Business and Family Outcomes: Factors Affecting Perceived Success. Introduction

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1 Lawrence N. Field Center for Entrepreneurship and Small Business 1 Business and Family Outcomes: Factors Affecting Perceived Success Introduction It has been a long held belief that work and family life are separate spheres of activity that operate independently of each other. Kantor (1977) challenged this myth of separate worlds and subsequent studies suggest that there are extensive, positive and negative bi-directional influences--work conditions and outcomes that affect family life and vice versa (Lambert, 1990; Voydanoff, 1987; Green & Pryde, 1989; Hoy & Verser, 1994; Winter, Fitzgerald, Heck, Haynes, & Danes, 1998; Danes, Zuiker, Kean, & Arbuthnot, 1999; Stafford, Duncan, Danes, & Winter, 1999; Masuo, Fong, Yanagida, & Cabal, 2001). Decisions regarding family owned businesses are often made in the context of the owner-manager s family; strategies for the firm s activities are defined by both business and family considerations; and business resources are used to achieve family as well as business goals (Riordan & Riordan, 1993). These dynamics cannot be ignored. Recent studies have shown that perceived success in one, particularly the family component, may influence perception of success in the other (Masuo et al., 2001; Heck, Jasper, Stafford, Winter, & Owen, 2000). It is particularly important to pay attention to the interactions between family and business spheres and the influence of one on the other in home based family businesses. The location of the business in the home means sharing a common environment, an arrangement that had the potential to result in conflict among competing family and business demands, not just for space but for human capital--time, energy, attention of members-- as well (Fitzgerald & Winter, 2001). For those who are home-based, work life is influenced by factors such as family structure, gender of the home-based worker, life stage, and the family's needs, especially in situations in which there are dependent family members (Rowe & Bentley, 1992). Thus, the success of the business or the perception of it may be very much intertwined with the perception of success of the family and vice versa. Previous Literature Because of limited empirical work on the interrelationship between families and businesses, it is not clear as to what constitutes family success and business success in home based family businesses. Family quality of life (or family success) is an important indicator of overall quality of life (Rettig and Leichtentritt 1999). Quality of life can be measured objectively using indicators such as income or level of education attained. It can be measured subjectively, using a measure which captures a person s perceptions of his/her objective reality, relative to the degree to which his/her emotional and materials needs are satisfied in the family system (Rettig & Leichtentritt, 1999). Because they tend to reveal more about a person s satisfaction with his/her life, subjective perceptions are considered to be more relevant in assessing individual quality of life (Olson, McCubbin, Barnes, Larsen, Muxen, & Wilson, 1983). Commonly used economic or financial measures of business success include return on assets, growth in sales,

2 Lawrence N. Field Center for Entrepreneurship and Small Business 2 annual sales, profits, number of employees and survival rates (Dess & Robinson, Jr., 1984; Kalleberg & Leicht, 1991; Miner, 1997). Success in business can also be assessed using nonmonetary measures that take into account customer satisfaction, personal development and a sense of personal achievement (Rosenblatt, de Mik, Anderson, & Johnson, 1985). While the majority of business studies utilize objective economic measures of performance, a growing number are incorporating subjective measures that examine the non-economic (subjective) dimensions of business performance to address the measurement problems associated with the use of financial data (Kotey, 1997). Just as subjective perceptions of quality of life may reveal more about satisfaction with life and family well being, subjective perception of business success may similarly provide more insights into satisfaction with a family owned business. There is also a lack of information about what factors influence perceptions of success. Determination of satisfaction with life is thought to be based on an assessment of the differences between objective attributes and one's expectations and aspirations with respect to important aspects of one's life (Campbell, Converse & Rodgers, 1976). Campbell, et al. (1976, p. 151) note there is a highly characteristic tendency for satisfaction with most domains to increase at a roughly equivalent pace with advancing age and that there is a positive linear association between life satisfaction and education, employment status, job satisfaction, and health. Satisfaction with life quality has been found to generally follow the same pattern as marital and family satisfaction, both of which are variables typically used to reflect happiness with the overall functioning of the family (Olson, et al., 1983). Changes in an individual's roles, responsibilities, and financial welfare can explain overall improvement in life satisfaction and well-being (Orbuch, House, Mero, & Webster, 1996). Studies focusing on determinants of business income and profitability have established that the economic success of a business is impacted by both owner and business characteristics. Certain owner and business characteristics, such as gender, education, age, and goal conflict are linked to increased business income. Business owners human capital investments and income are positively correlated; education, managerial skills and experience all contribute positively to higher earnings (Kalleberg & Leicht, 1991; Rowe, Haynes, & Bentley, 1993). Variables such as owner's age and heavy family demands negatively influence economic success of businesses (Hoy & Verser, 1994; Kalleberg & Leicht, 1991; Konijn & Plantenga, 1988; Loscocco, Robinson, Hall, & Allen, 1991). Characteristics of the business that influence profitability, income, growth, and survival rates are age and size of the firm, and location of the business. New and small firms, and those that are home-based earned less income than firms that are older, larger and are physically located outside of the home (Kalleberg & Leicht, 1991; Kraut & Grambsch, 1987). Knowledge of the factors that influence perceptions of family and business success and an awareness that perceived success in one sphere affects success in the other can be used by home-based businesses to make deliberate decisions regarding the nature and extent of family and businesses interactions.

3 Lawrence N. Field Center for Entrepreneurship and Small Business 3 Description of Success Estimator Tools The success estimator tools focus on subjective measures of success and the manager, household and business factors that influence them. Subjective measures of success are selected because they may more accurately capture the degree to which an individual s material and emotional needs are fulfilled (Olson, et al.,1983; Rettig & Leichtentritt, 1999). To estimate a business success score, all factors that influence business success are entered into a prediction equation. The equation incorporates the effects of business manager characteristics (age, marital status, gender, educational attainment, health status, experience in the business), household characteristics (home ownership, location of residence, perception of family success), and business characteristics (profit, number of full-time employees, and common business goal). Family success is affected by household manager characteristics (age, marital status, gender, educational attainment, health status), household characteristics (number of teenagers and young children, income, common family goal), and business characteristics (perception of business success). Therefore the family success equation incorporates the effects of these three categories of characteristics. There are two success estimator tools. Tool 1 is the business success estimator tool for the business manager. Tool 2 is the comparable family success estimator tool, which is completed by the household manager. The family success and business success estimators are designed to account for the influence of family success on business success and vice versa. Therefore, the business manager's business success score must be entered into the household manager s family success estimator; similarly the household manager's family success score must be entered into the business success estimator. To facilitate exchange of this information, it is recommended that both managers complete their respective tools simultaneously. Calculations of family and business success scores can be done automatically by downloading Tools 1 and 2 to the desktop of your computer. The tools will be posted to the listserv that you have been registered for and sent directly to your address. Use the Microsoft Excel program to open each tool. Once you are in the tool, type your answers to each of the questions in the Your Response column. The business manager will need some information from the household manager and vice versa, so both managers should work on these tools at the same time. Your estimated success score will appear at the bottom of the tool, in the column labeled Your Calculated Score. Sample Description The sample upon which this study is based consists of 239 home-based businesses with different individuals fulfilling the role of household manager and of business manager. Only two manager households were selected for study because the interest in this study is on the effects that interactions between two separate managers in a home-based business have upon perceptions of business and family success.

4 Lawrence N. Field Center for Entrepreneurship and Small Business 4 Home-based businesses are usually defined in terms of the location of work and the absence of a business office outside of the home. In this study, however, a home-based business was defined only in terms of the location of the work because the other defining variable, the presence of an office elsewhere, is used as one of several predictors of business success, which is the focus of one of the tools in this chapter. The data come from the 1997 National Family Business Survey, which was funded by the U.S. Department of Agriculture. A majority (97%) of the managers were married. Almost all of the business managers were male and correspondingly, nearly all of the household managers were female. The average age of the male business managers was 48 years.. Almost half (43%) of them completed a high school degree; the remaining group (47%) had either a community college or a college degree. Over one-half (51%) of the business managers reported that their health was good, while 39 percent said their health was excellent. Their average number of years in business was 16. The average age of the household managers was 45 years; 41 percent completed high school; and 84 percent reported good to excellent health. Nearly 20 percent of the households had teenagers, age 15-18, living at home, but only 13 percent had a child under age 5. The Success Estimators provide users with tools for estimating a business success score for business managers and a family success score for household managers who own and operate a home-based business in the U.S. The calculated success scores are based on factors that were identified in the 1997 National Family Business Survey as having positively or negatively influenced perceptions of family and business success. Findings Home-based family business households with two separate managers, whether they have an office elsewhere or not, have similar mean responses on most of the outcome variables that are examined in each of the chapters. Table 1 summarizes findings from a comparison of these two groups on five different types of outcomes family integrity, family goal achievement, family success, business success, and business goal achievement. With the exception of business goal achievement, where home-based households with an office elsewhere were more successful at achieving this outcome than the group with no office elsewhere, the two groups had similar mean responses for the outcome variables. These suggest that while having an office outside the home can help businesses achieve their goals, it does not significantly improve outcomes for the family. Excellent health of the business manager and profits were found to be positively related to perception of business success, while agreement between the business and the household managers on the most important business goal was negatively related to business success. Investment in human capital, as measured by maintaining excellent health, is a key element in the perception of both family and business success. Acquiring additional education, however, contributes significantly to increased perception of family success only.

5 Lawrence N. Field Center for Entrepreneurship and Small Business 5 Implications of Findings For Users While increased educational attainment is often associated with increased well being, this finding suggests that there may be factors other than formal education that are more important in influencing business success. The finding that agreement between the household manager and the business manager on the most important business goal negatively impacts perception of business success appears contrary to expectations. However, agreement between the two managers on what is good for the business may not be construed by the household manager as being good for the family. If this situation is true, family satisfaction is likely to decline, and so will business satisfaction because of the impact that family success has on business success. Implementation of plans to achieve family and business goals will draw to some extent from common pool of resources. Therefore, to reduce the potential for future conflict about allocation of limited resources and increase the potential for satisfaction, active discussion between managers of goals and priorities is important (Deacon & Firebaugh, 1988; Hoy & Verser, 1994). Applications of Success Estimator Tools For Users How Accurately Can These Tools Predict Family Success and Business Success? The accuracy of the proposed tools is shown by each tool s ability to predict the sample mean values of the variables: family success and business success. Using the mean values for each of the explanatory variables and multiplying them by their estimated coefficients, the predicted sample means are 4.24 for family success and 3.92 for business success. These predictions are very accurate with less than 1% error; the actual sample means are 4.21 for family success and 3.93 for business success. To understand how Tool 1 works for estimating business success, a hypothetical case is presented. George and Lani Kealoha are owners of home-based business called Hawaiian Sweets. George is the business manager. He is 34 years old, married, male, has a bachelor's degree, is in average health, has been in business for 9 years, owns his home, lives in an urban area, has no office outside his home, reported $23,000 in profits for the business, and employs no paid workers. Lani and George do not agree on the most important goal for the business. Lani rated the success of her family life as successful, which is a 4 (on a 5 point scale). Based on George's profile, his estimated business success score is Lani, on the other hand, is 30 years old, married, female, has a bachelor's degree, is in average health, has 1 child under age 5, and has an annual household income of $52,000. Her spouse, George is the business manager. They do not agree on the most important goal for their business. George rated the success of his business as 3 (on a scale from 1, very unsuccessful; 2, unsuccessful; 3, mixed; 4, successful; and 5, very successful). Based on the family success model, Lani's family success score is 3.73.

6 Lawrence N. Field Center for Entrepreneurship and Small Business 6 How Do Your Estimated Values Compare With the Sample Means? After estimating your calculated values for business success and family success, you can compare your results with the mean values from the sample of 239 home-based businesses. The 90% confidence intervals about the mean are as follows: business success (3.83, 4.01) and family success (4.13, 4.29). For business success, with 90% confidence, your calculated value would be higher than the sample's mean if your estimate exceeded 4.01 and would be lower than the sample's mean if your estimate was less than Likewise for family success, with 90% confidence, your calculated value would be higher than the sample's mean if your estimate exceeded 4.29 and would be lower than the sample's mean if your estimate was less than In the hypothetical case presented earlier, George s business success score (3.78) was lower than the sample mean (3.93) and Lani s estimated family success score (3.72) was lower than the sample mean (4.21). By making changes in some of the variables in the success estimation models that are within their control, both George and Lani can improve their individual success scores. How Can I Increase My Business and/or Family Success? The statistically significant explanatory variables in the estimated business success equation are profit and likelihood of managers having common business goals. For the family success equation, the statistically significant variables are age of the family manager and likelihood of excellent health. The tools suggest a number of ways to improve family and/or business success. One way is to increase business profits. For example, if George and Lani were able to increase their business profits by $10,000 this would increase business success by (5.422E -6 multiplied by 10,000). However, increasing profits by $10,000 may not be easily done. Another alternative to increasing family and/or business success is to increase the respective manager s health from average to excellent. Increasing the business manager s health from average to excellent would increase business success by If you are able to increase either business success or family success, you will also increase the other. Why? Because each success variable is an explanatory variable in the other success variable's estimated equation. More importantly, business success is estimated to positively affect family success and vice-versa. References Campbell, A., Converse, P. E., & Rodgers, W. L. (1976). The quality of American life: Perceptions, evaluations, and satisfactions. New York: Russell Sage Foundation. Deacon, R. E., & Firebaugh, F. M. (1988). Family resource management: Principles and applications. Boston: Allyn and Bacon.

7 Lawrence N. Field Center for Entrepreneurship and Small Business 7 Danes, S. M., Zuiker, V., Kean, R. & Arbuthnot, J. (1999). Predictors of family business tensions and goal achievements. Family Business Review, 12(3), Dess, G. G., & Robinson, R. B. Jr. (1984). Measuring organizational performance in the absence of objective measures: The case of the privately-held firm and conglomerate business unit. Strategic Management Journal, 5, Fitzgerald, M. A. & Winter, M. ( 2001). The Intrusiveness of Home-Based Work on Family Life. Journal of Family and Economic Issues, 22(1), Green, S., & Pryde, P. (1989). Black entrepreneurship in America. New Brunswick, NJ: Transaction. Heck, R. K. Z., Jasper, C. R., Stafford, K., Winter, M., & Owen, A. J. (2000). Using a household sampling frame to study family businesses: The 1997 National Family Business Survey. In J. A. Katz, (Ed.), Databases for the study of entrepreneurship (Advances in entrepreneurship, firm emergence and growth, Vol. 4, pp ). Stanford, CT: JAI Press. Hoy, F., & Verser, T. G. (1994). Emerging business, emerging field: Entrepreneurship and the family firm. Entrepreneurship Theory and Practice, 19(1), Kalleberg, A. L., & Leicht, K. T. (1991). Gender and organizational performance: Determinants of small business survival and success. Academy of Management Journal, 34(1), Kantor, R. (1977). Work and family in the United States: A critical review and agenda for research and policy. New York: Russell Sage Foundation. Konijn, P. A. B. K., & Plantenga, J. (1988). Characteristics explaining business success of entrepreneurs versus managers. The Journal of Behavioral Economics, 17(2), Kotey, B. (1997). Relationships among owner/manager personal values, business strategies, and enterprise performance. Journal of Small Business Management, 35(2), Kraut, R.W., & Grambsch, P. (1987). Home-based white collar employment: Lessons from the 1980 Census. Social Forces, 66, Lambert, S. J. (1990). Processes linking work and family: A critical review and research agenda. Human Relations, 43, Lavee, Y., Sharling, S., & Katz, R. (1996). The effect of parenting stress on marital quality. Journal of Family Issues, 17(1),

8 Lawrence N. Field Center for Entrepreneurship and Small Business 8 Loscocco, K. A., Robinson, J., Hall, R. H., & Allen, J. K. (1991). Gender and small business success: An inquiry into women s relative disadvantage. Social Forces, 70(1), Masuo, D., Fong, G., Yanagida, J., & Cabal, C. (2001). Factors associated with business and family success: A comparison of single manager and dual manager family business households. Journal of Family and Economic Issues, 22, Miner, J. B. (1997). The expanded horizon for achieving entrepreneurial success. Organizational Dynamics, 25(3), Olson, D. H., McCubbin, H. I., Barnes, H. L., Larsen, A. S., Muxen, M. J., & Wilson, M. A. (1983). Families: What makes them work. Beverly Hills: Sage Publications. Orbuch, T. L., House, J. S., Mero, R. P., & Webster, P. S. (1996). Marital quality over the life course. Social Psychology Quarterly, 59, Rettig, K. D. & Leichtentritt, R. D. (1999). A general theory for perceptual indicators of family life quality. Social Indicators Research, 47, Riordan, D. A., & Riordan, M. P. (1993). Field theory: An alternative to systems theory in understanding the small family business. Journal of Small Business Management, 31(2), Rosenblatt, P. C., de Mik, L., Anderson, R. M., & Johnson, P. A. (1985). The family in business: Understanding and dealing with the challenges entrepreneurial families face. San Francisco: Jossey-Bass. Rowe, B. R., & Bentley, M. T. (1992). The impact of the family on home-based work. Journal of Family and Economic Issues, 13, Rowe, B. R., Haynes, G. W., & Bentley, M. (1993). Economic outcomes in family-owned home-based businesses. Family Business Review, VI, Stafford, K, Duncan, K. A., Danes, S. & Winter, M. (1999) A research model of sustainable family businesses. Family Business Review, 12(3), Voydanoff, P. (1987). Work and family life. Newbury Park, CA: Sage Publications, Inc. Winter, M., Fitzgerald, M. A., Heck, R. K. Z., Haynes, G. W. & Danes, S. M. (1998). Revisiting the study of family businesses: Methodological challenges, dilemmas, and alternative approaches. Family Business Review, XI,

9 Lawrence N. Field Center for Entrepreneurship and Small Business 9 Table 1 Difference between Means t-test on Five Outcome Variables by Office Elsewhere: Home-Based Businesses with Two Separate Managers Variables Mean No Office Elsewhere (n=210) Outcome Variables Variance No Office Elsewhere Mean Office Elsewhere (n=29) Variance Office Elsewhere T-Statistic Significance (2-tailed) Family integrity-x Family integrity-y Family goal achievement-x Family goal achievement-y Family success-x Family success-y Business success-x Business success-y Business goal achievement-x Business goal achievement-y * Note. x=has no office elsewhere. y=has office elsewhere. Difference between means calculated as (mean-x) minus (mean-y). * p.10