Academic journal article Journal of Business and Entrepreneurship

Clients' Perceptions of the Effectiveness of Small Business Development Centers

Academic journal article Journal of Business and Entrepreneurship

Clients' Perceptions of the Effectiveness of Small Business Development Centers

Article excerpt

ABSTRACT

Small Business Development Centers (SBDCs) are the premier service providers to small businesses nationwide. Despite the importance of their mission to the economy and job creation, little work has been done to objectively analyze their effectiveness. Prior research of this type has been prepared almost exclusively by SBDC consultants or SBDC personnel. Our research seeks to evaluate the performance of two SBDCs as indicated by their clients' perceptions of their effectiveness. We find that client satisfaction is somewhat lower than prior research suggests. We also find that female clients, less educated clients, and very successful clients rated SBDC services significantly lower.

INTRODUCTION

Small businesses continue to drive the U.S. economy. Small businesses contribute greatly to the economy and society as a whole through job creation, innovation, and increased competition. Recent research indicates a direct, positive correlation between entrepreneurial activity and growth in GDP (Dickerson & Romney, 1999).

Providing assistance and training to small firms and pre-venture entrepreneurs are significant activities for continued economic growth and societal gains. The premier provider of such services is the nationwide network of Small Business Development Centers (SBDCs). Significant funding has been used to support SBDCs and they are relied upon by small business owners as well as nascent entrepreneurs seeking advice on business feasibility, financing, and planning (Allerton, 1996). Evidence suggests that small businesses rely on the services of the SBDC more than those of any other service provider (Kuratko, Hornsby, & Naffzinger, 1999).

Despite the apparent importance of SBDCs in encouraging entrepreneurial activity and economic growth, little objective research has been published in academic journals concerning clients' perceptions of their effectiveness in accomplishing their mission. The few studies that do address this important issue were for the most part either prepared and written by consultants to the SBDC (Chrisman, Hoy, & Robinson, 1987; Chrisman & Katrishen, 1994,1995) or prepared internally in specific SBDCs (e.g., Client Satisfaction Survey, Virginia Small Business Development Center Network, 1997). The authors believe there is a genuine need for an external, objective appraisal of SBDC clients' evaluation of the effectiveness of SBDCs.

The research mentioned above restricted the reporting of client satisfaction to overall ratings with no analysis of differences in perceptions among categories of clients. There are ample reasons, however, why such analyses could potentially provide useful information to the SBDCs, and would be instrumental in organizing and presenting their services depending on their target audience. It is quite possible, for example, that minorities and women perceive the SBDC differently than the general population of clients. The purpose of the research reported herein is to provide an objective analysis of SBDC effectiveness, as indicated by the perceptions of their clients, as well as explore differences in these perceptions based on client characteristics.

BACKGROUND: SBDC ROLES AND GOALS

Since 1977 significant funding has been channeled to Small Business Development Centers (SBDCs) to provide advice and guidance for small businesses (MacDonald & Cook, 1997). SBDCs are non-profit organizations that partner with government, education, and business organizations to assist existing small businesses as well as individuals who are considering starting a business. In many states the SBDC is supported by a land grant college or community college in partnership with local economic development entities (Wilton, 1997). In addition, significant government funds, both federal and state, are directed towards these centers. SBDCs claim to have contributed both at a national and regional level to economic growth, job creation, and the overall satisfaction level of small business owners (Association of Small Business Development Centers, 2001).

There are nearly 1,000 SBDCs in universities, colleges, vocational schools, chambers of commerce, and economic development corporations nationwide (Levenburg, 1999). Centers are located in all 50 states as well as the District of Columbia, Guam, Puerto Rico, and the Virgin Islands. These centers are partially funded and administered by the U.S. Small Business Administration with the aim of providing management assistance to current and prospective small business owners who may not always be able to afford to hire a consultant. The centers aim to "assist small entrepreneurs and small business owners, resolve problems, increase productivity, and expand to ultimately improve profitability" (MacDonald & Cook, 1997).

Individual clients have access to seminars on various small business topics as well as individual counseling based on their specific needs. The stated mission of the SBDC program includes specific efforts to reach out to women and minorities (SBDC Mission and Overview, 2001) as well as to tailor their services to local needs. The SBDCs are also becoming increasingly active in counseling small business owners about basic exporting processes (Anonymous, 1996).

In addition to providing assistance and training to existing small business owners, SBDCs potentially play a valuable role by discouraging start-ups that are not likely to be economically viable. Discouraging ill-advised business ventures can certainly be a significant contribution to the individual entrepreneur as well as the general economy by preventing bankruptcies and loss of private and public funds, especially through SBA loan guarantees.

SBDCs also provide indirect assistance to lending institutions by helping their clients prepare comprehensive business plans (Wilton, 1997). In doing so, they not only increase the chances of the loans being approved, but also assist in clarifying to their clients what they can expect from the various sources of debt and equity capital.

THE IMPACT OF SBDCs

The few published studies that deal with the economic impact of SBDCs strongly suggest that, regardless of the background or nature of the small business, the SBDCs provide useful resources and have a strong economic impact on both regional and national economies. For example, Chrisman, Hoy, and Robinson (1987) studied SBDC effectiveness in Georgia and South Carolina and found that sales generated by SBDC clients totaled $30 million with 1,100 new jobs created by SBDC clients. In a national study of the economic impact of SBDCs Chrisman and Katrishen (1994) found that SBDC services generated $2.61 in tax revenue for each $1 spent on SBDC programs. In addition, about 65,000 new jobs were created by SBDC clients during this one-year study period.

Internal SBDC reports dealing with overall economic impact as well as effectiveness by state were also conducted and, for the most part, prepared by Chrisman in his role as consultant to the SBDC (e.g., New Mexico Small Business Development Center Performance Statistics for Fiscal Year, 1997, 1997). These reports indicate a positive and substantial economic impact.

The various Chrisman studies also contain, in a tangential way, information about client perceptions of effectiveness of SBDCs. For example, Chrisman, Hoy, and Robinson (1987) measured clients' assessment of the overall quality of SBDC services. The mean response was 4.06 using a 6-point scale, with the modal response being good (4). Clients' assessments were not the primary thrust of the study, and the results were only used to adjust their economic statistics for the impact that the SBDC had on these clients. In addition, Chrisman and Katrishen (1994) reported that 80% of established and pre-venture clients perceived SBDC services to be beneficial.

The New Mexico SBDC internal study (1997), also prepared from Chrisman's data, found that clients' satisfaction with SBDC services was very high with 98.8% of pre-venture clients indicating that they would recommend SBDC services to others. While the instrument used may not yield a robust measure of the quality of SBDC services, the results are nevertheless quite impressive.

The most comprehensive internal study the authors could access dealt exclusively with client satisfaction (Client Satisfaction Survey, Virginia Small Business Development Center Network, 1997). Using a sample of SBDC clients in a large metropolitan area of Virginia, the study reported a very high level of client satisfaction. This finding seems to be in conflict with the Kuratko et al. (1999) study, which indicated that SBDC clients are only reasonably satisfied with the services of the SBDC.

Surprisingly, despite the fact that the SBDCs recognize specific sub-groups in their mission, neither the published nor the internal research we examined analyzed the satisfaction results for significant differences between recognizable subcategories of respondents. In addition, while the overall ratings were somewhat impressive, these results warrant further scrutiny through external, obj ective inquiry. With the present research, we sought to examine client perceptions of the quality and effectiveness of SBDC services and to present evidence of differences by gender, education, race, and other client characteristics.

METHODS

We randomly selected 420 names from the client lists of two SBDCs in the Commonwealth of Virginia. Each individual in the sample was contacted by phone and asked to participate in a university research study; 338 initially agreed to do so. Surveys were coded, which enabled us to make follow-up calls to solicit the completion of the questionnaires. Our sampling strategy resulted in a response rate of 44%, an unusually high rate for survey research (Aleck & Settle, 1985). Missing data resulted in a usable sample size of 136.

The survey included questions about demographics of the business owner, the nature of the business venture, and the success of the venture. We also asked questions regarding the clients' interaction with the SBDC and their evaluations of SBDC effectiveness in providing services.

RESULTS

The mean age of our respondents was 43.8 (SD = 9.9). Forty-three individuals (31.6%) were female. Ninety-two (67.6%) reported that they had earned a college degree. Ninety-eight (72.1%) ran their business full time. Our entrepreneurs managed a mean of 4.1 (SD = 9.1) workers. Slightly over one-half (73, or 5 3.7%) reported that they considered themselves successful in accomplishing their company's goals. Their stated motives for starting a business were financial wealth (10.8%), freedom and independence (45.3%), not able to find a job (21.1%), fulfillment of a dream (32.4%), acting on an opportunity (55.3%), and acting on advice from family (10.6%).1 The sample consisted of only 9.6% non-whites.

We also asked respondents to identify the specific services they received from their SBDC. The results are displayed in Table 1.

The three top services were business plan preparation, referrals to other organizations, and assessment of business feasibility. The three services least used were people skills, technical assistance, and production. Regarding the business feasibility service, only 5% of clients with a business idea were counseled not to start the business.

Respondents were asked to rate their SBDCs performance on a 5-point Lacerate scale. Four items were used (Table 2) and an overall mean rating was calculated. We assessed inter-item reliability with a split-half analysis which yielded an alpha of 0.74 (part 1) and 0.89 (part 2).

We were somewhat surprised that the overall performance mean was only 3.2. Based on other studies reviewed earlier, we had expected to find a much more favorable perception of SBDC effectiveness by clients. Since the mean rating was lower than expected, we performed difference of means tests (Bonferroni test to adjust significance levels for the fact that multiple comparisons were made) to flush out any variation between recognizable categories of clients. The results of the statistical tests are reported below.

The most disturbing result was that female clients systematically and significantly rated the SBDCs lower in effectiveness than did male clients (see Table 3). In addition, college educated clients rated SBDC effectiveness higher than noncollege educated clients did. Not surprisingly, those clients that indicated they would recommend SBDC services to others also gave a high rating. No other demographic categories yielded significant differences, although we were not able to make meaningful comparisons by race due to the small portion of the sample that was nonwhite (9.6%).

We also tested for differences in effectiveness ratings based on the financial performance of the respondents' business ventures (Table 4).

Interestingly, the only significant difference was between clients with extremely successful businesses and the mean rating. These extremely successful entrepreneurs rated the SBDC services significantly lower than the others.

Finally, we tested for rating differences based on the SBDC services actually used by the clients (Table 5). An interesting pattern emerged from these analyses. Clients who used specific services listed in Table 5 rated the SBDCs effectiveness higher than did clients who did not use any of the listed services. Furthermore, the group of clients who used any of the listed SBDC services rated SBDC effectiveness higher than did clients who did not use any of the listed services. There was no category of service use in which the respondents rated the SBDC significantly lower than non-use.

DISCUSSION

To our knowledge this study was the first of its kind, as its primary focus was upon clients' perceptions of the effectiveness of and the services provided by SBDCs. It is also unique in that it was not conducted by SBDC-funded researchers. The overall results are roughly compatible with previous research. In this study the SBDC clients rate the effectiveness of their SBDC as slightly above average (with a mean of 3.2 on a 5-point scale) versus good (with a mean of 4.04 on a 6-point scale) as reported by Chrisman, Hoy, and Robinson (1987). We also found significantly lower ratings from female clients, less educated clients, and highly successful clients.

The difference in ratings between male and female clients is especially disturbing for* a number of reasons. Females are currently starting businesses at a rapid rate (Dickerson & Romney, 1999) and that trend is expected to continue. SBDCs and other service providers may have to alter their operations, taking special care to meet the needs and expectations of female clients. The findings of this research are especially troubling since the SBDC mission includes special effort to serve women and minorities (SBDC Mission and Overview, 2001). In other words, although SBDCs acknowledge the need to better serve women and other minorities, our results do not indicate that they are successful in achieving this goal. In addition, these results suggest that the SBDCs' actual activities may not be in line with their stated mission goals.

The other interesting finding is that college educated clients rated the SBDCs higher than did non-college educated clients. Future work is necessary to determine if this difference is a result of diverse perceptions, expectations and values (such as valuing new knowledge) or a result of the design and implementation of SBDC counseling sessions and workshops. Communication problems might arise between the client and SBDC counselor because of differences in their educational levels. In the meantime, these findings suggest that SBDCs may need to alter the delivery of their services according to target audience. Special care should be taken to meet the needs of less educated clients who may feel intimidated by the better-educated counselors.

Clients who identified themselves as extremely successful rated their SBDCs performance lower than did owners who did not rate their business as successful. This result is understandable since the primary mission of the SBDC program is to help fledgling businesses whose owners cannot afford the assistance of a paid consultant. Our interpretation is that the efforts and resources of SBDCs are being efficiently allocated to their best use. However, these results may also be interpreted otherwise. One may also assume that the successful owners are more astute business people, more independent and, therefore, more discerning regarding external help. In addition, attribution theory (Kelley, 1973) would suggest that these business owners would tend to attribute more of their success to themselves, and less to any external expertise they may have received.

On a more positive note, clients who used any of the specific SBDC services that we examined rated their SBDCs effectiveness higher than did clients not using these specific services. We interpret this result to mean that SBDCs are highly effective in some very specific and important areas, especially in business plan preparation, referrals to other organizations, legal and marketing assistance, and networking.

It is somewhat troubling that only 5% of the clients who sought out the SBDC for advice about opening a new business were advised not to open the business, despite the fact that feasibility advice is one of three most used SBDC services (22.9%). Since the failure rate of new businesses is much higher than 5%, one would expect that SBDCs would discourage more would-be entrepreneurs. One interpretation of our results is that the SBDCs are not aggressive enough in discouraging ill-advised startups. If so, SBDC resources could be better allocated.

There are two caveats to this interpretation. First, anecdotal evidence from discussions with SBDC directors indicates that very few clients' businesses are still in the idea stage by the time the SBDC sees the client. In other words, the go/no-go decisions have been made prior to SBDC involvement with most clients. Second, it is possible that we would see a higher percentage of clients who were advised not to open their new business among those who chose not to respond to our survey, one of the constraints of survey methodology. Nevertheless, it is an important point worth further investigation. The SBDC can certainly create a societal good by discouraging business ventures that are not feasible.

With the notable exceptions of female clients, highly successful clients, and less educated clients, clients of the SBDCs we studied appear to be well serviced by the SBDCs and the specific services they provide. As noted above, however, there is ample room for improvement.

LIMITATIONS AND FUTURE DIRECTIONS

In addition to the limitations and suggestions for further research already previously mentioned, we would like to focus here on a few more. Our research was guided by the need for objective and independent investigation of the effectiveness of SBDCs. We are somewhat limited in this respect since we were able to study only two SBDCs due to our resource constraints. Although it would be preferable to conduct a nationwide study, our methodology is similar in scope to work by Chrisman, Hoy, and Robinson (1987), who also studied only two SBDCs. As reported earlier, our findings are not as positive as those of previous studies. Future research could expand our sample to replicate, verify and gain insight to the present findings.

Our finding that female clients view SBDCs more negatively than do male clients warrants further research to investigate the reasons behind these significantly lower ratings by females and provide more useful understanding of this phenomenon. Our results indicate that SBDCs may be failing to accomplish a major component of their mission. It is useful to point out that the directors of both the SBDCs we studied are male. Nationwide, roughly 35% of SBDC directors are female (Directory of Small Business Development Centers, 2001). It may be particularly revealing if future work investigated whether female clients view their SBDC more favorably when the director and/or the counselors are female.

Finally, we would like to suggest that more work by independent researchers is necessary. Our overall findings are not as positive as those reported in internal SBDC reports or in published SBDC consultant papers. However, before we can draw significant conclusions as to why these discrepancies occurred, .additional studies attempting to replicate the earlier work needs to be done.

1 Percentages do not sum to 100 as multiple motives were allowed.

[Reference]

REFERENCES

Allerton, H. (1996). Help for small businesses. Training & Development, 50(4), 9.

Alreck, P. A., & Settle, R. B. (1985). The Survey Research Handbook. Homewood, IL: Irwin.

Anonymous (1996). Small business. Business America, 117, 92-109.

Association of Small Business Development Centers (2001). Retrieved February 21, 2002, from the World Wide Web: http://www.asbdc-us.org.

Chrisman, J. J., Hoy, F., & Robinson, R. B. (1987). New venture development: The costs and benefits of public sector assistance. Journal of Business Venturing, 2(4), 315-328.

Chrisman, J. J., & Katrishen, F. (1994). The economic impact of small business development center counseling activities in the United States: 1990-1992. Journal of Business Venturing, 9(4), 271-280.

Chrisman, J. J., & Katrishen, F. (1995). The small business development centre programme in the U.S.A.: A statistical analysis of its impact on economic development. Entrepreneurship and Regional Development, 7(2), 143-155.

Client Satisfaction Survey, Virginia Small Business Development Center Network. (1997). Richmond, VA: Virginia Tech Economic Development Assistance Center.

Dickerson, M., & Romney, L. (July 28,1999). Small business. Los Angeles Times, p. 8.

Directory of Small Business Development Centers (2001). Small Business Administration. Retrieved, from the World Wide Web: http://www.sba.gov/gopher/Local-Information/Small-Business-Development-Centers/sbdcall.txt.

Kelley, H. H. (1973). The process of causal attribution. American Psychologist, 28(1), 107-128.

Kuratko, D. F., Homsby, J. S., & Naffzinger, D. W. (1999). The adverse impact of public policy on microenterprises: An exploratory study of owners' perceptions. Journal of Developmental Entrepreneurship, 4(1), 81-93.

Levenburg, N. (1999). Research resources exist for small businesses. Marketing News, 33(1), 19.

MacDonald, S., & Cook, M. (1997). Letters from America: A lesson for the business link? International Small Business Journal, 16(1), 74-79.

New Mexico Small Business Development Center Performance Statistics for Fiscal Year 1997 (1997). New Mexico Small Business Development Centers.

SBDC Mission and Overview (2001). Small Business Development Center. Retrieved December 21, 2001, from the World Wide Web.

Wilton, W. (1997). For small businesses, SBDCs offer planning, financial, marketing expertise. Commercial Lending Review, 12(2), 70-71.

[Author Affiliation]

Samuel R. Gray

New Mexico State University

Dafha Eylon

University of Richmond

[Author Affiliation]

Samuel Gray is Director of the Entrepreneurship Center at New Mexico State University. He received his Ph.D. in Strategic Management from Texas A & M University. His research interests focus on business strategy, Hispanic entrepreneurs, and small business and entrepreneurship training and pedagogical issues.

Dafna Eylon is Associate Professor in the E. Claiborne Robins School of Business at The University of Richmond. She received her Ph.D. in organizational behavior from the University of British Columbia. Her research interests include empowerment and entrepreneurship.

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