Volume 26, No. 3 Spring, 2015
Editorial Staff
Managing Editor William T. Jackson
Editors Mary Jo Jackson Eric Liguori Jeff Vanevenhoven
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Table of Contents
Volume 26, No.3
Spring, 2015
Exploring the Impact of an External Crisis on R&D Expenditures on Innovative New Ventures Oleksiy Osiyevskyy, D’Amore-McKim, and M. Amin Zargarzadeh ...... 1
Performance Templates: An Entrepreneur’s Pathway to Employee Training and Development Randall P. Bandura and Paul R. Lyons ...... 37
An Examination of the Job Market for Entrepreneurship Faculty From 1989 to 2014 Todd A. Finkle ...... 55
Entrepreneurial Training and Business Discontinuation: A Cross Country Study Densi A. Williams ...... 79
Female Entrepreneurship: Evidence from Vietnam Lei Zhu, Orban Kara, Hung M. Chu, and Anthony Chu ...... 103
Bridging the Gap Between Entrepreneurship Education and Small Rural Businesses: An Experiential Service-Learning Approach Linda S. Niehm, Ann Marie Fiore, Jessica Hurst, Youngji Lee, and Amrut Sadachar ... 129
SBDC Maximum Business Series: A Framework for Developing a Successful Innovative Entrepreneur Education Program Gwen F. Hanks and Eric S. Bonaparte ...... 163
--- Entrepreneurial Case ---
Belle Meade Plantation: Social Entrepreneurship and Sustainability at the First Non-Profit Winery in the U.S. Robert Lambert, Joe F. Alexander, and Mark T. Schenkle ...... 189
----2014-2015 Officers----
Association for Small Business & Entrepreneurship
Eugenie Ardoin, University of Louisiana at Monroe
President
Henry Cole, University of Louisiana at Monroe
President Elect
Mary Jo Jackson, University of Tampa
Vice President - Programs
Carl Kogut, University of Louisiana at Monroe
Vice-President Membership
Courtney Kernek, Southeastern Oklahoma State University
Treasurer & Secretary
Lauren Babin, University of Louisiana at Monroe
Past President
----Editorial Review Board----
Joshua Abor João J. M. Ferreira University of Stellenbosch University of Beira Interior
Joe Ballenger Charles Fischer Stephen F. Austin State University Pittsburg State University
Jurgita Baltrusaityte-Axelson Donald W. Garland Stockholm School of Economics New Mexico State University
Stephen S. Batory William C. Green Bloomsburg University Sul Ross State University
James A. Bell Walter E. Greene University of Central Arkansas Greene and Associates
Josh Bendickson Marko Grünhagen Eastern Carolina University Eastern Illinois University
Thomas M. Box Robert D. Gulbro Pittsburg State University Athens State University
Susan Boyd Stephen C. Harper University of Tulsa University of North Carolina ~ Wilmington
Steve Brown E. Alan Hartman Eastern Kentucky University University of Wisconsin ~ Oshkosh
Kent Byus Diana M. Hechavarria Texas A&M ~ Corpus Christi University of South Florida
Thomas M. Cooney Marilyn M. Helms Dublin Institute of Technology Dalton State College James A. DiGabriele DiGabriele, McNulty & Co. LL Colin Jones University of Tasmania Paul Dunn University of Louisiana ~ Monroe
Minjoon Jun Philip Siegel New Mexico State University Florida Atlantic University
M. Riaz Khan Joseph F. Singer University Massachusetts Lowell University of Missouri Kansas City
Naresh Kumar George Solomon NESH Training and Consultancy George Washington University
Agnieszka Kurczeska Harriet Stephenson University of Lodz Seattle University
Vaidotas Lukosius Tulus Tambunan Tennessee State University University of Trisakti
Keishiro Matsumoto Ayman El Tarabishy University of the Virgin Islands George Washington University
Shaun McQuitty Leslie Toombs Athabasca University Texas A & M Commerce
Teresa V. Menzies Raydel Tullous Brock University University of Texas ~ San Antonio
Jay Nathan Jude Valdez St. John’s University University of Texas ~ San Antonio
Barbara R. Oates Jeff Vanevenhoven Texas A&M ~ Kingsville University of Wisconsin White Water Linda Ann Riley Roger Williams University Rebecca J. White University of Tampa Philip T. Roundy University of Tennessee at Densil Williams Chattanooga University of West Indies Mona
Christopher M. Scalzo Phillip H. Wilson Morrisville State College Midwestern State University
Mark T. Schenkel Marilyn Young Belmont University University of Texas ~ Tyler
Dear JBE Readership:
Welcome to the spring 2015 issue of the Journal of Business and Entrepreneurship. There are truly some exciting things going on with the journal and the Association for Small Business & Entrepreneurship. First, this issue marks a third issue for the year—our initial move under the plan to increase the issues to four next year. We have been able to accomplish this while still maintaining the level of quality you have come to expect. This has been made possible by the continued increase of great submissions. We hope that you will enjoy the diverse topics being addressed in this issue.
Also, we are pleased to announce two new editors for the journal, Eric Liguori and Jeff Vanevenhoven. Both of these new editors bring tremendous depth and breathe to the journal and we are excited they have agreed to join us.
Finally, ASBE has joined forces with the Entrepreneurial Education Project (EEP) in hosting the 40th annual conference of the organization in September, 2015. We hope that as a reader of this journal and supporter of entrepreneurship, you will consider joining us for this great event. Information of the conference can be found at www.asbe.us.
We would also like to encourage every subscriber to contact their university library and ensure that they have a subscription for the journal.
William T. Jackson (Bill) Mary Jo Jackson Eric Liguori Managing Editor Editor Editor
Jeff Vanevenhoven Editor
EXPLORING THE IMPACT OF AN EXTERNAL CRISIS ON R&D EXPENDITURES OF INNOVATIVE NEW VENTURES
Oleksiy Osiyevskyy D’Amore-McKim Northeastern University Northeastern University
M Amin Zargarzadeh Northeastern University
ABSTRACT
What is the impact of an exogenous crisis on research and development expenditures of innovative new ventures? Existing literature does not provide a clear answer. One view suggests that shrinking revenues and constrained funding reduce firms’ R&D intensity. The opposite view argues for amplified risk-seeking and innovative behavior of organizations in crisis, leading to higher commitment to R&D with resulting additional investments. We unite these opposing views in a generalized behavioral framework based on the premise that the impact of a crisis on a venture’s R&D expenditures is contingent on its pre- crisis R&D intensity. When facing a crisis, R&D-intensive companies reduce their R&D commitment, while non-R&D-intensive companies do not alter their R&D expenditure budgets, or even increase R&D spending to innovate themselves out of the adversity. We empirically test our behavioral framework using the longitudinal data from the Kauffman firm survey. The results strongly support our theoretical reasoning: during the 2008 financial crisis R&D- intensive ventures tended to substantively decrease their R&D investments (on average more than 10 percentage points decrease in R&D to sales), while their non-R&D-intensive counterparts demonstrated positive (although statistically insignificant) change in R&D investments. In other words, a crisis strikes most deeply the R&D activity of the most innovative ventures, despite the rational need to sustain R&D funding in industries with rapid technological change and short product life cycles. We conclude by positing underlying reasons for the observed behavioral patterns, and then suggest avenues for further research.
Keywords: R&D, new ventures, innovation, behavioral strategy, threat-rigidity, Kauffman Firm Survey.
Journal of Business & Entrepreneurship Spring 2015 1 INTRODUCTION
In today’s fast-moving and unpredictable business environment, a firm’s ability to innovate becomes one of its most important capabilities, having the potential to create competitive advantage leading to the firm’s survival and above-average profitability. Innovation as a management concept can be broadly defined as “the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations” (OECD and Eurostat, 2005, p.46). Being developed either internally or in other organizations, the adopted new product, process or method can lead to competitive advantage stemming from Shumpeterian rent – appropriating the benefits of successfully implemented innovations, until these innovations get imitated by competitors (Mudambi & Swift, 2014; Kor & Mahoney, 2005; Rosenberg, 1990). Research and development activity (R&D) has long been considered an important internal organizational driver of innovation in organizations (Mudambi & Swift, 2014; Fagerberg, 2006; Thornhill, 2006), allowing firms to secure an oligopolistic position, create the first-mover advantage (Kor & Mahoney, 2005; Rosenberg, 1990), improve productivity (Wakelin, 2001; Mairesse & Sassenou, 1991) or enhance the internal ability to apply the existing knowledge to commercial ends (Cohen & Levinthal, 1990). Overwhelming body of evidence suggests that R&D investments are beneficial for firms (see, e.g., Mudambi & Swift, 2014). Yet, as any other activity, R&D imposes demands on scarce organizational resources (most important, capital and managerial time), which might have better use in other spheres of business. The problem of having to choose the proper level of expenditure in R&D activities is most salient in new ventures, which are usually substantively resource-constrained (Katila & Shane, 2005). In this paper, we address the broad research question of the impact of an externally-caused crisis on R&D expenditures of new ventures. Answering this question will provide essential insight on whether these organizations’ behavior is close to the rational one. Prior studies demonstrate that only stable investments in R&D allow the firms to develop and sustain capabilities underpinning their competitive advantage (Kor & Mahoney, 2005; Dierickx & Cool, 1989). Therefore, any disruption in the flow of funds to R&D can have a detrimental effect on the knowledge accumulated through this activity. Some recent studies complement the original, ‘need for stable R&D funding’ thinking by stating that
2 Spring 2015 Journal of Business & Entrepreneurship “high performing firms maintain relatively long periods of stable R&D activity, interrupted by compact, significant changes in their innovative efforts” (Mudambi & Swift, 2014, p.126). In other words, the current evidence suggests that high-performing firms are engaged in long periods of exploitative R&D (relatively low-cost and stable) with infrequent switches to exploratory R&D (relatively high-cost and short) [see the discussion in Mudambi & Swift, 2014]. In line with this reasoning, during an external crisis a firm’s R&D expenditures should either remain on the same level (exploitative R&D), or substantively increase (exploratory R&D), to develop new capabilities needed for surviving during the adversity. Ergo, the rational response of new ventures to a crisis implies sustaining or increasing the R&D expenditures. That said, in this paper we investigate if the actually observable behavior matches the rational model. Surprisingly, the existing literature does not devote enough attention to the behavioral question of the impact of a crisis on R&D expenditures of firms, at either firm or industry levels (Filippetti & Archibugi, 2011). Available related studies propose two opposite views. One view suggests that shrinking revenues and constrained access to capital reduce innovation expenses (e.g., Katila & Shane, 2005; Filippetti & Archibugi, 2011; Yunlu & Murphy, 2012). Yet, drawing on the insights of the behavioral theory of the firm, the opposite view argues for amplified risk-seeking and innovative behavior of organizations in crisis, leading to higher commitment to R&D with resulting additional investments into this activity (Greve, 2003). For established companies, the controversy between these views has been to some extent resolved using a set of contingency factors, such as firm size (Greve, 2010; Audia and Greve, 2006), slack resources (Chattopadhyay, Glick, & Huber, 2001; Singh, 1986), and survival reference point (e.g., Shimizu, 2007; Iyer & Miller, 2008). However, for innovative new ventures the question remains unstudied. The second gap in the existing literature is related to the impact of a major exogenous crisis on innovation activities, including R&D expenditures. Whereas the studies in the tradition of the behavioral theory of the firm scrutinize the impact of underperformance on risk-taking and innovation (Greve, 2003; Audia & Greve, 2006; Shimizu, 2007), the impact of a major environmental jolt – such as a severe economic recession – remains contentious (Marino et al., 2008), since the latter might switch the focus of managerial attention from improving the performance to surviving the adversity (March & Shapira, 1987,1992). Hence, unlike low or moderate performance shortfall, a major crisis can cause either risk-seeking problemistic search (Cyert & March, 1963), or risk-averse threat
Journal of Business & Entrepreneurship Spring 2015 3 rigidity reaction (Staw et al., 1981). In the former case, we expect to find rising R&D expenditures in response to a major crisis, while in the latter case – shrinking R&D. These two gaps set the motivation for the current study. In particular, we address the following research question: what is the impact of an external crisis on R&D expenditures of innovative new firms (startups)? Answering this question provides important firm-level insights concerning behavioral drivers of innovation activities in new ventures. Moreover, the results of our study are consequential for understanding the impact of economic downturns on R&D activities of new ventures at the economy level; by this means, we complement and extend the macro- (economy-level) framework of Filippetti & Archibugi (2011) [explaining the effect of economic crises on a country’s innovation investment] with micro- (firm-level) factors. The paper proceeds as follows: First, we provide a theoretical discussion of the impact of an exogenous crisis on R&D expenditures of new firms, stressing the distinction between R&D-intensive and not R&D-intensive firms. Then, we conduct an empirical testing of the developed theoretical framework using the longitudinal data from the Kauffman firm survey (on 4,928 new firms founded in 2004), modeling the financial crisis of 2008 as an exogenous shock. We finish by outlining the theoretical, managerial, and public policy implications of our findings.
BACKGROUND LITERATURE AND HYPOTHESES
R&D as a Business Activity
Research and development is an exemplar of a broader set of business activities of any company, along with marketing, production, sales or finance. Viewed as an activity, R&D is intended to produce both new organizational knowledge and new practical applications of existing knowledge through three distinct activities: basic research, applied research, and experimental development (Smith, 2006; OECD, 2002). As such, R&D activity’s main purpose is creation, sustenance and development of organizational knowledge- based capabilities underpinning a firm’s competitive advantage (Wernerfelt, 1984; Barney, 1991). As with any other type of business activity, R&D requires commitment of organizational resources, most importantly, financing and managerial time. If an
4 Spring 2015 Journal of Business & Entrepreneurship external crisis imposes resource constraints on an organization through limited funding, reduced revenues and/or shrunk profit, this will obviously have a negative effect on R&D expenditures (e.g., Bloch, 2005; Bougheas et al., 2003). In line with this reasoning, it has been shown in prior literature that R&D activity is financially constrained (e.g., Mullet-Reyes, 2004), and that during recessions organizations tend to decrease their R&D spending (e.g., Yunlu & Murphy, 2012). Even if an organization still has enough resources to support investment in R&D on pre-crisis level, some other activities of a firm will impose competing demands on the resources, and more crucial and short-term oriented actions (e.g., boosting the falling sales) will get the priority, at the stake of more discretionary and long-term oriented R&D. This negative effect of an economic adversity on R&D expenditures must be most pronounced in the context of new ventures and small firms (Hao, & Jaffe, 1993; Bloch, 2005; Ughetto, 2008), which, ceteris paribus, have more restricted access to external resources comparing to their larger and more established counterparts (Papaoikonomou et al., 2012). Indeed, “new firms have a higher rate of innovation in markets in which financial resources are more plentiful” (Katila & Shane, 2005, p.817). Moreover, an external crisis usually reduces the incentives to commit organizational resources to R&D. In adverse economic conditions, low expected profit margins and general “pessimistic mood” reduce long-term R&D investments (Filippetti & Archibugi, 2011; Freeman et al., 1982; Schumpeter, 1939). Furthermore, when a crisis reduces the size of potential markets (i.e., the demand for innovation outcomes), it also erodes the incentives to innovate, in that “numerous studies have documented quite strikingly to what extent the amount of inventive effort is sensitive to the level of demand for sales of the product in question” (Nelson & Winter, 1982). Furthermore, a number of studies demonstrate that managers are inclined towards reducing the discretionary and long-term oriented R&D investments when not meeting the aspired earnings goals (Hoskisson et al, 2003) – the so-called ‘R&D expenditure manipulation’ phenomenon (e.g., Baber, Fairfield and Haggard, 1991; Dechow & Sloan, 1991; Bushee, 1998). Finally, reducing R&D expenditures is a natural behavioral response of organizations to a crisis (e.g., Osiyevskyy & Dewald, 2014, 2015). Critical threats related to possible major losses or going out of business cause risk-averse response in the form of almost complete cessation of any actions, or proactive resisting the change (Dewald & Bowen, 2010). This situation is explained by the
Journal of Business & Entrepreneurship Spring 2015 5 threat-rigidity thesis (Staw, Sandelands, and Dutton 1981), which shows that in the face of a severe economic adversity organizational decision makers lose their ability to adapt. Due to stress and anxiety, their ability to process information and reason rationally significantly decreases; as a result, they limit their alternatives search to only familiar solutions, or do not act at all (becoming ‘rigid’). One of such familiar strategies, which involves minimal risk and does not require searching for alternatives, is increasing efficiency of available resources, causing ‘resource conservation’ and limiting any actions aimed at obtaining the new resources or investing to develop the existing ones, including R&D activities. The three discussed above lines of argument (limiting resources, reducing incentives, and threat-rigidity behavior) lead to the same conclusion, implying the negative effect of a financial crisis on R&D expenditures of new ventures. Analytically, this conclusion can be presented as a stochastic firm-level model M1 (2.1-2.2):
M1: Et = αEt-1 + βC + ε (2.1) and β<0, (2.2) where Et and Et-1 represent a firm’s R&D intensity (R&D dollar amount normed by sales) in years t and t-1, α is the coefficient of linear time growth of R&D intensity, C is the dummy variable representing the impact of an exogenous crisis on a particular firm (labeled financial crisis hit in this paper: 0 – no impact; 1 – noticeable impact), β is the magnitude of the impact of the exogenous crisis on R&D expenditure in year t (β<0 in M1), and ε is the stochastic disturbance term.
The rationale for including the prior year R&D intensity (Et-1) in our model is theoretically justified common practice in innovation finance studies, in that R&D activity indicators (most important, R&D intensity as a ratio of R&D expenditure to sales) demonstrate substantial path dependency from year to year due to inertia in firm budget allocation process (Greve, 2003; Mudambi & Swift, 2014). This model will undergo empirical testing using the following observable conclusion:
Hypothesis 1. An external financial crisis has a negative effect on R&D intensity of affected new ventures. In other words, the β coefficient in M1 (2.1) is negative and significantly different from zero.
However, not everyone would agree with the conjecture outlined above, and some studies report empirical findings directly contradicting it (for instance,
6 Spring 2015 Journal of Business & Entrepreneurship Hundley et al. (2006) provide the strong evidence suggesting that in some contexts [Japanese economy] the declined profitability of firms leads to increased R&D intensity). Since external economic adversity impacts the firm’s performance relative to managers’ aspirations, it can trigger the problemistic search explained by the behavioral theory of the firm (Cyert & March, 1963). The theory predicts the activation of the problemistic search mechanism – “particularly search for new alternatives of action” (Simon, 1955, p.263) – when an organization cannot reach the aspired performance level. When facing a critical threat from a severe crisis, the major discrepancy between the actual and aspired state of affairs will potentially lead to increased emphasis on innovation (Gavetti et al, 2012). Indeed, “problemistic search results in increased R&D when decision makers judge that upgrading their organization's technology and product portfolio can solve the performance problems” (Greve, 2003, p.687; see also Osiyevskyy & Dewald, 2014, 2015). In other words, the managers might decide to out-innovate the firm out of crisis. In addition to this behavioral explanation, Christensen and Rosenbloom (1995) point out the rational argument, that an aggressive firm might view the malaise amongst its competitors as the ideal time to invest in new R&D, so that on the backside of the recession it emerges in a far superior position with new products or services.i On the managerial decision making level (which is to a large extent applicable to new ventures without established bureaucratic organizational decision-making routines), the prospect theory (Kahneman & Tversky, 1979; Holmes et al., 2011) leads to a similar conclusion. Applied to the cases of managerial decision-making within organizational settings (e.g., March & Shapira, 1987, 1992; Kahneman & Lovallo, 1993; Holmes, et al., 2011), numerous studies have found that managers demonstrate risk-averse tendencies when facing a situation framed in terms of potential gains, and risk-seeking tendencies when facing potential losses. As innovation usually portrays a risky endeavor (Latham & Braun, 2009; Wiseman & Bromiley, 1996; Whetten, 1987; Greve, 1998), if the business forecast is framed as a potential gain, risk-aversion will prevent decision makers from embracing innovations and hence increasing the R&D expenditures. On the other hand, if the business forecast is framed as an adversity (perceived extreme potential losses), this framing should make a decision-maker extremely risk-seeking, removing the obstacles for innovation posed by its perceived riskiness. Consequently, from the prospect theory perspective, decision makers will demonstrate risk-seeking – and hence innovative – tendencies when faced with a major adversity (Gooding et al.,
Journal of Business & Entrepreneurship Spring 2015 7 1996). Since regularities of individual behavior have consequences for organizational level, particularly with regards to innovation (Nelson & Winter, 1982), these risk-seeking and innovative behaviors of individuals will get aggregated, leading to higher emphasis on R&D activity of an organization facing a crisis. Therefore, an alternative firm-level model can be formulated (2.3-2.4):
M2: Et = αEt-1 +βC + ε (2.3) and β>0, (2.4)
Empirically, this implies that:
Hypothesis 2. An external financial crisis has a positive effect on R&D intensity of affected new ventures. In other words, the β coefficient in M2 (2.3) is positive and significantly different from zero.
The outlined theoretical controversy (Models 1 and 2; Hypotheses 1 and 2) is echoed by inconsistency of empirical results in the studies of both organizational behavior and managerial decision making in times of major adversities (e.g., Hu et al., 2011). The innovative and risk-seeking tendencies were demonstrated in numerous rigorous studies (e.g., Bowman, 1982; Fiegenbaum & Thomas, 1988; Lehner, 2000; Miller & Chen, 2004; Boeker, 1997; Bromiley, 1991; Wiseman & Bromiley, 1996; Gooding, Goel & Wiseman, 1996), corroborating the claim for the positive association of managerial perception of adversity and emphasis on risk-taking and innovation. On the other hand, the theoretical threat-rigidity and resource conservation propositions are in line with the results of multiple other studies – particularly Schendel et al. (1976), Laughhunn et al. (1980), D’Aunno & Sutton (1992), Iyer and Miller (2008), and Shimizu (2007) – suggesting the contradictory conclusion that adversity makes decision makers extremely risk-averse, impeding their intentions to innovate.
Prior R&D Intensity as a Contingency Factor We base this paper’s argument on the premise that in application to new ventures the inconsistency in prior studies can be theoretically resolved when scrutinizing the firm’s prior (pre-crisis) emphasis on R&D, its R&D intensity. The matter is that highly innovative firms are qualitatively different from non- innovating firms (Bah & Dumontier, 2001; Wakelin, 2001). Some new ventures emphasize R&D as a crucial component for their development and growth; they
8 Spring 2015 Journal of Business & Entrepreneurship were created for the purpose of capitalizing on the developed innovation (e.g., high-tech IT startups). At some point in time, the developed innovation will be monetarized though introducing new products/services, licensing it out, IPO, or selling the venture to a corporation looking to acquire a particular expertise. In other words, such companies are trying to secure a Schumpeterian rent from an innovation, and “their value is made up principally of growth opportunities” (Bah & Dumontier, 2001, p.671). Arguably, the impact of an external crisis on R&D expenditures of such highly innovative companies will be most pronounced. First, such new ventures rarely have sufficient internal resources (such as cash reserves or sustainable retained profits) to support R&D, for in most cases the value of the innovations they strategically develop is not yet monetarized. To bring this work to fruition, R&D-intensive companies must attract additional financing. Yet, debt financing is more difficult to secure in times of economic duress (Bah & Dumontier, 2001), as is venture capital (Lerner, 2002). As a result, external constraints on the financing will substantively hurt their R&D investments. Second, as it usually happens during major economic adversities, in addition to limiting access to capital, the crisis also reduces the demand for the firm’s products/services, either existing or still being developed. In line with the demand-pull reasoning for R&D (e.g., Jaffe, 1988), this decreasing demand drives down the projected cash flows from the innovation, hence reducing the firm’s internal incentives to invest in R&D to develop the innovation (Nelson & Winter, 1982). Finally, the behavioral threat-rigidity reaction will be most pronounced in R&D intensive new ventures, since for them the external crisis is more likely to be perceived as a major adversity threatening the survival of the organization (rather than just causing performance shortfall). This happens for a good reason, in that the inability to continue acquisition of external capital for further development will most likely lead to business discontinuity. Hence, the emotional threat-rigidity reaction of managers of innovative new ventures will create the inclination towards conserving the existing resources, by reducing the R&D investment. The behavior of innovative new ventures can be illustrated in a following hypothetical example. On the early (pre-crisis) stage [“the sky is the limit”], the management of a new company invests heavily into R&D; this is perceived as their most important activity. They see all sorts of potential customers for their potential products, and any delay in R&D leads to perceived major losses of potential profit. Then, the crisis hits [“the sky falls to the earth” stage], and the
Journal of Business & Entrepreneurship Spring 2015 9 potential customers disappear. To make the things worse, internal funds are running out, and the prior path of raising more money (from either VCs or banks) is blocked. In such situation, a typical response is canceling all explorative R&D projects, and focusing instead on exploitative polishing out current products. But not all ventures are like these. The other type of new ventures are not intended to be R&D intensive from founding; instead, they aim to create shareholder value through leveraging a set of resources that are already available (e.g., a transportation company using a fleet of trucks that were acquired upon venture founding), or through securing a monopoly position in a niche market (e.g., a local organic grocery distributor). Such companies do not see R&D as an essential part of their strategy, although occasionally they might invest some resources into it. For these new ventures, the predictions of the behavioral theory of the firm (on organizational level) and prospect theory (on managerial decision making level) will be most relevant for explaining R&D expenditures in times of crisis, as suggested in Greve (2003). In particular, performance shortfall caused by the crisis will trigger the problemistic search, oriented towards explorative R&D activities (Mudambi & Swift, 2014), to improve the firm’s technology or products/services. The R&D activity of such firms represents an ad hoc organizational response, rather than a continuing policy commitment (Nelson & Winter, 1982). Moreover, arguably in times of crisis the R&D expenditures might become more efficient, in that the resources employed in R&D process (researchers, scientists, prototyping technologies, external knowledge) will come at a better price, comparing to times of prosperity. Finally, the performance shortfall increases the likelihood of a firm’s strategic reorientation (Greve, 2003, 1998; Audia, Locke, & Smith, 2000), including the switch to a more R&D- intensive business model as a routine of value creation and appropriation (Osiyevskyy & Dewald, 2015; Osiyevskyy & Zargarzadeh, 2015). Summarizing the argument above: the impact of a financial crisis on R&D expenditures of new ventures is contingent upon their initial R&D intensity. When facing a crisis, highly R&D-intensive firms will reduce investment in this activity. On the other hand, when R&D is not the crucial factor driving a firm’s development and growth, a crisis may increase investment in this activity [if the crisis triggers a problemistic search, in which new R&D is part of the answer], or have no impact at all. Notably, the original (pre-crisis) R&D intensity of a firm is a continuum rather than a dichotomy. In this case, the outlined in this paper contingency framework implies the negative interaction between the crisis and
10 Spring 2015 Journal of Business & Entrepreneurship firm’s R&D expenditure (normed by sales: R&D intensity) in the prior year. Analytically, the impact of a crisis can be presented as:
β = θ + γEt-1 (2.5) and γ<0, (2.6)
where θ is the constant (impact of crisis for firms with no R&D in prior
year (Et-1=0)), and γ represents the change in R&D intensity in year t in response to a unit increase in Et-1. Notably, γ is always negative, meaning that as R&D intensity in prior year increases, the impact of a crisis (β) decreases (possibly becoming non-significant or even negative).
Substituting the term (θ + γEt-1) instead of β into the Models 1 and 2 (equations 2.1 and 2.3) yields the following generalized stochastic model:
M3: Et = αEt-1 + (θ + γEt-1)C + ε, (2.7)
Provided that Model 3 is supported empirically, the equation (2.7) for the impact of crisis on R&D expenditures will resolve the theoretical controversy discussed before (Models 1 and 2; Hypotheses 1 and 2). The matter is that the
term (θ + γEt-1) can be either positive (support of M2 and H2) or negative (support of M1 and H1). Representing the slope of “financial crisis hit (C)
R&D intensity (Et)” line, this term might change its sign from positive to negative as R&D intensity in prior year (Et-1) increases.
For empirical validation, Model 3 (equation 2.7) can be presented as:
Et = αEt-1 + θC + γCEt-1 + ε, (2.8)
implying the following testable proposition:
Hypothesis 3. The interaction of a financial crisis and a firm’s R&D intensity in prior year has a negative effect on R&D intensity in current year. In other words, the γ coefficient in (2.8) is negative and significantly different from zero.
One important clarification must be added here. When faced with a crisis hitting the revenues and budgets, firms with high R&D expense-to-sales ratios decrease their R&D budgets (in absolute terms, raw dollar amount) more substantively than their less R&D-intensive counterparts. This is a trivial mathematical observation assuming stability of R&D intensity ratios (e.g.,
Journal of Business & Entrepreneurship Spring 2015 11 Nelson & Winter, 1982): the higher percentage of budget is allocated to R&D, the higher is the cut (absolute dollar amount) when the whole budget shrinks. Our argument goes well beyond this: We demonstrate the behavioral mechanisms through which a crisis impacts R&D intensity (not merely dollar R&D expenditures) of new ventures. Our models imply that a crisis not only changes the raw R&D budgets, but also might influence the R&D intensity, reflecting an extent to which R&D is emphasized in a firm’s strategy. Moreover, as we just discussed, this impact can be either positive or negative.
METHOD
Data
In this study we employ the panel data from the Kauffman Firm Surveys (KFS) of the Ewing Marion Kauffman Foundationii, which tracks a nationally representative panel of 4,928 start-up firms founded in the U.S. in 2004. The first observation was performed in 2004, with follow-up annual surveys covering the period of 2005 – 2011. The firms in KFS study were initially randomly chosen from Dun & Bradstreet’s database list of new businesses started in 2004, excluding wholly owned subsidiaries of existing businesses, inherited businesses, non-profits, and firms with business activity prior to 2004. The survey results form a longitudinal database of various start-up characteristics, including financial figures, innovation activities, and employment relations. Most importantly for our study, the 2008 wave of the survey included the question about the impact of the financial crisis on the responding firms. 2,615 respondents self-reported their assessment of the effect of the financial crisis on their business, with enough variability in answers allowing us to study the focal questions of the current paper. The KFS survey results draw on a wide spectrum of industries across the U.S. economy. This diversity of analyzed industries and emphasis on high-tech sectors supports the current study’s aim of analyzing the R&D expenditure patterns. Furthermore, the sampling frame, particularly observations for the years of 2007-2011, allows us to scrutinize the impact of the 2008 financial crisis in its dynamics, from 2007 (pre-crisis year), through 2008-2009 (peak of the crisis), to 2010-2011 (post-crisis recovery).
12 Spring 2015 Journal of Business & Entrepreneurship Sample
For our analyses, we used the 5-year panel (2007-2011) comprising all firms that reported at least one non-zero R&D expenditure figure during the focal time frame.iii We also excluded: (i) firms without identified industry code; (ii) firms in the industries with fewer than 10 companies [to be able to reliably control for the industry effects on R&D patterns]; (iii) firms that do not report R&D expenditures (missing data) in any of the focal years. Occasional missing data and sample attrition left us with a total sample of 3,113 firm-years (or 2,115 firm-years on 708 firms after lagging predictors by one year in regression models). We controlled for the threat of obtaining biased parameter estimates caused by sample selection (considering only firms reporting R&D expenditures) by using specific estimation strategy (Heckman two-stage correction, discussed later). As emphasized above, the selected time frame allows us to test the developed theoretical framework regarding the impact of a 2008 financial crisis (external exogenous shock) on R&D investments of innovative new ventures.iv The year of 2007 is included in our sample to provide the lagged data; it was the first year when the questions about R&D expenditures were added to the KFS questionnaire. By the beginning of the crisis, all firms in our panel were in existence for 4 years. We accounted for the possibility of firms going out of business (or ceasing reporting to KFS) in our panel. As a result of this sample attrition, the dataset panel is unbalanced.
Measures
The primary dependent variable in our study is R&D intensity (R&D expenditures to sales in the same year), most commonly used when studying the R&D expenditures patterns (e.g., Greve, 2003; Hoskisson et al., 2003; Bah & Dumontier, 2001; Cohen & Klepper, 1992; Baysinger & Hoskisson, 1989; Scott, 1984; Nelson & Winter, 1982). The obvious benefit of this measure is that it is normed, which allows comparing companies of different sizes with each other, eliminating the confounding effects of scope (Cohen & Klepper, 1992). Moreover, unlike raw R&D expenditures (dollar amount), the R&D intensity measure is less volatile, as “firms appear to increase their total R&D expenditure following growth in sales” (Coad & Rao, 2010, p.127), trying to keep the R&D
Journal of Business & Entrepreneurship Spring 2015 13 intensity ratio constant (Nelson & Winter, 1982). The R&D expenditure figure is captured through a self-reported KFS variable f19a_res_dev_amt available from 2007 (“Please estimate [NAME BUSINESS]'s total research and development expenses for calendar year [YEAR], including materials, equipment, space, salaries, wages, benefits, and consulting fees”). One important note must be added here: whereas prior similar studies of the behavioral explanations of R&D activity rely primarily on R&D intensity variable, for new ventures (unlike established businesses) the “raw” R&D dollar amount may sometimes be more applicable, in that some of the new firms do not have any sales yet, or have limited amount of sales. As it was argued before, some new ventures have not yet commercialized their innovations (to which the R&D investments go), and hence norming the R&D expenditures by sales does not always provide meaningful information in this context. Therefore, our second dependent variable (used as a robustness check of R&D intensity measure) is the raw R&D expenditure (dollar amount), as used in some economics studies (e.g., Jaffe, 1988). Of course, using “raw” (not normed) R&D dollar amount can lead both to theoretical threats to validity (e.g., not accounting for the size of the firms), and to econometric difficulties with estimation of model parameters, because of substantive noise (trends, seasonal factors) and nonstationarity in the time series (unit roots, structural breaks and cointegration). To mitigate the threats to validity, in our regression models we will explicitly control for the size of the organizations. As for the empirical difficulties, we assert that this is not the issue in our study, since: (1) our dataset is a typical micro-panel (with small T and large N, where “one does not need to be concerned with nonstationarity issues, since T is short” – Baltagi (2013, p.1)), and (2) our estimation approach – lagged dependent variable model – properly accounts for the impact of most important noise factors (such as trends) in R&D patterns. The independent variable, financial crisis hitting the company, was estimated on the basis of the KFS variable f14i_economy_effect_4 (“How much did the nation’s recent financial problems, which became highly visible in 2008, affect [NAME BUSINESS] during calendar year 2008?”). Overall, 2,615 respondents provided the answer (38.6% - “a lot”, 40.3% - “some”, 21.1% - “not at all”). We argue that whereas the distinction between the last category (no impact) and the first two (a lot/some) is obvious and accurately self-reported, the distinction between self-reported impact of crisis for first two categories (a lot/some) cannot be accurate and consistent across the respondents and industries. Therefore, we collapsed these two categories into one. This yields a
14 Spring 2015 Journal of Business & Entrepreneurship dummy-coded financial crisis hit variable equal to 0 (no impact of the crisis) or 1 (some or substantive impact). The variable is available in 2008 wave of survey only; hence, we used this variable as time-invariant for each company.
Controls
A benefit of our sample is heterogeneity of startups across the industries of the U.S. economy, ensuring wide generalizability of findings. Yet, this external validity comes at a price of the threat to internal validity due to possible confounding factors. To mitigate these risks, our models include a set of control variables. First, all our models included the industry dummies (for two-digit NAICS sectors) to account for heterogeneity of R&D expenditures patterns in different contexts (Thornhill, 2006; Bah & Dumontier, 2001; Scott, 1984; Nelson & Winter, 1982). Prior studies demonstrated that industry effects could explain up to half of the variance of a firm’s R&D intensity (Cohen et al., 1987), because of non-homogenous distribution and combination of innovation drivers [such as opportunities, appropriability, cumulativeness and knowledge base (Malerba & Orsenigo, 1997)] across industries and sectors. Second, we included year dummies to control for the factors that influence all companies simultaneously in a particular time period. As a robustness check, we replicated all further analyses using the linear time trend instead of year dummies; results of hypotheses testing (available from the authors upon request) remain unchanged. Third, we accounted for the effects of available cash and net profit a startup might have; these controls reflect the available slack resources necessary for the innovation activity (Greve, 2003; Hao & Jaffe, 1993; Baysinger & Hoskisson, 1989). Available cash can be immediately deployed for funding the R&D activities; while net profit can serve a source of R&D investment in the medium term. Finally, since “firm size is directly related to R&D intensity” (Baysinger & Hoskisson, 1989, p.318), to account for the scale factor we included the total number of firm’s employees in our models as a control variable (similarly to Coad & Rao, 2010). The argument for a firm size influencing a firm’s incentives to innovate traces back to Schumpeter (1942), noting that the innovator’s quasi-
Journal of Business & Entrepreneurship Spring 2015 15 rents are amplified by factors correlated with a firm’s size, such as economies of scale and market power (Nelson & Winter, 1982; Spulber, 2013). Also, we included the firm’s revenues as an additional control for firm size (similarly to, e.g., Greve, 2003). Yet, this predictor turned out to be collinear with the net profit variable (r>.9, p<.0001), and adding it did not change the results of our hypotheses testing in any way. Because of this, we excluded the revenues variable from the final models (the results with it included are available from the authors upon request).
Estimation
Modeling approach. A key advantage of using time-series cross-sectional (panel data) is that we can exploit the temporal structure of the data to better analyze firm-level strategic change. For estimating the parameters of this paper’s theoretical model, we used the lagged dependent variable technique. The choice of this approach (over more conventional fixed effects, for instance) was governed by three essential peculiarities of our data and context. First, our key explanatory variable, crisis hitting the company, is time invariant within each firm; hence, fixed effects estimation of its impact is not possible, as the firm fixed effects would perfectly explain it. Second, the lagged dependent variable (R&D intensity in prior year) acts as a moderator in our theoretical framework (Model 3, equation 2.7); in such case, its main effect must also be included in the statistical model for control purposes (Aiken & West, 1991). Finally and most importantly, there is a strong theoretical rationale for including lagged R&D intensity in our model, in that this financial figure demonstrates a strong path dependency from year to year due to inertia in budget allocation process (Greve, 2003, Nelson & Winter, 1982), and such path dependency must be controlled for (Finkel, 1995). Therefore, the conventional fixed effects estimation – which cannot be performed simultaneously with lagged dependent variable (Nickell, 1981; Angrist & Pischke, 2008; Baltagi, 2013) – does not provide meaningful estimation of this type of models (Greve, 2003). Consequently, we developed a simple lagged dependent variable modelsv without firm fixed effects (labeled in existing literature static-score, or conditional change panel model – Finkel, 1995; Plewis, 1985). We estimated two separate models: Regression 1 (for testing the main effects, hypotheses 1 and 2) and Regression 2 (for testing the interactions implied by hypothesis 3). In
16 Spring 2015 Journal of Business & Entrepreneurship particular, the Models 1 (equation 2.1) and 2 (equation 2.3) were empirically estimated using the following regression model:
Regression 1: Yi t =b0 + b1Yi t-1 + b2Xi + cj Zi t-1 + ui t, (3.1)
where Yit represents the R&D intensity of firm i in year t, b0 – regression constant, b1 is the coefficient of linear time growth of R&D intensity (parameter α in models 1,2 and 3 – equations 2.1, 2.3 and 2.8), Xi is the dummy variable representing the impact of an exogenous crisis on a particular firm (financial
crisis hit – parameter C in models 1-3), b2 is the impact of the exogenous crisis on R&D intensity (parameter β in models 1-2), Z is the vector of control
variables (for each firm i=1...N, in year t-1), cj are the regression coefficients of control variables, and uit is the stochastic disturbance term. uit is assumed to be uncorrelated with the predictors in (3.1). All control variables (vector Z) were lagged by one year, to control for the sequential order of their effects on R&D intensity. The Model 3 (and Hypothesis 3) in the form of the equation 2.8 was empirically estimated using the following regression:
Regression 2: Yi t =b0 + b1Yi t-1 + b2Xi + b3XiYi t-1 + cjZi t-1 + ui t (3.2)
In Regression 2, the interaction term b3XiYit-1 was added, with b3 representing the interaction coefficient γ from the Model 3 (see equation 2.8). The employed approach (lagged dependent variable models) reduces omitted variable bias (for firm-specific time-invariant omitted variables, all
controlled for by the lagged dependent variable Yit-1), takes into account the temporal structure of the data and provides more consistent statistical estimates of model parameters in panel data compared to pooled ordinary least squares (OLS) regression (Angrist & Pischke, 2008; Baltagi, 2013). Moreover, to some extent, lagged dependent variable model mitigates the noise caused by using raw R&D expenditure figures (such as linear trends in the data). Although some authors warn that including a lagged dependent variable leads to consistent but biased estimates (e.g., Finkel, 1995), this risk is negligible in our study, in that: (1) the bias goes down with large sample sizes (Finkel, 1995), as it is in our case, and (2) the bias due to lagged variable suppresses the explanatory power of other independent variables (Achen, 2000), by this means working ‘against’ us (i.e., would prevent us from supporting the hypotheses).
Journal of Business & Entrepreneurship Spring 2015 17 In our analyses we estimated the heterosckedasticity-robust standard errors clustered within a firm, to account for potential dependence of observations for each entity across the time and autocorrelation.
RESULTS
Empirical Findings
The descriptive statistics and correlations between the studied variables are presented in Table 1. One important observation regarding the financial crisis hit variable is worth noting: it is not significantly correlated (at .05 level) with any other variable in the study. This fact adds confidence to the claim that it is exogenous in our models; in other words, the impact of the financial crisis on each company is unrelated to the latter’s essential characteristics used in this study.
Table 1. Sample Descriptive Statistics and Pairwise Correlations between the Variables Standard 25th 75th Mean Median 1 2 3 4 5 deviation Percentile Percentile 1. R&D expenditure, 60.892 400.164 0 .500 10.000 ‘000 USD 2. R&D Intensity (R&D in 0.102 0.370 0 0.002 0.050 0.276*** Sales) 3. Financial crisis hit 0.734 0.442 0 1.000 1.000 -0.014 -0.035† (dummy)
4. Number of employees 6.701 22.992 0 2.000 6.000 0.283*** -0.002 -0.009
5. Net profit, ‘000 USD 1,147.163 23,207.870 .500 28.000 135.000 0.015 -0.019 -0.001 .122***
6. Cash and equivalents, 913.403 19,971.150 5.000 20.000 150.000 0.034† -0.006 0.019 .132*** 0.397*** ‘000 USD Note: Listwise N=3,113. *** p<.001; ** p<.01; * p<.05; † p<.10, based on two-tailed tests
The main analysis of the theoretical propositions (Hypotheses 1-3) for R&D intensity dependent variable is performed using Regressions 1 and 2 (see Table 2). In our analyses, on the first step (Regression 1) we added the lagged dependent variable (R&D intensity), the main effect of financial crisis hit, and a set of control variables. Interestingly, neither the lagged dependent variable, nor the main predictor of change – financial crisis hit – is statistically significant. This suggests that neither Hypothesis 1 nor Hypothesis 2 gets support. In other words, the Models 1 and 2 do not match the empirical data, in that the impact of the crisis (parameter β in equations 2.1 and 2.3) is not statistically different from
18 Spring 2015 Journal of Business & Entrepreneurship zero, and even the impact of lagged dependent variable (parameter α in equations 2.1 and 2.3) is not significant. The latter conclusion directly contradicts prior studies, which suggest that R&D intensity is relatively stable and path-dependent (Greve, 2003; Mudambi & Swift, 2014). This indicates the possibility that the model without an interaction term is incorrectly specified.
On the second step (Regression 2, Table 2), we added the interaction terms of financial crisis hit by lagged R&D intensity. Specifying the model with the interaction term leads thee major insights.
First, in the correctly specified model the R&D intensity in time period t- 1 is a significant predictor of the same variable in time period t, confirming the claim that R&D activity is inertial and path-dependent (Nelson & Winter, 1982; Greve, 2003; Mudambi & Swift, 2014). For our data, the estimate value of the parameter α in Model 3 (Equation 2.7) is 0.2624.
Second, significant and negative coefficient for the interaction term (b=- 0.2503, S.E.= 0.0636, p<.001) reveals that the effect of financial crisis hit is not
Journal of Business & Entrepreneurship Spring 2015 19 consistent across the levels of the moderator (R&D intensity in the prior year), decreasing with rising level of moderator. Hence, the Hypothesis 3 gets full support.
This also provides empirical support to Model 3 (equations 2.7 and 2.8). Plugging the parameter estimates (using results of Regression 2 in Table 2) into the equation 2.8 yields the following model, calibrated on the employed sample:
Et = 0.2624 Et-1 + 0.0168C + (-0.2503)CEt-1, (4.1)
In other words, the impact of a crisis on R&D expenditure equals:
β = 0.0168 + (-0.2503)Et-1 (4.2)
The equation 4.2 represents the equation 2.5 with actual empirical data substituting the analytic parameters θ and γ.
Finally, after accounting for the interaction, the main effect of financial crisis hit is positive (although not statistically significant), suggesting that when the moderator (R&D intensity in the prior year) is at zero, the financial crisis adds on average θ=0.0168 to a firm’s R&D intensity in the next year. The interaction chart for the calibrated Model 3 (equations 4.2) is presented in Figure 1. For the non-R&D intensive companies (R&D intensity in the prior year close to zero), the crisis has a positive (although insignificant) impact on their R&D intensity in the next year (on average, +0.017). For the companies with average R&D investments (R&D intensity in the prior year at mean), the impact of crisis is negative (on average, -0.009). Finally, for highly innovative companies (R&D intensity at mean plus a standard deviation), the crisis has a major negative impact on R&D investments in the next year (on average, -0.101).
Figure 1 – The detected moderation effect of R&D intensity in year (t-1) on the association between crisis and R&D intensity in year (t)
20 Spring 2015 Journal of Business & Entrepreneurship
Table 3. The Impact of Financial Crisis on R&D Intensity of New Ventures: Subsample Analysis Subsample 1: Subsample 2: Subsample 2a:
Dependent Variable: R&D Intensity(t-1) R&D Intensity(t-1) R&D Intensity(t-1) th R&D Intensity(t) < Median >Median >75 Percentile (R&D in Sales) (0.0022) (0.0022) (0.0500)
0.0075 -0.0714* -0.1115† Financial crisis hit (dummy) (0.0179) (0.0309) (0.0575) -19.8244 0.0149*** 0.0132*** R&D Intensity(t-1) (Lagged DV) (29.0762) (0.0024) (0.0033) 0.0424** 0.1811*** 0.3072*** Constant (0.0154) (0.0273) (0.0508) Observations (N) 1,048 1,067 536 Firms 513 578 327 R2 0.0006 0.0379 0.0352 F 0.32 20.98*** 9.72**
(df1, df2) (2, 1045) (2, 1064) (2, 533) *** p<.001; ** p<.01; * p<.05; † p<.10, based on two-tailed tests. OLS standard errors in parentheses.
Journal of Business & Entrepreneurship Spring 2015 21 Table 4. Alternative Dependent Variable: R&D Expenditures of New Ventures (raw USD amount) Dependent Variable: Robustness check: Robustness check: R&D Expenditure OLS estimation (t) Tobit estimation Heckman’s two-stage estimation (‘000 USD) Regression 7: Regression 8: Regression 9: Regression 10: Regression 11: Regression 12: Main effects Main effects Main effects Main effects & Main effects Main effects & only & interactions only interactions only interactions -18.0373 3.7295 -9.6997 20.0568 -19.6897 1.8400
Financial crisis hit (dummy) (18.7606) (10.3393) (30.5123) (23.7631) (18.2975) (9.5774) R&D Expenditure (Lagged 0.8085*** 1.1634*** 0.8904*** 1.2732*** 0.8151*** 1.1704*** (t-1) DV, ‘000 USD) (0.1502) (0.1973) (0.1451) (0.1642) (0.1461) (0.1942) Financial crisis hit X -0.4648† -0.5021* -0.4642†
R&D Intensity(t-1) (0.2448) (0.2090) (0.2422) 4.5164 4.7388 6.8003 7.0864 4.3633 4.5750
Number of employees(t-1) (3.7651) (3.8069) (4.5542) (4.6102) (3.6320) (3.6713) 0.0006* 0.0005* 0.0008* 0.0007* 0.0006* 0.0005*
Net profit(t-1) (‘000 USD) (0.0002) (0.0002) (0.0004) (0.0003) (0.0003) (0.0002) -0.0002 -0.0002 -0.0124 -0.0154 -0.0003 -0.0003
Cash (t-1) (‘000 USD) (0.0002) (0.0002) (0.0320) (0.0306) (0.0002) (0.0002) -80.8972 -96.3040 -235.5916** -256.6857** 20.3143 -1.3198
Constant (100.1019) (103.2799) (75.0520) (79.1940) (54.2060) (36.1401) Year dummies yes yes yes yes no no Industry dummies yes yes yes yes no no -31.7881 -23.7623
Inverse Mills Ratio (λ) (82.1342) (63.5155) Observations (N) 2,115 2,115 2,115 2,115 2,115 2,115 Firms 708 708 708 708 708 708 R2 0.4079 0.4271 0.0425 0.0447 0.4042 0.4235 F 9.69*** 11.45*** 4.36*** 7.86*** 12.30*** 18.62*** To make sure that the mathematical representation of the interaction model (equation 4.2, Figure 1) matches the actual data, we performed splitting the sample (lower 50%; upper 50%; upper 25%) and regressing the R&D intensity on its own lag and financial crisis hit for each subsample. The results of multi-sample analysis (Table 3) corroborate the contingency hypothesis 3 and the discussed above results: for the companies with low initial R&D intensity, the impact of a financial crisis is positive although not significant (b=+0.0075, S.E.= 0.0179, p>.10); for the companies with initial R&D intensity above the median the impact of a financial crisis becomes negative and significant (b=-0.0714; S.E.= 0.0309, p<.05). Finally, for top-25% of R&D intensive companies the impact of a financial crisis becomes very substantive (b=-0.1115; S.E.= 0.0575, p<.10).
Robustness Checks
We performed a series of robustness checks to ensure validity of the reported findings.
22 Spring 2015 Journal of Business & Entrepreneurship First, it can be argued that our study can be a subject to bias caused by left-censoring the dependent variable. The matter is that in the current dataset the dependent variable takes on zero values for a significant fraction of observations (see Table 1). Given that the basic OLS models do not account for the qualitative difference between limit (zero) observations and non-limit (continuous) observations, we performed a robustness check using a Tobit model. Estimating the main models of this study using Tobit estimation totally corroborates the reported findings, leading to quantitatively similar estimates of model parameters, and same result of hypotheses testing (see Regressions 3-4 in Table 2). Second, as it was outlined before, our sample includes only the companies that reported their R&D expenditures to the Kauffman Firm Survey. Omitting other companies might lead to a major sample selection problem with resulting errors in regression estimates of population parameters, as non- reporting companies might be substantively different from the ones that got into our sample. In other words, the sample selection can lead to omitted variable bias distorting the results of our models. To account for this, we employed the two- stage Heckman correction procedure, following the example of prior studies of new ventures and small firms that had to deal with the potential sample selection bias in this context (Batjargal et al., 2013; Hitt et al., 2006). On the first stage, we predicted reporting R&D expenditure figure by a particular firm i in a particular year t. For this, we built a probit model with industry and time dummies serving as predictors for reporting R&D (based on the assumption that R&D reporting patterns are industry- and time-specific – e.g., Bah & Dumontier, 2001). The model predicted R&D reporting reasonably well (Wald χ2=74.54, df=27, p<.0001). On the second stage, we controlled for the selection bias by including the inverse Mill’s ratio in our regression models, and excluding the first-stage predictors from the second-stage regression (Batjargal et al., 2013; Hitt et al., 2006). Notably, controlling for sample selection (potential bias caused by non- reporting R&D) does not change the results (see Regressions 5 and 6, Table 1): the corrected models provide similar parameters’ estimates, and the regression weights of the inverse Mill’s ratio is not statistically significant. Finally, we tested the sensitivity of our models to the specification of the dependent variable. For this, we replicated all regression models 1-6 for raw R&D expenditure (dollar amount). The Regressions 7-12 (see Table 4) completely replicate the results of hypotheses testing: lack of support for
Journal of Business & Entrepreneurship Spring 2015 23 Hypotheses 1 and 2, and full support for Hypothesis 3. In other words, the interaction of a financial crisis and a firm’s R&D expenditure in prior year has a negative effect on raw R&D expenditure in the next year.
DISCUSSION
We framed this paper in a question with different points of view in the literature: What is the impact of an external crisis on research and development expenditures of new ventures? Answering this question provides important firm- level insights concerning behavioral drivers of innovation activities in new ventures, and can be consequential for understanding the impact of economic downturns on R&D activities on the economy level. We developed a theoretical model of the impact of an exogenous crisis on R&D expenditures of new firms, stressing the distinction between firms with high and low R&D-intensity. Particularly, we have argued that the impact of an external crisis on R&D expenditures of new ventures is contingent upon their pre-crisis R&D orientation: when R&D is emphasized as an essential part of a firm’s strategy, the crisis leads to shrinking R&D investment; while when R&D is not the emphasis of a firm’s strategy, the crisis might increase investment into this activity, or have no impact at all. These results go way beyond simplistic mathematical interpretation that [assuming stability of R&D intensity ratios] the higher percentage of budget is allocated to R&D, the higher is the R&D cut (absolute dollar amount) when the whole budget shrinks. Rather, we show the complex behavioral mechanisms through which a crisis impacts R&D intensity of new ventures. To test the developed theoretical propositions, we studied the 2008 financial crisis as an exogenous shock influencing innovative new ventures. Using the longitudinal data from the Kauffman firm survey, we corroborated the proposition that the impact of a crisis on R&D expenditures of new ventures is not consistent across the level of hypothesized moderator [prior R&D intensity]; i.e., Hypotheses 1 and 2 were not supported. Instead, for the non-innovative companies, the crisis had a positive (although insignificant) impact on their R&D expenditures; while for the highly innovative companies, the crisis had a major negative impact on R&D investments (Hypothesis 3 supported). As we argued in introduction, the rational response of new ventures to a crisis is either in sustaining the flow of funds on the pre-crisis level (e.g., Kor & Mahoney, 2005; Dierickx & Cool, 1989), or increasing the R&D intensity (Mudambi & Swift,
24 Spring 2015 Journal of Business & Entrepreneurship 2014) to stimulate the exploitative R&D (e.g., a major shift in the firm’s product portfolio) to develop new capabilities necessary to survive during the adversity. Alas, for highly innovative companies the observed behavioral response is opposed to the rational one. The discussion above provides theoretical contributions. First, we expand the Greve’s (2003) behavioral theory of R&D expenditures by demonstrating to what extent it is applicable to innovative new ventures. Our data show that that the impact of a crisis is not homogenous, and varies depending on a venture’s R&D strategy (particularly, R&D intensity). Moreover, whereas the studies in the behavioral tradition conventionally scrutinize performance shortfalls as the driver for innovation and change (e.g., Audia & Greve, 2006; Shimizu, 2007), our study scrutinizes the boundary conditions of such approach al ong a continuum of moderate performance decline to a major threat to the survival of the firm from an exogenous economic jolt. Unlike moderate performance discrepancy (which we believe ordinarily triggers an innovative problemistic search for new products, services, and processes to improve firm performance at the margin), a major crisis can lead to a bi-modal response, being either rigidity or risk-seeking depending on the attitudes and preferences of the management of a particular company. This way, our paper extends the existing research stream on the impact of an external crisis on behavior of new ventures and SMEs (e.g., Marino et al., 2008; Papaoikonomou et al., 2012), emphasizing R&D intensity as a key outcome variable. Second, on the level of economic policy, we complement and extend the macro- (economy-level) framework of Filippetti & Archibugi (2011), which explains the effect of economic crises on a country’s innovation investment. Particularly, in addition to macro-level factors (e.g., peculiarities of the National Systems of Innovation and demand conditions), we propose to consider the impact of crisis on individual firms, drawing the corresponding conclusions. Notably, our results demonstrate that a crisis hits the R&D activities of most innovative companies; while for the least innovative ones, it might even have a positive effect. It is important to take this insight into account when aggregating the micro-level models (explaining the impact of a crisis on a particular firm) to macro-level (linking an economic recession to overall R&D spending in the economy), as it is done, for instance, in the seminal work of Nelson & Winter (1982). Finally, we empirically demonstrate that the behavioral response of R&D- intensive early stage firms to an external crisis – substantive cuts in R&D activity
Journal of Business & Entrepreneurship Spring 2015 25 – deviates from what would be considered the rational response, of stable or even increased R&D intensity (e.g., Dierickx & Cool, 1989; Christensen & Rosenbloom, 1995; Kor & Mahoney, 2005; Mudambi & Swift, 2014). The insights of the current study open up avenues for future research.
First, it is important to test the developed contingency model (Model 3, equation 2.7) on the large established companies. Unlike new ventures, the latters are less financially constrained and have more bureaucratic processes of decision making, and hence their patterns of R&D expenditures in crisis times might be substantively different. Second, whereas we developed the contingency framework for R&D expenditures of early stage firms, the other dimensions of innovation and search activity deserve separate investigations. Future studies could research the impact of an exogenous crisis on process or business model innovation (Osiyevskyy & Dewald, 2015; Osiyevskyy & Zargarzadeh, 2015), for example. Reason would suggest that in response to a crisis investment in process or business model innovations might increase, in order to improve firm productivity and efficiency (an adaptive response to a shock according to the evolutionary perspective of Nelson & Winter, 1982). Finally, the discrepancy between the actual and rational behaviors of innovative early stage firms in times of crisis deserves careful investigation. Conceptual argument for sustaining or even increasing R&D expenditure in crisis times suggests that that some rare ventures (the outliers that did not decrease and in fact, increased their R&D during adverse times) should emerge from the recession in a stronger position relative to competitors by having innovative new products and services ready for a market on the upswing. We encourage further inquiries of this proposition, with a broader time horizon on not just firm survival, but sustained growth.
LIMITATIONS
Our study has a set of limitations, of which two major ones deserve special discussion. First, we acknowledge that some of our indicators and measures used are less than ideal. The future studies should consider improving the measurement of the outcome variable, innovation activity: rather than relying on two simple indicators (raw and normed R&D expenditures), the future papers should scrutinize the multidimensionality of the innovation construct (including,
26 Spring 2015 Journal of Business & Entrepreneurship at least, patent output and new product development indicators, or exploratory versus exploitative nature of R&D spending). Second, in all the empirical models developed here, we treated the impact of a crisis on a particular company (financial crisis hit variable) as exogenous, driven by external shock (economic recession of 2008). Yet, this approach might prove wrong since some companies might have a higher propensity of being negatively affected by the external financial crisis, and this endogeneity might bias the estimates. Hence, in future studies we encourage the researchers to control for the potential endogeneity of the impact of a financial crisis on a particular company.
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i This idea is vivid in the illustrative case of Apple, which launched its first iPad in April, 2010, post collapse and after a heavy, sustained R&D efforts well before 2007. As a result of R&D emphasis throughout the 2007-2008 crisis, the product became a major success, with over 200 million units sold. ii For more detailed information about the KFS data, see Ballou et al (2008), Robb et al. (2010), Cole (2011). iii This step was needed to ensure that our models are tested on the sample of innovative new ventures (having non-zero R&D intensity). Including all firms in the sample would bias the results, in that some ventures never spend on R&D (e.g., most firms in the apparel, printing, publishing, and retail stores industries - Bah & Dumontier, 2001). Of course, studying the impact of a crisis on R&D expenditures of the latters, a priori non-innovative ventures, does not make sense. Yet, every company that reported R&D expenditures (even marginal, even once) can potentially be considered innovative (possibly with low R&D intensity), and was included in our sample. As a robustness check, we still estimated the models on the full sample; the results of hypotheses testing (available upon request) do not differ from the reported results for the innovative firms only. iv Similar approach of using an external economic crisis as an exogenous shock to the companies’ activities was employed in prior recent studies of new ventures and SMEs, such as Marino et al. (2008) studying the 1997-1998 Asian financial crisis. v A more sophisticated approach for including lagged dependent variables into equations, the dynamic panel data model (with Arellano-Bond estimator – see, e.g., Baltagi, 2013 for a review), led to the same results of hypotheses testing (see Robustness Checks section).
Journal of Business & Entrepreneurship Spring 2015 35 36 Spring 2015 Journal of Business & Entrepreneurship PERFORMANCE TEMPLATES: AN ENTREPRENEUR’S PATHWAY TO EMPLOYEE TRAINING AND DEVELOPMENT
Randall P. Bandura Paul R. Lyons Frostburg State University Frostburg State University
ABSTRACT
This article explains and demonstrates the learning and development model, performance templates. Aimed at performance improvement, the model guides an entrepreneur in instructing employees to create improvements in critical performance areas. In using the model, the entrepreneur has to focus her/his attention on what matters most in the functioning of and growing the enterprise. We demonstrate what performance templates are and how an entrepreneur or manager and a group of employees work together to create and apply the templates in daily operations. The model is grounded with experiential learning theory and action theory. We present empirical support from other studies for performance template application as the entrepreneur (or manager) works and learns in tandem with employees.
Keywords: performance templates, performance improvement, learning, experiential learning, action theory.
INTRODUCTION
There are many issues and problems attendant to the training and development of employees facing the typical entrepreneur in the small to medium-sized enterprise (SME). These matters are even more acute for the very small SME, or micro business. Different countries/regions (e.g. European Union, United States, other) define very small SMEs and micro business differently and we do not address those definitional distinctions here. Our remarks are aimed, generally, at entrepreneurs and managers in firms of 200 or fewer employees. In the material that follows we present information to illuminate some of the features and conditions confronting these organizations vis-à-vis training and development of employees. Also identified are some challenges encountered by the typical entrepreneur-owner-manager relative to training for performance improvement. We then present a training and employee development approach, performance templates, that addresses many critical issues involved in training
Journal of Business & Entrepreneurship Spring 2015 37 and that also helps to build a team focus on, and improvement in, performance in areas critical to the particular company.
BACKGROUND
In the past two decades several studies have identified somewhat persistent training and other HRM issues facing SMEs and the entrepreneurs and managers who lead them. The study of Tocher & Rutherford (2009) makes several of these matters clear. In general, one finds that many SMEs, particularly the very small ones, do not engage in much formal training. On the job there is some initial training of new hires, some hands-on training in needed skills, as well as on-boarding experiences. Few employees are sent to formal training at an off-site setting. Admiraali & Lockhorst (2009) report on these conditions and reflect that SMEs learn to get by with minimal amounts of time and resources applied to training and development. These studies and that of Hornsby & Kuratko (2003), point out that the primary reasons for minimal attention given to training are lack of sufficient resources, inability or lack of motivation of the entrepreneur (owner, manager) to provide needed training, and/or immediacy of daily pressures facing the business as those pressures may displace time available for training. Given the failure rate of many SMEs and the challenges faced daily, SMEs are a somewhat endangered species. In a competitive sense a small firm is disadvantaged when its employees are less well equipped in skills and knowledge than employees in other, larger businesses. The research of Hoque & Bacon (2008) makes it clear that trained, knowledgeable employees help the business to be more competitive and those employees add value to the firm, in general.
TRAINING IN SMEs
For many SMEs, smaller ones in particular, the entrepreneur likely performs tasks that a human resource department or staff person would perform in a business of some size and complexity. This could include activities such as recruitment, selection, and evaluation of the performance of employees. These activities interface with training needs and the actual training activities. One might conclude that such vertical integration would be a positive thing. However, as Mazzarol, Reboud, & Volery (2010) have concluded, unless the entrepreneur
38 Spring 2015 Journal of Business & Entrepreneurship or manager has relatively well-developed coaching, interpersonal, and management skills, the likelihood of effective training outcomes is diminished. Recent literature searches in databases such as Business Source Complete, Lexis Nexis, Psych Articles, and PsychInfo, for the period 2005 – 2013 yielded practically no general, empirical research on training in the very small SME. There are some reported studies on training in SMEs usually for very specific situations or needs such as product assembly. There have been studies that establish the value of training in SMEs in general. For example, Ghassemich, Thach, & Gilinsky (2005) point out how competitive advantage is compromised if employees are not supplied with adequate training. In one study, providing learning opportunities to employees not only resulted in improved performance but also encouraged talented employees to remain with the company (Govaerts, Kyandts, Dochy, & Baert, 2011). Kyriakidou & Maroudas (2010) identify a similar relationship, that is, training in the SME not only resulted in better performance but also increased the retention of higher performing employees. Lyons & Mattare (2011) list some advantages that attach to training in the small SME. For example, there are fewer organizational layers in small firms which should enable management to more easily detect training needs. Further, the number of employees to be trained is not large which supports the idea that training could be highly personalized. Finally, training as a personal asset may have substantial value to an employee in a small firm. To explore training issues for the typical entrepreneur, we use a categorization provided in Lyons & Mattare (2011) that includes: characteristics, sources of training; and barriers to training, in particular those barriers that confront the very small SME.
Characteristics
In the period under study, 2005-2013, the growth and use of e-learning and computer aided instruction (CAI) have been the most prominent features of employee training in the SME (Doos & Wilhelmson, 2011; Floyde, Lawson, Shalloe, Eastgate, & D’Cruz, 2013). Prior to 2004, the surveys of Hornsby & Kuratko (2003) identify that CAI and e-learning did not decline. All other training types declined in use, for example, coaching, on-the-job, seminars, and apprenticeships. Computer/internet instruction can be attractive for the SME because costs for preparation of material can be underwritten across many users in one or more industries and participants do not have to leave home for training
Journal of Business & Entrepreneurship Spring 2015 39 which would interrupt regular work activities. Instructional design capability has improved over the past decade, and delivery systems (such as LMS, Blackboard, Moodle) and platforms (such as linear approaches, collaborative learning) have improved and proliferated. Learners are the beneficiaries as are the firms that contract for the training in many cases since cost may be attractive when contrasted with other forms of training.
Sources of Training
In addition to on-the-job, highly focused skill training provided by the entrepreneur/manager in the very small SME and similar training provided by a manager or supervisor in SMEs, in general, there are other sources of training. We may find (1) off-site training, usually offered to a wide audience, (2) on-site training offered by a contractor (in-person or distance learning), (3) purchase or lease of access to training courses/programs in video, written, or audio form; this may include CAI, and (4) online, synchronous or asynchronous training content that is purchased. In terms of availability of training and the costs involved SMEs may benefit from shared training opportunities moderated through trade and other types of organizations supportive of businesses. Often this sponsored training is targeted to specific industry needs. In addition, other organizations, such as community colleges (in the U.S.) with mission-focused outreach programs and employee development functions, offer affordable training courses and programs. In other U.S. examples, we find training and development functions in the federal Small Business Administration, and many universities have initiatives such as small business institutes which may offer training. Mattare, Monahan, & Shah (2010) found that in the U.S. 19% of micro enterprises surveyed used services of a local (city, county) Chamber of Commerce for training.
Barriers to Training
Within the panoply of traditional HR functions that includes training, there are typically disadvantages in being a small organization. In smaller firms there can be lack of available staff or talent to do training, small numbers of individuals to be trained which relates to issues of scale, and time constraints. Resource limitations, in general, are often a serious issue and it is prohibitive to send employees away for training for reasons mentioned earlier. As Smith,
40 Spring 2015 Journal of Business & Entrepreneurship Boocock, Loan-Clarke, & Whittaker (2002) conclude, just finding adequate sources of specific training for targeted company needs is an important hurdle. Ghassemich et al. (2005) in an investigation of the training needs of the very small SME found that to bring in a training specialist or consultant was not cost effective. There are additional concerns, most of which are context related. An example is the matter of employee readiness for training. Owing to matters such as tenure with the firm, educational background, and experience, tailoring training to be effective for a diverse group may present important difficulties for an entrepreneur/manager (Chi, Wu, & Lin, 2008). Because of work and task demands it may be difficult to assemble all affected employees at one time for training. Budworth (2011) addresses the matter of collective efficacy or how performance of the work group may be negatively influenced if trained competence is varied across the group. Finally, the roles played by the instigator or actual provider of the training whether it is the entrepreneur, manager, or subject matter expert can be highly influential. There are different ways this may play out. As an example, training transfer may be compromised if the value placed on training is not great, if trainees are not truly encouraged to learn and change, and/or if expectations are not made clear (Lancaster, DiMilia, & Cameron, 2013). In addition, the use of follow-up sessions for training reinforcement can be valuable in transfer of training. It may not be reasonable to expect the typical entrepreneur will have knowledge of these matters. With this in mind, among the benefits of the approach presented in this article are that performance-templates: 1) offers a step-by-step process for the entrepreneur/manager that is adaptable to a variety of business needs; 2) represents a process that fully involves employees in the problem finding/problem solving effort; and 3) establishes a learning culture that is aimed at performance improvement.
DESIRED FEATURES OF TRAINING ACTIVITIES FOR THE SME
The foregoing information helps to identify several features of training activities that would serve the interests of the typical SME, especially the very small business. Several of these characteristics are also supported by the research of Tocher & Rutherford (2009) and Admiraali & Lockhorst (2009). For purposes of this article these important features serve, in part, as a springboard for detailed exploration of the employee training and development approach, performance templates (hereafter, p-t). We believe the entrepreneur/manager-led, interrelated
Journal of Business & Entrepreneurship Spring 2015 41 separate events of p-t reflect positively on most, if not all, of the desired features expressed here, in no particular order of importance. Training should: (a) ideally, involve both the entrepreneur/manager and employees (no third parties), (b) be sufficiently flexible to apply to different types of leaning needs, (c) be cost- effective, (d) not involve travel expenses, that is, be conducted on site; (e) be tailored to specific needs of the employees and the business, (f) insofar as possible, be hands-on, experiential learning; and (g) involve employees (trainees) in the actual creation of some of the learning activities. Research and analysis up this point strongly suggest that training and development activities which embrace all or most of these characteristics will serve the interests of the entrepreneur and her/his employees. The p-t approach we express below is one that has broad applicability and has an empirically- grounded basis. In our experience, we have found that a sufficiently motivated entrepreneur can successfully manage the p-t process through at least two or three iterations. We have also learned that the planning of and implementation of p-t helps to develop the entrepreneurs’ attention to important business processes and strategy, training skills, communication and interaction skills with employees, and p-t assists in creating a team focus and camaraderie.
Performance Templates in Detail
Here we explain how the performance improvement process, performance templates (p-t), may be used for both entrepreneur/manager and employee learning and development. The process has foundations in experiential learning theory and action theory and is supported by several empirical studies. In addition to specific, targeted learning (knowledge, skills) p-t may positively stimulate several competencies or conditions such as employee motivation, team building, and creating a teamwork mentality. A creative entrepreneur/manager can adapt the approach to serve varied training needs of the business. In practice, the p-t method uses training activities to improve competence in several areas while at the same time improving individual and company performance. As a result, p-t is different from many single-feature approaches to learning and development. Our assumptions and expression of the approach suggest that the entrepreneur/manager, having studied the approach in detail, initiate and control its application with an employee group. These tactics serve to immerse the entrepreneur/manager in the learning activities of the employees, creating a learning partnership of sorts.
42 Spring 2015 Journal of Business & Entrepreneurship
Features and Components of the Performance Template (P-T) Model
P-t is a set of interdependent, group-based activities or steps. It includes a training component embedded within a process for performance improvement that is created by the entrepreneur/manager and the employees. The activity of creating a single performance template has an unlimited life because the performance feedback mechanisms occurring as a defined part of the process may take place over many months. The feedback loop enables performance to improve over several iterations. Salas, Tannenbaum, Kraiger, & Smith-Jentsch (2012) report that the use of iterative training processes usually correlates positively with successful applications of training.
A Summary of the Steps in the Performance Template Process
1. Identify critical performance events [CPE].
2. Decide which CPE to include in template creation and eventual application.
3. Plan/design the training activities to house CPE performance in templates; create initial templates.
4. Employees use the templates in practice, on-the-job.
5. Individual reflection on template application; reporting.
6. Adjusting and improving the templates for future, continuing use.
CREATING AND USING PERFORMANCE TEMPLATES
To commence, we assume that the entrepreneur/manager know their business and its operations well. We further assume that most employees have this same knowledge. These assumptions are important because, in the model cycle, the entrepreneur must first identify key processes and critical performance indicators associated with those processes. Hence, important tasks and functions are identified clearly at the outset. Specific steps follow.
1. The entrepreneur/manager must identify the critical performance events [CPE] attendant to each key functional business process. These events must
Journal of Business & Entrepreneurship Spring 2015 43 relate to the required employee learning because the information and skills involved in each CPE are important to successful performance. An example of a CPE in a sales organization (high quality bicycle components) is: sales representatives possess knowledge of each component so as to be able to clearly articulate to a customer the significant, technical features and applications of the component. A second CPE could be: the sales rep can explain how our products are differentiated from competitors’ products.
2. The entrepreneur or manager who oversees key processes will need to isolate the essential elements of the CPE for which information, knowledge, and skills are to be created. Agreement among the entrepreneur/manager and employees is most desirable for this phase. Agreement may be based largely on coarse or granular features, and much of the detail work may take place in their subsequent learning encounters.
3. The entrepreneur/manager works directly with the employee group to create the performance templates to be used in the field. Initially, the template form is that of a script or guide for action. The work takes on a training-like nature. The actual training activities can be shaped in many ways. What must result from the training per a given CPE is the initial performance template. Baldwin, Magjuka, & Loher (1991) found that employees hold more favorable attitudes towards educational activities when they have input to their design. The p-t process invites entrepreneur, manager, supervisor, and employees to create their own learning activities under the guidance of the entrepreneur/manager, thus stimulating employee motivation.
Training and education in the construction of the template often makes use of a variety of methods, tools, and concepts as appropriate in the circumstances. In our experience, entrepreneur, managers or training staff may lead the entire p-t process. It is assumed that the training is conducted with intact teams, preferably small groups in order to encourage maximum individual participation in the template-building process. Here, the manager needs to be highly supportive and encouraging. Maurer & Tarulli (1994) found that employees who perceive high support from their manager are likely to be more motivated to perform. The completed template is usually represented as a written guide or script reflecting those activities and behaviors required in the successful implementation of the CPE. To a degree, this part of the work is similar to Flanagan’s (1954) critical incident technique.
44 Spring 2015 Journal of Business & Entrepreneurship 4. Once a few templates have been developed (all are in a tentative state – nothing is “final” in the usual sense), employees must use them in typical work situations containing critical performance events [CPE]. The templates can be made available in print and/or various electronic formats for easy access.
5. Each time an employee uses a template in a CPE, she/he is expected to reflect upon its use, note what was learned (for example, reactions of customer, missing information), and feed that information back to a contact person. That person could be the entrepreneur, the manager, someone on the training staff (in a larger organization), or someone else having knowledge of the p-t process. This capture process can be facilitated with forms, instructions, as well as electronic, web- based reporting formats. In the very small SME, it is likely that the entrepreneur will serve as the contact person and coordinator of the entire process. Research (Kleingeld, Harrie, & Algera, 2004) demonstrates that direct involvement of employees in capturing performance details, as informed participants, ultimately results in improved performance. Usually, more immediate feedback holds greater value for guiding future behavior. Chiabura & Marinova (2005) posit that informal and formal reinforcement is important for employees’ transference of what was learned towards application on the job.
6. Some basis must be established for the timing and frequency of updating and revising the templates. Actual frequency of use of a template may dictate the chronological basis for adjustment. Regardless, templates need to be adjusted based on learning and feedback. The feedback is formative, intended for development and change. Locke & Latham (1990) established that goals and performance feedback at the individual level are among the most effective interventions available to improve learning and performance. This finding is reinforced by the work of Ford, Quinones, Sego, & Sorra (1992). Finally, DeRue & Wellman (2009) advise that managers need to practice their interpersonal, cognitive, business and strategic skills in experiential contexts, that is, on-the- job. Access to quality feedback is important and the refinement of the p-t process is based on feedback.
The above attributes comprise the main characteristics of the model. Below, we offer theory bases intended to support the features of p-t.
Journal of Business & Entrepreneurship Spring 2015 45 THEORY FOUNDATIONS
The broad theoretical underpinning of p-t includes many bases such as employee motivation, skill learning, learning in groups, participant leadership, and others. Space limitations of this article are such that we include in our explanations only the most prominent, influential theories: experiential learning theory (ELT), and action theory.
Experiential Learning Theory
A critical support for p-t is experiential learning theory [ELT]. David Kolb (1984) presented the most researched model of experiential learning. The flow of events in Kolb’s theory is represented, in sequence, in the p-t approach. As a process, ELT operates such that knowledge is created by experience being transformed (see Kolb, 1984, p. 41). Learning represents the interaction of two largely interdependent dimensions of knowledge: acquisition and transformation (or, how to get information and what to do with it). Each dimension requires the learner (employee) to resolve a dialectic, or a set of competing learning tensions. In acquisition, the learner has to resolve the tension between apprehension (concrete experience; what is sensed and perceived) and comprehension (abstract conceptualization; what is understood). Apprehension is the taking in of information. Comprehension is when the learner breaks down this information into meaningful events and places it within a personal mental structure that makes clear for her/him how the information fits with what is known or believed. Knowledge acquisition interacts with the second learning dimension, knowledge transformation. In this dimension the learner must resolve the tension between knowledge intention (reflective observation) and knowledge extension (active experimentation). In essence, the learner will reflect on previously acquired knowledge, and then move to interaction with an external environment to make some change or adjustment. Interaction and experimentation in the extant case means on-the-job. According to Burke, Stagl, Goodwin, Salas, & Halpin (2006), learning for management seems to be most positively influenced by on-the-job experiences such as helping employees learn, offering mentoring, and giving the employees stretch assignments. They concluded that experiential learning matters. These four processes, taken together, (apprehension, comprehension, reflective observation, and active experimentation) represent the ELT learning
46 Spring 2015 Journal of Business & Entrepreneurship cycle. As learners, and entrepreneurs/managers in our construction of p-t, resolve the dialectical tensions of knowledge acquisition and transformation, they orchestrate their way around the cyclical process of learning. P-t, as described above directly reflects the four processes of ELT.
Action Theory and Performance Templates
Action theory as expressed by Michael Frese (2007) well represents the learning dynamics of p-t as it has action and regulation foci. Experiential learning theory (above) nests within action theory as individuals move from task to task. Frese & Zapf (1994) and Frese (2007) express action theory to explain how individuals regulate their behavior to achieve goals actively in typical and/or novel situations. Performance-templates work is a novel situation in the combined learning and creation phase and then it evolves into regular and iterative activities in field application. Action theory helps to advance beyond what Salisbury (2008) refers to as a piecemeal grasp of cognition because it provides a framework for understanding the complexities of the regulation of knowledge in a performance context. The theory places learning into three elements: focus, sequence, and action structure (Frese, 2007). In adult learning activities, focus and sequence are largely about attention direction, and organization of information and the prioritization of information. These are relatively basic concepts. It is action structure that offers some new ways of conceptualizing what has been learned by attending to the regulation of learning. In action structure, Frese (2007) identifies four levels of regulation. From lowest level to highest, the first is skill level, called psychomotor by Ackerman (1988), which is somewhat rapid and automatic. An example would be a sales representative finding the customer’s location. The second level is that of the flexible action pattern in which behavior is less automatic, yet represents a well- trained pattern subject to adjustment based on the particular details of a situation. For example, our sales representative is preparing for a visit to a customer. She would attain some knowledge of the customer’s company, the industry in which it operates, the products it deals with, and so forth. The conscious level is the third level that includes conscious, self-aware, goal-directed behavior. It is awareness of how a thing can and should be completed and it can be visualized and/or verbalized. Hacker (1998) labels this conscious level the intellectual level. We propose that this level of regulation
Journal of Business & Entrepreneurship Spring 2015 47 corresponds well with the implementation of a performance template in the field with a customer (per our example, above). The final, or fourth, level of regulation Frese (2007, p. 163) calls metacognitive heuristics. It is the self-reflection and thinking engaged in regarding one’s own methods of problem solving. By way of example, in the implementation of a performance template with a customer, our sales representative may follow a prescribed set of behaviors to assess their reflection upon and recording of the adequacy of the use of a particular template. On a more or less patterned basis, heuristics, or short-hand rules for making choices and decisions, may be employed. Recent study by Sitzmann & Ely (2010) has shown that prompting self-regulating activity during training can increase learners’ focus and improve learning. Heuristics and metacognition are areas of study in their own right, the details of which are beyond the scope of this article. As expressed above, ELT and the four levels of regulation provide a theoretical underpinning of the critical features and dynamics of the p-t approach. In the material that follows we present findings of studies in which p-t was applied.
Efficacy of the P-T Approach
The material in this section is taken largely from Bandura & Lyons (2014), who report on practical applications of scenistic performance improvement tools to include p-t. A few empirical studies examine the application of the p-t approach. In two of them managers led the p-t processes. In one study (Lyons, 2007), sales firm employees were randomly selected into two groups, T and C, for training targeting four CPE in sales visits. The T group received training using the explicit steps of the p-t process to create templates for CPE. The C group received more conventional training, e.g. role-taking, study of best practices. The objective was to determine if performance differences would result from the training. At six months following training, the groups were compared based on 1) gross sales attained, 2) manager’s performance rating, and 3) customer satisfaction with knowledge, helpfulness, and overall performance. The host company did not approve of sales data publication. Average performance of the T group was higher on all measures. Differences in performance were statistically significant in the direction of the p-t trained employees on measures of manager’s performance rating of salesperson, customer satisfaction with sales representative’s product knowledge, and customer satisfaction with the
48 Spring 2015 Journal of Business & Entrepreneurship salespersons’ overall performance. This exploratory study could not assert cause and effect, however the data does provide encouraging results for the approach. A similar study (Lyons, 2009) of outside salespersons in a different organization, made use of the same basic study design. However, in that study the training aimed primarily at small groups for template (T) and conventional (C) training. Template-trained teams performed significantly better per overall manager’s performance ratings and product knowledge. While the research was limited by relatively small sample sizes, the direction of the findings helps to confirm the findings of other studies. We may attribute positive effects to p-t training.
CONCLUSIONS
Limitations
Prior research, empirical study, and theory support the value and use of p- t. In the past decade there has been limited use of the approach and there are few empirical studies upon which to base practice. Those studies have included relatively small employee samples limiting the use of some statistical tools intended to test hypotheses. The p-t approach requires much preparation and application by the entrepreneur/manager. While the process establishes a learning and performance partnership between entrepreneur/manager and the employees, the burden of creating and leading the process falls to the boss who must work closely with employees. A further, implicit requirement is that the entrepreneur/manager monitors her/his own learning while managing the p-t process at the same time. In past applications of p-t, rarely has the size of the learning group exceeded 20 individuals owing to the demands of the activities in the steps of the process. To be most effective and to attain maximum improved performance, the templates are continuously up-dated. This administrative work will be a task for the entrepreneur/manager which will consume valuable time. As Bandura & Lyons (2014) explained, “the p-t approach reflects aspects of action learning and other reflective processes, however, the iterative features of the approach make for a potentially long-term process of personal learning and performance improvement. As such, it may be difficult to parse specific skills improvement and knowledge acquisition over time. Attaining skill mastery in a relatively short time may be a limitation of p-t compared with other learning approaches such as case study analysis or problem-based learning.” The p-t
Journal of Business & Entrepreneurship Spring 2015 49 approach is a collection of different learning activities and application of different skills.
Future Research
Some p-t components may be compared to other methods or components of other methods such as knowledge acquisition or feedback (on template implementation). Such comparisons are beyond the scope of this article although one particular approach, Productivity Measurement and Enhancement System (proMES) of Pritchard, Weiss, Goode, & Jensen (1990), has relatively broad application and success shares some features of p-t. In proMES groups of employees seek to target areas for process improvement, devise various measurement methods to gauge performance improvement, and then create strategies and/or tactics to apply to the process under consideration. Since there is data available from empirical study of proMES employees’ results, it may be possible to compare learning outcomes of the proMES employees with those of employees that use p-t. This would be apropos where the two methods have similar processes. P-t research has taken place where the primary foci are interpersonal relationships with customers. The contexts of proMES application have a decidedly production improvement focus. As Bandura & Lyons (2014) have suggested, in future p-t research it might be desirable to study knowledge acquisition and behavior change at each of the six steps of the process. The changes in actual performance on-the-job are evidence of learning. However, these changes represent learning on a macro level. In future research it may be possible to formally assess learning and change at the conclusion of each of the six steps. Information attained could illuminate where the greatest learning takes place and provide feedback to improve the activities of a particular step in order to increase learning. Currently, the p-t approach is in its infancy and much more study is needed to advance the concept and practices for use by entrepreneurs and managers.
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54 Spring 2015 Journal of Business & Entrepreneurship AN EXAMINATION OF THE JOB MARKET FOR ENTREPRENEURSHIP FACULTY FROM 1989 TO 2014
Todd A. Finkle Gonzaga University
ABSTRACT
Utilizing institutional theory this article examines data based on the trends in the market for entrepreneurship faculty over the past 25 years. Data is provided from June, 1989 through June, 2014 on advertised candidates and positions throughout the world. There were several significant findings in this study. During the most recent year, 2013/14, there were 258 advertised positions (both tenure track and non tenure track) for entrepreneurship faculty in Schools of Business and Management. During the same time frame, the number of advertised candidates was 147. The ratio of total jobs per candidate during 2013/14 was 1.76. This ratio is favorable to candidates seeking employment, however it must be noted that these positions included full-time tenure track, visiting professorships, instructors, adjuncts or part-time positions. The number of candidates (147) dropped to a level that we have not seen since 2005/06 and 84% below its peak in 2008/09 (270). Some possible explanations for this trend may be related to the economy, commitment, and supply versus demand. There could be a hangover effect from earlier years where candidates had problems finding tenure track positions. For example, in 2008/09 there were almost 100 more tenure track candidates than tenure track positions (260 versus 165). In 2010/11 and 2011/12 there were another 50 candidates more than tenure track openings. Furthermore, if we go back four to five years, the typical amount of time to earn a Ph.D., we were in the middle of the financial crisis. It could be that potential doctoral students were afraid to make a long-term commitment due to the global economic crisis. Related issues may be that potential doctoral students were afraid of leaving their current jobs or they may have been afraid of their inability to sell their houses during a housing depression. Another reason might be a reduction in doctoral admissions as doctoral programs can be costly to run. The same thing can be said for international candidates in 2013/14 as those numbers dropped to 44 from a peak of 81 in 2011/12.
Journal of Business & Entrepreneurship Spring 2015 55 During 2013/14, the number of tenure track positions (150) was slightly higher than the number of tenure track candidates (138). The findings show that the number of tenure track candidates in 2013/14 dropped to the second lowest level since 2005/06. Senior positions continue to be in high demand with 52% of tenure track jobs advertising for senior level positions. Schools are also recruiting more candidates with a primary area in entrepreneurship.
INTRODUCTION
This article examines faculty trends within the field of entrepreneurship. It comes at a very important time to candidates and Schools of Business and Management. Entrepreneurship is no longer a young and emerging academic discipline. It has become increasingly popular and more competitive. As such, it is vital that faculty seeking jobs in the global market understand the past and current trends that are happening so they can maximize their career paths. Likewise, Schools of Business and Management should take notice of the findings to understand the competitive landscape when they seek candidates and potential doctoral candidates. This study comes during a time of slow recovery from the worst economic event since the Great Depression of 1929. The world is now in its five year of recovery since the bottom of the Great Recession in March, 2009. Globally, we are still undergoing deleveraging, which could last anywhere from 10-15 years since 2009. The trends within higher education are troublesome. The cost of higher education is enormous with students coming out of schools with a huge debt burden. According to CnnMoney.com, the average amount of student loan debt for those leaving a US college with an undergraduate degree in 2012 was $29,400 (Ellis, 2013). Mitchell (2014) reported that the median debt for graduate students at the end of 2012 was $57,600, 43% higher than 2004. As of April, 2014 the US debt clock (see http://www.usdebtclock.org/) showed that the total amount of student loan debt owed in the US was approximately $1.286 trillion and student loan debt has surpassed both credit card and auto debt in the US. Furthermore, state funding for higher education has decreased by 28% from 2008 to 2013. Combine this with the potential disruption of the traditional college model by online education or Massive Open Online Courses (MOOCs). A few professors have suggested that traditional, slow moving colleges will lose out to
56 Spring 2015 Journal of Business & Entrepreneurship quicker and nimbler colleges that offer these types of educational opportunities. Clayton M. Christensen, a Harvard professor of business strategy, stated in a New York Times that the "bottom 25 percent of every tier" of colleges will disappear or merge in the next 10 to 15 years” (Selingo, 2013). More recently, Richard Lyons, Dean of the University of California-Berkeley School of Business, stated that if the top MBA programs were to put their programs online, up to 50% of all business schools could fail within 5-10 years (Clark, 2014). Under the backdrop of the changes in higher education, this article investigates changes in the number, level and priority of entrepreneurship positions and candidates from all over the world from 1989/90 to 2013/14. This study examines the institutionalization of the field of entrepreneurship by examining the change in the number and level of entrepreneurship positions, as well as the number, level and training of entrepreneurship candidates from 1989- 2014. One measure of institutional acceptance within the field of entrepreneurship would be the level of demand and supply for tenure track faculty in the field. This study will address the question of the institutionalization of the field by examining the changes in the market for entrepreneurship faculty between the academic years 1989/90 and 2013/14. Institutional theory argues that organizations operating in institutionalized environments demonstrate that they are acting in a legitimate manner adopting the structures and activities that are perceived to be legitimate by their critical external resource providers (Finkle & Deeds, 2001). In essence by adopting the appropriate structures (institutions) the organization increases its legitimacy and is able to use this legitimacy to increase its support and ensure its survival (Dowling & Pfeffer, 1975; Meyer & Rowan, 1977). I examine the global faculty trends in the field of entrepreneurship by examining the entire sample of advertised candidates and jobs from 1989-2014. This study will answer the following research question: Is the field of entrepreneurship becoming increasingly institutionalized within Schools of Business and Management? To answer this research question I will examine the current trends in the global job market for faculty in entrepreneurship. I will also examine the percentage of current candidates and positions that are tenure track.
EXTANT RESEARCH
Finkle and Deeds (2001; 2002) pioneered the first study of trends of entrepreneurship faculty using institutional theory (Meyer & Rowan, 1977).
Journal of Business & Entrepreneurship Spring 2015 57 They concluded that the field made significant progress towards being institutionalized. However, it was still not fully institutionalized because most of the positions had been either non tenure track or untenured assistant professorships. However, it was still too soon to conclude that the commitment to entrepreneurship by Schools of Business and Management. One clear indication of the tenuous status was that, unlike strategy, there was no mandate from the AACSB that entrepreneurship be incorporated into the curriculum of all accredited schools. Entrepreneurship remained an elective subject in most schools and therefore dependent on student interest. Furthermore, the hiring of tenured faculty in entrepreneurship and the creation of departments of entrepreneurship were rare. Finkle and Deeds (1991) found that the demand and the supply of entrepreneurship faculty increased from 1989 to 1998. Between 1989/90 and 1997/98 the number of entrepreneurship positions increased 253% while the number of candidates increased by 94%. During this period the number of positions that listed entrepreneurship as the primary field increased tenfold from 5 to 50 and the number of candidates that listed entrepreneurship as their primary field increased fourfold from 5 to 20. During the same period the number of secondary and tertiary positions increased 116% and 78% respectively and the number of secondary and tertiary candidates increased by 67% and 53%. The percentage of entrepreneurship positions listing entrepreneurship as the primary field has increased from 19% in 89/90 to 54% in 1997/98. Since Finkle and Deeds (2001), the field has seen a significant increase in the number of entrepreneurship programs in Schools of Business and Management. Entrepreneurship has become increasingly institutionalized at universities as evidence by the rise in the number of centers (see Finkle, 2008; Finkle, 2007a; Finkle & Kuratko, 2004; 2006; Finkle, Kuratko & Goldsby, 2006a; 2006b; Finkle, Menzies, Kuratko & Goldsby, 2010; 2012; 2013) and tenure in the field of entrepreneurship (Finkle, Stetz & Deeds, 2004; Finkle, Stetz & Mallin, 2007). Several studies that have built upon Finkle and Deed’s (2001) initial findings (see Finkle 2006; 2007b; 2008; 2010; 2012a; 2012b; 2013a; 2013b; Finkle & Thomas, 2008). Finkle (2007b) concluded that the field was becoming increasingly institutionalized. He noted that Schools of Business and Management had committed more resources to hiring a larger number of tenured or tenure track faculty. Finkle also found that the ratio of tenure track positions
58 Spring 2015 Journal of Business & Entrepreneurship per candidate improved from a low of .43 positions per candidate in 1994/95 to 1.78 positions per candidate in 2004/05 (+314%). Finkle’s (2010) findings showed that entrepreneurship was being institutionalized on a global basis. He found that entrepreneurship was one of the fastest growing areas in higher education. The findings showed 366 job openings at schools and 231 candidates in 2007/08. International positions and candidates showed the biggest increase. From 2006/2007 to 2007/08, the number of international positions nearly doubled while the number of international candidates grew from 44 to 62. Finkle (2012a; 2012b) examined data from June, 1989 through June, 2010. The findings showed that the field had matured in regards to the number of tenure track and non tenure track positions. In 2009/10 there were 1.1 tenure track jobs per tenure track candidate. Due to the lackluster economy, the decrease in the number of candidates seeking positions in 2009/10 may have been partially caused by fear. The economic crisis may have caused people to remain conservative; not willing to sell their house and make a move. As a result, in 2008/09 there were 260 candidates and in 2009/10 there were only 169 candidates. He concluded that, in that volatile environment, savvy candidates could take risks and apply for desirable jobs. This was especially true for senior level faculty where the demand remained very strong. Overall, his study showed that the number of positions (including tenure track) peaked in 2007/08, right before the economic crisis. In Finkle’s (2013a; 2013b) studies, examined the changes in the market for entrepreneurship faculty from 1989 to 2012/13. During the academic year 2011/12 there were 319 total advertised entrepreneurship positions of which 202 (63%) sought a candidate with a primary interest in entrepreneurship. This was the highest number of primary positions in the history of the study. Furthermore, in 2011/12 there were 203 tenure track positions, which was the largest number since the beginning of the Great Recession in 2007. The number of tenure track candidates was higher at 231, however the studied found that schools were seeking senior faculty (Associate, Full, and Endowed Professors) at the highest rate ever. Advertisements for full professors were at their highest level ever at 23. Associate professors were in the highest demand since 2007/08 and endowed chairs were at the fourth highest level over the life-time of this study. Overall, 87 percent of all of the tenure track the positions targeted senior level faculty.
Journal of Business & Entrepreneurship Spring 2015 59 Finkle’s (2013a; 2013b) findings showed that entrepreneurship was continuing to become increasingly institutionalized within Schools of Business and Management all over the world. Schools were recruiting more candidates, especially ones with a primary area in entrepreneurship. This showed that schools were valuing entrepreneurship and committing more resources as they recruited an ever increasing number of candidates with a primary area in entrepreneurship.
METHODOLOGY
Data for this study initiated 25 years ago. In the early parts of this study, data for jobs and candidates was sent to members in a small Academy of Management Placement booklet. To make sure that all of the advertisements were included data was also collected by hand through Chronicle of Higher Education microfiche located at the library. Over time, the booklets turned into more of a newspaper format. After this format, the Internet was introduced and most advertisements were done online on a variety of sites. Data for this study was collected continuously over a 25 year period. In addition to the aforementioned sources, these web sites were used in this study: United States Association for Small Business and Entrepreneurship (USASBE) (http://usasbe.org/); Academic Keys for Business Education (http://business.academickeys.com/seeker_job.php); University 500 (http://www.university500.com/);); American Marketing Association (http://academicplacement.marketingpower.com/search/); Financial Management Association (http://www.fma.org/); Mid Atlantic Higher Education Consortium (http://www.midatlanticherc.org/home/); Academic Careers Online (http://www.academiccareers.com/); Academic Employment Network (http://www.academploy.com); University Affairs (http://www.universityaffairs.ca); HigherEdJobs.com (http://www.higheredjobs.com/); Jobs.ac.uk http://www.jobs.ac.uk; Times Higher Education Supplement (http://www.timeshighereducation.co.uk); Career.edu (http://www.career.edu); and UniJobs.com.au (http://www.UniJobs.com.au). There were a few new web sites that were used in this study: indeed (http://indeed.com); Academy of International Business (http://www.aib.msu.edu); Academic Jobs EU.com (http://academicjobseu.com); and Campus Review (http://campusreview.com.au). Data was also collected
60 Spring 2015 Journal of Business & Entrepreneurship through direct e-mails on a variety of networks and directly from universities themselves. It must be noted that only jobs within schools of business were included in this study. The methodology in the study was similar to Finkle and Deeds (2001: 2002), Finkle (2006; 2007b; 2008; 2010; 2012a; 2012b; 2013a; 2013b) and Finkle & Thomas (2008). The data was split into academic years (e.g., 2013/14). Two categories were then created; January through June (spring) and July through December (fall). Overlapping candidates and positions found in each subset were dropped. For example, if Ted Baker advertised for a job in fall 2013 and spring 2014 he would be counted only once.
RESULTS & DISCUSSION
To evaluate the trends in the job market for entrepreneurship faculty over the past 25 years, three tables were created. Table 1 examines the number of candidates and positions from June, 1989 through June, 2014. The table also examines the desired interest level of a candidate or school (e.g., Primary, Secondary, or Tertiary) and the current number of international jobs and candidates. Table 2 evaluates tenure track positions and candidates only. Additionally, it calculates the percentage of jobs and candidates that are tenure track. Table 2 also breaks down the table into the type of position the candidate or school is seeking (Assistant, Associate, Full, Endowed, or Open). Table 3 breaks down the schools and candidates specialties that are cross-listed with entrepreneurship. For example, let’s say Indiana University is seeking a candidate with a primary area in Entrepreneurship, but it seeks a person with a secondary area in Business Policy and a tertiary area in International Business. This table evaluates the percentage of schools and candidates that are advertising in the different areas.
Table 1: Number & Level of Interest in Entrepreneurship for Candidates & Positions, June, 1989-June, 2014
Table 1 shows that the total number of jobs (tenure track and non tenure track) over the past 25 years. The total number of jobs peaked during 2012/13 academic year at 441. The lowest number of jobs came during the initial stages of the study in 1991/92 at 18. Since the 1991/92 academic year, the total number of advertised positions has increased 2450%. On an annualized basis, this is
Journal of Business & Entrepreneurship Spring 2015 61 equivalent to a growth rate on average of 116% per year. However, in the most recent academic year the number of jobs decreased to 258. Table 1 also shows that the total number of candidates (tenure track and non-tenure track) over the past 25 years. That number peaked during 2008/09 academic year at 270. The lowest number of candidates came during the first year of the study in 1989/90 at 35. Since the 1989/90 academic year, the total number of candidates has increased 771% at its high point. On an annualized basis, this is equivalent to a growth rate on average of 41% per year. However, in the most recent academic year, 2013/14, the number of candidates dropped to 147.
Figure 1 Candidates and Positions 500 400 300 Total Candidates 200 100 0
Academic Year
62 Spring 2015 Journal of Business & Entrepreneurship Table 1 Number & Level of Interest in Entrepreneurship for Candidates & Positions 1989-June 2014
CPI PPA CSI PSA CTI PTA IC IP TC TP AY 89- 5 5 15 12 15 9 3 0 35 26 90 AY 90- 3 9 23 6 20 12 2 2 46 27 91 AY 91- 7 12 20 3 13 3 1 2 40 18 92 AY 92- 6 16 23 3 27 9 2 3 56 28 93 AY 93- 10 18 32 6 25 3 3 1 67 27 94 AY 94- 15 20 45 4 29 6 3 5 89 30 95 AY 95- 24 20 50 9 35 9 9 7 109 38 96 AY 96- 19 36 35 18 31 6 4 12 85 60 97 AY 97- 20 50 25 26 23 16 6 13 68 92 98 AY 98- 16 58 10 45 28 46 9 22 54 149 99 AY 99- 17 92 17 67 27 69 10 21 61 228 00 AY 00- 15 82 25 56 27 59 5 26 67 197 01 AY 01- 24 54 28 65 24 56 12 16 74 175 02 AY 02- 31 83 19 50 29 57 6 19 79 190 03 AY 03- 35 74 33 67 30 44 22 20 98 185 04 AY 04- 33 94 40 65 33 53 15 17 106 212 05 AY 05- 33 141 59 104 49 82 25 36 141 316 06 AY 06- 62 111 63 82 57 64 44 34 184 263 07 AY 07- 90 165 87 90 54 111 62 76 231 366 08 AY 08- 57 128 106 63 107 74 61 66 270 265 09 AY 09- 42 153 48 68 91 85 48 75 181 306 10 AY 10- 45 149 47 41 121 93 58 60 213 283 11 AY 11- 51 202 54 66 139 51 81 104 245 319
Legend: CPI-Candidates with Primary Interest PPA-Positions of Primary Assignment CSI—Candidates with Secondary Interest PSA-Positions with Secondary Assignment CTI-Candidates with Tertiary Interest PTA-Positions with Tertiary Assignment IC-International Candidates IP—International Positions TC—Total candidates TP-Total Positions
Journal of Business & Entrepreneurship Spring 2015 63 Figure 3 Entrepreneurship Positions by Level of Interest 350 300 250 200 150 Primary Positions 100 Secondary Positions 50 0 Tertiary Positions
Academic Year
Figure 4 Entrepreneurship Candidates by Level of Preference 160 140 120 100 80 60 Primary Interest 40 Secondary Interest 20 0 Tertiary Interest
Academic Year
64 Spring 2015 Journal of Business & Entrepreneurship During the latest year of the study, the ratio of total jobs per candidate was 1.76. This ratio is favorable to candidates seeking employment. However, this number includes adjunct, visiting, and instructor positions along with tenure track jobs.
International Market
One of the more significant findings of this study is the growth in the number of international jobs. Table 1 shows that the number of international positions peaked at 118 during 2012/13. In the most recent year, it decreased to 81. The largest number of international candidates in the study was 104 in 2011/12. The ratio of the total number of international positions per international candidate during 2013/14 was 1.82 jobs per candidate.
Level of Interest
Table 1 also shows the number of positions and candidates by their level of interest (e.g., Primary, Secondary and Tertiary). The number and percentage of jobs with entrepreneurship as their primary field of expertise in 2013/14 was 168 (65%). Secondary and tertiary numbers were 53 (21%) and 37 (14%), respectively. The number of candidates in 2013/14 that sought positions with entrepreneurship as their primary field of expertise was 63 (43%). Secondary and tertiary numbers were 49 (33%) and 35 (24%), respectively. There were approximately 2.7 primary jobs for each primary candidate. These numbers indicate opportunities for candidates specializing in entrepreneurship as their primary area of expertise. This has been a trend in analyzing the numbers over the years as candidates look to hedge their risk by focusing on more established academic areas like Strategy or Organizational Behavior.
Table 2: Rank of Tenure Track Candidates & Positions, June, 1989-June, 2014
Table 2 evaluates only tenure track candidates and positions as advertised by academic rank from June, 1989 through June, 2014. As a result, all non tenure track positions and candidates were dropped.
Journal of Business & Entrepreneurship Spring 2015 65 Table 2: Rank of Tenure Track Candidates & Positions, 1989-Jun2 2014
% 100 93 83 82 85 77 89 85 65 95 95 95 91 95 92 87 92 69 79 66 60 65 94 56 58
Total 26 25 15 23 23 23 34 51 60 141 216 187 160 181 171 184 292 183 288 165 185 182 138 245 150
0 Open 4 3 1 4 1 5 4 14 7 51 81 97 38 41 47 35 73 36 68 16 33 23 2 3 23
Endowed 3 3 3 4 3 2 5 8 5 10 23 18 3 12 13 17 24 13 17 22 17 16 0 23 16
Full 0 0 0 0 1 0 1 0 3 5 3 4 4 14 8 9 14 8 12 12 14 18 23 27 10
Assoc 0 0 1 0 0 2 2 6 4 17 21 16 34 33 40 59 110 55 107 46 47 59 67 46 29
Positions Asst 19 19 10 15 18 14 22 23 41 58 88 52 81 81 63 64 71 71 84 69 74 66 54 119 72
% 100 91 100 75 60 60 50 58 99 91 95 84 100 97 98 96 97 99 96 96 93 94 94 96 94
Total 35 42 40 42 40 53 55 49 67 49 58 62 74 77 96 102 137 183 222 260 169 201 231 210 138
Open 5 3 5 7 5 5 3 5 4 9 5 12 9 5 11 15 24 29 7 2 1 0 6 1 2
Endowed 0 0 0 0 0 0 0 0 0 0 1 0 0 0 2 0 2 1 4 5 0 0 2 0 0
Full 2 1 1 2 1 0 0 0 0 0 1 0 1 4 6 4 0 3 6 10 6 3 9 2 3
Assoc. 4 4 5 4 4 2 1 1 0 3 1 1 4 12 11 8 24 52 20 34 18 17 19 9 11
.
Candidates Asst 24 34 29 29 30 46 51 48 63 37 47 49 60 56 66 75 87 98 185 209 144 181 195 198 122
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 ------AY 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
66 Spring 2015 Journal of Business & Entrepreneurship Figure 5 Tenure Track Candidates and Positions 350 300 Tenure 250 Track Candidates 200 Tenure 150 Track Positions 100 50 0
Academic Year
Figure 6 Percentage Entrepreneurship Candidates Cross Listing By Specialization 100% 80% 60% ENT Only 40% 20% Cross BPS 0% Cross IM Cross OB/HR
Academic Year
The largest number of tenure track positions (292) occurred in 2005/06 right before the financial crisis. Those 292 tenure track positions were 92% of the total positions advertised that year. Since its peak, the number of tenure track positions has dropped to 150 in 2013/14. Even worse, the percentage of total positions that are now tenure track is 58%. This is the second lowest percentage in the study with 56% being the low point in 2012/13. The field of entrepreneurship is not immune to the trend of non tenure track positions at universities. There may be a few reasons for this trend. First,
Journal of Business & Entrepreneurship Spring 2015 67 the increasing cost structure at universities. By hiring part-time, adjuncts, instructors, or visiting professors universities can reduce their costs. Secondly, there is a trend in academia to offer fewer and fewer tenure track positions. It appears that the field of entrepreneurship is not immune to this. Thirdly, the field of entrepreneurship is unique in the sense that an ideal candidate to teach entrepreneurship would be someone who has been an entrepreneur or is currently an entrepreneur and has a PhD in Entrepreneurship or a related discipline that has the ability to produce traditional academic research. In reality, there are few faculty with these qualifications; as a result, schools may try to hire a traditional faculty member in entrepreneurship and hire a part-time non tenure track faculty member for the practical side of the field. Or some schools may just focus on hiring a practitioner. In regards to the rank of the advertised tenure track positions, in 2013/14, there were 72 (48%) assistant, 29 (19%) associate, 10 (7%) full, 16 (11%) endowed chair, and 23 (15%) open positions. Over one-half of the positions were seeking senior level faculty. Similar to previous studies, there are still many opportunities for senior level faculty, especially those that have experience in building centers and programs. The largest number of tenure track candidates (260) occurred in 2008/09. Those 260 tenure track candidates were 96% of the total candidates advertised that year. Since its peak, the number of tenure track candidates has dropped to138 in 2013/14. In 2013/14, the rank of the advertised candidates was: 122 (88%) assistant, 11 (8%) associate, 3 (2%) full, 0 (0%) endowed chair, and 2 (2%) open. In 2013/14, the ratio of tenure track positions (150) per tenure track candidates (138) was 1.09.
Table 3: Percentage of Applicants & Positions Cross-Listed by Field, June, 1989-June, 2014
Table 3 shows the positions and candidates and their respective areas that they advertise on their profile. For instance, if Don Kuratko was advertising for an entrepreneurship only position he would place that on his profile. If Indiana University was seeking a candidate with areas in Business Policy, OB/HR and Technology and Innovation Management, it would list these in its profile. Studying this area is vital so the field of entrepreneurship can examine the trends that are occurring within the marketplace. The candidates can then be more proactive and study the appropriate areas that are needed.
68 Spring 2015 Journal of Business & Entrepreneurship Table 3 Percentage of Applicants & Positions Cross-Listed by Field, 1989-June 2014
Candidates % Positions %
AY ENT STR INT’L OB/HR TIM ENT STR INT’L OB/HR TIM 89-90 0 63 14 23 3 15 69 38 7 0 90-91 0 80 17 15 2 28 40 12 12 0 91-92 0 68 33 30 3 67 40 0 0 0 92-93 0 73 25 21 13 65 30 26 13 0 93-94 0 73 30 16 10 61 22 13 4 4 94-95 0 71 35 19 7 74 17 9 26 0 95-96 3 65 32 28 8 35 21 15 18 3 96-97 1 73 33 26 6 37 41 22 33 8 97-98 1 79 40 43 9 48 65 27 27 8 98-99 0 74 35 15 11 47 56 27 33 15 99-00 1 60 30 21 16 24 37 15 18 14 00-01 0 76 33 19 25 26 38 18 19 16 01-02 3 80 28 16 20 18 50 21 19 12 02-03 0 72 33 25 15 25 48 16 17 9 03-04 2 72 30 14 25 25 51 19 9 10 04-05 0 68 32 16 17 22 51 18 15 11 05-06 0 66 26 22 32 22 46 16 17 8 06-07 1 73 30 18 33 23 44 29 18 9 07-08 2 71 31 21 23 22 45 18 22 14 08-09 2 70 30 17 25 20 46 20 20 16 09-10 5 89 49 41 48 33 37 19 21 17 10-11 3 77 45 41 40 46 30 15 13 9 11-12 3 72 41 48 38 45 33 16 20 19 12-13 5 64 22 22 24 52 30 14 9 7 13-14 5 62 20 24 23 51 25 10 10 5
Journal of Business & Entrepreneurship Spring 2015 69
Figure 7 Percentage Entrepreneurship Positions Cross Listing by Specialization 80%
60%
40% ENT Only Cross BPS 20% Cross IM 0% Cross OB/HR
Academic Year
Similar to Finkle (2007; 2010; 2012a; 2012b; 2013a; 2013b), the table is broken down into five categories: Entrepreneurship only, Strategy, International, OB/HR (Organizational Behavior/Human Resources Management), and TIM (Technology and Innovation Management). Each category has a percentage, which indicates the percentage of jobs or candidates in that were listed on that advertisement. The respective percentages advertised in the position categories for 2013/14 were: Entrepreneurship Only (51%), Strategy (25%), International Management (10%), OB/HR (10%), and Technology and Innovation Management (5%). The respective percentages advertised for the candidate categories for 2013/14 were: Entrepreneurship Only (5%), Strategy (62%), International Management (20%), OB/HR (24%), and Technology and Innovation Management (23%). This study examined the topics a little more in-depth than previous studies. In addition to the five areas above, which were included in Table 3, the following areas were also examined and tabulated: Management, Marketing, Business Ethics/Business Society, Finance, and Accounting. The percentage of jobs that advertised these areas, which were not included in Table 3 were: Management (9.7%), Marketing (8.2%), Business Ethics/Business Society (4.3%), Finance (2.7%), and Accounting (.4%).
70 Spring 2015 Journal of Business & Entrepreneurship This was also done for candidates. The areas changed a little: Organzational Theory (16%), Management (6%), Marketing (0%), Business Ethics/Business Society (8.2%), Operations (2%), and Finance (0%). The data for the jobs indicate the strong need for applicants with a primary in entrepreneurship. Strategy was the second most popular area advertised.
CONCLUSION & IMPLICATIONS
This article investigated the institutionalization of the field of entrepreneurship by examining the changes in the number, level and priority of entrepreneurship positions and candidates from all over the world during the academic years 1989/90 to 2013/14. The results support that the field of entrepreneurship continues to be institutionalized as a result of the results below. During the most recent year, 2013/14, Table 1 showed that there were 258 advertised tenure track and non tenure track jobs for entrepreneurship faculty in Schools of Business and Management all over the world. During the same time frame, the number of advertised candidates was 147. The ratio of total jobs per candidate during 2013/14 was 1.76. This ratio is favorable to candidates seeking employment, however it must be noted that these positions included full-time tenure track, visiting professorships, instructors, adjuncts or part-time positions. In 2013/14, the number of candidates (147) dropped significantly to a level that we have not seen since 2005/06 and 84% below its peak in 2008/09 (270). Some possible explanations for this trend may be related to the economy, commitment and supply versus demand. There could be a hangover effect from earlier years where candidates had problems finding tenure track positions. For example, in 2008/09 there were almost 100 more tenure track candidates than tenure track positions (260 versus 165). In 2010/11 and 2011/12 there we another 50 candidates more than tenure track openings. Furthermore, if we go back four to five years (The typical amount of time to earn a Ph.D.), we see that we would have been right in the middle of the financial crisis. It could be that potential doctoral students were afraid to make a long-term commitment due to the global economic crisis. Related issues may be related to resources (e.g., leaving their current job, failure to sell their house during a housing depression, and/or simply not having the money). Another reason might be that universities may have reduced the admissions of doctoral students as doctoral programs can be costly to
Journal of Business & Entrepreneurship Spring 2015 71 run. The same thing can be said for international candidates in 2013/14 as they dropped to 44 from a peak of 81 in 2011/12. Table 1 also examined the desired interest level of both candidates and schools (e.g., Primary, Secondary, or Tertiary). In 2013/14 there were 168 schools seeking candidates with a primary area in entrepreneurship. However, there were only 63 candidates available with a primary area. This is a ratio of 2.59 primary jobs per primary candidate. Candidates that are considering a career in entrepreneurship education should seriously consider specializing entrepreneurship as their primary area as 65% of all jobs advertised were for candidates with a primary area. The table also examined international candidates and jobs. In 2013/14, there were 81 international jobs and 44 international candidates. The ratio of international jobs to international candidates was 1.84. The numbers indicate that there are strong opportunities for candidates seeking entrepreneurship positions. Table 2 was broken down into tenure track faculty seeking tenure track positions. The table also breaks down the tenure track candidates and positions as advertised by academic rank. In 2013/14 there were 150 tenure track positions available or 58% of the total number of advertised positions in entrepreneurship. This is the second lowest percentage of tenure track jobs since 1989. The rank of the advertised tenure track positions was: 72 (48%) assistant, 29 (19%) associate, 10 (7%) full, 16 (11%) endowed chair, and 23 (15%) open. Fifty-two percent of the tenure track jobs were for senior faculty positions. This is evidence that there are ample opportunities for senior, experienced faculty in the field to move. The number of tenure track candidates was 138 in 2013/14. The advertised rank of the candidates was: 122 (88%) assistant, 11 (8%) associate, 3 (2%) full, 0 (0%) endowed chair, and 2 (2%) open. In 2013/14, the overall ratio of tenure track positions (150) versus tenure track candidates (138) was 1.09. Similar to the findings of Finkle (2010; 2012; 2013), senior positions continue to be in high demand. Recruiting experienced faculty can bring instant credibility and brand name recognition to entrepreneurship programs. This can enhance the ranking of the university. The final table, Table 3, shows the positions and candidates and their respective areas that they advertise on their profile. The table is broken down into five categories: Entrepreneurship only, Strategy, International, OB/HR (Organizational Behavior/Human Resources Management), and TIM (Technology and Innovation Management). Each category has a percentage, which indicates the percentage of jobs or candidates in that were listed on that
72 Spring 2015 Journal of Business & Entrepreneurship advertisement. The respective percentages advertised in the position categories for 2013/14 were: Entrepreneurship Only (51%), Strategy (25%), International Management (10%), OB/HR (10%), and Technology and Innovation Management (5%). The respective percentages advertised for the candidate categories for 2013/14 were: Entrepreneurship Only (5%), Strategy (62%), International Management (20%), OB/HR (24%), and Technology and Innovation Management (23%). As stated in the results section, this study also tabulated additional areas in addition to the traditional five. The following areas were also tabulated even though they were not included in the table for 2013/14: Management, Marketing, Business Ethics/Business Society, Finance, and Accounting. The percentage of jobs that advertised these areas were: Management (9.7%), Marketing (8.2%), Business Ethics/Business Society (4.3%), Finance (2.7%), and Accounting (.4%). I also did the same thing for candidates, although the areas were slightly different: Organzational Theory (16%), Management (6%), Marketing (0%), Business Ethics/Business Society (8.2%), Operations (2%), and Finance (0%). An overview of the data continues to support the strong notion of a need for faculty with a primary area in entrepreneurship. Strategy continues to be ranked as the second most advertised position with International and OB/HR tied for third. Management and Marketing both outranked Technology and Innovation Management.
LIMITATIONS
There are a few limitations that need to be pointed out. First, just because a school advertises a position does not mean that they actually hire a candidate. There may be a few reasons why they decide not to hire a candidate such as the inability to find a qualified applicant or their budget for the position has been taken away. As a result, a job opportunity may overlap from one year to the next. Another limitation is that I may not have captured all of the candidates and positions. There may be some sites that I am not aware of that advertise positions and/or candidates. Therefore, I cannot say with 100% certainty that I have captured everything happening in the job market.
FUTURE RESEARCH
Future research can investigate a number of areas that will be beneficial to future candidates seeking employment at universities. For example, average
Journal of Business & Entrepreneurship Spring 2015 73 salaries for entrepreneurship faculty at level (Full, Associate, Assistant, and Lecturer), type of school (Public versus Private), and sex (Male versus Female). These figures are not necessarily readably available to candidates unless they have access to AACSB data. Once this data is collected then we compare the salaries to the other business areas to see if the field has become legitimized within Schools of Business and Management. Research also needs to go into more depth into the current profiles of candidates and track them over the long-term. A longitudinal study following candidates will be critical to examine whether or not entrepreneurship is becoming institutionalized within Schools of Business and Management. Are these candidates actually getting tenure track positions in entrepreneurship? And if so, are they earning tenure? Finkle, Stetz, and Mallin (2007) examined the research records and perceptions of tenure requirements of 108 faculty members who taught entrepreneurship and earned tenure between 1964 and 2002. However, there is still a lack of research on recent decisions and the respective faculty records.
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78 Spring 2015 Journal of Business & Entrepreneurship ENTREPRENEURIAL TRAINING AND BUSINESS DISCONTINUATION: A CROSS COUNTRY STUDY
Densil A. Williams Mona School of Business and Management, UWI, Mona
ABSTRACT
This study analysed the impact that entrepreneurial education training and evolution in the external environment of the firm, as manifested in external macro- economic factors such as interest rate, economic growth rate, and per capita income, have on the rate of business discontinuation/failure among start-up firms across 43 developing countries. Using human capital and organizational ecology theory as the lens through which to view the problem, the paper developed a conceptual model to capture the relationship between the human capital resources of the firm and evolution in the external environment and business discontinuation/failure. This framework was tested using a semi-log linear regression model. The results revealed that it is evolution in the environment, as manifested by changes in per capita income that has the most significant impact on the level of business discontinuation/failure and not human capital resources of the entrepreneur. The policy implications from these results are clear. Policymakers will have to grow their economies in order to improve the level of disposable income if they are to ensure better transition of businesses from start-up to established operations.
Key words: Discontinuation, Failure Start-ups, Entrepreneurial Education, Training, Per-capita income.
INTRODUCTION
Long-term economic growth and survival requires more than business start- up. It will require that businesses grow to a level where they can contribute to job creation, income, and overall economic growth (Campbell, Heriot, Jauregui, & Mitchell, 2012; GEM, 2008; Holmberg & Morgan, 2007; Williams, 2009, 2010). It means that more start-ups need to transition into established businesses. In other words, it is important that policies are put in place to reduce the rate of discontinuation in the business environment. That is, the number of start-ups that discontinue their operation must be minimized. A survey of the data on the discontinuation rate for businesses in Global Entrepreneurship Monitor (GEM), which studied countries across the globe, showed that the main reason for discontinuation is that the businesses become unprofitable (GEM 2008)i. Indeed,
Journal of Business & Entrepreneurship Spring 2015 79 this highlights the need for stronger managerial training in order to design strategies that can lead to improved profitability and long term survival of businesses. Scholars have recognized the importance of education and training in moving business start-ups from their nascent stage in their development life cycle to become established operations that contribute to employment and economic growth (Edelman, Manolova, & Brush, 2008; Katz, 2003; Kirby, 2004; Kuratko, 2005; Pittaway & Cope, 2007). Both public and private sector partners are involved in education and training for businesses in order to help them to move from start- ups into more established enterprises and to make a stronger contribution to economic growth and development (GEM, 2008; Kirby, 2003). This increased emphasis on education and training for entrepreneurs has grown rapidly across universities and other education and training institutions, and also, have strong support from policymakers, mainly due to the perception that entrepreneurship can play a lead role in economic growth and job creation (Martin, McNally, & Kay, 2013; Matlay, 2005). However, despite the recognition that better management is needed for businesses to generate greater profitability in order to minimize discontinuation, there is inconclusive evidence as to the impact of entrepreneurial training on the level of business discontinuation. The majority of works looking at entrepreneurial education and training focus more on the intentions to become entrepreneurial especially among students, but not so much on the impact of the training on persons who actually start a business (Martin et al., 2013; Pittaway & Cope, 2007). This study will depart from previous works by focusing exclusively on how entrepreneurial training impacts on businesses that have actually started. As such, the study will answer the question: What is the impact of entrepreneurial education and training on business discontinuation/failure rate among start-up firms? While it is argued that education and training are important for moving businesses from their nascent stages to become more established enterprises, it is still not clear whether or not entrepreneurial training indeed impacts on discontinuation. Some researchers have argued that training, especially in the formal setting such as educational degrees, dulls the cutting edge of commerce and prevents creativity and innovation, which are critical for moving from start-ups to established businesses (Bartlett, 1988; Martin et al., 2013). This inconsistency has made it more important to do a formal test of the relationship between entrepreneurial training and discontinuation rate of businesses. Indeed, the paper will test the null hypothesis that there is no relationship between entrepreneurial training, moderator variables such as interest rate, per capita income. and GDP growth rate and business discontinuation rate. The findings from this work will be useful for public policymakers as they will have a stronger rationale based on scholarship to be better informed and to determine whether or not they should design training programmes to move businesses from their start-up stage to become more established enterprises. Also, the findings will try to bring some order to the
80 Spring 2015 Journal of Business & Entrepreneurship highly inconclusive results on the relationship between entrepreneurial training and business discontinuation in the literature. In order to test the research hypothesis and answer the question at the heart of this enquiry, the remainder of the paper is organized as follows: the next section will present a review of the extant literature and the theoretical lens that will guide the analysis and discussion of results. It will also look at the relationship between entrepreneurial training and business discontinuation rate. It is this literature that will inform the relationship between entrepreneurial training and discontinuation rate. Following the review of the literature, the theoretical framework, and the development of the research hypothesis, the paper will discuss the research method and present the results from the analysis of the data. The subsequent sections will present a discussion of the results and provide some concluding remarks.
LITERATURE REVIEW AND THEORETICAL FRAMEWORK
The Theoretical Lens
In trying to understand the link between entrepreneurial training and business discontinuation rate, it is best viewed through the lens of human capital theory. The understanding of human capital and its impact in the business domain has a rich tradition in the academic literature (Becker, 1964; Cooper, AC, Gimeno- Gascon, JF, Woo, 1994; Manalova, Brush, Edelman, & Greene, 2002; Mincer, 1958). Indeed, the proponents of the human capital theory suggest that individuals or groups of individuals who possess a higher level of education, knowledge, or skills will perform better at all tasks than those with lower levels of skills, competencies, and knowledge. Some of the common measures of human capital as espoused by the protagonists of this theory are; levels of education, work experience, social capital gained through familial ties among other things (Martin et al., 2013). This human capital lens is very useful as it nicely captures the most important variable in this study, that of entrepreneurial training. This training is seen as an investment in human capital, and as such, generates important competencies and skills, which some researchers (Martin et al., 2013; Unger, Rauch, Frese, & Rosenbusch, 2011) call human capital assets. These assets, it is said, can be used to produce greater performance outcome for the firm. It is this thinking about the role of upgrading the human capital that has led to the increased importance being given to education and training for entrepreneurs. The thinking seems to be that, once entrepreneurs have a higher level of human capital assets, then the expected outcome is that their firms will perform much better and as such, the discontinuation rate will be reduced.
Journal of Business & Entrepreneurship Spring 2015 81 Linking Entrepreneurial Education and Training and Business Discontinuation
Training has become an important issue for most business persons. This may be due in part to an expectation that increased human capital will eventually lead to greater success in the firm (Kuratko, 2005). Indeed, the criticality of training in the entrepreneurial process is evidenced by the rise in the number of business schools over the last 30 years and more recently, the rise in the number of entrepreneurship programmes in universities. It is no surprise therefore that scholars have been paying close attention to the rise in entrepreneurship programmes and business schools and have started to analyse their contribution to the growth in entrepreneurship and by extension, economic growth and transformation (Katz, 2003; Kirby, 2004; Matlay, 2005; Walter & Dohse, 2009). While it is generally recognized that training is important for businesses to grow and survive, it is not always clear whether or not training does enhance the longevity of the firm. The debate in this area is still wide open (Gendron, 2004; Martin et al., 2013; Unger et al., 2011). This research will make a contribution to this area by empirically testing across an array of countries, whether or not training impacts on the discontinuation rate of businesses. The majority of studies in this area focus on entrepreneurial training in a specific, geographic context, which limits the generalizability of their findings (Kuratko, 2005; Pittaway & Cope, 2007). This study will go beyond this narrow geographic boundary and analyse the issue of training across 43 countries. This will definitely add a new insight to this stream of literature. Many policymakers, both in the public and private sectors, seem to be of the view that investment in training and education is critical for the success of entrepreneurial firms (Matlay, 2005, 2006). This is evident in their quick pronouncements and support for increased training in entrepreneurship and other educational offerings that signal training for business persons (Matlay, 2005). Indeed, it is generally accepted that education and training are important in helping entrepreneurial firms to find opportunities and exploit them (Shane, 2000). While it is acknowledged that education and training does help to transfer some know- how in the area of entrepreneurship, it is still not clear how education and training impacts on the entrepreneurial intentions (Pittaway & Cope, 2007). For indeed, besides university training and education, there is still a large non- university environment in which the business person operates which may help to shape his/her entrepreneurial intentions and success of the firm (Hamrouni & Akkari, 2012; Walter & Dohse, 2009). There are some scholars who have questioned the relevance of the training to actual practice (Edelman et al., 2008). In their study, Edelman et al noted that there was indeed a gap between what is taught about entrepreneurship and what actually happens on the ground. In other words,
82 Spring 2015 Journal of Business & Entrepreneurship the needs of the customer are not always captured in the training courses on entrepreneurship and business start-ups Critically also, other researchers have shown unease with the training delivered by business schools in order to improve business growth and success. Solomon, (1989) noted that the training provided by business schools in the area of entrepreneurship tend to teach students how to become employees not owning successful businesses. Further, Kirby, (2004) noted that with the large number of programmes that have sprung up in the area of entrepreneurship and educational training for businesses, there is still confusion as to what they should focus on. It appears that most of these programmes equate entrepreneurship with small business management and new venture creation, and further teach persons about entrepreneurship rather than educating for entrepreneurship. That is, the courses and trainings are not geared towards developing the skills and traits, such as creativity, risk taking, innovativeness of an entrepreneur, instead the courses teach them general information about entrepreneurship. Researchers have contended that entrepreneurship education and training are important for a number of reasons. Some scholars see it as important for generating business ideas and confirm whether or not an idea is new and valuable (Hamrouni & Akkari, 2012; Matlay, 2006). Further, it is argued that education and training provide entrepreneurs with knowledge on how to bring business ideas to market and derive the value from such ideas in a better way than the competition (Pittaway & Cope, 2007). Indeed, participation in training courses helps this process as students are able to share knowledge and experience and thus contribute to the diffusion of knowledge on best practices that can lead to business success. Empirical studies have shown that there is a positive relationship between training in entrepreneurship and entrepreneurial intentions (Peterman & Kennedy, 2003). Viewing the issue through the theoretical lens of human capital theory (Becker, 1964), the interpretation seems to be that with higher entrepreneurial intentions, it is expected that the longevity of the firm will increase because there will be greater levels of creativity and innovation from the owners of these firms. Learning styles are also critical as they will impact on the outcomes from education and training (Politis & Gabrielsson, 2009). There are both active and reflective learnersii and courses designed to encourage training for business continuation must take this into consideration (Kolb, 1984). An added benefit of education and training in the entrepreneurial process is the spin-off of networks and business relationships it can help future entrepreneurs to build, which can lead to their success. The growing body of literature on the role that networks are playing in helping entrepreneurs to overcome resource constraints and to become successful is gaining much traction in the academic community (Ellis, 2000; Johanson & Vahlne, 2003; Michael & Combs, 2008). The social networks of the entrepreneur can be an important source of strategic business resources, which can lead to entrepreneurial success for entrepreneurial
Journal of Business & Entrepreneurship Spring 2015 83 firms (Michael & Combs, 2008). Social ties are found to complement the education and training that entrepreneurs receive to shape the future success of their businesses (Walter & Dohse, 2009). Entrepreneurs tend to tap into the knowledge base of their networks to learn about potential markets, sources of funding, business training techniques such as writing of business plans, financial and market analyses, among other things (Johanson & Vahlne, 2003). This knowledge transfer from social networks is critical in helping firms to position their businesses for the long run and thus slower rates of discontinuation. Also critical to the social networks of entrepreneurs is the role of previous work experience of the entrepreneur. Work experience is critical as it helps the entrepreneur to acquire some critical skills in areas such as marketing, finance, management etc., that are critical to the success of a business (Hamrouni & Akkari, 2012; Politis & Gabrielsson, 2009; Williams, 2009). It also provides training in some essential areas of business such as: negotiation, communication, selling, problem-solving among other things (Shane, 2003). These essential skills make it more likely for owners of firms to exploit opportunities to further the growth and survival of their businesses. Besides the knowledge transfer from entrepreneurial education and training, which are important for business continuation and also for identifying international market opportunities to improve business performance (Miocevic & Crnjak- Karanovic, 2011), there are some environmental factors as well that may impact on the rate of discontinuation of the firm. This is especially true when the enabling business environment in which the firm operates is not sophisticated. Viewing business failure through the theoretical lens of organizational ecology can help us to better understand the impact of the external environment on business failure (Hannan & Freeman, 1977). The organizational ecology theory is interested in understanding the interplay between the firm and its environment. It posits that the environment is a principal explanatory factor in the performance of firms and managers are, in essence, powerless to change the environmental outcomes and must therefore put in place, mitigating strategies to deal with environmental evolution (Hamrouni & Akkari, 2012; Hannan & Freeman, 1977). In essence, if a firm cannot cope with the evolution in the environment in which it operates, it will be eliminated. Having viewed business failure through this lens, it is also important to look at some of the critical variables in the environment that have contributed to its evolution and that may impact the performance of the company. Within the external economic environment, some of the most critical variables are: interest rate, economic growth rate and the level of disposable income (per capita income) of households in the society (Baumol, 1990). Following the logic of the organizational ecology lens, these variables are not within the control of the firm but can impact on whether or not a firm remains open or closed, irrespective of the level of education and training that the owners of these firms possess. Importantly, the literature on business failure is generally inward looking, that is, focusing on
84 Spring 2015 Journal of Business & Entrepreneurship the role of the entrepreneurs and paying less attention to these external environmental factors. Indeed, scholars have pointed out that the majority of works on business failure have not analysed empirically, the impact of macro-economic variables on business among start-ups (Strotmann, 2007). The work does not go a far way in considering the role of the external environment. Scholars have argued that the absence of the follow-up of the evolution in the environment results in failure of companies especially start-up companies (Hamrouni & Akkari, 2012; Hannan & Freeman, 1984). Therefore, including these critical macro-economic variables in this study will no doubt extend the sparse literature in this area of work. In the external environment, firms do not have control over the level of interest rate in the economy. They will have to borrow funds for working capital and investment purposes based on the prevailing rate set by the government or the market forces. This level of interest rate that firms are charged for borrowed funds is critical in determining whether or not they can survive. Economic theory suggests that the higher the interest rate (real or nominal), the greater is the cost of borrowed money which increases the cost of doing business, and thus negatively impact on the longevity of the firm (Hall & Taylor, 1997). Indeed, this variable is even more important in developing country environment where the interest rate on borrowed funds are generally high and in double digits. In more developed economies, like the United States and Western Europe, the interest rate is generally in single digits and very low. This variable therefore, may not become a significant determinant of whether or not a firm continues its operation. In essence, the context will help to determine whether or not interest rate is indeed a critical variable in determining business discontinuation rate. Other critical economic variables that are found to affect the performance of a firm in the business cycle are: the level of per capita income in the population and the rate of growth of the country’s output, that is the economic growth rate. The higher the level of per capita income, the greater the purchasing power of the population will be, and all other things being equal, the more persons will spend consuming the products that firms have to offer (Frank & Bernanke, 2004). With increased purchasing power in the hands of consumers, once these firms have value to offer the consumer and have the correct value proposition in place, it is less likely for them to discontinue operations. Also, with increased output growth or economic growth, it is expected that per capita income will be higher as well. Further, the logic from an economic lens is that; with a growing economy, there will be more opportunities for businesses as consumers will have greater purchasing power as well, and as such, there will be a greater likelihood of business failure. In other words, there is expected to be a positive relationship between the growth of the economy and business discontinuation. That is, as the economy expands, more businesses are expected to remain open assuming that they have the right strategies to respond to the evolution in the external environment. It
Journal of Business & Entrepreneurship Spring 2015 85 is also anticipated that more new businesses will come on stream as a result of the economic expansion. The expansion will lead to more business opportunities and entrepreneurs can diversify their operations in order to fulfil their company’s objectives. Viewing business failure through the lens of human capital theory and organizational ecology theory, it appears that business discontinuation rate is a function of both lack of educational training of the entrepreneurs and evolutionary changes in the macro-economic environment in which the firms operate. The cognitive ability of the owners of firms is critical in helping to shape policies and strategies to move the enterprise forward (Hamrouni & Akkari, 2012; Martin et al., 2013; Miocevic & Crnjak-Karanovic, 2011). As such, training cannot be ignored when analysing the performance of businesses. However, the internal dynamics alone will not lead to longevity of companies. The forces in the external environment over which the managers of a firm do not generally have control also play a critical role in determining discontinuation rates among businesses. Following the theoretical lens that grounds the arguments on business failure, and to shed light on the research question which guides this study, the conceptual model below will be used as the analytic framework from which the various factors believed to impact on business failure will be examined.
Figure1: Conceptual Model
Using human capital theory and organizational ecology theory, the model basically argues that the discontinuation rate of businesses in an economy is a function of the internal dynamics of the firm (e.g. lack of educational training for its managers, owners/entrepreneurs and changes in the external environment in
86 Spring 2015 Journal of Business & Entrepreneurship which the firm operates. A focus on the macro-economic environment is even more important in the context of developing economies, given that they are generally characterized by macro-economic instability as manifested in high interest rates, high inflation, huge debt burdens and unstable exchange rates. These factors impose an additional cost of doing business in these environments, and as such, can lead to businesses closing rather than remaining open. Indeed, following the logic from the conceptual model and using the human capital theory and organizational ecology theory as the lens through which to view business failure, this paper will test the following hypothesis:
H1: Business discontinuation among start-up firms is positively related to lack of educational training among entrepreneurs and changes in the macro-economic environment in which the firm operates.
The next section of the paper provides an overview of the method that was used to derive conclusions from the analysis of the data.
The Method
To motivate this study, a general model, which operationalizes the conceptual framework and captures the relevant variables that determine discontinuation rate of firms has to be established. Following previous works in the business failure literature (Campbell et al., 2012), the general expression for the model that will be used to operationalize the conceptual framework presented above, is as follows: Yj = ∫ (X1, X2, X3….Xn) + εj (1) Where: Y is the dependent variable representing business discontinuation rate J is each country from 1- 43 X1….Xn represent the vector of variables that have been extrapolated from the human capital theory and organizational ecology theory that are deemed to impact on the discontinuation rate of businesses. εj is the error term.
Following previous research on the subject (Hamrouni & Akkari, 2012; Martin et al., 2013) an d viewing the research problem through the lens of human capital theory and organizational ecology theory, specific variables that relate to the research question under consideration were identified. The variables selected from the vectors were determined based on what is theoretically robust and also empirically feasible, that is, data on that particular variable for all the countries were available. Taking these issues into consideration, the choice was made to focus on variables that reflect the macro-economic environment in which the firm operates (external environment), and those that reflect the human capital resources
Journal of Business & Entrepreneurship Spring 2015 87 of the enterprise such as entrepreneurship education and training for entrepreneurs. Having taken all the factors into consideration, the specific variables that were used to build a variant of the general theoretical model are presented below. The estimated model therefore becomes:
Yj = (2) Where: γ = Interest rate δ = per capita income θ = GDP growth rate φ = level of training for the entrepreneur εj = error term
The estimated model that can tell us which of the variables have the greatest impact in explaining business failure among start-ups will be generated The level of statistical significance of the variables will help us to determine which factor is most responsible for the discontinuation rate among the start-up enterprises in developing and emerging economies.
The Research Data
Cross sectional data for 2008 on 43 countries that are studied in the Global Entrepreneurship Monitoriiiiv Report were collected on the four independent variables (interest rate, per capita income, GDP growth rate, and level of entrepreneurship education and training) and the dependent variable (business discontinuation rate) and were used to estimate the theoretical model in Equation 2 above. It must be noted that the countries represented in this study were drawn from all continents and are also at different stages of their economic development cycle, that is, factor driven, efficiency driven, innovation driven, and wealth driven. This is possibly the first study that has analysed business failure of start-ups from this international perspective. Therefore, the findings from this international perspective will no doubt, add new insights into the literature on business failure among start-up firms. The secondary data for 2008 on each of the variables were collected from various sources such as the IMF’s International Financial Statistics, the World Economic Outlook, and the World Development Indicators published by the World Bank, and the Global Entrepreneurship Monitor, Jamaica Report 2008. The table below shows the variables, their measurements, and the source of the data.
88 Spring 2015 Journal of Business & Entrepreneurship Table 1: Regression Variables Variables Measurement Data Sources Business Discontinuation Percentage of businesses Global Entrepreneurship Rate (Business Failure) that do not move from Monitor Report 2008 start-up to established firms Interest rate Prime lending rate in the International Financial country Statistics Per capita income Average income per World Development persons in the population Indicators GDP growth rate Percentage change in World Economic Outlook, GDP from one period to World Development another Indicators Entrepreneurial Percentage of the Global Entrepreneurship Education and Training. population age 18-64 that Monitor Report 2008 received voluntary or compulsory training in starting a business
Results
This study set out to analyse the impact of entrepreneurship education and training and variables of external macro-economic conditions on the business discontinuation rate of firms in various economies across the world. The results from the analysis of the data suggest that business discontinuation or business failure in general is a function of changes in the external environment in which the firm operates and not the lack of entrepreneurial education and training of the entrepreneur. Specifically, it says that failure is a function of the level of per capita income in the country and not the lack of entrepreneurial education and training of the entrepreneur. A straightforward reading of the results suggests that there is an inverse relationship with the level of per capita income and the business discontinuation rate. That is, as per capita income increases, the level business discontinuation (failure) reduces. Put differently, the simple interpretation is that; the higher the level of income that citizens have, the lower the level of business failure in the particular economy. This finding is not surprising as it finds resonance with aspects of the literature in Economics, which look at failure in entrepreneurship (Baumol, 1990). Table 2 below highlights the results from this analysis.
Journal of Business & Entrepreneurship Spring 2015 89 Table 2 Multivariate regression result: Determinant of business discontinuation (failure) rate Variables Beta T p-value Constant 33.18 3.3 0.00 Interest Rate 2.05 .99 .33 Per capita -7.01 -3.37 0.00* income GDP Growth -1.23 -.79 .44 Rate Entrepreneurship -.05 -.41 .68 Education and Training R2 .49 Adjusted R2 .43 F-statistic 7.9 (0.00)
Dependent variable: Business Discontinuation rate (% of businesses that do not go from start-up to established firm) *: variable significant at 5% level.
While a number of the variables from the analysis are not statistically significant, they still possess the correct hypothesized signs based on their groundings in the human capital and organizational ecology theories. For instance, the relationship between discontinuation rate and interest rate is positive. This suggests that as interest rates increase, the level of business failure also increases. Further, the results also suggest that as the economy grows, the level of business failure reduces. This is captured by the negative sign on the GDP growth co- efficient. Similarly, the results suggest that although not statistically significant, based on the reasoning in the human capital theory, with increased entrepreneurial education and training, there will be a reduction in business failure. To test the stability of the entrepreneurship education and training result, the training variable was analysed further. The original model had focused on the level of entrepreneurship education and training that countries provide to their citizens to start a business. To see whether or not training of any type besides starting a business does have an impact on business failure, the model was disaggregated into entrepreneurship training of any type and not merely training for starting a business. The results from this analysis are presented in Table 3 below.
90 Spring 2015 Journal of Business & Entrepreneurship Table 3 Multivariate Regression Result: Determinant of Business Discontinuation/Failure Rate Variables Beta T p-value Constant 35.64 3.64 .00 Interest Rate 1.92 .97 .34 Per capita -7.81 -3.89 .00* income GDP Growth -1.30 -.83 .41 Rate Entrepreneurial -.06 1.09 .28 Training- Any type R2 .51 Adjusted R2 .48 F-statistic 8.50 (.000) Dependent variable: Business Discontinuation rate (% of businesses that do not go from start up to established firm) *: variable significant at 5% level.
The results from Table 3 suggest that the variables are indeed stable. Whether or not citizens were given training to merely start a business or any other type of entrepreneurship training the data suggest that it is external macro- economic conditions that have the greatest impact on business failure and not so much the lack of training of the entrepreneur. Similar to the results from the model with the compulsory training to start a business, this result suggests that it is the level of per capita income that has the greatest impact on business failure among start-ups. Also, the hypothesized sign for the other non-significant variables (interest rate, GDP growth rate and training) remained the same as in the original model. Further, the model diagnostics moved marginally with the R2 moving slightly from 0.49 to 0.51. This is a significant indication that the model is robust. The model diagnostics also suggest that the results are robust. The model R- square looks at the percentage of the dependent variable (business discontinuation/ failure rate) that is explained by the four independent variables. In this case, almost 50 per cent of business failure is explained by the independent variables. Also, the F-statistic suggests that the Beta values for the independent variables are different from zero and as such, the model in its current form is a good predictor of business failure. Further, the results also suggest that multi-collinearity was absent from the model. The tolerance statistics values are above 0. 1 and the variance inflation factor values are below 10; the benchmark figures, which suggest whether or not multi-collinearity exists in a model (Menard, 1995; Myers, 1990). Put differently,
Journal of Business & Entrepreneurship Spring 2015 91 the relationship among the independent variables is not very strong. The results for the test of multi-collinearity are presented in Table 4 below.
Table 4 Results from Multi-Collinearity Tests Variables Statistics Tolerance Variance Inflation Factor Interest Rate .59 1.70 Per capita .42 2.40 income GDP Growth .59 1.70 Rate Training- .80 1.24 compulsory schooling
In general, the results suggest that it is external macro-economic conditions, not shortage of human capital resources that impact most on business failure among start-ups in developing countries. More specifically, it is the level of per capita income that has the most significant impact on business discontinuation/failure among the start-ups. The interpretation is that the lower the level of per capita income in a country, the higher the likelihood of business failure. That is, an economy that has a lower per capita income will see less businesses converting from start-ups to established firms. The discussion section below will explore the theoretical and empirical rationale for this finding.
DISCUSSION AND CONCLUDING THOUGHTS
This paper is aimed at understanding the impact of entrepreneurial education and training and external macroeconomic conditions on the rate of business discontinuation/failure in developing countries. Following previous works on business failure (Campbell et al., 2012; Martin et al., 2013) this study took an international look at the subject from contexts that are not generally studied in the wider literature. This is an important addition to the literature. In most cases, in the countries studied, it was not difficult to start a business. Indeed, the World Bank’s “Ease of Doing Business Survey” data revealed that most developing countries do well in their ranking in relation to starting a business. For example, Jamaica, a small, developing Caribbean country in 2012, was ranked 23 out of 183 countries
92 Spring 2015 Journal of Business & Entrepreneurship in the world in its ease of starting a business while more advanced countries like Sweden was ranked 46 out of 183. However, the challenge that most nations like Jamaica faces, is to move these start-ups from their nascent stage to established businesses that have a long life-span and can employ a critical mass of persons to contribute to economic growth and development (GEM, 2008). It is this troubling reality that has motivated the work done in this paper. Previous research have pointed to the internal environment of the firm and also the external macro-economic and social environment in which the firm operates as factors that are responsible for the lack of significant movement from start-up to more established firms (Campbell et al., 2012; GEM, 2008; Hall & Taylor, 1997). However, these research are generally country specific with a limited focus on specific sectors. The research presented in this paper has deviated from this country specific research in business failure to focus on failure across a group of developing countries that are not well studied in the general literature. Using theoretical arguments from human capital theory and organizational ecology theory, this research has tested in a rigorous, scientific way, the impact that specific human capital and external environmental factors have on the rate of business failure among start-up firms from developing economies. The analysis of the data suggests that it is the changes in the external macro-economic environment, specifically the level of per-capita income in a country that has the most statistically significant impact on business discontinuation rate and not the human capital resources of the entrepreneur. This result is interesting but not surprising. It finds support in the organizational ecology literature, which purports that business failure has less to do with the management skills of the entrepreneur and is more a reflection of the evolution in the external environment in which the firm operates and has little control over. From the results presented, the level of per capita income, which is the amount of money citizens in a population have to spend, has a negative relationship with the discontinuation rate of businesses. Intuitively, this makes sense. When consumers have more money to spend, they are more likely to buy the products and services from enterprises that are operating in their geographic location. If consumers spend more money in the economy, businesses will benefit by having more capital and can therefore invest in modern processes and offering even greater value to the consumer. When citizens spend money to buy the goods and services that businesses produce and the businesses generate a profit, their shareholders will be motivated to continue to invest, and in essence, keep the firm in operation for a longer time. When consumers do not spend, the level of demand in the economy shrinks, businesses do not make profits and shareholders do not receive the returns on their investment so they are not motivated to continue that investment. As such, businesses will generally close operations if they are unable to generate a profit from the sale of their goods and services. So, putting more money in the hands of
Journal of Business & Entrepreneurship Spring 2015 93 consumers, they will have a greater purchasing power and as such, will spend more leading to higher survival rate of businesses. If we were to follow the logic of the organizational ecology theory, it will suggest that irrespective of the sophisticated training and world-class management practices that are associated with an enterprise, if there is turbulence in the environment (e.g. negative economic growth which leaves persons with less money to spend to buy the goods and services that are produced by the firms), then firms will go out of business. Businesses create value by producing a product and then selling it at a price above the cost of production in order to generate a profit for the shareholders (Dees, 1998). If a sufficient mass of consumers do not have money to buy these goods and services, the firm will not be able to generate a profit and the return on the capital employed by shareholders will not be sufficient for them to continue to invest. This will no doubt lead to the firm being closed down and go out of business. This finding in no way discounts the importance of businesses training to move firms from start-ups to established enterprises. However, it is suggesting that having high levels of human capital in the firm is not sufficient to ensure survival. Although the model did not find entrepreneurial education and training to be statistically significant in determining business failure, the hypothesized sign based on the reasoning in the literature on human capital theory, is intuitively going in the right direction. The results suggest that there is a negative relationship between business discontinuation rate and training received by entrepreneurs. This makes sense if we agree with the arguments of the human capital theory, which essentially argues that training helps business people to handle, more effectively, the complexities associated with running an enterprise. Training provides entrepreneurs with tools that can help them to overcome problems from financial, marketing, human resources to operation and logistics that are associated with running an enterprise. It will provide them with the knowledge of how other organizations have overcome similar problems, best practices in running an organization, and the most current knowledge on the subject. These are important issues with which all entrepreneurs should be familiar. Without such knowledge, it will be difficult for them to manage the factors that are involved in running a firm in an increasingly complex business environment. The way these entrepreneurs learn, that is, their different learning styles will no doubt impact on how they eventually value business training and transfer it into the operation of the firm (Hamrouni & Akkari, 2012). Understanding how people learn and the different types of learning and knowledge that exist (Pett & Wolff, 2010) will be important for designing training courses for entrepreneurs if they are to be effective in helping to get firms from the start-up phase to become established enterprises. The rise in business schools and entrepreneurial training courses are all evidence of the increased importance that is being placed on training for entrepreneurs.
94 Spring 2015 Journal of Business & Entrepreneurship The results from this research did not find a statistically significant impact of entrepreneurial education and training on business discontinuation. This is in contravention of the expectations of the human capital theory. However, this may be due to the manner in which the concept was operationalized. The research merely captured the percentage of persons who received training to start a business whether through compulsory education in the school system or through their voluntary efforts. However, to better understand the impact of entrepreneurial education and training on the performance of an enterprise, a more nuanced understanding of the impact that training has on the entrepreneur’s mind-set and how he/she uses the training in the management of the organization needs to be had. A qualitative exploration of the topic will no doubt help in this regard. Generally, modelling complex concepts, like education, does not always provide results that are in line with the theoretical expectations (Becker, 1964). The latent value from training may be very difficult to be revealed in an econometric model. The other important result, although not statistically significant but which shows the correct hypothesized sign, is the impact that interest rate has on the level of business discontinuation/failure. The result suggests that there is a direct, positive relationship between interest rate and the level of business discontinuation rate in the economy. Put differently, the higher the interest rate in the economy, the higher the level of business discontinuation; and the converse is also true. This intuitively makes economic sense. The interest rate that businesses pay on the cost of borrowed funds is a cost that the firm has to bear. This cost impacts on the level of profitability that the firm can earn, and by extension, the returns it can give to its shareholders: The higher the rate of interest, the greater the cost for borrowing for the firm. If this rate becomes too onerous, it will reduce significantly the profit which the firm earns. In some cases, it will result in the firm making losses, thus eroding its value. As value is eroded, the chance of the firm closing down increases and eventually, the firm may have to discontinue its operation. It is therefore clear why business persons generally lobby governments to manage their economies well in order to keep interest rate low so as to facilitate investments and the growth of enterprises. If we view the interest rate results through the lens of the organizational ecology theory, it is clear that interest rate movements reflect an evolution in the external environment and since entrepreneurs do not have control over this variable, they therefore will have little control over the impact this evolution has on the survival or failure of their firms. The implication of this result for policymakers is quite clear. Economic policymakers will have to ensure that they manage their economies toward generating macro-economic stability, an important pre-condition for growth. They will have to keep their fiscal deficits at sustainable levels and also keep their debt to GDP ratio at manageable levels as well. These are important pre-conditions for economic stability. If these variables are out of line, it forces the market to demand a higher interest rate and thus pushes up the cost of borrowing for the firm.
Journal of Business & Entrepreneurship Spring 2015 95 Developing economies with less sophisticated systems of governance generally run high budget deficits and have huge debt ratios. This may explain the low levels of investments that are generally seen in these societies. This lack of investment also impacts on the level of growth that the economy enjoys. With lower levels of investments, economies will find it difficult to grow and with little or no growth the chance of business survival is much less. Indeed, this study also observed, although not statistically significant, that the level of economic growth rate also impacts on business discontinuation rate. The hypothesized sign in the study shows an inverse relationship between economic growth rate and business discontinuation rate. This result finds resonance with the reasoning in mainstream economics (Frank & Bernanke, 2004; Hall & Taylor, 1997). When the economy is growing, it expands the amount of income that the members of the population will have and as such, increases the purchasing power of the citizens. As expected, with increased purchasing power, consumers will be more inclined to buy the goods and services produced by the firm. This will help the firm to generate greater value and give higher returns on investment to capital. This will therefore, motivate more persons to invest, and by extension, propel businesses to move from their start-up stage to become more established firms. A growing economy also expands the opportunities for doing business. Besides an increase in per-capita income, when an economy is growing, it leads to an expansion of industry sectors and the creation of new industries. These developments will provide increased business opportunities for start-up firms to expand their operations. A growing economy will provide start-up firms with opportunities for diversification of their offerings and increasing their revenue streams. This can help to offset weak areas of the business and ensure its continued good performance in other areas as well. Indeed, a stronger economy will give more impetus for businesses to continue their operation because of the opportunities for diversification of offerings and new lines of business for expansion. Adroit business leaders will be able to spot these opportunities and ensure that their businesses benefit from this stronger economy and do not exit the market place. There are some clear policy implications from this finding. Policymakers who want to reverse the level of business discontinuation will have to put policies in place to grow their economies. This will mean that the economy has to become more business-friendly, which will ensure greater levels of investments. With more investments, this will stimulate aggregate demand and with increased aggregate demand, there will be a fillip to the economy and by extension, generate stronger growth. Growth-oriented policies will have to be implemented by policymakers and not growth-obstructing ones. The issue of economic growth is not without its controversy (Bhagwati, Greenaway, & Panagariya, 1998; Frank & Bernanke, 2004;
96 Spring 2015 Journal of Business & Entrepreneurship Rodrik, 2007), however, the most important thing is to diagnose the problems in the particular economy and then find the solutions that c There are no examples in this article that fit perfectly to this problem. A fit to these problems is not necessarily the one-size-fits-all solution. Policymakers will have to apply standard growth inducement strategies but adapt them to the idiosyncratic nature of their own economies. The one-size-fits-all policy approach to growth will not generate the expected result in most cases. Rodrik (2007) provided a good discussion on how policymakers should approach growth. The important lesson however, is that growth inducement strategies will be important for reversing the level of business discontinuation rate. It must be noted that these policies are outside of the control of the entrepreneur and as such, can be seen as evolution in the environment in which the firm operates. It is this type of evolution which the literature in organizational ecology refers to as impacting business survival or failure.
Concluding Thoughts
This research showed that per capita income, not so much entrepreneurial education and training, is the most significant variable to impact the level of business discontinuation/failure rate across the developing countries studied in this paper. In other words, it is the evolution in the external environment not so much the human capital skills of the entrepreneurs that has the greatest impact on business failure among start-ups in developing countries. The specific findings in this study suggest that the higher the level of per capita income, the greater the likelihood of businesses moving from start-up to become established enterprises. The explanation put forward is that consumers will spend more if they have a higher level of disposable income. This increased spending will lead to greater profits for firms and ceteris paribus, this will ensure their survival. The findings however, should not be interpreted to mean that internal conditions such as the human capital resources of the entrepreneur are not important to ensure that businesses move from start-up to established enterprises. Although the entrepreneurial education and training were not found to be statistically significant, their hypothesized signs are in-line with the intuitive explanations from both human capital theory and organizational ecology theory. Policymakers who are trying to reduce the level of business failure in their economies should not ignore these other internal and external factors. While the results from the statistical model are robust, given the limited sample of countries used in this study, there are some limitations that must be borne in mind in their applications outside of the sample. Only 43 of a population of 204 countries across the world were analysed in this study. This may pose problems for the generalization of the results beyond the sample, given that a convenient sample was used. Also, the operationalization of the entrepreneurial
Journal of Business & Entrepreneurship Spring 2015 97 education and training variable could be more nuanced. It merely captured the percentage of the population that had training in entrepreneurship. It did not capture the type of training or how the training was used to benefit the firm. These factors can make a difference in how human capital resources impact on the performance of the firm. These issues however, can be very difficult to model using quantitative techniques. As such, a more qualitative approach could be a possible direction for future research on the subject. Future researcher should also undertake the study on a larger sample size in order to do more disaggregated analysis at the country level and across regions as well. For example, research can explore whether or not entrepreneurial education and training are important in developed versus developing countries, transition versus poor developing countries, large versus small developing countries, among other categorizations. This will give better insights into the generalizability of the findings. Despite the limitations identified; the results are still important. They extend the literature on entrepreneurship education and business discontinuation/failure, an area that is not well studied in the extant literature. Further, the results must be treated as descriptive rather than prescriptive.
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i The GEM 2008 data is used because it gives the most comprehensive data on all the variables of relevance to this particular study. The data for other years in the report is very sparse across countries ii An active learner is one who learns through active experiment such as seminars, simulations etc. A reflective learner is one who learns through observations such as attending a lecture, reading books etc. iiiiiiiii ivAt the time of this study, the 2008 report had the most comprehensive data on all of the variables that were of relevance to this study.
102 Spring 2015 Journal of Business & Entrepreneurship FEMALE ENTREPRENEURSHIP: EVIDENCE FROM VIETNAM
Lei Zhu Orhan Kara West Chester University of Pennsylvania West Chester University of Pennsylvania
Hung M. Chu Anthony Chu West Chester University of Pennsylvania The Institute for Family Health
ABSTRACT
The study investigates motivations, success factors, problems and business-related stress of Vietnamese women entrepreneurs. One hundred and seventy women business owners in Binh Duong and Binh Phuoc provinces were randomly selected for a survey. Findings show that the two most important reasons for business ownership are to increase income and to be one’s own boss. Friendliness to customers and good location are considered the leading factors for business success. The most critical problems encountered by Vietnamese women entrepreneurs are reported to be competition and the inability to retain high quality employees. The entrepreneurs also indicate a low level of business- related stress. Results of the factor analysis suggest that women entrepreneurs would benefit from government support and financial market liberalization.
INTRODUCTION
Vietnam has experienced remarkable economic growth since it adopted the economic reform policy known as “Doi Moi” in 1986. From 1990 to 2010, the economy grew at an annual average rate of 7.3%, even counting the recent economic downturn (World Bank, 2011b). The transition from a centrally planned economy to a market oriented economy has been accompanied by a thriving market of private enterprises. It is estimated that around 25 percent of business owners in Vietnam are women and the percentage of women-owned enterprises will reach 30% in 2015 (ILO, 2011). Women enterprises contributed significantly to the job creation and economic growth in Vietnam. Although women have gained increased economic opportunities, their productive potential is underutilized due to cultural values and an unfavorable business environment. Vietnamese culture is intertwined with Confucian
Journal of Business & Entrepreneurship Spring 2015 103 philosophy. The traditional expectation of a woman’s role has been limited to taking care of family and doing housework. Men are relied upon to provide the main source of income for the household. Women entrepreneurs face the challenges of equal access to resources, finance and business training. Being aware of these barriers, the Vietnamese government has committed itself to promoting gender equality and women’s empowerment over the past decade. The Gender Equality Law was passed in 2006 and aimed to improve women’s roles in society, especially in business. It states that “women are equal in establishing new businesses, operating, trading and managing businesses, as well as in accessing information of fund, market and workforce”(Vietnam Women Entrepreneurs Council, 2007). While progress has been made, gender imbalance still persists in the labor market (World Bank, 2011a). Existing literature on Vietnamese women entrepreneurs mainly focuses on the barriers and difficulties they face in doing business. This study takes a broader perspective and examines key areas of motivation, success factors and problems related to women entrepreneurship in Vietnam. Improving women’s employment is important for sustainable economic growth. This paper provides insights into the current status of women entrepreneurs and their needs. The findings will help policy makers build a support system for the development of women entrepreneurship.
LITERATURE REVIEW
Economists classify limited resources into four groups: land, labor, capital, and entrepreneurship. Assuming that females account for about half of the population, women’s contributions should be half of the labor for their work efforts, half of the capital in terms of human capital, and half of the entrepreneurship as their male counterparts. However, women’s visibility in these resources is limited, and especially in developing countries, female contribution is underutilized. Vietnam, as a developing country, is no exemption. There may be several factors, ranging from political to personal, that prevent women from reaching their full potential. Given the importance of women among the limited economic resources, researchers have attempted various studies to explore these factors. But most of studies have focused primarily on women in developed nations, with a little emphasis on women in developing nations.
104 Spring 2015 Journal of Business & Entrepreneurship For example, we were able to locate only three studies exclusively focused on women entrepreneurship in Vietnam. Among those studies, Scheela and Hoa (2004) examined the significance and effectiveness of a network-based growth strategy for Vietnamese women entrepreneurs. They concluded that women entrepreneurs in Vietnam utilized networking with government officials at a greater degree than western women entrepreneurs. Not only was this study restricted to networking activities, but it was also restricted to only six Vietnamese women entrepreneurs. The remaining studies were conducted in connection with the Vietnamese Women’s Union and the Vietnam Chamber of Commerce & Industry, and supported by the International labor Organization. Gerrard, Schoch, and Cunnigham (2003) gathered data from seventy-five women who participated in four Vietnamese Women’s Union management workshops. The information collected includes work related values, work related management skills, cultural values, and demographic and business background. After analyzing and comparing the data to women entrepreneurs in Singapore, Gerard et al. (2003) found that women entrepreneurs in both countries share a very strong Confucian dynamic. They also maintain some common characteristics found among women entrepreneurs in other countries such as looking for good job security, the chance to use one’s mind, clearly defined responsibilities, freedom, good pay, good customer orientation, leadership, creativity and flexibility, and financial management. A more extensive study was undertaken by the Vietnam Women Entrepreneurs Council (2007). Ninety women entrepreneurs and twenty business development providers and business associates were interviewed. Information was also collected from twelve focus group discussions. This study indicated several constraints women entrepreneurs face: high pressure from work and family, lack of time, difficulties establishing social relations and communications, low educational attainment, household responsibilities, limited business development services, gender stereotype, and lack of business training. The difficulties Vietnamese women entrepreneurs faced can be found in other countries. Specifically, problems included the lack of business training and experience (Hisrich & Brush, 1984; Pellegrino & Reece, 1982), conflict with family responsibilities (Brush, 1997; Winn, 2005), limited capital (Buttner & Rosen, 1989; Marlow & Patton, 2005; Riding & Swift, 1990), managing and retaining staff (Carter & Cannon, 1992; Hisrich & Brush, 1986), and an insufficient supportive network (Weiler & Bernasek, 2001).
Journal of Business & Entrepreneurship Spring 2015 105 Aidis, Welter, Smallbone, and Isakova (2007) studied women entrepreneurs in Lithuania and Ukraine and concluded that access to capital, networking, and informal institutions such as gendered norms and values were among the problems. Tambuan (2009) also identified lack of education level, lack of capital, and religious and cultural constraints as challenges to women entrepreneurs in 16 Asian economies including China, Philippines, Hong Kong, Vietnam, Thailand, Singapore, Cambodia, Brunei Darussalam, Malaysia, Korea, Sri Lanka, Indonesia, Bangladesh, Nepal, Pakistan, and India. In Nigeria, women entrepreneurs’ problems are noted as the struggle to balance family and work life, lack of recognition, gender discrimination and sexual harassment (Singh et al., 2010). For women entrepreneurs in Afghanistan, the main problems they faced were limited markets, mobility constraints, negative attitudes, and lack of social acceptance (Holmen, Min, & Saarelainen, 2011). After studying Bulgarian entrepreneurs, Yordanova (2011) found that lack of resources and opportunities, legal forms, and the smaller sizes of women-owned businesses were significant hurdles. The problem that smaller sized businesses had restricted access to capital was also found to be the case for women entrepreneurs in Poland (Wasilczuk & Zieba, 2008) and other regions, such as Latin America, in addition to Sub-Saharan Africa, and Eastern and Central Asia (Bardasi, Sabarwal, & Terrell, 2011). Coleman (2000) argued that banks prefer to lend to large firms and discriminate against women entrepreneurs who tend to own small businesses. Women entrepreneurs were charged higher interest rates and needed more collateral than male business owners (Coleman, 2000; Riding & Swift, 1990). Due to a misleading perception that women entrepreneurs lack business experience, Carter and Rosa (1998) argued that women entrepreneurs frequently faced credit refusal. Although the studies on Vietnamese women entrepreneurs uncovered some of the difficulties that are shared with their developing country counterparts, they did not examine the motivations and success factors of Vietnamese women entrepreneurs. In the existing literature, independence and self-fulfillment were found to be the common motivations for women entrepreneurship in developed nations. For example, Scott (1986) employed two surveys to investigate the reasons for women to start a business. He found that women entrepreneurs are concerned with personal challenge and satisfaction, unlike men, whose motivation is a desire to be their own boss. Carter and Cannon (1992) reported that independence and the challenge of business ownership are the top two cited motivations after interviewing sixty women
106 Spring 2015 Journal of Business & Entrepreneurship entrepreneurs in the UK. Similarly, a study in Norway showed that independence is a main motivator for women establishing a business (Ljunggren & Kolvereid, 1996). In a Scottish study, Grampian et al. (2005) interviewed ten female entrepreneurs and found the motivation factors include the desire to be their own boss and to circumvent the glass ceiling. Apergis and Pekka- Economou (2010) examined Greek female entrepreneurs. They stated that achievement, flexibility, dissatisfaction with previous working conditions, and wealth were the factors leading them to be entrepreneurs. On the other hand, economic incentives and family needs are found to be the primary motivation factors in the following studies. Ufuk & Ozgen (2001) investigated female married entrepreneurs in Turkey and found that meeting family needs and initiating social relations were the most important factors in becoming business owners. Nigerian women entrepreneurs’ main motivations for starting a business were to reduce poverty and to reverse their deteriorating economic condition (Woldie & Adersua, 2004). Earning more money and reducing unemployment were the major motivations for women entrepreneurs in Asian developing countries (Tambunan, 2009). Holmen et al. (2011) also identified economic incentives as motivation factors for Afghani women entrepreneurs. With respect to the success factors of women entrepreneurs, researchers have identified several factors, but no agreed upon conclusion has been reached. Carter and Cannon (1992) argued that among the strategies leading to business success, the most important was being able to adapt management skills from previous working experience and training. Cuba, Decenzo, and Anish (1983) found that education, experience, and delegating skills have positive impact on entrepreneurs’ success. As was evidenced by Sluis, Praag, and Vijerberg (2008) who found that education was a significant factor on entrepreneurs’ success in industrial countries, Chirwa (2008) confirmed that education has a dynamic impact on the success of women entrepreneurs by comparing female and male owned businesses in Malawi. He also found that women in economic sectors such as retailing, food, beverages, garments, footwear, and general merchandise tend to be more successful. Moreover, Buttner (1993) argued that endurance and hard work were key success ingredients for female entrepreneurs to compete with their male counterparts. Family support and encouragement was also found to help women reduce work-related stress, leading to business success (Buttner, 1993; Maysami & Goby 1999). Lee and Stearns (2012) conducted a study on 228 female entrepreneurs in Korea. They indicated several success factors as
Journal of Business & Entrepreneurship Spring 2015 107 follows: family support and acknowledgment, communication skills, knowledge of business, production competency, business capability, and availability of resources. In summary, researchers have just started to uncover the factors that motivate female ownership of businesses, the variables that contribute to the success of female enterprises, and the problems faced by female entrepreneurs in developing countries. However, no consensus has been reached among researchers. Some of these factors are common among entrepreneurs in developing nations, yet some of them are country specific. For a country such as Vietnam, studies on female entrepreneurs are very scarce and the existing ones only focused on the problems the female entrepreneurs encountered. This study attempts to fill the gap by providing analyses of motivation, difficulties and success factors of Vietnamese women entrepreneurs.
METHODOLOGY
One hundred and seventy women entrepreneurs in Binh Duong and Binh Phuoc provinces located 30 and 50 miles respectively from Saigon, Vietnam were subjects of this study. Two Vietnamese students of Saigon University were trained to administer the survey. They were taught different techniques of interview and data collection. Chambers of Commerce directories from Binh Duong and Binh Phuoc were used to randomly select the women owned businesses. Initial telephone contacts introducing and explaining the purpose of study was made. Face to face interviews were scheduled in the afternoon when business transactions were not at their peak. Non- profit organizations and companies with more than 50 employees were excluded. The survey instrument used in this study was developed by H.M. Chu (Chu & Katsioloudes, 2001), which has been used in previous studies and adopted by a number of authors. This instrument was originally written in English. It was translated into Vietnamese and checked for inter-translator consistency. The survey is composed of 26 questions and divided into several categories. Questions pertaining to business characteristics, motivations, success factors, and problems encountered by entrepreneurs were used in this study. These variables were measured using a Likert Scale ranging from a low of 1 to a high of 5. A mean score for each item was calculated where a higher mean score indicates greater importance. Relations of variables within motivations, problems and success factors were also examined using the Barlett’s test of sphericity and
108 Spring 2015 Journal of Business & Entrepreneurship Kaiser-Meyer-Olkin (KMO) measure. We also use Cronbach’s Alpha to check the internal consistency of the instrument. Cronbach’s Alpha is one of the most commonly reported reliable estimates and was found to be appropriate to evaluate Likert-Scaled items such as those used in this study (Gliem & Gliem, 2003). Although a popular accepted view is that Cronbach’s alpha scores should be above 0.70 (Nunnally, 1978), some researchers indicate acceptable scores may vary between 0.60 and 0.80. Other studies suggest that an ideal score should attain a minimum of 0.70 and a maximum of 0.90 to ensure against a high level of redundancy (Streiner & Norman, 1989). The instrument used in this study yields a score ranging from 0.818 to 0.853, which implies a high level of reliability.
RESULTS
Table 1 reports the general characteristics of the Vietnamese women entrepreneurs in our sample. Fifty-five percent of the entrepreneurs surveyed are married and 45 percent are single. The majority of the women entrepreneurs completed high school (26.7%) or had some high school education (21.5%). Only 19 percent reported that they earned a college degree. It suggests that women entrepreneurs in Vietnam have relatively low education levels, which makes them at a disadvantage in obtaining wage payment jobs. They are more likely to be motivated to create self-employment opportunity. With regard to the business ownership, 39.5% of the businesses are owned independently, 28.5% are inherited, and 15.1% are franchise business. Only 4.7% of the respondents established the businesses by themselves. It shows a higher rate of enterprises that are passed down from previous generation compared with other studies. For example, Zhu and Chu (2010) examined 180 women enterprises in China. Among them, 66% of entrepreneurs created their own businesses, while 2% of enterprises were inherited. The dominant type of business is retailing at 39%, followed by wholesaling at 24.4% and service at 22.7%. Manufacturing businesses comprise 5.8% and agriculture represents 1.2%. The average age of women entrepreneurs is 35 years, indicating that small businesses owned by women are managed by a relatively young group of people in Vietnam. On average, they work long hours and devote about 63 hours to their business every week. This is comparable with findings in countries such as Turkey, Romania and India (Benzing, Chu, & Kara, 2009; Benzing, Chu, & Szabo, 2005; Benzing & Chu, 2005).
Journal of Business & Entrepreneurship Spring 2015 109 Table 1 Sample Characteristics of Women Entrepreneurs in Vietnam Frequency Percent
Marital status Married 93 55 Single 77 45 Education level achieved No formal education 5 2.9 Some grade school 5 2.9 Completed grade school 3 1.7 Some high school 37 21.5 Completed high school 46 26.7 Some college 28 16.3 Completed college 33 19.2 Some graduate work 9 5.2 A graduate degree 0 0.0 Not mentioned 6 3.5 Type of business ownership Established by you 8 4.7 Bought from another owner 21 12.2 Inherited 49 28.5 Independently owned 68 39.5 Franchise business 26 15.1 Owned in partnership 0 0.0 Incorporated 0 0.0 Type of business Retailing 67 39.0 Wholesaling 42 24.4 Service 39 22.7 Manufacturing 10 5.8 Agriculture 2 1.2 Other 21 12.2 Mean age of entrepreneur 34.8 years Avg. working hrs per week 62.76
Motivation
Women entrepreneurs were asked to rank 11 motivation factors for becoming business owners based on a five point Likert scale, with five (5) being “extremely important” and one (1) being “the least important”. The results are presented in Table 2.
110 Spring 2015 Journal of Business & Entrepreneurship It suggests that “To be my boss” and “to increase my income” are considered as the two most important motivations. The mean scores are significantly higher than that of other incentives. According to World Bank (2011a), gender differences still exist in Vietnam even though the government has made considerable progress in addressing gender equality over the last few decades. Currently, women’s wages are about 75% of men’s. Vietnamese women confront an unfavorable labor market during the transition from centrally planned to a market oriented economy. The desire to earn more income stimulates self-employment interest. The Small and Medium Enterprises Survey suggests that the number of women owned enterprises have increased dramatically since the 1990s. Up to 2009, one in every three enterprises was owned by women (World Bank, 2011b). The finding is consistent with the studies in some other developing countries (Holmen et al., 2011; Tambunan, 2009; Zhu & Chu, 2010) that economic incentives and independence are the major motivation factors for women entrepreneurs.
Table 2 Mean Score for Motivation (5= extremely important, 4= very important, 3= mildly important, 2= not very important, 1= unimportant) Motivation Factors Mean Std. Dev.
To be my own boss 4.42 0.852 To increase my income 4.39 0.888 For my own satisfaction and growth 3.66 1.069 To maintain my personal freedom 3.66 1.274 To be closer to my family 3.63 1.130 To be able to use my past experience and training 3.62 1.058 To prove I can do it 3.49 1.010 To provide jobs for family members 3.48 1.040 To build a business to pass on 3.35 1.127 To protect my job security 3.07 1.190 To gain public recognition 2.63 1.089
In addition to seeking the extrinsic rewards created by owning a business, Vietnamese women entrepreneurs are also motivated by intrinsic rewards, such as personal achievement. They indicate that “for my own satisfaction and
Journal of Business & Entrepreneurship Spring 2015 111 growth” and “to maintain my personal freedom” are equally critical driving forces behind their business ownership.
Success Factors
As shown in Table 3, women entrepreneurs believe that charisma and friendliness to customers is the most important factor leading to a successful business. A good location is rated as the second important success variable. Providing good products at competitive prices and good management skills are also considered key elements for a thriving business.
Table 3 Mean Score for Factors Contributing to Business Success (5= extremely important, 4= very important, 3= mildly important, 2= not very important, 1= unimportant) Success Factors Mean Std. Dev.
Charisma; friendliness to customers 4.46 0.769 Good Location 4.38 0.901 Good product at a competitive price 4.24 0.905 Good general management skills 4.10 1.007 Good customer service 4.02 0.857 Access to capital 3.94 1.019 Previous business experience 3.79 1.011 Ability to manage personnel 3.75 1.005 Hard-work 3.73 1.023 Support of family and friends 3.71 1.027 Maintenance of accurate records of sales/expenses 3.65 0.971 Appropriate training 3.63 1.193 Marketing factors such as sales promotion 3.60 1.166 Reputation for honesty 3.16 1.308 Satisfactory government support 2.96 1.089 Community involvement 2.56 1.060 Political involvement 2.27 1.115
In our sample, about 63% of enterprises concentrate on retailing and wholesaling businesses. How to survive in such a highly competitive market is a challenge to women entrepreneurs. The strategy is to differentiate themselves
112 Spring 2015 Journal of Business & Entrepreneurship from other competitors. As small business owners, they have advantages of being flexible to satisfy customers’ needs. Being friendly and creating a comfortable environment are more likely to attract customers and build continuing business relationships. In addition, finding a good location and providing a quality product at a competitive price help to expand customer base and sales. Education and management skills have been found to have a positive impact on entrepreneurial success in previous literature (Carter & Cannon, 1992; Chirwa, 2008; Sluis, Praag, & Vijerberg, 2008). This view is shared by Vietnamese women entrepreneurs. They indicate that management skill is a necessary building block to achieving their goals.
Problems
According to the results in Table 4, the five main obstacles identified by women entrepreneurs include severe competition, inability to attract and retain high quality employees, weak economy, lack of marketing training and limited access to financial capital. With small businesses thriving, Vietnamese women entrepreneurs face fierce competition in the market. Not only are there threats from large corporations, but also competition within themselves. In recent years, Vietnam has been working on integrating their economy with global markets, leading to greater exposure to global economic fluctuations. When the global financial crisis started in 2007, Vietnam experienced an economic downturn as well. The GDP growth rate was only 5.03% in 2012, which is the lowest level since 1999. The weak economy reduced consumers’ demand and spending; this in turn, added more uncertainty to the future of small businesses. The inability to obtain and retain reliable and dependable employees is a common constraint preventing the expansion of small businesses. It is argued that small businesses have limited resources to provide good compensation and benefit for their employees. In addition, there is minimum room for personal development and growth, resulting in high employee turnover rates. Lack of market training is suggested as another major barrier to women entrepreneurs in Vietnam. This is due to the majority of the women surveyed are not highly educated. Limited business training and skills restrict women to access financial capital because investors believe they are unlikely to be able to manage financial risk and market volatility. Banks often charge higher interest rates or require additional collateral when lending to women entrepreneurs. As a
Journal of Business & Entrepreneurship Spring 2015 113 result, personal saving and funds from family become the main capital sources for small businesses. In our sample, 53% of business capital is from personal saving and 30% is borrowed from family members.
Table 4 Mean Score for Problems Faced by Women Entrepreneurs (5= extremely important, 4= very important, 3= mildly important, 2= not very important, 1= unimportant) Problems Mean Std. Dev.
Too much competition 4.05 0.960 Unreliable and undependable employees 3.95 0.996 Weak economy 3.40 1.323 Lack of marketing training 3.37 1.220 Not having enough financial capital 3.34 1.164 Lack of management training 3.15 1.192 Too much government regulation/bureaucracy 3.11 1.060 Long business registration process 3.06 1.342 Complex and confusing tax structure 3.02 1.135 Inability to maintain accurate accounting records 3.01 1.148 Foreign exchange limitations 2.93 1.243 Unsafe location 2.87 1.357 Limited parking 2.80 1.300 Poor roads/transportation 2.78 1.465 Electricity Problems 1.92 1.106
Factor Analysis
To further examine motivation, success and problem variables, we conduct a factor analysis. We use the Barlett’s test of sphericity and Kaiser- Meyer-Olkin (KMO) measure to test if there is sufficient correlation between those variables. The results show that factor analysis is appropriate for our data. Factors are identified using eigenvalues and scree plot based on principal component factor analysis with varimax rotation. In order to identify which factor contributes significantly to women entrepreneurs’ decisions, a summated scale or score is computed for each factor. The summated scale is the average score of variables in each factor.
114 Spring 2015 Journal of Business & Entrepreneurship Table 5 Varimax Rotated Factor Loadings (sorted) and Communalities for Motivation
Factor Factor Factor Motivation Variables Communalities 1 2 3
For my own satisfaction and growth 0.711 0.506 To use my past experience and training 0.696 0.496 To protect my job security 0.653 0.446 To gain public recognition 0.610 0.536 To prove I can do it 0.586 0.453 To increase my income 0.706 0.541 To maintain my personal freedom 0.694 0.610 To be my own boss 0.658 0.450 To provide jobs for family members 0.774 0.630 To build a business to pass on 0.688 0.481 To be closer to my family 0.618 0.595 Eigenvalues 2.185 1.914 1.645 % of Variance 19.86 17.40 14.95 Kaiser-Meyer-Olkin Measure 0.623 Bartlett's Test of Sphericity p<0.000
The factor analysis of motivation variables is presented in Table 5. The motivation variables are loaded on three factors, which can be classified as “intrinsic factor”, “extrinsic factor” and “family factor”. An intrinsic factor is related to personal achievement and recognition from a job, such as “to gain own satisfaction and growth”, “to prove I can do it.” On the other hand, “extrinsic factor” refers to motivation that comes from tangible rewards, such as “increase in income”. The “family factor” is especially relevant to women entrepreneurs. The tradition norms in Vietnam value women’s role as care givers in the family. Even though there is growing awareness of women’s economic and social development, women continue to remain responsible for housework. To them, the family considerations, such as providing jobs for family members or working close to their family, are more highly weighted when making decisions. The three factors explain 52% of the total variance. The communalities range from 0.45 to 0.63. Table 6 reports the summated scores of each factor. It reveals that extrinsic factor plays the most important role in establishing a business for
Journal of Business & Entrepreneurship Spring 2015 115 Vietnamese women entrepreneurs. This is not surprising given the economic environment in Vietnam. In fact, economic incentive is the most common motivation in developing countries. Family factor is considered the second important motivator. As in a Confucian immerged culture, it is always a challenge for women to balance family responsibility and work requirements. The intrinsic factor is not the main concern to Vietnamese women entrepreneurs.
Table 6 Mean Score by Factors Related to Motivation Summated Scales Mean Std. Dev.
Scale 1 - Factor 1: Intrinsic 3.295 1.083 For my own satisfaction and growth
To be able to use my past experience and training
To protect my job security
To gain public recognition
To prove I can do it
Scale 2 - Factor 2: Extrinsic 4.155 1.005 To increase my income
To maintain my personal freedom
To be my own boss
Scale 3 - Factor 3: Family 3.486 1.099 To provide jobs for family members
To build a business to pass on
To be closer to my family
Regarding the determinants of a successful business, five factors are identified. As shown in table 7, the five factors can be summarized as “social connection”, “business attributes”, “personal skills”, “market support” and “hard work”. These five factors account for 62% of total variance. The communalities are within 0.43 and 0.78. The social connection factor consists of businesses’ political and community involvement, satisfactory government support, good management skills and reputation for honesty. The business attributes factor recognizes a group of variables that relate to business quality, such as good customer service, friendliness to customers, ability to maintain accurate records of sales / expenses,
116 Spring 2015 Journal of Business & Entrepreneurship providing a good product at a competitive price and having good location. The personal skills factor includes business owners’ appropriate training, previous business experience, and ability to manage personnel. Three variables are grouped under the market support factor. They are support of family and friends, marketing factors such as sales promotion, and access to capital. The last factor only includes one variable, which is hard working.
Table 7 Varimax Rotated Factor Loadings (sorted) and Communalities for Success Factors
Factor Factor Factor Factor Factor Commun Success Variables 1 2 3 4 5 alities
Political involvement 0.800 0.778 Community involvement 0.718 0.745 Satisfactory government support 0.698 0.563 Good general management skills 0.523 0.429 Reputation for honesty 0.508 0.527 Good customer service 0.776 0.681 Charisma and friendliness 0.681 0.573 Maintenance of accurate records 0.569 0.532 Good product competitive price 0.553 0.645 Good Location 0.520 0.506 Appropriate training 0.741 0.689 Previous business experience 0.684 0.673 Ability to manage personnel 0.665 0.673 Support of family and friends 0.868 0.784 Marketing factors 0.525 0.547 Access to capital 0.517 0.529 Hard-work 0.855 0.744 Eigenvalues 2.855 2.538 2.050 1.707 1.468 % of Variance 16.80 14.93 12.06 10.04 8.64 Kaiser-Meyer-Olkin Measure 0.792 Bartlett's Test of Sphericity p<0.000
The summated scores for each factor are demonstrated in Table 8. The business attributes factor has the highest mean score of 4.15. It suggests that women entrepreneurs in Vietnam believe the leading factor to success is
Journal of Business & Entrepreneurship Spring 2015 117 providing good products and services. The second important factor is market support, which is closely followed by personal skills and hard working factor. Social connection factor is the least important factor, although it explains 16.8% of the total variance.
Table 8 Mean Score by Factors Contributing to Business Success Summated Scales Mean Std. Dev.
Scale 1 - Factor 1: Social Connection 3.009 1.116 Political involvement
Community involvement
Satisfactory government support
Good general management skills
Reputation for honesty
Scale 2 - Factor 2: Business Attributes 4.150 0.881 Good customer service
Charisma; friendliness to customers
Maintenance of accurate records of sales/expenses
Good product at a competitive price
Good Location
Scale 3 - Factor 3: Personal Skills 3.725 1.069 Appropriate training
Previous business experience
Ability to manage personnel
Scale 4 - Factor 4: Market Support 3.748 1.071 Support of family and friends
Marketing factors such as sales promotion
Access to capital
Scale 5 - Factor 5: Hard Working 3.725 1.023 Hard-work
As shown in Table 9, five factors are found for problem variables. The first factor is related to economic environment, which includes problems with business registration, government regulation, tax structure, access to financial capital and general weak economy. Most of these variables require government
118 Spring 2015 Journal of Business & Entrepreneurship Table 9 Varimax Rotated Factor Loadings (sorted) and Communalities for Problems
Factor Factor Factor Factor Factor Commu Problem Variables 1 2 3 4 5 nalities
Long registration process 0.779 0.725 Too much regulation 0.737 0.584
Weak economy 0.684 0.724
Complex tax structure 0.675 0.617
No enough financial capital 0.612 0.582
Lack of marketing training 0.833 0.733
Lack of management training 0.761 0.724
Inability to maintain accounting 0.757 0.637 records Foreign exchange limitations 0.767 0.604
Poor roads/transportation 0.765 0.797
Electricity problems 0.752 0.604
Limited parking 0.805 0.765
Too much competition 0.591 0.727
Unsafe location 0.583 0.611
Unreliable and undependable 0.833 0.788 employees Eigenvalues 2.90 2.34 2.055 1.733 1.203
% of Variance 19.30 15.58 13.70 11.55 8.02
Kaiser-Meyer-Olkin Measure 0.748
Bartlett's Test of Sphericity p<0.000
policy review and action. The second factor can be called business training factor, as the respondents claimed a lack of marketing, management, and accounting training. The third factor is related to infrastructure problems. This refers to not only the “hard” infrastructures, such as road transportation and electricity, but also “soft” infrastructures, such as foreign exchange system. The fourth factor deals with location and market constraint. It includes limited parking, too much competition, and being in unsafe location. The fifth factor illustrates personnel management problem which relates to overcoming the challenge of unreliable and undependable employees. In general, the
Journal of Business & Entrepreneurship Spring 2015 119 communalities are relatively high, ranging between 0.58 and 0.79. The total variance explained by the five factors is 68%.
Table 10 Mean Score by Factors Related to Problems Summated Scales Mean Std. Dev.
Scale 1 - Factor 1: Economic Environment 3.185 1.205 Long business registration process
Too much government regulation/bureaucracy
Weak economy
Complex and confusing tax structure
Not having enough financial capital
Scale 2 - Factor 2: Business Training 3.178 1.187 Lack of marketing training
Lack of management training
Inability to maintain accurate accounting records
Scale 3 - Factor 3: Infrastructure 2.544 1.272 Foreign exchange limitations
Poor roads/transportation
Electricity problems
Scale 4 - Factor 4: Location and Market Constraint 3.242 1.206 Limited parking
Too much competition
Unsafe location
Scale 5 - Factor 5: Personnel Management 3.953 0.996 Unreliable and undependable employees
Table 10 shows the summated scores of the five factors related to problems. The difficulty of finding and keeping reliable and dependable employees seems to be the main problem faced by women business owners in Vietnam. This finding is consistent with previous literature. On the other hand, infrastructure deficiency is of least concern for women entrepreneurs, with the average score of 2.54. The rest of three factors: economic environment, business training, and location and market constraints, are believed to have similar impacts on business operations.
120 Spring 2015 Journal of Business & Entrepreneurship Stress, Business Success and Family Support
Some existing literature points out that family support contributes significantly to women’s success (Buttner, 1993; Lee & Stearns 2012; Maysami & Goby, 1999). It is believed that the encouragement and assistance from family members help to reduce work related stress, leading to higher achievement of women entrepreneurs. Table 11 summarizes how Vietnamese women entrepreneurs rate their perceived success, business related stress, and the level of family support. On average, they indicate that their businesses are successful and they are satisfied with their business performance. Also they think their success level met their expectations. The work-related stress they experienced is at the moderate level. Surprisingly, they didn’t receive substantial support from family and friends as compared with women in other countries.
Table 11 Mean Score for Success, Stress and Family Support
Std. Question Mean Dev.
1 How would you describe your business success? 2.08 0.625 (1= very successful, 2= successful, 3= average, 4= below average) 2 To what extent are you satisfied with your business? 2.16 0.768 (1= very satisfied, 2= satisfied, 3= somewhat satisfied, 4= dissatisfied, 5= very dissatisfied) 3 How well has your success met your expectation? 1.98 0.783 (1= more than I expected, 2= met my expectations, 3= somewhat met my expectations, 4= did not meet my expectations) 4 As a business owner, how would you rate the level of business- 2.76 1.106 related stress? (1=very high, 2= high, 3= low, 4= very low, 5= nonexistent) 5 How would you rate the level of support from family and friends? 3.15 1.24 (1= very substantial, 2= substantial, 3= medium, 4= low, 5= very low)
To further examine the relations between success, satisfaction, family support and stress, we measure the correlations between those variables, which are reported in Table 12. The statistically significant correlation has been found for five pairs of variables, although the coefficients are relatively small. First, business success is positively correlated with the level of satisfaction, but
Journal of Business & Entrepreneurship Spring 2015 121 negatively correlated with family support. It implies that the more successful the business, the higher level of satisfaction women entrepreneurs perceive. However, a higher level of success is related to less family support. Second, satisfaction is negatively correlated with family support. If women entrepreneurs are satisfied with their business, they seek less help from family. Third, stress is positively correlated with expectation and family support. Women entrepreneurs are more stressful when they have high expectations of their businesses. Therefore, they need more family support. The respondents indicate that when making important decisions or facing business problems, they often rely on family members or friends for advice and assistance.
Table 12 Correlations of Success, Stress and Family Support Q1-Bus. Success Q2-Satisfaction Q3-Expectations Q4-Stress
0.292***
Q2-Satisfaction (0.000)
0.088 0.017
Q3-Expectations (0.128) (0.412)
-0.012 0.024 0.163**
Q4-Stress (0.438) (0.377) (0.017)
-0.216*** -0.254*** -0.016 0.101* Q5-Family Support (0.002) (0.000) (0.418) (0.097)
Note: ***, **, and * denote the statistical significance at the 1%, 5%, and 10% levels, respectively.
CONCLUSION
Although women entrepreneurship has received increasing attention over the past decade, the research in this area is very limited. This study sheds light on the motivation, success factors and problems women entrepreneurs experienced by examining 170 small business owners in Vietnam. Given the transition economy and wage inequality in Vietnam, earning extrinsic rewards remains the primary motivation for women entrepreneurs to start their own businesses. To a lesser extent, Vietnamese women also value the intrinsic rewards of business ownership, such as gaining personal satisfaction and freedom. They believe friendliness to customers, good location, competitive product price, and
122 Spring 2015 Journal of Business & Entrepreneurship management skills are important factors leading to their success. Severe competition, inability to find reliable employees, weak economy, lack of marketing training and limited access to capital markets are identified as major problems that have restricted their business development. Factor analysis reveals that extrinsic rewards play a more important role than intrinsic and family factors when women entrepreneurs establish their businesses in Vietnam. Although many factors contribute to a successful enterprise, business attributes factor is considered the most significant factor and social connection factor is the least important one. The critical challenge faced by Vietnamese women entrepreneurs is the difficulty to attract and maintain dependable employees, which is common to small businesses across markets and countries. The findings in this study provide some important policy implications. To achieve sustainable economic growth, macroeconomic policies which promote job creation are fundamental. The rising number of women enterprises calls for strategies that not only ensure the continuous success of existing women businesses but also encourage the establishment of new start-ups. Training programs, targeting the improvement of women entrepreneurs’ competitiveness, would strengthen their business performance, especially under economic integration. Finally, the study suggests that women entrepreneurs could also benefit from the liberalization of the financial sector.
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128 Spring 2015 Journal of Business & Entrepreneurship BRIDGING THE GAP BETWEEN ENTREPRENEURSHIP EDUCATION AND SMALL RURAL BUSINESSES: AN EXPERIENTIAL SERVICE-LEARNING APPROACH
Linda S. Niehm Ann Marie Fiore Iowa State University Iowa State University
Jessica Hurst Youngji Lee Iowa State University Iowa State University
Amrut Sadachar Iowa State University
ABSTRACT
This paper provides theory-based practical applications and concepts underlying the development of experiential service-learning projects for university students majoring in retailing and hospitality management. The goal of the service-learning projects was to enhance students’ entrepreneurial identity and entrepreneurial management competencies through the development of comprehensive business sustainability plans and makeovers that integrate competitive, brand-building, and experiential marketing strategies for small rural businesses in the Main Street program. The service-learning projects were also designed to enhance student entrepreneurial self-efficacy, create awareness of opportunities in rural communities, and improve the entrepreneurial performance of rural businesses. Assessments of the service-learning projects confirmed their success in enhancing (a) students’ entrepreneurial competencies and (b) competitiveness, brand image, and attractiveness of the local business sector.
Keywords: experiential service-learning, entrepreneurs, entrepreneurial performance, rural businesses, rural communities
INTRODUCTION
Although small business management and entrepreneurship has traditionally been the domain of university business schools, the intense interest has led non-business programs to increasingly focus on entrepreneurship
Journal of Business & Entrepreneurship Spring 2015 129 education (Johnson, Craig, & Hildebrand, 2006). In support of a university-wide approach, Morris, Kuratko, and Cornwall (2013) maintain that entrepreneurship subject matter and entrepreneurial thinking have important implications for literally all disciplines. Educators in the Human Sciences/Family and Consumer Sciences-related disciplines (e.g., retail merchandising and management, hospitality management, and related creative industries such as fashion and event management) recognize the need to include management and entrepreneurship training in preparation of the 21st century workforce (Niehm, Gregoire, & Austin, 2005; Carey & Matlay, 2010; Stanforth & Muske, 1999). These disciplines provide ample business ownership and management opportunities for aspiring entrepreneurs in product and service areas, such as retail stores, restaurants, apparel and interior design firms, and consulting practices. Considering that an entrepreneurial mindset is a component of a skill set increasingly in demand within the retailing, hospitality, and creative industries (Carey & Matlay, 2010), it is imperative that curricula include development of such knowledge and skills that will prepare majors to meet the challenges presented by the contemporary job market. In response, an experiential service-learning approach (Ash, 2003; Kolb, 1984; Shinnar & Young, 2003) was used to fortify students’ knowledge and skills related to entrepreneurship and small business management. An experiential service-learning approach fosters student learning through application of entrepreneurship, marketing, and management concepts and competencies in a real world setting, which requires critical thinking and creativity to balance perspectives of multiple constituents and to optimize limited resources (McCrea, 2009). Accordingly, the experiential service-learning project presented in this paper bridges several gaps in entrepreneurship education. Following suggestions by Carland and Carland (2010), effective entrepreneurship education requires an interactive pedagogy that provides student-centered and action oriented projects. Summers (2003) concurs that successful entrepreneurship programs provide skill development through a variety of hands-on learning activities, consulting experiences, simulations, and mentoring. He additionally offers that entrepreneurship education is highly effective when it can be meshed with real-world needs and event of individuals and communities. The present project answers this call by developing a learning model aimed at building entrepreneurial management competencies and enhancing student awareness of entrepreneurship opportunities in rural communities. An additional goal of the project was to enhance the performance
130 Spring 2015 Journal of Business & Entrepreneurship and sustainability of resource constrained small rural firms through service- learning and business assistance.
Partnering with Small Rural Businesses to Enhance Students’ Service- Learning
Small businesses comprise a majority of rural firms, accounting for nearly two-thirds of all establishments (“Rural Employment,” 2006). Nationally, the number of small, independently owned businesses is substantial, accounting for 99.7% of all employer firms. Together these small businesses have generated 64% of all new private sector jobs in the past decade, and pay 43% of the total U.S. private payroll (“Small Business Advocate,” 2012). McCray (2011) noted a variety of factors enhancing rural business opportunities (e.g., growing shop local programs, strong farm commodity prices, and growth in on-line business development). Small rural businesses in the service industries, including retailing, accommodations, amusement, and recreation have demonstrated particular strength. Such businesses contribute to the socio-economic fabric of a community and help create the “critical mass” needed to draw visitors to a destination (Richards, 2001). Small businesses, such as retail and hospitality firms, “provide many of the services needed by local residents and perhaps most importantly, they add to the personality and charm that characterize Main Street economies” (Henderson, 2002, p. 49). In particular, these small businesses play a crucial role in rural communities, as they are the glue that binds together innovation and Main Street activities (McCray, 2011). In addition, such small businesses bring community leadership and economic vitality to rural communities through shopping, entertainment, services, and tourism. The revenue generated from rural retail and tourism is significant, and abundant opportunities exist in these sectors for small business owners (“Rural Tourism,” 2009). However, small businesses face challenges due to escalating competition from discount retailers, franchises, and regional shopping/dining centers along with broader economic events (i.e., government budget cuts, economic uncertainty, tightened business financing, and population shifts) (McCray, 2011). They also frequently lack business assistance due to their remote location and proximity to business development centers. Together these factors create heightened need for new products, services, and strategies for small firms. Developing entrepreneurial responses to these challenges are key ways for independent rural businesses to develop and sustain a competitive advantage. In
Journal of Business & Entrepreneurship Spring 2015 131 general, successful small businesses have demonstrated entrepreneurial qualities such as vision, innovation, opportunity recognition, a passion for change, exceptional staffing, extraordinary service, and uncompromising management standards (Henderson, 2002; Morris, 1998). Thus, a strong need exists for small business programming and educational efforts to aid entrepreneurs in navigating the small business arena, particularly in the rural marketplace. To innovate, entrepreneurs may integrate experiential marketing strategies, which can result in enhanced performance and competitive advantages for their firms, while fostering community economic sustainability, more choice, and enhanced life quality for consumers. However, rural entrepreneurs may not be aware of relatively new, value-creating approaches such as experience economy strategies (Pine & Gilmore, 1999) due to limited access to economic development units, business organizations, colleges and universities, small business consultants, support networks, and entrepreneurial role models (Muske & Stanforth, 2000). Adding a service-learning component that focuses on value-creating experiential marketing strategies for retail merchandising and hospitality management courses may better prepare and build the entrepreneurial identity of students- the next generation of small business entrepreneurs- and educate existing small business operators (i.e., owner/manager). To accomplish both goals, our experiential service-learning project operationalized entrepreneurial management practices, with students and business owners coordinating on the planning, organizing, leading, and monitoring of actual implementation of new experiential marketing strategies for small rural businesses. Working with current business owners provided mentors and exemplars for students related to entrepreneurial management practices. This service- learning effort, which started in 2004 and has been offered consistently since, involves the orchestration of multi-course projects to help entrepreneurs integrate enhanced competitive, managerial, and experiential strategies through “business sustainability plans” (i.e., detailed plans outlining incremental enhancements, financial costs, and benefits to the business) and physical makeovers of small rural retail and hospitality firms. The physical metamorphosis involved students leading a makeover of the business, which was accomplished within a few days, hence the name, Makeover Marathon, although student planning, organizing, leading, and monitoring of the makeover were carried out across the semester. The firms were located in communities participating in our state’s Main Street Program. There are 43 states with a Main Street Program, which provides
132 Spring 2015 Journal of Business & Entrepreneurship business marketing and management, preservation, and design assistance to member communities (“Main Street,” n.d.). We are not the first to take retail and hospitality students to interact with and advise small rural business owners in service-learning projects, but our experiential approach is unique in comparison to other retail merchandising and management outreach projects (e.g., Park, 2004; Park, Kim, Park, Ku, & Choo, 2003) as it (a) promoted development of students’ entrepreneurial management competencies (Stevenson, 1983; Stevenson & Jarillo, 1990), (b) focused on both small rural retail and hospitality firms, (c) incorporated collaboration with a state’s economic development agency, and (d) emphasized creation of experiential marketing value. Service learning combines hands-on application of knowledge and service to the community (Ash, 2003; Kolb, 1984; Shinnar & Young, 2003). The present paper is framed by entrepreneurship, small business management, and experiential marketing literature, which provide the conceptual foundations for the projects. We also describe the evolution of our integrative service-learning projects and their impact on retail and hospitality students’ entrepreneurial identity and how they fostered a personal conception and sense of being entrepreneurial. The project also allowed for development of self-efficacy (Bandura, 1977, 1986) or belief in their entrepreneurial potential through the honing of entrepreneurial skills and capabilities, observing and interacting directly with rural entrepreneurs, and proposing and receiving feedback on business sustainability plans.
Bridging the Gap for Students and Rural Businesses through an Experiential Service-Learning Approach
Rationale for a service-learning approach An experiential service-learning approach was selected for this project, as it appears to be an ideal way to expose students to real-world issues faced by rural entrepreneurs. Jacoby (1996) defined service-learning as “a form of experiential education in which students can engage in activities that address human and community needs together with structured opportunities intentionally designed to promote student learning and development” (p. 5). This viewpoint was supported by Govekar and Rishi (2007) who stated that service learning can “effectively engage students in the uncertainties, difficulties, and complexities of present-day management” (p. 4). Service-learning also allows opportunities for universities to engage with communities and for students to gain valuable career
Journal of Business & Entrepreneurship Spring 2015 133 insight (Gray, Ondaatje, Fricker, & Geschwind, 2000), two additional goals for the present project. We also adopted perspectives of service learning supported by McCarthy and Tucker (2002) and Jacoby (1996) who outlined three qualifying conditions for a service-learning experience: (a) that it be tied to course concepts and not just an added project, (b) that the executed project experience actually benefits a community, and (c) that time is allocated to allow for student reflection and connection of the service experience to their course knowledge. Mason and Arshed (2013) provide support for this pedagogical approach, offering that experiential learning is critical to effective entrepreneurial learning. The project additionally incorporates essential components of effective entrepreneurship education as outlined by Kirby (2004), who suggested that students should: (a) be given ownership of their learning experience including resources, activities, and processes needed to meet set objectives, (b) be involved in real-world problem solving situations and in a team format if possible, (c) be encouraged to formulate managerial decisions even under situations of incomplete data, and (d) be provided with entrepreneurial role models who are involved in the learning and assessment process. Our service-learning approach also meets recommendations of Mwasalwiba (2010) who further suggested that entrepreneurship educators should rise to the challenge of developing teaching methods and learning experiences that align with their course objectives, relevant environments, and the type of students in their programs.
Program design: Pedagogical foundations of entrepreneurship education Kuratko (2005) described entrepreneurship as a dynamic process of vision, change, and creation. Entrepreneurship entails identifying and managing resources in novel ways to create and implement new ideas and solutions that add value. In this regard, entrepreneurship is more than just the creation of a business, but also the way to manage a business. Both desire and necessity are fueling a passion for entrepreneurship among today’s young workers. Recent reports (Pofeldt, 2013) indicate that the number of people starting new ventures in the U.S. has reached an all-time high of 13% of all adults and 43% believe entrepreneurship to be a good employment opportunity. Further, over five million Americans under age 34 are pursuing entrepreneurial ventures (“Entrepreneurship Everywhere,” 2007). The prospect of being one’s own boss, financial rewards, and quality of life issues are driving an entrepreneurial identity and an observed increase in entrepreneurship especially among 18-34 year olds or millennials (Kiefer, 2004). More pragmatically, many younger workers may
134 Spring 2015 Journal of Business & Entrepreneurship anticipate the future need for self-employment as corporate employment opportunities become less certain. Edgcomb, Klein, and Thetford (2007) suggested that the sustainability of entrepreneurial ventures involves the successful management of a set of financial and organizational factors. Entrepreneurship education can therefore be an important component of university-level professional programs, as it encourages comprehensive thinking and solutions to career, family, and work-life management issues. Meeting these challenges will require more emphasis on entrepreneurship in post-secondary schools (“On the Road,” 2007). Furthermore, scholars (Gibb & Cotton, 1998; Henry, Hill, & Leitch, 2005) have supported that entrepreneurship education and training programs provide students with the knowledge, skills, and experiences needed to manage increasing uncertainty and complexity in the global market (Morris et al, 2013). Entrepreneurship education includes a focus on broad based skills and competencies (e.g., business knowledge, leadership, creativity, team work, strategy development, and awareness of personal attributes) that relate to small business startup and management (Bennett, 2006). Hirsch and Peters (1998) suggested that a quality entrepreneurship education should include the opportunity to develop skills and competencies in the following three categories: (a) technical skills (communication, technical skills relevant to one’s industry, organizing skills), (b) business management skills (e.g., planning, decision making, marketing, accounting), and (c) entrepreneurship specific skills (e.g., opportunity recognition, innovation, risk taking). The importance of management to the entrepreneurial skill set is emphasized by Muske and Stanforth (2000) who stated that as many as 60% of small businesses fail within five years because entrepreneurs lack essential management skills. Plumly et al. (2008) pointed out that for entrepreneurship education to have maximum impact, students must also be exposed to an entrepreneurial experience. Entrepreneurship education is, therefore, a combination of cross- disciplinary, process-oriented approaches, and theory-based practical applications. It is thought to be most effective when students learn by doing and when instructors use an active, process-based approach to teaching course concepts (Sherman, Sebora, & Digman, 2008). This focus addresses Solomon’s (2007) quest for entrepreneurship pedagogy that meets the innovative and creative mindset of today’s students and Plaschka and Welch’s (1990) suggestion for real world, experience-based learning strategies in entrepreneurship education.
Journal of Business & Entrepreneurship Spring 2015 135 Lowden (2007) provides a framework of managerial competencies for entrepreneurs that include: planning, organizing, leading, and monitoring/controlling functions. This project draws from Lowden (2007) and from Stevenson and Jarillo’s (1990) opportunity-based perspective of entrepreneurial management in the development of the service-learning activities. For example, students were fully engaged in planning for the experiential service-learning experience, drawing from an initial needs assessment of the rural business client. The student teams were responsible for identifying areas of untapped market and customer opportunity for a rural small business, developing a sustainability plan, and organizing the implementation of a makeover project to improve business performance. Teams had to lead and monitor/control progress of the project implementation and budget and solicit feedback from business owners, community leaders, and faculty. Student teams were also responsible for proposing distinctive experiential strategies that would enhance the competitive advantage of the rural business. As Lowden (2007) suggested, it is critically important for entrepreneurs to concurrently develop managerial skills and competencies along with innovative capabilities. This point is further highlighted by Longenecker, Moore, Petty, and Palich (2006) who noted that small firms are most vulnerable to management inefficiencies, often due to financial and personnel resource constraints. They further offered that as a small firm grows, the need for management capabilities intensifies, emphasizing the importance of managerial know-how in the entrepreneurial skill set. We referenced the seminal work of Morris (1998) and Morris, Kuratko and Cornwall (2013) to frame the entrepreneurial skills, Lowden (2007) for the managerial competencies, and Stevenson and Jarillo (1990) for the opportunity- based perspective of entrepreneurial management in these service-learning experiences with small rural businesses. This approach follows the call by Mwasalwiba (2010) for entrepreneurship education to be built on a foundation of common theoretical frameworks. Thus, the entrepreneurial management competency set for the service-learning projects included the following 11 entrepreneurial components (Morris, 1998): Building a plan for an innovative concept, creative problem solving, entrepreneurial processes, implementation of change, innovation, management of ambiguity and uncertainty, mitigating risk, opportunity evaluation, opportunity recognition, resource leveraging, and thinking and acting as a guerilla (see Table 1 for a full definition of each component). These entrepreneurial competencies, in addition to Lowden’s (2007) general management competencies (planning, organizing, leading, and
136 Spring 2015 Journal of Business & Entrepreneurship monitoring/controlling), will be addressed in the section on operational elements of the projects.
Table 1. Entrepreneurial Competencies Applied to the Experiential Service- Learning Projects Building a plan for an innovative concept: The capacity to create and build something from practically nothing. Creative problem solving: The ability to examine and manage standard situations or problems in new ways. Entrepreneurial process: Identify an opportunity; develop a business concept; assess the required resources; acquire the necessary resources; implement and manage; and harvest the venture. Implementation of change: The ability to create and manage change. Innovation: Creating new or novel ideas, offerings, processes, unique combinations. Managing ambiguity and uncertainty: Being able and comfortable to address problems in loose and ambiguous contexts. Mitigating risk: Being a calculated risk-taker; managing risk. Opportunity evaluation: Ability to use processes to evaluate an opportunity (e.g., feasibility analysis, market analysis) for the purpose of deciding whether or not to pursue the opportunity. Opportunity recognition: Ability to perceive and to act upon opportunities in the environment that others do not see; developing a set of skills that can be used to differentiate between an idea and an opportunity. Resource leveraging: The ability to assess and acquire and manage necessary resources and to use them in a value maximizing manner. Thinking and acting as a guerilla: Making unconventional approaches to examining problems and developing solutions.
Program design: Student management of experiential marketing strategies that create value Creation of value should be the end result of students’ implementation of the entrepreneurial elements listed above and in Table 1. In the present project, students created value through planning, organizing, leading, and monitoring the development of innovative experiential marketing strategies for each business. Value is derived when these strategies result in consumer experiences that are positive, unique, engaging, interactive, and memorable (Pine & Gilmore, 1999; Wilhelm & Mottner, 2005). Current retailers and brands increasingly create
Journal of Business & Entrepreneurship Spring 2015 137 value through executing innovative marketing experiences (Fiore, 2007; Lenderman, 2006; Smilansky, 2009), which drive consumer purchase behavior (“Experiential Marketing,” 2009). Students focused on the “experience economy” approach (Pine & Gilmore, 1999), which provides a 4E framework for delineating experiential value strategies to innovate businesses. The 4Es (entertainment, esthetics, educational, escapist) were included as part of the program design because they contribute to consumer value in retailing and hospitality venues relevant to small rural businesses--brick-and-mortar stores (Sands, Oppewal, & Beverland, 2009), retail websites (Jeong, Fiore, Niehm, & Lorenz, 2009), rural wine tourist destinations (Quadri & Fiore, 2012), and bed and breakfast hotels (Oh, Fiore, & Jeong, 2007). One of the 4Es, entertainment experience, entails engaging the consumer by focusing his/her attention on performances/actions created by others. Educational experience involves consumer engagement through active development of knowledge or skills involving the product or brand. Esthetics experience refers to enrapturing the consumer through immersion in enriched, unique physical settings. Escapist experience entails a consumer’s active participation in a scenario that reflects a different place or time. These experiences intersect. For instance, “edutainment” is a mix of educational and entertainment experiences. To exemplify these experiences, a jewelry store may set viewing areas for a passerby to watch the craftsmanship of its silversmith (entertainment). The jewelry store may offer classes for customers to learn about the grading of precious stones (educational). The store setting may sparkle due to the use of lighting and crystal-laced paint (esthetic). Lastly, the jewelry store may host a costume party where guests take on the persona of and dress in the era of their vintage jewelry (escapist).
Program design: Student management of a holistic brand experience to create value Because of the impact of branding in consumer decision-making, this element of marketing has become increasingly important to business success (e.g., Carpenter, Moore, & Fairhurst, 2005; Esch, Langer, Schmitt, & Geus, 2006; Schmitt, 2012). Creating a unified brand, a common practice of major brands (Spence & Essoussi, 2010), is less common in small businesses (Fiori, et.al., 2013). Therefore, students also focused on managing a holistic brand identity, which entails translating the business’s identity or associations “into a set of tangible, physical, [and] interactive experiences” (McNickel, 2004, p.1)
138 Spring 2015 Journal of Business & Entrepreneurship that identify and tell a story about the goods/services/sellers. A holistic brand identity helps to differentiate the offering from others (Neumeier, 2006; Schmitt, 1999). It entailed management of all brand experience elements, discussed below, to ensure congruency that leads to a consistent and clear image of and message about the brand (Ogle, Hyllegard, & Dunbar, 2004; Snell, 2006).
Operational Elements of the Service-Learning Projects
“Service-learning is a teaching and learning strategy that integrates meaningful community service with instruction and reflection to enrich the learning experience, teach civic responsibility, and strengthen communities” (“Learn and Serve,” n.d.). Shinnar and Young (2003) noted that a growing number of college courses have incorporated a service-learning component to enhance student learning, and to help students become better citizens and more competent professionals in the future. Student learning is enhanced through the hands-on, reciprocal nature of the experience (Jacoby & Ehrlich, 1996). In our experience-based learning approach, pairing students with successful business owners fostered reciprocity. Whereas business owners may learn new strategies from students to invigorate their businesses, students may learn about business challenges and successful management practices from owners during the process of strategy development and implementation. This experiential learning process, as supported by prior studies (Krueger, Reilly, Carsrud , 2000; Zhao, Seibert & Hills, 2005), may aid in the development of entrepreneurial identity for the participating students and foster self-efficacy, awareness, and a belief that they too could own and operate a small business. Over a five-year period, service-learning projects were embedded in a targeted group of retail merchandising and hospitality management courses (Figure 1). The projects provided students with opportunities to strengthen entrepreneurial management competencies, outlined previously, through the planning, organizing, leading and monitoring/controlling creation of strategies resulting in experiential value, including development of a consistent brand identity. Students started with opportunity recognition; students identified experiential aspects that were missing in the consumer experience offered by the business. They evaluated the opportunity using data from a variety of sources, including the business, Main Street Program, and the community. Development of value-creating sustainability plans and implementation of business makeovers required innovation and creative problem solving. Planning incremental changes
Journal of Business & Entrepreneurship Spring 2015 139 for the businesses helped students identify strategies to mitigate risk. The makeover budgets ($1,000-$5,000) were small, which required careful planning and monitoring of expenditures, leading efforts to leverage resource (e.g., enlisting help of a business owner’s friends and family members), and organizing deployment of group member on simultaneous tasks. The expertise of Main Street Program staff in resource leveraging (e.g., organizing volunteers, sourcing, and supply donation by local businesses) was advantageous and educational for the students. Students were required to manage ambiguity given the nebulous visions and hesitant nature of some business owners. The physical makeover of the business entailed implementation of change and completion of the entrepreneurial process. Research suggests that students can be effective in assisting rural businesses through service-learning projects (Fannin & LeBlanc, 2007). This holds true for retailing and hospitality related service-learning projects (O’Halloran & O’Halloran, 1999; Tucker, McCarthy, Hoxmeier, & Lenk, 1998), including enhancement of rural retail businesses through effective window displays, in-store displays, and store arrangement (Muske, Jin, & Yu, 2004). The current project included a similar but much more holistic approach, with a focus on managing a cohesive brand identity for the business. This included planning and completing physical changes to brand experience elements: the retail property (e.g., store exterior and interior), product offerings (e.g., merchandise on the shelves), product presentations (e.g., displays), promotions (e.g., Websites), and personnel behaviors (e.g., what they wear to work) to solidify a brand identity. For instance, students created a new brand identity for a bridal shop through major physical redesign of the store interior, culling and reorganizing merchandise, creating window displays, and developing promotional materials focused on target market expansion. These in vivo learning experiences will foster an entrepreneurial identity and ready future graduates to own and manage small rural businesses because they allow for direct application of knowledge and development of sustainable strategies for entrepreneurial performance and success.
140 Spring 2015 Journal of Business & Entrepreneurship Figure 1: A Model for Enhancing Students’ Entrepreneurial Competencies and Strengthen Rural Businesses
Journal of Business & Entrepreneurship Spring 2015 141
Partnering with the main street community program Successful service-learning programs require suitable community partners for students (Fannin & LeBlanc, 2007). To help ensure good partnerships, we approached the state’s Main Street Program director. We saw the collaboration with the Main Street Program as not only important for identifying the right community partners for the projects, because of their knowledge of 46 Main Street communities, but also for building a synergistic relationship with an agency committed to like values and goals. The Main Street Program mission is “to improve the social and economic well-being of communities by assisting selected communities to capitalize on the unique identity, assets and character of their downtown area” (“Main Street,” n.d.). Furthermore, the collaborators have a common approach, that of focusing on sustainability through the revitalization of existing small businesses to create unique offerings that promote community vitality to attract and retain residents. Exposing students to success revitalization efforts may change their impressions of opportunities in and attractiveness of rural communities in the state, to curtail outmigration of college graduates. Moreover, both collaborators look to (a) change attitudes about the importance of creating a “sense of place” within the state, and (b) encourage partnerships and volunteerism to bring about positive change in communities (“Main Street,” n.d.). This collaboration allowed us to leverage resources such as human capital represented by complementary skill sets and knowledge of faculty and Main Street Program employees, as well as skill sets, creativity, and labor coming from community volunteers and students. For instance, local carpenters helped construct a wall, which was part of the redesigned space proposed by the student team. The Main Street Program provided businesses with monetary grants that students tapped when making physical changes in the makeover process. The Program also covered costs for transportation of students and faculty to the communities, as well as food, and lodging during the three-day business makeovers. The experiential service-learning projects with the Main Street Program were initially funded for three years through the United States Department of Agriculture, with consequent funding coming from the state’s Main Street Program. Funding from the Main Street Program allowed the projects to move from development of sustainability plans to the addition of physical makeovers and related internships. The following section describes how we integrated our educational model (Figure 1) and implemented the service-learning projects
142 Spring 2015 Journal of Business & Entrepreneurship across multiple courses and entrepreneurial learning experiences in retail merchandising and hospitality management.
Components of the Experiential Service-Learning Project
Building entrepreneurial management competencies The service-learning model, grounded in entrepreneurship, business management, and experience economy concepts, was embedded in six semester courses within the academic unit of a department. Courses in the service-learning model were geared for hospitality management majors and retail merchandising majors (see Figure 1). Courses implementing these service-learning projects are part of a nationally recognized (2009 Model Undergraduate Program Award, U.S. Association of Small Business and Entrepreneurship) campus-wide, interdisciplinary entrepreneurship education program at a Midwest US university. The following sections detail the three core components of the service-learning project.
Development of rural business sustainability plans From 2004 to 2014 sustainability plans have been developed from firms in 14 rural communities of our state. Sustainability plans are research-based marketing plans, part of the consulting projects. The sustainability plans are created for client businesses with the explicit emphasis on innovative use of resources to create experiential, managerial, and competitive strategies that meet client needs and add value, develop competitive advantages, and promote positive long-term performance for the client.
Student summer internships in rural communities Small teams of students worked intensively during one summer with eight retail and hospitality businesses in five rural communities to develop sustainability plans focusing on the development of a cohesive brand image, creation of innovative marketing materials and competitive strategies, and enhancement of the overall experiential quality of the business.
Main street makeover marathon The Main Street Makeover Marathon component of the project provided the same experience as noted above in terms of research and development of the sustainability plan for a business client. The makeover also included the added aspect of implementation of team recommendations, providing a more holistic
Journal of Business & Entrepreneurship Spring 2015 143 and intensive experience for students in the application of management, entrepreneurship, branding, experiential marketing, and merchandising concepts. As shown in Table 2, the makeover projects allow for fusion of entrepreneurship and management competencies, providing a richer student learning experience and more value for the business client. This integration of entrepreneurship, management, and experiential marketing concepts and competencies into the community-based service-learning project creates a unique and distinctive pedagogical approach to entrepreneurship education in the retail and hospitality disciplines. Rural business makeovers were implemented in three rural Main Street communities with 10 businesses between 2007 and 2009. The success of this approach led to an agreement with several Chambers of Commerce to complete sustainability plans and makeovers for rural community businesses in 2010 and with more than 20 businesses in five other communities from 2011 through 2014.
Table 2. Summary of Project Components that Highlight the Application of Entrepreneurial Competencies in the Experiential Service-Learning Project Entrepreneurial Competencies Examples of Entrepreneurial Competency Application in the Experiential Service-Learning Project Building a plan for an innovative concept Students used the 4E model to build a plan for new marketing approaches to enhance the performance of small rural businesses. Creative problem solving Identifying areas of need for business and organizing unique and cost effective approaches to enhance entrepreneurial performance; developing a plan for creatively addressing, solving, or minimizing negative cues and other competitive aspects of business. Entrepreneurial process Planning, organizing, monitoring and controlling resources in a distinctive manner to create new and unique forms of value for the business; helping the business to achieve sustained positive incremental change; leading the project through to completion; evaluating project impacts and
144 Spring 2015 Journal of Business & Entrepreneurship outcomes; building personal skill set and self-efficacy in regard to entrepreneurship Implementation of change Presentation of makeover project proposal to business client for approval; clarifying how enhancements will create value for the business; modifying project as needed to address client needs and preferences; implementing makeover project; complete post project evaluation with client, community leaders, students. Innovation Creating unique value for the business through novel products, service, experiences, or modes of delivery; development of a sustainability plan and business strategy tool-kit. Managing ambiguity and uncertainty Student teams take initiative to lead project in rural community; presenting new ideas that may not adhere to the norm of local business practices. Devising ways to manage diverse community stakeholders and assure business owner of value in recommended makeover and associated strategies. Mitigating risk Identifying success factors needed for each stage of business makeover and managing project to ensure that risks are minimized or controlled. Opportunity evaluation Evaluating and prioritizing opportunities for the focus of the makeover project; choosing project components based on feasibility and developing a plan for the project based on potential impact on business sustainability and performance; evaluating opportunity for students to become engaged in entrepreneurship in small communities; honing of entrepreneurial identity. Opportunity recognition Monitoring and scanning competitive
Journal of Business & Entrepreneurship Spring 2015 145 environment for opportunities for client business; conducting background market research; community and business needs assessment; identification of opportunities for integration experiential strategies; identifying market and customer opportunities. Resource leveraging Assessing full scope of resources (human, financial, non-human, social) available to the business and creatively managing, expanding, or maximizing existing resources to create new value and enhance the rural business. Thinking and acting as a guerilla Developing novel, unexpected, and cost effective approaches regarding management and marketing for the rural business.
Common processes of the experiential service-learning projects The following details the organization and common process components contained in all experiential service-learning projects. At the beginning of the semester, students within a course were introduced to the project and exposed to key entrepreneurship, business management, marketing, and branding concepts with explicit focus on experience economy concepts. In most courses, students had the opportunity to either participate in the experiential service-learning exercise or complete another business planning project option to meet course requirements. Providing options was done, in part, to help encourage student dedication to a self-selected project. Participating students within a course were divided into teams based on their interests in type of business (e.g., retail, hospitality, tourism) and complementary skills and knowledge (e.g., management skills, leadership skills, design or marketing background). Each student team was comprised of four to six members. Communities and business client participants were selected through instructor collaboration with the Main Street Program director and staff members. Priority was given in the client selection process to businesses/owners that were willing to consider new directions and change for their business, as well as commit the time and resources necessary to work with student teams for the duration of the project.
146 Spring 2015 Journal of Business & Entrepreneurship Student teams conducted intensive analyses of business and community environment. All student teams were required to conduct a formal site visit at the beginning of the project to better understand their client’s business, the community market context, business conditions, and business owners’ needs and expectations about the project. Student teams completed in-depth interviews and assessments focused on business needs and current marketing, management, and branding practices during the site visit. Students also collected digital photos of the physical business, measurements of the space, samples of current marketing materials, and other resources helpful to their specific project. The course instructor and the Main Street Program staff arranged and accompanied students to the first introductory meeting between the students and business clients in the rural community setting. Students also scheduled visits on their own thereafter as needed to adequately complete the project. A foundational component of all team service-learning experiences was the creation of a business sustainability plan for a specific business client. Each student team was required to identify new value-added 4E strategies for the client as part of the plan. Teams presented their final sustainability plan to an audience consisting of the participating business owners, Main Street Program director and staff, faculty involved in the project, and other community officials and residents. Team presentations were done in a designated location in the community setting of the business client just prior to the final week of the academic semester. Audience members evaluated each team’s recommendations and presentation quality using an established rubric. For the Main Street Makeover Marathon, teams collaborated with business owners, local officials, and Main Street Program staff to develop and implement cohesive branding and innovative marketing strategies to create value for rural retail and hospitality businesses. For the makeover version of the project, two presentations were necessary. The first consisted of a presentation of the proposed makeover plan followed by input from all stakeholders in the project. The second illustrated modifications to the plan based on stakeholder input and provided stepwise plans for the makeover implementation with an eye on budget constraints and labor needs. Costs were shared among the state level Main Street Program, the community level Main Street Program and Chamber of Commerce, and the business client. Communication among the student groups, business owners, and Main Street Program staff was continuous until completion of the makeover.
Journal of Business & Entrepreneurship Spring 2015 147 The Impact of the Experiential Service-Learning Experience on Students and Businesses Impact on students Qualitative course evaluations showed that students involved in the service-learning projects benefited significantly from the experience. These students reported that their knowledge and skills necessary for developing competitive and value-added business plans for small hospitality or retail businesses were enhanced through the service-learning projects. They also noted becoming more aware of business opportunities in rural communities and developing a strong sense of what it was really like to own and manage a business in a small community. The service-learning projects also provided students with insight and confidence about operating their own business later in their careers, thus enhancing their entrepreneurial identity and self-efficacy. These findings concur with those of Heriot, Cook, Simpson, and Parker (2008) who maintained that among the greatest benefits from student consulting projects is the confidence gained through the selling of their proposed ideas and the offering of a well-developed professional opinion to real business problems. The following quotations reflect examples of student views on outcomes that reveal an enhanced sense of entrepreneurial identity and self-efficacy concerning entrepreneurship from their service-learning project experience:
“It really felt good to know that our ideas were being put to use in an existing business and that they were really helping to make direct changes and improvements.”
“Being able to actually plan and implement our suggestions in the makeover and seeing the finished product from this project was amazing. As a team we really liked being able to ‘do’ visual merchandising and see how visual elements made a huge impact on the business.”
“The projects from the course were very meaningful…the Main Street Project, the analysis and managing the budget for it…they all taught me so much and helped me to grow professionally and see what it is like to be an entrepreneur.”
148 Spring 2015 Journal of Business & Entrepreneurship “I really liked getting to work in project teams…I was able to talk the project out with others and that really helped me to learn the subject matter.”
“Hands down, the Main Street consulting project was one of the best overall learning experiences I have had while in college….great experience and very realistic. It makes me think that I could do this myself one day!”
Impact on Businesses To validate the positive impact of the experiential service-learning activities on the small business participants, two research assistants conducted telephone interviews with the business operators and a Main Street director involved in the makeovers. The business operators were first contacted via e- mail to encourage participation in the telephonic interview. A total of 11 interviews were conducted (10 business operators and 1 Main Street Director) from the pool of 15 possible respondents involved in the service-learning projects. The authors provided the two research assistants with a script to follow, which contained an introduction to the study, a set of questions related to the makeover experience and project impact, and a closing statement. The interview script included a series of open-ended questions regarding the success of the makeover at: (a) building and enhancing a unified image for the business, (b) attracting more customers, (c) increasing sales and positive word of mouth, (d) fulfillment of the operator’s goals set before starting the makeover, (e) enhancing the entrepreneurial success and competitiveness of the business, and f) feedback the operators and director received from customers and community leaders about the makeover. To minimize interviewer bias, the wording of each question was followed exactly as written. With the participant’s consent, the telephone interview was tape recorded for transcription. No compensation was provided to the participants apart from a summary of the aggregated interviews findings. Content analysis procedures were used to analyze the qualitative data for emergent themes (Esterberg, 2002; Miles & Huberman, 1994). A representative set of business owner interview findings are shown below and reflect the value and impact of the experiential service learning project: The following sample quotes from business operators regarding project outcomes provide evidence of not only enhanced entrepreneurial performance for
Journal of Business & Entrepreneurship Spring 2015 149 the rural businesses, but also reflect the quality of the student learning experience through mentoring, job shadowing, and interacting with the business operators. It is clear that the project experience provided extensive opportunities for student growth and business owner and business development.
“The students have just breathed so much excitement and new ideas into our business community…..they have brought new ways of looking at things and great opportunities for our local businesses to improve. We could never have come this far without the students’ help on this project. Thank you!”
“The student team was just phenomenal! They had such a range of creative ideas and useful marketing and promotional suggestions…I have already used several of them and plan to use many more. Their project had an immediate impact on my business.”
“I could never have developed these ideas for my business on my own. The students were so nice and full of energy…they really asked good questions and responded to my needs. The work they did on Website suggestions for my business is fantastic too and something I really need.” “The makeover helped to create a better unified situation. It kind of instilled a better confidence in me and I think that is probably the biggest thing. They got us excited with feel of the look of the store and also instilled a confidence in myself.”
“We would do it again so I hope you can continue on doing that with other communities. It’s definitely a big asset for the small towns especially. We were happy to get the assistance and be a part of the program like that.”
Overall, the experiential service-learning approach was successful from the perspective of students and the business owner/clients. It also addressed a number of needs and implications in entrepreneurship education and training as noted by Hannon (2006), such as aligning the purpose of the projects with learner needs and needs of the context or location, as well as enhancing a sense of purpose, meaning, and coherence in the entrepreneurship educational experience. From the educator perspective, the experience was overwhelmingly positive with accomplishments and growth noted for both the students and
150 Spring 2015 Journal of Business & Entrepreneurship business clients. The experiential service learning project allowed students to actually experience first-hand what it was like to be a small rural business owner. They also reaped many learning benefits from the real-world case analysis of a small business in need. The sustainability plans developed created much value for both the student teams and for the business owners and helped students to build entrepreneurial skills and capabilities.
The Potential Long-Term Impact of the Experiential Service-Learning Project
By offering a real world learning opportunity, small business owners had a chance to rethink their business, listen to fresh ideas aimed at entrepreneurial performance and business enhancement, and receive a customized set of competitive and experiential strategies to enhance the sustainability of their operations. The communities where the client businesses were located also reaped benefits from the service-learning projects as the modifications made to the business were conducted according to the Main Street process. Ultimately these modifications have the potential to create significant economic and social impacts on the rural community through enhanced business competitiveness, brand image, and attractiveness of the local business sector. Although these service-learning projects were designed to create awareness of potential opportunities in rural communities and improve rural businesses, they also had a long-term goal of helping to curtail the outmigration of young people. Along with market and economic change, “brain drain”, or the outmigration of college-educated, young residents to urban areas, is a pervasive issue for many rural U.S. communities. The Midwest region, for example, has been especially prone to brain drain (“Iowa Brain Drain,” 2007). New strategies to draw young, college-educated residents to rural communities, as well as new means of creating awareness of diverse employment and entrepreneurial opportunities in rural settings are needed. Therefore, to help stem the outflow of young residents, our experiential service- learning approach was designed to help students realize the opportunities for business ownership and management that exist in rural areas of the state, and further develop an entrepreneurial identity, through collaboration with experienced rural entrepreneurs.
Journal of Business & Entrepreneurship Spring 2015 151 Limitations and Future Plans
This service-learning approach produced many positive outcomes, but a few challenges should also be noted. Partnering with a quality organization such as the Main Street Program generally aided in selection of appreciative and cooperative business clients. However, a few exceptions can be noted across the many businesses served in this project. While much screening was done to identify the right business owners, an occasional “bad apple” will emerge. This too, however, can be a valuable, yet sometimes frustrating, learning experience. We recommend that instructors seeking to implement such a project take measures to ensure business owner understanding of all project dimensions and timelines, their roles, and responsibilities as mentors to the student teams. It is also recommended that business owners be sought that truly desire to enhance their business and its sustainability and therefore must be willing to embrace some degree of change. We found that outside forces such as friends and family members who do not understand branding and experiential value may offer conflicting input that can temporarily derail progress. This required a concerted effort on the part of students, faculty, and Main Street Program staff to educate these influential individuals. Consequently, part of the student experience includes learning how to act as a professional at all times, to communicate effectively and in a timely manner, and to follow proposed plans through to completion. When these steps are taken, this project can be a win-win situation for business owners and students. A note should also be made regarding funding for this type of service- learning project. Instructors will need to be entrepreneurial in terms of seeking funds to support travel and other project expenses. Leveraging of resources, creative problem solving, and negotiation are all part of the process to make a high impact entrepreneurial management project a reality. We have been fortunate to partner with a state-based program, and they have graciously provided partial funding support. In tough economic times, however, budgets are reduced at all levels and we have had to expand our partnerships to include chambers of commerce and individual businesses to ensure ongoing external funding. We are also reducing the travel distance to communities served for the near term to reduce costs and sustain our experiential service-learning projects. These projects have received much praise for the value created for students, business owners, rural communities, and our university, and it is our aim to continue this outreach and collaboration into the foreseeable future.
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Journal of Business & Entrepreneurship Spring 2015 161 162 Spring 2015 Journal of Business & Entrepreneurship SBDC MAXIMUM BUSINESS SERIES: A FRAMEWORK FOR DEVELOPING A SUCCESSFUL INNOVATIVE ENTREPRENEUR EDUCATION PROGRAM
Gwen F. Hanks Eric S. Bonaparte The University of Georgia The University of Georgia
ABSTRACT
The specifics of various entrepreneur education delivery systems, and particular targeted groups, have been discussed in the literature for some time. This article provides the framework developed by the Georgia Small Business Development Center (SBDC) network to create a unique series of six innovative business courses for owners of new and existing businesses. Initially developed to provide instruction and resources to meet a pressing need for specific business skills to groups of clients seeking them, the Maximum Business series has evolved into a series of unique courses delivered in a systematic way, usually sponsored by economic development agencies or corporations.
EXECUTIVE SUMMARY
The concept and practice of entrepreneurship education takes numerous forms and addresses various target groups (i.e., small-medium sized start-ups and existing businesses) in many domains (i.e., higher education, public schools), and in other countries. Many small business owners, specifically individuals with little-to-no formal business education/training, and an urgent need of the technical assistance and resources, tools, communities, and networking that they could not think of on their own, represent a viable target segment for innovative entrepreneur education programs. Representing businesses started by people, perhaps “technicians,” without the vital business skills required to succeed, these owners seek direct, hands-on, useful methods of learning skills and competencies through an efficient means. This research provides the framework developed by the Georgia Small Business Development Center (SBDC) network used to create and deliver an innovative series of six business courses targeted toward owners of new and existing businesses. Initially developed to provide instruction and resources to meet a pressing need for specific business skills and training to groups of clients
Journal of Business & Entrepreneurship Spring 2015 163 seeking them, the Maximum Business series has evolved from an initial course in marketing into a series of business courses delivered in a systematic way. This paper outlines a brief history and mission of the SBA and SBDC organizations, the origin and development of the innovative Maximum Business Program, as well as its path to success, evolution and future direction. The paper provides the specifics of the program, as well as a framework for emulation or replication. The Max program, and its component courses, has become successful and recognizable as an important vehicle to assist business owners, so much so that it has attracted willing corporate and government sponsors. This unique program has generated a great deal of interest and support since its inception in 2008, becoming an integral, recognizable component of the Georgia SBDC brand identity.
INTRODUCTION
“It is my wish that the federal government programs and policies aimed at assisting small businesses ...provide such enterprises with additional constructive assistance.” – President Dwight Eisenhower, charging the SBA as he signed the Small Business Act, 1953.
Entrepreneurship and small business education has come a long way. Today there seems to be a virtual explosion of interest and training in the field, with thousands of courses offered in thousands of institutions of higher learning, and hundreds of endowed positions and entrepreneurship centers (Kuratko, 2005). Much has been written about entrepreneurship education in higher education (Vanevenhoven & Liguori, 2013; Vanevenhoven, 2013) and in various counties [South Africa (Heaton, 2008); India (Manimala, 2008); Italy (Napolitano & Riviezzo, 2008); Ukraine (Solesvik et al., 2012); Slovenia (Omerzel & Antoncic, 2008)], as well as in different disciplines [Veterinary Medicine (Henry & Treanor, 2012); Engineering (Wang & Kleepe, 2001)]. Indeed, there has been much research and a great deal written about formal higher education in the field of small business or entrepreneurship (Vanevenhoven & Liguori, 2013; Vesper & Garner, 1997; Winkel, 2013). Entrepreneurship education programs are increasingly being established and expanded in an effort to equip students with the knowledge and competency
164 Spring 2015 Journal of Business & Entrepreneurship necessary to create economic value and jobs. The basic underlying assumption is that these programs create positive outcomes for students (Duval-Couetil, 2013). Although research has focused extensively on entrepreneurship education in higher education there is a dearth of research or guidance provided for the education, training, facilitation, and/or mentoring/coaching of business owners starting or already involved in an active business [See Lans et al., 2008 for an overview; Kozlinska, 2011 for education research]. This paper differs from previous literature in that it reveals an innovative means of entrepreneur education for start-ups (new business owners) or current business owners, those already deeply involved in a small business. Researchers have looked at the effects of “coaching” or mentoring on entrepreneurs (not education or training), seeking to isolate factors likely to have an impact on “success,” with unverified and limited results (Audet & Couteret, 2012). The specific purpose of this research is to provide a framework for how existing or beginning business owners can be provided substantial assistance (and acquire competencies) through an innovative entrepreneur educational program developed by the Georgia Small Business Development Centers (SBDC), a network of 17 field offices and four divisions, headquartered at The University of Georgia in Athens, GA. In the United States small business represents a major engine of economic growth, with more than 22 million small businesses, accounting for 99 percent of all U.S. businesses and employing 53 percent of the private sector workforce. SMEs (small and medium-sized enterprises) also contribute more than half the nation's private gross domestic product (GDP) (ASBDC, 2013). The field of entrepreneurship, the identification of potential opportunities and the successful exploitation of them, has been particularly fascinating and attractive to scholars and popular authors for quite some time (Koellinger, 2008). Entrepreneurship has been a topic of intense interest and inquiry over the last several decades, and continues to be so (Stewart et al., 1998; Stewart & Roth, 2001). Of course, the debate about the differences between entrepreneurial orientation and small business orientation also continues, and has been explored elsewhere (Runyan, et al., 2008). In the course of dealing with small business owners across an array of businesses, it becomes difficult to separate the two orientations, which tend to overlap and are not particularly relevant to this project/research. Although the research tends to distinguish between the two labels and orientations, particularly in relation to firm performance and
Journal of Business & Entrepreneurship Spring 2015 165 orientation, in this research they are treated as interchangeable terms for purposes of investigation and explanation. In the popular literature and press there is some discussion that new businesses are often started by “technicians,” those who know how to do a job quite well and who also think they can exploit the opportunity to create a business in order to be their own boss and “make all the money themselves,” instead of working for someone else (Gerber, 2009). This “entrepreneurial seizure,” which provides the passionate paroxysm and impetus to start a business, as described in “The E-Myth”, often ends badly, perhaps in failure, due to the circumstance that most “technicians” know little (to nothing) about the running of a business (a more entrepreneurial endeavor and skill set) (Gerber, 2009). The solution to this awkward and potentially disastrous situation, according to Gerber (2009), is to seek a balance between the entrepreneurial focus and the technical focus required to start, grow and sustain a business. His philosophy concentrates on teaching these individuals to think “strategically,” that is, to “work on the business, rather than in the business,” something repeated in Small Business Development Centers across the country and elsewhere. In this way, nascent business people are taught to consider creating systems (i.e., business plans, business models, other systems), replicable ways to sustain themselves and their firms, and not to think in terms of “one-off’s,” various unique, one-time ways of doing things. For this to work, entrepreneur education and training in the functional areas of the business would be required. Specifically, one value added aspect for small business owners through competence-based education and training appears to be through providing awareness of the need for certain entrepreneurial and business competencies they may not yet realize are required to be successful. The SBDC network is often the source for the required technical assistance being sought by small to middle- sized business owners. The services provided by the SBDC offer critical knowledge and technical assistance that can support and develop a business person, until they feel more comfortable in their role, or perhaps when operational efficiencies can be achieved. This premise is consistent with the mission of the Georgia SBDC, which is “to enhance the economic well-being of Georgians by providing a wide range of educational services for small business owners and aspiring entrepreneurs” (SBDC, 2014). Hopefully this article provides some insights regarding how an innovative entrepreneur education offering, like the Maximum series, can be
166 Spring 2015 Journal of Business & Entrepreneurship integrated into the essential educational services provided by a state SBDC organization, and exploited to provide organizational effort synergy through a more efficient use of resources. Developing such a unique program as the Max series is a logical step in the continuous improvement process that the SBDC strives to maintain. Gerber’s premise is that most businesses are started by people without tangible (viable) business skills, those who would require the resources, education, tools, communities, and networking that entrepreneurs could not think of on their own (Gerber, 2009). Where someone with a business school education may already know the basic concepts and fundamental elements of creating and maintaining a business, those without that background may need considerable help to move efficiently and quickly up this learning curve with enough nimbleness to survive. Technical business support is available in a variety of places, if the business owner knows where to look. This research focuses on very specific innovative entrepreneurial education resources developed to supplement the general business assistance already provided by one state’s Small Business Development Center network. Others counter Gerber’s premise with the argument that currently there is no need for this type of focused support, since all the required information and most business knowledge should be relatively readily available to those seeking it, from the internet and other publicly available sources (Zwilling, 2013). Zwilling argues that the E-myth, the idea that untrained technicians starting businesses require strategic and entrepreneurial thinking and assistance, is outdated and leads to faulty action in the marketplace. Within the Small Business Development Center Network, at the time of Maximum program inception, there was agreement concerning the need for an innovative entrepreneur education course, or courses, to provide much sought and relatively easily deliverable business training to new and existing business owners in an accelerated or compressed way. The original impetus for the course that became “Maximum Marketing” was an observable need in the field for more training in the area of marketing. That discipline seemed to represent the most critical need when the program was developed by several SBDC consultants in 2008. Since that time, another five courses have been developed for the Maximum branded series developed and offered by the Georgia SBDC, including courses on social media, human resources, finance, retailing, and customer service.
Journal of Business & Entrepreneurship Spring 2015 167 Since it is the role of the SBDC to provide educational services and consulting to small business owners, a major challenge is how to provide these services in the most efficient and effective ways, while maintaining the required SBA deliverables (i.e., consulting hours, loan assistance, sales and employment assistance). The Maximum business course series provides a means for addressing the needs of the business clients through specific educational offerings, while allowing for and generating further consulting opportunities with participating SBDC clients. There are many organizations, such as the SBDC, that provide technical assistance, educational programs, and consulting services to existing and nascent small businesses with the objectives of assisting them to survive, thrive and grow. In many cases, the owner or founder of a small business may not have a formal business education or training in business practices, merely an idea to create or own a business, or perhaps an inclination to be their own boss or an “entrepreneur of necessity” caused by job loss. Often, if the business owner possesses technical or formal education, it may be in a non-business field. Various reasons for individuals being drawn to becoming entrepreneurs or small business owners are provided in the literature, including a desire to be their own boss, to pursue their own ideas in their own ways, and to realize financial success (Barringer & Ireland, 2006). Traits or dimensions such as a “passion for business,” tenacity, executive intelligence and customer focus (Barringer & Ireland, 2006, p. 8), or self-efficacy, risk, conscientiousness, open to experience, extraversion, agreeableness, and emotional stability (Baron, 2012) are offered as answers to the question “how are entrepreneurs different in terms of personal characteristics?” A question focused on what support or skills they might actually need to succeed is quite different. More than a million businesses, including a sizeable number in dynamic start-up mode, are assisted by SBDC programs each year. Although perceived as a champion of business start-ups, the SBDC’s primary clients for business assistance are business owners representing existing businesses searching for efficiency, stability or a plan for growth (ASBDC, 2013).
BRIEF HISTORY OF THE SMALL BUSINESS DEVELOPMENT CENTER (SBDC) PROGRAM
The Small Business Administration (SBA) was created as a federal agency when Congress passed the Small Business Act in 1953. The stated
168 Spring 2015 Journal of Business & Entrepreneurship mission was to "aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns," and to ensure small businesses a “fair proportion” of government contracts (Mills, 2013). The SBA’s philosophy and mission were shaped through numerous predecessor agencies, as a response to the pressures of the Great Depression and World War II (SBA, 2013b). The SBA’s mission and commitment to small business success remain much the same sixty years later, even in a radically different national landscape (Mills, 2013). Since its founding, the SBA has delivered millions of loans, loan guarantees, contracts, counseling sessions and other forms of assistance to small businesses (SBA, 2013b). As an outgrowth of this extended effort to impact the small business ecosystem in the country, the Small Business Development Center (SBDC) network was established and has grown as an integral part of the SBA’s mission. The SBDC program concept originated with Dr. William C. Flewellen, Jr., former dean of The University of Georgia College of Business Administration, and Reed Powell, dean of the School of Business at California State Polytechnic University at Pomona, who were serving together on the national advisory council of the Small Business Administration (SBA, 2013a). In fact, Dr. Flewellen is generally considered the father of the national SBDC program and was primarily responsible for the establishment of the Small Business Development Center (SBDC) on The University of Georgia campus, and on other university campuses across the nation. The state of Georgia (through legislative support) and The University of Georgia played important initial roles in championing the SBDC program. The initial SBDC concept was simple: extend university-based business knowledge to the small business sector in a model similar to the one the Agriculture Extension Service used to disseminate agricultural knowledge. The SBA-funded a pilot program, called the University Business Development Center (UBDC), was started at California State Polytechnic University in December, 1976. Then SBA Administrator Henry Warren selected other schools already providing business services to their communities to participate in the program. Seven more universities were funded in the first half of 1977, including California State University at Chico, The University of Georgia, The University of Missouri at St. Louis, The University of Nebraska at Omaha, Rutgers University, The University of Southern Maine and the University of West Florida. The success of the original pilot programs paved the way for federal
Journal of Business & Entrepreneurship Spring 2015 169 funding. In 1980, President Jimmy Carter signed the Small Business Development Center Act formally into law, creating the SBDC program. The core services of the SBDC, including consulting, training and applied research, have remained intact since the founding of the program. These services mirror and generally reflect the primary responsibilities of The University of Georgia as a land grant institution, with joint missions of instruction, research, and technical assistance/outreach. Previously, a resolution permitting the state to fund the SBDC program, was passed in January, 1977 by the Georgia General Assembly, directing the University System Board of Regents to establish The University of Georgia as the coordinating agency for the SBDC. Today, with 17 offices and four divisions, the UGA SBDC provides high impact business consulting and education to business owners and prospective owners in Georgia. The SBDC’s mission expanded to include community economic development assistance and economic development research under the terms of a USDA Rural Economic Development Grant in 1991. All services are now provided under the SBDC banner. By supporting business growth, sustainability and enhancing the creation of new businesses entities, SBDCs foster local and regional economic development through job creation and retention. Small Business Development Centers (SBDCs) provide an extensive array of technical assistance, primarily using business consultants at the delivery points, to small businesses and aspiring entrepreneurs. There are SBDC organizations in most states. SBDC programs serve minorities, women, veterans, individuals with disabilities, youth and encore entrepreneurs, as well as individuals in low and moderate income urban and rural areas, in the mission to serve all populations (SBA, 2013a). The SBDCs are made up of a unique collaboration of SBA federal funds, state and local governments, and private sector resources, and are required to provide specific measurable deliverables (SBA, 2013a). As a result of the specialized services SBDC clients receive, the program remains one of the nation’s largest small business assistance programs within the federal government. The SBDC network eventually grew to include assistance available virtually anywhere, with 63 host networks including 48 University- sponsored SBDC hosts, eight community college-sponsored SBDC hosts, and seven state-sponsored Lead SBDCs (CO, IL, IN, MN, MT, OH, & WV), branching out with more than 900 service delivery points throughout the U.S.,
170 Spring 2015 Journal of Business & Entrepreneurship the District of Columbia, Guam, Puerto Rico, American Samoa and the U.S. Virgin Islands. (SBA, 2013a). Congress has since 1990 required all new SBDCs to be hosted by institutions of higher education or Women’s Business Centers. Program growth over time has required a systematic and organized way to manage the many disparate parts. This function was eventually filled through the ASBDC, an overarching organization created to coordinate the SBDC units. America's SBDC (ASBDC) association, a partnership program uniting private enterprise, government, higher education and local nonprofit economic development organizations, is dedicated to development of small business, and represents “the most comprehensive small business assistance network” in the United States and its territories (ASBDC, 2013). The ASBDC was founded in 1979 as an organization to provide the appropriate mechanism for the continuous improvement of the Small Business Development Center (SBDC) program; to facilitate the exchange of information among members regarding objectives, methods and results in business management and technical assistance; and to provide advocacy for the small business community (ASBDC, 2013). The ASBDC network, through the SBDC units and consultants, delivers nationwide educational assistance to strengthen business management, contributing to the growth of local, state and national economies (ASBDC, 2013). The network’s mission is to help new entrepreneurs realize their dream of business ownership, and to assist existing businesses remain competitive in the complex marketplace of an ever-changing global economy. That mission also includes representing the collective interest of members by promoting, informing, supporting and continuously improving the SBDC network (ASBDC, 2013). The SBDC network provides a cost-effective means of creating jobs, growing the economy, enhancing American competitiveness and in general “fulfilling the American dream” (ASBDC, 2013). Small business owners and aspiring entrepreneurs can access local SBDCs for the no-cost, face-to-face business consulting and at-cost training. Another goal of ASBDC is to deliver educational assistance to strengthen small/medium business management, thereby contributing to the growth of local, state and national economies (ASBDC, 2013). Hosted by leading universities, colleges and state economic development agencies, and funded in part through a partnership with the U.S. Small Business Administration (SBA), the SBDC program provides extensive, one-on-one, no-
Journal of Business & Entrepreneurship Spring 2015 171 cost, long-term professional business advising/ consulting and low-cost training in such areas as business plan writing, accessing capital (loan assistance), financial assistance, marketing assistance, regulatory compliance, international trade (export and import support), procurement and contracting aid, market research, aid to 8(a) firms in all stages, healthcare information and much more through professional business advisors/consultants (SBA, 2013a). Modification in SBDC services, based on client needs, local business trends and individual business requirements, are made to meet the evolving needs of the small business communities in which they are located (SBA, 2013a). From this directive the rationale for the Georgia SBDC Maximum Business series was developed, nurtured and grew, once a “local” need was recognized and then addressed.
FRAMEWORK FOR INNOVATIVE ENTREPRENEUR EDUCATIONAL PROGRAMS: MAXIMUM EDUCATION SERIES
Initially, the original Maximum program/course was developed in 2008, primarily led by the efforts of consultants in one of the Georgia SBDC area offices. In response to the need witnessed in the market served by the SBDC, the consultants felt a series of workshops centered on the common theme and functions of marketing could serve as a catalyst for businesses moving from one stage to another, and could be achieved efficiently. For that reason, the first program developed for the series was “Maximum Marketing,” an interactive course where business owners learn what marketing is, how to identify target markets and customers, traditional and new ways to reach markets, and various selling techniques. Other marketing topics were also included in the original course, which has been reviewed and revised, and has evolved into its present form. In the course a different marketing topic is the focus of each two-hour workshop wherever the course is offered over a five-week period. Eventually this course led the way for the branding of an entire series of related business courses designed to meet the various needs seen in the field, or selected through other means of needs assessment. Since the development of the “Max Marketing” course, other SBDC consultants and teams have initiated various course offerings in the series, such as Maximum Contact, Maximum Money,
172 Spring 2015 Journal of Business & Entrepreneurship Maximum People, Maximum Retail, and Maximum Service. See Table 1 for the full list of courses.
TABLE 1 Summary of Maximum Series Courses
Course Focus/Emphasis/Concepts Maximum Marketing General Marketing Concepts & Best Practices Maximum Contact Social Media Concepts & Best Practices Maximum Money Financial Concepts & Best Practices Maximum People Human Resources Concepts & Best Practices Maximum Retail Retailing Concepts & Best Practices Maximum Service Customer Service Concepts & Best Practices Source: Georgia SBDC
GENERAL MAXIMUM COURSE FORMAT TYPICAL COURSE STRUCTURE
For each Maximum Business course a comprehensive spiral-bound or loose-leaf workbook is developed, and later refined (continuous improvement is considered an iterative process that is still on-going). The series books are developed in-house by various SBDC teams, depending on interest and expertise and are provided for all participants in the respective programs. Each book is used in conjunction with the five modules developed for each specific course and provides a great deal of the structure (and interactive capacity) for course delivery. All course workbooks are developed as “hands-on,” interactive tools for the participants to use and keep for future reference. Basic concepts, relevant graphics, and activities/exercises for the duration of each five-week course are provided in the book developed for each course. An open format for the workbooks allows participants to work and learn through exercises, and to take notes. As an example of content, the topics featured in the Maximum Marketing course include: What is Marketing, the 7 P’s of Marketing, Marketing Planning, SWOT analysis, and other typical fundamentals of the discipline. Unlike the typical text book approach, in the courses most topics are facilitated in an
Journal of Business & Entrepreneurship Spring 2015 173 interactive manner, using a very hands-on, applied approach and provide many planning processes and opportunities to customize and apply the work to the individual’s business. Participant sharing among the 20 or so classmates in each course is also considered an essential element of the overall Max process and experience. The courses are primarily based on facilitation, rather than “instruction.” Since its inception, the Maximum business series has been quite popular and successful, attracting various sponsors who champion the program for different constituents. The Max program, and its component courses, has since become successful and recognizable as an important vehicle to assist Georgia business owners, so much so that it has attracted willing corporate and government sponsors. The program series has been featured across Georgia, has been the object of sponsorship support, and has expanded into targeting communities in need of development (an economic development function), as well as the small business owners in need of knowledge and skills. The program has been refined over time and become an integral, and recognized, component of the Georgia SBDC brand identity. The Max series is also useful as a strategic tool to build and reinforce important relationship between the SBDC organization and businesses, as well as other stakeholders throughout the state.
MAXIMUM PROGRAM DEVELOPMENT PROCESS
The development of a successful innovative entrepreneur education program targeted toward business owners/managers, like the Maximum Business Series, depends on several elements and project management techniques. It also relies on champions, those who believe in the program and are willing to devote time to its development and deployment. First, the identification of specific needs within the business community that can be addressed through such a format is required. Second, the identification and availability of specific expertise within the developing entity (in this case the SBDC) to plan and develop each course is also necessary. Next, a systematic method of assigning and monitoring the program and the component parts is needed. Finally, the development, guidance, and delivery of each module to successful closure within the appropriate time line is achieved. This step also includes the necessary resources to deploy the innovative program
174 Spring 2015 Journal of Business & Entrepreneurship where it is needed. See Table 2 for a summary of the fundamental steps and those responsible in the course development process.
Pre-Staging/Development:
The first step in developing an innovative Maximum business course is undertaking a needs assessment among the relevant business owners, and then having a discussion among interested (and willing) personnel to determine the viability of the course under consideration. The first Max course was Maximum Marketing, addressing the fundamental elements of marketing for business owners and managers who may not have a sufficient understanding of the principals involved. The course was designed based on needs the designing consultant team witnessed among their clients. Initially, they felt the most urgent need was for a fundamental course focused on marketing, since many clients had little-to-no business education or training in marketing.
Step 1: During the initial step of the development process for a Max course, an interested team of SBDC personnel is recruited to voluntarily participate (usually with specific interest in the course topic being developed). A team usually consists of approximately six-to-nine interested and qualified (content specific) SBDC consultants and other participants (e.g., continuing education coordinator, other area directors, assistant state director, etc.). Usually a primary coordinator emerges to facilitate the process, otherwise one is appointed from within the group. Even at this stage the viability of the course is discussed in terms of client interest and resources required for delivery across the state. Learning objectives are also discussed and refined and an outline is created to depict need topics.
Step 2: Depending on the focus of the program, the Max course modules (usually five) are separated and assigned for development by a specific person or team in this step. In that way, someone is responsible for each topic in the course, rather than depending on a more haphazard development process. A goal is to follow the now systemized process for an expedited and efficient development of a course, since the course development work is in addition to other consultant responsibilities and required deliverables.
Journal of Business & Entrepreneurship Spring 2015 175 Step 3: Each individual or team develops the relevant course module outlines and specific individual topics to be addressed. In this step, the activities, articles, and reading lists are also developed or collected for each of the five sessions, matching the respective learning objectives. Attention is given to diversity issues in an ever-changing environment, as they relate to the specific topic subject matter.
Step 4: In this step, individuals or teams generate the relevant PowerPoint slide presentations in support of the topic and modules, produce a session plan for each of the five sessions, develop various workbook materials, and create or provide other activities to be used in the course.
Step 5: The entire development team, including the support participants, reviews all the materials and provides appropriate feedback to the team leader. Adjustments are made to the materials and any other aspect of the course according to this initial feedback.
Step 6: At this stage, usually one person (primary coordinator) is responsible for standardizing the materials, including PowerPoint slides and classroom materials, so they have a seamless, cohesive appearance. The primary coordinator keeps the development group informed and engaged, revising every presentation element to match a standard format, and devoting time to assure that the project moves forward in a timely fashion. Once this step occurs, the revised materials are sent to the development team members to review and prepare for a real time “rehearsal presentation.”
Step 7: A rehearsal is eventually scheduled, coordinating all the disparate schedules and work loads of those involved in the process. The personnel usually travel varying distance to arrive at a central location for this event. A module-by- module rehearsal of the entire course, including all materials, is scheduled for a setting relatively convenient to the designated presenters. Each module requires two-hours in real time for presentation, requiring an entire day devoted to the
176 Spring 2015 Journal of Business & Entrepreneurship course at the selected location. In the case of the SBDC, a centrally located field office or the state office is usually selected as a gathering place for those involved in this step. Again, this activity pulls consultants from across the state and represents a tremendous investment in resources, particularly an opportunity cost of time away from normal duties and the attendant deliverables expected. There is also some actual expense associated with travel and accommodation costs.
Step 8: After rehearsal, once any adjustments are made and the materials are finalized, the course materials and slides are produced and tentatively made ready for distribution to all the field offices in preparation for deploying the course statewide.
Step 9: Usually a particular SBDC field office will provide a “pilot run” of the entire Max course, complete with the requisite marketing effort, registration, and possibly sponsorship support to fund it. After delivery the course is critiqued by all involved, including evaluation by the business participants (as is always done).
Step 10: If the pilot offering of the course goes smoothly, there is a statewide “roll-out,” where the Max course is designated “ready to deliver” and the materials in support are made available to those who might want to offer it. [There are coordinating logistical, assignment and tracking activities through a statewide education coordinator who assists in smooth, non-conflicting deployment of the courses, and coordination of the corresponding sponsorships which can be state- wide or local.]
Step 11: At this stage, as the course is fully deployed, feedback from those field offices offering the course is reviewed. Final adjustments and updates are made at this stage, and continue throughout the life of the course as continuous improvement, since there are usually ongoing improvements and iterative changes. Each instructor/facilitator is trained on the respective course (or module) of interest so they can be scheduled when the course is offered. Coordination of the workload
Journal of Business & Entrepreneurship Spring 2015 177 and times are generally made through the education coordinator (who also coordinates other courses such as the “Start Smart” and “Grow Smart” series).
Step 12: The courses are considered “living” elements requiring constant review and occasional formal updates/revisions. Although there is a specific cadre of individuals qualified and designated to provide each of the course modules, substitutions can be made as more people become familiar with the programs and/or local workloads require it. This usually occurs, and is coordinated, when specific courses are offered through area offices in cities throughout the state. Each area office is usually responsible for service to and coordinating programs in several local counties. While the course is being offered in a specific location, the local field consultants usually attend the sessions, since they are responsible for coordinating the event, and can become familiar with the material through attendance. At this point, consultants can generally acquire the necessary skills and familiarity required to deliver various modules or the entire course in this way. Various other stakeholders, such as local bankers, chamber members, and/or sponsors, sometimes attend the sessions to get a better understanding of the course materials and process. The professional development effort continues throughout the cycle of the various Max courses. In fact, in addition to the occasional updates that occur in the respective courses, a total overhaul of five of the six courses has recently taken place, and is planned periodically in the future to stay current. Of course, slight variations and possible revisions may occur as different individuals facilitate the sessions since some flexibility is built into the program. However, structure drives the process. Some standardization and quality assurance are expected.
178 Spring 2015 Journal of Business & Entrepreneurship TABLE 2 Summary of Steps for the Maximum Course Development Process Stages/Steps Activity Responsibility Pre-Staging/ Needs assessment, discussion among Interested consultants who form a committed team; Development interested personnel also a coordinator or champion to oversee the process Step 1: Recruitment of an interested team of SBDC A team of approximately 6 - 9 interested and qualified personnel to participate (usually with SBDC consultants and other participants (e.g., interests specific to the course being continuing education coordinator, other directors, developed) assistant state director) Step 2: Course modules (usually 5) are divided and Coordinator divides and assists in assigning the assigned for development modules for development. Step 3: Course module outlines and topics are Team members, collectively and individually. developed Step 4: Developing PowerPoint slide presentations; Each designated team member develops a unit, either session plans; workbook materials; activities. alone or with assistance. Step 5: Review and feedback; adjustments and Entire team, especially external observers (not directly revisions involved in material preparation) Step 6: Standardization of materials, including Coordinator (with some assistance from a small group) PowerPoint slides and classroom materials Step 7: Rehearsal of the entire course, module by All participants, who meet at a mutually agreed module in a mock setting by the designated location to deliver a total run rehearsal through of the presenters. Each module is two-hours. course. Step 8: Course materials and slides are produced Reproduction and distribution of materials; state and ready for distribution to the field offices. office personnel Step 9: Pilot the First Program through an SBDC field A local office; marketing and course coordination office Step 10: Roll-Out: Ready to deliver course throughout One office deploys the course; local SBDC the system office/personnel Step 11: Feedback from the field offices after course Coordinator; team members plan adjustments to the has been deployed once program Step 12: Any revisions Original team members; particular course champion/coordinator Source: Georgia SBDC Max Planning Group
Typically, each Maximum course consists of five weeks of classes, a two- hour module delivered each week. In this way, 10 hours of instruction and activities are provided for each course, delivered on-site at a mutually agreed location. Community course locations are typically civic centers, chamber offices, or other common areas that can accommodate 20 – 25 participants. A specified fee is charged for each program, usually a per course fee to deliver the entire course over the five-week period to 20 enrolled individuals for a prescribed amount. In many (if not most) cases a sponsoring organization underwrites the cost of the course being delivered to a community (allowing for “scholarships” to business participants). Occasionally, when one community cannot generate the required 20 individuals to make the class, two adjacent communities may partner to create sufficient demand.
Journal of Business & Entrepreneurship Spring 2015 179 The courses can be scheduled throughout the day, or even in the evening or morning, depending on the desires of the local coordinating team or the local business market. If the sessions are held in the morning, breakfast might be provided. If the sessions straddle the lunch period, a light lunch might be offered. Meals, and any additional amenities, are usually funded via the sponsorship support for the course being provided.
MAXIMUM COURSE COORDINATION
General program coordination for any of the Maximum courses is the responsibility of the local office administrative staff (with assistance of the statewide coordinator). The overall effort and logistics include ordering food, scheduling the meeting facilities, marketing efforts (i.e., outreach, articles, mailings to client list, etc.) to populate the course, answering the questions of participants related to registration, and actually registering participants. Following a period of planning and decision making, where the specifics of the course (i.e., time of day, day of the week, start date, payment) are decided, the recruitment process begins in earnest. That process begins with the marketing efforts, including advertisements (and articles) placed in the local newspaper, followed up by Facebook posts, and a registration link on the state SBDC web page. Following the start of the recruitment effort, the local coordinator fields calls and/or processes registrations made on the State SBDC website. Each perspective participant is asked to fill out a registration form or application, which allows the coordinator an opportunity to assemble a roster of participants, including pertinent information such as the type of business, history of the business and location of the establishment. Usually the local SBDC staff, including consultants, selects course participants during a meeting where each prospect is assessed for what they will contribute to the program. Careful attention is paid to the participant mix so that competing businesses or establishments deemed “inappropriate” are not included. At this stage, the course coordinator calls selected applicants to inform them, and sends a letter to applicants not accepted for the current cycle (many are encouraged to reapply). In the case of an ineligible business, no specific reason is provided. Consultants may or may not hold an orientation meeting, typically scheduled during a lunch hour prior to the first course meeting. At this meeting, the course is discussed, with speakers possibly present and sponsors introduced.
180 Spring 2015 Journal of Business & Entrepreneurship This informative session is also designed to get participants excited about the modules. Sessions usually begin within a week or two. The SBDC staff, consultants and/or administrative support staff usually provide a course binder at the first meeting or orientation. The facilitator, in most cases a consultant from the local SBDC office or another state network office, receives the roster and plans for issues the group might want to address based on the local environment, industry challenges or current events. As the facilitator meets and discusses content with group attendees during the first day the process is further fine-tuned. The group then meets once a week for the five weeks of the course.
PROGRAM SPONSORSHIP
Maximum series sponsorship is encouraged for several reasons. First, the financial support allows participation by entities (sponsors) who have a vested interest in the local community, perhaps a bank, an insurance company, chamber of commerce, utility company or institution of higher learning. Secondly, sponsorship funding lowers the actual costs to participants and the host SBDC office. Typically sponsorship funds are used to offset expenses for copies, refreshments, or room rental associated with delivering the programs, as well as allowing participants to receive partial or full program scholarships. Third, the use of a program sponsor provides additional credibility linkage to the program. The sponsorship association essentially adds to the public perceived value when a known and respected organization is involved and attached as a sponsor. The sponsorship becomes a means of “co-marketing” or “co-branding,” associating and reinforcing the positive aspects of each organization. The acquisition process for appropriate sponsors usually begins up to six months to a year prior to the program delivery date when they are approached and solicited. The sponsorship (with attendant costs) can be exclusive or shared among different organizations. Typically, a sponsor is primarily looking for positive exposure to participants in a particular way, either by saying a few words at the event opening or at the final session or graduation. In addition, sponsor logos can be placed on handouts and agendas, or printed on module materials, depending on the level of involvement and funding. The goal is to lower costs and subsidize tuition for the SBDC office hosting the course, making the fee affordable for attendees to participate and benefit. Often, because of the sponsorship funding, the course can be offered at no cost to the participants.
Journal of Business & Entrepreneurship Spring 2015 181 CONCLUSION AND IMPLICATIONS
The current Maximum Business Series of six courses represents one aspect of the continuous improvement efforts undertaken by Georgia SBDC as an organization. Due to periodic reviews and assessment, the Georgia SBDC scans the state’s business environment for opportunities to better serve constituents and stakeholders, particularly with regard to an ever changing world. This unique and innovative business education series was initially developed to provide instruction and resources to meet a pressing need for specific business skills to groups of clients (and other business people) urgently seeking them. The Maximum Business series has evolved from an initial course in marketing into a series of business-related courses delivered in a systematic and innovative manner, usually sponsored by an interested corporation or other entity. Although the current course offerings provide six much-in-demand business courses, the possibility for other courses is limited only by the needs of the client base and the skills and imagination of the consultant-developers. This research provides the specific framework developed by the Georgia SBDC network, used to create and deliver an inventive series of business courses targeted to owners of new and existing businesses. This unique education initiative is consistent with the state SBDC vision, “to be recognized for excellence and championed by clients and stakeholders.” The program also meets the obvious need for education and technical assistance for those entrepreneurs and other business people who undertake a business venture with little-to-no real business knowledge or skills, but possibly with a passion or drive to create or have their own business, or just be their own boss. Many sources of assistance are available to such individuals, including those provided through SBDC business consulting and education. The challenge is one of delivering the right resources to the correct target group at the proper time. The practice of entrepreneurship education takes many forms, addressing many target groups including small-to-medium sized start-ups and existing businesses. These efforts are provided in various domains (i.e., higher education, public schools, and also in other countries). Small business owners, specifically individuals with little-to-no formal business education/training, and an urgent need of the technical assistance and resources, tools, communities, and networking they might not be able to think of on their own, represent a viable segment with needs that can be addressed through such an innovative entrepreneur education program.
182 Spring 2015 Journal of Business & Entrepreneurship Representing businesses started by people, perhaps “technicians,” without the usual and necessary business skills required to succeed, these business owners are seeking immediate, direct, hands-on, useful methods of learning those skills and competencies they need through an efficient and effective means. The Maximum Business series developed by the Georgia SBDC provides just such an innovative educational offering. This research focuses on how the SBDC has leveraged available resources to provide an innovative entrepreneurship education program to meet a substantial need in the business community. It provides the chronology and framework developed and used to create and deliver this unique series of six innovative business courses targeted to the owners of new and existing businesses. Providing innovative entrepreneurship education, based on prevailing technology and client needs, is a logical step in the ongoing continuous improvement process at SBDC. The primary organizational development cost is the significant amount of faculty/consultant time and effort required to develop and refine each Max Course. The primary impetus for each individual Max course unit has been, and continues to be, the need witnessed within the business community. The long-term benefits of providing such entrepreneur education accrues to all the participants, both participants and facilitators, since a major goal is an exchange of knowledge. Everyone has the common goal of developing more successful business capacity (and jobs) in the state, while decreasing the number of unsuccessful businesses. Innovative entrepreneurial education techniques are encouraged as a means of achieving the mission of the organization. The general reaction to the program from participants, sponsors and within the SBDC has been very positive. Word-of-mouth tends to expand the number of business owners and local community leaders who are interested in participating. As further needs arise, more Maximum business courses are expected to be developed. In summary, this unique, innovative business education program provides an effective and efficient business knowledge delivery system for small business owners and entrepreneurs who can best benefit from the courses. Specific courses are determined by the needs of business owners in the local business environment. Further exploration of this concept is encouraged.
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Journal of Business & Entrepreneurship Spring 2015 187 188 Spring 2015 Journal of Business & Entrepreneurship
BELLE MEADE PLANTATION: SOCIAL ENTREPRENEURSHIP AND SUSTAINABILITY AT THE FIRST NON-PROFIT WINERY IN THE U.S.
Robert Lambert Joe F. Alexander Mark T. Schenkel Belmont University Belmont University Belmont University
ABSTRACT
After examining the latest financials for the nonprofit Belle Meade Plantation in 2004, Alton and Sheree Kelley were frustrated. For the fifth consecutive year, donations from corporations and individuals had declined, resulting in the lowest total annual revenue in memory. Clearly, management needed alternative revenue sources and could no longer rely primarily on donations for sustaining operations. It was time for some entrepreneurial ingenuity. An ambitious plan would eventually emerge for building and operating an on-site winery. Now, almost ten years later, the Plantation operates the only such nonprofit winery in the United States, and the addition provides almost half of the organization’s total revenues. The gradual shift from an exclusively “donor-based” mentality has now changed Belle Meade’s approach to embracing other revenue stream opportunities. For one, should management extend operations to an on-site restaurant that is approaching an expiring lease agreement? Such a move could create an additional source of revenue and leverage the existing winery so that food and wine could be paired at the restaurant. Second, the State laws that previously prohibited off-site expansion of the Plantation’s winery business were now gone. As a result, if it so desired, Belle Meade Plantation could legally open another winery at a new location such as downtown Nashville. An additional winery location could complement the current brand in a variety of ways while serving the Nashville market.
Key words: social entrepreneurship, organizational sustainability, ma rketing, diversification
Journal of Business & Entrepreneurship Spring 2015 189 INTRODUCTION
“If you’re in the wine business and you’re not making money today, it’s not the industry’s fault. Check your business model.” Adam Beak, Managing Director Bank of the West’s North Coast Agricultural Banking Center (Huyghe, 2014) Belle Meade Plantation was founded in 1807, by John Harding. The Belle Meade Mansion was built in 1853, by Harding’s son and Confederate Army General William Giles Harding. By the time of the U.S. Civil War, the Plantation had become famous as a 5,400 acre stud farm that was producing some of the best racehorses in the South. Over the last century-plus, Belle Meade’s breeding lineage boasted some of the best-known thoroughbred horses in U.S. history, including Secretariat and many others such as 2014 Kentucky Derby winner California Chrome. And through it all, the Greek revival-styled Mansion was the centerpiece of the affluent Belle Meade region of Nashville, with the historic homestead surrounded by 30 acres of manicured lawns and shade trees. A long driveway led uphill to the mansion fronted by six columns and a wide veranda. Inside, the restored building was furnished with 19th-century antiques that hint at the elegance and wealth that the Southern gentility enjoyed in the late 1800s. As of 2004, Alton Kelley, former restaurateur and hospitality executive, and current president of Belle Meade Plantation, and his wife, Sheree, winery manager, were both facing the monumental task of securing adequate, long-term funding for the historic non-profit. For the fifth consecutive year, donations from corporations and individuals had declined to the lowest levels in memory, and the couple believed they had little choice but to look for solutions that were well outside of the proverbial box. Clearly the organization and its board of directors could no longer rely solely on corporate donations for the ongoing operations of the Belle Meade Plantation. So, after evaluating and discarding a variety of other alternatives, the Kelleys set about pursuing an ambitious plan to build and operate a nonprofit winery on this historic site to help sustain current and future long term financing needs. The idea was bold, given that there were no other known nonprofit wineries in the U.S. However, they believed that if they could successfully navigate through the numerous legal and market-based challenges, this was an initiative that could provide the necessary funding required for supporting the property’s ongoing operations. At the time, the existing sources of funding for the operations of Belle Meade Plantation were (in descending revenue order): (1) ticket sales from
190 Spring 2015 Journal of Business & Entrepreneurship visiting tourists, (2) hosting special events, (3) corporate and private donations, and (4) sales of items from the gift shop, including a line of private-labeled products, such as cheese, country ham, grits, and a variety of souvenirs. Paid staff offered Plantation tours to the general public, and costumed guides followed a theme (for example, holidays, aspects of plantation life, etc.) that changed every three months with the seasons. These themed tours provided fascinating glimpses into the lives of the people who once lived at Belle Meade. The grounds also included a large carriage house and set of stables that date back to 1890, and that now housed a large collection of antique carriages. During the tour, visitors were also given a glimpse inside a variety of other historic facilities on the property, including a log cabin, a smokehouse, and a creamery. Belle Meade's park-like grounds made it a popular site for festivals throughout the year. In late 2009, The Harding House Restaurant opened on the grounds, immediately adjacent to the mansion, replacing the popular “Martha's at the Plantation” restaurant. The restaurant is an independent operation and pays rent to Belle Meade Plantation, with all profits remaining in the restaurant. The rental agreement between the restaurant and Belle Meade Plantation is for a three-year period, and the current operators are in the final year of that lease. Based on his past experience in the restaurant industry, and the success of the winery, Alton was contemplating non-renewal of the restaurant’s lease. Instead, he was considering opening a new restaurant that would feed off of the 450,000 customers who currently visit the Plantation each year. There is an opportunity to operate a quality restaurant and pair wines produced at the Belle Meade Winery with food prepared in the restaurant. While this would provide another revenue stream for the Plantation, there were risks associated with a new venture such as this.
HISTORY OF BELLE MEADE PLANTATION
John Harding founded Belle Meade Plantation in 1807, by purchasing an initial 250 acres of land near Richland Creek, several miles southwest of Nashville, Tennessee. John was from the Commonwealth of Virginia, a state known for thoroughbred racing and breeding, and he was most certainly a man of his roots. Harding’s first foray into the horse industry was through the breeding of thoroughbreds. Dating back to as early as 1816, there were advertisements in
Journal of Business & Entrepreneurship Spring 2015 191 Nashville newspapers for horses standing stud at John’s farm. In 1820, he commissioned a brick home in the Federal style on his farm, and officially named the estate “Belle Meade.” By this time, he owned his own horses debt free and became interested in racing them locally. John registered his own racing silks with the Nashville Jockey Club in 1823 and was training horses on the track at another of his properties, McSpadden’s Bend Farm. John’s son, William Giles Harding, was living on the McSpadden’s Bend property and worked with his father training horses. By the time William Giles assumed management of the Belle Meade plantation, he had become keenly interested in all aspects of breeding and racing. In addition to be active in several local jockey clubs, William Giles raced at all the area tracks, including Clover Bottom, Gallatin, and Nashville. By 1865, he had become Brigadier General William Giles Harding in the Tennessee State Militia and was captured by Union authorities in 1862. Even though the Civil War interrupted both breeding and horse-racing in the southern United States, General Harding managed to keep all of his thoroughbred horses, due primarily to the resourcefulness of his head hostler Bob Green. At the time, Belle Meade was large enough in acreage that Green somehow managed to elude Union troops through the war’s end by hiding the prized horses at various locations throughout the heavily-wooded nearby hills. So, while other breeders lost everything during the war, General Harding was able to pick up where he left off at war’s end. In 1867-1868, Harding won more purses with his own horses than any man living at that time in the United States. He was also beginning his breeding activities in earnest, and in 1867, held the first sale of horses bred on his farm. He was the first in Tennessee to use the auction system for selling thoroughbreds. Yearling sales began in 1867 and were held annually until 1902. With the auction system, he became the most successful thoroughbred breeding farm and distributor in the State of Tennessee. When General Harding died in 1886, The Spirit of the Times praised him as having done as much to promote breeding interests as any American in the 19th century. In 1868, General William Hicks Jackson married General Harding’s oldest daughter Selene and moved into the Belle Meade mansion. He was an avid horseman and began working with his father-in-law to expand the breeding farm. By 1875, they had decided to retire their racing silks and concentrate on breeding. After General Harding’s death, General Jackson assumed one-third ownership of the horse farm with Selene’s half-brother John and General
192 Spring 2015 Journal of Business & Entrepreneurship Jackson’s brother Howell, who married Selene’s sister Mary Elizabeth. However, he was the only family member working as daily manager. General Jackson’s flair for entertaining and his confident, outgoing nature helped the farm to attract thousands of people to the yearling sales. While General Harding expanded the family home in 1853, introducing the Greek revival style seen today, General Jackson modernized the interior in 1883. The family added three full bathrooms, complete with hot and cold running water and a telephone, by 1887. Visitors to the Mansion through the years have included President and Mrs. Grover Cleveland, Robert Todd Lincoln, General Ulysses S. Grant, General William T. Sherman, General Winfield Scott Hancock, and Adlai E. Stevenson.
NONPROFITS MOVE IN DIRECTION OF SUSTAINABILITY
The economic downturn in 2007 reduced household incomes and lowered investors' and consumers' confidence in the economy. One result was that many nonprofits faced especially troubling times. Most nonprofits' incomes dwindled during these recessionary times, based on a variety of factors: (1) private contributions declined as individual, corporate, and foundation donors reduced capacities or the willingness to give, (2) federal, state, and local funding sources also declined or disappeared altogether, and (3) earnings from endowments shrunk along with their capital market values (www.guidestar.org). At the same time, such economic downturns also put added demands on nonprofits' already diminishing resources, including: (1) a typical increase in the frequency of client requests for financial or service need, (2) a decrease in the number of individuals who, based on concerns regarding their own household incomes, were either unable or unwilling to volunteer their time in support of organizational mission. These changes typically led to reductions in services offered by the nonprofits, as well as the elimination of a variety of routine activities, such as public outreach and building/vehicle maintenance. Nonprofits tended to lean their budgets in a way so that every possible dollar was channeled more directly into client services (www.guidestar.org). “Revised estimates showed that charitable giving by Americans peaked at $309.7 billion in 2007, before dropping back to $290.9 billion in 2008 and further declining to $278.6 billion in 2009 as the recession continued. The average rate of growth in charitable giving for 2010 and 2011 was the second slowest of any two-year period following all recessions since 1971," according to
Journal of Business & Entrepreneurship Spring 2015 193 Patrick Rooney, executive director of the Center on Philanthropy at Indiana University (Fiscaltimes.com, 2012). By 2013, the Recession of 2007 had severely impacted individuals, organizations, businesses, the government and nonprofit sectors. While some argued that the nation was starting to recover, other businesses and organizations were still feeling vulnerable. Barro (2011), for example, observed that there was an ongoing global financial crisis and “…a chance of a double-dip recession” (p. 45). As leaders of the nonprofit sector planned for the future, they sought a deeper understanding the financial impact of the recession and the actions taken as a result of the challenging economic times. Understanding these aspects carried the potential of assisting executive directors and other leaders in determining strategically the operational needs of their organization as they considered how to best serve their communities moving forward. Guidestar, a research organization that since 2002 had been gathering data about nonprofit finances from surveys and other sources such as IRS Form 990, studied changes in financial activity among nonprofit organization across the United States (see Figure 2). It was clear that charitable contributions to nonprofits continued a relatively short-term decline before bottoming out in the middle of 2009. Hopes were high for a turnaround as the general U.S. economy slowly began to improve. However, as of 2011 a clear majority of organizations (59%) continued to report that contributions were either down or stable, at best (Gassman et al., 2012).
Figure 1. Change in Charitable Gift Receipts, 2002-2011 Source: Nonprofit Research Collaborative (2011)
Source: Guidestar as referenced in Gassman et al., 2012
194 Spring 2015 Journal of Business & Entrepreneurship Nonprofit organizations, facing cuts in donations from both individuals and organizations, began experimenting with new ways to strengthen their bottom lines. In addition to cutting costs and eliminating waste, nonprofit leaders were also thinking more creatively about how to use the talents and time of volunteers, garner new donations, strengthen ties with existing donors and create alternative ventures that would generate additional revenue. According to the Sontag-Padillia, Staplefoote, and Gonzalez (2012), a promising method for nonprofit organizations to overcome reliance on limited external funding sources was to think more creatively about their fundraising strategies and consider the role of nontraditional philanthropic organizations or individuals. No matter what stage of development or maturity the organization was in, a sense of vitality throughout the organization was necessary if it was going to continue to grow in the future. The needs of an organization, as well as the communities it serves would change, so an organization could not be limited to maintaining the status quo. Instead, an organization would need to constantly adapt, develop, and innovate in order to be truly sustainable (Bowman, 2012). Alton Kelley was a firm believer in necessity being the mother of invention. He felt that when an organization’s financial resources began to dry up, people needed to be creative about where to get help and how to keep their operations viable. Belle Meade Plantation was no exception. So as he and Sheree contemplated the future of Belle Meade Plantation in 2004 and carefully considered the Plantation’s dwindling financial support from philanthropists and private donors, they realized that management had no choice but to consider substantive changes in order to ensure long-term survival. Furthermore, given the organization’s outstanding role throughout history as a place of prominence, he believed no one associated with the Plantation was going to view simply “getting by” as an acceptable strategy. Tradition indicated that Muscadine grapes were grown on the plantation as far back as the 1800s. The Hardings, Belle Meade’s 19th century founders, actually produced wine from the vineyards on their property. As they considered the change in financial conditions in conjunction with this history, the Kelleys became convinced that resurrecting wine production and sales on the property would provide a major source of revenue and self-sufficiency for the property in the future.
Journal of Business & Entrepreneurship Spring 2015 195
WINE INDUSTRY IN TENNESSEE
History Like many other states, Tennessee’s wine industry had emerged and was expanding during the late 1800s. However, the industry was destroyed by Prohibition in the 1920s, and more than a half-century would pass before the industry would re-establish itself with any degree of significance. In the late 1970s, Judge William O. Beach championed legislation that enabled the State’s wine industry to move forward more rapidly. Judge Beach was an amateur winemaker who wanted to open his own commercial winery in Tennessee. Another industry leader was Fay Wheeler, who was instrumental in assuring passage of the Wine and Grape Act of 1977. In 1980, she started Tennessee’s first licensed winery, and to many, Fay was considered the founder of Tennessee’s contemporary wine industry. According to Alcohol and Tobacco Tax Trade Bureau data prepared by Wine America, in 1975 Tennessee had no formal wineries. Twenty years later, the number had grown to 15 wineries, and between 1995 and 2005, the number of units nearly doubled to 27. As of 2010, Tennessee boasted 45 registered wineries, with the likelihood of continued growth. Figure 3 illustrates the concentration of wineries in the state of Tennessee. Nineteen were located in Middle Tennessee, with the Winery at Belle Meade registered as the only one in the city of Nashville, in addition to maintaining its unique position as the only nonprofit winery not only in Tennessee but in the U.S.
Figure 2: Tennessee Wineries (Identities of each detailed in Appendix A)
Source: www.Tennesseewine.com
196 Spring 2015 Journal of Business & Entrepreneurship
American Viticulture Area (AVA) An AVA is defined as a designated grape-growing (i.e., wine) region in the U.S. that is distinguished by geographic features. Its boundaries are defined by the federal government’s Alcohol and Tobacco Tax and Trade Bureau, a unit within the U.S. Department of the Treasury. The Mississippi Delta AVA was established in 1984, and this large area includes parts of Louisiana, Mississippi, and Tennessee. Unfortunately, it was later discovered that the southwestern corner of Tennessee included in the AVA had difficulty successfully growing grapes. Wineries were therefore, allowed to use the state designate “Tennessee” as the AVA if the grapes used to make the wine were sourced from the State.
Tennessee Grape Varieties There were, as of 2014, somewhere between 500 and 750 acres of wine grapes grown in Tennessee—a number that was on the rise. Some of the more common examples of Tennessee-grown grape varieties, their properties, and the resulting wine characteristics are provided in Table 1. Many vineyards were small (i.e., less than five acres), which presented a challenge to growers, since wineries had to weigh and balance the decision to buy small quantities locally against purchasing larger quantities from outside the state’s borders.
Table 1: Sample of Tennessee-Grown Grapes and Resulting Wines
Journal of Business & Entrepreneurship Spring 2015 197 Grapes grown in Tennessee were divided into three basic types: (1) vinifera, (2) hybrids and (3) Native American. Some of the better-known vinifera varieties included Cabernet Sauvignon, Cabernet Franc, Gewürztraminer and Merlot. Common hybrid varieties grown in Tennessee included Chambourcin, Chardonel, and Traminette, while better known Native American varieties included the Catawba, Concord, Niagara, Norton (Cynthiana), in addition to the Muscadine family of grapes. Muscadine cultivars included the more common Carlos, Doreen, Magnolia, Sterling, Black Beauty, Fry, and Noble types and a seemingly endless array of other Muscadine cultivars. Vineyards that were planted decades ago with Muscadine grapes now hosted a mixture of grape cultivars. As a result, there wa s a common tendency to call a wine “Muscadine,” rather than having to identify the specific name of the grape. Interestingly, not all wines were produced from grapes. Several Tennessee fruit-bearing trees or bushes were commonly used to produce what was accordingly referred to as “fruit wines.” The more common wine varieties took advantage of fruits such as black raspberries, peaches, blackberries, strawberries, rhubarb, and apples—all of which grew well within a portion of the geographic areas included within the State.
THE WINERY IS BORN
Even at significant levels of visitor traffic, base admission ticket revenues were not near enough to fully support the site’s operation. And since local fundraising had become more difficult following the most recent economic downturn, as Kelley noted, “Every time there is a new charity in Nashville, the ‘giving pie’ gets thinner.” Additional revenue streams beyond base ticket sales were going to be needed in order to remain solvent. “There was a lot of brainstorming among staff to come up with new ideas,” said Kelley. “And as we continued to believe, it was important that everything we did was connected to the site’s heritage. We just looked for ways to modernize what the original owners did and make money to support the site.” It was clear to the Kelleys that a significant and relatively permanent source of funding was needed to securely fund the operations of Belle Meade Plantation into the future. They considered several revenue options, while feeling constrained by a desire to narrow viable possibilities to those that fit with the historical nature of the Plantation and its “roots.” Along the way, the seeds of a
198 Spring 2015 Journal of Business & Entrepreneurship winery concept began to germinate, and a decision was subsequently made to visit the Biltmore Estate’s Winery in Ashville, North Carolina. “We were looking for best practices among small to medium size wineries,” Kelley would later share. The new Biltmore Estate Winery had opened in May of 1985, and was a momentous occasion in Biltmore's history. Mr. Bill Cecil Jr. proclaimed that it was "the most historic event since my grandfather (i.e., George Vanderbilt) had opened his estate to his family on Christmas Day ninety years earlier" (www.biltmore.com). The modern-day Biltmore vineyards boasted six varieties of grapes and spanned more than 90 acres. The Biltmore’s award-winning wines continued to be available in retailers and restaurants across the country, and the winery was the most visited winery in the United States. While the Kelley’s initial concept for a winery in Nashville was relatively small compared to Biltmore’s, they saw incredible potential for such an operation, since there were currently no wineries in Nashville. And the Biltmore statistic was not lost on them that one out of five guests to the Estate were making a wine purchase before leaving the property. After their visit to the Biltmore, the Kelleys were convinced that a winery, albeit on a much smaller scale, could be successful in Nashville, and their next decision was that it would need to be located on the Belle Meade property. A meeting with the board of directors for the plantation ensued, and in it, the Kelleys presented their proposal for a winery. Through their research, the Kelley’s had determined that an existing building on the property that was built in 1998 as an education venue could be converted into the winery and a gift shop. However, this would not come without a significant financial investment. In order to get the winery operational, an investment of $250,000 would be required. The Kelleys had determined that in the first year of operation, all of the bottling activities would be done by hand, using employees of the historic plantation, the winery, and volunteers. As sales increased beyond the $1,000,000 level, mobile bottling equipment would be used for the higher volume. The Kelleys concluded their presentation to the board, providing projected revenues for the first five years, along with the planned operation’s anticipated expenses. Two of Alton’s board members were presidents of local banks, and both were convinced that the proposed winery was a fairly low-risk investment. The remaining board members concurred and ultimately a final vote yielded approval for the project.
Journal of Business & Entrepreneurship Spring 2015 199 The Winery at Belle Meade first opened to visitors touring the Mansion in November 2009. The building where the winery was housed had been built in 1998, originally as an onsite education building. However, its combination of size and location on the premises made it a reasonably good fit for serving as the initial start-up site for the winery. By 2009, the directors of the historic plantation renovated the building for use as a combination winery and tasting room, and Brian Hamm was appointed as the winemaker. As the staff began to research which wines should be produced in order to meet Plantation revenue objectives, they uncovered some very important advice from the local wine-making community. Simply stated, they were told that if the objective was “ego,” then dry wines should be the target. However, without a doubt, “sweet wines” were the choice if you wanted to make money. It is no secret, then, that Belle Meade’s current portfolio of wines leaned heavily to the sweet end of the spectrum. Visitors to the winery observed that the tasting room counter was of medium dark wood and was supported by a stone base. A wood-burning fireplace adds to the ambience of the room, while glass windows allowed visitors direct sight lines into the tank room where the wine was stored prior to bottling. The room also included a dessert counter with Peanut Butter Pecans, artisanal chocolates, and other confectionaries. A wine garden was also available just outside the doorway for visitors who wanted to purchase a bottle of wine and then enjoy it on the premises. Visitors in late spring were greeted by the aroma and visual beauty of large magnolia flowers, which came into blossom in late May and offered a stunning contrast between the large white flowers and surrounding shiny, dark green leaves. An additional start-up hurdle turned out to be the issue of where to store the bottled wine. Ideally, the location needed to be near point-of-sale, secure, of sufficient size to accommodate growth in volume over time, and “climate- friendly” in order to minimize significant variations in temperature in order to protect the product. The best solution turned out to be the historical dairy located right there on the property. It was located relatively close to the mansion, large, and made out of stone, which created almost the ideal environment for storing the cases of wine. This would then become Belle Meade’s bonded storage facility. When Alton and Sheree had first conceived the idea of a winery for Belle Meade, they immediately realized that the existing 250,000 annual visitors to the historic property were going to be the primary initial market for the wines produced at the winery. Property tours were redesigned to conclude with an
200 Spring 2015 Journal of Business & Entrepreneurship opportunity for guests to be escorted to the tasting room for a complimentary tasting. Each wine would be presented to include background on its composition and properties, along with any relevant historical facts that aligned with what had been presented on the earlier tour. Because of the unique vintages produced at the winery, along with the Belle Meade-specific packaging (i.e., thoroughbred horse designer labels), tourists typically purchased multiple bottles, and often, cases of wines to take back to their family and friends. According to Sheree Kelley, Belle Meade Winery Manager, “We are different because people come to see the plantation and then discover the winery.” As a Tennessee non-profit organization, unlike other commercial wineries, Belle Meade’s winery profits were used for historical preservation of the Plantation and educational initiatives there on-site. One such educational focus was the hosting of summer camps for children. During the school year, the nonprofit also underwrote many school trips to the plantation, enabling children to experience and learn about the history of the 1800s.
SUCCESS BEYOND EXPECTATIONS: TOURS AND TASTINGS AND SOCIAL MEDIA
An official tour of the Belle Meade Plantation began as guests entered the front doors of the Mansion. The Mansion was maintained as closely as possible to how it was believed to have existed in the 1890s. Upon entering the Mansion, visitors discovered a dark, subdued foyer. The walls of the foyer were decorated with framed pictures of racing horses. As mentioned earlier, Belle Meade was well known for its racehorses bred and raised on the premises—the most famous of which was Bonnie Scotland. As the South’s reconstruction era continued post- civil war, Belle Meade's reputation as a first-class breeding establishment attracted buyers from around the world for the annual yearling sales. Under the management of Hardin's sons-in-law, brothers William Hicks Jackson and Howell Edmunds Jackson, Belle Meade Stud flourished. The bloodlines of Belle Meade Plantation, primarily due to the success of the legendary foundation stud Bonnie Scotland, whose descendants included Secretariat, Funny Cide, Seabiscuit, Giacamo, Mine That Bird, Smarty Jones, and Barbaro—not to mention the most recent Kentucky Derby winner, California Chrome. Since the 1990s, every horse that had run the Kentucky Derby was a blood descendent of Belle Meade Plantation. When visitors reached the winery tasting room, they would not, surprisingly, discover a Bonnie Scotland wine, in addition to other
Journal of Business & Entrepreneurship Spring 2015 201 branded wines with a variety of legendary horses gracing the various Belle Meade labels. Curator John Lamb confirmed the venture’s authenticity: “There were numerous invoices from the 1800s that show the Hardings purchased and served fine wines and also purchased empty wine bottles presumably to fill with wines made on the property.” Since opening in 2009, the winery had become an all-staff effort. “Some of the grapes were grown and crushed in Middle Tennessee, and the juice was brought to our tanks on site. Everyone on staff knew how to bottle wine – it’s a great team-building exercise,” Kelley said. The winery had been an overwhelming success, exceeding the first year’s 10,000-bottle sales goal with sales topping 54,000 bottles. But, Kelley noted, “Starting a winery was a monumental decision. It wasn’t for the faint of heart!” Determined to continue building visitation in spite of the economic downturn, the staff turned their attention toward the opportunities offered by social media for no-cost promotions with a quick turn-around time. “In 2011, we started a Groupon promotion in the third week of January,” Kelley said. (Groupon promotes “daily deals” to its subscribers through Facebook or Twitter – www.groupon.com) “We offered two tours and two free wine tastings at half- price and sold 1,300 tickets. That was 2,600 people who had 60 days to redeem their voucher.” Groupon’s success prompted another discount voucher promotion through Living Social (www.livingsocial.com). “We had a coupon up for three days offering a chocolate pairing with wine and a mansion tour for a perfect Valentine’s Day,” Kelley says. “We sold 1,000 tickets – with no outlay of cash on our part. Those two promotions got us through January and February – usually our slowest months – with record visitation and record sales in our gift shop and winery.” Even with those successes, the staff’s planning continued. “We were looking at travel trends, and we knew that people wanted to be more involved than just taking a tour,” Kelley said. “Food was really a ‘hot’ part of travel at that point in time, so we were going to roll out our own Southern culinary experience. We planned to bring in graduate students from the University of Mississippi Southern Foodways program to create a tour called ‘Our Biscuits Shall Rise Again.’” Using the original kitchen and an 1889 oven that has been converted to a convection system, visitors would have a chance to taste Southern biscuits,
202 Spring 2015 Journal of Business & Entrepreneurship beaten biscuits and cornbread. The experience would include a tour of the root cellar and smokehouse where visitors would learn why the South’s heat and humidity created a need for food preservation techniques such as curing ham. Kelley also partnered with MBA students from a local university to develop a marketing plan. One of the activities suggested by the students was an event called the Progressive Wine Tour where guests would receive a tour of the historic Belle Meade Mansion and a personalized walking tour of historical points of interest on the plantation property. During this tour, guests would then be treated to five of the Belle Meade premium wines and paired with light appetizers at the focal points throughout the property (See Appendix B for full descriptions of the current wine assortment). “We would also stop in the herb garden to pick the herbs needed to make jambalaya,” Kelley said. “This would be an important opportunity to talk about the slaves who lived and worked here.” As of late 2013, the winery’s annual revenues had already grown to approximately $2.0 million, with an additional $200,000 in wine-related merchandise. Projected wine sales for 2014 should exceed $3.0 million. Table 2 presents a pro forma income statement summarizing the Winery’s first four years of operations. Table 2: Pro Forma Income Statement — Belle Meade Winery
The winery sold all of its output each year at current prices, and could have sold more if storage and warehousing were available. The primary means of
Journal of Business & Entrepreneurship Spring 2015 203 marketing the winery were through the organization’s own web site (www.bellemeadewinery.com), tourists’ visits, local press/media, social media, and word of mouth. Because of current demand for its products, the Winery had not yet undertaken any traditional advertising. Several local prominent restaurants in Nashville had requested that Belle Meade wines become their official wine of the restaurant, but due to excess demand, the Kelley’s felt they were forced to decline. The Iroquois Steeplechase, a tradition in Nashville dating back to 1941, made a similar request. Again, the Kelley’s felt they had no choice but to decline the request due to limited supply of wines. The Winery also sold its products online and was available in over 15 states. In addition, it hosted several events for the local community, such as Jazz on the Lawn during the summer, and the Tennessee’s largest Kentucky Derby Party.
APPROACHING CHALLENGES FACING BELLE MEADE PLANTATION
While the winery had experienced phenomenal success since opening, the Kelleys were firm believers in the old saying “a rolling stone gathers no moss.” The Winery had exceeded all expectations regarding revenues and profits, which had become a tremendous source of support for the plantation. But it had also created a huge challenge in managing future growth. In the past, the Winery was constrained by liquor laws that required the production of wine be onsite where the wine is sold. State laws had recently changed and now Belle Meade Plantation could open another non-profit winery in down town Nashville. Visitation to the Plantation was growing at a record pace, with 450,000 expected to tour the Plantation in 2014 alone. Coupled with predicted levels, increased traffic was producing some capacity concerns going forward. More growth meant crowd management would become an issue. In addition and closely related, more growth would also mean increased staffing levels. Alton and Sheree felt that another winery located in downtown Nashville would serve a real need since there are no other wineries in the city except for Belle Meade. They observed that a new downtown location could serve as a sales location for selling tours of the Plantation and could serve as a pick-up and drop-off point for tourists as they could travel by shuttle on a Belle Meade Plantation Bus Tour. The Kelley’s also knew the wine industry continued to grow in Tennessee. As shown in Appendix A, there were over 45 wineries in the state, 19 of which are in Middle Tennessee. Currently, Belle Meade Winery was the only
204 Spring 2015 Journal of Business & Entrepreneurship winery in Nashville, but they wondered what the implications would be if another winery chose to locate nearby? How would it impact Belle Meade Winery? To date, the winery had done very little in the way of formal promotional spending due to the work of its excellent sales staff, outstanding products, captive audience, social media marketing efforts, and a lack of direct competition. There were also other historic properties in Nashville, such as The Hermitage, Carnton Plantation, the Carter House, Glen Leven, and Belmont Mansion. Might they pursue similar social entrepreneurial ventures as Belle Meade? The local food movement also had its epicenter in Nashville. It was difficult to pick up a magazine on food, wine or travel that did not mention Nashville as a hot bed of new age chefs and restaurants. Given the success of the winery, another decision looming in the future was whether or not to opening a restaurant on the property when the current lease expired with Harding House Restaurant, and pair local foods and wines within Belle Meade’s operations.
SUGGESTED TEACHING / DISCUSSION QUESTIONS
1. Would you consider Belle Meade Plantation a form of social enterprise or a socially-entrepreneurial venture under the Kelley’s leadership? Why? 2. Based the preparation of a SWOT analysis, what are one or more key opportunities that the Winery should consider as they seek to continue adding to the bottom line? What are the major strengths of the Winery and Plantation? What threats could adversely affect the future operations of the property? 3. Given the success of the Belle Meade Winery, what should the Kelleys and Belle Meade Plantation do in order to develop new revenue streams to support and sustain the operations of the Plantation? Should Belle Meade open another winery at a new location? What issues and challenges will this pose for the Kelley’s? As the current lease comes to an end with Harding House Restaurant, should the Kelley’s open a new restaurant owned and operated by the Plantation? What are the risks and rewards associated with this decision?
Note: Instructors interested in a full teaching note should contact the lead author via email at: [email protected].
Journal of Business & Entrepreneurship Spring 2015 205 REFERENCES
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