Novice, Portfolio, and Serial Founders in Rural and Urban Areas

Beginning of article

Bruno and Tyebjee (1982, p. 307) asserted that much of the research literature exploring the environment for independent business initiation is "wisdom-based and observational". Moreover, ". . . much of the current knowledge about environmental influence on entrepreneurial activity is based on anecdotal evidence, case histories and folklore. There is a notable absence of theoretical frameworks. Correspondingly, there is a dearth of empirical verification. The lack of a theoretical paradigm has three consequences: a lack of constructs by which to conceptualize the environment; a lack of theoretically based hypotheses regarding the functional relationship between the environment and entrepreneurship; and a lack of impetus for collecting suitable data, measuring and testing (Bruno & Tyebjee, 1982, p. 302). Supporting this viewpoint, Pennings (1982, p. 308) has argued that, "Research on the environment for entrepreneurship has been comparatively limited. . . . most studies do not deal with the environment in its own right but treat it instead as one of many factors to be considered in the study of entrepreneurs. . . . Environmental factors may impede or enhance entrepreneurial vigor, but rarely are they analyzed in a central way."

This paper adds to a recently growing body of research that has explored the relationship between environmental conditions and the nature of entrepreneurial activity (for a summary see Aldrich, 1979; Birley & Westhead, 1993a; and Gnyawali & Fogel, 1994). Studies, for example, have explored the relationship between environmental conditions and new venture creation (Westhead & Moyes, 1992; Keeble & Walker, 1994; Reynolds, Storey, & Westhead, 1994), business survival (Romanelli, 1989; Stearns, Carter, Reynolds, & Williams, 1995), business closure (Westhead & Birley, 1994), the competitive strategies pursued by businesses (Miller & Friesen, 1983; Covin & Slevin, 1989, 1990; Romanelli, 1989; Venkatraman & Prescott, 1990; Smallbone, North, & Leigh, 1993a; Zahra, 1996) and business performance (Prescott, 1986; Covin & Slevin, 1989, 1990; Eisenhardt & Schoonhoven, 1990; Birley & Westhead, 1992; Vaessen & Keeble, 1995). This paper comprises two linked but separate studies of different types of entrepreneurs in two distinct environments, that is, rural and urban areas. In the first study, the characteristics and performance of independent firms in rural areas owned by novice, portfolio, and serial founders are compared. In the second, the characteristics and performance of independent firms in urban areas owned by novice, portfolio, and serial founders are then compared. Presented evidence that is sensitive to environmental conditions will allow policy makers and practitioners to understand the backgrounds and objectives of entrepreneurs who own businesses. Moreover, this appreciation should encourage policy-makers and practitioners to develop more appropriate policies towards the formation and development of businesses located in rural as well as urban areas.

The characteristics and performance of businesses in rural and urban areas has attracted research and policy attention both in the United States (Dandridge, 1982; Banks, 1991; Buss & Popovich, 1991) and the United Kingdom (Keeble, Tyler, Brown, & Lewis, 1992; Keeble, 1993, 1996; Smallbone et al., 1993a; Westhead, 1995a). Conflicting evidence has been presented surrounding the job generation and wealth creation records of rural and urban businesses. In the United States, Buss and Popovich (1991) found that rural and urban firms reported very similar levels of job generation. Drawing upon a survey of mature independent manufacturing firms, Smallbone et al. (1993a) reported that rural firms located in northern England were more growth orientated and more profitable than urban firms located in Greater London. In marked contrast, Westhead (1995a) found no significant differences between matched-paired new independent firms located in rural and urban areas in selected locations in Great Britain with regard to sales revenue and reported profitability levels. Contrary to previously reported evidence (Keeble et al., 1992; Keeble, 1996; Smallbone et al., 1993a), he also found that new firms located in urban areas recorded significantly higher employment growth than new rural firms.(1) Results from these studies have underpinned the formulation of policies to provide support services that facilitate venture formation and business development (Dandridge, 1982; Keeble et al., 1992).

Despite undoubted progress, considerable debate remains surrounding the forms of financial, managerial and technical assistance appropriate to encourage the development of firms located in rural as well as urban areas (Smallbone, North, & Leigh, 1993b; Storey, 1994). Of particular concern is the issue of whether the appropriate unit of analysis for targeted assistance (directly or indirectly subsidized from the public purse) should be the business or the entrepreneur owning the business. Both research and policy have hitherto tended to focus on the former. In this study, we highlight that different types of entrepreneurs exist (Westhead, 1990, 1995b). Moreover, we present evidence that shows that the founding or owning of a business may not be a one-time entrepreneurial action for individual entrepreneurs (Westhead & Wright, 1998). based on presented evidence, we argue in this paper that there is a need for policy makers to more fully appreciate the backgrounds, objectives and needs of various types of entrepreneurs when they are formulating policies to encourage new firm formation and business development at a local level.

An understanding of the differing nature of businesses in rural and urban areas is of crucial importance for the design of appropriate policies to assist development in these contrasting environments. Policy makers have recognized that there are differences between rural and urban environments and have introduced different types of agencies in each area to assist business formation and development. If the aim of policy is to understand and stimulate entrepreneurship in local areas, we argue in this paper that the business may not be the most appropriate unit to be identified and targeted. To encourage local economic development, policy makers and practitioners need to fully appreciate the local environmental contexts where their policies are going to be applied (i.e., whether a business/entrepreneur owns a business located in a rural or an urban location). Also, in this paper, we support the assertion (Haughton, 1993) that policy makers, practitioners, local enterprise and development agencies, and local government must understand their 'target' groups. This paper argues that hitherto there has been too much focus on the business as a unit of analysis in examining the nature and contribution of entrepreneurship. Not surprisingly, many studies have failed to recognize that different types of entrepreneurs operate in rural as well as urban environments. Evidence that identifies the nature of these different types of entrepreneur, and in particular the relative importance of novice and experienced founders, provides the basis for the development of policies that will be more precisely targeted at addressing the needs of rural and urban areas. Because of the recognized differences between rural and urban environments, both in other studies (e.g. Cloke & Edwards, 1986; Keeble et al., 1992) and in a previous study drawing on the dataset used in this paper (Westhead, 1995a), we examine samples of rural and urban entrepreneurs separately in order to identify whether or not the different types of entrepreneurs in each area have common characteristics and motivations. To the extent that significant differences are identified, it may be necessary to target separate policies towards the varying needs of each type of entrepreneur within each type of area rather than broad 'blanket' policies to all types of entrepreneur irrespective of need or ability. By recognizing the needs of individual entrepreneurs (and businesses) the existing differing policy approaches towards the development of rural and urban areas should become more fine tuned.

Previous research has highlighted that some entrepreneurs are habitual entrepreneurs who have established and owned more than one venture. Evidence from the United States relating to Southern California found 51% of entrepreneurs had contributed to the initiation of two or more ventures (Schollhammer, 1991). It is not clear whether this finding in Southern California is apparent in other regions of the United States. Marked regional variations in the extent of habitual entrepreneurship have, however, been confirmed in the United Kingdom. For example, studies conducted in Scotland (Cross, 1981; Turok & Richardson, 1989) have reported the lowest proportions of business founders with prior business experience (i.e., between 11.5% and 15%). The highest proportions of habitual entrepreneurs have been reported by studies that have focused upon East Anglia (28%, Keeble & Gould, 1985), Wales (32%; Westhead, 1988) and South Hampshire (36%; Mason, 1989).

Given the scale of previous business experience (i.e., habitual entrepreneurship) reported by surveyed entrepreneurs, it is surprising to note that no detailed empirical research has been conducted surrounding the characteristics of habitual entrepreneurs who own surveyed businesses located in contrasting environmental settings such as rural and urban areas. Due to the numerical dominance of urban firms in most samples, the potentially unique characteristics and contributions of contrasting types of entrepreneurs owning businesses in rural areas and associated performance differences may have been ignored. It can, therefore, be reasonably suggested that appropriate policies to assist the survival and development of businesses owned by experienced habitual entrepreneurs, particularly those located in rural areas, have not been adequately considered, developed, and implemented. To address this research gap, this study explored the characteristics of contrasting types of founders and the contribution of their surveyed independent businesses to wealth creation and job generation. In order to capture the richness of the differences between the contrasting types of founders in the rural as well as the urban areas, two separate analyses were conducted. Rural firms owned by the three types of founders were compared. In addition, an analysis of urban firms owned by three types of founders was conducted.

Two types of habitual founder behavior were identified in this exploratory study.(2) Serial founders are those individuals who sold their original business but at a later date established or purchased another business (Westhead & Wright, 1998; Wright et al., 1997). A portfolio founder, however, is an individual who retained the original business he/she established but at a later date established or purchased another business. The third type of founder identified in this study was the novice founder. This latter individual had no prior business founding experience(3).

As intimated above, the existence of differences among types of entrepreneurs has implications for the development of future policy towards independent businesses located in rural and urban areas. There may be a need, for example, to target specific policies towards experienced portfolio and serial entrepreneurs and somewhat different policies to novice entrepreneurs. If superior business performance is generally recorded by habitual rather than novice entrepreneurs, it may be appropriate to target policy assistance to the former group if the objective is to maximize investment returns. Alternatively, if habitual entrepreneurs generally display lower levels of performance, this may cast doubt on policies that target resources to experienced entrepreneurs rather than novice entrepreneurs (i.e., those individuals who are considering business initiation or ownership) (Carter, Gartner, & Reynolds, 1996). If the objective of policy is to increase the stock of businesses in an area, there may be a need for policies that ensure the survival of businesses owned by novice entrepreneurs as well as those owned by more experienced habitual entrepreneurs.

DERIVATION OF PROPOSITIONS TO BE TESTED

To add to the descriptive background (Bygrave, 1989) as well as to extend our understanding (Gartner, 1989) of the characteristics and contributions of novice, serial, and portfolio entrepreneurs in rural as well as urban environmental settings, several tentative research propositions are derived in this section. Due to the absence of detailed research focusing upon the characteristics and contributions of habitual entrepreneurs in rural and urban areas, broad research propositions are formulated based upon evidence from aggregate studies (i.e., samples that have combined rural and urban founders or firms together). We draw upon existing research concerning entrepreneurs in aggregate as well as more fine-level rural and urban area studies of entrepreneurs. The testing of these relatively broad exploratory propositions should enable future researchers to formulate more precise hypotheses to be tested (Slevin & Stuart, 1978). The formulation of the propositions focuses on the expected differences between types of entrepreneurs rather than differences between rural and urban areas.

Personal Background of the Founder

The existing literature on the traits, characteristics, and motivations for entrepreneurship suggests that differences between contrasting types of entrepreneurs are to be expected (Smith, 1967; Woo, Cooper, & Dunkelberg, 1991; Westhead, 1990, 1995b). During their study of novice and habitual independent firm founders, Kolvereid and Bullvag (1993) noted that very few women become habitual entrepreneurs. Supporting the evidence presented by Donckels, Dupont, & Michel, (1987) they found habitual entrepreneurs were more likely to have obtained higher education qualifications. As found elsewhere (Birley & Westhead, 1993b), Kolvereid and Bullvag (1993) also noted that habitual founders started their first businesses at a younger age than novice founders.

Although it is difficult a priori to identify potential differences between portfolio and serial founders on the grounds of qualifications and age, the greater complexities likely to emerge in managing a portfolio of businesses rather than in selling one and founding another suggests that portfolio founders may have a background that has greater exposure to managerial experience. The resources required to develop a portfolio of businesses suggest that portfolio founders may require contributions from a greater number of partners than do serial or novice founders (Kolvereid & Bullvag, 1993). Portfolio owners may be able to establish and own multiple businesses because they use partners, whereas novice and serial entrepreneurs may establish or own a business without a partner. Further, the team aspect of entrepreneurship may be important in providing the resources and skills needed to establish and maintain ownership stakes in multiple businesses (Slevin & Covin, 1992). This discussion yields the following propositions:

P1a: Habitual founders in both rural and urban areas are less likely to be female than novice founders.

P1b: Novice founders in both rural and urban areas are less likely to be as highly educated as habitual founders.

P1c: Novice founders in both rural and urban areas are more likely to be older when starting their first venture than habitual founders.

P1d: Novice founders in both rural and urban areas are less likely to be drawn from a managerial or business parental background than habitual founders.

P1e: Portfolio founders in both rural and urban areas are more likely than serial and novice founders to have a greater number of partners in their surveyed businesses.

Work Experience of the Founder

Cooper (1981) has suggested that the single most important influence upon the ability of an individual to undertake an entrepreneurial venture and its subsequent success is the previous work experience of the founder. The nature of the incubator organization can have a profound influence upon a potential founder, not only on his/her decision to establish/own a new business but also upon its location, characteristics, and performance. As a result of prior business experience, many habitual entrepreneurs have developed skills and competencies, a network of contacts, a business reputation, and a track record. However, the development of a portfolio of businesses, as in the …