Exploring the Determinants of Entrepreneurial Culture

Scott Loveridge Steven R. Miller

Thasanee Satimon

Session 55

Saturday, October 24, 2009

Kansas City, MO.

Missouri Valley Economic Association Forty-Sixth Annual Meeting

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Towards a Measure of Entrepreneurial Culture

Presentation outline:

• Motivation

• Concept

• State of the State Survey

• Findings

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Motivation

• Michigan’s current economic climate

• Michigan communities increasingly seek alternative approaches to economic development

• MSU and LPI Creating Entrepreneurial Communities program

• Response to the need to build evaluation into entrepreneurship support programs

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Research Concept

• The literature supports enterprise development strategies for economic development– Cost per job created is lower than industry attraction (Lyons and Hamlin,

2001)

– Source of growth (Acs and Armington, 2004)

– Source of economic resilience (Markley, et al., 2005)

– Regional equity (Bennett and Giloth, 2007)

– Social equity (Conley, 1999; Markley, et al., 2005)

– More likely to be successful than industry attraction (Dabson, 2007)

– More likely to fit with local values (Hustedde, 2007; )

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Concept

• Local culture plays an integral role in determining the success of local efforts for building entrepreneurial friendly communities – Reinforcing attitudes (Minniti, 2005; Krueger and Brazeal,

1994; Reynolds 1991)

– Social networks (Davisson and Honig, 2003)

– Policy agendas (Rupasingha, et al., 2002; Krueger, 1993)

– Inhibit or encourage individuals to become self employed (Hustedde, 2007)

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Importance of Culture

• Entrepreneurship is a cultural phenomenon: it is a function of both the entrepreneur and the community they operate in.– Entrepreneurs are the products of their surroundings– Communities are self-perpetuating; changing in response to

external forces– Culture can nurture, tolerate or discourage the creation of new

enterprises. Entrepreneurial cultures value independence, innovation, diversity and wealth creation

– Some mindsets hamper the creation of new enterprises, including conformity, preference for certainty and insular attitudes

– Community attitudes shape public policy

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41 Ways to Enhance A Community’s Entrepreneurial Culture*

• Strengthen three major areas:– Community and Networks– Finance and Regulations– Training and Mentoring

• Many low cost strategies and resources are available to assist entrepreneurs– Take full advantage of existing programs and organizations– Mindset shifts, e.g., design of High School curricula– Celebrate entrepreneurship through awards and media

• Michigan is a victim of past success in large scale manufacturing; entrepreneurial mindset has atrophied.

*Loveridge, Scott. 2007. Getting Started in Community-Based Entrepreneurship. In Entrepreneurship and Local Economic Development, edited by N. Walzer. Lanham, MD: Lexington Books

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Gauging Entrepreneurial Culture: Goal of the SOSS Survey

• Gauge community attitudes• Generate baseline values from which to gauge the

effectiveness of community entrepreneur support programs

• Better understand the factors that contribute to the support of entrepreneurship– Do entrepreneurial lifestyle attitudes vary across regions?– Does an individual’s personal characteristics help predict their

attitudes towards an entrepreneurial lifestyle?– Do place attributes influence attitudes towards entrepreneurial

lifestyles?– Which factors are more important in forming one’s perceptions of

entrepreneurship, individuals’ or communities’?

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State of the State Survey Approach

• Quarterly telephone survey of ~1,001 Michigan households

• Stratified sample representative of 5 regions plus Detroit• Basic questions funded by MSU central administration• MSU researchers can add questions for $5K per minute• Respondents are asked their zip code can tie

individual to community characteristics

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Likert-Scale Questions1. How important is it for Michigan high schools to encourage

young people to explore careers that involve starting a business?

2. Locally owned businesses contribute more to the overall welfare of a community than nationally and internationally owned businesses.

3. I would encourage a young person to be self-employed or start their own business instead of working for somebody else.

4. People who work for large employers are less likely to lose their source of income than people who work for small employers or are self-employed (reversed for scoring).

5. People who own their own business or who are self-employed can make just as good of a living as people who work for someone else.

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Basic Likert Results(1-5 scale)

Variable Mean Std Dev Min Max

1. HS programs 4.39 0.83 1 5

2. Welfare contrib. 4.19 1.02 1 5

3. Encourage Entrep 3.65 1.27 1 5

4. Secure Employ. 2.94 1.41 1 5

5. Secure Income 4.08 1.13 1 5

Composite Scores

All 5 19.25 3.09 8 25

All minus #2 15.06 2.73 5 20

All minus #4 16.31 2.78 6 20

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Regional Variation

• F-tests provides evidence of significant differences in attitudes towards entrepreneurship across Michigan regions. However, weak evidence exists for the 5-series composite score.

• Regional variation is more significant when “local contributions” (Question 2) deleted from composite variable.

• Regional variation may reflect industry structure or other community-level variables.

Next step is to control for regional and individual factors.

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Ordered Probit Models

• Individual level variables (16)– Gender, ethnicity, age, family structure, employment

status, income category

• Community (zip code & county) variables (16)– Ethnic composition (% hisp, non-white), rurality, age

of housing, % professional and ag occupations, percent rural, density, median income, population change, proportion of small establishments (1-19), proportion of non-employing establishments, density of persons with higher education,

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Composite Score Results

• Models with environmental control variables generate better fits as measured by Chi-Squared statistics.

• 5 of 16 individual-level variables and 9 of 16 community level variables produced t-stats >2.

Positive Negative

Individual

Children Employed Urban Residence

Married Union Membership

Environmental

Hispanic Rural New Residential Development Median Income Change in number of small businesses

Agriculture Occupations Educational Attainment Unemployment Rate Population Change

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Composite Score Results

• Environmental factors are better predictors of individual perceptions

• Rural regions appear more supportive of entrepreneurship

• Ethnicity of regions plays a greater role than ethnicity of the individual

• Community unemployment is a greater factor than unemployment of the individual

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Solo Entrepreneurship Variable Results

(5 separate equations)• The same regressions were estimated with each of the 5

individual scores• Findings are less robust to composite scores; 20 (Q2) to

27 (Q3) of the 32 variables share the same sign• Measuring multiple dimensions of entrepreneurship via

composite scores reduce noise in equation • Question 3 (encourage a young person) provides most

robust relationships and appear most related to composite scores

• If limited to one question, choose, “would you encourage a young person”

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Solo Question Score Results

• Q3 generates the most number of significant relationships• Hispanic respondents enter Q3 positively and Q4 negatively• % of community that is Hispanic does not enter any solo question with

significance.• Places with increases in bus. Establishments tend to enter positively• Educational attainment is negative on Q3 and Q5

Q1 HS programs Q2 Welfare contrib. Q3 Encourage Entrep. Q4 Secure Employ. Q5 Secure Income

(+) African American Employed

Male Children Employed

Male Hispanic Urban Res.

Urban Res. < 30 years old > 50 years old

Children

Indi

vidu

al

(–) < 30 years old Married

Income>$50K Married Union < 30 years old

Male Hispanic

Married Union

(+)

Median Age New R. Develop.

Change, small bus. Median Age % Rural New R. Develop. Density Change, small bus.

% Rural % Small Bus. Change, large bus.

% Rural New R. Develop. Density Median Income

Env

iron

men

tal

(–)

Population Change % African Amer. Pop Change % Proprietors

Educ. Attainment Unemploy Rate Pop Change % Small Businesses

Unemploy Rate Density Pop Change

% Agriculture Occ. Educ. Attainment Pop Change % Small Businesses

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Solo Question Score Results

• Environmental variables are better predictors of responses than in individual factors

• Union members negatively perceive Q3 (encourage ent.) and Q5 (ent. earn equal living).

• Hispanic and male respondents prefer working for large company on job security grounds

• Male respondents are more likely to encourage one to become an entrepreneur

• Places with large number of small employers or population have high population growth tend to be more closed to entrepreneurship

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Next Steps-USDA NRI Grant

• Will use combination of baseline study here, 41 question self-assessment, and tracking conversations about entrepreneurship for a series of studies

• Apply cultural values to community entrepreneurship programs (CEC) for evaluation

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• PowerPoint presentation can be downloaded at,www.cea.msu.edu

• For further information, contactSteven R. Miller 88 Agriculture Hall Michigan State University East Lansing, MI 48824 (517) 355-2153 mill1707@msu.edu

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