Brief Summary of Minutes of Annual Meeting

Milestones This report is based on the first year of the project. Designated milestones in the project proposal for 2007 included the following: -Continued review of literature -Conceptual framework development -Sampling decisions -Seek funding The group is on-track with the review of literature and development of the conceptual framework. Data collection, which was initially scheduled for 2008 was nearly complete at the time of the October 2007 meeting. The group was able to proceed with sampling decisions, questionnaire development and data collection ahead of schedule due to the receipt of an NSF grant (Danes, Stafford and Haynes). The group continues to focus on grant-writing and completion of publications from the previous project, NE 167, as well as meeting the objectives of the NC 1030 project. The attached list of recent publications and presentations indicates that progress is being made toward the accomplishment of each NC 1030 objective (1a, 1b, 2a, 2b). Research Progress and Findings NE 167 was offered as an example in the report http://www.csrees.usda.gov/business/reporting/part/self_rev_g2_pt_22.pdf (see page 80) as a highly productive, multi-state research project. The Portfolio review is required by the U.S. Office of Management and Budget to show outcomes from federal investments. Activities of the NC 1030 research group have revealed new knowledge and understanding of families in business. Progress in several areas is summarized below. First, the developments related to the conceptual framework are presented. This is followed by summaries of research findings in the areas of owner resources for start-up and growth, quality management practices, firm survival, women in the family business and copreneurs, or husbands and wives who own and operate businesses jointly. Next, results using data from the National Minority Family Business Survey (NMFBS) are presented because the NE 167 Family Business Research Group provided templates of our questionnaires to Baruch University for use in collecting the NFBS. Several researchers on the NC 1030 project work with the NMFBS data to either parallel or compliment work on the NFBS data. Lastly, because researchers on the NC 1030 project also have family business data on the tobacco buy-out program, publications related to this program are summarized. Conceptual Framework. The SFB Model offers a comprehensive view of the family business and suggests that such businesses are far more complicated than was previously realized. Only careful delineation of the components of the family and the business in the context of the community will afford researchers sufficiently rich understanding of the internal dynamics of the family business and how they relate to external environments such as their communities. The SFB Model is a flexible model that enhances the understanding of the dynamic role of family within family business entrepreneurship through its systems orientation. It explores the entrepreneurship of the business within the social context of the family. Unlike many other models that take an individual approach to the study of the family business, it emphasizes the overlap of the family and business systems while recognizing the unique characteristics of each of the systems. One of the features of the model is its recognition that processes differ in times of stability versus times of change; it includes the Family Fundamental Relationship Orientation Model (FIRO Model) as a working model that explicates the reconstruction that is needed during time of changes for family businesses to remain resilient and, thus, sustainable over time. A recently completed conceptual and analytical review of the Sustainable Family Business Model (Stafford et al., 1999) was published by members of the NC 1030 group in 2006 (see list of recent citations). This work was published in a chapter that presents the theoretical perspective and major premises of the SFB Model of family business. The chapter offers an analytical model for study of the family business based on the SFB Model. Additionally, it more fully identifies the salient family factors that influence the business and vice versa as well as placing the family business within its community context. Suggestions for further applications and future research using the SFB Model are offered. In summary, our work shows that there is a complicated array of factors that contribute to the success or failure of family businesses including public policy Firm Start-up and Growth. Data related to human, financial, and social capital (the entrepreneurs use and perception of community links and resources) were collected in order to assess their effect on an entrepreneur in the business formation process. Results showed that business planning is crucial to the start-up process, thereby providing small business development practitioners improved information that may help them structure their assistance programs to best meet the needs of entrepreneurs. Small businesses often begin with significant capital from the owners resources, including cash grants and loans from family members, use of family assets as collateral, and unpaid or below-market labor contributed by family members. A new business does not usually generate sufficient revenue to support itself and because of lack of a track record, the business is not generally considered a good risk for credit or equity capital. Thus, the use of owner resources is not only common, but necessary. Our research shows that some of this use of owner resources continues well beyond the time when a business would be expected to begin using debt or equity capital to fund its continued growth. The risk to the owners family is high because the original owner resources are not being returned to the household coffers, and the household not only has lost part of all of its original investment, but it has also lost the opportunity to make a better return with some other investment instrument. Households are generally not protected by any type of paperwork (as commercial lenders would be), and they have little to no legal standing as creditors if the business fails. We have begun the process of educating our business school colleagues of the importance of considering household variables in addition to business variables as they study the use of financial bootstrapping strategies, especially the use of owner resources. We believe that seminars and other educational opportunities for future small business owners need to address risk of use of personal assets for small business startup. Current literature related to the entrepreneurship process is concerned with the attributes and/or conditions that make up an entrepreneur and the factors that determine his/her success or failure (Lichetenstein 1996, Lyons 2002, Reynolds et al. 2003). Reynolds et al. (2003) identified three stages in the entrepreneurial process with three transition points. The first transition point, conception, is the point at which an individual has decided to start a business. Conception leads to the second stage of the entrepreneurial process called gestation that consists of activities associated with the start-up effort, such as gaining capital, building social networks, or attending workshops. The transition point from gestation is known as firm birth and leads to the final stage of the processinfancy. During the infancy stage, the entrepreneur makes use of the resources gathered during the gestation stage to stabilize and grow the business in the context of its surroundings. The Survey of Consumer Finance study has raised an important issue. It appears that the risk premium paid to small businesses has been relatively stable to decreasing over the past decade. This result may partially explain why small business wealth growth has lagged behind household wealth growth over the past decade. Further work is being conducted to verify this statistical result. Quality Management. Authors investigated the contribution of quality management, inclusive of family/business interface management, to the success of 572 small private firms over time. The regression results were based on weighted data. NFBS weighted data yield samples that mimic the prevalence of firms throughout the U.S. without inflating degrees of freedom and biasing hypothesis testing. Gross revenue and congruity in 2000 were regressed on explanatory variables from 1997. A positive reputation with customers was the most important business goal for 44.6% of firms. Family/business interface and business management significantly explained business revenue and congruity between business and family while controlling for owner and business characteristics. Family/business interface management explained 9.7% of congruity variance and 8.2% of gross revenue variance while business management explained 3.3% of congruity variance and 2.2% of gross revenue variance. Firm Survival. Another study analyzed the effects of severity and frequency of risk exposure from natural disasters on family firm survival from 1997 to 2000. The sample was 553 owners of businesses in the 1997 NFBS for which the status was known in the 2000 NFBS. For this analysis data on natural disasters in the counties in which the businesses were located were merged with the NFB Panel data. Neither the number of natural disasters between 1997 and 2000 nor the damage caused by the disasters affected the survival of the family businesses. However, the economic vulnerability of rural counties did affect the probability of survival. Businesses located in economically vulnerable counties were more likely to survive the three year interval. Financial intermingling between the family and the business and family income derived from the business also were positively associated with business survival. Women in the Family Business. Women assume a variety of different role combinations for work inside and outside of the family business. There are several significant differences between the women in various statuses. For example, female business managers are less likely to be married than other women associated with a family business, and they tend to operate smaller businesses. Yet, the women with various roles do not have differing levels of family functionality. Thirty-four percent of the variance in family functionality was explained by the model including characteristics of the women and their families, the family/business interface and characteristics of the business. For all groups of women, family goal success, satisfaction with role in the business, and being married were significant predictors of family functionality. Higher levels of household tension about the business were negatively associated with family functionality. Copreneurs. Copreneurs are significantly more likely than other married couples with family businesses to use the adjustment strategies of reallocating family resources to the business, intertwining tasks, reallocating business resources to the family, and using volunteer help during hectic times in the family or the business. Additionally, over 80% of couples in business together were found to intermingle their business finances with the family finances. Most often family property or household income is used to finance the business or family members work without pay in the business. In the other direction, business property and other business assets are used to finance family needs. National Minority Family Business Survey. Preliminary data analyses were completed for a paper based on data from Baruch Colleges 2003 & 2005 National Minority Family Business Survey. The theoretical framework for this paper came from a previous study which was based on a sample of family business households from the National Family Business Survey. Preliminary findings indicate that: (1) regressions need to be run on separate, not a combined group (Chow Test, Critical F (8, 384 df): F.05=1.96; (2) predictors of family and business success differ between Korean and Mexican Americans; and (3) more work is needed to explain why family success ratings are higher for Mexican Americans, while business ratings are higher for Korean Americans. The same theoretical framework used to examine family and business success among a national sample of family business households in the U.S. is applicable to Mexican- and Korean-American populations. Preliminary results suggest that Beckers household production function theory is applicable. However, the factors that predict family and business success are different for Korean Americans and Mexican Americans. This finding points out the need for business development practitioners to tailor their outreach programs to their client groups. Further work is needed to explain why the Mexican American business managers had significantly higher scores for perceived family success, while the Korean American managers rated their business success significantly higher than did their Mexican American counterparts. The National Minority Business Owners Survey (Baruch College) was also employed to examine the intermingling among Mexican- and Korean- American family-owned business. Mexican-American businesses are more likely to intermingle resources than Korean-American businesses. Non-minority business managers were more likely than the Korean-American business managers and equally likely with the Mexican-American business managers to engage in any intermingling. In addition, this study suggests that Korean-American managers are less likely to intermingle financial resources than Mexican-American managers. Although similar factors contribute to intermingling, respondents living in rural areas and borrowers are more likely to intermingle financial resources for both ethnic groups. it appears intermingling behavior derived from the business culture may trump ethnic culture. The National Minority Business Owners Survey (Baruch College) was also employed to examine financial structure difference between Korean- and Mexican-American small businesses. This study suggests successful (or content) Mexican-American small business owners are less likely to utilize commercial banks, while more successful Korean-American small business owners are more likely to utilize commercial banks. Family businesses with relatively content families and businesses are less likely to face lending constraints than other family businesses. While new market opportunities provide scholars with interesting contexts to research, many minority entrepreneurship studies do not distinguish possible differences based on gender. Using the 2003 and 2005 National Minority Business Owners Surveys databases, a study discovered to what degree, if any, differences exist among the surveyed women, particularly when classified by ethnic identity or when compared to the surveyed men. Entrepreneurship is the process where an individual (or group of individuals) use organized efforts to pursue opportunities to create value and grow by fulfilling wants and needs through innovation and uniqueness, no matter what resources the individual [entrepreneur] it currently has (Coulter, 2003). Within entrepreneurship research, a small, but expanding, literature has developed in recent years related to the role and characteristics of women-owned and minority-owned businesses. This study may contribute to ongoing scholarly discussions on the traditional views of women entrepreneurship and minority ownership. Future work using the NMFBS. Using the 2003 & 2005 National Minority Business Owner Surveys, a study will investigate factors associated with the probability of having succession planning by minority-owned family business owners. The major purpose of the study is to profile minority-owned family businesses that have planned to operate their businesses until they retire and to transfer the ownership of the family business to their children or other family members. There were two objectives as the following: 1) To describe the characteristics of minority-owned family businesses that have planned to transfer the ownership of the family business to their children or other family members and those who have not. Characteristics include: financial, business manager, and business; 2) To establish if those characteristics differ when business owners have planned to transfer the ownership of the family business to their children or other family members. Another study will investigate resources and constraints for four ethnic family business groups (Korean-American, Mexican-American, African-American, and White-American). There are three objectives in this research. The first objective is to describe the characteristics of minority-owned family businesses that have had cash flow problems and those who do not have cash flow problems. Characteristics include: financial, business, Responses to disruption, and business manager characteristics. The second objective is to determine the differences in selected business system, family system, and resource intermingling characteristics between those family-owned businesses that have cash flow problems and those that do not have cash flow problems. The third objective is to test the influence of family system characteristics over business system characteristics and influence of resource intermingling over the combination of business and family system characteristics on cash flow problems. Due to the separate yet interdependent systems within family-owned businesses, it is critical to investigate cash flow problems in (a) the business, (b) the household, and (c) both the business and the household simultaneously. Also using the 2003 & 2005 National Minority Business Owner Surveys, a study is planned to investigate the influence of social networks on the debt structure for four ethnic family business groups (Korean-American, Mexican-American, African-American, and White-American). Debt-to-asset ratio, debt-to-income ratio, and debt-to-net worth ratio will be used to measures of debt structure in this research. As control variables, business characteristics will be used to predict debt structure of four ethnic family business groups. Tobacco Buy-out Legislation. The tobacco buyout legislation (November 2004) was designed to prevent (or at least decrease) the recent continuous decline in net income for U.S. tobacco growers. This decline has resulted in depressed economic conditions for tobacco farmers and their tobacco-dependent rural communities. It has been suggested that tobacco farmers in Kentucky may start new businesses as an alternative to tobacco production and that this will revitalize rural economies. In addition, Fritsch (2004) found that individuals who receive an inheritance are more likely to start new businesses. In effect, several thousand Kentucky farmers have received an inheritance in the form of buy-out checks. Our analysis showed that personal characteristics, such as age, gender and level of education have a statistically significant impact on the individuals decision to start new business. In addition, the expenditure decision seems to be affected by important recent events in life, such as major illnesses; by propensity to access diverse sources of information, i.e. custom to use the internet to accumulate the information necessary for the decision making; and by individual perception of the business climate in the community. Twenty-three percent of farmers indicated they had not decided how to spend the buyout check. This is consistent with a defensive avoidance bias. From a policy perspective a possible presence of a defensive avoidance bias implies that farmers are likely to go through a period of adjustment before they switch from passive expenditure choices to new more active choices such as diversification or new business activities; moreover, since this bias seems to affect women more than men, women might need more assistance during the transition period.

Publications and presentations are provided in the attached link.