ENVIRONMENT AND THE LIFE-CYCLE GROWTH AND
4. BUSINESS CHARACTERISTICS
These businesses are typically small with the number of employees ranging from 1 to 50 with low sales volume and low profit margins. These family businesses engage in such business activities as bed and breakfasts, hotels, coffee shops, restaurants and catering, and tourist bureaus and offices.
The questionnaire elicited information on the size and nature of the oper- ation, business objectives, level of employment, financial assistance received and desired, non-financial support, business training needs, socioeconomic conditions, policies on taxation, preferences, credit financing, and reporting requirements for small businesses. Respondents could give more than one answer to each question.
The decision to set up a business was based on a variety of reasons such as: a better way of life (72 percent), a recognized market opportunity (70 percent), the desire for independence (68 percent), to supplement family income (65 percent) and, unemployment or company layoff (50 percent).
Related studies of small and family-based businesses operating within tour- ism and hospitality have highlighted similar results stressing that strong motivational elements associated with lifestyle and family-related goals contributed to the firm’s success (Getz & Carlsen, 2000).
Approximately 71 percent of the small businesses surveyed produce for local market, 15 percent for the national market, 4 percent for both national and local, 6 percent for national and foreign markets, and 4 percent for foreign markets. The overall education level of the entrepreneurs was above the national average. Thirty-four percent of respondents had some college education, 30 percent had graduated from high school, and the rest of respondents had at least some high school education.
The reasons given for going into business were diverse. The most common reason was‘‘to let an entrepreneur do the kind of work he/she wanted to do’’ (60 percent) and ‘‘to continue the family business’’ (45 percent). More than 16 percent of the entrepreneurs expressed that they wanted to become wealthy, but 98 percent respondents expressed that they wanted to have steady employment. More than 85 percent of the respondents had some previous business experience in the business in which they were engaged while 10 percent had some business experience but unrelated to their present business interests. Eighty-six percent of the firms started with funds pro- vided solely by their owners, 10 percent from bank funds, and 5 percent from Small Business Investment Companies. Forty-eight percent of entre- preneurs operated at the Commercial stage, 46 percent at the Growth stage, and the remaining 6 percent at the Stability stage. The family businesses operating at the second stage had been in business for about nine years.
Respondents were asked to identify important economic concerns re- garding running their family businesses at various stages of their growth and development. Several possible factors for concern were suggested and are presented inTable 3. The respondents were asked to comment on the stages they had reached, but answers were not expected on stages that they had not attained. Table 3 presents the relative frequencies of occurrence of each type of problems encountered at the four different stages of family business development.
From the respondents’ rankings, the following factors were important economic concerns: domestic competition, high interest rates, unavailability of long-term capital and lack of financial assistance, growth of the economy,
state or local taxes, labor costs and labor quality, energy costs, and low demand. The respondents indicate that competition is increasing from other parts of the country and from foreign competitors.
The survey results show dramatic changes from the first three stages of development to the stability stage in some areas. Despite the fact that the majority of problems constraining entrepreneurs occurred during the first three stages, a majority of firms managed not only to survive but also to increase their family business activities. Their businesses identified as major problems those that related to the investment environment such as inad- equate energy supply, red tape, non-convertible currency during first years of operation, and the lack of exposure to international concepts of ac- counting. They also repeatedly expressed that the greatest hurdle to eco- nomic growth of the non-state sector is infrastructure bottlenecks. The poor infrastructure represents an enormous strain on the growth of the economy, and its limitations act as a deterrent to foreign investment in many areas.
Respondents stated that what is required for business growth and success is to meet international standards, promote the highest quality service, im- prove management and efficiency, and have the technology appropriate to their needs.
Table 3. Important Concerns while Running the Family Business According to the Stage of Firm’s Development.
Name of Concern Percentage of Occurrences by Stage
I II III IV
High interest rates 77 76 72 75
Unavailability of financial assistance 93 99 87 81
Domestic competition 87 76 56 27
Energy costs 87 84 87 90
Growth of economy 98 87 88 77
Availability of short-term capital 45 67 80 100
Regulatory environment 67 57 45 46
Weak collateral position 75 56 74 6
Lack of quality control 78 74 41 35
Ability to pass on price increases 73 79 8 –
State or local taxes 15 20 46 56
Low demand 36 46 14 4
Lack of commercial Advertising 68 28 4 –
Foreign competition 23 12 7 13
Stage I, conception and development; Stage II, commercialization; Stage III, growth; Stage IV, stability.
The success of these businesses in the presence of an inadequate infrastructure indicates that there must be some competencies working in the background. Table 4summarizes the competencies reported by the re- spondents.
Innovationis one of the key elements of competency at all stages of growth and development of the family businesses. New and family businesses that areinnovativeor oriented toward innovative strategies are typically resource poor, that is, low in key resources, such as financial, human, and social capital. Although the resources that a start-up family business has at its disposal may be sufficient to pioneer the market, growth creates a consid- erable and dangerous strain on these resources. Architecture plays an im- portant role as a competency. It involves the skills of knowing where critical interactions occur for a business and collecting information about such interactions in the most timely and cost-effective manner. These competen- cies play a very important role in the earlier stages of a firm’s growth and development.
Reputationplays an important role in the later stages of a firm’s growth and development. Possession of a positive reputation serves to lower the search costs of customers, buyers, and suppliers and thus aids them in their decisions regarding doing business with the family business. Because it takes a long time to develop and is difficult to imitate, the reputation of family firms can be a source of sustainable competitive advantage in the very difficult environment of the reforming economy.
Table 4. Occurrence of Competencies Expressed as Necessary for Success by Development.
Type of Competency (in Percentages)
Architecture Reputation Innovation Controlling Strategic Assets Stage I: Conception and development
99 26 79 70
Stage II: Commercialization
82 78 90 89
Stage III: Growth
96 89 94 69
Stage IV: Stability
75 94 97 55
Competence in controlling strategic assets enhances firm profitability. It will generate competitive pressures from new entrants or industry compet- itors that eventually lead to the dissipation of excess profits and a return to competitive conditions. Polish family businesses have been operating in in- creasingly competitive conditions since the economic and political reforms were implemented. Controlling strategic assets has been mentioned as more important at the earlier stages of growth and development. Skills developed in exploiting market situations that limit the extent of price competition, restrict entry, or raise the price of switching to substitute products provide long-term advantages to the family firms that possess them.
The specific sets of competencies that are necessary for success vary widely across Polish family businesses and are difficult to know prior to entry due to the nature of the tourism and hospitality industry. A new family business can be successful with largely industry-specific competencies at the time of initial entry, but it will require organizational and marketing capabilities to grow and prosper.