Cluster of Financial Boostrappers

The scores of the six factors were used as an input to the cluster analysis undertaken in a third stage of the analysis (using Ward´s method). Different cluster solutions were elaborated upon, ranging in number from 2 to 6. The cluster solution chosen comprises six clusters of small businesses. The six clusters´ mean values on each factor are presented in Table 5.

TABLE 5
Cluster Analysis (Six Cluster Solution)

 Cluster 1 Cluster 2 Cluster 3 Cluster 4 Cluster 5 Cluster 6 Factor Factor 1 -0.14 0.32 -0.35 -0.29 -0.24 2.44 Factor 2 -0.37 -0.47 0.15 1.22 -0.42 0.19 Factor 3 -0.11 2.07 -0.25 -0.01 -0.42 -0.58 Factor 4 0.8 -0.68 0.02 -0.36 -0.38 -0.33 Factor 5 0.52 -0.37 0.2 0.25 -0.96 0.67 Factor 6 -0.28 0.08 2.7 -0.3 -0.26 -0.18 Cluster size 82 25 21 52 65 17

Note :
Presented measures represent each cluster´s mean value on each factor. The factor scores are standardized, implying a mean of 0 and a standard deviation of 1. P< 0.01 in all cases

From the table can be seen that managers active in businesses belonging to Cluster 1 use different delaying measures (factor 4) to a relatively high extent, and are therefore labelled delaying bootstrappers. This cluster consists of 82 businesses most of them active in trade and the hotel/restaurant sector facing financial problems. The businesses are relatively large, in median 9 employees. These businesses operate with a small profit margin, and the managers state a need for further capital. The financial problems are exacerbated by the fact that the managers experience great problems in obtaining finance from banks. Therefore, much effort is put into the financial matters of the business.

Businesses in Cluster 2 use measures for joint utilization (factor 3) to a relatively high extent. Accordingly, these businesses are named relationship oriented bootstrappers. This cluster comprises 25 businesses, most of them active in small-scale industry located in the rural area (with fewer than 25,000 inhabitants). The major part of these businesses are mature, in terms of stage of development, rather small (in median 1 employee) private businesses and/or partnerships (few limited companies) in the agricultural sector. Using relationships seems to be natural for these managers, more or less a way of running the business. The businesses operate with a rather small profit margin, but do not have any major need for additional capital. Further, the managers experience no problems in obtaining additional finance from banks if needed.

Cluster 3 comprises 21 businesses using subsidies from public organizations (factor 6) to a relatively great extent. These businesses are called the subsidy bootstrappers. Most of these businesses are rather large (in median 16 employees) manufacturing limited companies in the expansion stage, characterized by a high growth in turnover during 1994 to 1996. In other words, this cluster comprises growing manufacturing businesses with a potential for increased employment. However, the expansion, and the hereby generated need for capital, can not be fully met by using internally generated funds, as the profit margin is small. These businesses are today rather indebted, by the use of overdraft facility and long term loans at the bank. Finally, it is interesting to note that the managers in these "subsidy bootstrapping" businesses are relatively young and own a relatively small share of the businesses.

Businesses belonging to Cluster 4 use measures for the minimization of accounts receivable (factor 2) to a relatively great extent, and to some extent measures for the minimization of capital invested in stock (factor 5). On the basis of this, these businesses are named the minimizing bootstrappers. The typical business in the cluster is a "traditional" trading business. The businesses are relatively large (in median 10 employees) with a relatively low growth and profit margin. The relatively great use of minimizing cash management routines, focused on accounts receivable, seems to be the normal practice in this sector. The businesses in this cluster do not, according to the managers, need any additional capital. Most of the businesses already have an overdraft facility as well as long term loans at the bank. All the same, the managers do not perceive any major problems in obtaining additional amounts of capital from the bank if needed.

Cluster 5 comprises businesses making very little or no use of bootstrapping measures, captured in the six factors, and are therefore labelled the non-bootstrappers. This can be explained by the fact that these businesses can be characterized as the "sole consultant", being businesses without any major need for larger investments in equipment and/or stock. The managers in these businesses report no need for additional capital, which can be explained by a large profit margin, low growth in turnover between 1994 and 1996 and no major need for any large investments. Most of these businesses are small (in median 2 employees) and do not rely on external capital (no overdraft facility or long-term bank loan). A conclusion is that finance is far from the most important activity in these businesses, and accordingly the managers spend relatively little time on various financial matters.

Finally, the businesses belonging to Cluster 6 are young businesses in the introduction stage (of development). These businesses are highly dependent upon resources provided by the owner-manager (factor 1), and are therefore called private owner financed bootstrappers. The businesses are small (in median 2 employees) and show a high growth in turnover. The need for capital caused by the market introduction as well as problems in generating internal funds explain the need for capital reported by these managers. Further, the liability of newness causes problems in obtaining finance from traditional external financiers such as banks. In order to handle this situation the managers put much effort into financial matters of their businesses.