Overview of Types of Leadership for Start-Ups and MSMEs

Introduction

It goes without saying that Micro, Small and Medium-sized Enterprises (MSMEs) constitute the backbone of every emerging and developed economies across the globe, especially start-ups. They are the main source of income for governments in the form of income and corporate taxes, providing job opportunities for the populace, especially low-skilled and inexperienced employees, promotes product innovation by encouraging competition amongst the larger enterprises and thus, discourages price discrimination. The production of goods and services brought about by MSMEs also help boost the economy by increasing its Gross Domestic Product (GDP), as well as easing the burden of government from producing certain goods and services that are best left to the market forces of supply and demand in the private sector. Yet despite these benefits conferred by MSMEs, the rate of failure of MSMEs, especially among start-ups are high. In the first few years, start-up enterprises face a high risk of entrepreneurial failure. In fact, a recent statistic in the world economy (Carrigan, 2019) shows that over 21.5% of new ventures fail within one year and 30% within the second year, 50% in the fifth year and an overwhelming 70% failure rate in the tenth year of operation. It is also proven that approximately only 50% of small start-ups survive for more than five years (Paffenholz, 1998; Woywode, 1998). Some have even suggested that only about 50 percent of small businesses are still trading after the first three years from initial set up (Watson, 2003).

The very nature of start-up enterprises means that most of these owners are first-time leaders in their respective enterprises. Some of these small business owners are inexperienced and lack the necessary management skills. Above all, in an attempt to imbue a certain charismatic aura of leadership, they come off as overdramatized and overambitious (Schilling & Schyns, 2014), negatively affecting their employees. Instead of coming off as inspirational, these have profound negative consequences on employees, encouraging employees to leave the enterprise in a process known as labor turnover (Ugbam et al., 2012). This form of leadership is known as negative leadership. One of the factors contributing to the failure of start-ups everywhere is high labor turnover. It has been empirically proven that high labor turnover has a negative impact on the survival of start-ups and MSMEs (Abimbola & Effiong, 2017; Ugbam et al., 2012), increasing the probability of it failing in its first few years. Thus, a negative leadership is just one of the many causes of labor turnover (Gamage, 2014).

Unfortunately, some start-up owners attempt to justify their negative leadership styles by citing incompetence and insubordination amongst employees, leading them to justify that their abusive behavior as necessary to achieve the bottom line of survival (Ong et al., 2016). Such behaviors are detrimental as it would only serve to motivate employees to leave the enterprise. Thus, it is essential for start-up owners to identify any forms of negative leadership in order to avoid them, and to retain their employees for as long as possible. While it is possible to replace some of those lost employees, recruitment requires precious time and resources. These time and resources are better spent on other aspects of the start-up enterprise such as marketing, accounting and finance. Negative forms of leadership are destructive in nature, and will no doubt increase the likelihood of employee leaving the enterprises, and in turn, increase the rate of start-ups failing.

Surprisingly, negative forms of leadership are not well-studied upon in literature, despite the numerous theories on leadership. This is because most of these leadership theories are focused on the positive aspect of leadership (Schilling, 2009), such as transformational leadership, democratic leadership, and charismatic leadership. Positive leadership leans more towards what makes a leader so successful, and how having good leadership qualities contributes to start-up success. A study on negative leadership theories is often aimed at preventing the damage bad leadership and destructive leaders can do to employees and enterprises. The discussion surrounding any form of negative leadership theories are still at its infancy, and this paper would shed light on this dark side of leadership.