INDIVIDUAL LEVEL DETERMINANTS

Even in more holistic approaches, such as the models described above (previous section), the setting up and management of any small or micro business is largely dependent on individual related factors. Any business venture is only possible because an individual, or a team, has decided to, and took the steps necessary for bringing the idea into existence. Personality traits are, possibly, one of the most studied individual related characteristics, particularly within entrepreneurship research, as a determinant of enterprising behaviour. The underlying belief is that the personality of the owners “is integrated with their businesses as a reflexive identity” (Fuller 2003, p. 312). Although relevant as the subject might be, it is not an objective of this research to consider at an individual’s personality traits, but rather at the role of the owner’s social relationships in their business setting up.

Other individual level determinants, identified in the literature as “push” factors, considered to have a strong relationship with the business owner’s personal network, namely motivations and a set of other personal characteristics (education, experience and family background), often designated as human capital, are described in further detail in the following sections. The set of individual level determinants described next were selected because they are considered as interrelated with social relationships and with its role in the setting up and management of small businesses.

2.6.1 MOTIVATIONS FOR GETTING INTO BUSINESS OWNERSHIP

The motivation for start up is likely to have implications for the sort of support required by the founders, namely from their personal network, and may also have implications on their ultimate success or failure as business owners (Watson et al.

1998). It is acknowledged in the literature that the successful business setting up and performance reflect, to a great extent, the personal accomplishment of the entrepreneur. The reasons (motivations) that individuals give for getting, or not, into business, are regarded as greatly influencing both the start-up of the new business and also its characteristics, survival, and performance (e.g. Dubini 1988;

Birley and Westhead 1994a; Kuratko et al. 1997; Stokes 1998; Carter et al. 2003).

Examples of how the type of incentive that people experience to start a business influences its success were described in the previous section regarding path to ownership. van Praag's (2003) proposition that people who are pushed into business ownership, as a consequence of unemployment, are less likely to stay in business is such an example. Most research identifying motivations for business ownership, has focused upon start-ups rather than including motivations for business ownership that result from taking over established businesses, either through purchase or inheritance, or from joining a business venture in existence.

Table 2.2 summarizes some of the contributions identified in the literature with regard to motivations to entering business ownership.

Table 2.2: Motivations for business start-up or ownership

Author(s) Motivations for business start-up/ownership

Dubini (1988)

- Thirst for achievement, sense of independence and autonomy;

- Dissatisfaction with present working conditions;

- Following of family tradition and role models.

Birley and

Kuratko et al. (1997) - Extrinsic rewards (like increase income and personal wealth) - Maintaining/acquiring professional independence/autonomy - Intrinsic rewards like public recognition and personal

fulfilment;

- Ensuring family’s wealth and security.

Watson et al. (1998) - Entrepreneurial orientation;

- Personal-opportunistic;

- Market-opportunistic;

- Financial needs Source: author

It can be concluded, from Table 2.2 that starting and running a business is a complex process that involves a variety of motivations and stimuli. Evidence is also found in the literature that these various motives are likely to be simultaneous rather than mutually exclusive (Woo et al. 1991) and not necessarily pecuniary (McMahon and Stanger 1995). The drive to be independent and have one’s own business is some of the dominant reasons leading to venture initiation. Although financial success (both at personal or family level) is included in the motivational lists, intrinsic rewards like personal achievement are most evident.

Making the decision, and actually entering the process of starting up or taking control over a business, results from the interaction between the individual and his socio-economic environment (Greenbank 2001). Personal networks of family, friends, mentors, and previous work colleagues play a key role in the evaluation of choices available, and in the move to business ownership (Gibb and Ritchie 1982;

Cooper and Dunkelberg 1986; Dubini 1988; Birley and Westhead 1994;

Greenbank 2001). Gibb and Ritchie (1982, p.27) claim that “variables such as class structure, family origin, education, career history and experience, present lifestyles and attachments”, not only have marked impacts on their own in explaining why some individuals are most likely to establish new businesses, but they also have an influence on the underlying specific motivations. Some of these variables are grouped in the literature, under the designation of human capital, and the relevant findings in relation to those are reviewed below.

2.6.2 HUMAN CAPITAL

Some contributions to the understanding of small business setting up and success can be found in the Theory of Human Capital, which maintains that the knowledge acquired through formal education, professional experience and/or practical learning, on the job or in specific training courses, provides individuals with increases in their cognitive abilities, leading to more productive and efficient potential activity (e.g. Lerner and Haber 2000; Shane and Venkataraman 2000;

Davidsson and Honig 2003; Parker and van Praag 2012). Parker and van Praag (2012) distinguish between ‘formal’ and ‘informal’ human capital. Formal human

capital is transferred by participation in formal institutions, such as schools providing education and firms providing work experience. Informal human capital on the other hand is the set of skills and knowledge transferred through informal institutions, such as the family and friends.

Although other aspects can be found in the literature in relation to the concept of human capital, for instance age or managerial skills (e.g. Bosma et al. 2004;

Ucbasaran et al. 2007), the review of the role of human capital for business setting up and management is restricted to a selection of variables: education, former work experience and family background. These variables are considered to have greater implications for the understanding of the role of social relationships in the business context, because all refer to situations of socialisation, providing the individual opportunities to build their personal network (i.e. family, friends, colleagues and co-workers), and through them acquire the necessary resources.

2.6.2.1 Education

There is evidence that formal education is positively associated with successful business setting up and management, particularly in the start–up processes (Bruderl et al 1992; van Praag 2003; Parker and van Praag 2012, Ucbasaran et al.

2007). Formal education, particularly to degree level is associated with general and specific skills and with the knowledge needed to run businesses (Henley 2005, Parker and van Praag 2010). It is argued that education at degree level improves a person's ability to search and process large amounts of information leading to a greater ability to identify and successfully exploit business opportunities (Ucbasaran et al. 2007). Education has also been identified as positively associated with network size and diversity, enabling the owner to accumulate contacts with people important to their ventures (Loscocco et al. 2009).

2.6.2.2 Former work experience

Many founders establish their businesses based on their prior work experience in the same or similar industry (Cooper and Dunkelberg 1986; Reynolds and Miller

1992; Stearns et al. 1995). Former work experience is believed to enable business founders/owners to better understand business opportunities and how enterprises function in practice, namely selling, negotiating, leading, planning, decision-making, problem solving, organizing and communicating (Ucbasaran et al. 2007;

Parker and van Praag 2012). Former experience of the owner in the same industry of the current business is also associated with performance measures namely sales and profits (Cooper and Dunkelberg 1984; van Praag 2003; Bosma et al. 2004) and so is expertise in the same occupational field (van Praag 2003). In the same way as with education, a specific advantage of an owner’s past work experience is the chance to accumulate knowledge and contacts that enables him/her to build larger, more diverse networks that can best serve his/her venture’s interests and needs (Loscocco et al. 2009).

2.6.2.3 Family background

In Section 2.5 the importance of the family background within the theory of family businesses has already been acknowledged as it provides opportunities for entry into business ownership in special conditions, namely through inheritance.

Additionally, research also suggests that one of the most salient factors for entry into a self-employment/business ownership process remains the parental role model, or contact with the experience of relatives or friends in starting their own business (e.g. Cooper and Dunkelberg 1986; Katz 1993; Mathews and Moser 1996; Anderson and Miller 2003; Olson et al. 2003). The parental background of the small business owners is also significantly associated with success. According to Henley (2005), successful venture founders are more likely to have had self-employed parents. A family tradition of business ownership and early socialisation with self-employed parents exposes individuals to 'role models' and to the experience, and related knowledge, of owning and managing a business, which will facilitate participation in an entrepreneurial endeavour later in life (Anderson and Miller 2003) and to some extent will distinguish them from other business owners (Cooper and Dunkelberg 1986; Henley 2005).

In either the situation of starting-up own business or of taking over the family business, owners from families with experience as business owners are endowed with valuable networks of resource providers (Parker and van Praag 2012). In such cases, it is indubitable that owners’ personal network of social relationships, namely the family, will play a significant role in their business ownership experience, both in the setting up and management. The role of the family will be dealt in further detail in Section 2.7.1, with regard to social embeddedness, as well as in Chapter 3.

2.7 ENVIRONMENTALLY RELATED DETERMINANTS OF