Academic journal article Journal of Applied Management and Entrepreneurship

Multi-Generation Small Business Response to the Recent Financial Crisis

Academic journal article Journal of Applied Management and Entrepreneurship

Multi-Generation Small Business Response to the Recent Financial Crisis

Article excerpt

Introduction

Small business represents a major sector of the Canadian economy. In 2008, this sector, which employs 48% (5 million employees) of the total work force, contributed 30% of Canada's gross domestic product (GDP) (Industry Canada, 2008). Further, this report showed that during an exceptionally good economic period from 1997 to 2003, an average of 125,000 small businesses failed annually. From a long term perspective, the same report determined that only 25% of small businesses remain in operation after 9 years. This finding is similar to that reported by Zontanos and Anderson (2004) who found that over two thirds of small businesses close within the decade they open. From an even longer perspective, very few small businesses continue on to subsequent generations of ownership. Cater et al (2006) determined that 30% of small businesses are passed to the second generation; 12% to the third generation; and 4% to the fourth generation.

This investigation represents a follow-up to an earlier research project which identified aspects of multi-generation businesses (Hunter and Kazakoff, 2008). The earlier investigation delved into detail regarding the factors that have allowed some small businesses to continue for more than one generation. It documented the comments of family representatives regarding their interpretation of the experiences of their intergenerational small business. Relative to small businesses in general, multi-generation small businesses here are considered to be "successful" because of their longevity. Further, due to the very nature that they are successful from a multigeneration perspective, they are also a family business. While some family businesses may be quite large, the focus for this research is on the small business.

The recent financial crisis spanned the period of mid-2008 to late-2009, and was characterized by a sharp economic downturn, world-wide financial markets collapse, and significant job losses. The goal of this project was to identify the aspects related to how multigeneration small businesses reacted to the recent financial crisis. Multi-generation small businesses are considered successful mainly because of their long term survival beyond the normal tenure of a small business. The project thus provides lessons for all small businesses regarding responses to the recent financial crisis. The lessons learned will serve to contribute to reducing the large number of small business failures as shown in the above statistics.

The next section provides the context for this investigation via a review of the existing literature, focusing mainly on multi-generation small business. Then the details of the specific project are presented. Findings are reported based upon the identified major themes. The subsequent discussion is organized by theme categories and incorporates further comments made by the research participants. In the Conclusion section responses to the research questions are offered.

Literature Review

A review of the available literature fails to reveal significant investigations into multigeneration small business. De Geus (2002) has investigated long lived large businesses. Interestingly, among other findings, he determined that the average life span for firms of any size is 12.5 years.

Small businesses are different from big businesses, according to Stevenson (1999) who suggests that in a small business there is a focus on the near term, with an emphasis on allocating relatively scarce resources only to what are considered top priority activities. The scarce resources concept is elaborated by Thong et al (1994) via the term "resource poverty". This term suggests that small business, relative to large business, lacks both financial and human resources, which in turn affects how business is conducted.

There exist many definitions for a "small business". Because a small business is a privately held entity, and thus is not required to publically report performance information, annual revenue or size of investment may not be used as a definition. …

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