Does firm origin matter? An empirical examination of types of small business owners and entrepreneurs.

Rogoff, Edward G. ; Lee, Myung-Soo

INTRODUCTION

Since the earliest writings about entrepreneurship, there has been little agreement on a definition. In certain respects, there is considerable overlap between entrepreneurship and small business, if not, indeed business of all sizes. Entrepreneurship is not limited to firms of a certain size, or to certain industries, or only to some cultures. Entrepreneurial activity is carried out by people of both sexes, of all ages, and of all backgrounds. In some ways, entrepreneurship has baffled researchers in social sciences the way subatomic particles have baffled physicists. Its impact is observed, but the thing itself seems ephemeral and invisible.

Like physicists seeing the marks left on the screen of an electron microscope by the mysterious subjects of their inquiry, entrepreneurship researchers have examined the economic activity that results from entrepreneurship: the new enterprises and jobs that are created, the new products invented, and the new services that are offered. But when it comes to specifying what it is that creates these phenomenon, there is little agreement. The question of what the definition of entrepreneurship is has been central in both theory building and empirical work. A good definition will put boundaries around entrepreneurship and separate it from all other types of business activity.

Richard Cantillon, the 18th century businessman and economist, described entrepreneurs as traders who risked their own capital. For Cantillon, (Spiegel, 1983 and Barreto, 1989) the central component of the definition of entrepreneurship revolved around the concept of risk taking, which was rarely encountered by the independently wealthy land owning class or the salaried worker. Later research carried out by McClelland (1965), McClelland and Winter (1969), and Timmons (1986), concluded that, to a moderate extent, entrepreneurs are risk takers. Other research, such as Brockhaus (1992), concluded that entrepreneurs are not risk takers.

Jean-Baptiste Say, a French textile manufacturer and economist, wrote that the human contribution to economic growth came in three types: scientists, workers, and entrepreneurs (Scott, 1933, p.4). The entrepreneur's role was to coordinate the other elements of production such as capital, labor, and land, produce products, estimate demand, and market the product.

Perhaps the most influential conception of the entrepreneur belongs to Joseph Schumpeter (1947), who wrote that entrepreneurs have a desire to "found a private kingdom, drive to overcome obstacles, a joy in creating, and satisfaction in exercising one's ingenuity." Schumpeter saw the entrepreneur playing a key role in the economic world. Improved products and more efficient processes of production were developed by the entrepreneur, leading to a stronger, more efficient economy, albeit at the expense of the older, less efficient producers. Schumpeter termed this the process of "creative destruction." Thus, for Schumpeter, the key central concept of entrepreneurship is innovation in the broadest sense of the word, leading to increased economic efficiency and well-being.

Wilken (1979) saw a continuum of innovation when he examined entrepreneurs. Some entrepreneurs, he argued, will initiate a new venture, while others, on the opposite end of the continuum, will only make minor changes to an existing one. Khan and Manopichetwattana (1989) developed a model for distinguishing between innovative and non-innovative firms. Smith and Miner (1983) showed the distinctions between "craftsmen" and "opportunistic" entrepreneurs based upon a sample of 38 business owners. Gartner, et al. (1989), as is discussed in more detail below, posited eight types of entrepreneurs based upon factor analysis of characteristics of a sample of 106 entrepreneurs which revealed different strategic orientations. Archer (1991) saw three groups of entrepreneurs: an elite, general merchants; and petty merchants. She made this distinction based upon a study of 19th century Detroit. Light and Rosenstein (1995) reject these distinctions and argue for a broad inclusion of the self-employed and business owners, including those working part-time, under the rubric of entrepreneurship. "Existing entrepreneurship theory is elitist" they concluded (Light and Rosenstein, 1995, 2).

Gartner (1989) argued similarly that the central fact of entrepreneurship is organizational creation. Accordingly, he proposed that research in the field of entrepreneurship focus on the process of new venture creation and the role entrepreneurs have at that birth. Low and MacMillan (1988) similarly defined entrepreneurship as "the creation of new enterprise." They conclude "... entrepreneurs tend to defy aggregation. They tend to reside in the tails of population distributions, and though they may be expected to differ from the mean, the nature of these differences is not predictable. It seems that any attempt to profile the typical entrepreneur is inherently futile." Cunningham and Lischeron (1991) point out that any definition focusing on business creation excludes those who inherit or purchase a business.

Clearly, many entrepreneurs are not as interested in the creation of new enterprises as they are in operating or improving existing businesses. Some are interested in creating profit through various means of financial engineering, such as restructuring the balance sheet of a business by means of a public offering. Thus, creation of a new enterprise may be too restrictive a definition to capture the broad array of entrepreneurial activity. Light and Rosenstein (1995, 3) agree, stating, "we deem it useless to distinguish entrepreneurs from the self-employed on the ground that only entrepreneurs innovate."

Carland, et al. (1984) propose a distinction between small business owners and entrepreneurs. For these authors, the distinction rests with the emphasis on an entrepreneur's focus on innovation along with goals of growth and profit, whereas the small business owner has less emphasis on innovation and sees the business as an extension of his or her personal goals.

Despite the extensive research efforts to define and delineate entrepreneurship, there has not been a study which explores and explains entrepreneurial activities based on firm origin. Thus, it is the purpose of this paper to explore the issue of firm origin and examine its impact through a survey of a diverse group of small business owners.

THEORETICAL ISSUES

There exists a market for small business ownership. Smelser (1976, 126) says "Like all markets, the market for entrepreneurial services has a demand and supply side." The supply side, in the formulation offered here, is made up of opportunities that include businesses which are available for purchase, franchises, family businesses available for children of owners to grow into, and ideas waiting to be tested in the real world. The demand side is comprised of current and aspiring business owners who are interested in ownership of some form. Light and Rosenstein (1995, 12-25) also propose a supply and demand model. They see supply as the people and the human resource characteristics of the workforce such as ethnicity, sex, age, and education. They formulate the demand side as the financial differential between what entrepreneurs earn and salary employment.

In the model implicit in this study, the supply side made up of ownership opportunities can be described as having numerous characteristics including price, whether the businesses are franchises or independent, what industries the businesses are in, whether financing is available, and the size of each enterprise. The supply side is influenced by factors such as technology, which may give an advantage to businesses of certain size or management; the economy, which affects the demand for the product or service of each business and influences interest rates and other financing terms; and tax laws, which have an impact on the decision to sell a business by its current owner and the price a future owner is willing to pay.

The demand side is comprised of the people who want to buy or start businesses and become owners. The demand side is affected by factors such as the unemployment rate and current employment opportunities as measured by wages, benefits, and other characteristics such as flexible time that potential entrepreneurs may value, as well as the ethnic and educational backgrounds and the values of aspiring entrepreneurs. In the traditional economic model of entrepreneurship, the characteristics such as age and education of the potential entrepreneurs are on the supply side. In this model, where the commodity is business ownership, characteristics such as age and education are on the demand side.

The interaction of supply and demand ultimately determines the types of small businesses and the characteristics of entrepreneurial activity that one observes. The size characteristics, industry focus, types of technology used, and profitability of the businesses that are created and operated under this rubric of entrepreneurship, are all products of this interaction of supply and demand.

Therefore, based on this market type of interaction, different types of entrepreneurship and small business ownership will be observed. For example, as computer and communications technology have changed, more home-based businesses have developed. As immigration by groups predisposed to entrepreneurship increases, franchise opportunities increase to meet their preference for businesses which have already been designed. Thus, the types of small business and entrepreneurial ventures that are observed are products of this supply and demand process and will change over time.

Dramatic evidence of this is provided by reading the work of early students of entrepreneurship. In the 1730's Cantillon defined entrepreneurs as traders, taking the risk of purchasing at a fixed price and gambling on selling at a higher, but uncertain price. Say, writing in the 1820's, believed that land or other natural elements were one of the essential ingredients of entrepreneurship, along with capital and human effort. Schumpeter, writing during the Great Depression, saw entrepreneurs as essential to his process of creative destruction: the tearing down of old methods and products and replacing them with better methods and products.

Other examples exist, but the point is that entrepreneurship has been defined in different ways at different times. As the manifestation of this interaction between supply and demand, entrepreneurship has been and remains a moving target, affected by the supply of opportunities and the demand created by the aspiring entrepreneurs.

This paper explores the nexus between this supply and demand that takes place when an entrepreneur makes the decision to enter the realm of ownership. At that time, the entrepreneur's preferences combine with options available to produce a course of action. For this reason, it may be critical to examine the conditions prevailing at the origin of the venture.

DEVELOPING TYPES OF ENTREPRENEURS BASED ON EXISTING TYPOLOGIES

Vesper (1980) offers a comprehensive list of potential entry strategies for ventures. He states that the selection of the entry strategy has broad implications for future success of the venture, and he provides an eleven category typology for entrepreneurial strategies. These are (1) solo self-employed individuals, (2) team builders, (3) independent innovators, (4) pattern replicators, (5) economy of scale exploiters, (6) capital aggregators, (7) acquirers, (8) buy-sell artists, (9) conglomerators, (10) speculators, and (11) apparent value manipulators.

Shuman et al. (1982) propose a ten group typology: (1) Independent, started venture from scratch, (2) Acquirer, (3) Successor in family business, (4) Successor in non-family business, (5) Franchiser, (6) Franchisee, (7) Corporate entrepreneur, (8) Non-profit entrepreneur, (9) Self-employed, and (10) Other. Their typology, while broadly inclusive, has categories which are not mutually exclusive.

Gartner et al. (1989) performed an analysis of a sample of entrepreneurs based on their individual characteristics, the strategies they followed, the structures and processes they used, and the environments in which their organizations functioned. A factor analysis of these variables yielded eight types: 1) Those who are using entrepreneurship to escape to something new, 2) Those who put deals together, 3) Those who apply skills and contacts they have previously developed, 4) Those who purchase firms, 5) Those who use their expertise to compete, 6) Those who stress service as a competitive strategy, 7) Those who have a unique, new idea, 8) Those who adapt an existing strategy but do it somewhat better.

Analysis of these different approaches led to a conceptualization of three distinct types of entrepreneurs:

1. Creators. Creators are defined as those who have initiated a new venture with the dream of a creating a new product or service.

2. Inheritors. This group includes those who have inherited a business from a family member or who were brought into a business through a family connection.

3. Operators. Operators are those who purchase a business or a franchise. They are motivated by financial goals, lack of options, or a desire to buy an existing business or to franchise a proven formula as a way to minimize risk.

It is the aim of this research to conceptualize these three types based on the origin of the firm and to investigate the effects of these origin differences on the business operation over its lifetime. Parallels and differences between the existing typologies and the types examined here are summarized and compared in Table 1. In this study, respondents were asked to pick from a list of seven statements which best described their path into business ownership or, if none of the seven applied to them, to briefly write out their scenario for business initiation. The statements were developed based on focus group interviews and pretests of the survey instrument. The statements were not designed to be mutually exclusive, but to represent the scenario including career issues and personal motivation that most accurately described the respondents' path into business ownership. All the respondents fit one of the seven statements. The seven statements were used to capture as much variation as possible regarding the conditions prevailing at the time of venture formation, with the goal of aggregrating categories to produce the following three types of entrepreneurs.

Table 2 shows the seven choices that respondents were offered regarding the conditions and their goals at the time they initiated their ventures and how these seven statements were aggregated to create three categories. Option 1 is the Creators, who comprise 54% of the sample. Options 2 and 3 are Inheritors, who comprise 9% of the sample. Options 4 through 7 are Operators who comprise 36% of the sample. All responses to the Other category could be easily recoded within the three categories.

HYPOTHESES

Table 3 shows the various hypotheses regarding how the three groups are expected to differ from each other on goals and attitudes. Creators, driven by the vision of a new product or service, are hypothesized to be oriented strongly toward creating a new product or service, utilizing their skills, and contributing to society. Creators are also expected to view themselves as true entrepreneurs and to be highly satisfied with their business. They are not expected to be motivated by financial rewards; nor are they expected to view their activity as highly risky because of their belief in their vision.

Inheritors, who have not initiated the business they now own, are expected to score lower than the other groups relative to the goals of new business and new product creation. They are also expected to be less growth oriented and less committed to contributing to society. On all other measures they are expected to be in the middle ranges.

Operators are expected to be motivated by financial rewards and the creation or purchase of the new business that will help them achieve that goal. Their knowledge scores are expected to be high because they are fundamentally business oriented. They are expected to he highly growth oriented, satisfied with their businesses, and to view themselves as true entrepreneurs. They are not expected to be oriented to contributing to society or creating a new product as a primary goal.

METHODOLOGY

In an attempt to establish the types of small business owners and entrepreneurs based on the three types discussed above, 231 small business owners were questioned about the path they followed into business ownership, goals that motivated them at the time of the initiation of their venture, current goals, various demographic factors, and facts about their businesses.

They were also given a nineteen question test of their business knowledge, asked to subjectively judge their own levels of business knowledge, and to report their level of formal education. Education has been shown to be a potent positive influence on entrepreneurship. Light and Rosenstein (1995) estimate that each additional year of education results in a .7% increase in the likelihood of a worker entering self employment. Robinson and Sexton (1994) found approximately similar results. Cooper and Dunkelberg (1987) found higher levels of education among entrepreneurs than the general population. Because education's effects can be myriad, three measures mentioned above were included in this study.

The questionnaires were distributed and collected by account executives from local radio stations in four mid-sized, eastern and midwestern United States cities. The types of businesses that participated represent an extremely broad range: from antique stores to travel agencies. The account lists maintained by the radio station account executives are a virtual census of business compiled from Chamber of Commerce lists, telephone directories, and visual inspection of the area.

Steps were taken to insure anonymity and unbiased responses. Questionnaires were distributed at random to business owners from the account lists. Participants were given the option of returning the completed questionnaires in a postage paid envelope directly to the investigators. Approximately one third of the respondents availed themselves of this option. The balance of the respondents returned the completed questionnaires directly to their radio station account representatives. The surveys included a cover letter from the researchers describing the purpose of the study and assuring them of confidentiality. Respondents were encouraged to call the researchers directly with any questions. Of the 231 respondents, 11 called prior to returning their questionnaires to be reassured of confidentiality. The radio station account executives were instructed to give each participant up to six weeks to complete the questionnaire and to follow up at least five times to encourage completion. 49% of the questionnaires were completed, returned, and deemed usable. A follow-up survey of 38 non-respondents showed no significant differences between them and the respondents on demographic or business characteristics.

Table 4 shows the characteristics of the sample. Of the 231 respondents, 73% are male, a statistic that is stable across the four major survey cities. The respondents are predominately married (70.9%), and white (95.1%). 75.3% have beyond high school level education and the median age is 40. 83% have incomes more of than $70,000 per year. The respondents are, in general, of a retail nature (48.7%) and locally focused (74.5%).

Comparing this sample to characteristics of small business in general showed some important similarities: Women own approximately 27% of businesses in the United States (Brush, 1992) and 27% of the sample is women. Based upon Internal Revenue Service reporting, 23% of businesses are corporations, but the sample is 47.8% corporations.

According to 1992 Census statistics, 24.8% of businesses are of a retail nature, but the sample here is nearly half retail. Thus, it cannot proven that the small business owners in this sample comprise a sample whose characteristics are generalizable to all small business owners.

A seven-point Likert scale with (1) being "Strongly Disagree" and (7) being "Strongly Agree" throughout the survey was used to measure attitudes and estimates of goals at the time of initiation of the enterprise. Analysis was performed using two group T tests and analysis of variance (ANOVA) in SAS.

RESULTS

Table 5 shows the characteristics of the three groups of business owners and their businesses. There is no statistically significant difference among the three groups regarding age or education. The Creators' businesses are somewhat more focused in the service sector and the Inheritors are somewhat more focused in the retail sector. However, analysis of these differences did not reveal them to be controlling variables of what was observed as differences among the groups.

Mean income is highest for the Inheritors at $86,200, with the Creators having a mean annual income of $75,200 and the Operators having a mean income of $65,200. In general, the Inheritors in the sample own the largest, longest-established businesses. The mean number of full-time employees is highest at 18.9, mean revenue is the greatest at over $2.2 million, and mean years in existence is over 35. It is likely that the size of the ventures is what leads to the highest income on the part of the Inheritors.

Operators, with the lowest income among the sample, own the second largest firms on average. The mean number of full-time employees is 11.56, mean yearly sales revenue is $1.9 million, and the average years in existence for their firms is nearly 15. Creators have the smallest and youngest firms with under ten full-time employees on average, an average revenue of $919,000, and an average of 8.6 years in business.

For the purpose of the study, a firm is defined as a family firm if ownership resides within the family and two or more family members are employed. As one would expect, by definition, the Inheritors have a family connection 100% of the time. But both Creators at 46% and Operators at 60% have significant family components to their enterprises. In the case of Operators and Creators, these family connections tend to be with members of their own or younger generations, while the Inheritors always have an older generation connection.

To sum up the characteristics shown in Table 5, it is clear that the Inheritors own larger, longer established firms. As a result of this, they earn more money but are similar to the other groups in age and education dimensions. The Operators and Creators are more similar to each other, but the Operators own larger firms, with longer average tenure, yet actually earn less.

Table 6 outlines the results when respondents in the three groups were tested as to their goals and motivations at the time of their venture initiation using a seven point Likert scale.

The goal of "earning lots of money" is scored a 5.11 by the Creators, a 5.84 by the Inheritors, and a 5.12 by the Operators (F=1.90, p=.1523). The Inheritors' score is higher, though not statistically significant. The goal of "replacing my current job" scored highest with the Creators, at 4.40, lower with the Inheritors, at 2.25 (who often had no current job to replace as they were moving into the family business directly from school), and in the middle for the Operators, at 3.75. These findings are significant at the 0.0002 level (F=3.07).

As one would expect, the goal of creating a new product or service is scored highest by the Creators, at 3.60, second by the Operators, at 3.06, and lowest by the Inheritors, at 2.55 (F=3.07, p=0.0483). The goal of creating a new venture is scored by the three groups with similar levels of statistical significance. Creators scored a 5.31, Operators scored a 5.03, and Inheritors scored a 4.10 (F=3.67, p=0.0269). The goal of "not losing my investment money" is scored highest by the Operators, 5.55, next by the Creators, 4.82, and lowest by the Inheritors, 4.70 (F=3.99, p=0.0198). This finding is consistent with the hypothesized financial orientation of the Operators, but surprisingly, the Inheritors who run larger, presumably more valuable businesses, are least concerned with protecting their investments. Perhaps this is so because ownership is spread throughout the family and their personal investments tend to be on paper rather than in the cash investments necessary to initiate a new venture, such as is usually made by the Creators and Operators.

Personal goals also show strong distinctions among the groups. The goal of "building something for my family" is scored 5.71 by Inheritors, 5.45 by Operators, and 5.05 by Creators (F=1.87, p=.1559). Though statistically not significant, this ranking seems to reflect the culture of the Inheritor's family, which has already passed along wealth and power to a second generation. The Operators' increased value on this goal as compared to the Creators is likely a reflection of the Operators' greater financial orientation. The goal of "gaining respect and recognition from others" also shows significant differences among the three groups. Creators score this a 4.90, Inheritors a 4.60, and Operators a 4.26 (F=3.41, p=.0349). It is likely that these differences are the result of the Operators being more oriented to the financial rewards, while the Creators are more oriented to the creation of a new product or service. One can speculate that the Inheritors probably see respect and recognition as being engendered by financial attainments and social status, but that conclusion awaits a larger sample study.

The goal of "living how and where I like" is scored highest by the Inheritors at 5.95, 5.18 by the Operators, and 5.05 by the Creators (F=2.52, p=.0829), perhaps reflecting that the Inheritors' choice to enter their family business was based significantly upon issues of potential lifestyle. Given their highest average income, it certainly appears that the pull of a more lavish lifestyle is strongest on the Inheritors group.

"Utilizing my skills and abilities" is a goal that scored highest with the Creators, 6.09, and similarly with the Inheritors, 5.65, and Operators, 5.66 (F=0.68, p=.5056). This result from the Creators is directionally consistent with what would be expected from someone who holds a personal vision for the creation of a new product or service. Finally, on the goal of "contributing to society," there appears to be no statistically significant difference among the three groups. Creators score this a 4.60, Operators score it a 4.35, and Inheritors score it a 4.25 (F=.68, p=.5056). All three groups see the rewards of entrepreneurship in personal terms, not societal terms.

To summarize the results in Table 6, one can see a pattern of consistent differences among the three groups. Creators, driven by the vision of developing a new product or service, score highest on the product and business creation goals, and highest on the goals of "gaining respect and recognition from others" and "utilizing my skills and abilities." Operators, consistent with their financial orientation, score highest on the goal of protecting their investments and score strongly on the goal of "building something for my family."

Inheritors are clearly the furthest apart from the other two groups. Their money goal is the highest, their creation related goals are scored the lowest, and they scored lowest (albeit not by much) on the goals of "utilizing my skills and abilities" and "contributing to society."

Table 7 shows the scores the three groups compiled on various attitudinal questions and a test of objective business knowledge. To measure their assessment of the risk associated with small business, they were asked how much they agreed with the statement, "The risk of failure for small business is low." Since a score of less than 3 on the seven point Likert Scale represents disagreement, the Creators disagree with this statement most strongly, rating it a 1.85. Inheritors score it a 2.43 and Operators score it a 2.59 (F=4.41, p=.0133). Clearly, Creators seem to have an enthusiasm that is nearly blind to the realities of business risk.

As part of the research, a 19 item test of general business knowledge was administered to each respondent. The items were compiled from core curriculum material for undergraduate business majors at a large college. On that measure, Creators score 13.54 and Operators score a nearly identical 13.36, while Inheritors score 11.91 (F=2.21, p=.1126). It should be reiterated that Inheritors are approximately the same age, with the same mean education level as the other two groups. The respondents were also asked to subjectively rate their level of business knowledge on a seven point Likert Scale. On this measure, the Inheritors score higher, though not statistically significant at 5.55, than the other two groups, while Creators score a 5.09 and Operators score a 5.02 (F=1.29, p=.2772). Therefore, while the Inheritors seem to be lower in actual general business knowledge, they rate themselves somewhat higher than members of the other groups rate themselves. If true knowledge is knowing what one doesn't know, then the Inheritors group is in a dangerous position. Any conclusive difference among the groups in the area of business knowledge may require additional future research.

Regarding the growth plans for their businesses, the three groups do not score differently as a statistical matter, but the direction of the differences is suggestive of a pattern. The Creators are the most negative to the statement, "I do not intend to make my business bigger," which is consistent with entrepreneurs gripped by a vision of creating a venture as seen in Table 6. Creators rated this statement a 2.71, while Operators rated it a 2.62, and Inheritors, already owning the largest businesses of the three groups, rated it the highest at 3.14 (F=0.65, p=.5234).

In response to the statement, "I consider myself a true entrepreneur," Creators, who score the highest at 5.37, demonstrated that they accept Schumpeter's definition that entrepreneurs are innovators. Operators and Inheritors scored 4.86 and 4.85 respectively, showing that the Inheritors' vision of themselves may be at variance with reality.

Finally, in a measure of their level of satisfaction, the respondents rated the statement, "I am very happy with my current business." Here the Inheritors at 5.57 and the Creators at 5.47, are somewhat above the Operators at 5.22 (F=1.21, p=.3000), though not statistically different. In general, it would seem that the overall level of work-related satisfaction among these groups is high.

Again, Table 7 shows strong differences among the three groups. Creators are the most growth oriented, the least risk mindful, and the most likely to consider themselves "true entrepreneurs." Inheritors are the least growth oriented, but the most likely to rate themselves as knowledgeable when, in fact, their level of business knowledge seems lowest of the three groups. Operators are the most cognizant of the risks of business, and are rather strongly growth oriented, but they are the least satisfied of the three groups.

Since there are significant differences in the mean size and length of existence of the three groups' businesses, the question arises if these variables are, in fact, controlling the outcomes observed. An analysis performed dividing the sample into three groups of relatively equal numbers based on size of the respondent's business, showed that business size was neither a very strong, nor a consistent predictor of goals and attitudes. A correlation analysis performed on the variables of objective and subjective measures of knowledge, years in business, and business size measured by employment and revenue, showed mostly very low correlations. The strongest correlation was between years in business and full-time employment, r=.321, p=.0001.

CONCLUSIONS

This study is an exploratory test of differences between three types of entrepreneurs and small business owners based upon the origins of their enterprises. Seven alternatives of new venture initiation was used and found to capture all the responses of the 231 business owners in the sample. The seven groups were aggregated into three groups: Creators, Inheritors, and Operators, and these groups were compared on measures of motivation at the time of new venture initiation, demographic measures, and current attitudes. The respondents were also given a 19 item test of general business knowledge and characteristics of their businesses were recorded.

The results support the three group categorization does lead to important discriminating findings among the groups, although many of the hypotheses, especially regarding the Operator category, are not substantiated. In addition to not being different from the other groups regarding the specific hypotheses, Operators report the lowest level of satisfaction. The hypotheses regarding Creators are substantiated except that they are as financially motivated as the Operators and not significantly more satisfied than the other two groups. Inheritors are clearly different in motivation, firm characteristics, and goals. Contrary to the hypotheses, however, they are more growth oriented, not less, than the others and are no less oriented towards contributing to society. Also, on the objective knowledge test they score the lowest, but rate themselves the highest on the subjective knowledge.

RESEARCH IMPLICATIONS

Future research needs to focus on testing the existence of these types through longitudinal studies to see if individuals move from one group to another and for what reasons. Larger sample studies that are more representative of the general business population would be useful to confirm these findings and to explore whether there are three groups as the model of paths into business proposed here. Most importantly, having established here that there are distinct groups of entrepreneurs that can be identified based upon the origin of their firms, future research in the field of entrepreneurship should explore these constructs. Studies should be cognizant of which of these groups are, in fact, being examined.

POLICY IMPLICATIONS

Governments at all levels invest heavily in the fostering of business development and entrepreneurship. This study demonstrates that, based on a simple categorization of paths followed to business initiation, that at least three distinct groups exist. It also shows that the growth potential and potential returns to the economy are significantly different for each of the three groups. Creators, being closest to the classic definition of entrepreneurs, are interested in developing new products and services, and are highly growth oriented. It would seem that they are most likely to generate growth and for that growth to be focused around new products and services. Operators are more conservative, less growth oriented, and are less likely to create truly new ventures. Inheritors are the least growth oriented, least knowledgeable about business (but think they know the most), and the most oriented to the financial rewards they can receive. It would seem that Inheritors would represent the lowest potential return for government expenditures aimed at creating economic growth.

Economic policy aimed at minimizing contraction may be interested in promoting the activities of Inheritors and Operators. Policy aimed at producing new jobs, new products, new services, and enhancing the competitive advantage of an economy, would be best accomplished by fostering the activities of Creators.

[Editors' Note: Appendix omitted due to space limitations.]

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Edward G. Rogoff, Baruch College, City University of New York

Myung-Soo Lee, Baruch College, City University of New York

Table 1

Summary of Typology Systems and Comparison with Types Proposed
for Research in Present Study

Authors Rogoff & Lee Vesper et al. (1980)

Criterion Conditions at Strategic
 Firm Origin

 Creators Self-Employed
 Individuals
 Team Builders
 Independent
 Innovators

Entrepreneurship Inheritors Self-Employed
and Small Individuals
Business Types Team Builders

 Operators Self-Employed
 Individual
 Pattern Replicators
 Economy of Scale
 Exploiters
 Capital Aggregators
 Acquirers
 Buy-sell Artists
 Conglomerators
 Speculators
 Apparent Value
 Manipulators
 Team Builders

Authors Shuman et. al. Gartner et al.
 (1982) (1989)

Criterion Operational Personal
 Strengths/
 Situation Based

 Independent, Pursuing a
 Started from Unique Idea
 Scratch
 Corporate
 Entrepreneur
 Non-Profit
 Entrepreneur
 Self-Employed

Entrepreneurship Successor in Family
and Small Business
Business Types Self-Employed

 Acquirer Escaping to
 Successor in Non- Something New
 Family Business Putting a Deal
 Franchiser Together
 Franchisee Roll over
 Corporate Skills/Contacts
 Entrepreneur Purchasing a
 Self-Employed Firm
 Leveraging
 Expertise
 Aggressive
 Service
 Methodological
 Organizing

Table 2: Seven Responses Regarding Business Initiation

Path of Initiation Category Respondents Percentage
 (n=223)

I created this business Creators 110 49%
totally from scratch. Creating
a new product or service had
always been my dream.

I inherited this business from Inheritors 12 5%
my parents. I would have
chosen another career if my
parents had not been in this
business.

I inherited this business from Inheritors 10 4%
my parents, but always wanted
to establish my own venture.

I got into this business when Operators 11 5%
I did not have any other
alternatives. I lost my job
and could not continue my
career.

I started this franchise Operators 12 5%
business as a means of getting
into the business world. I
wanted to start a business,
but I did not want to take the
chance on a completely new
business.

I got into this franchise Operators 2 1%
business after I retired from
my previous job. I did not
want to take a lot of risk.

I bought an existing business Operators 67 30%
because I saw a good
opportunity with it.

Table 3: Hypotheses Regarding Goals and Attitudes
for Three Types of Entrepreneurs

Goal/Attitude Creators Inheritors Operators

Financial Low Medium High
Replacing Current Job High Medium Medium
Creating New Product High Low Low
Creating New Business Medium Low High
Gaining Respect Medium Medium High
Utilizing My Skills High Medium High
Contributing to Society High Low Low
Risk Awareness Low Medium Medium
Objective Knowledge Medium Medium High
Growth Orientation Medium Low High
Consider Myself to be
 True Entrepreneur High Medium High
Satisfaction with Business High Medium High

Table 4: Demographic Characteristics of the Sample

Characteristic N Percent

Gender: Male 165 73.0
 Female 61 27.0

Age: Under 20 2 0.9
 21-30 23 10.1
 31-40 89 39.2
 41-50 74 32.6
 51-60 27 11.9
 61 and over 12 5.5

Income: Under $30,000 18 8.1
 $30,001-$50,000 44 19.9
 $50,001-$70,000 44 19.9
 $70,001-$90,000 37 16.7
 $90,001-$110,000 29 13.1
 $110,001-$130,000 14 6.3
 $130,001-$150,000 8 3.6
 $150,001-$170,000 5 2.3
 $170,001 and over 22 10.0

Education: 1-8th Grade 3 1.3
 Some High School 5 2.2
 High School Graduate 48 21.1
 Some College 69 30.4
 College Graduate 79 34.8
 Graduate Degree 23 10.1

Table 5: Characteristics of Business Owner and Firm by Type

Variable Creators Inheritors Operators
 (n=114) (n=22) (n=92)

Mean Age 35.9 33.8 3670%

Mean Education Attained 4.26 4.23 4.22
 Some Some Some
 College College College

Mean Income $75,200 $86,200 $65,200

Number of Employees (6) 9.57 18.91 11.56

Sales Revenue (000) 919 a * 2,272 b 1,910 b

Years in Business 8.61 a 35.14 b 14.92 c

Family Connection
 to Business No: 46% Yes: 100% No: 60%

Variable F p

Mean Age 0.70 .4960

Mean Education Attained 0.03 .9753

Mean Income 2.32 .1004

Number of Employees (6) 2.02 .1352

Sales Revenue (000) 4.57 .0116

Years in Business 27.57 .0001

Family Connection
 to Business 2.42 .0913

* The same superscript implies that two means are statistically the
same while different superscript means statistically significant
difference between the two at the 5% level.

Table 6: Goals for Business Initiation for Three Types
of Business Owners

Goal Creators Inheritors Operators
 (n=114) (n=22) (n=92)

Money Goal: Earning lots of money 5.11 5.84 5.12

Job Goal: Replacing my current job 4.40 a * 2.25 b 3.75 c

Product Creation Goal: Inventing 3.60 a 2.55 b 3.06 c
new product/service

Business Creation Goal: Creating 5.31 a 4.10 b 5.03 a
a new venture

Not losing my investment money 4.82 a 4.70 a 5.55 b

Building something for my family 5.05 5.71 5.45

Gaining respect and recognition 4.90 a 4.60 a 4.26 b
from others

Living how and where I like 5.05 5.95 5.18

Utilizing my Skills and Abilities 6.09 a 5.65 b 5.66 b

Contribution to Society 4.60 4.25 4.35

Goal F p

Money Goal: Earning lots of money 1.90 .1523

Job Goal: Replacing my current job 8.64 .0002

Product Creation Goal: Inventing 3.07 .0483
new product/service

Business Creation Goal: Creating 3.67 .0269
a new venture

Not losing my investment money 3.99 .0198

Building something for my family 1.87 .1559

Gaining respect and recognition 3.41 .0349
from others

Living how and where I like 2.52 .0829

Utilizing my Skills and Abilities 2.99 .0523

Contribution to Society 0.68 .5056

* The same superscript implies that two means are statistically the
same while different superscript means statistically significant
difference between the two at the 5% level.

Table 7: Attitude Differences Among Types

Variable/Statement Creators Inheritors Operators
 (n=114) (n=22) (n=92)

Risk Ignorant 1.85 a * 2.43 b 2.59 b
Risk of failure in small
business is low

Objective Measure of Knowledge 13.54 11.91 13.36
(# correct out of 19)

Subjective Measure of Knowledge 5.09 5.55 5.02

Growth Objective (Inverse) 2.71 3.14 2.62
I do not intend to make my
business bigger

Entrepreneurial 5.37 a 4.86 b 4.85 b
I consider myself a true
entrepreneur

Satisfaction 5.47 5.57 5.22
I am very happy with my
current business

Variable/Statement F p

Risk Ignorant 4.41 .0133
Risk of failure in small
business is low

Objective Measure of Knowledge 2.21 .1126
(# correct out of 19)

Subjective Measure of Knowledge 1.29 .2772

Growth Objective (Inverse) 0.65 .5234
I do not intend to make my
business bigger

Entrepreneurial 2.91 .0568
I consider myself a true
entrepreneur

Satisfaction 1.21 .3000
I am very happy with my
current business

* The same superscript implies that two means are statistically the
same while different superscript means statistically significant
difference between the two at the 5% level.