Frontiers of Entrepreneurship Research
1997 Edition

SUMMARIES

Return to 1997 Topical Index 

Order hard copy editions of Frontiers of Entrepreneurship Research by mail 
 

ON THE COSTS AND BENEFITS OF PAID MEMBERSHIPS IN ENTREPRENEURIAL PEER GROUPS

Karl A. Egge
Norman J. Stoehr

Macalester College
St. Paul, MN  55105

Telephone: 612-696-6743
Fax: Ivey: 612-699-0067

Principal Topics

We begin by defining entrepreneurial peer groups.  How prevalent are they?  What kinds of and why do entrepreneurs join such groups?  How do peer groups differ from each other?  What are the costs and benefits of being a member?  The direct costs (dues) and the opportunity costs (time) of being a member in an entrepreneurial peer group are estimated using a sample of 57 members in one organization.  The benefits expected to be obtained include human-capital enhancing knowledge (e.g., how to do things), business leads and clients (i.e., networking), and personal (e.g., support or life balance).  The magnitude of the value of the benefits can be assessed by asking the respondents how they would react to higher direct costs, and determining if attitudes toward the peer group vary by the self-reported opportunity cost of their time.

Method

All 89 members of the largest corporate-owned franchisees (in Minneapolis/St. Paul) of Inner Circle, Ltd. were questionnaire surveyed in December 1996.  They are from 7 separate groups or circles of 10 to 14 members, who meet monthly with the same facilitator (one of the authors).  There were 57 respondents.  Nearly all are founders and/or CEO's.  To measure costs the questionnaire asked for their annual membership fees and what they believe they could earn if they worked for someone else as an employee?their opportunity cost.  Benefits are estimated by probing the extent they agree or disagree with a number of statements, and by short-answer questions.  Results are tabulated, and relationships estimated statistically.

Major Findings

The average respondent was a 47 year-old male founder and CEO with $1.5 million in revenues, and reported profits up in 1996 over 1995.  He had been in his peer group for 5 years currently paying annual dues of $2,800/yr.  Based on the opportunity cost of their time, going to and participating in the groups costs about $2,000/yr.  Yet, 2/3's agreed the true total cost was greater than twice the direct cost.  All reported positive business decisions were made that were strongly influenced by their circle; most report their group is a more important source of support than their family, board, or others; most have become a client or vendor to another in their group; and, in response to what "new knowledge" they obtain that is more important to them they cite "my life" (e.g., balance between personal and business) more so than either marketing, finance, operations, or personnel.  They disagree on who would benefit the most from joining them (e.g., young or old, small firm or larger firm), and they disagree that members should be more homogenous.  They agree they benefit more when they listen and help others, than when they are the talkers.

Implications

There has been little research on formal entrepreneurial peer groups.  They are another avenue for current and prospective entrepreneurs to consider when trying to acquire chunks of knowledge and balance.  These respondents believe new entrepreneurs should be willing to pay up to $4,000/yr, and spend about 5 hours/mo to join a group like theirs.  That the majority in this sample would remain in their group if the direct costs rose substantially indicates there is a positive gap between benefits and costs.  It is insufficient and misleading to label these groups "networks," or to think of them as "costly."

 

Return to 1997 Topical Index

© 1997 Babson College All Rights Reserved
Last Updated 04/20/98