NC1030: Sustainable Families, Firms and Communities in Times of Change

(Multistate Research Project)

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The focus of NC 1030 has been on family firms and policy for over a decade. Our research team has published research that documents the role of interactions and exchanges of resources between firm, family, and community. The team has conducted a panel study that enabled the tracking of businesses over a 10-year period and is presently engaged in a fourth wave of data collection concerning family business survival and response to non-normative disruptions. The results of our previous work has led to important understandings about interactions of the family and family firm, new insights into survival and demise of firms, and development of the Sustainable Family Business (SFB) theory. The SFB theory postulates that the family and family firms are constantly interacting, and that each contributes in vital ways to the sustainability of the other when disruptions occur outside of the system. NC 1030 is now poised to take another step in the development of family firm theory by studying the family and firm as they respond to non-normative disruptions. These non-normative occurrences are usually events that originate outside of the family and business system, but substantially impact business success.  Examples of non-normative disruptions include large scale occurrences like an economic recession, or more slow-motion factors such as demographic and technological change.

Recent research efforts by members of the NC 1030 group have addressed family firms’ response to natural disasters (Marshall & Schrank, 2014; Marshall, Niehm, Sydnor, & Schrank, 2015). In the proposed new wave of research, we will extend our focus to include economic, environmental, social, community, and technological disruptions. Our central research questions focus on four categories of impacts due to non-normative disruptions as follows: 1) what are the sources of disruptions on the family firm? 2) what are the impacts of the disruptions on the family firm? 3) what are the impacts of disruptions on the communities in which these firms reside, and 4) how do family firms respond in an entrepreneurial manner to disruptions? Accordingly, the SFB framework will support examination of the interdependence between the family firm and their communities. The addition of Flora’s Community Capitals framework (2008) will also aid in understanding the community impacts of family firms’ entrepreneurial response in regard to the above noted scope of disruptions. 

Morris’ (2010, 1998) framework of entrepreneurial capabilities will also be employed to provide insight into the types of entrepreneurial behaviors most effectively utilized by family-owned firms. In a recently completed rural poll conducted by the University of Nebraska (Vogt, Burkhart- Kriesel, Cantrell, & Lubben, 2014), jobs and economic opportunities were identified among the top three essential elements for a thriving community. This was true in 2014 and has remained consistent since the 2002 poll. If rural communities are to remain in place, strong, and supportive of their citizens, those communities must offer economic opportunities in terms of small businesses, entrepreneurship, and jobs.  In turn, small family-owned firms must be able to provide entrepreneurial and creative response to both opportunities and to disruptive events in their community environment. 

At the heart of the economic sector in many, if not all, communities is the family business. A family business is defined as a commercial entity in which there is family involvement in the decision-making, leadership, and operational aspects of the business (Chua, Chrisman, & Sharma, 1999). Other defining factors of a family business have included: “owner-manager has been in business for at least a year, worked at least six hours per week year-around or a minimum of 312 hours a year in the business, been involved in its day-to-day management, and resided with another family member (Winter, Fitzgerald, Heck, Haynes, & Danes, 1998, p. 239).” Family firms make a major contribution to United States production and employment as most small businesses are family businesses. Family businesses are a main contributor—sometimes the only contributor—to the income of business-owning families. Not only do these businesses sustain the owning family, but the families are also key supporters of the local economy in terms of workers, capital, management, and entrepreneurial capabilities.

The proposed new focus for the NC 1030 research group is also guided by the recently released USDA Science - Research, Education, and Economics (REE) Action Plan (2014). The plan called for the USDA and its many partners to examine the drivers of decline for many rural communities. With a mission of creating a safe, sustainable, competitive food and fiber system and strong, healthy communities, families, and youth, the REE focuses on providing effective research, education, and extension in support of rural and community development. The REE outlined a goal of rural-urban interdependence and prosperity (p. 46) with a strategy to "establish the determinants of rural prosperity and develop indicators to measure regional assets and performance." One actionable way identified to achieve this was by producing "new information on the drivers of rural business innovation and growth...through a national survey of rural business establishments.” In its report, the REE identified the fact that rural America has seen, and would continue to see, enormous changes.

Rural communities, and the family-owned businesses that reside there, face a multitude of overlapping and interrelated sources of change and disruption. The mainstay of many rural communities, agriculture, involves fewer people to produce increasingly higher yields. Other traditional rural industries, such as forestry and fishing, are also seeing increased foreign competition and fewer opportunities. Similarly, rural manufacturing, something many communities turned to in earlier years, faces globalization and a situation where these communities no longer have advantages over world players. Some communities have found opportunities while others have not, losing their economic strength and population. With this loss, further erosion of the economic base continues among the retail and service sectors. The recent economic recession has increased the need to better understand rural business ownership. Rural communities, because of higher commodity prices, did not initially show as much impact from the economic downturn. However, as the downturn continued, employment losses were slightly larger in rural areas and the rebound has lagged behind that of more urban communities (Kellogg Foundation, 2003).  Subsequently, the growth in numbers of small rural businesses remains low and existing businesses have experienced limited growth (Hertz, Kusmin, Marre, & Parker, 2014).

In this project renewal, we aim to further the understanding of family business enterprises and how they influence the strength and survival of communities, particularly those in rural areas. The work will also identify the gaps in existing research.  To do so, we build on previous work by the NC 1030 Family Business Research Group. NC 1030 has developed one of the few longitudinal studies of family businesses, the National Family Business Panel (NFBP).  The NC 1030 group also has panel datasets focused on small business disaster recovery that includes business, family characteristics, and community characteristics. The design of the proposed study builds on previous work of the NC 1030 group and captures the dynamics between the business, family, and community—an understanding that is crucial to inform rural development and foster sustainable communities. This project renewal will add an additional wave of data to the NFBP and add enhanced understanding of community impacts and the entrepreneurial behavior of small family-owned firms.  Building on our past research waves, these family-owned businesses have been followed for over a decade (1996 to 2007), a period of time that covers a growing economy.  This proposed project will extend findings from the aforementioned waves of the NFBP to create new knowledge regarding family business survival, sustainability, and entrepreneurial response under conditions of change, with special emphasis on the challenges of small family firms operating in rural communities. For the purposes of NC 1030, small firms are defined as those with 200 or fewer employees. Small firms generally have a lower success rate than larger firms and are inherently riskier enterprises. Rural communities are more dependent on small enterprises than are urban communities. Therefore, ascertaining what is associated with the sustainability of family-owned firms is particularly important for rural America. Conversely, the well-being of rural communities and their citizens is closely linked to the health of locally owned family firms.

When considering the business sector, it is often viewed as a single homogenous group. Yet, this is far from reality. There are many ways that it can be segmented. Probably one of the most important, but less recognized, segments of the business community is family businesses. Family-owned firms comprise the majority of firms in the United States (Heck & Stafford, 2001), and the economy depends on them. They represent over 90 percent of all employer firms and employ more than half of all private sector employees. They have generated 64 percent of net new jobs over the past 15 years and over half of the non-farm private gross domestic product (Kobe, 2007).

Family businesses, contribute a major portion of the country's production, employment and income.  In rural communities, the prevalence of family businesses is disproportionately higher than in more urban settings. Family businesses are often key contributors in the support of the owners and their families plus provide job opportunities for non-family members and, bring dollars into the community (Kobe, 2007). Family businesses not only provide the economic base for many communities, they may offer leadership and financial support for community projects, civic clubs, and other local organizations. Family businesses can add desired products and services, foster local pride, and contribute to the quality of life, thus making the community even more attractive for additional business opportunities and in-migration (Henderson, 2002).

Family businesses are the result of three systems, business, community, and family, all of which can contribute to or detract from each other. Support among these systems in bi-directional with each having some ability to influence the success of the others. For example, the survival and success of any family owned business can be threatened by what happens in the owning family, especially through the health and behavior of its members. Likewise, the success of the family is somewhat dependent upon the success of the family business if for nothing other than family financial support and employment opportunities, something scarce in some rural communities (Stafford, Duncan, Danes, & Winter, 1999; Danes, Lee, Stafford, & Heck, 2008). Not only does it mean the possibility of a job, but in the long term, business transition allows for family members to return home and establish careers. Finally, both the family and the business have and are influenced by community variables. The business may employ community members and contribute to community leadership and amenities. Similarly, the family may take on leadership roles in the community.

The proposed research is informed by the SFB theory. The SFB theory enables researchers to examine the interface between the family and the business within the context of community (Stafford, et al., 1999; Danes, et al., 2008). Recognition is given to family, business, and community systems, and how the interplay between systems helps to achieve sustainability (Stafford et al., 1999). When change occurs, either inside or outside a system, a re-evaluation of resources of the family business must be made. A unique feature of the SFB theory is the ability to ascertain how family and business systems respond to disruptions in regular patterns by exchanging resources across systems (Winter & Morris, 1998; Olson, Zuiker, Danes, Stafford, Heck, & Duncan, 2003). Therefore, the theory enables researchers to explore how family businesses respond to changing economic conditions, as in the case of a recession, by considering resources and resource exchange of all kinds (e.g. financial, human capital, social networks, natural amenities). For example, during difficult economic times, those involved in a family business may seek outside employment to provide additional income for the family, enlist the help of unpaid family workers in the business to assist with operations, or seek out new business strategies to meet the financial needs of both the business and the family, perhaps by increasing the market for retail products by adding internet sales or marketing through the use of social media. The SFB theory also recognizes that different processes occur in each system during times of stability and change (Danes, Reuter, Kwon, & Doherty, 2002; Stewart & Danes, 2001). These kinds of systematic responses create a capacity of resilience in the face of disruptions which helps family-owned businesses remain “healthy” in response to disruptions (Danes, Zuiker, Kean, & Arbuthnot, 1999; Danes et al., 2002). 

Similarly, NC 1030 is interested in the community characteristics that foster healthy family-owned businesses and the interactions between these two entities.  For this reason, Flora’s (2008) Community Capitals framework will aid in our exploration of entrepreneurial and sustainable communities, focusing on seven distinct types of capital: natural, cultural, human, social, political, financial and built. We aim to examine the role that each form of capital plays in community economic development, and how they can form resources useful to family firm survival.   Morris’ framework (2013, 1998) of entrepreneurial capabilities (e.g. resource leveraging, risk mitigation, opportunity recognition) will also provide a means for examining the behaviors and response of family businesses to various sources of non-normative disruption and change.

The proposed project is highly feasible as demonstrated by past research accomplishments of the NC 1030 group.  Together these researchers have collected three waves of data and contributed significantly to the family business literature (Fitzgerald, Haynes, Schrank, & Danes, 2010; Heck & Stafford, 2001; Lee & Marshall, 2013; Niehm, Miller, Shelley, & Fitzgerald, 2009; Olson et al., 2003; Stafford, Danes, & Haynes, 2013; Stafford et al., 1999). Over time, we have extensively addressed family and business domains and the challenges of managing the overlapping and interrelated demands between the two entities. More recent work has looked at management of overlapping family and business demands in the context of natural disasters (Marshall & Schrank, 2014; Marshall et al., 2015).  NC 1030 team members recently collaborated and received an NCRCRD grant to examine rural family business response and survival under economic recessionary conditions (Niehm, Muske, & Fitzgerald, 2015). This NCRCRD grant will provide preliminary data for this proposed larger study, as well as for several large scale grant proposal submissions planned for the new project period.  In these new activities, NC 1030 will address a broader scope of non-normative disruptions, such as economic recession, demographic and technological change, and family businesses response to these sources of disruptions or changes.

It is not clear what factors may allow family businesses to effectively sustain operation during challenging recessionary periods, or if their performance differed by disruptions associated with rural community economic and demographic factors. The Kellogg Foundation’s study of rural entrepreneurship (2003) suggests that “home-grown”, locally and regionally focused small businesses are a critical piece of rural economic development. The data and knowledge provided by the proposed project would yield valuable policy and strategic information to support family owned businesses, explicate the interdependence between rural communities where they operate, and identify factors that support the success and sustainability of small family-owned firms. The proposed project will make possible comparisons of rural communities by economic base (e.g. agriculture, manufacturing, tourism), by type of rural businesses (e.g. service, retail, manufacturing), as well as rural versus urban family-owned businesses.

This proposed project also will address the call from the USDA Science - REE Action Plan (2014) for a national survey of rural business establishments. The overarching goal of the proposed project is to better understand the dynamics of decisions, practices and processes that allow rural family-owned businesses and their communities to sustain or grow despite disruptive circumstances and recessionary downturns.   The NC 1030 research team will also examine the entrepreneurial strategies of family-owned businesses, how these businesses negotiate the drivers of change, and investigate how communities can facilitate these efforts. In this regard, the proposed project will have the cross-cutting capacity to inform policy and programming for family firms, rural community development, economic development, and business assistance for rural entrepreneurs and their communities.

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