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IDENTIFYING HIGH POTENTIAL

ENTREPRENEURS IN A DEVELOPING
COUNTRY: A CLUSTER ANALYSIS OF...

Article in Journal of Developmental Entrepreneurship June 2013

DOI: 10.1142/S1084946713500106

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Journal of Developmental Entrepreneurship
Vol. 18, No. 2 (2013) 1350010 (15 pages)
World Scientic Publishing Company
DOI: 10.1142/S1084946713500106

IDENTIFYING HIGH POTENTIAL ENTREPRENEURS

IN A DEVELOPING COUNTRY: A CLUSTER ANALYSIS
OF UGANDAN ENTREPRENEURS

ARTHUR SSERWANGA
Faculty of Commerce, Makerere University Business School
P.O. Box 1337, Kampala, Uganda
asserwanga@mubs.ac.ug
asserwanga@yahoo.com

GERRIT ROOKS
School of Innovation Sciences, Eindhoven University of Technology
Den Dolech 2, Eindhoven, The Netherlands
g.rooks@tue.nl

Received August 2012

Revised April 2013
Published June 2013

It has often been argued that entrepreneurs in developing countries can be classied as either
survival or growth-oriented. However, there is little systematic knowledge about classication of
entrepreneurs in developing countries. We propose that what we call high potential entrepreneurs can
be distinguished from low potential entrepreneurs, given that high potential entrepreneurs recognize
and effectively exploit opportunities. In this paper we classify entrepreneurs using three core entre-
preneurial activities; opportunity recognition, planning and innovativeness. A cluster analysis of about
700 Ugandan entrepreneurs yielded two natural, distinct and internally homogeneous groups of high
potential and low potential entrepreneurship.

Keywords: High potential entrepreneurship; survival entrepreneurship; necessity and opportunity

entrepreneurship; cluster analysis.

1. Introduction
There is agreement among scholars from various disciplines that different classes of
entrepreneurs can be distinguished, and that this distinction in classes is important to
understand economic development. In entrepreneurship research, scholars make a dis-
tinction between so-called necessity and opportunity entrepreneurs. This distinction has
been invoked to explain the surprising high level of entrepreneurial activity in developing
countries. The paradoxically high level of entrepreneurship in resource-poor environments
was explained by the idea that many entrepreneurs were starting up businesses out of
necessity, not because they were seeing opportunities (Acs and Varga, 2005). In devel-
opment studies, scholars make a similar distinction between two classes of entrepreneurs

1350010-1
A. Sserwanga & G. Rooks

(Berner et al., 2008). One class is often referred to as survival entrepreneurs, or low
potential entrepreneurs. These entrepreneurs are often starting up street businesses; they
are driven into entrepreneurship to get by; and lack the motivation and skills to start up a
business with growth potential. The other class is referred to as growth-oriented entre-
preneurs, who are argued to be more motivated and skilled. They have consciously
decided to start up a business and are growth oriented.
Although there is agreement among scholars that there are two main different classes of
entrepreneurs, there is no agreement on the precise delineation of the different classes.
According to Berner et al. (2008), there is no coherent theoretical framework that serves as
a foundation for the distinction. The absence of a clear theoretical and empirical distinction
between categories of entrepreneurs is problematic because, in practical policy appli-
cations, scarce resources may be misdirected (Billing and Downing, 2003; Cotter, 1996)
and scientic progress is hindered (Acs and Varga, 2005). A clear distinction will
enlighten future research into the relation between entrepreneurship and economic
development. Hence, in this study we investigate the following research question: How
can we (empirically) distinguish high and low potential entrepreneurs?
We propose a classication of entrepreneurs based on a widely accepted denition of
entrepreneurship (Shane and Venkataraman, 2000), which describes entrepreneurship in
terms of the recognition and exploitation of opportunities. We thus propose that high
potential entrepreneurs are those entrepreneurs who not only see opportunities, but also
effectively exploit those opportunities. In our operational denition of high potential
entrepreneurship, we distinguish three core entrepreneurial activities to classify entrepre-
neurs: opportunity recognition, planning and innovation. We propose that an approach to
classify entrepreneurs based on activities may solve some of the difculties associated with
classications based on motivations (opportunity versus necessity). First, it is inherently
difcult to measure motivation. Second, entering entrepreneurship out of necessity does
not preclude the possibility that one sees opportunities. Third, practical applications are
more direct because we focus on activities that can be trained, whereas motivations are
hard to change. So our approach may be more informative to policy makers.
We conducted a unique comprehensive survey of more than 700 entrepreneurs in
Uganda (2008). Our data complements earlier small scale studies that were either based
on qualitative research designs. Our data also complements the large scale General
Entrepreneurship Monitor (GEM) data-sets which typically contain many observations;
however, each observation only has limited information about entrepreneurial activities
and motivations. The richness of our data, allows us to sketch a prole of the different
classes of entrepreneurs.
Uganda provides an interesting case for the study of entrepreneurship. It has a Total
Entrepreneurial Average index (TEA) of 30 percent of the working population, with about
3.1 million people estimated to be entrepreneurs (Walter et al., 2003, 2004). On face
value, this makes Uganda one of the most entrepreneurial countries in the world. However,
such comparisons are misleading if the developing country context is not taken into
account. Rooks et al. (2011) found that the great majority of enterprises in Uganda were
micro enterprises which showed little or no dynamism and growth. The rest primarily were

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 Identifying High Potential Entrepreneurs in a Developing Country

survival entrepreneurs who ran their own business simply because there were no other
options available. Likewise, business failure rate is very high. On average, 30 percent of
the entrepreneurs shut down their businesses within the rst twelve months of operation
(Walter et al., 2003, 2004). This context, which exhibits both very high start-up rates and
high business mortality rates, provides a worthwhile environment to identify high potential
from low potential entrepreneurs.
In the remainder of the article we rst review the literature, then propose and discuss
a new classication, followed by a description of the data and measurements. Next, we
describe a cluster analysis of entrepreneurs; the results are then discussed.

2. Literature Review: High Potential Entrepreneurs versus

Survival Entrepreneurs
In many different branches of entrepreneurship research, a distinction is made between
different classes of entrepreneurs. For instance, in economic literature a distinction is made
between real entrepreneurs and self-employed business owners. Real entrepreneurs, or
Schumpeterian entrepreneurs, innovate and introduce evolutionary changes in the
economies that are at the equilibrium, whereas non entrepreneurial business owners imitate
what is already present or only incrementally innovate. Schumpeterian entrepreneurs
create opportunities by introducing new knowledge. In another view, the Kirznerian view,
entrepreneurs see opportunities on the basis of knowledge and information gaps that arise
between economic actors (Kirzner, 1973, 1979). Kirznerian entrepreneurs do not intro-
duce new knowledge, they prot from differences between information sets of individuals
in the market.
Another distinction made in economic literature is that between necessity and opportu-
nity entrepreneurs. This distinction was made to explain paradoxically high levels of
entrepreneurship in developing countries, which were found in the GEM project. Necessity
theory was invoked to explain these high levels of entrepreneurship in developing nations.
The basic idea was that people from the poorest developing countries are driven by poverty,
survival and lack of choice in work to start business ventures. Although in developed
countries, individuals do have a choice and opportunities, which are the primary motivators
for starting businesses. The greater the poverty, the more necessity entrepreneurship there is,
thus resulting in high rates of entrepreneurial activity. (Reynolds et al., 2001). Implicit in the
necessity debate is the idea that necessity entrepreneurship is of lower potential than
opportunity entrepreneurship. Analyzing data gathered by GEM researchers in eleven
countries, Acs and Varga (2005) found necessity entrepreneurship had no effect on econ-
omic development while opportunity entrepreneurship had a positive and signicant effect.
The necessity and opportunity distinction has been criticized for being overly simplistic
(Rosa et al., 2006). There is a diversity of motives that drive individuals to start up a
business, necessity and opportunity are only part of a wider debate on what motivates
business start-up. Researchers in developing countries agree that basic entrepreneurial goals
(autonomy, opportunity, moderate risk taking) remain primary motives for successful
business start-up and growth in developing countries (Frese and de Kruif, 2000).

1350010-3
A. Sserwanga & G. Rooks

In development studies, researchers also make a distinction between classes of entre-

preneurs. This distinction resembles the so-called two-sector model of the informal economy,
which was elaborated by William House in various combinations with other scholars (House,
1984, 1992; House et al., 1993; Rempel and House, 1978). According to House (1984),
Two very different groups of people are hypothesized to exist in the
informal sector and are distinguished by their activities, attitudes and
motivation. They are labeled the community of the poor and the
intermediate sector. Those in the former group are attached to the city to
gain entrance to employment in the formal sector. They lack the
motivation and perhaps the means to seek informal activities with
growth potential or to invest in their current activity because they view
their situation as temporary. The alternative group in the intermediate
sector includes people who have consciously decided on a particular
artisan skill or line of business with the intent of making it a means of a
more permanent livelihood. Their motivation is to invest and build for
the future.
According to Berner et al. (2008), Houses work did not nd the recognition it
deserved, which they attributed partially to the non-illuminative and non-appealing ter-
minology. According to these authors, Houses merits lie in the insight that the division is
a qualitative one, correlated to, but not determined by differences in the size of investment,
number of workers, degree of formality, etc. Another researcher who argued there was
a conceptual distinction between two categories of enterprises was Christian Rogerson.
He observed that a useful conceptual distinction can be drawn between two categories of
informal enterprise and argued that:
First, are those survivalist enterprises that represent a set of activities
undertaken by people unable to secure regular wage employment or
access to an economic sector of their choice? Generally speaking, the
incomes generated from these businesses, which tend to be run by
women, usually fall short of even a minimum standard of income, with
little capital investment, virtually no skills or training and only con-
strained opportunities for expansion into a viable business. Overall,
poverty and a desperate attempt to survive are the prime dening fea-
tures of these enterprises. The second category is micro-enterprises or
growth enterprises which are very small businesses, often involving only
the owner, some family members and at most one to four paid
employees. These enterprises have only a limited capital base and their
operator, only rudimentary business skills. Nonetheless, many micro-
enterprises have the potential to develop and ourish into larger formal
small business enterprises.
According to the review given by Berner et al. (2008), the conceptual distinction
between two categories of entrepreneurs in the informal economic sector has been

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 Identifying High Potential Entrepreneurs in a Developing Country

discovered not less than ve times independently. However, they are critical of all those
attempts made to describe different types of entrepreneurs and they argue that:
While all contributions have touched upon elements of the logic of
survival business and its difference from regular entrepreneurship, none
of them has captured all of them. Most importantly, they have failed to
establish a coherent research tradition and consistent, informative
terminology illustrated by the fact that the term microenterprise has
been used for businesses on both sides of the fence, for a third category
in between, or as an umbrella term for the whole universe.
The most problematic practical consequence of the absence of a clear distinction
between categories of entrepreneurs is that, in policy applications, scarce resources may be
misdirected (Billing and Downing, 2003; Cotter, 1996). Therefore, to guide further
research and practical applications of research, Berner et al. (2008) proposed a typology of
entrepreneurship. They made a distinction between the survivalist entrepreneur and the
growth-oriented entrepreneur. According to them, survivalist entrepreneurs are the street
businesses, or the community of the poor, or the necessity entrepreneurs while growth-
oriented businesses on the other hand, are more often family businesses and real micro-
enterprises. Although this terminology is certainly appealing, it is not clear how this new
distinction addresses their critique on earlier distinctions. There is still no coherent
theoretical framework that serves as a foundation for the new distinction.
In summary, the notion there are classes of entrepreneurs is widespread in entrepre-
neurship and economic development literature. However, most classications are
inadequate because a clear theoretical foundation for the distinction is missing. In the next
section, we propose to use what has been called the individual-opportunity nexus of
entrepreneurship as a theoretical foundation.

2.1. Classication of entrepreneurs based on entrepreneurial activities

In recent years a growing consensus emerged among scholars that entrepreneurship was
best dened as an activity that involved the discovery, evaluation and exploitation of
opportunities to introduce new goods and services, ways of production, markets, processes
and raw materials through organizing efforts that previously had not existed (Shane, 2003;
Shane and Venkataraman, 2000; Venkataraman, 1997). In short, entrepreneurship is an
activity that consists of the identication and exploitation of opportunities. We argue that
entrepreneurs who identify and exploit opportunities effectively could be labeled high
potential entrepreneurs. Based on extant literature, we distinguish three core entrepre-
neurial activities that are crucial in the context of a developing country: opportunity
recognition, innovation and planning.

2.1.1. Opportunity recognition

There is abroad agreement that opportunity recognition, i.e. the discovery and evaluation
of opportunities, lies at the heart of entrepreneurship (Douglas and Shepherd, 1999;

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A. Sserwanga & G. Rooks

Kirzner, 1973; Baron et al., 2007). According to Krueger (2000), an opportunity is a future
situation somebody deems personally desirable and feasible. Entrepreneurial opportunities
can also be dened as the situations in which an entrepreneur can create a new means-ends
framework for recombining resources that may yield a prot (Shane, 2003). High
potential entrepreneurs seek and identify potentially protable economic opportunities
(Far-Wharton and Brunetto, 2007).

2.1.2. Innovation
Innovation involves the introduction of new products, processes and practices. Innovation
is an inherent aspect of entrepreneurship (Stewart et al., 2003), a primary function of
entrepreneurship (Eyal and Inbar, 2003) and the backbone of the so-called entrepreneurial
orientation (Lumpkin and Dess, 1996). In current debates about globalization and com-
petitiveness, innovation is often perceived as the key driver that provides opportunities and
conditions for developing countries to participate in the world economy. Innovation is seen
as a potential way in which low-income countries can strengthen their rms competitive
position within global value chains (Geref et al., 2005; Kaplinsky and Morris, 2000).
Innovation involves the intentional introduction of new ideas, processes and products
designed to signicantly benet the individual, organization or society (Frese and Fay,
2000; Organ, 1997; Rauch and Frese, 2007; West and Richards, 1999). Newness, either
relating to the rm or market, is an essential concept of innovation and differentiates
innovation from mere change (Johannessen et al., 2001; Slappendel, 1996; Cooper, 1993;
Kotabe and Swan, 1995). It is important to note that innovation often is incremental in
developing countries. Many small business owners/entrepreneurs in developing countries
imitate existing business practices. If one business owner innovates, for instance by
introducing a new design for fences, others are quick to follow and after a short while, the
fences are indistinguishable again.

2.1.3. Planning
The successful exploitation of entrepreneurial opportunities is an activity that requires
mental planning (Frese et al., 2007). Planning bridges the gap between intentions to start
up a business and actions to actually do so. Shane (2003) argues that planning provides a
signal of the potential of an entrepreneur. Entrepreneurship normally uses the term
planning in the formalized sense, i.e. business plans and some kind of order of operations
for the next established time intervals (Frese, 2007). Planning is conceptualized as a
continuum ranging from no planning at all to very detailed planning (Rauch et al., 2000).
Planning ahead is viewed as a core characteristic of an entrepreneurial business, which
increases the chances of an entrepreneurial venture attaining success (Georgellis, Joyce
and Woods, 2000). There is also strong evidence that supports the argument that in small
businesses, planning is a key issue (Lumpkin et al., 1998; Rauch et al., 2000; Rue and
Ibrahim, 1998). Planning distinguishes high potential entrepreneurial rms from low
potential rms. It has been established that high potential entrepreneurial businesses plan
ahead. Planning is more critical for entrepreneurs than other occupations, because in

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 Identifying High Potential Entrepreneurs in a Developing Country

entrepreneurship no one structures the goals and the way to achieve them other than the
entrepreneur him or herself (Danes et al., 2008; Frese and Fay, 2001; Frese, 2007; Locke
and Baum, 2007; Perry, 2001).

3. Method
3.1. A survey among Ugandan entrepreneurs
We conducted a survey among Ugandan entrepreneurs. There were no adequate sampling
frames of entrepreneurs available in Uganda. Therefore, we employed a sampling procedure
based on the Global Entrepreneurship Survey approach for selecting respondents (See
Walter et al., 2003, 2004 for more details on the GEM in Uganda). For budgetary reasons,
the sample area was restricted to two districts in Central Uganda: Kampala, which is the
capital city and leading commercial town of Uganda and Mpigi district in the rural area.
The sample was selected following a number of steps. Three parishes in each district
were randomly selected in the rst step. In the next step, local ofcials provided us with
lists of households, indicating in which households one (or more) member(s) was an
entrepreneur. The selection of households and subsequently the respondents within the
households was done randomly. If there was more than one entrepreneur within one
household, the adult entrepreneurial family members were numbered according to their
age, assigning number one to the oldest and the highest number to the youngest household
member. The respondent was selected according to a random number chosen from a
random number table; the second oldest person was selected if the random number chosen
was a two, the fth oldest if the random number was a ve, etc.
Because questionnaires cannot be mailed, faxed or couriered to respondents in Uganda,
without creating a sampling bias, the data had to be gathered by means of face-to-face
interviews. The interviews were carried out by a team of ten interviewers. All but one had
extensive previous experience as an interviewer working for the GEM projects. During the
training, sampling procedures, translations of key terms in the questionnaires and handling
of respondents was emphasized. The interviewers were nally eld tested to assess their
ability to handle the data collection, before they embarked on the data collection exercise.
In almost all cases the selected respondent was willing to participate in the study.
In Kampala there were ve refusals registered while in Mpigi, two persons refused to
participate. Hence, we reached an unusually high response percentage of approximately
99.3 percent. Each interview continued until the informant had completely described the
above issues. On average, an interview took 45 minutes. In total, we collected information
from 993 respondents aged 1664 years, of which 737 were entrepreneurs and 256 were a
control group of non-entrepreneurs (response rate 99.3%). Because the goal of our analysis
was to classify entrepreneurship, all the non entrepreneurs were removed from the data-set.

3.2. Measures
In this section the construction of the variables used in the cluster analysis are described.
The items as well as summary statistics for those items are displayed in Table 1.

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A. Sserwanga & G. Rooks

Table 1. Binary variables used in the cluster analysis.

Variable Description No. of Observations Mean

Opportunity Whether or not the respondent indi- 734 0.55
recognition cated that, in his or her area, in the
coming six months there will be
good opportunities for starting up
businesses.
Investment in Whether or not the respondent 735 0.48
premises invested resources to improve his
or her business premises in the
last three year.
Investment Whether or not the respondent 735 0.46
in tools invested resources to improve
his or her business machinery
or tools.
New products Whether or not, in the last three 735 0.41
years, the respondent introduced
products or services that were
new or improved to the market.
Improved Whether or not the respondent, in the 735 0.45
products last three years, had improved
products or services.
Business Whether or not the respondent 735 0.43
plan prepared a business plan.
Financial Whether or not the respondent 735 0.37
statements developed projected nancial
statements (such as income
and cash ow statements).

3.2.1. Opportunity recognition

To measure opportunity recognition, we used a question that was used and validated
in two previous GEM studies in Uganda (Walter et al., 2003, 2004). In this question, the
respondent was asked whether or not, in his or her area, there would be good opportunities
for starting up a business in the coming six months.

3.2.2. Innovation
To measure innovation and investment, a set of four dichotomous items that measured
whether the entrepreneur had introduced or invested in new or improved products or
processes was used. These items were adapted from the rst South African Innovation
Survey (Oerlemans et al., 2003; Rooks et al., 2005). Innovativeness in the Ugandan
context of small enterprises obviously refers to activities new to the rm, rather than to
the market or to the world. In developing nations and especially in small and
medium enterprises, business investment can also be seen as a form of innovation. Such
investments may take the form of innovation-related training and design, investment in
machinery, equipment, marketing and investment in business premises.

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 Identifying High Potential Entrepreneurs in a Developing Country

3.2.3. Planning
In the questionnaire, we included a list of gestation activities, i.e. behaviors entrepreneurs
exhibit when starting up a business, which were developed by Davidsson and Honing
(2003). Davidson and Honing originally identied twenty gestation behaviors. However,
in the context of a developing country, many of these gestation behaviors, for instance
applying for a patent, are not really applicable. We used two questions: whether there was a
business plan and whether or not the respondent developed projected nancial statements.

3.3. A cluster analysis of Ugandan entrepreneurs

Our research question is how we can distinguish high and low potential entrepreneurs.
We are thus looking for classes of entrepreneurs. Classes are conceptually meaningful
groupings of objects based on common characteristics. Cluster analysis is the most
appropriate technique to group objects based on characteristics (Hair et al., 2010). Cluster
analysis classies objects based on the similarity of those objects. Factor analysis would
have been appropriate if the aim was to classify variables instead of objects.
There are many somewhat different clustering techniques (see for a review Kaufman
and Rousseau, 1990). A main distinction can be made between hierarchical and non-
hierarchical techniques. Hierarchical techniques involve a series of clustering decisions. In
non-hierarchical techniques, the data is partitioned into a particular number of classes or
clusters at a single step. In this study, we applied the most commonly used technique,
which is the hierarchical technique. In hierarchical clustering, at the beginning all objects
(in our case entrepreneurs) are treated as separate clusters. In the rst step of the analysis,
the two closest entrepreneurs are merged (grouped) in a single cluster, in the next step
again the most similar clusters are grouped. This is repeated until all observations are
grouped in one cluster.
There are several techniques for deciding which objects should be merged together. We
used the so-called average-linkage method. In this method, the average distance of two
objects is the criterion to cluster or not. The average-linkage method has been shown to be
robust (Kaufman and Rousseau, 1990).
Classication in each step in hierarchical cluster analysis is based on similarity. There
are too many similarity measures available to discuss here. In our analysis we used binary
variables. Here we used what is called the simple matching coefcient (which is based on
the number of agreements). This is the most well known and most often used binary
similarity coefcient (Kaufman and Rousseau, 1990).

3.3.1. The number of clusters

The rst step in our analysis was to determine the number of clusters of entrepreneurs.
There is no one clear rule to determine the number of clusters in a cluster analysis. We
used a stopping rule provided by Stata (Statacorp), the pseudo-F index developed by
Calinski and Harabasz (1974). Large values of the CalinskiHarabasz pseudo-F stopping-
rule index indicate a distinct cluster structure. Small values indicate a less clear
dened cluster structure. The most distinct clusters are an optimum of, on the one hand, the

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A. Sserwanga & G. Rooks

Table 2. Calinski and Harabasz pseudo-F index.

No. of Clusters Calinski/Harabasz Pseudo-F

2 368.62
3 261.92
4 178.05
5 158.48

similarity of objects within the cluster, and on the other hand, the dissimilarity between
clusters. Although the pseudo F-index is helpful, it gives no clear guideline or criterion on
which one can choose the number of clusters. This decision is for a large part based on
theoretical interpretation of the solution.
Our results indicated the two cluster solution was the most distinct structure. We
compared our results with the outcomes of other cluster methods, such as K-means
clustering and other distance and similarity measures, such as single linkage, and did not
nd substantial differences. As can be seen in Table 2, the two cluster solution has the
largest CalinskiHarabasz pseudo-F value, which means it is the most distinct solution. To
inspect the solution, we compared the means of the variables that were used in the cluster
analysis. As can be seen in Table 3, the difference between every pair of the means is
highly statistically signicant. We also inspected other cluster solutions and established
they were less clear. For instance, in the three cluster solution, a small group was split of
the low potential entrepreneurship group. This small group of entrepreneurs indicated they
had introduced new products, but not invested or planned their business. Hence, we
conclude there is a group of 290 entrepreneurs that can be labeled as high potential
entrepreneurs. They see opportunities for new business, invest in their business, introduce
new and improved products and plan their business. The second group is larger, consisting
of 440 entrepreneurs. In contrast to the group with the high potential entrepreneurs,
entrepreneurs in this group, to a much lesser degree, tend to see opportunities, invest,
introduce new and improved products and plan their business. Hence, this group can be
labeled low potential entrepreneurs.

Table 3. Means of the classication variables split up into high potential entrepreneurs
and low potential entrepreneurs.

Classication Variables High Potential Entrepreneurs Low Potential Entrepreneurs

(n 290) (n 440)
Opportunity recognition 0.72 0.43
Investment in premises 0.91 0.19
Investment in tools 0.94 0.13
New products 0.75 0.19
Improved products 0.76 0.25
Business plan 0.76 0.22
Financial statements 0.68 0.16

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 Identifying High Potential Entrepreneurs in a Developing Country

Table 4. Means of variables that characterize high and low potential entrepreneurs.

High Potential Low Potential Signicance

Entrepreneurs Entrepreneurs Difference
Age 32.14 31.14 0.229
Gender 0.38 0.45 0.078
Marital status 0.23 0.19 0.231
Educational Years 9.46 8.36 0.000
Firm size (no. employees) 3.00 2.11 0.049
Formally registered 0.47 0.30 0.000
Total start up capital (in Ugandan Shilling) 814010 725029 0.769
% Sales growth 12.97 6.40 0.005
Social network size 4.67 3.48 0.000
Sector
Customer oriented 0.43 0.31 0.001
Business services 0.23 0.46 0.000
Agricultural 0.19 0.11 0.004
Manufacturing 0.13 0.10 0.218
Manova F(13, 606) 7:92; p 0:0000

3.3.2. Proling entrepreneurs

In the previous section, we found two classes of entrepreneurs could be distinguished. In
this section, a prole of the two groups of entrepreneurs was sketched. We compared the
groups using demographical variables and variables that were interesting from a scientic
and policy point of view, namely startup, human and social capital, whether the enterprise
was formally registered, business success and type of industry. The variables are presented
in Table 4. A multivariate analysis of variance (MANOVA), revealed the high and low
potential entrepreneurs differ signicantly (F (13, 606) 7.92; p 0:0000).
When the demographical variables; age, gender and marital status of the entrepreneurs
were compared, we found no statistical difference. Only gender was borderline signicant
with a comparatively higher number of males in the high potential group.
High and low potential entrepreneurs differed in the capital that they possessed. High
potential entrepreneurs were better educated: their stock of human capital is higher than the
low potential entrepreneurs. They had more social capital as well. The social network size
of high potential entrepreneurs was signicantly larger than that of low potential entre-
preneurs. However, there was no signicant difference between the start-up capital of
entrepreneurs in the clusters.
High potential entrepreneurs were more successful in the sense that sales growth
(expressed in percentages) was signicantly higher. Perhaps as a consequence of their
relative success, high potential entrepreneurs more often have their business formally
registered. High potential entrepreneurs more often are found in customer services, and
rather surprisingly, in agricultural business. Low potential entrepreneurs are more often
found in business services.

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A. Sserwanga & G. Rooks

4. Conclusion and Discussion

In this article we present a cluster analysis of entrepreneurs in a developing country,
namely Uganda. The idea that entrepreneurs can be classied into high and low potential
groups is widespread in entrepreneurship and economic development literature. However,
most distinctions are lacking a solid theoretical foundation. We proposed a classication of
entrepreneurs based on a widely accepted denition of entrepreneurship, which describes
entrepreneurship in terms of the recognition and exploitation of opportunities. We have
argued that high potential entrepreneurs are those entrepreneurs who identify opportunities
and act to exploit them. We distinguished three core entrepreneurial activities based on the
view that entrepreneurship was an activity that revolved around opportunity recognition,
planning and innovation. Using a large scale and detailed survey held in Uganda, we
indeed found that Ugandan entrepreneurs could be classied into two clusters. We found a
somewhat smaller, but still substantial, group of 290 entrepreneurs that could be labeled as
high potential entrepreneurs: they see and exploit opportunities. The remaining group
was larger (440 entrepreneurs), and could be labeled as low potential entrepreneurs, who
dont see and exploit opportunities. We also found that high and low potential entrepre-
neurs could be distinguished. The high potential group was more successful, more likely to
be formally registered and had higher stocks of human and social capital compared to the
low potential group.
Our study was limited in several ways. Theoretically, the study was exploratory.
We identied seven classication variables; however, more measurements of opportunity
recognition, planning and innovation were possible. Moreover, the measurements we
employed were rather crude; we measured opportunity recognition, planning and inno-
vation with dichotomous variables. We restricted our study to Ugandan entrepreneurs;
hence, we are not sure to what degree our ndings are valid for other developing countries
as well. Other countries in East Africa (Kenya and Tanzania for example) are rather similar
to Uganda, possibly our results are replicable in these countries. A second limitation was
the cross-sectional design of our study. It would have been preferable to study the whole
process of entrepreneurship; however, this is a very costly and time-consuming design.
Our research may have practical implications. Classifying entrepreneurship not only
recognizes diversity within entrepreneurship but also permits advancing our understanding
of entrepreneurship by reducing the enormous range of potential variables to a manageable
size (Hambrick, 1983). Classifying entrepreneurship aids policy formulation and imple-
mentation. A reliable classication of entrepreneurship is needed for various reasons.
On the one hand, classication of entrepreneurship facilitates national statistical surveys of
industrial and business establishments by guiding how to group business undertakings in
an economy. Although nations attempt to proactively support entrepreneurship, providing
one size ts all support to all categories of entrepreneurship may not be efcient. One of
the main issues for policy is the question of whom to target (Autio et al., 2007). Given
scarce resources and diverse needs of entrepreneurship, support must be targeted to right
businesses and this can be facilitated by accurately categorizing entrepreneurship. For
instance, to accelerate growth and reduce poverty, the World Bank Group and other

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 Identifying High Potential Entrepreneurs in a Developing Country

international aid agencies provide targeted assistance to small and medium size enterprises
(SMEs) in developing economies.

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