The Pennsylvania State University. The Graduate School. College of Agricultural Sciences THE INDIVIDUAL-INSTITUTIONAL-OPPORTUNITY NEXUS:

Transcription

1 The Pennsylvania State University The Graduate School College of Agricultural Sciences THE INDIVIDUAL-INSTITUTIONAL-OPPORTUNITY NEXUS: EXAMINING INTERACTION, PURPOSE, AND OPPORTUNITY IN RURAL ENTREPRENEURSHIP DEVELOPMENT A Dissertation in Rural Sociology by Michael William-Patrick Fortunato 2011 Michael W-P Fortunato Submitted in Partial Fulfillment of the Requirements for the Degree of Doctor of Philosophy December 2011

2 The dissertation of Michael W-P Fortunato was reviewed and approved* by the following: Diane K. McLaughlin Professor of Sociology, Rural Sociology, and Demography Dissertation Adviser Chair of Committee Clare Hinrichs Associate Professor of Rural Sociology Leland Glenna Associate Professor of Rural Sociology Theodore R. Alter Professor of Agricultural, Environmental, and Regional Economics Thomas S. Lyons Field Family Chair in Entrepreneurship Baruch College Special Member Ann R. Tickamyer Department Head Agricultural Economics and Rural Sociology *Signatures are on file in the Graduate School ii

3 ABSTRACT There is strong empirical support behind the notion that entrepreneurs especially high-growth entrepreneurs are disproportionately drawn to well-diversified metropolitan areas and areas containing institutions of higher learning and government research. This diagnosis is disappointing news for lagging regions, frequently rural areas once engaged in manufacturing and extraction, seeking to develop and diversity their small business sector. With little hope of offering big city amenities, spatial analyses of self employment data in the United States reveal that the share of self employed individuals and the amount of income they make is not unilaterally low, and varies widely and almost unpredictably across rural America. Using a collective case study methodology, this research examines behavioral, institutional, and cultural differences between areas of high and low entrepreneurship among entrepreneurs and local institutional leaders (related to small business development) in three U.S. states: Maine, Pennsylvania, and Wisconsin. Qualitative and quantitative results are compared to understand, from the perspective of local entrepreneurs and institutional leaders themselves, how local society and strategic interactions have structured the development of entrepreneurial opportunity (or lack thereof) in areas commonly affiliated with economic decline. Areas of high and low entrepreneurship are compared, as well as differences in responses between regions and between entrepreneurs and institutional leaders, to understand more about differences in everyday interaction that may either facilitate or inhibit the cultivation of a robust small business sector. iii

4 TABLE OF CONTENTS List of Tables....vi List of Figures...viii Acknowledgements....ix Chapter 1: Supporting Rural Entrepreneurship 1 Introduction 1 A Research Question... 3 Examining the Local Society: Entrepreneurs, Institutions, and Opportunity...5 The Importance of This Research..8 Structure of the Dissertation..10 Chapter 2: What Is Rural Entrepreneurship. 13 Introduction...13 Who is an Entrepreneur?...14 Rural Entrepreneurship...19 Challenges Facing Entrepreneurs in Rural Areas..21 The Strength of Rural Areas for Entrepreneurship.25 Measuring Entrepreneurship in Rural Areas...33 Entrepreneurship Policy.. 38 Summary...41 Chapter 3: A Framework for Analyzing Entrepreneurship Development in Rural Areas..42 Introduction 42 Foundations of an Integrated Framework 43 Nexus A: Individual-Institutional Interaction.54 Nexuses B and C: How Entrepreneurs and Institutions Structure Opportunity..63 Nexus D: Bridging Individuals, Institutions, and Opportunities.74 Summary...79 Chapter 4: Methodology..81 Introduction...81 Case Study Methodology 82 Case Study Procedures..86 Issues of Reliability and Validity..114 Summary.119 Chapter 5: Community Profiles.121 Introduction.121 Site Selection..122 Community Profiles and Background..133 Summary and Community Comparison..146 Chapter 6: Results of the Written Survey.149 Introduction..149 Profile of the Respondents 151 Views About Interaction.158 Views About Opportunity 167 Views About Roles..173 Summary of Written Survey Results 181 Chapter 7: Results of the Face-to-Face Interviews 184 Introduction..184 Rockland, Maine..186 iv

5 Rumford, Maine 195 McConnellsburg, Pennsylvania.205 Waynesburg, Pennsylvania 212 Alma, Wisconsin Spooner, Wisconsin 230 Summary of Face-to-Face Interview Findings 240 Chapter 8: Blended Analysis..246 Introduction..246 Community Differences..247 Hypothesis 1: Interaction and Community..249 Hypothesis 2: A Strategic Community Purpose.255 Hypotheses 3 and 4: Coordination About Local Sources of Opportunity 257 Hypothesis 5: The Individual-Institutional-Opportunity Nexus..261 Chapter 9: Implications and Suggestions for Ongoing Research.264 Introduction Implications of the Individual-Institutional-Opportunity Approach 264 Doing Entrepreneurship Development.267 Addressing Limitations of the Research Ideas for Ongoing Research..274 Conclusions..278 Appendix A: Community Profile Data.280 Site Selection Problem Analysis 286 Appendix B: Research Instruments 289 Face-to-Face Interview Protocol 290 Written Survey Instrument..292 Works Cited 298 v

6 LIST OF TABLES Table 3.1: Comparison of Shane s Discovery Approach and Sarasvathy s Creation Approach..69 Table 3.2: Entrepreneurship Development: Community Example across Two Dimensions...78 Table 4.1: Community Profile Measures, Unit of Analysis, and Source..98 Table 4.2: Opportunity-Focused Discovery and Creation Items on the Written Survey (Strongly Agree through Strongly Disagree).104 Table 4.3: Entrepreneurial Community (EC) Components..105 Table 5.1a: Compound Entrepreneurship Calculation for Nonmetro Maine Counties, Ranked Highest to Lowest 124 Table 5.1b: Compound Entrepreneurship Calculation for Nonmetro Pennsylvania Counties, Ranked Highest to Lowest 125 Table 5.1c: Compound Entrepreneurship Calculation for Nonmetro Wisconsin Counties, Ranked Highest to Lowest 126 Table 5.2: Study Counties (With Compound Entrepreneurship Index in Parentheses) and Municipalities, and Their Locations (Low Entrepreneurship Communities Circled In Red, High In Green)..132 Table 6.1: Age Characteristics of Survey Respondents Table 6.2: Educational Attainment of Survey Respondents.152 Table 6.3: Reported Household Income of Survey Respondents Table 6.4: Percentage of Household Income from Entrepreneurial Business for Survey Respondents Entrepreneurs and Individuals Who Are Entrepreneurs and Institutional Actors..155 Table 6.5: Average Years Spent in Community/Position/Business for Survey Respondents.156 Table 6.6: Community Nativity for Survey Respondents Table 6.7: Reported Interaction Levels Among Entrepreneurs, and Between Entrepreneurs And Institutions 158 Table 6.8: Where Interaction Occurs Among Entrepreneurs, and Between Entrepreneurs And Institutions 161 Table 6.9: Mean Attitudes Regarding Responsibility for Collaboration and Community Benefit For High and Low Entrepreneurship Communities (With Frequency Analysis).163 Table 6.10: Mean Attitudes Regarding Responsibility for Collaboration and Community Benefit For Entrepreneurs, Institutional Actors, and Both (With Frequency Analysis).165 Table 6.11: Mean Attitudes Regarding Opportunity For High and Low Entrepreneurship Communities (With Frequency Analysis).168 Table 6.12: Mean Attitudes Regarding Opportunity for Entrepreneurs, Institutional Actors, And Both (With Frequency Analysis) 171 Table 6.13: Mean Attitudes Regarding Opportunity Development Roles for High and Low Entrepreneurship Communities (With Frequency Analysis).175 Table 6.14: Mean Attitudes Regarding Opportunity Development Roles for Entrepreneurs, Institutional Actors, and Both (With Frequency Analysis).178 Table A: 2005/09 Population Estimates for Study Communities (County and Municipal) 281 Table B: 2005/09 Population Estimates for Age Groups and for Study Communities (County and Municipal)..281 Table C: Median Household Income for Study Counties and Municipalities, Table D: Poverty Rates for Study Counties and Municipalities, 2005/ Table E: Unemployment Rates for Study Counties and Municipalities, 2005/ vi

7 Table F: Labor Force Participation Rates for Study Counties and Municipalities, 2005/ Table G: Educational Attainment for Study Communities for Adults Age 25 and Above, Table H: Employment by Industry by High/Low Entrepreneurship Community Categorization and State, Table I: Presence of Facilities Believed to be Associated with Entrepreneurship in the Six Study Municipalities.284 Table J1: Site Selection Analysis for Nonmetro Maine Counties Using Original REIS 2008 Source Data (2009)..286 Table J2: Site Selection Analysis for Nonmetro Pennsylvania Counties Using Original REIS 2008 Source Data (2009) 287 Table J3: Site Selection Analysis for Nonmetro Wisconsin Counties Using Original REIS 2008 Source Data (2009)..288 vii

8 LIST OF FIGURES Figure 3.1: Conceptual Domain of Entrepreneurship with Target Study Area 52 viii

9 ACKNOWLEDGEMENTS This dissertation is dedicated most especially to Amy Schmalz, who is my constant inspiration and the most extraordinary and wonderful companion imaginable; William K. Lawrence, who made me an entrepreneur and filled me with creativity; Michael G. Fortunato, who supported me and listened when I needed it most; Diane K. McLaughlin, who taught me science and insightfulness, and whose patient guidance genuinely shaped me as a scholar; Theodore R. Alter, who taught me philosophy and compassion, supported the completion of this dissertation, and whose belief in ideas beyond the black stump I find to be truly magnificent; Clare Hinrichs, Leland Glenna, and Tom Lyons, who braved the reading of this dissertation and offered invaluable feedback; Kerry Moritz, for laughing at me when I became too serious; Bunny Willits, for unending encouragement and wisdom; the Department of Agricultural Economics and Rural Sociology at Penn State University, for being exemplary colleagues and friends; for my remaining family and friends, who stuck with me through this process; and for all the entrepreneurs out there, working hard every day to make life a little better for all of us. ix

10 CHAPTER 1: SUPPORTING RURAL ENTREPRENEURSHIP INTRODUCTION This dissertation addresses rural entrepreneurship, and seeks to understand how communities especially rural communities can better support entrepreneurship in their local economy. In the United States, rural areas are rich with entrepreneurial traditions, dating back to the first farmers and frontiersmen who produced valuable commodities despite facing many serious risks (Richards and Bulkley 2007). Since the founding and expansion of the United States, entrepreneurship has been fundamentally intertwined with the American identity, attracting enterprising individuals from across the globe that came in search of the American dream. During the industrial revolution, much of this entrepreneurial growth was driven by innovative advances in agricultural technology, as the United States developed a global preeminence in agricultural machinery, mining, and farming technology (Rosenberg and Foner 1982). Indeed, the spirit of risk-bearing enterprise, of technological advancement, and of opportunistic productivity was nowhere more evident than across the fields of rural America, even as major American cities developed rapidly into centers of manufacturing and finished goods technology. Today, entrepreneurs remain an important part of rural society, even if rural entrepreneurship has changed. Many of the changes that occurred took place across the macro-economy, forcing economic actors in rural areas to react to massive economic structural shifts in industry and labor (Falk and Lobao 2003). Rural economies developed into manufacturing centers where low-cost labor and real estate were more readily available than in the city, and eventually shifting toward a service sector paradigm (McGranahan 2003) often providing such services through large, externally-owned regional, national, and global chain 1

11 establishments (Stone 1997). The proliferation of large chain establishments and service providers has negatively impacted entrepreneurship in some industries, especially retail (Stone 1997). And, in a globalizing world dependent upon instant communication and globalizing markets, the remoteness of rural areas, their isolation from important business support networks, and limited local demand for innovative products and services continue to be major barriers faced by entrepreneurs in rural areas (Dabson 2001). Does this imply that rural entrepreneurship is slowly fading away? Certainly not, although the nature of entrepreneurship has changed, and looming threats to the viability of rural entrepreneurship are continuously posed by fast-paced changes in the global economy. Henderson (2002) has found evidence that self-employment 1 in rural areas has, at times, outpaced self-employment rates in urban areas. Dabson (2007) argues that more rural communities are turning to entrepreneurship development as a local economic development strategy that can provide a low-cost, high-impact alternative to industrial recruitment. Economic gardening, or supporting local businesses that are likely to grow into sustainable sources of jobs and local revenue, is increasingly taken seriously as a means to improve local economies (Barrios and Barrios 2008). And, many entrepreneurs are driven to rural areas for reasons not considered in mainstream theories of entrepreneurship dealing with profit and economic gain: lifestyle (Hollick and Braun 2005), culture (Hustedde 2007), social improvement (Dees 1998), and the opportunity to build something (Sarasvathy 2006). These will be covered in more detail in the next chapter, but it is sufficient to say that rural entrepreneurship continues to thrive in its own way. And furthermore, rural entrepreneurship may be quite different from entrepreneurship in urban areas, an idea frequently overlooked in the mainstream literature. 1 The differences between self-employment and entrepreneurship will be discussed in the following chapter. 2

12 Three major studies have examined the spatial incidence and determinants of entrepreneurship from a regional perspective. These three studies will be mentioned often in this work, as they provide a basis for understanding variation in entrepreneurship levels as one travels from place to place. These three studies Henderson et al. (2007), Goetz (2006), and Acs and Armington (2006) compared entrepreneurship at the county level. Each study will be described in more detail later in this research. However, while each focused on slightly different factors affecting entrepreneurship, several of the findings were consistent. First, Acs and Armington (2006) placed emphasis on the fact that entrepreneurship is an increasingly urban phenomenon, and that new business starts are more likely to be found in urban areas, with their proximity to dense business networks, research universities, and concentrated local demand for products and services. Henderson et al. (2007) emphasized that highly entrepreneurial urban and rural communities are associated with different place attributes, suggesting that rural and urban entrepreneurship are indeed different, and fueled by different local factors. Finally, Goetz (2006) and Acs and Armington (2006) both showed that, even in rural areas, the level of entrepreneurial and self-employment activity varies widely as one travels from place to place. Summarizing all three studies, these scholars found that, while entrepreneurship thrives in many major cities, it thrives in many rural places too but likely for different reasons. A RESEARCH QUESTION The brief discussion above suggests three propositions. First, entrepreneurship is not the same everywhere, and the incidence of self-employment and new business starts is different from place to place, even across rural areas. Second, rural entrepreneurship is, for many reasons, predicted to be different than urban entrepreneurship not only in terms of the kinds of businesses one finds in rural areas, but also in terms of attitudes about entrepreneurship and 3

13 what rural businesses need to succeed. Third, entrepreneurship development is gaining prominence as a local development technique due to its low cost and high potential for generating jobs. Taking these together, if a community wishes to pursue entrepreneurship development as a local economic development strategy, and if rural areas have much in common economically, socially, and historically, it would be useful to know more about the source of entrepreneurial variation across rural areas. In its most simple form, the research question addressed by this dissertation is as follows: What causes variation in entrepreneurial activity across rural communities and regions that are otherwise fairly typical to rural America? Answering this question is not easy. As will be discussed in the next chapter, mainstream theories of entrepreneurship are derived from microeconomic theory, and focus on the characteristics and behaviors of firms and their owners (Davidsson 2008). Also, one finds many studies that examine entrepreneurial activity at the macro-level of the nation state, two such examples being the well-known Global Entrepreneurship Monitor annual report, and the recent Global Entrepreneurship and Development Index (GEDI) by Acs and Szerb (2011). Traditionally, less attention has been given to community and regional determinants of entrepreneurship. And, while Acs and Armington (2006), Goetz (2006), and Henderson et al. (2007) have advanced our understanding of which local attributes contribute to entrepreneurship development through spatial econometrics, other scholars like Hustedde (2007), Dana (1995), and Johannisson and Nilsson (1989) have focused on the importance of social factors, like networks and cultural support within the local society. These latter scholars represent a perspective that is more difficult to measure, but could offer fundamental insights as to why entrepreneurial activity differs across otherwise similar rural areas. Why might this be the case? As Dabson (2001) argues, the rural business climate is essentially defined by the absence of urban support systems for business, and all rural areas are quite similar in this way. With such cultural and physical similarities spanning most rural areas, something other than 4

14 physical, infrastructural, or policy aspects of place may at least partially account for the variation in entrepreneurial activity across rural America. It is the goal of this research to understand as much about these other factors found within the local society and their importance in supporting (or inhibiting) local entrepreneurship. EXAMINING THE LOCAL SOCIETY: ENTREPRENEURS, INSTITUTIONS, AND OPPORTUNITY If entrepreneurship varies widely across areas that have rurality in common, and face the same rural challenges, then what attributes of the community may account for this variation? This is a question that may be better answered by an understanding of local societies than by a microeconomic examination of firm behavior. Wilkinson (1991) argued for the importance of the local society in shaping local action, while other sociologists, like Granovetter (1985), emphasized the importance of social structure to economic action and outcomes. While entrepreneurship research has had a difficult time finding consistent results about the characteristics of people who launch firms (Davidsson 2008, Low and MacMillan 1988), the impact of the local society on entrepreneurship has received less attention in empirical research, and thus less is known about this important link between the local society and entrepreneurship. These less common studies of the local society have produced interesting results, however. A good example is Tolbert et al. (2002), who found that high levels of local self-employment were associated with lower poverty and unemployment levels, and higher local incomes. Johannisson and Nilsson (1989) also found that societies with stronger local and community networks (especially those oriented toward the special interest of small businesses) also had higher new business success rates over time. Such studies are important because they underscore the intersection between the entrepreneur and the local society. 5

15 This research will focus on three elements of the local society in rural communities and their effects on entrepreneurship. The first element consists of entrepreneurs, naturally. It is critical to learn, from the perspective of entrepreneurs themselves, what about the local society enables them to be successful, and what holds them back from achieving their full potential. The second element consists of local institutions. Institutions are in many ways reflections of the broader values in a society, organized into rules, policies, and norms (Schmid 2004). Institutions are identifiable and researchable, and it is important to understand if local institutions reflect the core beliefs of local entrepreneurs, or if they are ambivalent or in opposition toward the small business sector. The third element consists of opportunity. One can think of opportunity as the currency of entrepreneurship. It is the chance a person has to do something commercially productive to serve a need or fill a market niche (Shane 2003). And, the more opportunities one has to start a business, the more likely they are to actually launch a company, or multiple companies. These three elements become more meaningful when they are viewed as relationships. For example, do the ways in which entrepreneurs and local institutions interact affect the ability of entrepreneurship to thrive locally? And are entrepreneurs and institutions thinking about local opportunities in the same way? Have interactions (or a lack of interaction) structured the ways in which opportunities are transformed into real entrepreneurial businesses? It is a complex relationship, but one that recognizes the importance of the link between the local society, its institutions, and its entrepreneurs. Local interaction is a common theme in the community development literature, and one that offers a good perspective for studying the interaction between entrepreneurs and local institutions. One particular area of community theory that will be used here is Wilkinson s (1991) notion of community interaction, and the community s capacity for such interaction. Wilkinson (1991) has suggested that the capacity of community members to act purposively and in the interest of the entire community in turn enhances the ability of that community to meet its 6

16 own needs, to anticipate community-wide challenges, and to work collectively toward the enhancement of the well-being of every member of that community. This research will examine the capacity of entrepreneurs to interact with one another purposively and strategically and to link up with their local institutions to create a more supportive environment for entrepreneurs. It is presumed that areas with high levels of entrepreneurial activity will have a history of such interaction. Another intriguing perspective that has blossomed in the literature, and especially in the literature on entrepreneurship theory, is the notion of opportunity as the central substance of entrepreneurship. Seeking opportunity, and launching a business to take advantage of that opportunity, is what makes an entrepreneur entrepreneurial. A current debate exists in the literature about the nature of opportunity, where it comes from, and how it is used to launch commercial businesses. For example, is opportunity external to the entrepreneur, found in the environment somewhere, meaning that the entrepreneur must locate and exploit this opportunity to be successful (Shane 2003)? Or is opportunity internal to the entrepreneur, consisting of the entrepreneur s skills, abilities, desires, tastes, and network connections, making the entrepreneur s job one of assembling these elements into something useful (Sarasvathy 2006)? As will be discussed later, these different views of opportunity have different implications for how entrepreneurship development would be approached in a community, and who should be responsible for it. This research will examine different views about opportunity among institutions and entrepreneurs, and how these views may impact the ability of local entrepreneurs to launch a thriving business. 7

17 THE IMPORTANCE OF THIS RESEARCH Entrepreneurship development is an important topic, as small businesses account for the majority of economic growth in the United States (Davis 2008, Baumol et al. 2007, Acs and Armington 2006). And, in rural areas that struggle to achieve economic growth, entrepreneurship seems like a reasonable solution. Anyone can technically start a business, businesses fill critical needs in the community, employ local people, and entrepreneurship does not necessarily require expensive government programs or tax abatement incentives. The term entrepreneurship seems to exude the sense that it can fix anything economic, leading to only positive outcomes. As Carl Schramm, president of the Kaufman Foundation, mentioned in a recent speech, support of small businesses is the centerpiece of job generation in America, and removing barriers to entrepreneurial job generation should be a central focus of policy makers interested in stimulating innovation (Schramm 2011). Let us assume for a moment that entrepreneurship is a good rural economic development strategy. For now, let us say entrepreneurship enables people to create their own jobs, create jobs for others, to be their own boss and live an entrepreneurial lifestyle, to have more control over their economic destiny than working for an employer, and to generate wealth for themselves and tax revenue for their community. Let us also say that these entrepreneurs have a reasonable degree of commitment to their community, and will not simply leave if a more profitable opportunity arises elsewhere. Surely, development scholars and practitioners would want to cultivate more rural entrepreneurship, especially in economically distressed communities, to capture some of these benefits. But, place-based studies of entrepreneurship affirm that entrepreneurship is stimulated by attributes primarily associated with urban areas (Acs and Armington 2006). And, many entrepreneurship assistance programs have been found to be only moderately effective (Dabson et al. 2003, Aziz 1984), or highly fragmented, disorganized, and limited in scope (Lichtenstein and Lyons 2001). Should rural areas try to 8

18 mimic urban areas to stimulate entrepreneurship, or simply embrace their fate as being perpetually less entrepreneurial than their urban counterparts? One thing that can be done to support entrepreneurship in rural areas is to understand the difference between how high and low entrepreneurship societies operate areas that have much in common, just not their level of local entrepreneurship. Within these differences may be new insights and strategies for interaction, opportunity seeking, or both, that are feasible areas for development and engagement in order to stimulate entrepreneurship. It is a first step toward understanding what high and low entrepreneurship areas have in common, and what they do differently, in order to understand these differences and enhance and engender productive forms of interaction where it may be beneficial to entrepreneurship development. Since empirical studies of rural entrepreneurship are still rare relative to studies of firm and owner behavior, it is important to rely on what we already know about both entrepreneurs and rural areas, but not rely on this information too heavily if it prevents us from seeing other relevant concepts that have not been explored. The end goal of this research is to combine the perspectives above in a meaningful way to get a deeper understanding of how collective action and differing perceptions of opportunity may manifest differently in areas of high and low entrepreneurship. Specifically, the ways that entrepreneurs interact among themselves, and the way they interact with their institutional leaders, may likewise influence their perceptions about opportunity. These perceptions about opportunity may in turn affect the ability of entrepreneurs to run a business, or start new businesses, or to even consider starting and running a new business in the first place. And, if this is true, the result of different, socially-influenced perceptions of opportunity would in theory lead to different levels of entrepreneurial activity. 9

19 Furthermore, finding better solutions for supporting entrepreneurship locally gains added importance when considering the wide diversity of situations facing rural communities. Solutions must therefore be genuinely realistic, and more highly customized than a one-sizefits-all development model or entrepreneurship assistance program. It would be unrealistic to assume, for example, that a technology cluster can easily be generated de novo in a rural community, or that a venture capital group or research university could be successfully launched in that community. Building an incubator or business park and lowering local taxes for new businesses may stimulate entrepreneurial activity or it may not. It may be just as difficult to inspire or educate individuals to start meaningful, low-risk businesses that will inevitably lead to substantial growth in areas where such behavior has not been common. And, taking advantage of momentum, or an increasing rate of business startups, is impossible when speaking of areas where small businesses struggle to keep their doors open. To be optimally effective, entrepreneurship development solutions must therefore account for a wide range of challenges faced by rural small businesses, the smaller scale of private and public funding options (compared to large urban areas), and the cultural appropriateness and feasibility of those solutions. STRUCTURE OF THE DISSERTATION The dissertation begins by offering some background on rural entrepreneurship. Chapter 2 examines different types of entrepreneurs found in rural areas, and some of the trends that have shaped entrepreneurship in rural areas and that differentiate it from entrepreneurship in urban areas. Chapter 3 then introduces an elaborated conceptual framework. Based on the work of Busenitz et al. (2003), this chapter briefly discusses the connections between entrepreneurs, local institutions, and sources of opportunity in the community setting. Originally elaborated by 10

20 Fortunato and Alter (2011), the framework will be summarized here, and some of the key implications of using this framework will be discussed in detail. A particular emphasis will be given to understanding this framework in the context of rural communities and rural community interaction. Chapter 4 presents a mixed method, multiple case study research design. Mixed methods are an excellent way to examine many angles of a complex phenomenon like entrepreneurship. Using case studies enables the researcher to examine entrepreneurs and local institutional actors in their natural habitat. Chapters 5, 6, and 7 present the results of each of the three methods: community profiling, quantitative analysis of a survey of entrepreneurs and community leaders, and qualitative face-to-face interviews with these same entrepreneurs and community leaders. Chapter 8 takes the summary findings from each of these individual analyses, and presents a blended analysis that examines patterns across all three sources of information. Chapter 9 discusses the implications of these findings, presents new directions for research, and also opens the discussion for new ideas about applied strategies for entrepreneurship development given the findings, and a brief conclusion of the work. This dissertation aims to be illustrative of some of the critical issues facing rural entrepreneurs and the local institutions that support them, and to shed light on a wide range of issues facing entrepreneurship in rural areas. Understanding ways that dynamics within the local society can affect local entrepreneurship can make it easier to identify hidden barriers to entrepreneurship development, and ideally lead to realistic, locally-driven solutions for overcoming these barriers. This is not intended to say that entrepreneurship development is the best path to a strong local economy for every community. However, entrepreneurship is one route to rural development with some very tangible and important benefits that may be ideal for many communities who wish to develop their local economies from the bottom up. Removing 11

21 barriers to entrepreneurship where it is desired, and improving relationships that enhance entrepreneurial activity, may be a grand leap toward the development of many facets of community life in some rural areas. To take the first step toward this vision, the next chapter discusses rural entrepreneurship, and some of the complex forces shaping this important social phenomenon. 12

22 CHAPTER 2: WHAT IS RURAL ENTREPRENEURSHIP? INTRODUCTION In the previous chapter, it was suggested that entrepreneurship in rural areas is different from entrepreneurship in urban areas, and this is largely due to different development patterns, cultural and economic history, and industries found in rural areas. Moreover, while mainstream studies of entrepreneurship tend to focus on firms and their owners, or examine entrepreneurship in the general case, considerably less attention has been given to the special situations, challenges, and advantages facing rural entrepreneurs. Before delving into a conceptual framework that links collective action in the local society to support for entrepreneurship, this chapter is intended to give the reader a short background about entrepreneurship in rural areas of the United States. The chapter begins by asking the question, who is an entrepreneur? Some of the different conceptualizations of what constitutes entrepreneurship in the literature are discussed, as the definition of entrepreneurship varies greatly across studies. Then, attention will be given to the different types of entrepreneurs one finds across the rural landscape, and how these may differ from entrepreneurs one finds in the city or urban suburbs. The unique challenges and situations faced by entrepreneurs in rural areas are presented. Finally, the issue of rural and small business policy will be raised, as current policy aimed at helping entrepreneurs is widely viewed as having failed to help entrepreneurs to overcome their unique challenges. 13

23 WHO IS AN ENTREPRENEUR? Looking across the wide range of literature on entrepreneurship, the breadth of definitions of entrepreneurship one finds is very large. Scholars of entrepreneurship have themselves described the field of entrepreneurship research as having an identity crisis (Davidsson 2008, p. 13). Researchers have said that the field is getting more pieces of the puzzle, but no picture is emerging (Koppl and Minniti 2003, p. 81) when it comes to understanding entrepreneurship. Another scholar argues that abstract concepts of an entrepreneur cannot easily be translated into objective and operational criteria for the purpose of classification (Vogel 1989). Indeed, Davidsson (2008) even titled his most recent book The Entrepreneurship Research Challenge, partly because of the difficulty that scholars of entrepreneurship face in defining let alone measuring entrepreneurship as it exists in modern society. However, simply mention the word entrepreneur to any of your friends and colleagues, and they will probably have a reasonably consistent understanding of what you mean. Entrepreneurship may evade a definition in the academic literature, but its importance and impact on everything from global economies to local well-being are well understood (Davis 2008, Baumol et al. 2007). One of the main reasons that entrepreneurship has been so difficult to define conceptually is that entrepreneurship, at least until recently, was never given standalone status as a field of research. It was typically approached by researchers as a subset of a variety of different disciplines, including economics, business management, sociology, and psychology (Low and MacMillan 1988). With different disciplinary perspectives forming the base of entrepreneurship research as a subset of their individual disciplines, the literature on entrepreneurship appears fragmented, when in reality, these various disciplines have all grappled with the question of what makes entrepreneurs different from non-entrepreneurs. Key works on entrepreneurship in economics have positioned the entrepreneur as a market maker or efficient reallocator of resources when compared to a business manager 14

24 who seeks to maximize efficiency within an existing business model (see Schumpeter 1934, Baumol 1968, Kirzner 1973). Compare this to psychology, for example, where a greater focus has been on what personality traits and behaviors cause entrepreneurs to embrace risk and launch independent businesses, especially when most of their peers do not (many sources, but see Davidsson 2008, Shane 2003, and Babb and Babb 1992 for thoughtful summaries of this work). Entrepreneurship appears to be a less popular topic among sociologists, but their contributions are nonetheless important. Sociological insights attempting to understand entrepreneurial culture as distinct from other cultures appear with increasing frequency in the entrepreneurship literature (see Hustedde 2007, Dana 1995). Some scholars have focused on the supply side of entrepreneurship, to understand how society shapes one s motivations for launching a business (Thornton 1999). Also, understanding how social networks contribute to successful entrepreneurship (Witt 2004, Saxenian 2002, Brüderl and Preisendörfer 1998), how interaction within a community can improve entrepreneurship outcomes (Korsching and Allen 2004, Johannisson and Nilsson 1989), and more broadly, how economic action such as entrepreneurship becomes embedded in institutions and societal norms (Granovetter 1985), have all influenced the field of entrepreneurship research. No matter what the discipline, a great effort has been placed into understanding the deviant behavior of entrepreneurs when compared to many of their peers. Different from the deviance of criminology, however, much of the emphasis has been on finding better ways to stimulate, replicate, and encourage more people to be entrepreneurial, since the benefits of entrepreneurship are well understood even if the root causes of entrepreneurship are still an important matter for ongoing research (Davis 2008). The fragmented nature of entrepreneurship research means that entrepreneurship is a necessarily broad term that captures a whole range of behaviors, attitudes, motivations, and activities. Davidsson (2008) states, [Business] founders appear to be as heterogeneous as 15

25 any other group of people. It is not possible to profile the typical entrepreneur [no] psychological or sociological characteristics have been found that predict with high accuracy that someone will become an entrepreneur or excel at entrepreneurship. Likewise, no characteristics have been distilled that definitely exclude people from a successful entrepreneurial career (p. 73). As this chapter moves into a discussion of entrepreneurship in rural areas, Davidsson s remarks will become especially important. Theories of the entrepreneur stemming from mainstream economics and business have positioned entrepreneurs as economic agents principally motivated by profit, and by the exploitation of opportunity for personal financial gain (Kirzner 1973). Given the diversity of research on entrepreneurship from many perspectives, and the types of entrepreneurs found in rural areas, this definition would be far too restrictive. If market makers and profit seekers in pursuit of high growth become a litmus test for entrepreneurship, research on rural areas would show that very few entrepreneurs exist across the rural landscape. Indeed, the overwhelming majority of entrepreneurship research has been conducted on urban areas (Wortman 1990, Low and MacMillan 1988) and focused extensively on high growth entrepreneurs (see Saxenian 2002 for a locality-driven example in the Silicon Valley). In rural areas, where one only infrequently finds the urban-style support structures necessary to sustain high growth businesses, a multiplicity of motivations for launching an enterprise may apply (Dabson 2007) 2. An effective definition of who is an entrepreneur, for the purposes of this research in rural areas, must therefore also be broad enough to incorporate the diversity of motivations and business types one finds in a rural area and still concrete enough to discriminate between individuals who are entrepreneurs and non-entrepreneurs (such as managers of existing firms). Davidsson (2008) provides a major contribution to entrepreneurship research by presenting an integrated view that combines some of the most influential work in entrepreneurship research 2 In reality, the emphasis on high growth and profit-seeking entrepreneurship in the literature suppresses the idea that all urban entrepreneurs do not fall into this category, either. 16

26 and theory from several scholars. Rather than define the term entrepreneur, which he deemed too challenging and restrictive, Davidsson instead focuses on defining the domain of entrepreneurship research, within which many forms of entrepreneurship can be observed effectively. To do this, he began with three key elements of entrepreneurship research from Gartner (1988): Entrepreneurship is about behavior (rather than dispositions/characteristics) Entrepreneurship is a process Entrepreneurship is about emergence [meaning that entrepreneurship is not about existing firms, but rather the process of new firms emerging] (in Davidsson 2008, p. 33; italics in original, my additions in brackets) Davidsson believed that Gartner s perspective did not go far enough in explaining how entrepreneurs discover and exploit opportunity, a theme more prevalent in literature that uses economics as a basis for explaining entrepreneurial action. To broaden Gartner s perspective, Davidsson incorporated the following elements of the entrepreneurship research domain from Shane and Venkataraman (2000): The entrepreneurial process consists of two sub-processes, discovery and exploitation Entrepreneurship leads to the emergence not only or primarily of new (independent) organizations, but to the emergence of new goods or services. While their emergence has to be organized (an important part of the exploitation process), this can occur within new or established organizations, that is, through different modes of exploitation Entrepreneurship can have a range of interesting and important outcomes on different levels (in Davidsson 2008, pp ; italics in original) As will be discussed in the next chapter, the notion of entrepreneurial discovery and exploitation has recently been called into question, challenged by a competing perspective 17

27 called effectuation (Sarasvathy 2006). Effectuation means that opportunities are created from an entrepreneur s skills, abilities, and network connections, rather than being discovered in the external environment and exploited systematically (Sarasvathy 2006). This tension between the discovery and creation perspectives will be revisited in Chapter 3. In addition to the elements described above, Davidsson (2008) added the following element to his description of the domain of entrepreneurship research: The economy is characterized by heterogeneity; this remains a permanent feature of economic actors and environments (Davidsson 2008, p. 34; italics in original). From the above, we can define an appropriate domain of entrepreneurship research, and hence entrepreneurial action, to involve the study of dynamic and emergent processes of launching a business, that involve the discovery or creation of opportunities, as well as heterogeneous inputs and outputs, resulting in the creation of a value-adding product or service. To add some specificity within this wide range, Gartner (1990) empirically studied what entrepreneurs considered to be the central features of entrepreneurship. He found the most common of these to be (1) the creation of a new business; (2) new venture development; and (3) the creation of a new business that adds value (p. 20). The third feature is appropriate for a study involving communities because it is not value-laden, and leaves the determination of what adds value open to interpretation by local citizens 3. Among the many definitions of entrepreneurship, novelty, business formation (versus casual self-employment), and value addition in the marketplace are all common features. Davidsson (2008) added precision to the concept of novelty, classifying a new offering as a new product or service, bundle of products 3 See Shane (2009) for an inverse approach. Shane argues that supporting entrepreneurship is bad public policy because it entrusts people without extensive entrepreneurial experience to start businesses. This is bad because such individuals often launch low-growth, low-value businesses that often fail and create few jobs. It should be clear that Shane s perspective on this matter is antithetical to the community-oriented development approach being researched here, by elevating high-tech and highgrowth startups by individuals who are already successful to a level of inherent superiority. 18

28 and services, or price/value relation (competition based on better price, speed, or quality) (p. 17). Combining these ideas, an entrepreneur is defined here as an individual or part of a group of individuals who has created a new business venture within a place to offer a new product or service, bundle of products or services, or price/value relationship that adds value to markets within that community. This is sufficiently broad to include innovative replication, or the introduction of a prior innovation to a new geographic market, or to an old market in a new way. Bringing the focus back to rural areas, while entrepreneurship can be viewed as having a heterogeneity of inputs and outputs, have there been any findings to suggest that the rurality of a particular place may have an impact on this process? The next section discusses rural entrepreneurship within general entrepreneurship, and describes the unique situations faced by many rural entrepreneurs as well as some of the unique groups of individuals that can be found starting businesses in rural areas. RURAL ENTREPRENEURSHIP Is there such a thing as rural entrepreneurship, or does entrepreneurship merely occur in rural, as well as in urban, areas? A review of the literature revealed that there is little consensus on the matter. Wortman (1990) conducted a review of rural entrepreneurship literature two decades prior to this writing, and found four studies that borrowed their definitions of entrepreneurship from similar urban studies. These definitions included concepts like risk taking, successfully undertaking a business venture, innovation, and drive, capabilities, and organizational skills (p. 330). Only once was the term in the rural environment appended to a definition (Spann et al. 1988). Babb and Babb (1992) conducted empirical research, taking a business and personality psychology study originally conducted in the region around Boston, 19

29 replicating the study in rural, northern Florida, and comparing the results. Babb and Babb (1992) found that psychological traits of rural founders, were not greatly different than those of rural nonfounders, urban founders, or managers reported in other studies (p. 361). Few other studies have been undertaken to differentiate rural entrepreneurship from urban entrepreneurship, or rural entrepreneurs from urban entrepreneurs. Far more progress has been made, however, in understanding differences in the local context within which entrepreneurship actually occurs, and several studies have uncovered how differences in the local society have impacted local entrepreneurship. New perspectives on entrepreneurship have moved away from firm-based approaches based in rational action for profit maximization, and personality traits and characteristics of successful firm founders (Davidsson 2008, Karlsson and Dahlberg 2003), and toward an approach that sees ventures as part of dynamic, territorially-defined networks, focusing on the relationship between the entrepreneur and the local society (Audretsch 2003). There is also an emerging tendency of scholars to examine increasingly localized spheres of entrepreneurial activity, seeing entrepreneurship as a fundamentally local process, born of individual, potential entrepreneurs taking advantage of local information and resources (Romanelli and Schoonhoven 2001, p. 40). The nature of localized business activity is constantly changing, as the proliferation of broadband in rural communities has opened new routes for rural businesses to access the global marketplace. However, even in the internet age, the bulk of business support advice is still drawn from within a 10km radius of most businesses (Bennett and Smith 2001), and the nature and structure of local support networks have been shown to greatly facilitate or inhibit entrepreneurial activity in rural areas (Johannisson and Nilsson 1989). This evidence suggests that there is a profound regional and local element to understanding entrepreneurship (Fritsch and Schmude 2006), and that the local environment from a community s physical and business infrastructure (Markley and Macke 2003, Flora and 20