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CAN BUSINESS SCHOOLSPRODUCE ENTREPRENEURS? ANEMPIRICAL STUDYRussell M. Knight aa School of Business Administration The University ofWestern Ontario , London , OntarioPublished online: 02 Jan 2013.

To cite this article: Russell M. Knight (1987) CAN BUSINESS SCHOOLS PRODUCEENTREPRENEURS? AN EMPIRICAL STUDY, Journal of Small Business & Entrepreneurship,5:1, 17-26, DOI: 10.1080/08276331.1987.10600283

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CAN BUSINESS SCHOOLS PRODUCE ENTREPRENEURS? AN EMPIRICAL STUDY Russell M. Knight School of Business Administration The University of Western Ontario, London, Ontario

ABSTRACT This study examines a sample of225 entrepreneurs who have graduated from the Western Business School. Issues examined include characteristics such as whether family members were entrepreneurs, the type of company which employed them before their entrepreneurial career and reasons why they left that employment. The influence of mentors, entrepreneurial ventures in university and reasons contributing to their decision to become entrepreneurs are also investigated, as well as the influence of various courses on their decision, especially entrepreneurship courses. Information on their type of venture, sources of financing, and educational background completed the survey while suggestions to encourage entrepreneurial careers for business school students were also sought.

The overall conclusions of the study are that potential entrepreneurs can be encouraged (and discouraged) by business school programs, entrepreneurship can be taught (and learned) in business schools and new ventures by entrepreneurial alumni make tremendous case teaching materials for entrepreneurial courses.

SOMMAIRE Cette etude porte sur un echantillon de 225 chefs d'entreprise qui son! des diplomes de Ia Western Business School. Parmi /es questions traiteesfigurent les caracteristiques des chefs d'entreprise. On a demande, par exemp/e, aux personnes interrogees si les membres de leur famille etaient des chefs d'entreprise, le type de societe qui les a employees avant qu'elles amorcent leur carriere d'entrepreneur, et les raisons qui les ont conduites a quitter leur emploi. [.;article examine aussi /'influence des mentors, /es initiatives prises dans les universites pour susciter /'esprit d'entreprise, /es raisons qui on! pousse les interesses a devenir des chefs, de meme que /'influence exercee sur eux par divers cours, notamment des cours sur /'esprit d'entreprise. Des renseignements sur leur type d'entreprise, leurs sources de financement et leur formation completent /'enquete, qui demande, par ailleurs, des suggestions pour favoriser /es carrieres de chef d'entreprise parmi /es eleves des eco/es commercia/es.

[.;etude conclut que les programmes des ecoles commercia/es peuvent encourager (ou decourager) les entrepreneurs en puissance, qu'il est possible de donner (et d'acquerir) /'esprit d'entreprise dans les eco/es commerciales, enfin, que les initiatives nouvelles prises par lese/eves entreprenantsfournissent du materiel de choix pour les cours sur /'esprit d'entreprise.

INTRODUCTION The controversy has raged for years over whether entrepreneurs are born or made, whether they are creatures of their environment, or whether entrepreneurship can be taught, especially in business schools. We believe entrepreneurship can be defined and taught in the same sense that management, business or administration can be defined and taught. In fact, let us for convenience in this study define an entrepreneur as the indepen­dent owner/manager of a business which is profit-oriented. Let us further restrict our area

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of interest to entrepreneurs who are alumni of business schools, and Western's Business School in particular.

We believe that business school graduates become entrepreneurs in spite of what we, the faculty in business schools, teach them, rather than because of it. In this paper we were interested in asking the entrepreneurial graduates of at least one business school why they became entrepreneurs and how business schools might better prepare future graduates for entrepreneurial careers. Our interest in this area was supported and increased by several factors. The first of these was a study by a colleague at Western (l) who surveyed Western's Business School Alumni and found that nearly 25 per cent of them were self­employed, at least five years or more after graduation. This totally surprised many of us at Western, since the School, like many others, purports to train its graduates for careers in the larger business corporations in Canada and elsewhere.

Second, we were supported and encouraged by the administration at Western to explore the reasons behind this phenomenon and how we might learn from and encourage it, especially in terms of an insert in a mail out to all alumni.

Third, we encountered other colleagues, notably Ronstadt at Babson College, doing research on entrepreneurial alumni, and they encouraged us to explore this area.

Previous Research in the Area Various researchers have studied the issue of the educational background of entre­preneurs. Many have found (2) that they are not particularly well-educated, except that high-technology entrepreneurs tend to be well-educated in technical areas, such as engineering and science, with university degrees in those fields being common, but poorly educated and inexperienced in business and management (3). But Ronstadt was perhaps the first to examine alumni who became entrepreneurs (4) or who didn't (5) and trying to assess how they differed from one another. He persuaded others (10) to join him in this research and this study has used some of the questions developed by Ronstadt.

Among Ronstadt's conclusions were that research should concentrate on the entrepreneurial career, rather than just one venture or point in time (4) and that ex-entrepreneurs are important to study as well (5,6,7). He also studied alumni who decided not to become entrepreneurs and contrasted them with his entrepreneur and ex-entrepreneur samples (8).

Ronstadt's work may also be contrasted with that of Stevenson, who studied Harvard's entrepreneurial alumni (9). He compared 344 self-employed alumni to employees of both large and small firms and was surprised to find more than 25 per cent employed in firms with under 50 employees with a "surprisingly high number self­employed."

So all of this alumni-related research encouraged us to survey Western's entre­preneurial alumni.

Purpose of this Research Analysis of the research discussed previously led to speculation about the alumni of business schools, especially Western's Business School. We decided to survey Western's entrepreneurial alumni regarding their backgrounds and attitudes. Issues to be explored included each entrepreneur's reasons for entering his or her own business, the contribu­tion of their business school experience to this entrepreneurial career and their sugges­tions on how the program should be changed to encourage more graduates into entrepreneurial careers.

Some of the specific questions used were taken from Ronstadt's work, while most of the issues were specific to Western Alumni. We hope that many of the results can be generalized to other business schools and their graduates. The questionnaire used is

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readily available from the author to other researchers who may wish to pursue similar studies.

Research Methodology We used two methods to obtain our sample. The first was to include a self-addressed, stamped card in material mailed out to all alumni of Western's Business School. The card asked whether recipients were entrepreneurs and what type (independent, acquirer, successor in a family or non-family business, franchise or corporate). We also asked if they would be willing to help us by completing an appropriate questionnaire on their experience. Questionnaires were prepared to cover three different categories, similar to those proposed by Ronstadt, practicing entrepreneurs (the sample reported in this paper), ex-entrepreneurs (those who have terminated an entrepreneurial venture), and serious non-starters (those who seriously intend to start a venture of their own, but have not yet done so).

In addition to this approach, word-of-mouth was used, by asking responding entrepreneurs, faculty colleagues and students for suggestions of other Western alumni entrepreneurs, who were then asked to co-operate. We obtained responses from over 70 per cent of this last category, but have no way of estimating the response rate from the mail-back card approach.

Interviews have been held with about 40 of the sample of 225 to discuss certain issues in more detail.

RESULTS OF THE RESEARCH We assume that the sample of 225 practicing entrepreneurs is representative of the population of Western Alumni entrepreneurs and, to some extent, business school alumni entrepreneurs in general. The first surprise was that the sample of entrepreneurs was evenly spread out over time by year of graduation, with 22.5 per cent having graduated before 1960,25.7 percent in the 1960s, 3l.l per cent in the 1970s and 20.7 percent in the 1980s. Since the survey was done in the summer and fall of 1986, only I per cent had graduated in 1986, but 1984 and 1985 were peak years in the sample, with about 5 percent of the respondents having graduated in each of these years. Other peak years (with more than 5 per cent of the respondents) included 1981, 1976, 1974 and 1960. It is worth noting, however, that the 1980s are represented at the same rate as the 1970s and at a higher rate than prior to 1970. Lemmon's work indicated that most Western alumni did not start entrepreneurial careers until more than five years after graduation.

The age of the respondents was measured only at the point when they established their first venture, which ranged from nine years of age to 65, with a mean of27. This was younger than found in other studies, but may be biased by the question asking about the age at the first venture, while other studies tend to concentrate on current ventures.

When asked whether they found their experience of being an entrepreneur enjoyable, 49 per cent replied extremely enjoyable, 48 per cent very enjoyable, 3 per cent somewhat enjoyable, and none replied "not enjoyable at all". In fact, one who replied "somewhat enjoyable'' stated that things had improved since the time he had completed the questionnaire and he would reply "very enjoyable'' if completing it later. So, overall, one can conclude that Western's entrepreneurial alumni find their entrepreneurial experience enjoyable.

Next, we asked about characteristics which they felt described an entrepreneur and the results are shown in Figure 1. Since there were multiple replies, the totals do not add to 100 per cent, but perhaps the most significant result is that only 8 per cent of the respondents felt an entrepreneur to be a compulsive risk taker. However, when asked whether they agreed with the statement that "Starting a new venture is very risky", 70 per

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cent agreed, as shown in Figure 2. Since 47 per cent of the respondents reported that they had previously terminated a venture, we believe that they spoke from experience in stating that new ventures were risky, but entrepreneurs did not have to be compulsive risk takers. Interviews supported the conclusion that these entrepreneurs feel they could manage much of the risk.

Previous Employment The next area explored was what type of organization these entrepreneurs had been employed by before starting their current venture, Figure 3. Of the total, 37 per cent had left a large corporation with sales over $100-million. An additional 31 per cent had worked for corporations under $100-million in sales and 19 per cent had been self­employed previously. In fact, some of these self-employed individuals had undoubtedly worked for larger corporations previously, so the percentages estimated above are low. Only a minority (8 per cent) had worked with non-profit organizations (chiefly govern­ment or military), which are not entrepreneurial training grounds.

The reasons cited most often for leaving a previous corporate employer were the desire for independence (23 per cent), frustration with the current job (10 per cent), and an opportunity that became available (8 per cent). In a few cases, entrepreneurs had continued to work for corporate employers, maintaining their ventures as a sideline or part-time endeavour. Several of these stated they planned to leave their corporate jobs once their ventures became proven. Only 23 per cent stated they would consider working for someone else again and only if the circumstances were right.

Parental and Mentor Support The next area explored was the issue of parental and mentor support in decisions to become an entrepreneur. Almost half (48 per cent) had fathers who were entrepreneurs, while 14 per cent claimed their mothers were entrepreneurs also. The majority (57 per cent) said their parents influenced their decisions to become entrepreneurs, usually as role models, but they also related many other ways, having to do with the environment in which they grew up.

In addition, 33 per cent stated that their father was born outside Canada, while only 12 per cent of the entrepreneurs were. The literature (2) confirms that immigrants and their children are more likely to be entrepreneurs for a variety of reasons. Mentors other than parents played a role for 32 per cent of respondents, usually as role model, but in certain cases even as partners or investor.

Previous Ventures A surprisingly high 35 per cent of respondents had ventures prior to graduation from university, while almost half (47 per cent) had terminated a previous venture, usually selling out (15 per cent) or shutting it down (13 per cent). The number of ventures cited ranged from one to 45 with an average of 2. 7. However, the largest percentage ( 42 per cent) had been involved in only one venture, with 20 per cent citing two and 14 per cent three. Most questions were addressed to the current or most recent venture.

When they left the Western Business School, 38 per cent had definite plans to start a business of their own, so the large corporate employers helped a majority to consider entrepreneurship as a career alternative.

Reasons Influencing the Entrepreneurial Decision A total of 16 reasons which may have influenced the decision to become an entrepreneur (with provision for additions of their own) are shown in Figure 4. The influences ranking highest were the desire to be their own boss, the personal challenge involved, and wanting to build something of their own, measured in two ways. The responses were weighted in

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the three levels of importance and respondents were also asked to rank the three most important factors.

The Role of the Business School When asked which businees school courses had proven the most useful in their entre­preneurial career, responses were as shown in Figure 5. When asked what subjects, essential to entrepreneurial success, should receive more emphasis in the business school program, respondent suggestions were many and varied. Most centred on the issues of financial planning and arranging financing, as well as other topics now offered in the New Enterprise Management course, which was not available when 62 per cent of respondents attended the business school. Since only 18 per cent of respondents had taken this course, many suggested topics were covered in this course and other recent additions to the program.

However, most respondents conveyed the attitude that materials such as entre­preneurial cases and materials should be added to all courses at the business school. They commented that business schools, and Western in particular, train their graduates primarily for careers in large corporations, not even presenting the option of an entre­preneurial career. When asked to what extent their program at Western had prepared them for an entrepreneurial career, only 2 per cent felt fully prepared, while 44 per cent said "to a large extent". An additional32 per cent stated the business school had prepared them to a moderate extent, 12 per cent to a small extent and 5 per cent not at all.

While 49 per cent of respondents had taken the undergraduate Honours Business Program, they had thus taken the pre-business course 257, which includes a project to develop a business plan. However, only 4 per cent felt this course had influenced their interest in entrepreneurship to a great extent, 23 per cent to a moderate extent and 27 per cent not at all (for a total49 per cent who took the course). As stated earlier, only 18 per cent took the course in entrepreneurship, all of whom felt it had influenced their choice of an entrepreneurial career. Of these, all cited visiting entrepreneurs and the business plan project as significant factors in the course experience. In addition to the 62 per cent who stated that the course was not available when they attended Western, another 7 per cent were not interested at that time, while 7 per cent more felt they had higher priorities. A further 2 per cent wished they had taken the course.

We also asked whether these entrepreneurs had attended any entrepreneurship courses, conferences or seminars since leaving the business school, and 87 per cent replied they had not. Courses attended varied widely on topics like venture capital, business valuation and taxation, but many lamented the lack of any courses, etc., focussed on entrepreneurship.

The Type of Venture Undertaken The next section of the questionnaire explored the ventures and various aspects of their size, debt and equity, ownership and type and age of venture. Of the sample, 26 per cent were retail ventures, 11 per cent consulting with a wide variety of others. Over half (52 per cent) of current ventures had been started in the 1980s, 31 per cent in the 1970s and 17 per cent prior to 1970, the earliest being started in 1939. In terms of ownership, 43 per cent operated as a solo entrepreneur, 36 per cent with one partner and 21 per cent with two or more partners.

The type of venture desired varied as well, with 49 per cent seeking "a smaller venture in terms of sales, but a highly lucrative one in terms of profits and personal income". A further 26 per cent desired "a smaller lifestyle venture where neither large sales nor large profits are a primary objective". The final 22 per cent, a surprising small minority, desired "a high growth company in terms of sales, one that could go public or

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that might be attractive to venture capitalists or other investors". The final 3 per cent did not express a preference.

We next explored the percentage of the venture owned by the entrepreneur at its beginning and currently, as shown in Figure 5. Share of ownership by the entrepreneurs increased slightly, but not significantly. Similarly, debit-to-equity ratio varied from the initial ratio to the current ratio, as shown in Figure 6, with debt decreasing as a percentage of total funding, which grew from initial to current values as shown in Figure 7. Figure 8 shows initial sales goals and current sales levels, while Figure 9 illustrates sources of funds used, both initially and currently, ranked by order of importance. In summary, personal savings ofthe founder ranked twice as important as other sources, with supplier or trade credit ranked second initially, closely followed by cash from earnings, family and friends and bank loans, all of which were rated about equally. When rating current sources of financing, founders and cash from earnings were rated about equally, closely followed by trade credit, bank loans and family and friends, in that order.

Finally, we explored the correlations between the variables discussed earlier. All of the following relationships were significant at the 0.05 level in chi-square tests. Entrepreneurial fathers (and mothers) seem to lead to having mentors other than parents as role models. These alumni also were more likely to have had a venture prior to graduation, to have planned to have their own venture after graduation, and to start growth-oriented ventures with partners. Undergraduates were more likely to have had entrepreneurial parents, while MBAs tended to have had mentors other than parents. MBAs also were more likely to have had a venture prior to graduation. Those who had pre-graduation ventures were also more likely to have terminated a venture, presumably MBAs returning to school or others with ventures during university winding them up at graduation.

Alumni with entrepreneurial parents were also more likely to take the entre­preneurship course during their program and to seek other courses after university. It seems that support from parents for their entrepreneurial careers tends to encourage them to seek support elsewhere, from mentors, courses, etc. Those who took the entrepreneur­ship course in business school were also more likely to have planned to start their own venture after graduation, although the reverse may be true, which may be the reason they took the course. Those who took the course were also more likely to start growth-oriented firms, with partners.

Those with ventures prior to graduation had usually started more ventures overall, were more likely to have terminated a venture, and were less willing to ever work for someone else again. MBA alumni tend to rate previous experience higher than undergraduate alumni, since Western MBAs tend to have more work experience prior to their MBA, while undergraduates lack full-time work experience prior to graduation.

CONCLUSIONS The primary conclusion of the research is that business schools can produce entre­preneurs, albeit usually on the rebound from large corporations. One might conclude that business schools can provide an option for their corporate refugee graduates. However, most of the entrepreneurial alumni recommended that the business school should introduce more materials, cases and visits by entrepreneurs in all phases of its programs to encourage more graduates to choose an entrepreneurial career. The entrepreneurial alumni express a high level of job satisfaction, have usually left a larger corporate employer and are seeking independence, a desire to be their own boss, plus the challenge of building something of their own. In addition, they are avoiding the frustration of the large corporate environment.

Several surprises arose from the feedback, notably that 47 per cent had terminated

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a venture, enhancing the theory that success follows failure in entrepreneurial ventures. In addition, many respondents (35 per cent) had a venture before graduating, some starting as early as nine years of age. The parents of these entrepreneurial alumni were often entrepreneurial immigrants who have passed on the entrepreneurial urge to their children as role models. The environment in which these entrepreneurs developed was usually one which encouraged entrepreneurial careers. They have suggested that the business school should join this list of environmental influences in encouraging entre­preneurial careers, if only in presenting an option for corporate refugees. This could best be done by introducing more entrepreneurial role models. These should be in the form of cases about entrepreneurial alumni who should visit classes to illustrate that even business schools can produce entrepreneurs!

REFERENCES I. Lemmon, J. C., "A Study of Business School Alumni", Working Paper Series,

School of Business Administration, University of Western Ontario, 1976. 2. Smith, N., The Entrepreneur and His Firm, Michigan State University, 1967. 3. Knight, R. M. and J. C. Lemmon, "A Study of Small and Medium Sized Canadian

Technology Based Companies", Technological Innovation Studies Program, Department of Industry, Trade and Commerce, Ottawa, September, 1978.

4. Ronstadt, R. C., "Entrepreneurial Careers and Research on Entrepreneurs", Frontiers of Entrepreneurship Research, Babson College, 1981.

5. Ronstadt, R. C., "Does Entrepreneurial Career Path Really Matter?", Frontiers of Entrepreneurship Research, Babson College, 1982.

6. Ronstadt, R. C., Entrepreneurship: Test, Cases and Notes, Lord Publishing, Dover, Mass., 1984a.

7. Ronstadt, R. C., "Ex-Entrepreneurs and the Decision to Start an Entrepreneurial Career", Frontiers of Entrepreneurship Research, Babson College, 1984b.

8. Ronstadt, R. C., "The Decision Not to Become an Entrepreneur", Frontiers of Entrepreneurship Research, Babson College, 1983.

9. Stevenson, H. H., "Who are the Harvard Self-Employed?" Frontiers of Entre­preneurship Research, Babson College, 1983.

10. Shuman, J. C., J. A. Steger, J. B. Kamm, and N.C. Teebagy, "An Empirical Test of 10 Entrepreneurial Propositions", Frontiers of Entrepreneurship Research, Babson College, 1986.

Figurel Which of the following do you think describes an entrepreneur?

I. Compulsive Risk Taker 2. Fiercely Independent 3. Aggressive, with Driving Ambition 4. Needs to Control Working Environment 5. Relaxed and Confident

Note: Total adds to more than 100 per cent due to multiple responses.

OJo of Responses

8 38 56 66 22

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Figure 2

Which of the following best expresses your reaction to the following statement? "Starting a new venture is very risky"

OJo of Respondents

1. No, I Strongly Disagree 2. No, I disagree 3. I Do Not Know 4. Yes, I Agree 5. Yes, I Strongly Agree 6. No Response

Figure3 With what type of organization were you employed before

starting your current venture?

2 23

3 57 13 2

OJo of Respondents

I. Self-Employed 2. Not-For-Profit Organization 3. Corporation with Sales Less than$10 Million 4. Corporation with Sales $10 Million- $100 Million 5. Corporation with Sales Greater than $100 Million 6. Other? (Student)

Figure4

The Importance of Various Reasons Contributing to Your Decision to Become an Entrepreneur

%Stating %Stating Overall Very Somewhat

Reason Ranking Important Important

Desire To Be Own Boss 1 76 21 Personal Challenge 2 64 30 Wanted to Build Something on My Own 3 62 31 Previous Work Experience 4 33 43 Wanted Opportunity For a Venture 5 31 44 Wanted More Money 6 32 35 Frustrated With Prior Job 7 34 28 Wanted to Use Business Education 8 22 42 Bored With Prior Job 9 16 27 No Advancement Prospects in Prior Job 10 6 20 Wanted to Use Technical Education 11 6 14 Other (Family, Present Boss, Fun) 12 5 15 No Particular Reason l3 4 18 Dismissed From Prior Job 14 3 5 Laid Off From Prior Job 15 3 3 Otherwise Unemployed 16 2 3 About to be Unemployed 17 1 4

24

19 8

14 17 37

3

%Stating Not

Important

3 6 7

24 25 33 38 36 57 74 80 80 78 92 94 95 95

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l<'igure 5 Percentage of Current Venture

Owned by Entrepreneur, Initially and Currently

Amount of Equity Owned

Whole (100%) Majority ( > 500Jo) 50% 25% to49% Minority(<25%)

Figure6

OJo of Respondents Initially Currently

41 42 8 l3

22 16 16 17 12 ll

Debit to Equity Ratio of The Venture, Initially and Currently

OJ'o of Respondents Debit to Equity Ratio

10% Debt to 90% Equity 25% Debt to 75% Equity 50% Debt to 50% Equity 75% Debt to 25% Equity 90% Debt to 10% Equity No Response

Initially Currently

38 46 7 l3

12 18 15 16 23 5

5 2

Figure7 Capitalization of Ventures,

Initially and Currently OJo of Respondents

Capitalization Initially Currently

Less Than $500,000 $500,000 to $1,000,000 $1 Million to $5 Million More Than $5 Million No Response

FigureS Sales in First Year and Current Sales

85 10 2 2 1

53 12 24 7 4

OJo of Respondents Sales Level Initially Currently

Less Than $500,000 $500,000 to $1,000,000 $1 Million to $5 Million More Than $5 Million No Response

64 32 12 ll 16 28 6 27 2 2

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