The entrepreneurial continuum: a new prescription for future studies.

Jackson, William T. ; Vaughan, Mary Jo

ABSTRACT

In this paper, we present an extension of several studies that have attempted to provide definitions of types of small businesses (Jackson, Watts & Wright, 1993; Carland & Carland, 1982 and 1997; Jackson & Gaulden, 2001; and Carland, Carland & Ensley, 2001). While each of these previous studies had the purpose of improving entrepreneurial research, each left gaps that would continue to create future research dilemmas. This extension suggests that there are four broad categories of small business owners--each of which exists along a continuum from differentiation to low-cost. The purpose of the categorical perspective is not to explore the characteristics of the entrepreneur, but rather to suggest a framework for study. While the model highlights small business strategies as the arguments of study, it does so with the belief that strategy selection will be driven by a personal focus of the individual. Specifically, the small business owner will have either an entrepreneurial differentiation focus, a mixed entrepreneurial focus (either differentiation/low-cost or low-cost/differentiation), or a low-cost entrepreneurial focus. This focus will drive their strategy choice.

INTRODUCTION

Attempts to differentiate entrepreneurs from small business owners or to categorize business owners in any fashion present an incomplete picture of the entrepreneur. A full portrait must recognize that entrepreneurship is a continuum and new words may be required to help researchers differentiate individuals under study along that continuum (Carland, Carland & Ensley, 2001, p. 52).

In spite of the effort of numerous researchers in the field of entrepreneurship there remains an absence of a consensus of what the term means. In fact, the state of thinking on the entrepreneur, in general, remains "up-in-the-air". No theoretical consensus has been developed. We all say we will know one when we see it. We know, in fact, that we have seen them. But, the eyewitness accounts vary significantly dependent largely on the point of view of the observer. This lack of a universally agreed upon definition and subsequent framework of study has gained considerable attention since the early 80s (Carland, Hoy, Boulton & Carland, 1984; Wortman, 1987; MacMillan & Katz, 1992; Herron, 1992; Jackson, Gaulden & Gaster, 2001; and Carland, Carland & Ensley, 2001).

Even a limited review of the literature over the past thirty years will reveal that part of the problem lies in operationalizing "Entrepreneurship" consistently across individuals. This remains bitterly obvious from a review of special entrepreneurial issues in Journal of Management, Entrepreneurship T&P, and Strategic Management Journal. A deeper problem, however, exists in entrepreneurship data in general. A number of empirical studies and analytical models contribute to understanding the elements of entrepreneurship. For the most part, however, the extant research lacks empirical specifications for the full spectrum of this phenomenon. This prior research has another common attribute: the studies all lack evidence of the factors that drive entrepreneurial activity across all types of small businesses.

In a recent article, Carland, Carland and Ensley (2001) attacked the persistent problem of unfocused research in the field of entrepreneurship. As many have stated before them, inconsistencies in measures still represents one of the greatest limitations of the field (Herron, 1992; MacMillan & Katz, 1992; Sandberg, 1986; Gartner, 1988). The Carland study provided promising possibilities for addressing this dilemma. These authors offered a viable solution to "explain differences in the entrepreneurial behavior of individuals" (p. 51). The research model advocated by the authors included a multiple scale approach to the enigma of entrepreneurial drive. These scales included the Carland Entrepreneurial Index (CEI) (Carland, Carland & Hoy, 1992), the Myers Briggs Type Indicator (Myers & Briggs, 1962; and Myers & McCaulley, 1985), the Jackson Personality Inventory and the Jackson Research Form (Jackson, 1974; Jackson, 1976). Each of these scales had previously received considerable testing as independent measures of entrepreneurial activity, but only limited exposure with multiple scale analysis (Carland et. al., 2001).

Carland, Carland and Ensley (2001) suggest testing of multiple scales had isolated entrepreneurial activity to a continuum of motivational drives. This idea of a continuum of entrepreneurship is not new. The idea was originally raised by Carland (1982). This position, unfortunately, runs counter to much of the research being done in the field where entrepreneurship was seen to exist as a discontinuous phenomenon (Dunkleberg & Cooper, 1982; and Vesper, 1980). Others agreed with a continuum if enough data points could be identified (Wright, 1987).

While assuming a priori that entrepreneurial activity (and therefore entrepreneurship) exists on a continuum, this study will attempt to fine-tune existing thought of this continuum through the introduction of a potential framework of entrepreneurial study. Considerable progress in moving toward a research model was made by Carland, Carland and Ensley (2001), but, as those researchers readily admitted, the "individuals near the midpoint of the continuum may be the hardest to describe of all entrepreneurs" (p. 52). With this in mind, at the heart of our model will be refinement of this mid-point entrepreneurial group. To accomplish this, the authors will draw direct relationships between strategies available to small business owners; personal motivations or focus of small business owners toward action; and demonstration of how the franchising system can serve as a rich source of research data to isolate entrepreneurial activity and individual characteristics.

PRIOR RESEARCH--LACK OF CONSENSUS

Considerable attention has been given to the search for the "entrepreneur" since Peter Kilby (1971) related the quest to that of hunting the heffalump. Most would contend that we are no closer now than we were more than 30 years ago and that Kilby's analogy still rings true:

 He has been hunted by many individuals using various ingenious
 trapping devices, but no one so far has succeeded in capturing him.
 All who claim to have caught sight of him report that he is
 enormous, but they disagree on his particularities. Not having
 explored his current habitat with sufficient care, some hunters have
 used as bait their own favorite dishes and have then tried to
 persuade people that what they caught was a Heffalump. However,
 very few are convinced, and the search goes on.
 (p.1)

It is indeed appropriate to review some of those "ingenious trapping devices" to provide a better understanding of why none have been successful.

There are several characteristics of the entrepreneur that have received a disproportionate amount of attention in past research. Several of these aspects of the "E" (although not totally accepted in all circles of academia) have significant implications for this paper. Characteristics that have been supported in prior research include: innovation, risk taking, need for achievement, educational levels, succession, "serial" entrepreneurs, and motivational drive. In addition, small business strategies, franchising, fragmented industries and firm life cycle play a part in the creation of the proposed model. It is not, however, the purpose of this paper to re-visit all of the debate of entrepreneurial research (for a thorough overview see Carland, Carland & Ensley, 2001). Instead, a brief discussion of a few of the major components is provided.

SMALL BUSINESS STRATEGIES

The first step in providing a framework for small business strategy analysis is to establish those strategic groups that follow similar strategies in administering their businesses. Even though numerous studies have attempted to specify categories of small business operations (see Hornaday, 1990 or Carland, Hoy, Boulton, & Carland, 1984 for a more complete listing), most have been criticized for either pursuing only two types instead of three, or for dealing exclusively with individual traits (Hornaday, 1990). This study will use as its foundation the well-accepted typology made famous by Michael Porter (1980).

In his typology, Porter established generic strategies available to small firms by addressing the options available in fragmented industries. According to Porter, fragmented industries are those "in which no firm has a significant market share and can strongly influence the industry outcome" (p. 191) and "the competitive structure ... requires focus or specialization" (p. 211). Because small business firms do not have the ability to compete industry-wide, they are obligated to compete with this "focus" strategy in fragmented industries (Wright, 1987). To take Porter's logic one step further, small firms could either compete by pursuing a low cost focus strategy--"bare-bones/no frills"--or by differentiation focus--"specialization"--by increasing value, product type, customer type, or geographic area. These small firms should not, according to Porter, combine strategies or they would become "stuck in the middle."

While Porter's initial description does provide some explanation of possible small business strategies, it still does not remove the confusion that surrounds these choices. It was probably additional comments Porter made that actually (but, maybe unbeknown to him) best articulated one of the small business choices. Porter suggested that there were only two means of pursuing the low-cost focus strategy. First, the firm pursuing this strategy would enter the market with the lowest possible initial investment. Second, that firm would have to keep operating costs as low as possible.

Consider the firms that enter the market with the lowest possible initial investment. Many researchers have proposed that the single main reason for small business failure is undercapitalization. The majority of these firms are entering undercapitalized because of the difficulty of new start-ups in getting initial commercial financing. Most funding is provided by personal funds, credit cards, relatives, or the use of personal assets as collateral. When any of these means are used the borrower is likely to opt for the minimum to enter rather than an appropriate amount.

In addition, these firms are most likely to have an owner/manager at the helm. This owner will typically wear all of the "hats" within the firm--the accountant, the marketer, the human resource director, the operations chief to name a few. This owner will also be putting in excessive hours of work as well as using family members as a labor pool. This same owner is likely to have chosen a less than ideal location and purchased used and maybe close to obsolete equipment. All of these activities were selected not because they were the optimum choice, but rather to keep operating costs as low as possible.

PREVIOUS RESEARCH OF SMALL BUSINESS TYPOLOGY

As mentioned previously, the proposed typology for small business is an extension of several earlier studies (Jackson et al, 1993; Carland & Carland, 1997; Carland, Carland & Ensley, 2001; and Jackson & Gaulden, 2001). An overview of these studies will provide the rationale for this typology.

Jackson et al (1993) proposed three types of small business firms--marginal small businesses, successful small businesses, and entrepreneurial small businesses (see Figure 1). These authors also suggested two other pertinent issues for this current study. The authors defined three types of strategies that could be pursued by small businesses: marginal firms pursued a low-cost focus strategy; successful small businesses chose a combination focus strategy; and, the entrepreneurial firm pursued a differentiation focus strategy. It was also proposed that franchising activity occurred only at the successful and marginal firm level. These three types of small businesses were described by Jackson et al as follows:

[FIGURE 1 OMITTED]

Marginal Firms

Marginal firms enter the market with limited resources, and because of these low start-up costs, evaluation of risk using traditional measurement may be conflicting. In one respect, there is little to lose since little was invested. However, since (1) funds used to start the business likely represent life savings or loans from friends or relatives; and, (2) limited options for employment exist if the business fails, the marginal firm owner will have high financial and psychological risk.

Identification of their place within the franchising system is easy to pinpoint. Because of the low initial capital available, firms in this group will be forced to pursue franchise ventures that provide very limited potential. These opportunities will usually be for less expensive choices.

These firms will also choose industries that are late in their life cycles. The reason behind this is very simple--usually these are going to be the least expensive and require less skill.

Successful Small Businesses

Because this group is concerned with consistent and continuous returns of their investments, the successful small business owner will shun high risk ventures. This would appear to be logical--risk suggests variability. However, because this group has a better chance of commercial financing and they are better prepared ability wise to pursue other avenues of employment, risk is typically lower.

In the franchise system they will usually pursue higher cost (thus higher potential returns) ventures. Many of these will draw upon these individuals' pre-existing expertise.

Entrepreneurial Firms

In relation to risk, this group will demonstrate little difference from successful small businesses. Initial investments would often be as large or larger for this group, but also composed of funds from outside sources (commercial lenders as well as venture capitalists). Psychological risks might also be smaller since this group should be composed of owners with marketable skills.

Entrepreneurial firms will have a propensity to pursue innovation and elect often to enter an emerging industry. This group will also by the nature of the venture be less concerned about costs. See Figure 1 for a graphic representation of this relationship.

In the Carland and Carland (1997) paper, three distinct definitions for entrepreneurship were provided in terms of "dreams" and what motivates an individual small business owner (See Figure 2). Table 1 sums up the findings of their study.

[FIGURE 2 OMITTED]

Jackson and Gaulden (2001) highlight the importance of the life cycle when considering a merging of these two typologies. The marginal firm (microentrepreneur) will be found most commonly at the late maturity or decline phase of the life cycle. The successful small business will be found at the late growth or maturity phase of the life cycle. Finally, the entrepreneur (macroentrepreneur) will be that individual firm found at the introduction phase of the life cycle (Figure 3).

[FIGURE 3 OMITTED]

SERIAL ENTREPRENEURS

While considerable research has been focused on the individual entrepreneur, little attention has been applied to the "multiple" entrepreneur. In one of the first studies of this special individual, Carland, Carland and Stewart (2000) concluded that "...serial entrepreneurs appear to embody an entrepreneurial drive and tenacity that holds promise for a major contribution to a theory of the entrepreneur" (p. 2).

The results of the Carland et al (2000) study support many of the concepts held on "entrepreneurs":

 Overall, we believe that the results of this study support a belief
 that serial entrepreneurs may be characterized by greater
 preferences for innovation, higher levels of risk-taking propensity
 than are [single venture] entrepreneurs. (P. 15)

Their study clearly provides a reasonable explanation of much of the inconsistencies readers have found with entrepreneurship research in general--not attempting to separate the study sample based upon the nature of the ventures.

Franchising, that is the franchise system in total, provides a rich source of possibilities for researchers to avoid this pitfall. In short, the franchise system has the original founder (the franchisor), those individuals that have pursued a single franchise venture at either the high-end or the low-end level (the franchisee), and that individual that has engaged in multiple franchises (the serial franchisee).

It has been only in the last few years that we are seeing a greater focus on this last group--the serial franchisee. As Kaufman (1996) suggests, "... the metaphor used by most franchising researchers ... has been the single-unit franchisee. It takes little by way of casual empirical observation to belie that assumption. Single-unit franchisees are the exception, not the rule" (p. 5). This is clearly supported by data from the International Franchise Association (IFA) which holds that about 80% of franchisees are single-unit franchisees but that they operate less than half of franchised units (Justis & Judd, 2003).

PROPOSED MODEL FOR ENTREPRENEURIAL STUDY

Careful reflection on the previously discussed typologies indicates a partial classification of possible entrepreneurial types. It is obvious that what drives an individual to open multiple ventures (Carland, Carland & Stewart, 2000) is different than a single attempt at venturing when we look at the franchising system. It is just as transparent (especially when reflecting on prior research) that no three or even four points can capture the complex nature of entrepreneurship. This second concept seems to represent the same type of dilemma encountered when classifying firms by business unit level strategies (Wright, 1987).

It is proposed first that entrepreneurship exists on a continuum--each entrepreneur is unique in his/her own right (Carland & Carland, 1982; Carland, Carland & Ensley, 2001). The same conclusion can also be drawn regarding business unit level strategies. However, if, as researchers, we use this excuse to avoid the study of the entrepreneur, we will find ourselves again focused on the "dance and not the dancers" (Carland, Carland & Ensley, 2001).

In an attempt to continue the quest for the "Heffalump" (Jackson, Gaulden & Gaster, 2001; and, Carland et al, 2001), a framework of small business types is proposed. As was the case for studying business unit level strategies, to understand strategy in general, ends of the continuum must be explored. This will be the beginning point for explanation of the proposed model (See Figure 4).

[FIGURE 4 OMITTED]

As can be gleaned from Figure 4 and Figure 5, three main areas of strategic choice are available for the entrepreneur who is operating in a fragmented industry. These choices extend Porter's (1980) contention that firms in fragmented industries compete with a focus strategy, either low cost or differentiation, by including a mixed entrepreneurial focus.

[FIGURE 5 OMITTED]

Low-Cost Entrepreneurial Focus

The small business owner might elect (usually out of necessity) to pursue a low-cost focus strategy. In most cases, this decision is caused by several possible reasons: the owner has limited capital; the owner has limited skills or employment choices; or the owner is in the business due to succession. In all of these cases, the internal drive of the owner is moderated by the marginal possibilities that exist using this strategy, as well as, possibly the lack of managerial/educational experience. It could be that this group is most responsible for the high percentage of business failures that are often reported in the small business literature.

When electing (or being forced to choose) this strategy, the entrepreneur is almost always an owner/manager. As described under "marginal firm" previously, this individual may have growth drive but is limited by the constraints of capital and the marginal opportunities of the industry they have selected.

Differentiation Entrepreneurial Focus

The entrepreneur that has a drive for discontinuous growth as well as the desire for creativity will select a differentiation entrepreneurial focus. The choice is more elective than with low-cost. This individual as described in Jackson et al (1993) has many more options as well as the freedom to express his/her creativity. These individuals are typically responsible for new ideas, products, or delivery systems.

Mixed Entrepreneurial Focus

The final group and the true major addition to existing frameworks is the clarification of the "mid-point" area of entrepreneurial activity. As acknowledged by Carland, Carland and Stewart (2001), "individuals near the midpoint of the continuum, may be the hardest to describe of all entrepreneurs" (p. 52). This mixed entrepreneurial focus completes the continuum. Two choices, impacted by differing drives, can be found within this group--the differentiation/low-cost entrepreneurial focus and the low-cost/differentiation entrepreneurial focus. The characteristics of these two groups will lean toward the dominant end of the continuum for that group--differentiation/ low-cost toward differentiation, low-cost/differentiation toward low-cost. The personal drive of this individual will also align with the dominant ends of the continuum.

A major avenue for expression of his/her entrepreneurial spirit, the differentiation/low-cost entrepreneur will be more interested in multiple ventures--a serial entrepreneur. The low-cost/differentiation entrepreneur will typically be content with a single venture and the consistency of returns this approach will afford--a non-serial entrepreneur.

In summary, the low-cost entrepreneurial focus is on maintenance of existence; while the differentiation entrepreneurial focus is concerned with discontinuous growth, innovation and the discovery of voids in the market. The mixed entrepreneurial focus is represented by two groups on this continuum--differentiation/low-cost and low-cost/differentiation entrepreneurial focus. The first more attuned to characteristics of the traditional entrepreneur and the latter toward consistency of high returns.

A RESEARCH PLATFORM--THE FRANCHISING SYSTEM

Identifying the possible types of entrepreneurs sets the stage for the final purpose of this paper--specifying a research framework that will allow for consistent testing of research hypotheses. As many researchers have reported, the approach to past research has lacked the consistency to generalize results (Herron, 1992; MacMillan & Katz, 1992; Gartner, 1988; and Carland, Carland & Ensley, 2001 to name only a few).

The platform for future testing recommended using established instruments such as the Carland Entrepreneurial Index, the Myers Briggs Type Indicator, and the Jackson Personality Inventory (Carland et al, 2001) is the franchising system. This economic system includes all of the types of entrepreneurs described above while at the same time allowing clear stratification of the types.

Franchising is one of the largest and constantly growing segments of the U.S. as well as world economies. In the United States there are currently around 700,000 franchised businesses with another approximately 150,000 more overseas bearing a U.S. logo. These firms generate in the neighborhood of $1 trillion dollars in retail sales or approximately 17 percent of Gross Domestic Product (Justis & Judd, 2003).

While some of these sales can obviously be contributed to "company-owned" operations, the vast majority is provided by small, privately owned operations. Considering the shear magnitude of these figures, it is surprising that minimal attention has been given to "who" are these owners, and how do they conduct business (Combs & Ketchen, 2003). Key facts from The Profile of Franchising, Volume III and Entrepreneur Magazine about the American franchise industry indicate the following general characteristics:

* The fast-food industry represents the largest group within the franchising system--27%

* About 75% of the franchise population have 10 or fewer company-owned units

* 88% of franchises charge an initial franchise fee of $40,000 or less

* Bakeries, fast-food, restaurants and retail food comprise 34% of the franchise population

* Around 38% of all franchisors have been in business for less than 12 years

* Five of the top ten franchise systems for 2003 are in retail fast-food. One is a retail/health service; one is a convenience outlet; one is a retail service; one is a motel chain; and one is a business and tax service.

(Source: Justis and Judd, 2003)

As these facts demonstrate, the franchise system is typically focused on firms in fragmented industries--industries whether franchised or independent where the vast majority of participants are classified as small businesses. Based upon this fact, the franchising industry represents a rich source of data to explore small businesses and those that own/operate individual units. Or stated succinctly by Knott (2003):

 "What is particularly nice about franchises is that the
 establishments are the simplest form of organization. There is a
 single actor with perfect incentives (the owner-manager). Thus the
 context is stripped of the complexities of hierarchy and separated
 ownership and control" (p. 929).

In addition, if one considers the fact that most franchising operations have evolved since the 1950s, the ability to isolate activity is concentrated. And, that the current trend in franchising allows for multi-unit, mini-chains ownership by single individuals (Bodipo-Memba & Lee, 1997; and, Kaufman, 1992) then the full spectrum of possible owners can be identified.

Comparison of Figure 5 and Figure 6 yields the following classification of entrepreneurial types within the franchise system.

[FIGURE 6 OMITTED]

The differentiation entrepreneurial focus will occur with the individual that first develops the franchisable concept. This individual has a dream that involves taking an idea and growing it to an epic scale. If unsuccessful with one concept, these individuals are likely to pursue other novel ideas whether they lead to a franchise or a single venture. They, like Ray Kroc, may very well sell their interest in an initial franchise (even at the height of its success) and begin development of an entirely new concept.

The low-cost entrepreneurial focus includes those individuals that have purchased lower-end franchises that allow for marginal returns at best. These franchises would probably include ventures such as cleaning services, lawn services, carpet cleaning, or supplemental add-on services that can be housed within an existing small business. These individuals will typically purchase only one such operation. Earnings have the potential to provide minimal income levels or help augment an existing salary for the owner/manager. The ventures usually can be characterized as requiring minimal skills or educational levels.

The mid-point group, the mixed entrepreneurial focus is represented by two possible groups. The first, differentiation/low-cost entrepreneurial focus will have an orientation toward the characteristics of both differentiation and low-cost with the dominant focus being differentiation. This group will pursue the higher-end franchise opportunities (i.e. hotels, fast-food, restaurants, gas stations etc.) and will likely be multi-unit owners (serial entrepreneurs) either in a single franchise system or with multiple franchise systems. This group will be concerned with growth through their multi-unit purchases and may be interested in affecting some influence in the franchise system they are engaged with.

The second member of the mixed entrepreneurial focus will be the low-cost/differentiation individual with a leaning toward the low-cost end of the continuum. Because this group will be interested in consistent returns, they are likely to pursue high-end franchise offerings but will usually be content with a single venture. The owner will usually be the manager of the venture.

CONCLUSION AND DISCUSSION

There have been numerous recent inquiries into the phenomenon of entrepreneurship. Unfortunately, most (while touting its importance) have ignored the cognitive nature of the individual (Keh, Foo & Lim, 2002), or the possibility of "dynamic capabilities" (Winter, 2003). Clearly, those that called for the focus of research to be on venture creation and not the individual should be pleased with recent research (Wortman, 1987; Gartner, 1988; Brush, Duhaime, Gartner, Stewart, Katz, Hitt, Alvarez, Meyer & Venkataraman, 2003). Is it important to consider family business? (Chua, Chrisman & Steiner, 2003), or early retirees? (Singh & DeNoble, 2003), or the differences in venture creation decision contexts? (Simon & Houghton, 2002). The answer is yes. But, to what detriment? With an integrated research model addressing both entrepreneurial drive and strategic orientation, we might be able to do both.

The purpose of this paper was not to rehash the old argument of whether all small business owners were entrepreneurs (Gartner, 1988; Carland, Hoy, Boulton & Carland, 1984). Rather, it is to provide a workable framework to advance the recommendation for consistency in research put forth by Carland, Carland & Ensley (2001). As those authors suggested, additional clarification of those entrepreneurs found in the midpoint of entrepreneurs needed to be provided. The framework put forth in this paper does just that--the serial versus non-serial mixed entrepreneurial focus. This extension thus identifies four distinct entrepreneurial types that fall on the continuum. Each of the four entrepreneurial types can be isolated for testing, thus greatly increasing the generalizability of research data. The franchising system provides such a research platform.

While the framework proposed in this paper does focus on small business strategies, it incorporates the concept that individual drive and personality are at the core of entrepreneurial decision making. As such, it provides an effective means of identifying the dancer and the dance floor.

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William T. Jackson, Dalton State College Mary Jo Vaughan, Dalton State College

Table 1: Entrepreneurial Dreams as a Paradigm

Classification Dreams Behavior

 Dreams of
Macroentrepreneur Revolutionary Innovative
 Change

 Dreams of personal
Entrepreneur success, wealth and Ingenious
 accolades

 Dreams of personal
Microentrepreneur freedom Traditional

Classification Outcomes Consistency

 New markets, Never stops
Macroentrepreneur Services, products and Striving for
 industries Dominance

 Enhanced markets, Shifts interest at
Entrepreneur services, products and perceived success level
 industries

 Small, stable, slowly Shifts interest at
Microentrepreneur changing family perceived comfort level
 businesses

Source: Carland and Carland, 1997