Success of family business influenced by its founder Begeleider

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Abstract

Purpose - This research paper contribute the understanding of the relation between the different types of entrepreneurs (founders) and the family business. It is in the scientific debate still not clear which kind of entrepreneurs influenced the success of family business. This research is able to develop a framework about the different types of entrepreneurs in the family business.

Design/methodology/approach - For this research a qualitative approach is used to explore the relation between the type of entrepreneur (founder) and the family business.

Findings - Family business always starts with an entrepreneur. The entrepreneur for the family business starts as nascent entrepreneur, then novice entrepreneur and in a later stadium portfolio entrepreneur. Serial entrepreneur does not fit in the family business.

Originality/value - There are many studies about the family business. Family business is an important aspect for the economic growth for the country. However, the family business is founded by an entrepreneur. Which type of entrepreneur will eventually leads to the success of family business is not been studied yet. This research paper contributes to an understanding of the type of entrepreneur that will leads to the success of a family business.

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Keywords - Success, Family business, Founder

Introduction

"In 1893, Josephine Cochrane unveiled an innovation at the Chicago World's Fair:

the first truly functional dishwasher. A prominent socialite, she had grown tired of her

servants' tendency to break her 17th century fine china and began to wash the dishes

herself (Casey, 1997; Fenster, 1999). She reportedly said "If nobody else is going to

invent a dishwashing machine, I'll do it myself" (Lemelson Center, 2004). She

subsequently formed her own firm, Cochran's Crescent Washing Machine Company, to

manufacture the machines, primarily for sale to hotels and restaurants. Cochrane's

company eventually became KitchenAid, part of the Whirlpool Corporation".

"In 1994, Ph.D. candidates in electrical engineering David Filo and Jerry Yang

started a guide as a way to keep track of their personal interests on the Internet and called it "Jerry & David's Guide to the World Wide Web." What began as a student hobby

evolved into a global brand - Yahoo! - that changed the way people communicate and

exchange information".

From regular day-to-day lives, will eventually create a solution for the problem. The solution will eventually commercialized. These two statements shows us that anyone can be an entrepreneur. However, the term entrepreneur is a broad definition. In this research the definition of an entrepreneur will be divided into different types of entrepreneurs: novice, portfolio and serial entrepreneur. Eventually, which of the different types of entrepreneurs will influenced the success of a family business.

To study address the main research question:

"To what extent is the success of a family business influenced by its founder

(novice, portfolio or serial)?"

To support and give an answer to the main research question, four sub questions has been formulated.

Sub questions:

(1) What is an entrepreneur?

(2) Which kind of different entrepreneurs already exist?

(3) What is a family business?

(4) What makes a family business successful?

This research provides three hypotheses:

(1) Success and Family business

Hypothesis 1: The success of a company always leads to a family business.

(2) Family business and the Entrepreneur (founder)

Hypothesis 2: Family business always starts with an entrepreneur and it does not

matter what kind of entrepreneur (founder).

(3) Success and the entrepreneur

Hypothesis 3: The success of the firm depends on the entrepreneur (founder).

The research model of this report is as follows:

Literature review

This research paper consist of the relation between the types of entrepreneurs and the family business. Stimulating the entrepreneurship, is to stimulate the people who will be successful after starting up their businesses. These founders are an important key for the economic progress in the country. However, there is not precisely mentioned about the influence of the successor (Boshoff, Maas & Venter, 2005) for the family business (Zahra, Hayton & Salvato, 2004). This research paper includes summarizes about the entrepreneur and family business and the relation between them.

Entrepreneur

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The term entrepreneur got different definition. Adam Smith (1776) described entrepreneur as "capitalist" and by Schumpeter (1912) and Knight (1921) as innovative, opportunity recognition and accept some degree of risk (Baumol 1968). Drucker (1985) shows clearly that there is a clear distinction in Central Small Businesses (SMEs) and entrepreneurship. Drucker shows that SMEs are not aimed at creating new and satisfactions of watching what consumers want, but rather maintain the existing business concept and popularity. Drucker indicates that entrepreneurs are always looking for new changes and are looking for the demand of consumers. Meredith et al (Kirby in 2003) describes that entrepreneurs have the ability to see opportunities, search for possible resources and take this into action. That view is endorsed by Timmons (Kirby in 2003).

Table 1 shows that risk taking is an entrepreneurial function. However, Menger, Schumpeter and Kirzner, mentioned that the entrepreneur does not involve taking risks. But Cantillon and Knight thinks the opposite. They say that risk taking is the key function of an entrepreneur. Besides risk taking, table 1 also includes entrepreneurial competences as arbitrageur, capitalist, manager and innovator. These entrepreneurial competences are compared to Cantillon, Say, Marshall, Menger, Knight, Schumpeter and Kirzner by the importance for the definition of an entrepreneur.

For the purpose of the present study, the entrepreneur is defined as always looking for new opportunities (risk), maximum profit and growth. In order to make this happen an entrepreneur should be proactive, innovative and risk-taking. An entrepreneur should consist all of these competences.

Types of entrepreneurs

As already mentioned, entrepreneur is a broad definition. The term entrepreneur will be defined into three types of entrepreneurs.

Novice entrepreneur;

Portfolio entrepreneur; and

Serial entrepreneur.

Novice entrepreneur (small business)

Can be seen as a new entrepreneur (just started) with no or prior experience as a business founder and purchaser of an independent business. This business can be either new, purchased or inherited (Westhead and Wright, 1998).

Portfolio entrepreneur (large business)

Can be seen as individuals who have majority ownership stakes in two or more independent businesses that are new, purchased and/or inherited

(Westhead and Wright, 1998).

Serial entrepreneur

This entrepreneur sell their already existed business and then establish and/or purchase another business (Westhead and Wright, 1998).

Birley and Westhead (1994a), mentioned that serial and portfolio entrepreneur are an important phenomenon, but this does not mean that serial and portfolio entrepreneurs are more successful in setting up businesses than novice entrepreneur who set their own and only business. However, it is possible that novice entrepreneur will become portfolio entrepreneur or serial entrepreneur.

The similarities in the business performance between novice, serial and portfolio entrepreneur is suggested that the policy-makers need to be careful in targeting the resources, because targeting the resources will encourage nascent entrepreneurs to become novice entrepreneur. Figure 1, is the relationships between prior business ownership experience and entrepreneur behavior and the performance. The stream of experiences are differences in the decisions and actions, because of the information search and the opportunity recognition by novice, serial and portfolio entrepreneurs who distinguish them shelves by experiences. Besides the experiences there is also the performance of the entrepreneurs (Reuber and Fischer, 1999). Reuber and Fischer also argued that the experiences of an entrepreneur is seen as a stream, because different types of entrepreneurs will consider the stream as an experience with regard to opportunity identification and exploitation. Not every information and experiences can create a "knowledge corridor", this means that not every people are able to discover opportunities (Venkataraman, 1997). So it is reasonable to assume that serial and portfolio entrepreneurs will having more effective information search behavior than novice entrepreneurs.

The important differences between novice, serial and portfolio entrepreneur are (Westhead, Ucbasaran and Wright, 2005):

Novice entrepreneur:

Inexperience, failing to respond to changing customer demands and are unable to adapt to changing external environmental conditions

Need to constantly develop and redefine business ideas

(business opportunities)

Serial entrepreneur:

More cautious behavior, because they do not want to tarnish their reputation => barrier to be more innovative

Repeat past successes, rather than changing market opportunities

Less sophisticated business opportunity than portfolio entrepreneur

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Expertise in a technical or functional area

Identifying business opportunities

Portfolio entrepreneur:

Ability to spot more than one opportunity

No experienced problems of surrounding the identification of business ideas

Experienced difficulties obtaining resources and capital to pursue an identified business opportunity

Family business

In the academic literature describes a variety about the family business. The definition of Flören (1998) describes that a firm is a family business when it meets two of the following criteria:

More than 50% of the shares or certificate are owned by a single family;

A single family can exercise the considerable influence;

A significant proportion of the members of the board of directors are from one family.

It should be mentioned that the concept of the family is not one family, but several families. In addition, the decisions are not made by one person but by several relatives.

Astrachan et al (2002:46) notes that

"a business is a family business when it is an enterprise growing out of the family's need, built on the family's abilities, worked by its hands and minds, and guided by its moral and spiritual values; when it is sustained by the family's commitment, and passed down to its sons and daughters as a legacy as precious as the family's name."

This is compared to Flören (1998) a totally different definition, because a firm needs to passed down to other generations, but this is not mentioned in the definition that the amount shares the family needs to have or the numbers of family members are needed to be in the board of directors or in the management. It is difficult to describe one general definition of family business. The definition of Flören will be used in this report.

Success of Family business

It is important that family firms are able to innovate and pursue the entrepreneurial activities (Zahra, Hayton & Salvato, 2004). Family business only exist if the business continues from generation to generations. So, there are some factors that can influence the succession process. Figure 2, factors that are related to the successor that could influence the successful succession in small and medium-sized family business. These factors are the willingness of the successor to take over the business; the preparation level of the successor; and the relationship between the owner-manager and successor. Besides these factors, there are also antecedent factors that can influence the successor-related factors, namely, rewards from the business; trust in the successor's abilities and intentions; personal needs alignment; and family harmony (Venter, Boshoff and Maas, 2005). It seems, that the willingness of the successor to take over the business is an important factor for the continued profitability of the family business. The successor should join the family business for the right reason (Venter, E., Boshoff, G., & Maas, G., 2005). Parent should be seen as a parental role in the family business. Only guide and provide the successor (only those with the right qualifications) with the necessary information.

Relation between an entrepreneur and family business

There are three different types of entrepreneurs, novice, serial and portfolio entrepreneur. However, another type of entrepreneur will be added. This type of entrepreneur is the nascent entrepreneur (Carter, N., Gartner, B., Shaver, K.G., Gatewood, E.J.,2003). Nascent entrepreneur is not an entrepreneur yet, but is dreaming about starting a firm. Which means, that every entrepreneur who are willing or dreaming to start a firm is become first nascent entrepreneur. From dreaming becomes reality. Nascent entrepreneur will become novice entrepreneur (small business). The existing of the family business starts with nascent entrepreneur then novice entrepreneur and after that serial entrepreneur or portfolio entrepreneur (Birley and Westhead, 1994a).

Limitations

There are two limitations to this research paper. The first is the success of the family business. Venter, Boshoff and Maas (2005), only search for the factors inside the family business, but not mentioned the external environment that also might influence the success of the family business.

Second limitation is the relation between an entrepreneur and family business. Birley and Westhead (1994a) mentioned that the possibility that novice entrepreneur will become portfolio entrepreneur or serial entrepreneur. A serial entrepreneur is someone who starts a firm and then moves on and sells it. This process will be repeated. However, a portfolio entrepreneur opens a firm after firm. Family business better fit in the portfolio entrepreneur after the novice entrepreneur. The intention of family business is not to sell, but to let it grow and to be successful. Besides, it is also not clear when the nascent entrepreneur will become a portfolio entrepreneur.

These limitations would be useful and interesting for the further research.

Conclusion

This research has made a statement about the relation between the different types of entrepreneurs (Westhead and Wright, 1998) and family business (Flören, 1998). The study has found that:

The success of starting firm do always leads to family business (H1), because the success of the firm will continue from generation to generation (family business);

Family business always starts with an entrepreneur (H2) and it does matter what type of entrepreneur (novice, serial and portfolio entrepreneur). The entrepreneur for the family business starts as nascent entrepreneur, then novice entrepreneur and in a later stadium portfolio entrepreneur. Serial entrepreneur does not fit in the family business;

The success of firm does depends on the founder (H3). For instance, family business, it is important to know if the family business wants to be novice entrepreneur (small business) or evaluate into portfolio entrepreneur (large business).

The success of family business are influenced by the different types of an entrepreneurs. Family business is from generation to generation. As already mentioned, family business always starts with an entrepreneur. This entrepreneur will be nascent entrepreneur. Nascent entrepreneur (Carter, N., Gartner, B., Shaver, K.G., Gatewood, E.J.,2003) is not there yet, just dream about starting a firm. From dreaming becomes reality. Nascent entrepreneur will be novice entrepreneur also green entrepreneur (small business). From this point the family business is set up. The family business now got the choice to grow or just to maintain as it was. If the family business choose to grow then the family business will become from novice entrepreneur to portfolio entrepreneur (open a firm after firm). However, to maintain successful the family business have to face many faces of factors, namely internal factors (Zahra, Hayton & Salvato, 2004) and external factors that can influence the succession process (existing of the family business).

Further research

This research paper shows the relation between different types of entrepreneurs and family business. However, not every family business wants to be a portfolio entrepreneur. To find out which family businesses are novice entrepreneur and which family businesses are portfolio entrepreneur and the reason for why to be that type of entrepreneur. Also interesting is to search for the sector where the family business is working at and what type of entrepreneur.

References

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