One of the primary concerns in a small business is the problem of
risk. Many who begin the start-up process terminate it in less than
one year. Of those that survive, many are unable to achieve
sustained growth and profits. Small-to-medium business enterprises
(SME) have a 50% to 90% chance of failure within the first five
years. While there are measures of personal risk behavior of
entrepreneurs, the literature contains no measure of risk
orientation for the enterprise.The purpose of this study was to
develop and validate a researcher-designed instrument to measure
the critical forces of business risk. The 37-item Entrepreneurial
Risk Assessment Scale (ERAS) was developed from key theoretical
concepts grounded in economics, marketing, management, finance, and
entrepreneurship literature. It was developed and finalized through
a process of reviewing literature, subject matter expert panels'
review, and a pilot test. The a priori assumption of the ERAS
constructs were (a) personal characteristics, (b) intangible
operations, (c) enterprise operations, (d) market climate, and (e)
business environment.This study utilized a quantitative methodology
to establish construct, content, and criterion validity using
Bryant's (2000) framework found in Reading and Understanding More
Multivariate Statistics edited by Grimm and Yarnold (2000). A
sample (N = 276) was taken from an urban/suburban area in South
Texas. A principal axis factoring (PAF) analysis was used to
establish construct validity; a principle component analysis (PCA)
was used to establish content validity; and a logistic regression
was used to establish criterion validity. Reliability was assessed
within the efforts to establish content validity. What emerged from
both the factor analyses were five new factors of entrepreneurial
risk that were different from the a priori assumptions and thus
renamed: (a) customer and resources, (b) security, (c) operations,
(d) external pressures, and (e) other/alternate factors. The
results of the PAF and PCA provided strong support for the content
and construct validity of the ERAS instrument. In the assessment of
criterion validity, the logistic regression analysis showed the
endogenous factors, (a) customer and resources, and (c) operations
reliably predicted risk behavior of both nascent and incumbent
SMEs.
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