Frontiers of Entrepreneurship Research 1994

Frontiers of Entrepreneurship Research


Abstracts from the 1994 Edition


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    THE IMPORTANCE OF FOUNDER, START-UP PROCESS, AND STRUCTURAL VARIABLESIN ENTREPRENEURIAL FIRMS: A STUDY OF THE SHORTLINE RAILROAD INDUSTRY

    Harry J. Sapienza
    Curtis M. Grimm

    College of Business Administration
    University of South Carolina
    Columbia, SC 29208

    Telephone
    803-777-5972

    Fax
    803-777-6876

    Principal Topics
    The Staggers Act of 1980 substantially deregulated the railroad industry and accelerated the"downsizing" of railroads. This led to the creation of over 200 shortline and regional railroads. Theperformance of 70 of these shortline railroads was evaluated during the spring of 1990 by theirfounder/top managers and the correlates of this performance were examined. Specifically, weexamined the impact of founder characteristics (e.g., education, experience, age and strategicorientation), start-up process variables (e.g., pre-planning, adequacy of capital, use of leverage, andinitial ownership), and structural variables (e.g., firm size, regional unemployment, and level of competition) on recent performance. Founder characteristics, start-up process, and structural contextvariables were each examined in separate models, and overall model of performance was derived through step-wise regression procedures.

    Method
    Data were collected primarily from two sources: 1) secondary firm and industry data were obtained from the Association of American Railroads on such variables as the type and percentage of cargo carried by each firm, the number of miles of track, the percentage of traffic originated at the railroad and the number of employees in each firm; and, 2) primary data collected from the CEO/founder at76 of the railroads; 70 of these were complete in terms of all items used; variables included in this data set included most of the founder and start-up specific variables. Regional unemployment figures were obtained from the Department of Labor, and annual sales and profitability of the railroads principal commodity were obtained from Forbes. Multiple regression analyses were used to examine the correlations between the independent variables and self-rated performance.

    Maior Findings
    In the founder characteristics model, the founder's business education had a curvilinear relationship to performance, with the highest performers those who had taken a moderate number of formal business courses; at the same time, controlling for the number of business courses taken, achieving higher levels of education was weakly related to higher railroad performance. Founder's age, experience, and strategic orientation were not related to performance. Greater capital at founding was also weakly related to better performance in the "start-up process" model; other factors such as pre- planning, motive for start-up, and founder's percentage of ownership were not related to performance. The structural context model explained about 50% more of the performance variance than the other two models; the size of the market for the railroad's leading cargo, the amount of competition from the trucking industry, the percentage of traffic originating at the railroad, and the size of the railroad were all positively related to performance. The "best" overall model contained one background variable, one start-up process variable, and five structural variables.

    Implications
    While it is difficult to generalize the results of this study to all entrepreneurial firms, the findings do hold some important implications for entrepreneurs, policy makers, and researchers.Most significantly, the study suggests that structural characteristics of the industry and firm may play an important role in the development and sustained success of new and small ventures. Two of the more interesting findings are that the size of the customer industry and the amount of competition from a "substitute product" are positively related to performance. It may be that entrepreneurial firms are more able to carve out a favorable niche in a larger market and that entrepreneurial firms are able to craft effective cooperative strategies with competitors. The finding that founders with either very little or a great deal of formal business education do less well than those with a moderate level suggests that formal training can be effective when not overdone. This study suggests that policy-makers should attend to structural conditions which might aid economic development and that researchers of entrepreneurship might contribute even more to our understanding of the conditions for success of entrepreneurial ventures by more careful and systematic investigation of structural variables than has been done in the past. These comments must be considered in light of the particular characteristics of the shortline railroad industry which limits their generalizability.


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