterpriseswhichisexpectedtohavearelationwiththeperformanceoftheenterprisesandinturndeter
minestheirsuccess.Somebusinessownersarehighlyeducatedandextremelysuccessful whereas others
have yet to complete their high school but are equally successful.
Inmanyinstances,itmaydependontheindividualhimself/herself.Nevertheless,educationlevelcanhave
an effecton theperformanceofabusinessas noted inmanystudies.
To see the difference in the performance of enterprise with respect to the difference in
theeducationleveloftheownersoftheenterprises,theeducationstatusoftheprincipalownersofthesampl
eenterprisesin this studyisgrouped intothreecategories.
34
As it is indicated in Table 4.3, 16 sample enterprises have principal owners below 10 th grade
interms of their education level. When we see the performance of these enterprises in terms of
totalcapitalgrowthinrelationtotheeducationstatusoftheprincipalownersofthebusinessenterprises, on
average they scored a 6.79 or 679% growth of total capital in their stay in thebusinessfrom
thetimetheyhaveestablishedto date.
The other 28 enterprises or enterprise owners of this study have an education status of 10 th to10+2
which means those completed 10 th grade and have 2 years additional education either intechnical
and vocational or preparatory classes. Enterprises owned by owners with this educationlevel or
status on average scored 3.23 or 323% growth in total capital from their establishmenttimeto
thetimeofdatacollection.
The remaining 18 MSEs involved in this study are owned by individuals having an
educationlevel 10+3 and above. This educational status category of the principal owners includes
thosecompleted 10th grade and have stayed three additionalyears in further education and
thosecompletedtheirpreparatoryclassandhaveoneyearadditionaleducation.Inadditionthiscategoryal
so includesthoseowners havingfirst degreeandabove.
Regardingperformanceoftheenterprisesinthiscategoryoftheeducationalstatusoftheprincipal owners
of the enterprises; on average they showed a 7.88 or788% growth in
totalcapitalsinceestablishment.
Over all, MSEs owned by individuals with an education level of 10+3 and above shows
betterperformance compared to those enterprises with owners education status below 10 th grade
andthose 10 to 10+2. A reason for supposing this better performance of enterprises owned by
ownerswoulddosoisthateducationimprovesliteracy,quantitativetraining,andsocialandcommunicati
onskillsandthisin turnincreasesthechanceofsuccesstotheenterprises.
35
Table4.3EnterprisesTotalCapitalGrowthbyEducationleveloftheOwners
Education No Mean Std. Std. 95%Confidence Min Max

level Deviation Error Interval
ofMSE (CG) forMean(CG) (CG) (CG)
(CG) (CG)
owners
Lower Upper
Bound Bound
Below10th 16 6.7859 12.89412 3.22353 -.0849 13.6567 -.50 39.00

grade
10to 10+2 28 3.2333 7.17163 1.35531 .4524 6.0142 -.70 36.60

completed
10+3and 18 7.8799 17.05246 4.01930 -.6001 16.3599 .20 65.67

Above
Total 62 5.4991 12.21272 1.55102 2.3977 8.6006 -.70 65.67
CG-capital growthoftheenterprises
The third variable of this study is the ownership form of the enterprises. This ownership
formdeals with whether the enterprises are possessed by single individual or sole proprietorship
orowned by more than one owners as partnership or private limited enterprises and this
ownershipform of the enterprises would have relation to the performance of MSEs and determine
theirsuccessin thebusiness environment theyareworkingin.
As shown from Table 4.4, 17 MSEs are owned and operated by one person as sole
proprietorshipbusiness. When we look at the performance of the enterprises under this category
ownership typein terms of capital growth, on average they show 3.05 or 305 % growth since
establishment todate.
On the other hand, from the same Table 4.4, 45 sample enterprises in this study are owned by
twoor more owners either as partnership or private limited company. Looking to the performance
ofthe enterprises in terms of the growth in total capital, on average they show a 6.42 or
642%growthin total capital to date.
36
Generally from this statistical data, those enterprises owned by more than one owner
performbetterintotalcapitalgrowthcomparedtothosepossessedbyonlyoneowner.Thepossiblereason
for the better performance of those enterprises owned by more than one individual is thatthe
pooled entrepreneurial capacity and skill of different individuals may positively contribute
totheperformanceoftheenterprises.
Table4.4EnterprisesTotalCapitalGrowthbyOwnershipType
No Mean Std. Std. 95% Min Max

Deviation Error ConfidenceInterv
Ownership (CG) (CG) (CG)
alforMean(CG)
(CG) (CG)
Formofthe
Lower Upper
MSEs Bound Bound
Owned 17 3.0504 9.31249 2.25861 -1.7376 7.8385 .00 39.00

byonepers
on
ownedby2a 45 6.4242 13.11677 1.95533 2.4835 10.3649 -.70 65.67
nd
moreperso
ns
Total 62 5.4991 12.21272 1.55102 2.3977 8.6006 -.70 65.67
CG-thecapitalgrowthoftheenterprises
TheothervariableofthisstudywhichisexpectedtohaverelationtotheperformanceMSEsistheinternalpr
acticeofplanninginadvancefordifferentactivitiestobeexecutedinthedaytodayoperation
oftheenterprises forattainingpreestablished goals.
As it is indicated in Table 4.5, from the total sample enterprises in this study, 33 MSEs do not
useany kind of plan in their day to day operation of business. Looking to the performance of
theenterprises that do not use any plan using total capital growth of the enterprises as a measure
ofperformance, on average these enterprises show 3.69 or 369% growth in total capital from
theyeartheyhaveestablished to date.
37
On the other hand 25 enterprises in the sample taken have planning practice in their day to
daybusiness operation that covers 1 to 2 years. In terms of performance using capital growth as
ameasure, enterprises which uses 1 to 2 years plan for their business activities have scored 8.47
or847%averagecapitalgrowth.
The remaining 4 enterprises in the sample have a plan that covers 3 to 5 years which can
beconsidered as a medium term plan. The performance of the enterprises in this category in terms
ofaveragecapital growth is about 1.86 or186%.
The overall picture of the descriptive statistics result about enterprises performance and
theirplanning practice shows that, those enterprises using a plan covering 1 to 2 years performs
betterin terms of total capital growth when compared with those enterprises that do not use any
kind ofplanand thoseusing3 to5years plan intheirdaytodayoperation ofbusiness.
The possible justification to the importance of using plan is that, planning in advance what
needsto be done helps enterprises to act strategically to realize established development goals
ratherthan moving in a random and unsystematic way to the opportunities as well as
unfavorablesituation that will happen in their business operations. This proactive move of the
enterprisesincreasestheirchanceofsuccessinthedynamicenvironment.Andthisalsoworkstotheenterp
risesthatuse ashortterm planof1 to2yearsfortheirbusinessactivities.
38
Table4.5EnterprisesTotalCapitalGrowthinRelationtoPlanning
Plan No Mean Std. Std. 95%Confidence Min Max
Deviation Error Interval
(CG) forMean(CG) (CG) (CG)
(CG) (CG)
Lower Upper
Bound Bound
noplan 33 3.6865 11.38245 1.98143 -.3495 7.7226 -.53 65.67
use 1 to 25 8.4741 13.73686 2.74737 2.8038 14.144 .00 39.77

2yearspla 4
n
use 3 to 4 1.8596 3.68600 1.84300 -4.0057 7.7248 -.70 7.33
5yearspla
n
Total 62 5.4991 12.21272 1.55102 2.3977 8.6006 -.70 65.67
Use of formal record keeping and financial control mechanism in the enterprises day to
daybusiness operation is considered as another variable that would result difference in
performancebetweenthoseusethesystem and thosedonot use.
As it is depicted in Table 4.6 below from the total sample enterprises considered in this study,
33enterprises do not useany kind of formal record keeping and financial control
mechanismsrelated to their day to day operation. When we look at the performance of enterprises
in thiscategory in terms of total capital growth from the time they have established to date, on
averagetheyhaveshow3.26 or326%growth in total capital.
The remaining 29 sample enterprises included in this study use record keeping and
financialcontrol system to facilitate their day to day business activities. In terms of their
performance intotal capital growth, enterprises in this category on average shows 8.05 or 805%
increase in totalcapitalsincetheirestablishment.
39
Overall the average performance of those enterprises using record keeping and financial
controlsystemintheiroperationisbetterthanthosedonotuse.Thissystemhelpsenterprisestodistinguisht
hefinancialexpensesaswellasrevenuesgeneratedbythebusinessoperation.
Table 4.6 Enterprises Total Capital Growth in Relation with Record Keeping and
FinancialControlPracticeoftheEnterprises
No Mean Std. Std. 95%Confidence Min Max
Deviation Error Interval
Record (CG) (CG) (CG)
forMean(CG)
keepingand (CG) (CG)
financialcontrol Lower Upper
Bound Bound
Enterprisesdon 33 3.2555 6.88654 1.19879 .8136 5.6973 -.33 29.00

’t haverecord
keepingand
Financialcontr
olmechanism
Enterprises 29 8.0522 16.06400 2.98301 1.9418 14.1626 -.70 65.67

haverecord
keepingand
financialcontrol
mechanism
Total 62 5.4991 12.21272 1.55102 2.3977 8.6006 -.70 65.67
The other variable in this study is the management experience of the principal owners of
thebusiness which is expected creates variations on the performance of MSEs operating in
AddisAbaba.
From Table 4.7, 31 principal owners of MSEs in this study have no any prior
managementexperience acquired either being employed in other organizations and working in a
managementpositionormanagingtheirownindependententerprisesbeforethecurrentone.Intermsof
40
performance of enterprises owned by individuals without any prior management experience,
theyshowon averagetotal capital growthof4.86 or486%.
From the same Table 4.7, 26SMES are owned and managed by owners which have a
priormanagement experience of 1 to 2 years. Regarding the performance of the enterprises in
thiscategoryonaveragetheyshow6.02 or602%increasein total capital.
The remaining 6 MSEs in this study are owned and managed by individuals who have a
priormanagement experience of more than 5 years. The performance of the enterprises in this
categoryin terms of average total capital growth is 6.65 or 665% increase throughout their stay in
thebusiness.
Generally from the descriptive statistics results in Table 4.7, the performance of those
enterprisesowned and managed by those individuals having more than 5 years management
experience isbetter than the others. This is because, management experience may provide
entrepreneurs withprior knowledge of markets, ways to serve markets, and of customer problems
and this kind
ofexposuresinturnincreasesthechanceoftheenterprises’successintheirbusinessenvironment.
41
Table 4.7 Enterprises Total Capital Growth in relation to Management Experience of
PrincipalOwners
Ownersman No Mean Std. Std. 95%Confidence Min Max
agementexp Deviation Error Interval
erience (CG) forMean(CG) (CG) (CG)
(CG) (CG)
Lower Upper
Bound Bound
Noexperi 31 4.8581 10.57927 1.90009 .9776 8.7386 -.50 39.77

ence
1to5yearse 25 6.0168 14.51295 2.90259 .0262 12.0075 -.70 65.67

xperience
morethan5y 6 6.6542 11.47258 4.68366 -5.3856 18.6939 .08 29.00

earsexperie
nce
Total 62 5.4991 12.21272 1.55102 2.3977 8.6006 -.70 65.67
Prior industry experience in related business areas is considered here in this study as
anothervariable that may result difference on the performance of MSEs which in turn determines
theirsuccessin operation.
As it is shown in Table 4.8, 33 owners of MSEs in this study have established and run the
currentbusiness without any prior experience of establishing and operating business of their own
whichwasrelatedtothebusinessenterprisescurrently
operating.Intermsoftheperformanceofenterprisesrunbyindividualswithoutanypriorindustryexperie
nce,onaveragetheyshow4.59or459%increaseintotalcapital sinceestablishmentto date.
The remaining 29 owners of the MSEs in this study have a prior experience of establishing
andrunningatleastonebusinessoftheirownsimilartothebusinesstheyareoperatingcurrently.The
performance of these enterprises owned by owners having prior industry experience,
onaverageshows 6.53 or653%increaseintotal capital.
42
Overall SMEs owned and run by individuals who have prior industry expertise shows
betterperformance in capital growth compared to those enterprises operated by individuals
without anyprior industry experiences. The possible argument for this better performance of
enterprises withprior industry experience of the owners is because prior business experience is
useful training toutilizeopportunitiesthat maximizeperformanceand minimizetheriskoffailure.
Table4.8EnterprisesTotalCapitalGrowthandPriorIndustryExperienceofOwners
OwnersIn No Mean Std. Std. 95%Confidence Min Max
dustryexp Deviation Error Interval
erience (CG) forMean(CG) (CG) (CG)
(CG) (CG)
Lower Upper
Bound Bound
Nopriorin 33 4.5944 10.34440 1.80073 .9264 8.2623 -.53 39.77

dustryexp
erience
Havepriori 29 6.5287 14.16261 2.62993 1.1415 11.9158 -.70 65.67

ndustryexp
erience
Total 62 5.4991 12.21272 1.55102 2.3977 8.6006 -.70 65.67
The last variable considered in this study is the marketing skill of the business owners’ which
isexpectedto createvariations intheperformanceMSEs.
AsinisindicatedfromTable4.8,20MSEsinthisstudyareownedandrunbyindividualswithoutany
marketingskillacquiredetherintheirformaleducationorinformalwaysliketraining. In terms of
performance, enterprises run by individuals without marketing skill
onaverageshow6.01or601%increasein totalcapitalsincetheirestablishment todate.
43
The remaining 42, MSEs involved in this study are owned and run by individuals with
marketingskill. In terms of performance enterprises in this category shows on average a 5.50 or
550%increasein total capital throughouttheirstayin thebusiness.
Butwhencomparedtothoseenterprisesrunbyindividualswithoutmarketingskill,theperformance is
lower. But this better performance of those enterprises owned by owners withoutany marketing
skill is an exceptional to the common wisdom that marketing skill and knowhowhelpsbusinesses
to abetterperformancein theiroperation.
Table4.8EnterprisesTotalCapitalGrowthandtheMarketingSkillofBusinessOwners
Owners No Mean Std. Std. 95% Min Max
marketing Deviation Error ConfidenceIntervalfor
(CG) (CG) (CG)
skill Mean(CG)
(CG) (CG)
Lower Upper
Bound Bound
Ownersw 20 6.0141 11.71229 2.61895 .5325 11.4956 -.50 39.77

ithoutmar
ketingskil
l
owners 42 5.2539 12.57561 1.94046 1.3351 9.1727 -.70 65.67

withmarketi
ngskill
Total 62 5.4991 12.21272 1.55102 2.3977 8.6006 -.70 65.67
44
4.2.3 ANOVAResultsandDiscussion
Thesecondpartofthisdataanalysisanddiscussionsectiondealswiththeanalysisandinterpretation of the
ANOVA results in relation to the variation in each of the independentvariable of the study and
the related variations in the performance of enterprises taking totalcapitalgrowth of the
enterprises from their date of establishment to date asa performancemeasureoftheenterprises.
The Table given bellow shows the ANOVA result of performance of MSEs in relation to
thevariationoftheeight explanatoryvariableofthestudy.
Table 4.9 Analysis of variance in performance in relation to the different levels of to each of
theindependentvariables
Variables Sourceofvariation Sumofsquares df Meansquare F Sig.
AGBO Betweengroups 662.433 2 331.216
Withingroups 8435.753 59 142.979 2.317 .108
Total 9098.186 61
EDUCBO Betweengroups 272.272 2 136.136
Withingroups 8825.914 59 .910 .408

149.592
Total 9098.186 61
OWNERSHIP Betweengroups 140.444 1 140.444
Withingroups 8957.742 60 .941 .336

149.296
Total 9098.186 62
PLAN Betweengroups 382.669 2 191.335

1.295 .282
Withingroups 8715.517 59 147.721
45
Total 9098.186 61
RECORD Betweengroups 355.150 1 355.150
Withingroups 8743.035 60 2.437 .124

145.717
Total 9098.186 61
MGTEX Betweengroups 27.444 2 13.722
Withingroups 9070.742 59 .089 .915

153.741
Total 9098.186 61
INDEXP Betweengroups 57.751 1 57.751
Withingroups 9040.435 60 .383 .538

150.674
Total 9098.186 61
MKTGSK Betweengroups 7.829 1 7.829
Withingroups 9090.357 60 .052 .821

151.506
Total 9098.186 61
Significancelevelforalphaα=0.05
AGBO-Age of the business owner, EDUCBO – education level of the owners, OWNERSHIP – the ownership form of
theenterprises, PLAN – the planning practice of enterprises, RECORD – record keeping and financial control system,
MGTEX –managementexperienceofowners,INDEXP–priorindustryexperienceofowners,MKTGSK– marketingskillofowners.
EnterprisesperformanceandAgeofBusinessOwners.Table4.9showsthereisnosignificance
difference between MSEs performance (as defined by capital growth) with respect
tothedifferenceintheageoftheprincipalownersoftheenterprises(F=2.317,p=.108,df2,59)at5percent
significancelevel .
The null hypothesis which states that, there is no significant difference on the performance
ofenterprises operated by owners with different age group can be accepted. The result
indicatesthereisnosignificantdifferenceontheperformanceofMicroandSmallEnterprisesrunby
46
owners who have an age of 29 years and below, those between 30 to 45 and those above 45
yearsold. But it doesn’t mean that there is no difference in the performance of the enterprises in
thethree categories, but the variation in performance is not statistically significant among these
threeagecategories oftheowners.
Though the ANOVA result do not show a statistically significant variation in the performance
ofMSEsintermsofownersagedifference,thoseenterprisesrunbyindividualswithagebetween30 to 45
shows better average performance in capital growth than the other two categories(seeTable4.2).
To sum up about the variable age of the business owners as one factor that contribute to
thesuccess of MSEs, the statistical result do not show a significant variation on the performance
ofenterprises owned by individuals in the three age categories.Based on this it can be
concludethat,ageoftheprincipalownersisnotthefactorthatdeterminesthesuccessofMSEsoperatingin
Addis Ababa.
Performance and Owners’ Education: Table 4.9 shows there is no significance

differenceamong the performance ofMSEs (asit is defined by capital growth of the enterprises)
and thedifference in the education level of the principal business owners( F=.910, p=.408, df 2,
59) at 5percentsignificancelevel.
Hence the null hypothesis of the study which states that, there is no significant difference on
theperformance of enterprises in relation to the difference on the education level of the
principalownersofthebusiness isaccepted.
Even though the ANOVA result indicates absence of statistically significant variation in
theperformanceofMSEsinrelationtothedifferenceintheeducationleveloftheprincipalownersof the
business, SMEs owned and run by individuals having education level of 10+3 and aboveshows
better performance in average capital growth compared to the other two categories
ofenterprises.Butin this case also the statisticalresultdo notsupportto conclude,
enterprisesownedby
individualswithaneducationlevelof10+3andabovearesuccessful.Bettereducation
47
of the owners of the business is not proofed by this study as the factor that contributes to
thesuccessofbusinessenterprises inAddis Ababa.
Performance and Ownership Type: As it is indicated in Table 4.9, there is no

significancedifference in the performance of MSEs (as defined by capital growth) in relation to
the type ofownership of the enterprises; those owned by one individual and those owned by more
than oneindividual(F=.941,p=.336,df=1,60)at 5percent level ofsignificance.
Hence based on this ANOVA result the null hypothesis of this study which states, there is
nosignificant difference on the performance of enterprises in relation to the difference in the type
ofownership of the enterprises is accepted. But it is not to mean the performance is the same
forMSEs owned and run by single owner and those owned by more than one owner, it means
thevariationin performance ofenterprises isnot statisticallysignificant.
Though the variation in performance between these two groups of enterprises based on
ownershipform of the business is not statistically significant, the performance of those enterprises
owned bymore than one individual or those partnerships and private limited enterprises shows
higheraveragecapital growththan thoseMSEs ownedbysingleowner(seeTable 4.4).
To sum up the ANOVA result does not enable us to conclude those enterprises owned by
morethan one individual are successful and establishing enterprises in partnership or private
limitedcompanyformisimportanttothesuccessfulperformanceoftheenterprises.Becausethevariationi
nperformancebetween enterprisesinthesetwogroupsisstatisticallyinsignificant.
Performance and plan: the other variable in this study is the internal practice of preparing
planfor business activities and the related variation in the performance of enterprises with respect
totheenterprises practiceofplanning.
As Table 4.9 shows there is no significance difference in the performances of MSEs among
thoseenterprisesthatdonotuseplanatall,thoseuse1to2yearsplanandthoseenterpriseuse3to5
48
years plan for theirbusiness activities with (F= 1.295, p = .282, df 2, 59) at 5 percent level
ofsignificance.
ThustheANOVAresulthelpstoacceptthenullhypothesiswhichstatesthat,thereisnosignificant
difference on the performance of enterprises in relation to the difference in
planningpracticeoftheenterprises.
When we look the performance of enterprises in each category separately; the performance
ofMSEs using 1 to 2 years plan shows better average performance in capital growth than the
othertwo groups of MSEs in this study (see Table 4.5). But this variation in performance of
theenterprises is not statistically significant to say enterprises using 1 to 2 years short term plan
aresuccessful compared with those enterprises that do not use any plan and those enterprises that
use3 to 5 years plan. This ANOVA result could not enable us to proof a short term plan of 1 to
2contributes to the performance of MSEs as a result of this planning is not one of the
successfactorsto MSESoperatingin Addis Ababa.
PerformanceandRecordKeepingandFinancialControl:Recordkeepingandfinancialcontrol
practice of the enterprises is considered as one variable that creates variation on theperformance
of MSEs. Then the variation in performance between those enterprises using recordkeeping and
financial control system and those do not, is indicated in Table 4.9, the ANOVAresult in the table
implies, there is no significance variation in the performance between MSEs,
(F=2.437,p=.124,df=1/60)5percentlevelofsignificance,thatusesrecordkeeping andfinancial control
mechanism to facilitate their day to day operation and those do not use recordkeepingand
financial control mechanism.
This result supports the null hypothesis of this study which states that, there is no
significantdifference on the performance between those enterprises that use record keeping and
financialcontrol and those do not use record keeping and financial control mechanism in their day
to dayoperation.
49
When we look at the performance of the enterprises separately in each category, those MSEs
thatuses record keeping and financial control mechanism in their day to day operation shows
muchbetterperformanceinaveragecapitalgrowththanthoseenterprisesthatdonotuserecordkeeping
and financial control mechanism in their operation (seeTable4.6), though the variation
inaveragecapital growth is not statisticallysignificant.
Generally the ANOVA result does not support the argument, using record keeping and
financialcontrol mechanism makes MSEs successful in their day to day operation and this
internal practiceof using record keeping and financial control mechanism is one not the factor that
contribute totheperformanceofMSEs operatingin Addis Ababa.
PerformanceandManagementExperienceofthePrincipalOwners’:Differenceinmanagement
experience of business owners inconsidered as one variable that results variationson the
performance of MSEs. Butas it is indicated in Table 4.9, there is no
significancedifferencebetweentheperformancesofMSEs(asdefinedbycapitalgrowth)andthedifferen
cein the management experience of the principal owners of the enterprises (F= .089, p= .915,
df=2,59)at 5 percent level ofsignificance.
This statistical result supports to accept the null hypothesis of the study which states that, there
isno significant difference on the performance of enterprises in relation to the difference in
themanagementexperienceoftheprincipal ownerof thebusiness.
Looking separately, the performance of those MSEs owned by individuals with a

managementexperience of more than 5 years shows higher average capital growth than those
enterprisesowned by individuals without any management experience as well as those with 1 to 5
years ofmanagement experience(see Table 4.7). But the ANOVA result is not statistically
significant toconclude enterprises which have owners with more than 5 years prior management
experiencebettersucceedintheiroperationthanthoseenterprisesownedbyindividualswithpriorexperie
ncebelow5years.
50
Performance and Prior Industry Experience of the Principal Owners’: The other variable
inthisstudywhichisexpectedtocreatevariationontheperformanceofenterprisesistheexperienceoftheo
wnersinestablishingrelatedbusinessoftheirownbeforethecurrententerprisestheyareoperating.
As Table 4.9 shows there is no significance difference between the performances of MSEs
(asdefined by capital growth) and the variation in the prior industry experience of the owners of
theenterprises(F=.383,p=.538,df=1/60)at5 percent levelofsignificance.
Based on his ANOVA result, the null hypothesiswhich states, there is no significant differenceon
the performance of enterprises in relation to the difference in prior industry experience of
theprincipal owner of the business is accepted. But in doesn’t mean there is no variation in
theperformance of enterprises owned by individuals with prior experience of establishing their
ownindependent business and those do not have the experience of establishing their own
independentbusiness.
From Table 4.9, the performance of MSEs owned by individuals with experience of
establishingat least one independent business of their own in related business areas shows higher
capitalgrowth than those enterprises ownedby individuals without prior experience. But this result
isnotsupportivetoconcludehavingpriorindustryexperiencehelpsownerstobesuccessfulanditisonefac
torto thesuccess ofMSEs in Addis Ababa.
PerformanceandMarketingSkilloftheOwners:Thelastvariableinthisstudy isthemarketing skill

of the business owners which is expected to create difference in the performanceof enterprises. In
this regard Table 4.9 shows there is no significance difference between theperformances of MSEs
(as defined by capital growth) related to the difference on the
marketingskilloftheownersoftheenterprises(F=.052,p=.821,df=1/60)at5percentlevelofsignificance.
51
This ANOVA result enables to accept the null hypothesis which states that, there is no
significantdifference on the performance of enterprises in relation to the difference in the
marketing skills oftheprincipal ownerofthebusiness.
Looking separately forthe performance of enterprises in eachcategory interims of the marketskill

of the owner, those enterprises owned by individuals without marketing skills shows
higheraverage capital growth than their counter parts. This result is exceptional to the
conventionalknowledgethatmarketingskillandknow-
howleadsbusinessesingeneraltoabetterperformance.
52
5. CONCLUSIONANDSUGGESTIONS
5.1. Conclusions
Eight independent variables were taken in this study to examine the variation in the
performanceofMicroand SmallEnterprises inresponseto eachoftheindependent variables.
The statistical result indicates that, there is no significant variation on the performance of
MSEsoperating in Addis Ababa in relation to the age difference of the principal owners. In this
study,enterprises owned by individuals with the age of 30 to 45 shows higher performance than
theother two groups of enterprises but the ANOVA result does not support us to say this age
bracketofowners’is themostimportant to thesuccessofMSEs.
Alsothisstudy
indicatesthat,thereisnosignificantvariationintheperformanceofMSEoperatinginAddisAbabainrelati
ontothedifferenceineducationlevel,managementexperience, and prior industry experience. But as
education level of the owners concerned, thoseenterprises owned by individuals who have an
education level of 10+3 and above shows higherperformance. In relation to management
experience of owners, those enterprises owned by thoseindividuals with more than 5 years
management experience shows better performance. In relationto industry experience, those
enterprises ownedby individuals who established at least
oneindependentbusinessoftheirownbeforethecurrententerprisesshowsbetterperformance.
The other result obtained in this study is that, there is no significant variation on the
performanceofMSEsoperatinginAddisAbabainrelationtothedeferenceintheirinternalpracticeofusin
gor not using plan, use record keeping and financial control system or not using and the
differencein terms of the type of ownership of the enterprise as possessed by single owner or
more than oneowners. But in terms of average capital growth, those enterprises that uses 1 to
2years planshows higher performance than the others. In terms of record keeping and financial
control,
thoseenterprisesusingthissystemshowsbetterperformance.Withregardtotheownershipofenterprises,
those owned by more than one owner show better performance than those owned byoneowner.
53
5.2. Suggestions
The suggestions of this study is only on the bases of the descriptive statistics result of each of
theeight independent variables and their relation to the average capital growth of the
enterprisesbecausetheANOVAresultdoesn’tshowasignificancevariationinperformanceoftheenterpr
iseswithregard tothevariations ineach of theindependent variables.
In relation to the education level of the owners, those enterprises owned by individuals
witheducation level of 10+3 and above shows better performance. In this respect enterprise
ownersshould focus on up grading themselves in education by using alternative programs. Also
otherstakeholders of the sector, especially Micro and Small Development Agencies should work
onprovidingshort termtrainingthathelps enterprisesin theirbusiness work.
In relation to management and prior industry experience of experience, enterprises owned

byindividuals with previous management and industry experience shows better performance. So
thestakeholdersofthesectorshouldworkonpreparingtrainingprogramsonmanagementissuesand
creating experience sharing opportunities especially to those enter into the sector without
anypreviousbusiness background.
The other two areas that this study wants to suggest based on the descriptive statistics result
areissue of planning and record keeping and financial control practices of the enterprises. The
resultshows those enterprises that have 1 to 2 year plan and those enterprises using record
keeping andfinancial control mechanism shows better performance. If that is so, MSEs should
start using planto their business activities and also adopt a formal record keeping and financial
control system intheir internal practice. On the other hand stake holders of the sector like
Enterprises DevelopmentAgencies should work on increasing the capacity of enterprise owners
by providing assistances inthe area of training which enables them to prepare their own plans to
their business activities aswellas makingenterpriseowners’literateon basicbook keepingskills.
54
5.3. LimitationsandFutureResearch
This study examines the relationship between some success factors identified in the literature
ofsmall business with the performance of those MSEs in Addis Ababa; as a result of this
thefindingsofstudydonotnecessarilyapplytootherMSEs operatinginotherpartsofthe country.
In addition, the sample is very small representation of the entire MSEs business sector in
AddisAbaba;therefore,theresultscannotbegeneralizedtoMicroandSmallBusinessesEnterprisesthat
were not part of this study. The instruments were developed by the researcher based on
theliterature. This instrument needs to be subjected to more statistical tests in order to establish
amore robust validity and reliability. Replication of this study using larger samples size and
abroader geographic base is suggested for cross-validation purposes. Another approach could be
toconduct a longitudinal nationwide study in order to identify the factors that facilitate the
successof MSEs. Future research should collect data on a longitudinal basis in order to help to
drawcausalinferences and validatethefindings ofthisstudy.
55
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60
GREAT COLLEGE
DEPARTMENT OFBUSINESS ADMINISTRATION
Questionnaire
Dear respondents; Please spare a few minutes to complete this questionnaire. Your
participationin the Small Business Research Survey will help us to understand your business and
give you achance to get to know the Small Business Perspectives in Addis Ababa. Please be
assured thatyour responses willbetreated withthestrictest confidence.
Demographicinformationoftheprincipalbusinessowners.
1. Gender:
Male □ Female □
2. Ageoftheprincipalbusinessowner(s)…………………
3. Education level ofthe principal businessowner(s)10+1
□ 10+4 □
10+2 □ Degree □
10+3 □ Masters □
If your education level is just below the above levels, please write the highest grade
levelyouhavecompleted……………………………………………………………..
61
4. Whatistheageofyourbusinessunderthecurrentownership?
…………………………………………………………………………………..
5. Whatistheformofownershipinthisbusiness?
Sole proprietorship □Partnership □
6. Whatisthetypeofbusiness you areinvolvedin?
Construction □ Merchandise and retail shop □Wood

andmetalwork □ Textile andGarment
□Food and beverage□
Ifother,specify…………………………………………………………..
7. How many employees did the enterprise have when first established including
theprincipalowner?...............................................................................
8. How many employees are working currently in the enterprise including the
principalowner?...............................................................................................
9. WhatwastheamountoftotalcapitalinvestedinBirrtostartthisbusiness?
...........................................................................................................
62
10. CurrentlyhowmuchthetotalcapitalofyourbusinessinBirr?
...........................................................................................................
11. Do you prepare a plan for your future operations of the enterprise?
Yes □ No □
12. If your response for question 11 is yes, what is the time span your plan covers?
Below1year □ 3to5years □
1 to2years □ Above5years □
13. Doyouhavearecordkeepingandfinancialcontrolsystem?
Yes □ No □
14. If your response for question 13 is yes, what kind of record keeping and
financialcontrolsystemyou areusing?
Recordingthedailytransaction □
Balancesheet □
Incomestatement □
Ifothersspecify………………………………………………..........................
15. Do (se) the principal owner manager(s) of the enterprise have/has any
managementexperiencebeforeestablishingthis business?
Yes □ No □
16. Ifyourresponseforquestion15isyes,howmanyyears? ……………………………….
63
17. Do (se) the principal owner(s) of this enterprise have/has experience on
establishingsimilarbusinessintheindustrybefore establishingthecurrentbusiness?
Yes □ No □
18. If your response for question 17 is yes, how many similar businesses did you
establishandoperatebeforethisone?
…………………………………………………………….
19. Do you have any marketing related skill that you obtain either through your
formaleducationoranykind of informal educationandmarketingtraining?
Yes □ No □
20. If your response for question 18 is yes, what is the specific advantage you gained?
Howtoprice yourproducts □ Howtohandlecustomers □
Howtosale yourproducts □ Howtocreatemarketlinkages □

Ifothers,specify…………………………………………………………………
64

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GREAT COLLEGE

ANALYSIS OF THE SUCCESS FACTORS OF MICRO AND SMALL BUSINESS

ABEBAW (ASS PROF)

ANALYSIS OF THE SUCCESS FACTORS OF MICRO

Advisor Signature Date

Examiner Signature Date

MSEs = Micro and Small Business

CSA = Central Statistics

HO1: There is no significant difference on the performance of enterprises operated by

A study done by , Commission on Legal Empowerment of the Poor (2006), conducted in

A small scale manufacturing activity and engineering service establishment is a

The success of a firm is motivated by external opportunities, such as promising demand

Non-financialmeasuresof success used by business owners, such as autonomy, job satisfactionor

A reason for supposing it would do so is that education improves literacy, quantitative

InadditiontotheabovestudiesPolitisandGabrielson(2002),intheirstudy supportstheargument that

Previous start-up experience and cross-functional experience seem to provide individuals

Zeleke (2009) conducts a study on the efficiency of management as a determinant of long-

Marketing skills, such as identifying new prospects, showing effective corporate

A total of 73 questionnaires were distributed, and 70 questionnaires returned, representing

AsitisdepictedinTable4.1majority oftheenterprises46(74.2%)wereMicroEnterpriseswitha total

Table 4.1. Countand percentage of thedemographiccharacteristicsofthe

DemographicVariables Frequency Percentage Cumulative

Male 30 48.4 48.4

FoodandBeverages 14 22.6 22.6

Asitisindicatedinthe table, fromthe totalsample taken21enterprisesare possessedbyprincipal

No Mean Std. Std. 95% Min Max

29years 21 1.1569 1.94409 .42424 .2720 2.0419 -.70 9.00

Total 62 5.4991 12.21272 1.55102 2.3977 8.6006 -.70 65.67

Education No Mean Std. Std. 95%Confidence Min Max

Below10th 16 6.7859 12.89412 3.22353 -.0849 13.6567 -.50 39.00

10to 10+2 28 3.2333 7.17163 1.35531 .4524 6.0142 -.70 36.60

10+3and 18 7.8799 17.05246 4.01930 -.6001 16.3599 .20 65.67

Total 62 5.4991 12.21272 1.55102 2.3977 8.6006 -.70 65.67

No Mean Std. Std. 95% Min Max

Owned 17 3.0504 9.31249 2.25861 -1.7376 7.8385 .00 39.00

noplan 33 3.6865 11.38245 1.98143 -.3495 7.7226 -.53 65.67

use 1 to 25 8.4741 13.73686 2.74737 2.8038 14.144 .00 39.77

Enterprisesdon 33 3.2555 6.88654 1.19879 .8136 5.6973 -.33 29.00

Enterprises 29 8.0522 16.06400 2.98301 1.9418 14.1626 -.70 65.67

Total 62 5.4991 12.21272 1.55102 2.3977 8.6006 -.70 65.67

Noexperi 31 4.8581 10.57927 1.90009 .9776 8.7386 -.50 39.77

1to5yearse 25 6.0168 14.51295 2.90259 .0262 12.0075 -.70 65.67

morethan5y 6 6.6542 11.47258 4.68366 -5.3856 18.6939 .08 29.00

Total 62 5.4991 12.21272 1.55102 2.3977 8.6006 -.70 65.67

Nopriorin 33 4.5944 10.34440 1.80073 .9264 8.2623 -.53 39.77

Havepriori 29 6.5287 14.16261 2.62993 1.1415 11.9158 -.70 65.67

Total 62 5.4991 12.21272 1.55102 2.3977 8.6006 -.70 65.67

Ownersw 20 6.0141 11.71229 2.61895 .5325 11.4956 -.50 39.77

owners 42 5.2539 12.57561 1.94046 1.3351 9.1727 -.70 65.67

Total 62 5.4991 12.21272 1.55102 2.3977 8.6006 -.70 65.67

AGBO Betweengroups 662.433 2 331.216

Withingroups 8435.753 59 142.979 2.317 .108

EDUCBO Betweengroups 272.272 2 136.136

Withingroups 8825.914 59 .910 .408

OWNERSHIP Betweengroups 140.444 1 140.444

Withingroups 8957.742 60 .941 .336

PLAN Betweengroups 382.669 2 191.335

RECORD Betweengroups 355.150 1 355.150

Withingroups 8743.035 60 2.437 .124