ENTREPRENEURIAL EMERGENCE: KEY CONGRUENCE FACTORS AND COMMUNITY PROCESSES

Charles T. Moses

Young Kim

Donald Vest

Clark Atlanta University

ABSTRACT

This study details some of the key antecedents for inner city economic development and asks how some communities seem better able to manage their economic lives than others. The authors designed a model that identifies key individual and community-level variables predictive of higher levels of sustainable and profitable businesses in communities. The authors developed a 64-item survey that was completed by 270 entrepreneurs in the United States. A number of hypotheses asserting predictability between social capital related variables and outcomes were supported. Moderation was additionally established for one interaction variable as a predictor of sustainability. This study builds on work which seeks to understand key individual, firm and community level precursors for entrepreneurial emergence, and it sets the stage for additional empirical work in the area of entrepreneurial assistance program design and implementation.

INTRODUCTION

     Entrepreneurs are the lifeblood of a community. The existence of a critical mass of locally-owned enterprises in a community, it can be argued, means that: 1.) there are at least some people in the community who have the talent and initiative to start businesses; 2.) that there is a market for the goods and services they produce and; 3.) that there is potential for local entrepreneurs to provide employment and other economic benefits beyond the immediate ambit of their business (Bates 1989).

     Yet success typically requires that entrepreneurial ventures leave their communities of origin in search of opportunities not locally available while failure means the loss of jobs and opportunity, both for the entrepreneur and others. This is the Schumpeterian contract and it can run counter to a community’s need and desire for entrepreneurial sustainability. Viewed from the perspective of communities in need of local businesses the burgeoning firm can even be said to symbolize economic liberation. Counterintuitively then, success often results in failure: if a firm grows beyond the ability of a community to meet its needs, then communities with limited histories of successful entrepreneurialism lose yet another important source of jobs and leadership. This is the utilitarian dimension of the rational choice argument. There is also the social dimension: entrepreneurs also seek non-monetary rewards in the form of greater recognition and mainstream validation in the communities in which they locate their businesses (Scott 2000).

     Communities want businesses which employ local people, purchase goods and services from other businesses in the community, which offer low prices, high quality, and good service. The business cycle often requires that winners often need to access outside (bridging) networks for markets and resources that local communities may be unable to provide, while also utilizing local (bonding) networks for information and other non-financial resources.

BACKGROUND OF THIS STUDY

     This study lays the groundwork for further work that utilizes the relationships detailed here to aid in entrepreneurial program development and implementation. The authors identified key community situated variables that predict desirable outcomes as precursors for entrepreneurial emergence. Data was collected from 270 entrepreneurs across the U.S. The policy implication of this study is that there should be a better alignment between entrepreneurial needs, social capital characteristics and government entrepreneurial assistance programs.

     Understanding the concept of entrepreneurial emergence requires that the theorist clarify issues such as the perspective from which the entrepreneurial activity is to be viewed. Early theories on the topic pitted the self-interested, heroic, entrepreneur against all manner of forces (Schumpeter 1911, Smith 1776).

LITERATURE REVIEW

     Recent scholarship has argued for a social constituted view of entrepreneurship (see Conceptualizing Entrepreneurial Emergence below). This is the line of inquiry along which this study proceeds.The authors build on theories advanced by Dodd (2007) Aldrich and Zimmer (1986), and others, who attempt to reconcile over socialized and under socialized views of entrepreneurial activity. This study asserts the primacy of empowerment, which encompasses concepts of decentralized action and increased agency (.e.g. capacity to make relevant decisions that affect their own lives and which impact institutions) (Giddens 1986, Rubin and Rubin 1986).

     A more prosaic school of discussion concerns itself with the best way to promulgate entrepreneurial development. Views range from those who believe that even the most beleaguered inner cities possess the potential to become development hubs, a downtown redux of sorts, to those who believe that the best way to think about developing a brisk entrepreneurial climate is to focus on the development of linkages to surrounding areas. Prominent proponents of the first view include Michael Porter (1998), who sees the inner city as harboring significant competitive advantages, among them location, access to areas of increased demand and underutilized human resources. Those of the second view include scholars like Avis Vidal (1995) and (Kretzman and McKnight 1995). The authors of this study construe these arguments to be questions of locus of control (Rotter 1966, Paulhus 1983). Locus of control theory was originally applied to the individual and refers to the degree to which people believe they control events in their lives. In the context of this research this theory is concerned with the degree to which entrepreneurs’ believe that they control the destiny of their businesses.

CONCEPTUALIZING ENTREPRENURIAL EMERGENCE

     There are a number of conceptual models that use multidisciplinary approaches to explain entrepreneurial emergence in the community context. Gittell and Vidal (1998), drawing from the literature on community development, explain the impact of institutional networks on the efficient organization for production in an economic setting. At the nexus of their model are the social, political and economic relations necessary to successfully undertake economic payoffs. The model in this proposal utilizes some of Gittell and Vidal’s (1998) precepts: “the interaction among program and organizational design and implementation attributes, external agents and intermediaries, and local contextual elements yields a set of intermediate outcomes that can eventually lead to more substantial outputs and sustainable community development” (p., 23).

     Ahiarah (1993) integrates four classes of explanatory factors in his understanding of the success of black business in America: psychological, situational (environmental), product/service, and process or decisional. More recent theorists have attempted to reconcile viewpoints of the entrepreneur contextually. Granovetter (1973 & 1983) is among those who concluded that economic activity is embedded in social relationships which affect “neoclassical predictions of atomistic social behavior.” (quoted from Thornton 1999, pg. 30). Thornton integrated what she termed “supply” and “demand” side perspectives of entrepreneurship using ecological and institutional theories and multilevel models (1999). The authors of this study argue that entrepreneurial emergence is socially constituted and that entrepreneurial involvements, measured here as commitment, influence, networks and orientation, lead to sustainable and profitable businesses.

HYPOTHESES

The following hypotheses are formulated:

Hypothesis1: The greater the commitment of local communities to entrepreneurs’ business concerns, the greater entrepreneurs’ perception as to their businesses’ sustainability. This hypothesis is adapted from the literature on social capital (Putnam 1993), and Granovetter 1973) and community economic development (Gittell and Vidal 1998).

Hypothesis 2: The greater the commitment of local communities to entrepreneurs’ business concerns, the greater the entrepreneurs’ perception as to their businesses’ profitability. This hypothesis is also adapted from the literature on social capital and community economic development (Gittell and Vidal 1998).

Hypothesis3 and Hypothesis 4: Entrepreneurial orientation positively affects their perception of the prospects for their businesses’ sustainability and profitability. This is the affective quality of local entrepreneurial activity. Do local entrepreneurs’ feel that they play a strong role in the community? Do they act as economic leaders only, or do they involve themselves in a broad range of community activities? And how does the longevity of their business shape their view of their role in the community?

Hypothesis5 and Hypothesis 6: Networks positively affects sustainability and profitability. Networks are framed by a paradigm ranging from a strong preoccupation with extra community networks (bridging) to a strong preoccupation with intra community networks (bonding). Those interested in designing programs to help inner city entrepreneurs should first understand the type and depth of networks extant in a community. Woolcock (2001) describes social capital as a “double edged sword. On the one hand, it can provide community members with a familiar menu of benefits, ranging from baby-sitting to house minding and emergency cash. But there is also a downside in that those same ties can place enormous non-economic claims on members’ obligations and commitments.”

Hypothesis 7: Entrepreneurial influence positively affects sustainability and Hypothesis 8, entrepreneurial influence positively affects profitability. Exercising business and civic leadership increases an entrepreneurs’ confidence in their ability to develop profitable businesses. Is there a seamless relationship between the influence that entrepreneurs seek, or have, when it comes to business matters, or is there an adversarial ethos? Bockmeyer (2000) describes how distrust of local economic development institutions and programs causes inefficiencies and lowers community and outside expectations for growth and viability.

Hypothesis 9: Orientation moderates the influence of commitment on sustainability and Hypothesis10: Orientation moderates the influence of commitment on profitability. These interaction terms reflect an entrepreneurs’ reliance on proximate ties on the one hand (commitment) and their tendency to seek help outside of their community for key business issues (orientation).

Hypothesis11: Networks moderates the influence of commitment on sustainability and Hypothesis12: Networks moderates the relationship of commitment on profitability. These are adapted from Ahiariah’s (1993) “success factors” (p. 23) definition of business success. It is defined for purposes of this study as an entrepreneurs’ perception of the prospects that the networks accessible to them increase the chances that their businesses will return a profit.

Hypothesis13: Orientation moderates influence on sustainability and; Hypothesis14: Orientation moderates the influence on profitability. This is the interaction of entrepreneurs’ perception of the degree of community support for business concerns and their belief that outsiders have some power over their business affairs Does entrepreneurs’ perceived ability to influence key events impacting their business increase their businesses chance for sustainability? Do they believe that key events in the community are locally controlled or controlled elsewhere? This hypothesis is adapted from Paulhus (1983) and Rotter (1966).

Hypotheis15: Networks moderates the influence of influence on sustainability and: Hypothesis16: Networks moderates the influence of influence on profitability. This interaction deals with entrepreneurs’ perceived belief in the degree to which they think that business concerns are given voice by local institutions and the type of networks available.

METHODS AND RESEARCH METHODOLOGY

     This study was originally designed to utilize a combination of primary and secondary data. The authors’ thinking, based on experiences with two previous entrepreneurially focused research projects, was that this would provide the best opportunity to collect sufficient data from busy entrepreneurs.

     The survey was pretested and piloted on approximately 20 respondents, then inputted on the Survey Monkey website (http://www.surveymonkey.com). Entrepreneurs were identified through business-oriented online list servers. In all, approximately 5,000 business owners were identified. Each was emailed a query over a six-week period in the spring of 2004, asking them to participate in the study and directing them to an online link where the 64-item survey could be located. Approximately 3,500 emails were returned to the author as undeliverable. The balance, approximately 1,500, resulted in responses from 270 entrepreneurs, a 15 percent response rate. To qualify respondents had to: 1.) own, or have a significant interest in, a business located in an urban area and, 2.) be willing to provide a name and city for their business.Unless otherwise noted, this study utilizes a 5-point Likert-response format to measure the variables (1 = strongly disagree; 5 = strongly agree), or (1 = Not helpful, 5 = very helpful).

     Approximately 65 percent of respondents ranged in age from 35 to 44, 60 percent were male, 52 percent identified themselves as either black or African American or Latino/a; 62 percent reported that they had a college education or beyond; 21 percent were Protestant and 60 percent owned service sector businesses (see Table 1 below). The demographics are comparable to those in similar studies (Dadzie and Cho, 1989).

Please go to the link below to see the entire study!!!