2012
University of Groningen H.S. BosmaStudent number: 1286188 Date: 24-12-2012
Master Thesis Business Administration – Small Business & Entrepreneurship First Supervisor: prof. dr. P.S. Zwart
Second Supervisor: dr. C.H.M. Lutz
[
What Success Criteria are Important to
Small Hospitality Business Owners;
Insights from the Effectuation Theory
]
This research examine if small hospitality business owners use Effectuation principles in their decision making to be successful and if they measure their success with objective and/or subjective criteria. Furthermore it hopes to find a link between the both. In an explorative study, ten small hospitality business owners in Groningen, The Netherlands, are interviewed. The findings of the research indicate that the majority of the small hospitality business owners are using mainly Effectuation principles in their decision making to reach the for them important success criteria, which are principally subjective criteria. The most important success criterion for the entrepreneurs to judge success seems to be “Personal satisfaction.”Also a linkage between the usage of subjective criteria to judge success and the use of Effectuation principles in reaching this success is suggested.
University of Groningen | Acknowledgements 1
Acknowledgements
First I have to thank Paul Niemann and dr. C.H.M. Lutz, who helped me to put all my ideas and personal preferences into a researchable subject. Secondly, I would like to thank all the small
hospitality business owners, who took part in this research, for their cooperation and openness. Also I would thank my friends, who stimulated and supported me in the ongoing battle to finish this thesis and thereby getting my master degree. Above all, I would like to thank my parents who supported me during all these years. Last but not least, I would thank my supervisor, prof. dr. P.S. Zwart, for his first impression, his openness to me, his patience and his guidance during the whole process.
University of Groningen | Acknowledgements 2
Table of content
Acknowledgements ... 1 1. Introduction ... 3 2. Theory ... 5 2.1 Success... 5 2.2 Effectuation ... 82.3 The hospitality industry ... 12
2.4 The small hospitality business owner and small businesses ... 14
2.5 Conceptual model ... 16 3. Method ... 18 4. Findings... 21 5. Discussion ... 29 6. Conclusion ... 33 7. References ... 35 Appendixes ... 38 Appendix 1 Interviewguide ... 38
Appendix 2 Guideline for the interviewer ... 41
Appendix 3 Interview ... 42
Appendix 4 Lijst met succes criteria voor de ondernemer ... 44
Appendix 4 The businesses and their variables ... 45
Tables ... 45
University of Groningen | Introduction 3
1. Introduction
Small business success can be measured by financial and non-financial criteria or with objective and subjective measurements. Most discussion of success in the existing literature refers predominantly to financial criteria (Walker and Brown, 2004) or objective criteria (Reijonen, 2008). Objective measurements of the firm performance usually is done with hard financial measures, whereas subjective examinations can be related to more personal issues (Reijonen, 2008).
Little is written about the businesses that do not pursue active growth, or about the potentially conflicting measures of success between the owners personal goals and financial requirements of operating a successful business (Walker and Brown, 2004). It is a characteristic of small hospitality businesses that powers of decision are centralized at the level of the small business owner, so his or her personality, skills, responsibilities, attitude and behavior will have a decisive influence on business strategy (Bridge et al., 2003), performance and the measurement of success.
It could be argued that the concept of success factors unique to each industry group, could even prove to be unique to each owner and each organization, to such an extent that the owner’s perceptions of success would be an relevant starting point. It is argued that success, as determined by an outside influence, lacks relevance if the entrepreneur does not view him/herself as successful. This agrees with Hill and McGowan’s (1999) recommendations, that: “…the researcher must
represent or reconstruct the world as seen by others” and Beaver’s (2002) observations, “perhaps the best and most accurate way to judge success is to ask whether the particular goals of the enterprise have been achieved” (Simpson et al., 2004). Other researchers also argue that the starting point
should be the business owner him/herself (Reijonen, 2008; Walker and Brown, 2004; Stenberg, 2004; Poole et al., 1993). Traditional financial measures of success can be inappropriate, misleading and meaningless for small business owners, each of whom have their own perceptions of success. Consequently, they may value themselves as successful, although viewed from outside the business may have attained different levels of success (Simpson et al., 2004). Also Walker and Brown (2004) and Reijonen (2008) stated that further investigation in success factors of small business owners is required to broaden the theory development and test their results in other geographic areas and industries.
Growth entrepreneurs are usually well supported by the government, but the group of small
business owners who have run their business for some years and display willingness to develop their business performance moderately have, however, attracted only a little attention (Walker and Brown, 2004). If non-financial “life-style” criteria are accepted as being legitimate measures of business success, thus success in the perspective of the small business owner, then a broadened view of small businesses as contributors to the economy, sources of livelihood and creators of
University of Groningen | Introduction 4 success with objective or subjective criteria. Furthermore, considering that Effectuation theory is about decision principles, this research assumes that SHBOs are taking their decisions based on their success criteria. To examine this the following research questions will be used:
1. Do small hospitality business owners judge their success with objective and/or subjective criteria?
-What are the success criteria used by small hospitality business owners in Groningen to judge their success?
-What are, according to the small hospitality business owners, the most important success criteria used to judge their success?
2. Do small hospitality business owners use Effectuation principles in their decision making? 3. Do small hospitality business owners who judge their success with subjective criteria use Effectuation principles to reach their success?
With these questions this study hopes to find an answer whether using the traditional objective criteria are the most appropriate measure of success for SHBOs or whether subjective measures are better indicators and the base of their decisions, if these decisions are based on Effectuation principles and if there are linkages between the use of Effectuation principles and the use of
subjective criteria and owners characteristics. The first question is divided in what criteria the SHBOs use and the importance of the criteria to them. Also this research hopes to find that the “successful” SHBOs use Effectuation principles, which could imply that Effectuation contributes to their success and with that give other or starting SHBOs some tools about what criteria and decision principles should be used to accomplish their aspirations. Furthermore with the third question, this research hopes to find some indication for possible linkages between the use of subjective success criteria and the use of Effectuation principles by the SHBOs and formulate a hypotheses for further study. The answers to this questions will broaden the field of research to the SBO perception of success and the field of Effectuation theory.
University of Groningen | Theory 5
2. Theory
In this part the different factors important to this study are reviewed based on existing literature about the different subjects. The first paragraph is covering the existing theories about success and the criteria for measurement of success. Furthermore it gives the perspective of this study to the measurement of success. The second paragraph is covering the existing literature about Effectuation theory and its principles relevant to this study. The third paragraph covers the hospitality industry. It describes its state and why it is a relevant industry for the research. The fourth paragraph of this chapter sets the boundaries of this study. It is about the small hospitality business, its owners and their place in this study. The small business and its owners are discussed and the criteria this study uses to distinguish a small hospitality business are given. Concluding the chapter, in paragraph 2.5 the conceptual model is presented en explained.
2.1 Success
Traditional measures of business success have been based on either employee numbers or financial performances (e.g. profit, turnover or rate of return) (Reijonen, 2008; Walker and Brown, 2004; Simpson et al., 2004). Although employee numbers are no real financial criteria, this measurement is often used with the financial criteria, also named objective measurements or “hard” measurements. Other examples of financial measurements are sales, market share and sustainability (Rijonen, 2008; Walker and Brown, 2004; Kuratko et al., 1997).
Small firms cannot be judged only in terms of traditional economic measures of success, because they also have non-economic objectives (Greenbank, 2001). Historically the non-financial
measurements, subjective measures or “soft” measurements have been associated with businesses that have been referred to as ‘life-style’ businesses. These life-style businesses are supposedly not interested in financial gain and have no intention of growing their businesses into larger entities (Beaver, 2002). The non-financial measurements of success are defined by small business owners (SBO) and are hard to measure because of the subjective nature of these criteria. Non-financial measurements are autonomy, balancing work and family, career progress, flexibility, social responsibility, job satisfaction and pride (Rijonen, 2008; Walker and Brown, 2004; Kuratko et al., 1997).
Joining the traditional literature, running a successful business means an increase in profit or turnover and/or increase in numbers of employees, thus growth seems especially related to firm success (Pasanen, 2003). According to Simpson et al. (2004) traditional measures of success are inappropriate and misleading for the SBO (small business owner), because of the different
perceptions of success by SBOs. Thus the assumption that SBOs want to grow their business is a topic of discussion in the literature (Greenbank, 2001) and will also be discussed in this paper.
For many SBOs growth is not an objective. Even among those SBOs who seek growth, significant numbers would appear to seek only moderate or limited growth. They may reach a stage or plateau, described as a “comfort zone”, at which the owner is satisfied with his or her condition and the costs of pursuing continued growth exceed the expected benefits. It is suggested that life-style factors are the opportunity costs of growth (Bridge et al., 2003).
University of Groningen | Theory 6 for themselves. The more important the goals are for the business owners, the more they are motivated to aspire to them. The goals become criteria for success and business owners measure their success by the degree of attainment of these goals. It could be argued that those business owners who have attained their goals could be termed successful (Rijonen, 2008).
The motives to start a business can be divided into two categories, push- and pull factors. Pull factors are internal, positive desires of a person to start a business (personal freedom, independence, autonomy, personal satisfaction, flexibility and job satisfaction (Buttner and Moore, 1997). Push factors are external, negative reasons which pushes a person to start a business (unemployment, need for money, limited job opportunities, job frustrations and unsafe working conditions (Buttner and Moore, 1997). Push- and pull factors are not explicitly used in this research because this study is not about the motives to start a business, but about the measurement of success used by SBOs who are already in business and who have businesses which are financially viable (according to them). According to Marlow and Strange (1994) all businesses must be financially viable on some level in order to continue to exist.
According to previous literature SBOs have demonstrated a willingness to sacrifice financial success in order to meet non-financial objectives. Therefore more flexible definitions of success need to be applied to small businesses (Greenbank, 2001; Jennings and Beaver, 1997). There is no single
definition for business success, but the definition of success best appropriate and used in this study is based on Jennings and Beaver (1997) “success is the sustained satisfaction of the principal
stakeholder aspirations.” Because the principal stakeholders in this study are the SBOs, the definition
is rephrased to “success is the sustained satisfaction of the owners aspiration.” This definition contains two important factors. The first “satisfaction” is the SBO’s personal perception of accomplishment of the second “aspiration” the goals of the owner. In other words, success is the accomplishments of the SBO’s own goals or success criteria. Consequently, if the SBO no longer reach or retain these goals the business is no longer successful.
University of Groningen | Theory 7
Table 1
Objective criteria of success.
Objective criteria of success
Literature
Employee numbers Walker and Brown, 2004; Simpson et al., 2004; Greenbank 2001; Reijonen, 2008
Profit Buttner and Moore, 1997; Jennings and Beaver, 1997; Reijonen, 2008; Simpson et al., 2004; Greenbank 2001; Kuratko et al.,
1997; Walker and Brown, 2004
Turnover Reijonen, 2008; Walker and
Brown, 2004; Greenbank 2001; Simpson et al., 2004
Rate of return Reijonen, 2008; Walker and
Brown, 2004; Simpson et al., 2004 Greenbank
Sales Reijonen, 2008; Walker and
Brown, 2004; Kuratko et al., 1997
Market share Reijonen, 2008; Walker and
Brown, 2004; Kuratko et al., 1997
Sustainability Reijonen, 2008; Walker and
Brown, 2004; Kuratko et al., 1997 Simpson et al., 2004
Table 2
Subjective criteria of success.
Subjective criteria of success
Literature
Autonomy Buttner and Moore, 1997; Greenbank, 2001; Rijonen, 2008; Walker and Brown, 2004; Kuratko et al., 1997 Simpson et al., 2004
Flexibility Buttner and Moore, 1997; Rijonen, 2008; Walker and Brown, 2004; Kuratko et al., 1997
Job satisfaction Rijonen, 2008; Walker and Brown, 2004; Greenbank, 2001 Kuratko et al., 1997; Simpson et al., 2004; Buttner and Moore, 1997
Career progress Buttner and Moore, 1997; Rijonen, 2008; Walker and Brown, 2004; Kuratko et al., 1997; Simpson et al., 2004
Pride Buttner and Moore, 1997; Rijonen, 2008; Walker and Brown, 2004; Kuratko et al., 1997; Simpson et al., 2004
Balancing work and family
Buttner and Moore, 1997;Kuratko et al., 1997; Rijonen, 2008; Walker and Brown, 2004;
Social responsibility Rijonen, 2008; Walker and Brown, 2004; Kuratko et al., 1997; Buttner and Moore, 1997
Personal satisfaction Simpson et al., 2004; Rijonen, 2008; Walker and Brown, 2004; Kuratko et al., 1997; Buttner and Moore, 1997
Satisfied Clientele Rijonen, 2008; Walker and Brown, 2004; Greenbank, 2001
University of Groningen | Theory 8 certain level of comfort is reached. Furthermore this research follows earlier research of Walker and Brown (2004), which also used the success criteria presented in table one and two. They have chosen for the success criteria in their study, after taking interviews, which explored motivations for being in business and explored how SBOs judged success of the business. They also included tested items from earlier research on motivations and small business start-ups. They assessed what success factors are important to small business owners in Australia. This research will use most of the criteria of success used by Walker and Brown (2004), as presented in tables one and two, to assess how SBOs judge their success, with objective and/or subjective criteria. This is presented in the conceptual model as the concept “success criteria.” This concept knows two sub-constructs, namely subjective- and objective success criteria (see conceptual model). Three criteria, namely satisfied clientele, career progress and job satisfaction are not used in this research or are not seen as separate criteria of success. The first, satisfied clientele is combined with social responsibility, because in this view you are doing something for the other person (contributing the client prosperity). Otherwise it is only a means to one of the other success criteria. The second, career progress, was not taken into account because the subjects of this study are and will be small business owners. The third, job satisfaction, is not taken into account, because it is part of the criteria personal satisfaction. The different objective and subjective success criteria are also put in the conceptual model under the two sub-constructs of the concept “success criteria.”
2.2 Effectuation
First it is important to note that the “extreme” contradictions of this paragraph between Causation and Effectuation are meant to create a clear view of the differences between these two theories and create an understanding in Effectuation theory. According to Sarasvathy (2001) both Causation and Effectuation are integral parts of human reasoning that can occur simultaneously, overlapping and intertwining over different contexts of decisions and actions. But she is also stating that strong patterns of one of the other can be isolated and evidenced (Read and Sarasvathy, 2005).
The Effectuation theory of Sarasvathy (2001) is about decision-making principles and was induced from an investigation of actual expert entrepreneurs using the classic method of protocol analysis from cognitive science (Sarasvathy, 2001). Effectuation is a relatively new theory and counterparts, the in the academic field well known, Causation theory. The principles and characteristics of Effectuation theory are explained in this paragraph as a contradiction of Causation. According to Read and Sarasvathy (2005) Effectuation is a straight inversion of rational choice theory (also
referred to as causal, predictive rationality or in this paper Causation). Particular in the second half of the twentieth century, rational choice theory has been questioned in a variety of ways. Simon’s (1991) assaults on its empirical validity based on cognitive bounds of the human mind inspired a slew of research results on heuristics and biases that deviate from rationality in a variety of ways.
Effectuation theory was inspired by Simon’s work and was in fact developed in close collaboration with him (Sarasvathy and Simon, 2000; Sarasvathy, 2002 in Read and Sarasvathy, 2005). In the words of Sarasvathy and Simon (2000) (Read and Sarasvathy, 2005). Effectuation answers the question:
University of Groningen | Theory 9 Effectuation inverts every aspect of Causal rationality, including its problem space, solutions process, fundamental principles and overall logic. Causal rationality is goal-driven, Effectuation is means-driven. Rational choice rest on logic of predictions. Effectuation rests on a logic of non-predictive control. Causal rationality takes the environment as largely outside the control of the decision-maker, and therefore seeks to predict it and adapt to changes in it. Effectuation considers the environment endogenous to the actions of entrepreneurs and therefore seeks to fabricate it though pre-commitments from stakeholders. Effectuation is enactive and exaptive, where Causation is reactive adaptive (Read and Sarasvathy, 2005).
The overall inversion of the problem space and solution logic of rational choice is implemented through a series of Effectuation heuristic principles, each of which inverts causal heuristics (Read and Sarasvathy, 2005). These are the five principles of Effectuation and are presented in table three. Each of the five principles represent an approach to decision making that does not rely on prediction, instead assuming the impact of willful individual creation (Read et al., 2009). Table three presents the five Effectuation principles with the issue they are addressing, how they work and contrasting them against Causation. Then the five principles are further explained.
Table 3
Five principles of Effectuation; Contrasting Causation.
Effectuation Principle
Addressing Issue
Explanation Contrasting Causation Means Givens/base Only some means are given.
Actions emerge from means and imagination of entrepreneur. 3 subconstructs: who I am, what I
know and whom I know.
Goals
The goal or effect is given. Goals determine actions, including individuals and means brought on board. Affordable
loss
Predisposition toward risk
Risk no more than can be
afforded, based on the downside potential. Create more options.
Expected return
Pursue the maximum
opportunity (risk adjusted and using expected return). Levering contingencies Predispositions toward contingencies and planning
Flexible, excellent in exploiting contingencies. Leverage them into new opportunities.
Commitment
Path selection limited, through commitment to existing vision, market, goals.
Partnerships Attitude toward others
Create jointly with customers, suppliers and even prospective competitors.
Competition
Concerned with competition analysis and the constraint of task-relationships with customers and suppliers. Design View of the
future and underlying logic
The future is contingent on actions by willful agents. Focus on the controllable aspects of an unpredictable future.
To the extent we can control the future; we do not need to predict it.
Prediction
Focus on the predictable aspects of an uncertain future. To the extent we can predict the future; we can control it.
University of Groningen | Theory 10
Means, the first principle, provide the base for decisions and new opportunities. It contains three
sub-constructs, who I am, what I know and whom I know (Read et al., 2009). “Who I am” is about the entrepreneur his or her own traits, tastes and abilities. “What I know” is about the knowledge corridors of the entrepreneur. “Whom I know” refers to the SBO’s social networks (Sarasvathy, 2001). Thus Effectuation begins with a given set of means, consisting of mostly unalterable
characteristics and circumstances of the decision maker, in this research the SHBO. Only some means are given and provide the SBO with a base for directions, suggesting that opportunities emerge from the knowledge, contacts and resources at hand and that more directions are possible with this given set of means. With Causal rationality the givens are the goals. The goals are pre-stated and direct the rest of the process. Knowledge, contacts and resources are brought in to reach those pre-stated goals. The focus with Effectuation is on choosing among alternatives and desirable effects that can be produced with the given set of means, thereby eliminating the assumption of preexistent goals (Sarasvathy, 2001; Read at al., 2009).
Affordable loss, the second principle, refers to the predisposition towards risk. With Effectuation this
is about calculating the downside potential of an opportunity and risk no more than you can afford to lose (Read at al., 2009). It is about evaluating opportunities and deciding how much loss is affordable at the downside and try to create more options in the future, instead of maximizing returns in the short term. This also means that opportunity failure will not result in greater venture or personal failure (Read at al., 2009). Causation in contrast, suggest using expected return as a decision criterion and tries to maximize this return as predisposition towards risk (Read and Sarasvathy, 2005).
Levering contingencies, the third principle, is about planning and the predispositions toward
contingencies. Effectuation seeks them out, even the negative surprises and leverage them to create new possibilities (Read at al., 2009). Which means being flexible with uncertainties and surprises, embrace them and try to use them to your advantage, instead of sticking to the existing goals. In contrast Causation seeks to avoid unexpected contingencies in order to efficiently achieve goals, the vision or address the market determined by the initial “opportunity” identified by the entrepreneur (Read and Sarasvathy, 2005).
Partnerships, the fourth principle, addresses the attitude toward others. With Effectuation it means
building your market together with customers, suppliers and even prospective competitors (Read et al., 2009). Thus it involves building partnerships through pre-commitments from stakeholders (early customers, suppliers and even competition) and cooperative strategies to create new opportunities and additional means. Contrasting Effectuation, Causation uses competitive analysis and competitive strategies toward outside firms. It is concerned with the constraints of task-relationships with customers and suppliers. Causation is doing what is necessary (Read and Sarasvathy, 2005).
Design, the fifth principle, addresses the underlying logic and view of the future. Design guides the
University of Groningen | Theory 11 To get an integrated picture of Effectuation and the difference between Causation and Effectuation, it may be useful to cite a concrete example of starting a small hospitality business out of Read and Sarasvathy (2005). According to them, if an entrepreneur wants to start a restaurant and he or she uses Causation processes, he or she would start by identifying high potential locations, analyzing the competition in the area, identifying particular target segments, developing marketing strategies to fit the targets, obtaining necessary funding, hiring the appropriate chef to develop the right menu and then opening the doors to the restaurant. Effectuators, in contrast, would start with the means available (the first principle). Based on who they are, what they know, and whom they know, they would start with a list of things they can afford to do (affordable loss). Most important of this list would be to call people they know (social networks), and plunge strait into negotiating a series of pre-commitments (partnerships). Depending on who comes on board the venture and other contingencies along the way (levering contingencies), increases the resources available to the
venture; accrete constraints on the venture that converge into specific goals over time (design) (Read and Sarasvathy, 2005). In the restaurant example out of Read and Sarasvathy (2005) the Effectuation entrepreneur who wants to start a restaurant may or may not start with a location. Instead it would all depend on who the Effectuator is. If the entrepreneur is as cook (means: who am I, what I know and who do I know), he or she might start with a catering service, or a lunch service, or even just hire himself out as a chef who does house calls. It depends on what he or she can afford to invest in terms of money, time, and emotion (Read and Sarasvathy, 2005).
Effectuators use the five principles to lower the risk of the venture (by getting customers,
stakeholders and income early, setting affordable loss, and spreading risk to others) and finding truly new and useful market opportunities by leveraging constraints and new information (Read et al., 2009; Read and Sarasvathy, 2005). The Effectuation entrepreneurs acquire new means and goals along the road through interaction with people, stakeholders and their initial means and goals. Thus instead of acting between established lines of a stated goal, these new means and goals can drive the entrepreneurs and the business in a position they never thought of when they initially started the business (Read and Sarasvathy, 2005). Effectuation allows the entrepreneur to create one or more several possible effects irrespective of the generalized end-goal with which the SBO started. it also allows a decision maker to change his or her goals and even to shape and construct them over time, making use of contingencies as they arise (Sarasvathy, 2001).
Effectuation research has found that there is a science to entrepreneurship and that great
entrepreneurs across industries, geographies, and time use a common logic, or thinking process, to solve entrepreneurial problems. Effectuation is a logic of entrepreneurial expertise that both novice and experienced entrepreneurs can use in the highly unpredictable start-up phase of a venture to reduce failure costs for the entrepreneur. If the SBO knew precisely what type of firm he or she wished to create, the entrepreneur could use existing theories and principles to create the firm. But usually all the entrepreneur knows when he or she starts out is something very general, such as the desire to make lots of money, create a valuable legacy like a lasting institution, the possession or the knowledge of an empty space or building, spare time or more common to simply pursue an
University of Groningen | Theory 12 “fail” more effectively, use fewer resources and become “expert” in entrepreneurship more quickly. According to Sarasvathy and Menon (2002) Effectuation improve the success rates of entrepreneurs. This is because the use of the five principles lower the risk of the venture and stimulate the
entrepreneur to use his own traits and capabilities and the contingencies along the way, to build a successful venture instead of keeping to the pre-stated goals at any costs. This is important when the future is unpredictable.
As written in paragraph 2.1, about success, this study focuses on the criteria that small business owners themselves use to judge success, if a business is viable and a certain level of comfort is reached. According to Sarasvathy (2001) a small business owner should use Effectuation to improve chances of success. Following this statement, this research will also examine if the small business owners use the five Effectuation principles in their decision making to reach, in their own
perspective, success. This is placed in the conceptual model as the concept “use of Effectuation principles” (see conceptual model). Based on the literature review the five Effectuation principles are put into five contradictions (of Causation) for the Effectuation entrepreneur. This study will examine how the SBOs feel about this contradictions.
1. Means; the SBO is mean driven rather than goal driven.
2. Affordable loss; the SBO takes risk based on affordable loss rather than expected returns. 3. Leveraging contingencies; the SBO exploit contingencies rather than avoid them and keep commitment to preexisting goals.
4. Partnerships; the SBO builds partnerships (strategic alliances, create jointly with customers, suppliers or competitors) rather than being concerned with competitions and competitive analysis. 5.Design; the SBO is controlling an unpredictable future rather than predicting an uncertain one.
2.3 The hospitality industry
University of Groningen | Theory 13 study are the owners of one or more café(s) or bar(s) in Groningen. To provide more insight in the specific characteristics of the market in Groningen the specific data for the sub-categories of Groningen are used. instead of the nationwide data the numbers of the total beverage sector are presented.
By July 2011 these two sectors (the beverage- and restaurant sector ) had 28.028 hospitality
establishments in the Netherlands or 16.9 firms per 10.000 inhabitants. Together these sectors have a share of 65% of the Dutch hospitality sector in number of firms. In the city of Groningen these sectors together (beverage and restaurant) had 392 hospitality businesses or 20.6 firms per 10.000 inhabitants. Thus the concentration in the city Groningen is relatively high compared to the nationwide numbers, which could mean a relatively higher degree in competition. In the same year the subcategory “café/bars” in Groningen counted a total of 173 establishments (see table 2). The restaurant sector had 146 establishments in Groningen. Together the beverage sector and restaurant sector count for almost 69% of the total number of hospitality establishments in Groningen. Other large groups are Fast-food businesses and the hotel sector.
The Dutch hospitality industry has a great dynamic character. Each year the hospitality and catering board records a large number of new establishments and also a large number of deregistrations. The development of the total number of hospitality establishments in the Netherlands from 1996 till 2011 (see table 1) shows a net growth. This also applies for the subsector “restaurant.” Despite this growth, there were some years of decline. But the last two years the total sector is growing again. The restaurant sector shows also a steady growth over the past decade. The beverage sector shows a completely different picture. This sector knows a decline of number of businesses since 1996 with a small and short recovery in 2007. On a smaller scale the hospitality sector in Groningen is also dynamic, but with a lot more and smaller fluctuations (see table 2). Locally the beverage sector shows no big fluctuations in total number of establishment till 2006, but over the last five years the total number has shrunk. In the specific subsector café/bars with almost 10%. The restaurant sector also knows some small fluctuation and a small decline over de last two years, the total hospitality sector knows a small growth.
In 2009 the total turnover in the Dutch hospitality industry decreased with 5.4% and with 0.9% in 2010. The total turnover in the restaurant sector (4.8% in 2009 and 4.3% in 2010) and the beverage sector (7.5% in 2009 and 0.5% in 2010) also decreased. The first figures of 2011 show the same image as the past few years. Actually the turnover and revenue of the businesses in the Dutch hospitality sector are declining over the last four years. This is the situation for both the total sector and also for the subsectors beverage and restaurant. The data about the total hospitality sector are presented in table three, the data about the beverage sector in table four and the data about the restaurant sector in table five. These tables show us a growth in turnover until 2006/07, after that the net turnover has shrunk every year with disappointing figures in 2009. In 2011 a further decline in turnover also seems the case. Furthermore the percentage revenue is also shrinking.
The last few years the Dutch hospitality sector sits in economic “bad weather.” Although the total number of businesses are growing in the Dutch hospitality sector the total number of businesses in the restaurant sector and beverage sector are declining. The turnover and also the revenue
percentage of this turnover is shrinking for the last three years. Remarkable is the decline in revenue as a percentage of the turnover. Only the beverage sector seems to keep their revenue as a
University of Groningen | Theory 14 these characteristics could offer challenges and maybe possibilities for the SHBO with the right attributes. Actually there are still a lot of SHBOs which are running a café/bar or restaurant which are successful (as explained in paragraph 2.1). It can be argued that these SHBOs do something right to coop with the thunder clouds of the market, which makes these SHBOs interesting subjects for research.
As written earlier this study focuses on the criteria that small business owners themselves use to judge success, if a business is viable and a certain level of comfort is reached. Furthermore this research will examine if these small business owners use the five Effectuation principles in their decision making to reach, in their own perspective, success. This study is performed in the context of the hospitality industry (see conceptual model). As explained in this paragraph, the hospitality industry is chosen, because it is one of the world’s largest service sectors, represented in every country and the businesses in the industry have a small nature. Also it is suggested that the different businesses can create and influence their own customer base and that the SHBOs have limited resources, which is characteristic for Effectuation. Furthermore a lot of SHBOs are running a café/bar or restaurant which are successful (as explained in paragraph 2.1) in hard times, which make them interesting subjects to examine how they measure their success and if they use the Effectuation principles to reach the for them important success criteria.
2.4 The small hospitality business owner and small businesses
For several decades now, researchers have investigated the traits of successful entrepreneurs and compared them with failed entrepreneurs and non-entrepreneurs. However as explained in
paragraph 2.1, about success, results have been disappointingly mixed (Sarasvathy, 2001). The theory of Effectuation brings another perspective to the table. It suggests we need to give up ideas such as the successful personality or clearly superior characteristics of the successful firm or organizations (Sarasvathy, 2001). More important the theory of Effectuation suggest that to normatively unpack the critical factors of success and failure, we first need to disconnect the success of the individual entrepreneurs from the success of the firm he or she creates. In fact, Effectuation prescribes that the concept of success/failure is not a 0-1 variable, that is, “success” is not the logical equivalent of “not failing,“ and vice versa. Rather, within the theory of Effectuation, any specific firm is only one of many possible viable and contingent combinations of a given set of means with which the entrepreneur begins (Sarasvathy, 2001). As written in paragraph 2.1, about success, Sarasvathy (2004) also suggest putting the SBO at a center stage, adopting an instrumental view of the firm. The first reason to look at the entrepreneur consists in the explicit recognition that the SHBO is not the same as the firm. Nor is firm success the only or even the most important, measure of a SBO’s success. There are the “life-style” factors to be considered. Furthermore firm failures may also be important inputs into entrepreneurial success (Sarasvathy and Menon, 2002). The second reason arises from phenomena such as the one identified by Gimeno et al. (1997), namely why financially underperforming firms survive over very long periods of time (sometimes longer that market
outperformers). In a world where entrepreneurs are not entirely at the mercy of external forces, but actually make things happen by reshaping some of those forces, firms are likely to be as
University of Groningen | Theory 15 by entrepreneurs, and entrepreneurs are human beings -evolved social-biological beings whose psychology, history, and culture matter (Sarasvathy, 2004). For hospitality businesses this means often that the SHBO takes strategic and management decisions, but also could be found at the floor handling the customer. According to Morrison et al. (2003) these small businesses are expected to bring new innovations to the markets, operate as catalyst in society, create new jobs and assist the overall economic growth. Consequently, policy makers are interested in developing means to promote the emergence of new business ventures and to support firm growth (Rijonen, 2008). This contribution to the economy by small businesses is also supported by the publications of Birch in the 1970’s and Storey (1994). They stated that small businesses are the major source of job creation. Is this the right perspective of the contribution of small businesses to economic growth and job creation? In former paragraphs there was already written about SBOs with no growth aspirations. Over time different researchers vary in their estimates of how much small businesses contribute to economic welfare and also there appear to be variations in this contribution over time and across countries. Shane (2009) goes even further and calls these contributions myths (the economic growth myth, and the job creation myth). Shane states that the importance of entrepreneurship in the economy is exaggerated and that the big conglomerates are much more important to the economy than small firms, also in job creation. According to Shane (2009), to create more economic growth by having more start-ups, new companies should be more productive than the existing companies, but they are not, research shows that productivity increase with firm age. This means that the average new firm makes worse use of resources than the average existing firm; this is not what we would expect from economic growth. Research also shows that as countries get richer self-employment numbers drop as do the start-ups. Also industrialized economies may proliferate large numbers of small companies and establishments, but the largest business organizations continue to account for the great majority of jobs, to pay the highest wages and benefits, and to dominate the coordination of production among networks of firms, the control of finance, and the adoption and implementation of new technology. Therefore Shane (2009) concludes that creating typical start-ups is not the way to enhance economic growth and create jobs. The definition for small businesses used in this research is that of the European Commission. Recommendation 2003/361/EC of 6 May 2003 concerning the definition of small, medium and micro enterprises states that small, medium and micro enterprises are defined according to the staff headcount and turnover or annual balance sheet.
-A medium sized business is defined as a enterprise which employs fewer than 250 employees and whose turnover not exceeding 50 million Euro or whose annual balance sheet total doesn’t exceed the 43 million Euros.
-A small business is defined as an enterprise which employs fewer than 50 persons and whose turnover or annual balance sheet isn’t more that 10 million Euros.
-A micro-business is defined as an enterprise which employs fewer than 10 persons and whose turnover or annual balance sheet isn’t more than 2 million Euros.
University of Groningen | Theory 16
2.5 Conceptual model
The conceptual model present the blueprint of this research and shows the concepts and relationships described in the introduction and theoretical part. The model has three concepts, namely “successful SHBO,” “Criteria of success” and “Effectuation principles.“ The first and central
University of Groningen | Method 18
3. Method
This research is an explorative study. Exploratory studies are about what is happening. They
investigate little-understood phenomena, identify important constructs, examine the salient themes and patterns that emerge in participants meaning structures and how these patterns are linked (Walsch, 2003). According to Cooper and Schindler (2008) an exploratory study is characterized by a loose structure, it expands understanding, provide insight and is used by developing hypotheses. According to Yin (1989) explorative studies lean the most on qualitative data. According to Walsch (2003) a good way to explore the full dimensions of a problem is to examine it first hand, with field based, qualitative research using a collaboration between a practitioner and a researcher.
Furthermore according to Ghauri and Grönhaug (2002) a qualitative approach is more subjective in understanding phenomena or constructs and is most likely to be used in small samples. They argue that qualitative approaches to gather in-depth data are interviews, observations and focus groups. While, its opposite, a quantitative approach is an objective way to gather data and is more likely to be used in large samples. Cooper and Schindler (2008) argue that the qualitative data collection approach enables the researcher to focus on the SBO’s attitudes and perceptions, whilst a quantitative data collection approach can be used to measure frequencies. According to Marshall (1996) qualitative research is to explore complex human issues. This study examines the perceptions of small hospitality business owners, their attitudes and decision principles. It is an investigation in little understood phenomena and tries to identify constructs that emerge in participants meaning structures. That is why this research is an exploratory study with a qualitative data collection method. The research will use the collaboration between practitioner and researcher by performing semi-structured interviews. As explained in the former chapter the interviewees are small hospitality business owners in the city Groningen. Open-ended and structured questions were made, as they allow the interviewees to express their views and ideas about certain topics and also confine them to a certain range of answers (Saunders et al., 2007). The research questions were derived from the literature, to understand what success criteria are important to small hospitality business owners and how they make their decisions. The conceptual model was developed using items generated after an extensive literature review of success, the hospitality market, small businesses and Effectuation theory.
University of Groningen | Method 19 The first part of the interview is about the concept “Successful small business owner.” These open questions are used to qualify the SHBO for this research and capture the owners perspective on his or her success. The second part is based on the concept “’success criteria” and contains open and structured questions to find an answer to the first research question: “ Do small hospitality business
owners judge their success with objective and/or subjective criteria?” and its sub questions. The third
and final part of the interview handles the concept of “Effectuation principles” and thereby the second research question: “ Do small hospitality business owners use Effectuation principles in their
decision making?” Five contradictions, derived from the literature, were used to examine if the
SHBOs take their decisions based on Effectuation principles.
Within the hospitality industry, different owners may have different perceptions. The qualitative sample must be large enough to assure that the study gets all of the perceptions that might be important for this research. In contrast a sample can also be too large to get the in-depth information the researcher was set out to collect. The sample size of the research is ten SHBOs. This sample is large enough to get the different perspectives of the SHBOs in Groningen. To select the sample this research uses a judgment sample (Marshall, 1996). Also known as purposeful sample, this study has actively selected the most productive sample to answer the research questions, based on the researchers practical knowledge of the research area and the evidence from the study itself. This is a more intellectual strategy than the simple demographic stratification of epidemiological studies (Marshall, 1996). Age, gender, size, location, performance and the experiences of the subjects are important variables for this research. The subjects are partly known to the researcher and may recommend useful potential candidates for this study (Snowball sample), to stratify according to know public attitudes or beliefs (Marshall, 1996). The businesses which took part in the research are presented in appendix five. Here a list is presented of the hospitality business with the variables age of the owner, age of the business, gender of the owner and size of the business. Size is measured in number of employees. Location is neglected in the research, because all business are located in the center of the city of Groningen. The variable “performance” is part of this study and is examined in the concept ”successful SHBO.” The variable “experience of the SHBO” is explicitly neglected, but during the lives of the SHBO and the period they are running their business they gain experience and both factors are taken into account by the variables “age” and “age of the business.” Appendix five shows that the sample size is ten and how the sample is divided over the different variables. The sample contains six business with one owner and four business which are owned by couples. The six entrepreneurs are all male, three of the couples are both male and female and one business is owned by two males. The sizes of the businesses, the age of the entrepreneurs and the age of the businesses are well distributed over the different categories. Based on the results of the first two questions and the findings on the variables question three; “Do small hospitality business owners
who judge their success with subjective criteria use Effectuation principles to reach their success?”
will be answered.
University of Groningen | Method 20 The four questions of Walsch (2003) which are used to ensure that the data is collected and analyzed appropriately and to ensure that they have ‘interpretative validity,’ are presented below.
1) Credibility; how accurate or truthful are the findings of this study? What criteria can I use to judge them?
2) Transferability; how applicable might these findings be to other groups or settings?
3) Dependability; if I replicate this study with the same participants would I obtain the same outcome?
4) Conformability; how we know the findings represent the viewpoints of the respondents and, to the degree possible, are not representative of the researchers viewpoints, frames of reference, or prejudices?
University of Groningen | Findings 21
4. Findings
The first part of the questions, asked to the small hospitality business owners, was about the concept “Successful small business owner.” These open questions were used to qualify the SHBO for this research and capture the owners perspective on his or her success. All the small hospitality business owners, which were interviewed, state that their business is viable and that they can take a
reasonable living out of it. Reasons for the viability of the businesses, according to the SHBOs, differ. The answers differ from being viable through addressing the right customer base, which consumes, by stage setting, having the right and qualified employees, providing market and customer needs and having vision, to simply making profit (for example by keeping an sharp eye on purchasing and sales margins). Some of the interviewees mentioned that they have a hard time due to the recession, but still performing well enough to run a viable business and take a reasonable living out of their business. All the interviewees feel they are running their business successfully. Although to the extent to which they feel they are running a successful business, there are some differences between the SHBOs. Some of the entrepreneurs said they are running their business sufficient or very well in terms of success, while others said they are running a very successful business. The majority of the SHBOs state that, although they are running a successful business, they are always striving for better or that there is still much work to do. Some mention that running a successful business has also to do with the progress they have made and that they have seen a growth in customers. Two of the
entrepreneurs compare their business to competitors or colleagues, in describing how they are running their business in terms of success. Besides running their business successful, all the entrepreneurs are also feeling successful themselves. All the interviewees have their own personal reasons for feeling successful, some objective, others subjective and some have both objective and subjective reasons for feeling successful. The reasons of being successful, translated in objective and subjective success criteria, were more deepened in the second part of the interview.
The second part of the interview was based on the concept “Success criteria” and contains open and structured questions to find an answer on the first research question: “Do small hospitality business
owners judge their success with objective and/or subjective criteria?” First the findings related to the
first sub-question: “What are the success criteria used by small hospitality business owners in
Groningen to judge their success?” are presented. All of the small hospitality business owners, which
were interviewed, used both objective and subjective criteria to judge their success. The extend of usage is presented in table nine and ten. Table nine shows that the SHBOs use all the subjective success criteria, but not all the subjective criteria are used by the individual SHBO. The subjective criteria “Autonomy” and “Personal satisfaction” are used by all the interviewees to judge their success. “Pride” scores also high, eight out of the ten entrepreneurs also uses pride to judge their success. “Flexibility” is also used though the majority of the interviewees (6 out of 10). “Balancing work and family” and “Social responsibility” are used through four of the ten SHBOs to judge their success.
Table 9
Usage of subjective success criteria to judge success.
Subjective Success Criteria
Autonomy Pride Flexibility Personal
University of Groningen | Findings 22 Table ten shows the usage of objective success criteria by SHBOs to judge their success. According to the interviewees “Profit” is the most important objective criteria to judge their success. Eight
entrepreneurs are using this criteria. The majority of the interviewees (6 out of 10) finds “Sales” and “Rate of Return” important criteria, followed up by “Turnover” (5 out of 10). “Continuity” is only mentioned as an important criteria to judge success by two out of the ten SHBOs. “Employee number” and “Market Share” were seen as unimportant and were not mentioned by any of the entrepreneurs. Two of the entrepreneurs stated that “Profit” is the only important factor and that the other criteria are just instruments to gain profit.
Table 10
Use of objective success criteria to judge success.
Objective Criteria
Profit Turnover Sales Employee
number
Market share
Continuity Rate of return
SHBOs 8 5 6 0 0 2 6
In the tables above the objective and subjective criteria are presented as separate factors. They show that both factors are used by the SHBOs to judge their success and which criteria are more used comparing to others, but these results say nothing about the second sub-question: ”What are,
according to the small hospitality business owner, the most important success criteria used to judge their success?” Some criteria are more important than others to the SHBOs in judging their success.
University of Groningen | Findings 23
Table 11
Five most important criteria to judge success according to the SHBO.
Top Five/SHBO
1 2 3 4 5
1 Autonomy Flexibility Profit Continuity Rate of return
2 Autonomy Balance between
work and family Profit Turnover Rate of return
3 Pride Personal
satisfaction Profit Sales Turnover
4 Autonomy Pride Personal
satisfaction Profit Sales
5 Pride Personal
satisfaction responsibility Social Turnover Rate of return
6 Profit Sales Personal
satisfaction Autonomy Balance between work and family
7 Autonomy Pride Flexibility Personal
satisfaction Turnover
8 Personal
satisfaction Autonomy Flexibility
9 Turnover Continuity Pride Personal
satisfaction Balance between work and family
10 Autonomy Personal
satisfaction
Balance between
work and family Flexibility Profit
Table 12
Total score of each success criteria out of top five SHBOs.
Success criteria Total subjective criteria Total objective criteria Personal satisfaction 8
Autonomy 7
Pride 5
Flexibility 4
University of Groningen | Findings 24 The tables show a higher score for the subjective success criteria in judging success. The ten SHBOs use 29 times a subjective success criteria in their five most important criteria to judge success against 19 times an objective success criteria. The highest scores for the individual success criteria are also for subjective success criteria. Namely for “Personal satisfaction” (8 out of 10) and “Autonomy” (7 out of 10). Remarkable here is that the two owners who are not using “Personal satisfaction” in their top five have more than one business. “Autonomy” has also a variable which stands out. Namely the ownership of the business, three business who are owned by a couple are not using autonomy as a success criteria. The highest scoring objective criteria is “Profit” (6 out of 10). Other scoring success criteria were “ Pride” and “Turnover” (5 out of 10). “Flexibility”, “Balance between work and family” were used by four out of ten. The criteria “Social responsibility” (1 out of 10) and “Continuity” (2 out of 10) have the lowest scores and “Employee number” and “Market share” have no scores at all. Remarkable here is that the only business owned by two males is using the criteria “Social
responsibility” in their top five. Further no there are no other combinations of the variables and the use of certain success criteria are standing out. Based on this, the top five is “Personal satisfaction,” “Autonomy”, “Turnover”, “Pride” and “Profit”. Also the tables show that six of the SHBOs are using more subjective criteria in their five most important criteria to judge success than objective criteria. Out of the explanations of the SHBOs about why they use this criteria to judge success, “Personal satisfaction” is mentioned explicit as most important by six of the ten interviewees. They stated that this is the goal or result of the other success criteria. Some entrepreneurs stated that they strive after a certain standard of living. For this standard of living, a balance between work and personal live is needed. This can only be accomplished by a certain amount of profit. This profit is the result of work, turnover and rate of return. They stated that finding the balance is a challenge. Also they stated that making more profit provides more flexibility. In their view, profit provides the means to an end and this end is a certain standard of living. Others stated that their five most important success criteria are the reasons for existence, it’s their only way of doing business and meeting this success criteria makes them happy. One of the entrepreneurs calls it is “a way of live”. Seven of the ten
entrepreneurs stated that they use their five most important success criteria in everything they do in the business. Their decisions are based on this criteria, presented in table eleven.
According to the majority of the SHBOs their decisions are based on their success criteria. The third and final part of the interview handles the decision constructs of the SHBO. This part is based on the concept “Effectuation principles.” To answer the second research question: “Do small hospitality
business owners use Effectuation principles in their decision making?” Five contradictions, derived
University of Groningen | Findings 25
Table 13
The Effectuation principle Means and her usage.
Effectuation principle and variables/SHBO Effectuation/Causation Size of business* Age of business* Age of entrepreneur* Gender of entrepreneur 1 Effectuation and Causation 4 3 3 M 2 Effectuation 2 3 2 M 3 Effectuation 4 2 2 M+F 4 Effectuation 1 4 4 M 5 Effectuation and Causation 2 2 3 M+M 6 Effectuation 1 1 3 M+F 7 Effectuation 1 4 4 M 8 Effectuation 4 2 2 M 9 Effectuation 2 2 3 M+F 10 Effectuation 4 4 3 M
*Size of the business is divided in 4 categories: 1: 1-5, 2: 5-10, 3:10-15, 4: 15+ employees. *Age of business is divided in 4 categories: : 1-5, 2: 5-10, 3:10-15, 4: 15+ years. *Age of the entrepreneur is divided in 4 categories 1:20-30, 2:30-40, 3:40-50, 4:50+ years and is based on the oldest owner.
Table 14
The Effectuation principle Affordable loss and her usage.
Effectuation principle and variables/SHBO Effectuation/Causation Size of business* Age of business* Age of entrepreneur* Gender of entrepreneur 1 Effectuation and Causation 4 3 3 M 2 Effectuation 2 3 2 M 3 Causation 4 2 2 M+F 4 Effectuation 1 4 4 M 5 Effectuation and Causation 2 2 3 M+M 6 Effectuation 1 1 3 M+F 7 Causation 1 4 4 M 8 Effectuation 4 2 2 M 9 Effectuation 2 2 3 M+F 10 Effectuation 4 4 3 M
University of Groningen | Findings 26
Table 15
The Effectuation principle Levering contingencies and her usage.
Effectuation principle and variables/SHBO Effectuation/Causation Size of business* Age of business* Age of entrepreneur* Gender of entrepreneur 1 Effectuation 4 3 3 M 2 Effectuation 2 3 2 M 3 Effectuation and Causation 4 2 2 M+F 4 Effectuation 1 4 4 M 5 Effectuation 2 2 3 M+M 6 Effectuation 1 1 3 M+F 7 Effectuation 1 4 4 M 8 Effectuation 4 2 2 M 9 Causation 2 2 3 M+F 10 Effectuation 2 2 3 M
*Size of the business is divided in 4 categories: 1: 1-5, 2: 5-10, 3:10-15, 4: 15+ employees. *Age of business is divided in 4 categories: : 1-5, 2: 5-10, 3:10-15, 4: 15+ years. *Age of the entrepreneur is divided in 4 categories 1:20-30, 2:30-40, 3:40-50, 4:50+ years and is based on the oldest owner.
Table 16
The Effectuation principle Partnerships and her usage.
Effectuation principle and variables/SHBO Effectuation/Causation Size of business* Age of business* Age of entrepreneur* Gender of entrepreneur 1 x 4 3 3 M 2 Effectuation 2 3 2 M 3 Causation 4 2 2 M+F 4 Effectuation 1 4 4 M 5 Effectuation 2 2 3 M+M 6 Effectuation 1 1 3 M+F 7 Effectuation 1 4 4 M 8 Effectuation 4 2 2 M 9 Effectuation 2 2 3 M+F 10 Effectuation 4 4 3 M
University of Groningen | Findings 27
Table 17
The Effectuation principle Design and her usage.
Effectuation principle and variables/SHBO Effectuation/Causation Size of business* Age of business* Age of entrepreneur* Gender of entrepreneur 1 Effectuation 4 3 3 M 2 Effectuation 2 3 2 M 3 Causation 4 2 2 M+F 4 Effectuation 1 4 4 M 5 Effectuation 2 2 3 M+M 6 Effectuation 1 1 3 M+F 7 Effectuation 1 4 4 M 8 Causation 4 2 2 M 9 Effectuation 2 2 3 M+F 10 Effectuation 4 4 3 M
*Size of the business is divided in 4 categories: 1: 1-5, 2: 5-10, 3:10-15, 4: 15+ employees. *Age of business is divided in 4 categories: : 1-5, 2: 5-10, 3:10-15, 4: 15+ years. *Age of the entrepreneur is divided in 4 categories 1:20-30, 2:30-40, 3:40-50, 4:50+ years and is based on the oldest owner. Each of the five Effectuation principles represent an approach to decision making that does not rely on prediction, instead assuming the impact of willful individual creation (Read et al., 2009). Table thirteen till seventeen show that most of the entrepreneurs are taking decisions mainly based on Effectuation principles. Four of the entrepreneurs are using only Effectuation principles in their decision making. One entrepreneur is using more the Causation approach in the decision making, against nine SHBOs who are using mainly Effectuation principles in their decision making. The results show no remarkable differences or similarities in the business- and owner variables and the use of Effectuation principles in their decision making.
As Table 13, about the Effectuation principle “Means” shows, all the entrepreneurs are using the first Effectuation principle in their decisions about their base and givens. Two SHBOs are also using the Causation approach. For the first principle the results show no remarkable differences or similarities in the business- and owner variables and the use of the principle in their decision making.
In their predisposition toward risk (table 14), six SHBOs only use the Effectuation principle and are taking risk based on affordable loss, two owners are using both approaches and two are only using the Causation approach and are taking risk based on expected returns. Again by all off the variables nothing, what might indicate upon a relationship, is standing out.
University of Groningen | Findings 28 Eight SHBOs are using the fourth Effectuation principle “Partnerships” in their attitude toward others, against one entrepreneur who is using the Causation approach (see table 16). These eight entrepreneurs are building partnerships (strategic alliances, create jointly with customers, suppliers or competitors) rather than being concerned with competition and competitive analysis. One SHBO stated he was not concerned with either option and that he has no attitude towards others. The variables show nothing what might indicate upon a relationship between the use of the Causation approach and a certain category of a variable.
Table 17, about the view of the future and underlying logic, shows that eight out of the ten SHBOs are using the fifth Effectuation principle “Design”, against two SHBOs who are using the Causation approach. Thus Eight entrepreneurs are rather controlling an unpredictable future than predicting an uncertain one. This fifth principle also shows no results that may indicate a relationship between the use of the Effectuation principle or the Causation approach and specific category of one or more of the variables.
To answer the third question; “Do small hospitality business owners who judge their success with
subjective criteria use Effectuation principles to reach their success?” The results of the first two
University of Groningen | Discussion 29
5. Discussion
This research was set up to find the important success criteria for SHBOs in an Effectuation perspective. Effectuation theory is about decision making and it is a tool for problem solving when the future is unpredictable, our goals are unspecified or simply unknown, and when the environment is not independent of our decisions” (Sarasvathy, 2004). Furthermore Sarasvathy (2001) state that small business owners should use Effectuation to improve chances of success. Thus this study tries to find out if SHBOs, who feel themselves successful and are running a viable business from which they take a reasonable living, are using Effectuation principles in their decision making, what success criteria they use to justify these decisions and if there are linkages between the both. Due to the characteristics of the hospitality sector, the characteristics of the small businesses operating in this sector and the literature review about success and Effectuation, it was expected that both objective- and the subjective success criteria are used by small hospitality business owners to judge business success. Although it is expected that both criteria are used, it was also expected that the subjective criteria are more important to SHBOs. Furthermore it was expected that they in particular use the Effectuation principles (means, affordable loss, leveraging contingencies, partnerships and design) in their decisions to reach their important success criteria.
The first important thing for the research is to qualify the SHBOs for this study. In order to find out which success criteria are important for the SHBO, the SHBOs must feel successful themselves and have a viable business. Based on the findings, the ten SHBOs in Groningen, which were interviewed, are all qualified, because they all stated that their business is viable and they can take a reasonable living out of it. Furthermore all of the interviewees feel they are running their business successfully and also they feel successful themselves. Although this is only based on the interviews with the entrepreneurs and thereby is not objectively set and controlled, this research assumes that the SHBOs, which were interviewed, are credible. This is due to the expert opinion of the researcher, the age of the businesses and the fact that they are still running their business with sufficient clientele in the hard time the hospitality industry is facing and when numerous businesses go bankrupt.
