Financial And Non-Financial Indicators of Business Success: A Study of

Australian And Malaysian SME Entrepreneurs

Noor Hazlina Ahmad

Adelaide Graduate School of Business，University of Adelaide, Australia
Email: [email protected]

Pi-Shen Seet
Adelaide Graduate School of Business，University of Adelaide, Australia
Email: [email protected]
 Financial and Non-Financial Indicators of Business Success: A Study of

Australian and Malaysian SME Entrepreneurs

ABSTRACT

Given the lack of consensus on how to measure success, this paper explores the meaning of
business success as perceived by SME business owners in Australia and Malaysia. A
qualitative methodology was adopted whereby semi structured interviews were conducted
with ten entrepreneurs each from both countries. A content analysis of the interview data
identified 20 criteria of defining success; broadly categorised into (1) financial, (2) lifestyle,
(3) social responsibility, and (4) customer satisfaction criteria. Interestingly, the answers
provided by Australian entrepreneurs were largely similar to the Malaysians. However,
slight differences were identified relating to aspects of financial, lifestyle, and social
responsibility. Overall, this study finds evidence for the utilisation of multidimensional
measures of business success in Australia and Malaysia.

Keywords: Business success, SME, Entrepreneurship, Australia, Malaysia.

INTRODUCTION

The measurement of business success especially among small and medium-sized enterprises

(SMEs) is a vexed and controversial issue. The bulk of research on SMEs has focussed mainly on

financial indicators (e.g. Chandler & Hanks, 1994; Man & Lau, 2005). But there have been recent

studies that have found evidence of the relevance of non-financial aspects in measuring business

success (Buttner & Moore, 1997; Simpson, Tuck, & Bellamy, 2004; Walker & Brown, 2004). This

paper attempts to reconcile both perspectives in two steps. Firstly, it explores the importance of

financial and non-financial indicators of business success in the literature and argues that focussing on

either financial or non-financial indicators of success is not helpful. Following that, the paper attempts

to generalise the proposition by a reporting the findings of an exploratory qualitative study comparing

perceptions of business success between Australian and Malaysian entrepreneurs. The paper finds that

entrepreneurs give similar weighting both financial and non-financial indicators of business success.

Interestingly, it also finds slight differences in the content of the indicators of business success, as

perceived by Australian and Malaysian entrepreneurs.

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LITERATURE REVIEW

Business success is considered the ultimate direction of any entrepreneurial efforts. Clear and

accurate measures of performance and success especially in SMEs are pivotal for the understanding of

business success and failure (Chandler & Hanks, 1993; Murphy, Trailer, & Hill, 1996; Watson,

Newby, & Woodliff, 2000). However, there is still lack of agreement among scholars on the accepted

method of measuring success. It follows that until we understand clearly what success really means to

the SME owners, efforts to identify factors relating to business success in SMEs and efforts to

distinguish between successful entrepreneurs and the less successful ones will be inaccurate (Watson,

2003).

Existing literature shows several approaches in measuring business success. One group of

researchers advocate the use of traditional financial measures of success such as profitability, sales

turnover, and return on investment. For example, Hall and Fulshaw (1993) claim that two important

measure of success are profitability and growth because for a business to be considered successful

using financial measures, it requires increases in profit or turnover. Growth indicates long-term

achievement whereas profitability reflects short-term achievement. Also, Chandler and Hanks (1994)

use strictly financial estimators of success such as cash flow, market share, sales growth, earnings, and

net worth in their study of venture performance. Perren (2000) states that performance is reflected in

some level of growth, as indicated in firms’ sales and income. A strong argument on considering

financial measure of success is that “businesses are only viable if they are financially solvent”

(Marlow & Strange, 1994:9).

On the other hand, there are some who focussed on non-financial measures of success, which

includes job satisfaction, flexibility, balance between work and family responsibilities, and career

progress (Kuratko, Hornsby, and Naffziger, 1997). For example, Jennings and Beaver (1997) argue

that the success is more than money and the pursuit of financial goal; it involves some aspects of

intrinsic reward for the entrepreneurs themselves. Explicit in their argument is that the best measure

of success for small firms is the attainment of personal objectives such as satisfaction with ones’ own

personal involvement, autonomy, and balance in life rather than financial outcome. Proponent to this

3
approach argued that the significant emphasis given by entrepreneurs, especially those in small firms

are on non-financial objectives (Kuratko et al., 1997). Beaver (2002) agrees by pointing that to many

entrepreneurs, money is not a prime motivator but rather a ‘pleasant by-product’ of having the

freedom to take charge of their own future.

This ‘either-or’ approach to looking at indicators for business success has received some

criticism for being a poor reflection on reality. Following Buttner and Moore’s (1997) warning to not

focus merely on financial performance, Wiklund (1999) suggests that both financial and non-financial

measures commensurate each other and provide richer description of actual performance. This view is

also reflected by Murphy et al. (1996: 22), who argue, in the context of SMEs that,

“Organizational performance is composed of multiple dimensions. Financial measures are

necessary but not sufficient to capture total organizational performance. Thus, future studies

should continue to include financial measures, but non-financial measures need to be

emphasized as well.”

The difficulty in supporting the more holistic view of business success is that there are few empirical

studies conducted. Curran & Blackburn (2001) note that this is a characteristic of small business

research whereby access to small business is already difficult to achieve, let alone getting SMEs and

entrepreneurs to share openly their financial data and strategies. Among the studies conducted, these

tend to be localised and based on a small group of sample in a restricted context. Thus, the danger lies

in the suitability of applying the findings to other context. A recent study conducted by Walker and

Brown (2004) on identifying business success factors among 290 small businesses Western Australia

found that business success criteria could be categorised into three broad categories; (1) financial

criteria, (2) lifestyle criteria, and (3) social responsibility criteria. While this provides a useful insight

into developing a more viable measure of business success in SMEs, the findings is limited to a single

industry sector in Western Australia, with the majority is home-based. This signals for more research

to be undertaken in regards to this issue. Also, it is important to probe into the possible emergence of

other success indicators arising from cultural or country differences, particularly in developing

country, (i.e. Malaysia) where such studies are rare.

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METHOD

The research that is reported in this paper was conducted to address the need to cross-validate

and extend the application of the multidimensional measure of business success in SMEs and

determine wether they are applicable to other cultural contexts, specifically Australia and Malaysia. It

is a part of a larger study that relates entrepreneurial competencies and business success in SMEs.

Before incorporating the multidimensional indicators of business success into the survey, it is

necessary to determine the extent to which both indicators are applicable in the contexts studied.

Accordingly, besides providing in-country validation of earlier studies conducted in Australia, it will

provide fresh evidence in the context of Malaysia given research in this line of inquiry is scant.

Semi-structured interviews were conducted over a period of 3 months in 2005 and were all

conducted on an individual, face-to face basis. Employing this approach is seen as critical in the sense

that it offers rich and localised information on what is viewed as important success indicators by

entrepreneurs within Australia and Malaysia. Specifically, the participants were asked to describe how

they define business success. As not all the respondents in Malaysia were conversant in English, some

of the interviews there were conducted in Malay. In total, eighteen interviews were conducted at the

participants’ business premises. Two interviews with Australian participants were held at the

University of Adelaide’s Graduate School of Business’s boardroom, at their request.

SAMPLE

The Australian participants were identified based on the recommendation by the director of

SA YES program in South Australia. In contrast, due to difficulty with gaining access, the initial

Malaysian sample consisted of individuals known to the main researcher, and subsequent members

were included by snowball sampling (Patton, 1990). The sample for the present study comprised

businessmen/women who had started up their own businesses. The respondents’ profile is presented in

Table 1 and Table 2.

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 Table 1. Profile of the Australian participants Table 2. Profile of the Malaysian participants

Current Age

Current Age
Participants

Participants
employees

employees
Education

Education
Firm Age

Firm Age
Nature of

Nature of
Business
business
Gender

Gender
No of

No of
Level

Level
Race
A Female 28 Bachelor Handbag designer and 14 3 K Female Malay 45 High Cosmetic 13 5
degree manufacturer school producer/manufacturer
B Male 63 Certificate Tailoring and dry 15 47 L Female Malay 40 Diploma Software development 8 4
cleaning and computer services
C Male 37 Certificate Software development 5 12 M Male Malay 44 Masters Steel trading and retail 15 5
and computer service degree
D Male 40 Halfway Computer and related 2 8 N Male Malay 50 High Motor trading and 27 20
through services school insurance services
university
E Male 42 High Air conditioner service 17 15 O Male Indian 43 High Transportation and 17 16
School school logistics service
F Female 45 Masters Public relations 3 3 P Male Chinese 42 High Car trading and 25 18
degree consulting school insurance services
G Male 56 High Electrical goods and 15 20 Q Male Malay 41 High Catering service and 11 3
school furniture retailer school restaurant
H Female 23 Masters Website development 4 2 R Male Chinese 35 Bachelor Optometry service 6 9
degree degree

I Female 32 Certificate Musical instruments 13 3 S Male Chinese 36 High Printing service 5 7

manufacturer school
J Female 24 Bachelor Business consulting 2 2 T Male Chinese 45 High Ice cube producer 26 15
degree school
 The entrepreneur’s age ranged from 23 to 63 years for Australian sample and from 35 to 50

years for Malaysian sample, with the mean ages of 39 years (SD = 13.19) and 42.10 (SD = 4.43)

respectively. For Australian sample, the start up age ranged from 25 to 42 years with a mean age of

28.60 (SD = 6.54) and from 20 to 40 years with a mean age of 31.20 (SD = 7.04) for Malaysian

sample. Two of the 10 Australian entrepreneurs were involved in the manufacturing sector with the

remaining operated in the service sector. The size of the Australian firms varied from 2 to 17

employees with the mean size of 9 employees (SD = 6.25). The firms’ age also varied from 2 to 47

years and the mean of the firms’ age was 11.5 years (SD = 11.5). In the case of Malaysia, all but two

firms owned by the Malaysian entrepreneurs who participated in this study were service-related

businesses. The size of the businesses varied from 3 to 30 employees with a mean of 15.3 (SD = 8.29)

and the firms’ age also varied from the minimum of 3 year old to the maximum of 20 years old, with a

mean of 10.2 years (SD = 6.41).

DATA ANALYSIS

A number of observations related to how entrepreneurs define business success were extracted

from the 20 cases. The answer to the question “how do you define success in business?” was examined

for each case. This question was seen as a useful approach to gauge entrepreneurs’ perception of

criteria for business success. Drawing on classification established by Walker and Brown (2004), the

answers obtained from the participants were categorised into (1) financial criteria, (2) lifestyle criteria,

and (3) social responsibility criteria. In addition to this typology, another category labelled ‘customer

satisfaction’ was added to reflect the findings of this study. This category has not been covered by the

authors.

RESULTS

The results of the interviews are presented in table 3. The findings revealed a common pattern

pertaining to ways in which participants defined business success. Success was defined using both

financial and non-financial indicators; with non-financial success indicators (lifestyle criteria, social

responsibility, and customer satisfaction) dominating the discussion.

Table 3.
Definitions of Business Success Among Entrepreneurs in Australia and Malaysia

Indicators of Australia Malaysia

business success
(1) Financial criteria • Profitability • Profitability
• Higher income • Business growth
• High sales turnover • Increase in sales
• Low overheads* • Increase in market share
• Low debt levels*
(2) Lifestyle criteria • Satisfaction • Personal satisfaction
(Non-financial) • Have control over own destiny • Control own business
• Enjoy doing what one is doing • Healthy and happy life
• Balance between work and life • Balance between work and
• Having freedom family
• Survival in business • Survival in business
• Improved skills and creativity of
the owner
• Being recognised by others*
(3) Social • Creating good working • Creating more jobs for local
responsibility environment especially for staff* community*
(Non-financial)
(4) Customer • Customers trust (constantly refer • Gain customer trust and
satisfaction back to us). confidence
(Non-financial) • Receiving good feedback • Customer listen to our advice
• Have satisfied customers
* Signify areas of differences between the Australian and Malaysian responses

The participants stated,

“Success indicators, you know, in terms of profit and in terms of how many people I employ

and the turnover, but for me, it's just the more personal non-tangible indicators … doing

something that’s rewarding and get a lot of satisfaction out of it” (entrepreneur A,

Australia).

“It’s all about self-satisfaction. Money is also important to ensure that we can survive in the

business...but as I told you, the most important thing is self-satisfaction (translation)”

(entrepreneur Q, Malaysia).

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 In regards to financial indicators, profitability and sales growths were also highlighted.

According to these participants, both criteria, impact on the capability of a business to survive in the

long run. As Marlow and Strange (1994) highlight, financial capability is required to ensure that the

business remains viable. Some participants clearly indicated that success is a combination of both

indicators.

“It’s a combination of both. Money is important because I won’t be in business if I can’t

make money but it’s not the driving forces because I spent 2 years without making money

I have a big vision that one day we will make money” (entrepreneur I, Australia).

“Of course income is one of the major factors. Actually income is how you measure your

performance. It’s the reward that you have. Other thing is like when clients end up being

your friends. Then we also look at the percentage of the patients who come back to you.

From there you can see where we are. At the end they are actually quite attached to us…I

think it’s a mixture of all” (entrepreneur R, Malaysia)

Reflecting a financial indicator of success, low overheads are also seen as an important criterion

of success for Australian participants. None of their Malaysian counterparts highlighted this. In

addition, while this issue did not seem to emerge in the interviews among Malaysian participant, one

participant from Malaysia mentioned that success for him are being independent financially and

maintaining low debt.

“Financially we have to be independent. We don’t have to depend on other source of loans.

That’s the fundamental thing. Of course we don’t carry a lot of liabilities as well”

(entrepreneur R, Malaysia).

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 Of the non-financial indicators of success, lifestyle criteria were most frequently highlighted by

the participants. Participants from both countries stated success means having personal satisfaction

with their firms’ progress and achievement. Because every individual has different personal goals,

satisfaction with the firm’s achievement is a very subjective indicator. Some indicated that having

control over their destination, enjoying what they are doing, having a balanced, healthy, and happy

life, as well as having more freedom gave them satisfaction.

“It’s satisfaction and satisfaction with what you're doing and getting to a position where

you're able to maintain the lifestyle that you choose, whatever that lifestyle might be”

(entrepreneur C, Australia)

“Even though last year’s sale was 4 million, slightly lower than the year before, I’m very

satisfied. My lifestyle has changed. I have more time for my family. My time is very

flexible. The life is there, with my children and my wife” (entrepreneur M, Malaysia).

Success has also been equated to survival. These indicators may require the firm to generate

some level of income but not necessarily growth or expansion. It has been argued that for some

entrepreneurs, success simply means survival of the business that they have created (Beaver, 2002).

Two comments extracted from the interviews consistent with this argument;

“The failure rate is quite phenomenally scary. If you can survive for a long period of time

and make money … you’ve achieved something more than what a lot of small businesses

achieve” (entrepreneur E, Australia).

“I consider myself successful when the customers actually follow my advice and trust in me.

Secondly, I look at profit. Profit is also important to keep my business afloat (translation)”

(entrepreneur K, Malaysia)

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 Another indicator of success, closely related to personal satisfaction, was the excitement of

having the chance to improve skills and learn new things while managing one’s own business.

However, this theme was extracted in an interview with Australian participants only. In addition,

being recognised by others is also considered a criterion to measure success in business. This was

highlighted by two Australian participants, yet, none from Malaysia mentioned this.

“For me, true success means being recognised by others and that people know that our

service is one of the best…” (entrepreneur E, Australia)

Creating a good working environment for staff (one Australians) and creating more jobs for

the local community (two Malaysians) have been mentioned as indicators of business success. Both

were categorised as the ‘social responsibility’ success indicator, as reflected in the following

exemplars;

“It (success) is about self-satisfaction. And also creating a work environment where I like

to work and people around me like to work as well” (entrepreneur I, Australia).

“Success for me, besides making money, is helping the local community to improve their

well being by creating more job opportunities especially for the young people who have

left school and were unemployed (translation)” (entrepreneur Q, Malaysia).

Also included in the discussion of success indicators was customer satisfaction. Getting good

feedback from customers, having customers refer back to their business, and having customers that

listen to their advice, were regarded as important success markers. Nine participants (5 Australians and

4 Malaysians) believed that an important success indicator was having satisfied customers. According

to entrepreneur C (the owner of a software development company, Australia), “success for me is

11
having a bunch of satisfied customers who constantly refer back to us”. The following excerpts

demonstrated emphasis given to customers as an indicator of business success.

“Probably if anything, getting good feedback from people who even want to take interest in

us is more important…Having customers constantly refer us and come back to us and be

loyal to us. That all, like that’s all in our plan but that all pretty much gives us really good

feedback” (entrepreneur H, Australia).

“Knowing that the customers are satisfied with my service gives me satisfaction. It means

success to me…and also when customers listen to my advice…that is success (translation)”

(entrepreneur K, Malaysia).

DISCUSSION

In general, the meanings given to the concept of business success among Australian and

Malaysian entrepreneurs are comparable. Participants from both countries had similar attitudes

towards defining business success, with non-financial goals dominating the discussion. The

dominance of non-financial indicators of success in the interviews supports the findings of earlier

studies that both financial and non-financial gains are important success measures (King, 2002;

Walker & Brown, 2004). Adding to that, this study found further evidence to include customer

satisfaction as an important indicator of business success, replicating Haber and Reichel (2005) study

of performance measure of small tourism ventures in Israel. Evidently, this study shows that the non-

financial success indicators were not necessarily substitutes for the financial success indicators.

Maintaining a certain level of profitability and business growth were also highlighted by participants

from both countries (even though in many cases reported as secondary goals), signifying the relevance

of financial indicators of success. It may therefore, suggest that obtaining a certain level of financial

security is important to guarantee business survival, even if growth is not the prime goal.

12
 Nevertheless, there are slight differences within the content of financial, lifestyle, and social

responsibility criteria. On financial category, Australian participants highlighted having low overheads

in defining business success. By contrast, Malaysian participants focussed on discussing issue of

maintaining low debt level as an important indicator of business success. In the lifestyle category,

Australian participants relate success to gaining recognition from others but no such discussion was

extracted among the Malaysian participants. In addition, while both Australian and Malaysian

participants provided some clues on perceiving success in relation to social responsibility criteria, the

content was slightly different. Australian participants saw success as being able to create a good

working environment for staff. Malaysian on the other hand, viewed success in terms of creating jobs

to the local community.

The emphasis on gaining recognition among the Australians interviewed may well mirror the

individualistic culture that most people in the society adhered to because one important element of this

cultural dimension is gaining satisfaction through personal achievement and recognition (Hofstede,

1991). In contrast, most Malaysians espouse collectivism values and view attention seeking and self-

achievement as secondary to other altruistic value such as helping others (Yusuf & Amin, 1999). This

could also possibly explain why creating jobs for local community is equated to success among the

Malaysian entrepreneurs. This follows Saffu’s (2003) research that found that in a collectivist culture,

the ability to meet the community obligations is viewed very highly.

Overall, this study suggests that focusing on a narrow range of success measure may result in

a misleading approach to understanding entrepreneurial success. Multiple indicators of success are

therefore, important to improve the explanatory power between independent and dependent variables

of business success (Murphy et al., 1996). Also, given the complexity in evaluating performance of

smaller firms, considering the difficulty in obtaining data on financial performance (Westhead,

Wright, & Ucbasaran, 2001), the use of multiple measure of performance is highly recommended.

13
CONCLUSION

In conclusion, the findings provided evidence that validated earlier studies. Results clearly

suggest the applicability of a multidimensional approach to the operationalisation of business success

in SMEs. The integration of both ‘hard’ and ‘soft’ measures, as some call them, provides a valid index

of business success, especially in SMEs, because what success means in business is heavily dependent

on the meaning of success to the entrepreneurs. Not solely driven by the financial indicators of

success, evidence has shown that entrepreneurs are now looking at the softer indicators especially

those related to lifestyle, social responsibility, and customer satisfaction criteria. Accordingly, this

qualitative data contributes by providing us with a referencing item pool for modifying and updating

the existing instrument pertaining to business success in SMEs. The items identified could be

incorporated to enhance the measurement of business success in the context of SMEs in Australia and

Malaysia. As mentioned earlier, more evidence of reliability and validity of this measure will be

generated in the subsequent quantitative study. The value of this research lies in the application of a

cross-cultural approach in understanding the perception of business success among SME

entrepreneurs.

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