Academic journal article Journal of Small Business Strategy

A Resource-Based View of Three Forms of Business in the Startup Phase: Implications for Franchising

Academic journal article Journal of Small Business Strategy

A Resource-Based View of Three Forms of Business in the Startup Phase: Implications for Franchising

Article excerpt

ABSTRACT

The decision to buy a franchise, start a new independent business, or buy an existing business is a critical decision faced by entrepreneurs. This study uses the Resource-Based View (RBV) of organizations to compare franchisees in the startup phase to both entrepreneurs who start new independent businesses and entrepreneurs who purchase established businesses. Our analysis of U.S. data from the Kauffman Firm Survey found similarities among those starting franchises and purchasing existing independent businesses. Implications for future research and practice are discussed.

Keywords: franchisees, entrepreneurs, business startups, resource-based view

INTRODUCTION

The decision to buy a franchise, start a new independent business, or buy an existing business is a critical decision faced by entrepreneurs. Research on franchising has been conducted for five decades (Combs & Ketchen, 2003; Oxenfeldt & Kelley, 1969). A majority of these studies examine franchising as an organizational form from the perspective of the franchising firm. One stream of research examines the decision by the franchisor to grow by selling franchises or establishing company owned units (Brickley & Dark, 1987; Combs & Castrogiovanni, 1994; Combs & Ketchen, 2003). Other studies look at the survival of franchises compared to other businesses (Bates, 1995, 1998). Far less research is conducted from the perspective of the franchisee and even fewer studies consider the decision by entrepreneurs to select a particular business form. What is missing from the literature is a comparison of franchises in the startup phase to both new independent ventures and purchased established businesses. Previous studies have compared franchises to non-franchises, or franchises to independent new businesses (Sardy & Alon, 2007). Our study adds to the literature by including the purchase of an existing business to the analysis of the decision of the entrepreneur.

It is important for both researchers and practitioners to consider the choice by the entrepreneur to purchase an existing business. In prior studies, particularly studies of survival, franchises are most often compared to all other ventures. Failure to consider the third alternative may confound the results of studies on performance and survival by grouping together different business forms (Shrader & Simon, 1997). Established businesses offer a different set of resources than do startups. These include a local brand, reputation and set of routines; however, these resources may be less valuable than those associated with national franchises (Litz & Stewart, 1998).

In the empirical portion of this paper, we adopt the Resource-Based View (RBV) to examine potential differences in resources, including inputs of human capital, among the three forms of entrepreneurship.

Entrepreneurial Choices and the Resource-Based View of Organizations

The RBV holds that sustained competitive advantage rests on organization resources that are valuable, rare, inimitable and nonsubstitutable (VRIN) in an organizational setting that has the policies and procedures to exploit the resources (Barney, 1991; Barney & Clark, 2007; Knott, 2003; Kraaijenbrink, Spender, & Groen, 2010). A number of frameworks and theories share the RBV platform including core competencies (Hamel & Prahalad, 1994), dynamic capabilities (Helfat & Peteraf, 2003; Teece, Pisano, & Shuen, 1997) and the knowledge-based view (Grant, 1991). In addition, human capital theory is an aspect of the resource-based view that focuses attention on the knowledge and skills which individuals, both entrepreneurs and employees, contribute to competitive advantage (Barney & Clark, 2007; Becker, 1964; Davidsson & Honig, 2003). In a meta-analytical review of human capital, task-related human capital is associated with entrepreneurial success (Unger, Rauch, Frees, & Rosebush, in press). …

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