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Procedía Economics and Finance 4 (2012) 365 - 372
International Conference on Small and Medium Enterprises Development with a Theme "Innovation and Sustainability in SME Development" (ICSMED 2012)
The Joint Effects of Personal and Relationships Characteristics on Micro- Entrepreneurial Success
Chiayu Tua*, Shiuh-Nan Hwanga, Jen-Shyang Chena, Fang-Yu Changa
_aDepartment of Business Administration, Ming Chuan University_
Abstract
Previous studies have discussed how the various kinds of antecedents affect micro-entrepreneurs success. Most of research based on distinct perspectives and specific theories, but these studies still do not effectively integrate related research findings now. This study attempts to combine the personal characteristics with the relationship characteristics of micro -entrepreneurs to deduce a theoretical structure of antecedents affecting the micro-entrepreneurs success and deepen our understanding of micro-entrepreneurial academic research and practical implication.
© 2012 The Authors. Published by Elsevier Ltd.
Selection and peer-review under res ponsibility of Parahyangan Catholic University. Keywords : Micro-Entrepreneurial Success, Personal Characteristics, Relationships Characteristics
* Corresponding author.
E-mail address: drchiayutu@gmail.com.
2212-5671 © 2012 The Authors. Published by Elsevier Ltd.
Selection and peer-review under responsibility of Parahyangan Catholic University.
doi: 10.1016/S2212-5671 (12)00350-4
1. Introduction
Given that large global organizations are constantly downsizing, an increasing number of people are taking advantage of these crises to establish their own businesses. Micro-entrepreneurs need less financial resources and do not require fixed processes or systems to establish a startup business. Past studies have proven the significant relationship between human capital and startup businesses (Urger Rauch, Frese and Rosenbusch, 2011). Moreover, a number of scholars believe that exploring which decision-making logic use in formulating decisions is necessary when studying entrepreneurial decision making and problem solving ability (Douglas, 2005; Forbes, 2005; Gustafsson, 2006). However, the majority of earlier studies discuss how the human capital and decision-making approaches are separately, without attempting to combine both of them to discuss their effect on startup businesses. Therefore, relevant factors in terms of personal characteristics should be integrated to contribute to micro-entrepreneur research.
Drucker (1985) emphasizes that "change" provides an opportunity to create new things, and when a change occurs, an entrepreneur will take advantage of the opportunity to create new value. This view signifies that a startup business is conceived and established because of the "opportunity" presented by the "change" in the environment. Therefore, in a rapidly changing environment, research on startup businesses has become a key issue to aid in identifying future social changes and promoting economic development (Acs and Audretsch, 2003). Most studies on the embedded family (Aldrich and Cliff, 2003) have discovered the intermingled relationship between the family and the commercial system. Most studies are conducted from the angle of family embedded systems, exploring the interweaving relationship between the family and the business system and analyzing how the family system affects decision making and success (Aldrich and Cliff, 2003; Zahra, 2003). However, previous studies have never studied the effect of household employment on micro and small enterprises from the perspective of an embedded family. Based on personal characteristics and relationship characteristics, exploring the correlation among social support, family enterprise, geographical characteristics, and the micro-entrepreneur is practical and necessary.
2. Literature review
2.1 Micro-entrepreneurs
Drucker (1985) defines entrepreneurship as the transfer of resources from a less productive to a higher and better venture. By definition, in scales, a micro-entrepreneur is an enterprise slightly smaller than small-and-medium-sized enterprises. According to the definition provided in the micro-enterprise summit of 2002 APEC, "Enterprises with less than five people, self-employed workers, are called as micro-enterprise, regardless of whether it is a people-oriented company, personal studio, sole proprietorship, or partnerships." The features of micro and small enterprises are their small amount of investment and small-sized business scale.
2.2 Entrepreneurial Success
Several factors affect entrepreneurial success, including individuals, the environment, and even entrepreneurial teams. Davidsson and Honig (2003) believe that they can measure entrepreneurial success and individual entrepreneurial spirit by accumulating and evaluating the activities conducted in the course of setting up a business. Depending on which human resource is considered important, successful entrepreneurs analyze the relationship between human capital and different factors of success (Unger, Andreas, Michael, and Nina, 2011).
2.3 Personal Characteristics
People believe that some individuals have inherent instincts toward conducting entrepreneurial activities, whereas other people will never become entrepreneurs (Farmer, Xin, and Kate, 2011). Several studies have explained the importance of human capital in entrepreneurial success, as well as the influence of decision making on the success or failure of entrepreneurs (e.g ., Unger, Andreas, Michael and Nina, 2011). A number of scholars also believe that there is a need to understand how individuals decide and solve their problems (Douglas, 2005; Forbes, 2005; Gustafsson, 2006). In summary, no research that explores the influence of both subjects on entrepreneurs has been conducted. Therefore, this study explores and discusses the personal characteristics of entrepreneurs in a more holistic perspective.
2.4 Personal Characteristics: Human Capital Perspective
Human capital is helpful in the accumulation of knowledge and technology. Moreover, human capital enables entrepreneurs to obtain other resources (Crus, Rachida and Julio, 2012). Human capital has come to be associated with entrepreneurial opportunities. Therefore, entrepreneurial intention is more easily formed when more human capital is present (Becker, 1964; Davidsson and Honig, 2003; Dimov and Shepherd, 2005). At an individual level, human capital factors, such as age, education, and previous employment experience, have been proven to be related to entrepreneurial intentions (Casson, 1995; McMullen and Shepherd, 2006; Shane, 2003). According to past literature, education, intrinsic motive, and prior employment experience are regarded as main personal characteristics variables.
Education has been considered a key factor in studying the economic achievements of self-employed entrepreneurs (Robinson and Sexton, 1994; Kangasharju and Pekkala, 2002). Knowledge plays a basic role in innovation and new technology (Hoffman, Parejo, Bessant, and Perren, 1998), indicating that individual training in business contributes to internal learning and the generation of new ideas (Damanpour, 1991; Galende and Fuente, 2003). They identified the educational background of managers, business owners, and entrepreneurs as an important factor when explaining the innovation of small enterprises (Koellinger, 2008).
Intrinsic motive refers to the idea of entrepreneurship, whereas entrepreneurial activity is conducted on the basis of professional reasons or personal development. In contrast, Guzman and Santos (2001) found that the external motivation of entrepreneurs does not easily result in innovation or other types of dynamic business behavior. Therefore, this study defines internal motivation as "entrepreneurs' decision to establish a business not only because of their ambitious targets and for professional development, but also because of external stimuli, such as money or resources."
Prior employment experience is another important factor for self-employment (Robinson and Sexton, 1994). Previously accumulated experience in a given area is a result of the knowledge accumulation process (Koellinger, 2008). Previous experience provides entrepreneurs with implicit and explicit knowledge, role familiarity, and social networks, which enable them to transform their desires into motivations (Farmer, Yao, and Mcintyre, 2011). This study defines prior employment experience as "the previous experience employees have before they engage in a startup business."
2.5 Personal Characteristics: Entrepreneurial Decision-Making Perspective
Several previous studies believe that knowing and exploring how individuals decide and solve their problems is necessary (Douglas, 2005; Forbes, 2005; Gustafsson, 2006). Sarasvathy (2001) believes that there are two types of entrepreneurial decision making, namely, causation and effectuation decision making. Causation decision-making is the process wherein entrepreneurs rely on analysis and estimates to explore and develop existing and potential markets. Effectuation decision making, on the other hand, uses integrated
decision making and imagination to create a new market. Brockner et al. (2004) believe that future entrepreneurs may focus initially focus on the identification of opportunities and the entrepreneurial process, but another possible focus may be the filtering of feasibility or exploration phase (Choi, Levesque, and Shepherd, 2008), which is an example of causation decision-making wherein "entrepreneurs use their experience, knowledge, market information, and advanced science and technology to analyze the market so as to determine whether they should concentrate on their business. On the other hand, effectuation decision making refers to the use of creativity and imagination to develop a new market wherein the needs of customers are not met."
2.6 Relationship Characteristics
The development of individual relationships aids in establishing mutual trust behavior, promote knowledge sharing, and develop networks between partners (Gulati, 1998; Mellewigt, Madhok, and Weibel, 2007). Lincoln (1990) defines personal relationship as the relationship of trust, obligation, and customization, all of which are generated between the formal and independent modes. Depending on the commitment of individuals, personal relationships may go beyond immediate economic benefits and are instead based on trust and mutual obligation (Dore, 1987; Larson, 1992). According to Ceci and Iubatti (2011), relationship characteristics can be classified as: (1) family and friendship; (2) geography; and (3) the foundation of mutual trust. When starting a business, individuals may obtain encouragement, confidence, and social support from their families and friends. The resource-based theory also mentions the difficulty of imitation and value. Therefore, this study classifies relationship characteristics into family, friendship, and geography.
2.7 Relationship Characteristics: Personal Relationship Perspective
Cooley (1909) defines family as a major group characterized by intimate face-to-face contact and cooperation, forming a network structure that supports current interactions (Smith and Stevens, 1999). A friendly relation can facilitate consistency in attitude, perception, and behavior during communication processes (Festinger, Schacter, and Back, 1950). On the other hand, with increasing personal knowledge exchange, entrepreneurs seek advice and gather information (Adler and Kwon, 2002; Burt, 1987). In family-owned businesses, the family business is passed down for several generations (Karpak and Topcu, 2010).
2.8 Relationship Characteristics: Geographical Relationship Perspective.
Being close in terms of geographic location may promote a closer relationship among network members. Their relationships go beyond the professional level because they work in the same area (Lissoni, 2001; Rallet and Torre, 1999). However, geographic proximity is not the only variable that facilitates personal relationships. Previous research identified other elements (between cognition and society) that promote this type of relationship (Boshma, 2005). In fact, personal relationships develop not only in adjacent space, but also (1) in similar knowledge, thus improving opportunities and constraints further (Boshma, 2004, 2005), and (2) in an embedded social relationship, in which the exchange of trust and implicit knowledge is involved (Boshma, 2005; Maskell and Malmberg, 1999). Therefore, close geographic location may complement other types of proximities in building and strengthening relationships (Audretsch and Stephan, 1996; Boschma, 2005; Harrison, 1992; Hausmann, 1996). With closer locations, enterprises will have more possibilities of developing face-to-face interaction and can more easily build trust and mutual values compared with long-distance related enterprises (Harrison, 1992). Therefore, close geographical location is an important variable in the development of personal relationships.
People start a home-based business for several reasons. Some entrepreneurs hope to start a business quickly
and minimize internal risks. Therefore, home-based businesses can effectively reduce costs and start operations immediately because their familiarity with geographical information and access to resources may help them in establishing the startup business. In contrast, distant business entrepreneurs may be affected by the early stages of establishing enterprises. For example, various types of enterprises, such as in the manufacturing industry, may need larger space for equipment, whereas retailers or wholesalers may require offices that are close to customers or suppliers. Therefore, such entrepreneurs will prefer places near highways or commercial centers (Bruno and Tyebjee, 1982). These factors will increase difficulties in early business development.
A home-based business refers to self-employed individuals running a business or working from home (SBA, 1995). If they are engaged in a local business, they will have flexible working hours, effective self-management and control, and quick response to market demands. Although a small-scale business is advantageous in local places, such a business does not have adequate equipment or financial resources as large enterprises do. Osnabrugge and Robinson (2000) believe that some entrepreneurs can possibly do business locally because this strategy may help them effectively reduce costs and quickly start a business.
3. Research Hypothesis
3.1 Personal Characteristics: Human Capital Perspective and Micro Entrepreneurial Success
In the conceptualization phase and the early development stage, small enterprises have characteristics and activities directly related to the characteristics of entrepreneurs. Education plays a key role in the economic achievements of a self-employed household (Robinson and Sexton, 1994; Kangasharju and Pekkala, 2002). Evans and Leighton (1989) and Cassar (2006) believe that higher educated people will not indulge in a startup business because a personal entrepreneurial venture is likely to reduce their income. Entrepreneurs with higher education are likely to dissolve their companies or find other employment opportunities with higher salaries.
H 1-1: Higher education has a significant negative effect on micro-entrepreneurial success.
Intrinsic motive determines the reasons why people become entrepreneurs (Nooteboom, 1993). Thus, entrepreneurial motive is often classified into internal and external motives. Intrinsic motive refers to the idea of entrepreneurs that a business can be started for professional or personal development. Guzman and Santos (2001) further believe that the external motive of entrepreneurs can hardly introduce innovative and dynamic business behavior. In other words, intrinsic motive enables people to maintain a positive attitude to pull through when they meet setbacks or problems, whereas external motive attracts entrepreneurs through external factors. When the attraction is continuous, entrepreneurs may possibly lose their motivation. This study, therefore, believes that an obviously positive correlation exists between intrinsic motives and successful businesses.
H1-2: Intrinsic motive has a significant positive effect on micro-entrepreneurial success.
Prior employment experience typically affects startup companies positively (Davidsson and Honig, 2003; Delmar and Davidsson, 2000). For example, Davidsson and Honig found a positive correlation between previous entrepreneurial experience and chances of entering a new business. Similarly, Ucbasaran et al. (2009) also found that entrepreneurial experience might help a person identify more opportunities and develop more innovations. Past entrepreneurial experience is defined as the knowledge that individuals obtain during the entrepreneurial process (Cope, 2005; Corbett, 2005). Moreover, individuals with entrepreneurial experience can learn and absorb more than others who lack of experience. Thus, entrepreneurs with experience are more likely to avoid mistakes in subsequent business transactions (MacMillan, 1986). Previous employment experience is an adjustment factor in a startup business (Robinson and Sexton, 1994). An individual's decision to start a business can significantly affect small enterprises to innovate. This study believes that when previous employment experience is accumulated to form micro-entrepreneurial abilities, the experience can be a strong
force that increases the chances of success in entrepreneurial behavior.
H1-3: Prior employment experience has a significant positive effect on micro-entrepreneurial success.
3.2 Personal Characteristics: Entrepreneurial Decision-Making Perspective and Micro-Entrepreneurial Success
Past research emphasized the necessity of understanding and exploring the setting of entrepreneurial decision making and problem solving (Douglas, 2005; Forbes, 2005; Gustafsson, 2006). In past entrepreneurial studies, causation and effectuation decision making are very important entrepreneurial strategies (Saravathy, 2001). In causation decision making, people rely on analysis and estimation to explore and exploit existing and potential markets. On the other hand, effectuation decision making uses comprehensive methods and imagination to create a new market which is currently non-existent.
This research considers whether causation or effectuation decision making positively affect micro -entrepreneurs. However, effectuation decision making aims to create a new and non-existent market. Therefore, effectuation decision making is more influential than causation decision making.
H2-2: Compared with causation decision making, effectuation decision making has a more significant positive effect on micro-entrepreneurial success.
3.3 Relationship Characteristics: Personal Relationship Perspective and Micro-Entrepreneurial Success
Cooley (1909) defines a family as the main group with intimate face-to-face contact and cooperation (Burt, 1980; Cooley, 1909). In addition, a friendly relationship has a positive effect on attitude, opinion, and consistent behavior in the communication process (Festinger et al., 1950). Thus, the knowledge exchange between individuals increases when a friendly relationship is established when seeking advice and gathering information. In a family-run or partnership businesses, a family or a partner usually influences the way a business is run. A family-run business is often passed down from generation to generation over the course of several generations (Karpak and Topcu, 2010). Micro-entrepreneurs generally comprise less than five persons through a partnership fund to create a new business. Most people search for joint venture partners who are familiar friends or trusted family members.
H3-1: Family members support has a significant positive effect on micro-entrepreneurial success. H3-2: Friends support has a significant positive effect on micro-entrepreneurial success.
3.4 Relationship Characteristics: Geographical Relationship Perspective and Micro-Entrepreneurial Success
People start a home-based business for several reasons, such as the intention to quickly start a business and minimize internal risks. Therefore, home-based businesses are capable of effectively reducing costs and operating immediately. Vesper (1990) believes that family commitment, flexibility, and convenience may have a significant effect on entrepreneurs' decision to conduct home-based businesses. However, based on the idea of saving business resources (such as expenses and salary), others may focus on developing their core products so as to promote these products to the market speedily and to gain a good market position (Bhide, 2000). Entrepreneurs that choose to conduct a distant business are influenced by early strategies. For example, various types of enterprises, such as those in the manufacturing industry, may need a larger space for equipment, whereas retailers or wholesalers require places that are close to customers or suppliers. Therefore, they will prefer places next to highways or commercial centers (Bruno and Tyebjee, 1982).
H4-1: Home-based business has a significant positive effect on micro-entrepreneurial success. H4-2: Distant business has a significant positive effect on micro-entrepreneurial success.
4. Conclusion
This study attempts to combine the personal characteristics with the relationship characteristics of microentrepreneurs to deduce a theoretical structure of antecedents affecting the micro-entrepreneurs success and deepen our understanding of micro-entrepreneurial academic research and practical implication.
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