1. business and industrial

Volume 26, No. 3
Spring, 2015
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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
University of Stellenbosch
João J. M. Ferreira
University of Beira Interior
Joe Ballenger
Stephen F. Austin State University
Charles Fischer
Pittsburg State University
Jurgita Baltrusaityte-Axelson
Stockholm School of Economics
Donald W. Garland
New Mexico State University
Stephen S. Batory
Bloomsburg University
William C. Green
Sul Ross State University
James A. Bell
University of Central Arkansas
Walter E. Greene
Greene and Associates
Josh Bendickson
Eastern Carolina University
Marko Grünhagen
Eastern Illinois University
Thomas M. Box
Pittsburg State University
Robert D. Gulbro
Athens State University
Susan Boyd
University of Tulsa
Stephen C. Harper
University of North Carolina ~ Wilmington
Steve Brown
Eastern Kentucky University
E. Alan Hartman
University of Wisconsin ~ Oshkosh
Kent Byus
Texas A&M ~ Corpus Christi
Diana M. Hechavarria
University of South Florida
Thomas M. Cooney
Dublin Institute of Technology
James A. DiGabriele
DiGabriele, McNulty & Co. LL
Marilyn M. Helms
Dalton State College
Paul Dunn
University of Louisiana ~ Monroe
Colin Jones
University of Tasmania
Minjoon Jun
New Mexico State University
Philip Siegel
Florida Atlantic University
M. Riaz Khan
University Massachusetts Lowell
Joseph F. Singer
University of Missouri Kansas City
Naresh Kumar
NESH Training and Consultancy
George Solomon
George Washington University
Agnieszka Kurczeska
University of Lodz
Harriet Stephenson
Seattle University
Vaidotas Lukosius
Tennessee State University
Tulus Tambunan
University of Trisakti
Keishiro Matsumoto
University of the Virgin Islands
Ayman El Tarabishy
George Washington University
Shaun McQuitty
Athabasca University
Leslie Toombs
Texas A & M Commerce
Teresa V. Menzies
Brock University
Raydel Tullous
University of Texas ~ San Antonio
Jay Nathan
St. John’s University
Jude Valdez
University of Texas ~ San Antonio
Barbara R. Oates
Texas A&M ~ Kingsville
Jeff Vanevenhoven
University of Wisconsin White
Water
Linda Ann Riley
Roger Williams University
Rebecca J. White
University of Tampa
Philip T. Roundy
University of Tennessee at
Chattanooga
Densil Williams
University of West Indies Mona
Christopher M. Scalzo
Morrisville State College
Phillip H. Wilson
Midwestern State University
Mark T. Schenkel
Belmont University
Marilyn Young
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)
Managing Editor
Jeff Vanevenhoven
Editor
Mary Jo Jackson
Editor
Eric Liguori
Editor
EXPLORING THE IMPACT OF AN EXTERNAL CRISIS ON
R&D EXPENDITURES OF INNOVATIVE NEW VENTURES
Oleksiy Osiyevskyy
Northeastern University
D’Amore-McKim
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 precrisis 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&Dintensive 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
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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
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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
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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 knowledgebased 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
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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
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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
and β<0,
(2.1)
(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,
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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
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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
and β>0,
(2.3)
(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 noninnovating firms (Bah & Dumontier, 2001; Wakelin, 2001). Some new ventures
emphasize R&D as a crucial component for their development and growth; they
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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
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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&Dintensive 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
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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)
(2.6)
and γ<0,
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
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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).
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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
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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
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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 quasiJournal of Business & Entrepreneurship
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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
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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
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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
Mean
Standard
deviation
25th
Percentile
Median
75th
Percentile
1. R&D expenditure,
‘000 USD
60.892
400.164
0
.500
10.000
2. R&D Intensity (R&D in
Sales)
0.102
0.370
0
0.002
0.050
0.276***
3. Financial crisis hit
(dummy)
0.734
0.442
0
1.000
1.000
-0.014
-0.035†
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***
20.000
150.000
0.034†
-0.006
0.019
.132***
6. Cash and equivalents,
913.403
19,971.150 5.000
‘000 USD
Note: Listwise N=3,113.
*** p<.001; ** p<.01; * p<.05; † p<.10, based on two-tailed tests
1
2
3
4
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
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5
0.397***
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 t1 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
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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)
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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)
(R&D in Sales)
R&D Intensity(t-1)
< Median
(0.0022)
R&D Intensity(t-1)
>Median
(0.0022)
R&D Intensity(t-1)
>75th Percentile
(0.0500)
Financial crisis hit (dummy)
0.0075
(0.0179)
-0.0714*
(0.0309)
-0.1115†
(0.0575)
R&D Intensity(t-1) (Lagged DV)
-19.8244
(29.0762)
0.0149***
(0.0024)
0.0132***
(0.0033)
Constant
0.0424**
(0.0154)
0.1811***
(0.0273)
0.3072***
(0.0508)
Observations (N)
1,048
1,067
536
Firms
513
578
327
R
0.0006
0.0379
0.0352
F
(df1, df2)
0.32
(2, 1045)
20.98***
(2, 1064)
9.72**
(2, 533)
2
*** p<.001; ** p<.01; * p<.05; † p<.10, based on two-tailed tests. OLS standard errors in parentheses.
Journal of Business & Entrepreneurship
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Table 4. Alternative Dependent Variable: R&D Expenditures of New Ventures (raw USD amount)
Dependent Variable:
R&D Expenditure(t)
(‘000 USD)
Financial crisis hit (dummy)
R&D Expenditure(t-1) (Lagged
DV, ‘000 USD)
Financial crisis hit X
R&D Intensity(t-1)
Robustness check:
Tobit estimation
OLS estimation
Robustness check:
Heckman’s two-stage estimation
Regression 7:
Main effects
only
-18.0373
(18.7606)
Regression 8:
Main effects
& interactions
3.7295
(10.3393)
Regression 9:
Main effects
only
-9.6997
(30.5123)
Regression 10:
Main effects &
interactions
20.0568
(23.7631)
Regression 11:
Main effects
only
-19.6897
(18.2975)
Regression 12:
Main effects &
interactions
1.8400
(9.5774)
0.8085***
(0.1502)
1.1634***
(0.1973)
0.8904***
(0.1451)
1.2732***
(0.1642)
0.8151***
(0.1461)
1.1704***
(0.1942)
-0.4648†
(0.2448)
-0.5021*
(0.2090)
-0.4642†
(0.2422)
Number of employees(t-1)
4.5164
(3.7651)
4.7388
(3.8069)
6.8003
(4.5542)
7.0864
(4.6102)
4.3633
(3.6320)
4.5750
(3.6713)
Net profit(t-1) (‘000 USD)
0.0006*
(0.0002)
0.0005*
(0.0002)
0.0008*
(0.0004)
0.0007*
(0.0003)
0.0006*
(0.0003)
0.0005*
(0.0002)
Cash (t-1) (‘000 USD)
-0.0002
(0.0002)
-0.0002
(0.0002)
-0.0124
(0.0320)
-0.0154
(0.0306)
-0.0003
(0.0002)
-0.0003
(0.0002)
Constant
-80.8972
(100.1019)
-96.3040
(103.2799)
-235.5916**
(75.0520)
-256.6857**
(79.1940)
20.3143
(54.2060)
-1.3198
(36.1401)
Year dummies
yes
yes
yes
yes
no
no
Industry dummies
yes
yes
yes
yes
no
no
-31.7881
(82.1342)
-23.7623
(63.5155)
Inverse Mills Ratio (λ)
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.
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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 nonreporting 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 twostage 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 nonreporting 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
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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 firmlevel 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,
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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 along 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&Dintensive early stage firms to an external crisis – substantive cuts in R&D activity
Journal of Business & Entrepreneurship
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– 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,
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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).
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36
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PERFORMANCE TEMPLATES: AN ENTREPRENEUR’S
PATHWAY TO EMPLOYEE TRAINING AND
DEVELOPMENT
Randall P. Bandura
Frostburg State University
Paul R. Lyons
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
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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
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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
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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,
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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
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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 costeffective, (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 empiricallygrounded 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.
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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
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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.
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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, webbased 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-thejob. 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.
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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
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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 welltrained 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
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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
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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 pt. 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
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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
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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
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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
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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 19892014. 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
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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
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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
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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
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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
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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
Total
Candidates
300
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
AY 8990
AY 9091
AY 9192
AY 9293
AY 9394
AY 9495
AY 9596
AY 9697
AY 9798
AY 9899
AY 9900
AY 0001
AY 0102
AY 0203
AY 0304
AY 0405
AY 0506
AY 0607
AY 0708
AY 0809
AY 0910
AY 1011
AY 11-
CPI
5
PPA
5
CSI
15
PSA
12
CTI
15
PTA
9
IC
3
IP
0
TC
35
TP
26
3
9
23
6
20
12
2
2
46
27
7
12
20
3
13
3
1
2
40
18
6
16
23
3
27
9
2
3
56
28
10
18
32
6
25
3
3
1
67
27
15
20
45
4
29
6
3
5
89
30
24
20
50
9
35
9
9
7
109
38
19
36
35
18
31
6
4
12
85
60
20
50
25
26
23
16
6
13
68
92
16
58
10
45
28
46
9
22
54
149
17
92
17
67
27
69
10
21
61
228
15
82
25
56
27
59
5
26
67
197
24
54
28
65
24
56
12
16
74
175
31
83
19
50
29
57
6
19
79
190
35
74
33
67
30
44
22
20
98
185
33
94
40
65
33
53
15
17
106
212
33
141
59
104
49
82
25
36
141
316
62
111
63
82
57
64
44
34
184
263
90
165
87
90
54
111
62
76
231
366
57
128
106
63
107
74
61
66
270
265
42
153
48
68
91
85
48
75
181
306
45
149
47
41
121
93
58
60
213
283
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
100
50
0
Primary Positions
Secondary Positions
Tertiary Positions
Academic Year
Figure 4
Entrepreneurship Candidates by Level of
Preference
160
140
120
100
80
60
40
20
0
Primary Interest
Secondary Interest
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
66
Spring 2015
13-14
12-13
11-12
10-11
09-10
08-09
07-08
06-07
05-06
04-05
03-04
02-03
01-02
00-01
99-00
98-99
97-98
96-97
95-96
94-95
93-94
92-93
91-92
90-91
89-90
AY
Candidates
Asst. Assoc.
24
4
34
4
29
5
29
4
30
4
46
2
51
1
48
1
63
0
37
3
47
1
49
1
60
4
56
12
66
11
75
8
87
24
98
52
185
20
209
34
144
18
181
17
195
19
198
9
122
11
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
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
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
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
%
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
Positions
Asst Assoc
19
0
19
0
10
1
15
0
18
0
14
2
22
2
23
6
41
4
58
17
88
21
52
16
81
34
81
33
63
40
64
59
71
110
71
55
84
107
69
46
74
47
66
59
54
67
119
46
72
29
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
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
Open
4
3
1
4
1
5
4
14
7
51
81
97
38
41
47
35
73
36
68
16
33
23
2
30
23
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
%
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
Table 2: Rank of Tenure Track Candidates & Positions, 1989-Jun2 2014
Journal of Business & Entrepreneurship
Figure 5
350
Tenure Track Candidates and Positions
300
Tenure
Track
Candidates
Tenure
Track
Positions
250
200
150
100
50
0
Academic Year
Figure 6
Percentage Entrepreneurship Candidates Cross Listing By
Specialization
100%
80%
60%
40%
20%
0%
ENT Only
Cross BPS
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
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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.
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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
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69
Figure 7
Percentage Entrepreneurship Positions Cross Listing by
Specialization
80%
60%
ENT Only
40%
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%).
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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
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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
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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
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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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Finkle, T.A. (2006). A Review of Trends in the Market for Entrepreneurship
Faculty From 1989-2004. Frontiers of Entrepreneurship Research 2005:
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Conference, Edited by Shaker Zahra, Candida Brush, Per Davidson, Patricia
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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 macroeconomic 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 startup. 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
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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 startups 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
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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, GimenoGascon, 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.
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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 nonuniversity 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,
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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
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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 & CrnjakKaranovic, 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
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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
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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
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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) and 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
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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 =
Where:
γ = Interest rate
δ = per capita income
θ = GDP growth rate
φ = level of training for the entrepreneur
εj = error term
(2)
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.
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Table 1: Regression Variables
Variables
Measurement
Business Discontinuation Percentage of businesses
Rate (Business Failure)
that do not move from
start-up to established
firms
Interest rate
Prime lending rate in the
country
Per capita income
Average income per
persons in the population
GDP growth rate
Percentage change in
GDP from one period to
another
Entrepreneurial
Percentage of the
Education and Training.
population age 18-64 that
received voluntary or
compulsory training in
starting a business
Data Sources
Global Entrepreneurship
Monitor Report 2008
International Financial
Statistics
World Development
Indicators
World Economic Outlook,
World Development
Indicators
Global Entrepreneurship
Monitor Report 2008
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.
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Table 2
Multivariate regression result:
Determinant of business discontinuation (failure) rate
Variables
Beta
T
Constant
33.18
3.3
Interest Rate
2.05
.99
Per capita
-7.01
-3.37
income
GDP Growth
-1.23
-.79
Rate
Entrepreneurship -.05
-.41
Education and
Training
R2
.49
Adjusted R2
.43
F-statistic
7.9 (0.00)
p-value
0.00
.33
0.00*
.44
.68
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 coefficient. 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.
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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 macroeconomic 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 Rsquare 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,
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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
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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
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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.
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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.
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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;
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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
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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
iv
At 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.
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FEMALE ENTREPRENEURSHIP:
EVIDENCE FROM VIETNAM
Lei Zhu
Orhan Kara
West Chester University of Pennsylvania West Chester University of Pennsylvania
Hung M. Chu
West Chester University of Pennsylvania
Anthony Chu
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 businessrelated 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
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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.
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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).
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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
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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 PekkaEconomou (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
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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
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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
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Table 1
Sample Characteristics of Women Entrepreneurs in Vietnam
Marital status
Married
Single
Education level achieved
No formal education
Some grade school
Completed grade school
Some high school
Completed high school
Some college
Completed college
Some graduate work
A graduate degree
Not mentioned
Type of business ownership
Established by you
Bought from another owner
Inherited
Independently owned
Franchise business
Owned in partnership
Incorporated
Type of business
Retailing
Wholesaling
Service
Manufacturing
Agriculture
Other
Mean age of entrepreneur
Avg. working hrs per week
Frequency
Percent
93
77
55
45
5
5
3
37
46
28
33
9
0
6
2.9
2.9
1.7
21.5
26.7
16.3
19.2
5.2
0.0
3.5
8
21
49
68
26
0
0
4.7
12.2
28.5
39.5
15.1
0.0
0.0
67
42
39
10
2
21
34.8 years
62.76
39.0
24.4
22.7
5.8
1.2
12.2
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.
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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
To increase my income
For my own satisfaction and growth
To maintain my personal freedom
To be closer to my family
To be able to use my past experience and training
To prove I can do it
To provide jobs for family members
To build a business to pass on
To protect my job security
To gain public recognition
4.42
4.39
3.66
3.66
3.63
3.62
3.49
3.48
3.35
3.07
2.63
0.852
0.888
1.069
1.274
1.130
1.058
1.010
1.040
1.127
1.190
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
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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
Good Location
Good product at a competitive price
Good general management skills
Good customer service
Access to capital
Previous business experience
Ability to manage personnel
Hard-work
Support of family and friends
Maintenance of accurate records of sales/expenses
Appropriate training
Marketing factors such as sales promotion
Reputation for honesty
Satisfactory government support
Community involvement
Political involvement
4.46
4.38
4.24
4.10
4.02
3.94
3.79
3.75
3.73
3.71
3.65
3.63
3.60
3.16
2.96
2.56
2.27
0.769
0.901
0.905
1.007
0.857
1.019
1.011
1.005
1.023
1.027
0.971
1.193
1.166
1.308
1.089
1.060
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
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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
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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
Too much competition
Unreliable and undependable employees
Weak economy
Lack of marketing training
Not having enough financial capital
Lack of management training
Too much government regulation/bureaucracy
Long business registration process
Complex and confusing tax structure
Inability to maintain accurate accounting records
Foreign exchange limitations
Unsafe location
Limited parking
Poor roads/transportation
Electricity Problems
Mean
Std. Dev.
4.05
3.95
3.40
3.37
3.34
3.15
3.11
3.06
3.02
3.01
2.93
2.87
2.80
2.78
1.92
0.960
0.996
1.323
1.220
1.164
1.192
1.060
1.342
1.135
1.148
1.243
1.357
1.300
1.465
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 KaiserMeyer-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.
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Table 5
Varimax Rotated Factor Loadings (sorted) and Communalities for Motivation
Motivation Variables
Factor
1
Factor
2
Factor
3
Communalities
For my own satisfaction and growth
To use my past experience and training
0.711
0.696
0.506
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
Bartlett's Test of Sphericity
0.623
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
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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
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
3.295
1.083
Scale 2 - Factor 2: Extrinsic
To increase my income
To maintain my personal freedom
To be my own boss
4.155
1.005
Scale 3 - Factor 3: Family
To provide jobs for family members
To build a business to pass on
To be closer to my family
3.486
1.099
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,
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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
Success Variables
Factor
1
Factor
2
Factor
3
Factor
4
Factor
5
Commun
alities
Political involvement
Community involvement
0.800
0.718
0.778
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
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
0.744
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
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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
Political involvement
Community involvement
Satisfactory government support
Good general management skills
Reputation for honesty
3.009
1.116
Scale 2 - Factor 2: Business Attributes
Good customer service
Charisma; friendliness to customers
Maintenance of accurate records of sales/expenses
Good product at a competitive price
Good Location
4.150
0.881
Scale 3 - Factor 3: Personal Skills
Appropriate training
Previous business experience
Ability to manage personnel
3.725
1.069
Scale 4 - Factor 4: Market Support
Support of family and friends
Marketing factors such as sales promotion
Access to capital
3.748
1.071
Scale 5 - Factor 5: Hard Working
Hard-work
3.725
1.023
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
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Table 9
Varimax Rotated Factor Loadings (sorted) and Communalities for Problems
Problem Variables
Factor
1
Factor
2
Factor
3
Factor
4
Factor
5
Commu
nalities
Long registration process
Too much regulation
0.779
0.737
0.725
0.584
Weak economy
0.684
0.724
Complex tax structure
No enough financial capital
0.675
0.612
0.617
0.582
Lack of marketing training
0.833
0.733
Lack of management training
Inability to maintain accounting
records
0.761
0.757
0.724
0.637
Foreign exchange limitations
0.767
0.604
Poor roads/transportation
Electricity problems
0.765
0.752
0.797
0.604
Limited parking
0.805
0.765
Too much competition
Unsafe location
0.591
0.583
0.727
0.611
Unreliable and undependable
employees
0.833
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
Bartlett's Test of Sphericity
0.788
0.748
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
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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
Long business registration process
Too much government regulation/bureaucracy
Weak economy
Complex and confusing tax structure
Not having enough financial capital
3.185
1.205
Scale 2 - Factor 2: Business Training
Lack of marketing training
Lack of management training
3.178
1.187
Scale 3 - Factor 3: Infrastructure
Foreign exchange limitations
Poor roads/transportation
Electricity problems
2.544
1.272
Scale 4 - Factor 4: Location and Market Constraint
Limited parking
Too much competition
Unsafe location
3.242
1.206
Scale 5 - Factor 5: Personnel Management
Unreliable and undependable employees
3.953
0.996
Inability to maintain accurate accounting records
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.
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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
Question
Mean
Std.
Dev.
1
How would you describe your business success?
(1= very successful, 2= successful, 3= average, 4= below average)
2.08
0.625
2
To what extent are you satisfied with your business?
(1= very satisfied, 2= satisfied, 3= somewhat satisfied, 4= dissatisfied,
5= very dissatisfied)
How well has your success met your expectation?
(1= more than I expected, 2= met my expectations, 3= somewhat met my
expectations, 4= did not meet my expectations)
As a business owner, how would you rate the level of businessrelated stress?
(1=very high, 2= high, 3= low, 4= very low, 5= nonexistent)
2.16
0.768
1.98
0.783
2.76
1.106
How would you rate the level of support from family and friends?
3.15
1.24
3
4
5
(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
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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
Q2-Satisfaction
0.292***
(0.000)
Q3-Expectations
0.088
(0.128)
0.017
(0.412)
Q4-Stress
-0.012
(0.438)
0.024
(0.377)
0.163**
(0.017)
Q5-Family Support
-0.216***
(0.002)
-0.254***
(0.000)
-0.016
(0.418)
Q4-Stress
0.101*
(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
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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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BRIDGING THE GAP BETWEEN ENTREPRENEURSHIP
EDUCATION AND SMALL RURAL BUSINESSES: AN
EXPERIENTIAL SERVICE-LEARNING APPROACH
Linda S. Niehm
Iowa State University
Ann Marie Fiore
Iowa State University
Jessica Hurst
Iowa State University
Youngji Lee
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
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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
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and sustainability of resource constrained small rural firms through servicelearning and business assistance.
Partnering with Small Rural Businesses to Enhance Students’ ServiceLearning
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
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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 servicelearning 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
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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
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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
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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 crossdisciplinary, 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.
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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 opportunitybased 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
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monitoring/controlling), will be addressed in the section on operational elements
of the projects.
Table 1. Entrepreneurial Competencies Applied to the Experiential ServiceLearning 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
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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)
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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
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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.
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Figure 1: A Model for Enhancing Students’ Entrepreneurial Competencies
and Strengthen Rural Businesses
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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
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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
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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
Students used the 4E model to build a plan
Building a plan for an innovative concept
for new marketing approaches to enhance
the performance of small rural businesses.
Identifying areas of need for business and
Creative problem solving
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.
Planning, organizing, monitoring and
Entrepreneurial process
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
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Implementation of change
Innovation
Managing ambiguity and uncertainty
Mitigating risk
Opportunity evaluation
Opportunity recognition
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outcomes; building personal skill set and
self-efficacy in regard to entrepreneurship
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.
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.
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.
Identifying success factors needed for each
stage of business makeover and managing
project to ensure that risks are minimized or
controlled.
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.
Monitoring and scanning competitive
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Resource leveraging
Thinking and acting as a guerilla
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.
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.
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.
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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.
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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.”
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“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 email 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
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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
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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 servicelearning 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.
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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 servicelearning 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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Acknowledgements: Funding for this research was provided by Iowa State
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SBDC MAXIMUM BUSINESS SERIES:
A FRAMEWORK FOR DEVELOPING A SUCCESSFUL INNOVATIVE
ENTREPRENEUR EDUCATION PROGRAM
Gwen F. Hanks
The University of Georgia
Eric S. Bonaparte
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
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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
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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
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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 middlesized 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
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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.
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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
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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
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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 Universitysponsored 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.,
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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, noJournal of Business & Entrepreneurship
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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,
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Maximum People, Maximum Retail, and Maximum Service. See Table 1 for the
full list of courses.
TABLE 1
Summary of Maximum Series Courses
Course
Maximum Marketing
Maximum Contact
Maximum Money
Maximum People
Maximum Retail
Maximum Service
Focus/Emphasis/Concepts
General Marketing Concepts & Best Practices
Social Media Concepts & Best Practices
Financial Concepts & Best Practices
Human Resources Concepts & Best Practices
Retailing Concepts & Best Practices
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
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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
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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.
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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-bymodule 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
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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 statewide 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
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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.
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TABLE 2
Summary of Steps for the Maximum Course Development Process
Stages/Steps
Activity
Responsibility
Pre-Staging/
Development
Step 1:
Needs assessment, discussion among
interested personnel
Recruitment of an interested team of SBDC
personnel to participate (usually with
interests specific to the course being
developed)
Course modules (usually 5) are divided and
assigned for development
Course module outlines and topics are
developed
Developing PowerPoint slide presentations;
session plans; workbook materials; activities.
Review and feedback; adjustments and
revisions
Standardization of materials, including
PowerPoint slides and classroom materials
Rehearsal of the entire course, module by
module in a mock setting by the designated
presenters. Each module is two-hours.
Course materials and slides are produced
and ready for distribution to the field offices.
Pilot the First Program through an SBDC field
office
Roll-Out: Ready to deliver course throughout
the system
Feedback from the field offices after course
has been deployed once
Any revisions
Interested consultants who form a committed team;
also a coordinator or champion to oversee the process
A team of approximately 6 - 9 interested and qualified
SBDC consultants and other participants (e.g.,
continuing education coordinator, other directors,
assistant state director)
Coordinator divides and assists in assigning the
modules for development.
Team members, collectively and individually.
Step 2:
Step 3:
Step 4:
Step 5:
Step 6:
Step 7:
Step 8:
Step 9:
Step 10:
Step 11:
Step 12:
Each designated team member develops a unit, either
alone or with assistance.
Entire team, especially external observers (not directly
involved in material preparation)
Coordinator (with some assistance from a small group)
All participants, who meet at a mutually agreed
location to deliver a total run rehearsal through of the
course.
Reproduction and distribution of materials; state
office personnel
A local office; marketing and course coordination
One office deploys the course; local SBDC
office/personnel
Coordinator; team members plan adjustments to the
program
Original team members; particular course
champion/coordinator
Source: Georgia SBDC Max Planning Group
Typically, each Maximum course consists of five weeks of classes, a twohour 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.
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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.
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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.
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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.
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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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BELLE MEADE PLANTATION: SOCIAL
ENTREPRENEURSHIP AND SUSTAINABILITY AT THE
FIRST NON-PROFIT WINERY IN THE U.S.
Robert Lambert
Belmont University
Joe F. Alexander
Belmont University
Mark T. Schenkel
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, marketing,
diversification
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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
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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
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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
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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
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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
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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.
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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
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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
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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 was 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
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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.
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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 “climatefriendly” 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
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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 postcivil 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
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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 halfprice 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,
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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
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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
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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].
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