NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
November 24, 1999
Results from a national survey of family owned businesses indicate a growing interest in entrepreneurship, as represented by the significant number of first-generation family firms in the survey sample (540). Another finding from the survey is that those 540 first-generation businesses earned an average of nearly $21,000 more than the poverty threshold, which is based on family size.
Given the fact that federal and state welfare-reform policies encourage entrepreneurship as a vehicle for self-sufficiency, the survey's findings hold promise. But a researcher at North Dakota State University involved with the study is cautioning against reading too much into these particular findings because of key differences between those families that are currently in business and potential business owners.
Measuring Success
"Family businesses that had failed within the first year of operation were not part of this study. None of those start-up failures are in there," says Margaret Fitzgerald, an assistant professor in NDSU's child development and family science department. "The reason the failed businesses were excluded is because one of the survey's goals was to identify patterns of success among existing firms."
Fitzgerald helped compile survey data from the north central region, which includes Minnesota and the Dakotas, as well as Illinois, Indiana, Iowa, Kansas, Michigan, Missouri, Nebraska, Ohio and Wisconsin. Researchers conducted the 1997 National Family Business Survey between the summer of 1997 and the end of February 1998, and they achieved an overall response rate 71.1 percent (out of 1,116 randomly selected U.S. households). Of the 794 families who agreed to participate, 673 completed the two-phase interview process.
For purpose's of the study, researchers defined a family business as one that is owned or managed by one or more family members. In addition to having been in business for at least a year, the owner-managers of the family businesses needed to have worked at least six hours per week on a year-round basis or have compiled a minimum of 312 hours for the year, Fitzgerald explains. They also had to be involved in the day-to-day management of the business.
Differences and Similarities
"The study highlighted some key differences between first-generation and established family businesses. Location was one," Fitzgerald says. "Slightly more than half of the first-generation firms were home based while only a third of the established firms were headquartered in homes."
The data also show that first-generation family businesses used a smaller amount of home equity to secure business loans, compared to established firms, but the newer businesses used a greater amount of other real estate and property for collateral, Fitzgerald says.
Both groups of survey respondents were well educated and mature; managers of first-generation and established firms averaged two years of education beyond high school and were in their mid-40s. Another similarity is that both groups of family businesses had close community ties, with managers having lived in their respective areas for an average of 20 years, Fitzgerald says. In addition, about 90 percent of the managers for both types of firms were married.
Challenges and Opportunities
"Demographic differences between survey respondents and welfare recipients could very well influence the success rates of future family business start-ups," Fitzgerald observes. "People coming off welfare who have no collateral, less education, are new to a community and/or are single may have greater difficulty in tapping entrepreneurship as a means of self-sufficiency."
At the same time, survey results indicate that more than a third of first-generation family business owner-managers were women, compared to only 15 percent for established firms. Besides being about 50-percent home based, many first-generation family businesses appear to be running on less capital than the established counterparts. Also, more than half of first-generation firms surveyed worked in the wholesale and professional services industries.
"Given those factors, entrepreneurship may offer an attractive alternative to off-farm employment for some North Dakota women," Fitzgerald says.
Passing It On
In the study, first-generation family businesses averaged about $520,000 in gross income, compared to about $3.3 million for established firms. Fitzgerald says that the differences in income between these two groups may stem from the greater return-on-investment the established family businesses are now harvesting. If so, then it's likely that the longer-running a family's business success is, the greater the opportunity to accumulate assets, which owner-managers can pass along to their offspring.
"Identifying factors that predict earnings for first-generation family firms will help start-ups succeed and endow the next generation with assets to enhance their welfare, as the more established family businesses are able to do," Fitzgerald says.
A Regional Perspective
From among the findings in the north central region, Fitzgerald offers these highlights:
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Source: Margaret Fitzgerald (701) 231-8280
Editor: Dean Hulse (701) 231-6136