Formal Training in Nascent Small U.S. Firms and Its Impact on Organization Level Performance

Abstract

Small business firms play an increasingly important role in the economic and social well-being of the global community. In the US over 98% of all businesses employ fewer than 100 people (Heneman & Berkley, 1999). In the United Kingdom (UK), 99.8% of all businesses have fewer than 50 employees (BIS, 2011). While small firms have a significant impact on our economic and social well-being, there is a high failure rate. Finding ways to increase the survival and success rate of small businesses will have a significant positive impact on our economy and communities. We know that formal training in large businesses contributes to increased productivity, and ultimately increased organizational performance, but there is little research on the use of, or impact of formal training in small businesses. The lack of longitudinal data on the use of formal training in small businesses is one of the main stated reasons for the lack of research and understanding in this area. This research uses data from the Kauffman Firm Survey, the largest longitudinal survey of nascent small businesses ever conducted, and multivariate linear mixed modeling to look at the impact over time of formal training on organization level performance in those businesses. The results show a significant impact in profits, asset levels, and profit margin for those small businesses that did formal training. The results also show significant differences in the number of employees, asset levels and additional human resource activities between those firms doing formal training and those not doing formal training. The two major conclusions are: Formal training has a significant positive impact on organizational performance, and not all small businesses are the same.