Description
Most of us have an intuitive understanding of what entrepreneurs are due to much publicized activities of characters such as Richard Branson (Virgin), Anita Roddick (Bodyshop), Bill Gates (Microsoft) and others. The international hospitality industry of course has its own icons such as Charles Forte, Conrad Hilton and Ray Croc. Indeed, some of these figures have almost reached superstar status appearing on reality television programs and having cameo roles in movies.
Entrepreneurship and Small Business
Management in the Hospitality Industry
The Hospitality, Leisure and Tourism Series
Butterworth-Heinemann’s Hospitality, Leisure and Tourism series
of books is aimed at both academic courses and management
development programmes. The series represents a planned and
targeted approach to the subject and the portfolio of titles provide
texts that match management development needs through various
stages from introductory to advanced. The series gives priority to the
publication of practical and stimulating books that are recognised as
being of consistent high quality.
The Series Editor
Professor Conrad Lashley is Professor of Leisure Retailing, Centre for
Leisure Retailing at Nottingham Business School, UK. His research
interests have largely been concerned with service quality management,
and speci?cally employee empowerment in service delivery. He works
closely with several major industry organisations including the British
Institute of Innkeeping, J D Wetherspoon Scottish and Newcastle
Retail and McDonald’s Restaurants Limited.
Entrepreneurship and Small Business
Management in the Hospitality Industry
Darren Lee-Ross
School of Business, James Cook University,
Australia
Conrad Lashley
Nottingham Business School,
United Kingdom
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09 10 11 12 10 9 8 7 6 5 4 3 2 1
v
Contents
CHAPTER 1 Context, Theoretical Perspectives and De?nitions . . . . . . . . . . 1
CHAPTER 2 Indigenous and Ethnic Entrepreneurship: A Cultural
Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CHAPTER 3 Entrepreneurs and Small Firm Ownership . . . . . . . . . . . . . . . 49
CHAPTER 4 Creativity and the Entrepreneurship . . . . . . . . . . . . . . . . . . . . 67
CHAPTER 5 Innovation, Opportunity and Protection . . . . . . . . . . . . . . . . . . 93
CHAPTER 6 The Feasibility Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
CHAPTER 7 The Family Business: Who’s to Bless and Who’s to Blame? . .143
CHAPTER 8 Hospitality, Commercial Homes and Entrepreneurship . . . . 169
CHAPTER 9 Preparing a Business Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
CHAPTER 10 Leadership and the Entrepreneur: “I’m Right Behind You
Leading the Way” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213
CHAPTER 11 Growth: the Harder I Work the Luckier I Get . . . . . . . . . . . . 245
REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
vi
Entrepreneurship is a fascinating practical and academic area of study. As a
phenomenon it is has been around in one form or another since the earliest
civilizations including the Mayans, Ancient Greeks and Romans up to
relatively more recent times of the Renaissance (15th and 17th centuries),
Industrial Revolution (18th and 19th centuries) throughout the 20th century
up to the present day.
Interestingly, the number of entrepreneurs and establishment of small
?rms has dramatically and uniformly increased globally over the most
recent 10 years. Reasons for this include globalization, liberalization of
labour markets and enactment of entrepreneur-friendly government policies
such as removal of barriers to competition and other trade restrictions.
The prospect of starting one’s own business is not as daunting as it used
to be. Free advice and start-up grants are now available from a variety of
sources including government agencies and non-pro?t organizations. These
initiatives have helped a booming small to medium-sized sector create more
wealth than ?rms at any other time. This phenomenon can also be said of
new and emerging economies, ethnic groups within larger host nation states
and indigenous entrepreneurship. The latter developments are particularly
pertinent to the tourism and hospitality industry as many nascent nations
are recognising the role entrepreneurism plays in economic development and
the alleviation of poverty and dependence on public subsidy for citizens.
However, environmental enablers of entrepreneurship are only one side
of the story and this is where the more academically oriented perspective of
the phenomenon begins. Essentially, it is argued that entrepreneurs have
certain characteristics and which predispose them to behave in a particular
way. ‘Risk-taking’ and a ‘desire for achievement’ are often quoted as being
key necessary traits. In reality, the picture is rather more complicated, for
example, some individuals may have been ‘pushed’ into self-employment by
virtue of redundancy. Many of them could hardly be described as being risk-
takers yet there are many examples of resounding business success. Equally,
there are those spectacular failures who not only possess the appropriate
internal characteristics of entrepreneurs but have been ‘pulled’ into the ?eld
because of its perceived intrinsic bene?ts.
Beyond this question is the fundamental role entrepreneurs play in the
economy in terms of employment and wealth generation. Indeed, small
businesses are the backbone of the tourism and hospitality industry and,
depending on which statistics one uses, represent somewhere between
75 to 95 percent of all ?rms globally in this sector. It would be reasonable
to assert that the incumbent entrepreneurs are industrious, multi-talented,
Preface
Preface vii
creative and innovative. They work hard, weather signi?cant hardships
during business start-up and bear all of the risks involved in making such a
personal sacri?ce.
The aims of this book are:
To explore both the complexity of entrepreneurial theory and •
practice applied to the tourism and hospitality industry. It does this
by exploring some key theoretical concepts and grounds them in a
number of practical real-life scenarios;
To move back and forth between strategy and operations in order to •
illustrate the linkage between the two areas and explain how both
perspectives are necessary for entrepreneurial success;
To engender a sense of enthusiasm about the ?eld by not only •
discussing some of the major challenges and opportunities but by
providing the knowledge and skills required to start a small business
and drastically improve the chances of sustaining it successfully.
The chapters of this book invite readers to ponder their reading through
a series of re?ective activities. This allows them to both think actively about
themes, concepts and issues and then apply them to a number of suggested
scenarios. Authors have deliberately designed the book to actively engage
readers as re?ective practitioners. Re?ective practitioners are required by
modern hospitality and tourism organizations. The term describes managers
who are able to complete physical tasks as well as re?ect and think about
their actions. Reading this book, therefore is intended to be an active process
whereby readers think about the practical implications of what is being
communicated. The authors are informed by the work of Kolb who suggests
learning needs to engage actions as well as theorising and thinking.
Kolb (1983) states the most effective learning as involving all aspects of
the learning styles. They must re?ect on actions undertaken – see how these
re?ections ?t with theories – consider how they might need to alter future
actions, and then act.
For the purposes of this book, and for future activities, we suggest that
the process of learning needs to move through the stages outline on Kolb’s
model. Active experience needs to be followed by re?ection including
the critical evaluation of the experience; and consideration of how these
experiences inform or adapt theoretical understanding; and how this might
inform future actions. Traditionally this is shown as a cycle, however, it is
more accurately a series of spirals where the process of acting, re?ecting,
theorising and deciding of future actions leads to new learning situations
leading on from the past.
Chapter 1 discusses issues of historical and contemporary context of
entrepreneurship concluding that the global ?eld is vast and continuing.
viii Preface
Some de?nitions are explored concluding that entrepreneurs are dif?cult to
classify given their diverse backgrounds. Some key attributes of entrepreneurs
are explored including the ability to spot the opportunity and develop it
into a sound business proposal. Issues of personality and environment are
discussed. The quaint notion of running small hospitality ?rms ‘risk-free’ is
also introduced.
Chapter 2 scrutinizes entrepreneurship through a cultural lens discussing
and de?ning indigenous and ethnic dimensions and how they impact upon
small ?rms. The key developmental role of entrepreneurship amongst
indigenous societies is discussed together with an outline of the main
differences between indigenous and ethnic entrepreneurship.
Chapter 3 evaluates the meanings of the term entrepreneur, comparing
and contrasting ‘growth’ and lifestyle entrepreneurs in terms of their origins
and motives. The overriding pattern of small business ownership and its
impact on hospitality and tourism provision is then considered.
Chapter 4 considers the notion of creativity in an entrepreneurial context
and its relationship with innovation and how it impacts on the entrepreneurial
process. Emphasis is placed on the lifelong commitment to idea generation
in small hospitality ?rms along with some important techniques to develop
and enhance creativity within the individual. Ultimately, the relationship
between creativity and ‘mystery’ is debunked and the ability is advanced as
one that can be learned.
Chapter 5 de?nes innovation as a systematic logical exercise designed
to harness creative ideas and bring them to a successful entrepreneurial
conclusion in the marketplace. The chapter then discusses its role in the
entrepreneurial process and identi?es its relationship with creativity.
Opportunity spotting and the subsequent development of business ideas is
then introduced and the importance of a methodical systematic process of
environmental scanning and strategic and tactical planning is emphasized
in this context.
Chapter 6 explores the term ‘feasibility analysis’ and how it applies in
maximizing the chance of entrepreneurial success. Porter’s Five Forces is
identi?ed and applied as a suitable model. The prevalence of intuition and
gut reaction are discussed and their weaknesses identi?ed when planning to
launch new hospitality ventures. The chapter proceeds by outlining the role
and importance of research in entrepreneurial success.
Chapter 7 identi?es the inherent advantages family ?rms have over non-
family ?rms whilst recognising the roles of key individuals in the family
?rm. Some of these include commitment, resilience and long-term stability.
The impact of con?ict on small family businesses in the hospitality industry
is outlined. The process of business transferral is discussed along with
the many accompanying challenges faced by entrepreneurs and second-
generation successors.
Chapter 8 discusses hospitality and hospitableness in the context of
small ?rms. It also introduces the notion of attractiveness of commercial
Preface ix
hospitality to owners/managers. The linkages between commercial homes
and hospitality businesses are evaluated. Tensions and dilemmas inherent in
commercial homes are also outlined.
Chapter 9 addresses the need for producing and working to a business
plan described as a working document designed to assist planning with sense
and realism, and through which to monitor performance against desired
objectives. The key activity of writing and presenting an effective business
plan is discussed together with the role of feedback and iteration during the
process.
Chapter 10 deals with the entrepreneur as leader and identi?es the
behavioural attributes of entrepreneurial leadership style. The changing role
of the leader/entrepreneur as hospitality ?rms developer is explored. The
assumption that successful entrepreneurs and sound leadership naturally
go together is discussed and challenged. Major theories of leadership are
explored as a basis for effective leadership. The chapter then introduces some
major intrinsic entrepreneurial characteristics said to detract from effective
leadership. An entrepreneur’s understanding of organizational culture is
then identi?ed as key for effective performance in small hospitality ?rms.
Chapter 11 outlines the major issues involved in the discourse of small
entrepreneurial and lifestyle hospitality ?rm growth. The strengths and
weaknesses of growth models are outlined together with a discussion of
the major components of expansion strategies for small hospitality ?rms.
‘Good fortune’ is explored and the role plays in entrepreneurial success. The
chapter then discusses the major challenges or barriers faced during growth
stages of ?rms.
x
Acknowledgements
This book is dedicated to my wife Amanda for her intellect, patience and support
– the brightest and the best.
Darren Lee-Ross
Context, Theoretical
Perspectives and Definitions
After working through this chapter you should be able to:
& Understand that defining entrepreneurship is problematic but hinges on an
interplay between key personal attributes and appropriate environmental
opportunities
& Recognize key changes in the macro environment enabling increased
entrepreneurial activity
& Define small firms and identify their key characteristics and distinguish
between entrepreneurs and owner/managers
& Identify the contribution of small firms and entrepreneurism to the service
and hospitality sectors of economies
INTRODUCTION
Most of us have an intuitive understanding of what entrepreneurs are due to
much publicized activities of characters such as Richard Branson (Virgin),
Anita Roddick (Bodyshop), Bill Gates (Microsoft) and others. The internation-
al hospitality industry of course has its own icons such as Charles Forte,
Conrad Hilton and Ray Croc. Indeed, some of these figures have almost
reached superstar status appearing on reality television programs and having
cameo roles in movies. Therefore, it would be reasonable to suggest that most
of us would link entrepreneurship with a particular personality trait or
type and many writers have sought to do so (for example, see Hornaday
1982; Timmons Smollen, and Dingee, 1985; Lessem, 1986; Gibb, 1990; &
Wickham, 1998). The likely ones here are ‘charismatic’ and ‘extrovert’.
However, these characteristics are too simplistic to provide an adequate
description of what constitutes the entrepreneur. Definitions of entrepreneur-
ship emanate from several disciplines including the ‘great person’ school;
classical and neoclassical economics; psychology; sociology; and management
CHAPTER 1
1
(Yeung, 2002). Other researchers have sought to explain entrepreneurship
by linking it with national culture (for example see, Shane, 1995;
McGrath, MacMillan, and Scheinberg, 1992; and Mueller and Thomas,
2001). Others including Meredith, Nelson et al. (1982) and Zimmerer and
Scarborough (2005) have focused on the entrepreneurial environment. There-
fore understandably, one single universal definition of entrepreneurship is
problematic given its multidisciplinary nature.
Many writers agree with Kirby (2003) and Chell, Haworth &Brealey (1991)
who state respectively that:
‘there is no agreed definition of. . .what constitutes. . . entrepreneurship’
(p. 10).
‘there is still no standard, universally accepted definition of
entrepreneurship’ (p. 1).
Baumol (1993) goes further suggesting that:
‘‘Any attempt at rigid definition of the term entrepreneur. . .[should] be
avoided. . .because whatever attributes are selected, they are sure to
prove excessively restrictive, ruling out some feature, activity, or
accomplishment of this inherently subtle and elusive character’’ (p. 7).
However, if we stay with the idea of popular media icons, especially ficti-
tious ones such as Dell Boy Trotter and Arthur Daley from UK television
programs ‘Only Fools and Horses’ and ‘Minder’ in the 1990s it becomes fairly
obvious that any definition must necessarily include elements of both the
individual and the environmental opportunities present.
Excerpt from ‘Only Fools and Horses’ BBCTV, UK, 1983
1. Del Boy has just sold a number of broken lawnmower engines to his brother Rodney and
business partner Mickey Pearce via an auction. Both Rodney and Mickey do not, as yet,
realize that del is the vendor:
Del: I never thought I’d get rid of ‘em Rodney but you know me, ‘He who dares wins’.
Actually, I’ve made a tidy little profit.
Rodney: What are we gonna do with ‘em.
Del: Why don’t you do what I did. Find yourself a couple of right little plonkers (idiots) with
cash on the hip.
Up until the end of the last century many definitions failed to consider the
key role played by the environment upon entrepreneurs and entrepreneurial
success and vice versa. Definitions tended to fall into two exclusive categories,
CHAPTER 1: Context, Theoretical Perspectives and Definitions 2
one featured personality traits and behavioural characteristics of (for example,
see Hornaday 1982; Wickham, 1998). However, others looked at the environ-
ment for situations where entrepreneurs were likely to develop and thrive (see
Meredith, Nelson and Neck 1982; Zimmerer and Scarborough, 2005). Essen-
tially, the area of entrepreneurship necessarily involves more than just a
simple enquiry of who the person is and what they do or the environment.
The phenomenon is a complex amalgam of both the individual and opportu-
nity. Common sense suggests that any definition of entrepreneurship should
include both dimensions by considering what Shane (2003) refers to as the
individual–opportunity nexus. Given the above, it would seem reasonable to
define the entrepreneur as:
‘. . .one who creates a newbusiness inthe face of risk and uncertainty for
the purpose of achieving profit and growth by identifying significant
opportunities and assembling necessary resources to capitalize on
them’ (Zimmerer and Scarborough, 2005, p. 3).
Just as entrepreneurs are difficult to define so too is identifying a typical one
as they come in all shapes and sizes from different educational, cultural and
industrial backgrounds. However, using data from over 35 countries,
Minniti, Bygrace and Autio (2006) help us to provide a composite picture of
the entrepreneur. He or she is likely to:
& Be based in a middle income country;
& Survive in high income countries;
& Be opportunity-driven as success if necessity-driven is less likely;
& Not offer new products or services;
& Own businesses likely to have limited or no growth potential;
& Be between 25 and 34 years (early stage entrepreneurs);
& Be a man;
& Have post school or graduate qualifications; and
& Be more likely to have confidence in own skills, know other
entrepreneurs, be more alert to unexploited opportunities and less
likely to let fear of failure prevent them from starting new business.
Adapted from: Minniti et al. (2006, pp. 10–11).
Key point 1.1
Defining entrepreneurs is difficult as they are a composite of variables. These include personal
traits and characteristics and environmental enablers. Some argue that entrepreneurial
success stands or falls by the right person being in the right place at the right time.
Introduction 3
Using our above definition and type, entrepreneurs and entrepreneurship
may now be understood as a certain individual or individuals (‘copreneurs’)
engaged in the process of creating a new business venture as shown in
Figure 1.1.
A key element here is the entrepreneur as the person who identifies an
opportunity. The propensity for being able to spot a gap in the market is a
difficult and complex area to describe. So too is identifying a sustainable
competitive advantage setting the idea apart from the competition. Several
authors have identified various specific traits (Hornaday, 1982; Timmons
Smollen, and Dingee, 1985; Lessem, 1986; Gibb 1990; Wickham, 1998) be-
lieved to play a role in this regard, with locus of control, need for achievement
and risk-taking being key. However, traits alone do not adequately explain
entrepreneurial behaviour. Other elements such as aspirations, experience
and cultural background undoubtedly make a contribution. Moreover, respond-
ing appropriately to the environment is also a fundamental enabler of new
venture formation. The political, economic, social and technological landscape
must therefore also be favourable for entrepreneurship to flourish.
Reflective practice
1. Can you think of a famous entrepreneur or someone you knowwould be recognized as an
entrepreneur? To what do you attribute their success, luck, skill, talent, propensity for risk-
taking, leadership ability or a combination of them?
Environment
Political
Economic
Social
Technological
OPPORTUNITY
Entrepreneur
Skills
Personality
Aspirations
Experience
Evaluation of
opportunity
Market
research
Gather
resources
Decision
Go ahead
or
Abandon
FIGURE 1.1 Entrepreneurial process of creating a new business venture.
Adapted from: Schaper and Volery (2004).
CHAPTER 1: Context, Theoretical Perspectives and Definitions 4
Once an opportunity is identified, the potential venture must be assessed
by various means at the entrepreneur’s disposal. There is no standard way of
doing this and the complexity and extent of feasibility studies, business plans,
marketing plans and so on will vary depending on the idea and the market. A
decision has then to be taken whether to continue with the notion or to
abandon it. Typically, decisions to pursue (or not) an entrepreneurial idea
are taken within the context of either a ‘push’ or ‘pull’ environment. The
former is where the individual has been made redundant or is unhappy with
their current working conditions. The latter pull factors concern market at-
tractiveness such as opportunity to increase personal wealth, personal devel-
opment and status. Once all of these variables have been assessed, compared
and scrutinized, a final decision to continue with the venture can be made.
This is a crucial phase inthe process and Figure 1.1 suggests that it is a rational
one. However in practice, decisions to exploit an opportunity through venture
creation are often a complete mystery! In other words, they appear to be
illogical, especially if the rate of small business failures is anything to go by.
1
Key point 1.2
Typically, entrepreneurial activity is initiated by push or pull factors. Push factors include,
being made redundant, low level of income or general unhappiness with current
employment. Pull factors include the chance of increasing personal wealth, chance to be
own boss and status.
There are a number of reasons for business failure but most fall into the
categories of managerial incompetence and lack of experience (Kirby, 2003).
Another is that often, budding entrepreneurs become emotionally attached to
their business ideas and, despite the odds, will pursue them even though
objective evidence suggesting the contrary. This is particularly the case in
the hospitality industry where individuals consistently fall in love with the
idea of opening their own restaurant or public house or opt to become self-
employed for non-economic reasons (see Thomas, Friel, Jameson, and
Parsons, 1997). For example, there seems to be a notion that running a
restaurant or bar is not really serious work at all. Besides, fraternizing and
socializing with customers cannot be that difficult or taxing can it? Well
actually, it can. In practice, owners will be working incredibly long hours
1
Although difficult to be accurate, Kirby (2003) estimates small business failures within the
first year of trading at 38 per cent and by the end of year two at 57 per cent. Similar estimates
are made by others including Zimmerer and Scarborough (1996).
Introduction 5
occupying many different roles ranging from bar tender, bookkeeper, recep-
tionist, room attendant, chef, wait person whilst at all times maintaining an
air of ‘mein host’. Indeed, several studies have shown that a lengthy working
hours contributes to early business failure (for example, see William and
Collins, 1995). Therefore before taking the ‘plunge’, entrepreneurs should
always remember not to ‘fall in love’ with the idea of owning and running
their own business.
Reflective practice
1. Give some examples of business entrepreneurs who despite prevailing economic condi-
tions or against advice of others continued with their dream; were they successful or
unsuccessful?
There are undoubtedly benefits of being an entrepreneur but there are also a
number of challenges; Table 1.1 provides a summary.
HISTORY, GOVERNMENT AND THE ECONOMY
Entrepreneurship is not a modern concept and the term is said to have orig-
inated with the 18th century economist Richard Cantillon who used it to
describe someone who bore risk, made plans, organized and owned factors
of production–land, labour and capital (Coulter, 2001). The termentrepreneur
evolved over the next two centuries and with the advent of the industrial
revolution it became viewed as something separate from management
with similarities to what is currently considered a venture capitalist or
‘business angel’. More recently, writers such as Joseph Schumpter and Peter
Drucker added other dimensions to the term. For example, Schumpeter
TABLE 1.1 Entrepreneurs: pros and cons
Pros Cons
Independence and relative freedom from constraints
including decision-making
Change, risk, uncertainty of income and the requirement to
make many decisions in new ‘unknown’ areas
Able to use many skills, abilities and talents Many skills and abilities required, complete responsibility
Accountable to oneself and control over own destiny Lower quality of life in early stages with notable potential or failure
Status, achievement and chance to reach one’s
full potential
Long hours and ‘hard work’
Potential for greater financial rewards
Adapted from: Zimmerer and Scarborough (1996) and Coulter (2001).
CHAPTER 1: Context, Theoretical Perspectives and Definitions 6
considered the entrepreneur as one engaged in ‘creative destruction’, that
is, one who replaces inefficient and ineffective approaches with better and
improved ones. For Schumpeter, innovation was a key element of entre-
preneurship. A complimentary addition to the term was that of Peter
Drucker who introduced the notion of spotting opportunity and acting
upon it.
Excerpt from ‘Only Fools and Horses’ BBCTV, UK, 1983
2. Del Boy is explaining to his grandad what a good week’s trading he’s enjoyed:
Del:I’ve had a good week as it goes. I’ve sold everything including those multicoloured
woolen tea cosies I bought.
Grandad: Who on earth want woolen tea cozies in this day and age?
Del: No, no, no. I took them over to Mrs Murphy to stitch up all the holes and then flogged
(sold) ‘em down at the youth centre as beanie hats.
Until fairly recently international and domestic markets were relatively
structured and insular with a legal framework which arguably discouraged
entrepreneurial activity. Large companies and corporations with ‘traditional’
vertical higherarchies and centralized decision-making processes benefited
from these turgid conditions. At the same time individuals enjoyed job secu-
rity and usually had only one career in their working lifetime. In the 21st
century this is no longer the case, with the gradual rise in economic impor-
tance and employment of the international service sector at the expense of
manufacturing (see Sweet, 2001; Economist intelligence Unit, 200). Addition-
ally, there are at least two generations of people (X – born 1965–1976 and Y–
born 1977–1994) who know nothing other than employment flexibility,
multi-careers and job changes. In the new globalized business environment
many large corporations have downsized, ‘outsourced’ and implemented
sweeping changes resulting in massive redundancies and further job insecu-
rities. In part, this has resulted in an increased pool of talented and creative
people willing to engage in entrepreneurial activity.
Key point 1.3
Global entrepreneurial activity is now higher than at any other time in recent history.
Government has a key role to play increating an environment conducive to
entrepreneurship. Many have recognized the key contribution of the small
History, Government and the Economy 7
business sector to the economy and have liberalized the marketplace aggres-
sively implementing ‘entrepreneurship friendly’ policies such as removal of
barriers to competition and other trade restrictions. The prospect of starting
one’s own business is therefore not as daunting as it used to be. Literally
hundreds of government agencies and non-profit organizations have been
established to provide free expertise, research grants and advice to nascent
entrepreneurs and small business owners. A small international sample is
shown below:
UK Government Department of Trade and Industry – Small Business
Service;
Australian Government – AusIndustry – Small Business Incubator Pro-
gram, Small Business Advisor Service;
US Government – Small Business Administration Agency;
Government of India – Ministry of Small Scale Industries – National
Institute for Entrepreneurship and Small Business Development;
The Asia Foundation – Indonesia;
New Zealand Government – National Economic Development Agency –
New Zealand Trade and Enterprise;
Jamaican Government – Jamaica Business Development Center; and
Brazilian Government – National Deliberative Council – Brazilian Micro
and Small Business Support Service.
Such initiatives have helped a booming small to medium-sized
firms sector create more wealth than firms at any time previously
(Burns, 2001). The UK’s DTI (2006) estimate the number of SMEs in
2005 to number 59 000 (1.4 per cent) more than at the start of 2004. They
note, ‘. . . this is the eighth successive year that companies have increased in
number’ (p. 3). Furthermore, small and medium-sized enterprises (SMEs)
together accounted for more than half of all employment (58.7 per cent or 13
million) and turnover (51.1 per cent or £1300 billion.). Small enterprises
alone (0–49 employees) accounted for 46.8 per cent of employment and
36.4 per cent of turnover.
A similar picture emerges elsewhere, for example, SMEs comprise around
90–95 per cent of all firms in the European Community and the USAwith an
increasing number of new firms emerging year after year (Burns, 2001, p. 3).
According to the Global Entrepreneurship Monitor 2005 Executive Report,
other countries having notable increasing rates of entrepreneurial activity
include Venezuela, Thailand, New Zealand, Jamaica, China, Brazil, Australia
and the USA where a range of between 25 (Venezuela) to 11 (USA) per cent of
the adult population is either a new business owner or in an early stage of
entrepreneurial activity (Minniti et al., 2006, p. 18). In short, there has been a
significant global movement toward self-employment through individual
CHAPTER 1: Context, Theoretical Perspectives and Definitions 8
choice and (probable) government-driven entrepreneurship-friendly macro–
conditions.
Reflective practice
Identify any local government (and other agency) support structures and systems available
to entrepreneurs in your region. How easy are they to access.
What are Small Firms?
Generally small or small to medium-sized (SME) firms are used as a proxy for
entrepreneurial activity but what exactly are they? Many definitions exist
because of their global diversity and characteristics. One UK-based definition
supplied by the Bolton Committee Report (Bolton, 1971) considers themto be
independent, managed by owners or part-owners and having a small market
share. The report also recognizes size in terms of relativity. For example, a firm
could be small in one sector where the market is large with many competitors;
whereas a business of similar size could be deemed large in another sector with
fewer and smaller firms within it. In North America, the Small Business
Act states that a small business is independently owned and operated and
not dominant in its field of operation but recognizes that the definition
will vary from industry to industry to reflect industry differences accurately
(http://www.sba.gov/services/contractingopportunities/sizestandardstopics/
size/index.html, 2007). However, these contributions are not particularly
helpful when making comparisons international or otherwise.
More definitive help is provided by the UK Companies Act of 1985. A
company is said to be ‘small’ if it either has a turnover of not more than
£5.6 million; a balance sheet total of not more than £2.8 million; and not
more than 50 employees. Medium-sized companies similarly must have a
turnover of not more than £22.8 million; a balance sheet total of not more
than £11.4 million; not more than 250 employees.
2
Similar ‘financial’
approaches are evident from the USA, Australia and the EU but suffer from
a problemof obsolescence due to national and international economic fluctua-
tions of interest rates and inflation for example. Furthermore, despite a Euro-
pean Commission directive for a single definition of SMEs from2005, annual
adjustments still have to be made to financial thresholds; these changes are
not necessary for numbers employed (http://www.sbs.gov.uk/sbsgov/action/layer?
r.l1=7000000229&topicId=7000000237&r.l2=7000000243&r.s=tl, 2007).
2
Must satisfy at least two of these three criteria to qualify for small or small to medium-sized
form status.
History, Government and the Economy 9
It is also the case that whilst similar, in practice, working definitions of small
firms occupy a range driven by the particular aims and objectives of the event,
for example, a research study, census, industry sponsored event and so on.
Therefore for practical statistical and international comparative purposes, the
number of employees working in a firmis probably the most useful measure of
size and some examples are shown in Table 1.2.
Size however defined, is not the only thing that distinguishes small firms
from their larger counterparts. There are a number of other key characteristics
including the personality and behaviour of the owner/entrepreneur. This indi-
vidual will make most, if not all, business decisions including those directly
effecting employees. Indeed, the small firm can easily be understood as an
extension of the entrepreneur with all of their decision-making idiosyncrasies
rolled into one! The contact between employer and workers is likely to take on
more of a personalized tone as there are fewer employees and they spend muchof
their time working alongside their employer. Furthermore, small organizations
have less well-defined guidelines for roles, responsibilities and relationships;
they are in effect an extension of the entrepreneur’s personality and attitudes.
Reflective practice
How useful is using number of employees to define firms as small mediumor large? Is this a
global standard measure of a firm’s size?
Other issues that small businesses typically have to contend with include a
shortage of funds. Internationally, most small businesses are still financed
‘informally’ by personal savings and donations from family and friends.
TABLE 1.2 A comparison of international definitions of firm size by employees
UK Micro: up to 9 employees
Small: up to 49 employees
Medium: up to 249 employees
European Union Small: up to 50 employees
Medium: up to 250 employees
Australia Micro: fewer than 5 people, including non-employing businesses
Small: 5 or more employees, but less than 20
Medium: up to 200 employees
USA Small: up to 100
Medium: up to 500
Sources: Department of Trade and Industry,Trewin, D. (2002) andhttp://encyclopedia.thefreedictionary.com/small+business,
retrieved July 2008.
CHAPTER 1: Context, Theoretical Perspectives and Definitions 10
Fewer than 0.01 per cent of nascent entrepreneurs launch new ventures with
formal venture capital or business angel investments despite the amount of
attention they receive by policy makers (Minniti et al., 2006, p. 55).
3
However,
that is not to underplay the emergence of ‘microfinancing’ and its role
amongst the ‘working poor’. Essentially, this is where social innovators pro-
vide small loans to entrepreneurs without the need for collateral. Since the
inception of microfinance in the 1970s, it has become one of the most sus-
tainable ways of fighting global poverty. According to Minniti et al. (2006) in
2005, ‘The International Year of Microcredit, around 40 per cent of the
world’s poorest people were being reached by the initiative.
Lack of finance means that entrepreneurs generally operate within a short
timeframe and have to make a healthy turnaround (although not always a
profit) within a matter of months rather than years. This is particularly so in
the seasonal seaside sector of the hospitality industry where operators have to
earn a sufficient income in a short period to remain solvent during the fallow
non-trading period in any 1 year. This puts an enormous burden on the
entrepreneur and most decisions are short-term and directly related to this
constraint. Long-term strategies are therefore inappropriate for small firms
apart from those with key potential financiers such as banks and other similar
institutions. Small firms also tend to operate within a narrow market so
diversification to spread risk is not an option. For example, a small seasonal
hotel may have a contract with a coach operator for say, weekly senior’s
holidays; it is likely that all rooms will be taken. If the contract is cancelled
at short notice the loss of this one customer would have a significant impact on
the business. A larger national hotel chain would not be so vulnerable as it
would have alternative markets on which to draw. According to Burns (2001),
characteristics which really define small firms can be summarized in Table 1.3.
Entrepreneurs and Owner-managers
So what is the difference between entrepreneurs and owner-managers? This is
a much debated issue. In one sense, there may be no difference if the entre-
preneur owns and manages the firm as a Sole Trader. On the other hand,
managers do not always own the enterprise; it may be a smaller unit of a huge
conglomerate. Would this necessarily mean that the manager fails to qualify
for entrepreneurship status? The answer is ‘possibly’, depending on how
much control the manager has over the firm and whether they display certain
3
The United States continues to dominate venture capital investment in high-tech
companies. For example, six times as much classic venture capital was invested in the USA
as in all the European nations combined.
History, Government and the Economy 11
entrepreneurial characteristics like innovation and risk (to be discussed and
developed in Chapter 3). Indeed, others have addressed this very issue by
introducing the term ‘intrapreneur’ into the nonclemature. This simply
means someone behaving as an entrepreneur within a broader framework of
a large company at the behest of the employer. However, even this term may
not necessarily apply to the manager.
Burns (2001) provides a useful summary of this conundrumindicating that
irrespective of ownership, owner managers and managers may both qualify for
the title entrepreneur. This, with the additional category of intrapreneur is
shown in Figure 1.2.
TABLE 1.4 Differences between entrepreneurship and owner-managers
Entrepreneurship Owner–management
Definition of the field Process where an individual discovers,
evaluates and exploits opportunities independently
Administration of a small independent
business venture
Firm size Large, medium or small Small
Degree of risk Variable Lower
Number of people involved
in the business
Small to large number Small
Economic sector Private, government and not-for-profit Private sector
Growth focus High Variable
Key attributes of individual High need for: achievement; internal locus
of control; creativity and innovation; growth
Moderate need for Achievement; good
organizational skills to manage efficiently;
little innovation; moderate growth
Adapted from:Holt (1992, p. 11).
TABLE 1.3 Characteristics of small firms
One or two owners often family
Financed by owners, relatives and friends
Limited and uncertain markets
Low levels of new profit
Inability to influence prices
Uncertain entrepreneurial aspirations and motives (lifestyle firm or growth firm)
a
Short-run decision making
Short seasonal business cycle (for most sectors of the hospitality industry)
One location
Adapted from: Burns (2001) and Shaper and Volery (2004).
a
Lifestyle firms are those set up primarily to provide ‘adequate’ income with no growthaspirations. Growthfirms on the
other hand are set up with the aim of prospering and growing.
CHAPTER 1: Context, Theoretical Perspectives and Definitions 12
Holt (1992) is more prescriptive and his position is summarized in
Table 1.4.
THE ECONOMY AND ENTREPRENEURSHIP
Whilst governments have long recognized the importance of entrepreneur-
ial activity on the broader economy, the exact relationship between them is
not simply cause and effect. For example, different levels of economic
development set the environment where entrepreneurs make decisions.
These decisions pre-determine the type and quantity and capacity for
entrepreneurship in any one country. In other words, the causal link be-
tween entrepreneurial activity and economic growth and the role of small
firms in determining a country’s competitiveness and productivity is
equivocal. However, countries having similar per capita GDP often show
similar levels of entrepreneurial activity (Acs, Arenius, Hay, and Minniti,
2005). There is little doubt that the entrepreneurial sector provides em-
ployment opportunities and scope for the creation of new markets at low
levels of per capita income but as this increases, larger and established
organizations tend to satisfy the demand of growing markets. As large
companies become more active, there is usually a reduction in the number
of newer smaller ones. Interestingly, as per capita GDP increases, the
level of entrepreneurial activity increases again as individuals have more
personal resources on which to set up new businesses and establish a
competitive advantage. In short, entrepreneurial activity and economic
development have something of an ‘ebb and flow’ relationship depending
on a number of prevailing pre-existing circumstances. Despite this
inexact association, Minniti et al. (2006) characterize the relationship
between entrepreneurship and aggregate economic activity as shown in
Figure 1.3.
Owner--managers Managers
Entrepreneurs
Intrapreneurs
FIGURE 1.2 Managers, owner–managers and entrepreneurs/intrapreneurs.
Adapted from: Burns (2001, p. 7).
The Economy and Entrepreneurship 13
These authors consider entrepreneurship to be vital for economic growth
as small firms innovate, fill market niches, increase competition and promote
economic efficiency.
Reflective Practice
Could you be an entrepreneur? Answer the following questions to find out:
1. When you look at an ink blot how many things can you see?
Just one
More than just one
The inkblot or Rorschach test targets a tolerance for ambiguity which is thought to be a good
indicator of an entrepreneur.
2. You are seated in the front row of a theatre and the performer beckons you on stage to help
with the act. Would you:
Run out crying?
Accept the invitation with glee?
Entrepreneurs must have an ability to think on their feet and to sell themselves and their
business to everyone.
3. You are considering taking a cycling holiday, which would you prefer?
A mountain bike excursion over rugged terrain
Riding on a smooth road surface
In business, there is no such thing as a smooth ride. Success is very often littered with hazards,
potholes and frustrations.
Can you take no for an answer?
Yes
No
Banks, investors, venture capitalists and other financiers may turn your proposals down many
times. Rejection should motivate you to try harder.
General
national
framework
conditions
Social,
cultural,
political
context
Entrepreneurial
framework
Major firms
(Primary
economy)
and medium
firms
(Secondary
economy)
opportunity
Entrepreneurial
skills and capacity
New
establishments
and new firms
National
economic
growth
FIGURE 1.3 The global entrepreneurship monitor conceptual model.
Source: Minniti et al. (2006).
CHAPTER 1: Context, Theoretical Perspectives and Definitions 14
You are thinking of buying a new home. Do you:
Purchase one that’s already built
Find a vacant plot of land and build a new one?
Entrepreneurs are builders and architects of their own businesses. They have to identify an
opportunity, establish a robust and appropriate structure whilst staying within budget. Some may
literally opt for property development as their entrepreneurial business!
Your neighbour’s cute little kids knock on your front door trying to raise money for their school by
selling raffle tickets. Do you:
Buy some
Buy none
If you can say ‘no’, so much the better. Running your own business often means saying ‘no’ as
well as ‘yes’ to family, friends, relatives and others.
Can you watch and absorb a news programme, edit presentation, listen to music:
Yes
No
Start-up firms do not have the luxury of division of labour. You will have to occupy many different
roles including that of CEO, marketing manager, HR manager, technical roles and often at the
same time.
You’ve made plans for taking a holiday. Just prior to leaving, the plumbing springs a leak and the
electricity blows a fuse. Do you:
Get really angry
Take it in your stride, postpone the holiday and fix the problems
Entrepreneurs must be flexible and deal with problems as they arise.
Entrepreneurial aptitude:
If you answered all eight correctly you fall into the category of individuals having an
entrepreneurial aptitude. If you answered four correctly, start a part-time entrepreneurial
venture or find a ‘co-preneur’ to help. Fewer than four answered correctly; don’t give up your
day job
Adapted from:Coulter (2001).
SERVICES AND HOSPITALITY
The service sector of many economies has a high proportion of small to
medium-sized entrepreneurial firms. Entrepreneurial and small business
‘activity’ in Minniti et al’s, (2006) ‘four business’ sector comparison reveals
that ‘‘consumer-oriented’’ (p. 31) firms dominate the global economy.
4
In
the USA for example, the service sector is responsible for 92 per cent of all
jobs and 85 per cent of the gross domestic product (Zimmerer and
Scarborough, 2005, p. 12).
4
‘‘Consumer-oriented: where the primary customer is a physical person (e.g. retail,
restaurants and bars, lodging. . .and recreation’’ (Minniti et al., 2006, p. 30).
Services and Hospitality 15
This is partially explained with recent advances in technology via the
laptop computer, printers, faxes, voice mail and so on. However, hi-tec services
industries are not the only ones dominated by small firms. More ‘traditional’
areas such as hospitality and tourismhave always been characterized by small
firms (Haber, 2005, p. 582). Many commentators suggest that this is due to
relatively low barriers to entry including modest start up costs, marginal
economies of scale, chance to establish small ‘lifestyle’ businesses and nature
of the hospitality service product. Figure 1.4 shows a comparison between all
service and small to medium-sized firms in Australia. Figure 1.5 compares the
number of all firms and SMEs in the accommodation, cafe and restaurant
sector.
In Australia, SMEs have consistently dominated the services sector with
around 96 per cent of all firms falling into the small to medium-sized category.
From 1983–1984 to 1997–1998 SMEs showed significant growth, with more
moderate but consistent growth thereafter.
Likewise, the Australian accommodation, cafes and restaurants sector
is dominated by SMEs with approximately 89 per cent of all firms falling
into this category. Additionally, the number of SMEs increased dramatically
between 1983–1984 and 1997–1998 with a more uniformgrowth from1997–
1998 to 2000–2001.
A similar scenario exists in many other countries, for example, in the
UK 98.5 per cent of all hotels and restaurants (category 55) employ less than
50 people (www.sbs.gov.uk/SBS_Gov_files/researchandstats/SMEStatsUKAnd
Regions2005.xls ‘UK Whole Economy’!A1, 2007). In the USA, the Accom-
modation and Food Services sector is dominated by small businesses with
1400
1200
1000
800
600
400
200
0
1983-84 1997-98 1998-99 1999-
2000
2000-
2001
N
u
m
b
e
r
o
f
f
i
r
m
s
(
0
0
0
s
)
All service firms
SME service firms
FIGURE 1.4 All service and small to medium-sized firms in Australia 1983/4–2000/1.
Adapted from: Small Business in Australia, 2001, ABS Catalogue No. 1321.0 (2002) number of
businesses and persons employed in the private sector by industry division, Chapter 3.
CHAPTER 1: Context, Theoretical Perspectives and Definitions 16
approximately 75 per cent of all firms employing fewer than 50 people
(US Census Bureau, 2005).
SUMMARY
After some discussion, entrepreneurs were identified as being ‘atypical’ that is
not easily defined as they appear in a number of guises having different back-
grounds upbringings and so on. After a brief review of key historical develop-
ments and definitive insights, it was noted that successful entrepreneurs must
be able to spot an opportunity and environmental conditions need to be
sympathetic to any innovations advanced. Furthermore, the entrepreneurial
process was outlined from an initial ‘opportunity spotting’ to the eventual
decision to either pursue the idea or to let it be. The final stage of the process
was advanced as logical ‘decision-making’ Unfortunately, this stage of the
model is arguably the most difficult to understand as many decisions to
proceed with an entrepreneurial idea have little relevance with prevailing
economic or market conditions. This is particularly the case in the hospitality
industry where there is a perennial preconceived notion that running a small
restaurant or hotel is at best risk-free and at worst physically undemanding.
Whilst there is general agreement that entrepreneurs play a pivotal role in
broader economic development, the exact relationship between them was
described as a complex ‘ebb and flow’, with one not always being able to
predict the other. An overview of economic enablers revealed the pivotal role
of contemporary business practice in setting appropriate conditions for
N
u
m
b
e
r
o
f
f
i
r
m
s
(
0
0
0
s
)
All accom, cafes, rests
SME accom, cafes,
rests
45
40
35
30
25
20
15
10
5
0
1983-
84
1997-
98
1998-
99
1999-
2000
2000-
2001
FIGURE 1.5 Comparison between all firms and SMEs in the accommodation, cafes and
restaurants sector in Australia 1984–2000/1.
Adapted from: Small Business in Australia, 2001, ABS Catalogue No. 1321.0 (2002) number of
businesses and persons employed in the private sector by industry division, Chapter 3.
Summary 17
entrepreneurial activity with registered small businesses more prevalent glob-
ally now than at any other time. Government agencies and not for profit
organizations now provide a myriad of initiatives, support and advice for
nascent entrepreneurs including information and access to venture capital-
ists; although this is form of finance is six times more prevalent in the USA
than the rest of the world combined.
Small firms were described and defined in statistical terms and through
characteristics specific to small organizations including, limited capital rais-
ing capacity, frenetic activity during busy trading periods (typically seasonal in
the hospitality industry), and a lack of formal rules, regulations and proce-
dures. Entrepreneurs and small business owner–managers were also discussed
with these terms not always being mutually exclusive.
Finally, the service sectors of several developed countries were overviewed
showing the clear dominance of small and SMEs. A similar picture was also
revealed for the hospitality and restaurant industry where around 75–99 per
cent of all firms were identified as small or small to medium sized.
Reflective practice
&
Define entrepreneurship.
&
Discuss the notion that entrepreneurs are neither made nor born.
&
What role does the government play in enabling entrepreneurial activity?
&
What is the relationship between economic development and entrepreneurial activity?
&
What are the similarities and differences between entrepreneurs and owner managers?
&
How important are entrepreneurs in the tourism and hospitality sectors of economies?
CASE: The Windsor Hotel Ltd.
In the late 1950s, a young couple worked and met at the Queen’s hotel in Birmingham, UK.
The Queen’s was only one of many British Transport hotels dotted around the country at that
time built originally to accommodate rail passengers using the network. In the early 1960s,
this along with many other sister hotels was sold or demolished. Regrettably, David and
Greta were forced to look elsewhere for work. In those days, job opportunities were in
abundance especially in industrial Birmingham and so both found jobs soon after being
made redundant fromthe Queen’s hotel. Ideally, they would both have liked to remain in the
hospitality industry but they now had a young son and so opted for factory work as it was
much better paid.
Over the next couple of years, Greta’s family decided they would like to move to Great
Yarmouth where they had enjoyed many happy holidays. Greta’s parents were coming up to
retirement age and thought the change of surroundings would be appropriate at their time of
CHAPTER 1: Context, Theoretical Perspectives and Definitions 18
life. After much family discussion, David and Greta decided to follow them but for reasons
quite different to her parents. Great Yarmouth in the 1950s was booming seaside resort much
like others including Blackpool, Margate and Bournemouth. These were the days when
hospitality firms needed very little (if any) promotion due to the excessive demand from the
domestic mass-tourist market. Having a hospitality industry background and experience
both David and Greta had an inkling that setting up their own small guest house business
might just be viable. On the basis of this hunch, and that Greta wanted to be near to her
parents in their declining years, they sold their property in Birmingham and bought an eight-
bedroom guest house a couple of streets back from the sea front esplanade.
To their delight, the guest house was enormously successful although David and Greta had to
do most of the work themselves. Recognising the ‘healthy’ state of the market a couple of
years later in 1966, they bought the house next door and converted both into one 16 bedroom
guest house. Over the next 10 years David and Greta became well-known in the town as they
joined their local Rotary and Lions clubs, attended many employer association meetings and
networking events. Whilst their business continued building on its initial success there was
one increasing threat on their business horizon, that of the cheap Spanish continental
package holiday. Recognising this, they set about undertaking some elementary business
research to see what could be done to counter this challenge. In short, David and Greta
identified a market that they were not currently satisfying, that of a higher spending quality
conscious segment; not at all like what the traders in great Yarmouth referred to as ‘the
bucket and spade brigade’. Worryingly, the image of their existing guest house appealed only
to the extant lower income tourists. They decided that the purchase of a new upmarket hotel
was probably the only answer for continued success into the future. However, even the sale of
their business, accrued savings and a bank loan would not be enough to secure a business
property of the type they had envisaged. For the next few years, they thought long and hard
about the issue but resolved that they would never be able to realize their dreams. Instead
they, together with other small guest house owners, debated and discussed what Great
Yarmouth as a town could do to address the falling tourism demand.
At one particular Lion’s club meeting, David was approached by one of the town’s leading
hotel owners. In fact, Jeremy Ingold owned his own 60 bedroom four star hotel and was a
partner in the Windsor hotel, the largest privately owned hotel in Great Yarmouth. In brief, he
and the other partners had seen the Windsor’s performance decline uniformly since they had
bought it from Trust House Forte some five years earlier. Their strategy was to take a ‘hands
off’ approach to running the Windsor by employing a manger to take care of operations. After
a five year period and a succession of unsuccessful managers, the Windsor was in danger of
failing. Jeremy explained the situation to David and, based on the reputation of the guest
house, invited him and Greta to become full salaried managers of the hotel.
The Windsor was just like the hotel that David and Greta had identified a whilst earlier. It had
three stars (Royal Automobile Club), 80 bedrooms, four bars, a huge ballroom and several
function suites. Excitedly, David discussed the proposal with his wife. Despite the misgivings
of their current situation, Greta was far more cautious about the idea, pointing out that they
would no longer be their own boss nor have the security of their own small firm. ‘‘Why would
you want to go back to earning a wage?’’ she said. David had to agree and admitted that his
emotions had got the better of him but the proposition started a long process of deliberation
Summary 19
and extended discussion with Jeremy Ingold and the other partners to see whether their idea
could be amended to David and Greta’s advantage. One potentially key point strategically
was that all partners were in their mid fifties and upwards. Greta pointed out that they would
soon be retiring and would need to make some significant decisions about the Windsor and
their role as partners. In other words, they would soon be considering appropriate exit
strategy. ‘‘If they are taking this hotel seriously, they must also recognize that any manager
must be fully committed to the business. I think we should negotiate first an equal partnership
deal and second speak about their impending retirements, after all it cannot be more than 10
years away at most.’’ said Greta. David and Greta agreed and decided to propose a clause
whereby they would have an option to buy out the other partners in due course. Over the next
couple of months a deal was struck including the equal partnership and buy out options.
During their first summer season at the Windsor, they befriended a bank manager who stayed
at the hotel for three months during the first year of trading. He was to manage the local
branch and stay at the hotel whilst searching for a house and moving his family to Great
Yarmouth. David and Greta spoke to their newfriend about their plans and that they intended
to buy out their partners the following year. In short, the bank manager arranged for an
‘unsecured loan’
5
of a specific amount for David and Greta to buy the hotel. Fortunately, their
partners were not unreasonable and were happy to take a modest sumeach for their portion
of the Windsor.
David and Greta owned and operated the Windsor successfully for just over 25 years. By
2000, the domestic tourism market in great Yarmouth had declined to such an extent that
even the larger three and four star hotels had become effected. They had little option but to
sell the business but to whom? Clearly it would not be to anyone or any company that relied on
domestic tourism income alone. David and Greta decided to advertise the sale of their
business via a few selective media ensuring a wide range of potential buyers. After 2 years
and a number of unsatisfactory offers, they accepted a modest proposal from a Chinese
company already owning a number of other tourism-related businesses including travel
agents and tour operations. For David and Greta this was a stroke of fortune as the purchase
represented a form of vertical integration for the Chinese buyers. Thus they would not be
relying on the ever dwindling domestic tourist. Currently, the Windor hotel remains successful
but the focus has moved toward the international market, specifically Chinese.
1. Discuss David and Greta’s ability to spot an opportunity
2. How ambitious are this couple?
3. Can you identify some key entrepreneurial characteristics for David and Greta? Are they
the same for each person?
4. How important was ‘fate’ in David and Greta’s entrepreneurial career?
5. How important are exit strategies in entrepreneurship?
6. Comment on whether David and Greta’s businesses were ‘lifestyle’ or ‘growth’.
5
A loan where investors (in this case the bank) do not require the security of an existing
asset; usually only for small amounts.
CHAPTER 1: Context, Theoretical Perspectives and Definitions 20
Indigenous and Ethnic
Entrepreneurship: A Cultural
Perspective
After working through this chapter you should be able to:
& Define indigenous entrepreneurship
& Discuss the role of culture upon indigenous and ethnic entrepreneurship
& Recognize the crucial developmental role of entrepreneurship amongst
indigenous societies
& Appreciate the key differences between indigenous and ethnic
entrepreneurship
INTRODUCTION
According to Legge and Hindle (2004) the received wisdom that all entre-
preneurs are purely profit motivated is only partially true. Indeed, it may be
argued that engagement in entrepreneurial activity linked exclusively with
financial profit (see Chapter 1) is fleeting depending on what drives the
entrepreneur, the developmental stage of the venture and the environment
in which the business is operating. This is especially the case in the
hospitality industry where a majority of firms are small and of the
‘lifestyle’ nature (see Chapter 5). Evidence also suggests that this may
be true for entrepreneurs in indigenous societies albeit a function of their
culture rather than simply opting to focus attention elsewhere (Hindle and
Lansdowne, 2005). Culture is important in a general business communi-
cation sense as differences in language, philosophies and traditions
between nations have the potential to create barriers to international
trade. However under closer scrutiny, several studies have shown that
culture has a powerful influence on entrepreneurship (for example, see
Shane, 1995).
CHAPTER 2
21
The aim of the current chapter is to illustrate and discuss the role of
culture upon indigenous and ethnic entrepreneurship. It does this by defining
culture and:
& comparing global geographical regions to give a generic perspective on
entrepreneurial activity;
& introducing Hofstede’s (1994) construct of cultural dimensions as a
framework for identifying specific cultural variables amongst
indigenous entrepreneurs;
& identifying some cultural differences between indigenous and non-
indigenous entrepreneurship;
& outlining recent studies of entrepreneurship amongst indigenous
Australians including Torres Strait islanders linking Hofstede’s
cultural dimensions with key entrepreneurial characteristics;
& introducing ethnic entrepreneurship and identifying the differences
between it and its indigenous counterpart.
Key point 2.1
Profit maximization is not usually the aim of lifestyle firms in the hospitality industry, nor is it
that of indigenous entrepreneurial firms. However, culture has a key role to play in this
respect for the latter.
DEFINITIONS AND CONDITIONS
Many definitions of culture exist, for example:
‘The beliefs, values and mores that the inhabitants of a nation share’
Zimmerer and Scarborough (2005, p. 479).
‘. . . the collective programming of the mind that distinguishes the
members of one category of people from another’ (Hofstede, 1980, p. 5)
Tayeb (1994) considers culture to be shared feelings, thinking, norms and
values that guide people’s behaviour. We may also consider culture as a com-
plex mix of common enduring values, norms, ideas and symbols handed down
generationally which shape current attitudes and behaviour. However, this
does not mean that a single ‘national culture’ is common to all inhabitants
of a country. Nations or peoples are seldom homogenous and many cultural
‘pockets’ exist for a variety of historical reasons. For example, former British
colonies including Australia, Canada and the USA will almost certainly have
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 22
had their indigenous culture usurped by invading nations to a greater or
lesser extent.
The Changing Entrepreneurial Environment
Prior to the abolition of slavery in 1838 many unscrupulous Non-indigenous entrepreneurs
thrived all over the former British Empire (particularly in the Caribbean) ranging from
plantation owners to slave captains. Once the practice was abolished the outcome was
significant (although well deserved!) for these business owners as the following extract from
Pax Britannica: Heaven’s Command attests:
‘The greatest triumph of the evangelicals was the abolition of slavery.
Economically its results had been devastating. Planters were ruined from
Antigua to Mauritius. Middlemen of Ashanti, slave captains of Merseyside,
overseers of Nassau, found themselves without an occupation’ (Morris, J.
1993, p. 19).
The immediate and frantic emigration of entrepreneurs, wholesale mismanagement
and abdication of duty by the British government brought about rampant poverty
and dependency to the region. However, in the 21st century regions of the Caribbean
are thriving. For example, Jamaica is ranked fourth globally for its entrepreneurial activity
(see Minniti, Bygrave, and Autio, 2006), much of which is provided by tourism. http://
www.islandhideaways.com/islands.php?island_id=11. Nonetheless, indigenous
entrepreneurs in other Caribbean nations including Barbados have experienced more
difficulty. This is due to the legacy of business domination by the minority white
community and a deliberate move to undermine the efforts of the indigenous
population through restrictive legislation and other discriminatory policies
(Neblett and Green, 2005).
Source: the present authors
Commentators consider most indigenous societies to be a collective
valuing community and heritage. However, these findings are necessarily
moderated by the impact of the colonization process and some challenge
these commonly held notions. After reviewing the evidence, Peredo,
Anderson, Galbraith, Honig, and Dana (2004) reveal that prior to Euro-
pean influence many Native American communities paralleled the former
showing individualism, personal property ownership, use of individual
capital and exploitation of natural resources. Galbraith and Stiles (2003)
argue that the artificial community-based land tenure and ownership
system of modern reservations forces a more collective orientation on
entrepreneurial behaviours than would otherwise have existed. Indigenous
Definitions and Conditions 23
communities in Australia may also have shared a more individualistic
cultural orientation for the same reasons. Whilst this is a difficult point
to argue, it is clear that shifting forces of economics, colonialism and
enforced regional migration is a pattern all indigenous communities have
endured giving rise to poverty, poor education and health (Peredo et al.,
2004). Indigenous Australians have certainly borne the brunt of many
unfortunate but well intended governmental policies. Aboriginals and
Torres Strait Islanders are the most socially, economically and culturally
disadvantaged group in Australian society (Commonwealth of Australia,
1992). As a result they rely on welfare systems which Pearson (1999)
refers to as flawed as they do not demand economic and social reciprocity
which is a fundamental feature of indigenous culture. Mead (2000, p. 44)
agrees commenting that long-term dependence of welfare payments
results in a ‘culture of defeat’. According to Anderson (2002) these ex-
treme conditions underscore the need to encourage entrepreneurship in
indigenous societies to rebuild their communities and improve their socio
economic conditions based on a solid foundation of tradition and culture.
Furthermore, research into indigenous entrepreneurship would permit
culturally appropriate education for nascent entrepreneurs with a partic-
ular focus on generic economic development of indigenous society for the
benefit of whole communities.
To remedy this situation, many including indigenous leaders, have
advocated a coordinated governmental approach in facilitating indigenous
entrepreneurial activity, particularly in the tourism and hospitality indus-
try (see Foley, 2003). Among indigenous peoples, leaders such as Noel
Pearson holds entrepreneurship as an important way to construct a
vibrant economy leading to nation-rebuilding and self-determination
(Anderson and Gilbertson, 2004). These initiatives for economic develop-
ment are known as ‘second wave’ and attempt to wean many in indige-
nous society off welfare dependency resulting from early public sector ‘first
wave’ interventions (Peredo et al., 2004). The New Zealand government
has been particularly proactive in this respect resulting in an increasing
number of Maori self-employed (Sullivan and Margaritis, 2000). However,
this is no easy accomplishment as many indigenous individuals lack re-
quired business skills and have relatively low level of education. In the case
of Maori, the problem has been overcome by the Tainui and Ngai Tahu
seeking professional help outside their community (New Zealand Herald,
15 July 1999). The casino gaming initiative amongst the Kumeyaay peo-
ples in California has also been similarly successful (Galbraith and Stiles,
2003).
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 24
Reflective practice
1. How would you help overcome the challenge of low education levels amongst indigenous
entrepreneurs?
MODELS OF ECONOMIC DEVELOPMENT
Whilst there is an obvious case for encouraging entrepreneurship in indige-
nous societies, authorities need to proceed with caution and scrutinize
their underlying assumptions. For example, from the 1950s onwards
‘Modernization’ models of economic development were held as the primary
form of transforming traditional societies into contemporary ones (see
Inkeles and Smith 1974; and Kuznets, 1971). These are based onthe Taylorian
notion of ‘economic rational man’, where humans are self-interested, clear
thinking and logical being motivated by money. More subtly, traditions, her-
itage and language are all considered obstacles in the modernization process.
Understandably, applications of this philosophy have been largely unsuccess-
ful with initial levels of poverty and other uniquely contextual issues being
ignored but ultimately undermining such developmental efforts (Peredo et al.,
2004).
Another major development in this context is that of the ‘Dependency’
model of modernization. Here, multinational corporations, International
Monetary Fund, developed industrial nations and others are viewed by some
as colonists (Klitgaard, 1990). Peredo et al. (2004) note that rather thanleading
developing nations, they are held in a constant state of dependency through
economic exploitation by the very agencies designed to do the opposite. In
sum, they consider both Modernization and Dependency models to be fun-
damentally flawed in their pursuit of equity, economic development and self-
determination for developing countries. However, there is now interest in the
‘Contingency’ construct which is quite different to the above in that it con-
siders:
& development need not be defined by the developed world; and
& interaction between peoples and the global economy may be
different to that advocated by the modernization and dependency
perspectives.
Indeed with Contingency, it is important to understand and respect the
definitions offered by those who require development. The main advantage
here is flexibility and inclusiveness, that is, it allows the input of
Models of Economic Development 25
experience from other societies, perspectives and cultures (Tucker, 1999)
and promotes:
& sustainable coalitions
& partnerships;
& trust;
& reciprocity; and
& due diligence.
The contingency approach would appear to potentially accommodate
the moderating impact of many variables including that of culture upon
business activity and entrepreneurship. The big questions are does culture
have an impact on entrepreneurial activity and does indigenous entre-
preneurship involves values, motives and performance evaluations that
differ from non-indigenous entrepreneurship. If national cultures are
being used as the cornerstone of the current argument, the answer is
most certainly ‘yes’ depending on the recency and regularity of contact
between both parties and the extent to which the indigenous community
values it traditions and heritage. Foley (2003) believes that culture is a
powerful driver of attitudes. Lindsay (2005) goes further and considers
culture to be a key enabler of entrepreneurship amongst indigenous
society. He suggests that no significant differences exist between indige-
nous cultural values and those of the entrepreneur, that is, they are one
and the same. Others making this connection include Shane (1995);
McGrath, MacMillan and Scheinberg (1992); Mueller and Thomas
(2001); and Lindsay (2005).
Thus, attempts to better understand indigenous entrepreneurship should
avoid using non-indigenous entrepreneurship constructs as they:
& Fail to adequately consider some key cultural characteristics likely to
impact on associated traits, characteristics and behaviour;
& do not value preservation of heritage, self-determination and the
community (Hindle and Lansdowne, 2005); and
& do not embrace a whole economic development perspective nor
consider the position of indigenous self-determination.
Reflective practice
1. Do you believe this to be a fair critique of the modernization and dependency models of
economic development? What other constructs could be used in the context of indige-
nous tourism and hospitality services?
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 26
Key point 2.2
Among indigenous peoples entrepreneurship is an important way to construct a vibrant
economy leading to nation-rebuilding and self-determination.
THE BIG PICTURE
Geographical location linked with culture would appear to have an impact on
entrepreneurship. Figure 2.1 shows averaged data from the Global Entre-
preneurship Monitor (Minniti et al., 2006) and reveals some acute differences
between regions in terms of entrepreneurial activity.
With the exceptions of Eastern Europe and Latin America, all global loca-
tions show an increase in entrepreneurial activity between 2002 and 2005.
However, there are notable differences between some regions with a ‘low’
activity cluster of developed Asia, Eastern Europe and the European Union
and a ‘high’ clustering of the Commonwealth including the USA, Latin
Americas and developing Asia
1
. In short, there has been a significant global
movement toward self-employment through individual choice and govern-
ment-driven entrepreneurship-friendly macro conditions. However within
this complex set of drivers, culture has a key role to play, particularly amongst
indigenous societies. For example, the Total entrepreneurial activity index
(TEA) of indigenous Torres Strait islanders by far outstrips that of other states
with a comparable gross domestic product (GDP) and is actually similar to
those with a higher GDP
2
; Table 2.1 shows these comparisons.
The TEA index for the Torres Strait Islands is almost double that of Argen-
tina and around five times higher than that of South Africa. This is consistent
with the notion that where waged employment is scarce and economic con-
ditions poor, individuals are motivated toward self-employment. However,
Noorderhaven, Thurik, Wennekers, and van Stel (2004) point out that eco-
nomic ‘pull’ and ‘push’ (see Chapter 1) variables have a ‘low explanatory
1
Between 2002 and 2005 some countries shifted categories and others took no part in the
2005 GEM survey whilst others were added.
2
To obtain a relative impression of entrepreneurism in the Torres Straits, two techniques
were used. The first was based on the Global Entrepreneurial Monitor Research Program
(GEM) construct which calculates a total entrepreneurial activity score (TEA). This is
obtained by dividing an estimated 500 entrepreneurs (TSPZA, 2005) by the total workforce
(2116) and provides a standardized picture of entrepreneurial activity by country. The second
technique examines the gross domestic product (GDP) per capita index internationally as
advocated by Sullivan, Buckingham, Maley, and Hughes (1999) and Sloman and Norris
(2002).
The Big Picture 27
power’ (p. 460) and that culture is key in predicting a nation’s rate of entrepre-
neurial activity. Carree, van Stel, Thurik and Wennekers (2002) also challenge
the notion that the state of industrial development fully explains a nation’s
entrepreneurial activity. Wennekers, Noorderhaven, Hofstede and Thurik
(2001) argue similarly noting that culture is an important explanatory sup-
ply-side factor along with demographics and a person’s economic situation.
Similarly, they hold that entrepreneurial activity is culturally bound stemming
from differences between countries which are risk averse and risk-seeking for
example. In other words one would expect greater entrepreneurial activity
TABLE 2.1 A comparison of TEA and GDP between the Torres Strait and other nations
Country Total entrepreneurial activity (TEA) Index
a
Gross domestic product per capita ($)
Torres Strait Islands 23.6 3 590
Argentina 14.1 3 865
South Africa 6 3 746
Australia 20.4 30 695
New Zealand 28.2 23 460
Japan 7.4 36 105
Singapore 11.9 23 041
Adapted from: Lee-Ross and Mitchell, (2007) andMinniti et al. (2006).
a
Nascent, new and established businesses.
20
18
16
14
12
10
8
6
4
2
0
Asia
(developed)
Eastern
Europe
European
Union
Commonwealth
including USA
Latin
America
Asia
(developing)
Global regions
2005
2002
FIGURE 2.1 Total entrepreneurial activity by region 2002–2005
Source: Adapted from: Legge and Hindle (2004) and Minniti et al. (2006).
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 28
where individuals have a high propensity for risk-taking. Conversely, societies
which are culturally predisposed to avoid risk are likely to prefer waged em-
ployment rather than owning their own business. Risk-tolerance is a key
characteristic of some emerging economies and certainly of many indigenous
societies (Lee-Ross and Mitchell, 2007, p. 15). Therefore, in order to empower
indigenous communities through entrepreneurship successfully there must
first be an understanding of the role culture plays in this regard.
HOFSTEDE’S CULTURAL DIMENSIONS
Probably the most often cited researchers in the field of national culture linked
to entrepreneurship and business activity are Trompenaars and Hofstede. In
particular, Hofstede (2001) seeks to explain organizational behaviour by fram-
ing it in a broader cultural framework. His model of cultural dimensions was
developed from studying values in the workplace and how they are influenced
by culture. Hofstede’s original model identifies four primary dimensions:
& Power distance (PDI) – ‘the extent to which the less powerful members
of institutions and organizations within a country expect and accept
that power is distributed unequally’ (Hofstede, 1994, p. 28). A ‘low’
score indicates a non-acceptance of unequal power distribution;
& Individualism/collectivism (IDV) – ‘everyone is expected to look after
himself or herself and his or her immediate family [with] collectivism
as its opposite . . . [from] birth onwards [societies] are integrated into
strong, cohesive in-groups, which throughout people’s lifetime
continue to protect them in exchange for unquestioning loyalty’
(Hofstede, 1994, p. 51). A low score indicates a strong cultural
predisposition for collectivism;
& Masculinity/femininity (MAS) – ‘gender roles are clearly distinct, men
are . . . assertive, tough, and focused on material success whereas
women are . . . modest, tender, and concerned with the quality of life;
femininity pertains to . . . gender roles overlap[ing]’ (Hofstede, 1994,
p. 82–3). A low score indicates a cultural predisposition towards
femininity; and
& Uncertainty avoidance (UAI) – ‘the extent to which the members of a
culture feel threatened by uncertain or unknown situations’
(Hofstede, 1994, p. 113). A low score suggests a society that is
comfortable with uncertainty.
Consistent with its popularity elsewhere, Hofstede’s construct has also
been used to examine the culture of indigenous societies relative to
Hofstede’s Cultural Dimensions 29
entrepreneurship. Specifically, researchers have made correlations between
cultural dimensions and various entrepreneurial traits (for example, see
Wennekers et al., 2001; and Lindsay, 2005).
Reflective practice
1. Think of a tourism or hospitality owner known to you. Intuitively, can you identify any of
Hofstede’s cultural dimensions for this person?
TOWARDS A DEFINITION
Definitions of indigenous peoples vary considerably as they tend to focus on
different aspects. However following the work of Peredo et al. (2004, p. 5), this
chapter considers that they may be defined operationally via three main ele-
ments with the last playing a key role in an understanding of indigenous
entrepreneurship:
& descent frompopulations inhabiting a region prior to later inhabitants;
& geographical, political, and/or economic domination by later
inhabitants of immigrants; and
& maintenance of some distinctive social cultural norms and
institutions.
The final element is important because indigenous communities regard
the activity of entrepreneurship as more than a means of providing economic
benefits. It is regarded as a key way of rebuilding their communities and re-
establishing control over their traditional lands and heritage. Some examples
of indigenous societies currently engaged in entrepreneurial activity include:
& First Nations – Canada
& Metis and Inuits – Canada
& Quechuas – Peru
& Aymaras – Peru
& Maoris – New Zealand
& Kumeyaay – USA
& Australian Aboriginals – Australia
& Torres Straits – Australia.
An additional but complimentary definition, considers indigenous entre-
preneurs as those who create, manage and develop new ventures by and for
indigenous people underpinned by strong desires for self-determination and
heritage preservation (Lindsay, 2005).
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 30
Entrepreneurship therefore becomes a more holistic culturally-bound con-
struct than its non-indigenous counterpart. According to Lindsay (2005), this
helps explain why there are relatively less ‘recognizable’ indigenous entrepre-
neurial firms as the objectives are different. For example, indigenous culture
requires that the entrepreneur’s family, extended family and community be-
come involved in the development of new venture
3
as opposed to a focus on
individual autonomy in entrepreneurship. There is therefore more complexity
than in non-indigenous firms. In short, economic objectives including rapid
growth, increasing assets and share prices are at best only equally important as
non-economic ones. Issues including self-determination, heritage orientation
and other indigenous values must also be considered. Encompassed in this
definition are a number of cultural factors which impact on the attitudes of
indigenous peoples in particular ways. Lindsay’s (2005) comparison of
‘common’ indigenous entrepreneurial cultural values with those of non-in-
digenous entrepreneurship (using Hofstede’s construct) serves as a useful
starting point in this respect and is shown in Table 2.2.
DIMENSIONS, ATTITUDES AND INDIGENOUS
ENTREPRENEURSHIP
Conceptually, it is evident that cultural values between indigenous and non-
indigenous entrepreneurs are quite different with the exception of low uncer-
tainty avoidance. Several researchers have attempted to link cultural dimen-
sions with entrepreneurial attitudes. Risk-taking and innovation are two such
traits with the latter being understood as the generation of new ideas.
Redpath and Nielsen (1997) note that tolerance of ideas (risk-taking) is an
TABLE 2.2 A comparison of cultural entrepreneurial values using Hofstede’s cultural construct
Hofstede’s cultural
value dimension
Indigenous entrepreneurial
values Redpath and Nielsen (1997)
Non-indigenous entrepreneurial
values (McGrath et al., 1992)
Individualism/collectivism High collectivism/low individualism Low collectivism/high individualism
Power distance Low power distance High power distance
Uncertainty avoidance Low uncertainty avoidance Low uncertainty avoidance
Masculinity/femininity High femininity/low masculinity Low femininity/high masculinity
Source:Lindsay (2005).
3
In terms of population, indigenous Australians represent only 2.2 per cent making thema
minority, alienated from mainstream society with little recognition for their business
activities (Foley, 2003).
Dimensions, Attitudes and Indigenous Entrepreneurship 31
indigenous cultural value so long as these notions resonate with the commu-
nity’s collective norms. After reviewing the evidence Lindsay argues that
innovation is one composite part of an overall ‘Entrepreneurial attitude’.
Other components are:
& Achievement – associated with business start up and growth results;
and
& self-esteem – amalgam of self-confidence and perceived business
competency.
From the earlier definition of indigenous entrepreneurship, attitude is
influenced uniquely by indigenous culture as it is driven by self-determination
and preservation of heritage. Furthermore, success is measured by both eco-
nomic and non-economic dimensions. Individual autonomy is also redundant
as it is replaced by the whole community to whom the entrepreneur must be
accountable. This limits the effect of individual personal control as it is sub-
ordinate to collective influences, that is, personal control over business
becomes supplanted by a preoccupation with family and community influence
over business.
Taking each of the above attitudes in order, Lindsay (2005) argues that:
& Achievement is at odds with the non-indigenous preoccupation of
economic growth due to differences in time orientation and a
disinclination to compete. Consensual decision-making and
prioritising family issues also detract from non-indigenous
entrepreneurship. In Hofstede’s terms, decision-making is influenced
by a cultural orientation of femininity (Redpath and Nielsen, 1997).
This is quite different to masculine cultures where work is prioritised.
Measurements of success (achievements) are directly related to quality
(of life) rather than quantity (of work). This is a key factor in starting
and running a business as evidence suggests that hours of work have a
direct and positive correlation with business success (measured in non-
indigenous terms of course!).
& Access to sufficient start-up funding is also important for future
success. Although indigenous society is a collective, the typical sharing
of financial resources from family and friends in a start-up business
phase is non-existent because of societal poverty (Fuller, Dansie, Jones
and Holmes, 1999). Having no resources and lack of business
education is likely to cause feelings of low self-esteem in indigenous
communities.
Additionally, Shane and Venkataraman (2000) consider opportunity rec-
ognition another important entrepreneurial attitude. This is the ability to
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 32
identify gaps in the market and to take advantage of them economically.
Indigenous society (which has already been identified as collective, consensual
and feminine) bases these on the likely benefits accruing to the community in
non-economic and economic terms rather than a non-indigenous focus on the
latter. Lindsay (2005) notes that indigenous entrepreneurs do not lack this
ability but appropriate opportunities in their society are different to those of
others. Moreover, if they adopt a non-indigenous approach they may become
ostracized from their community given the sharp differences between the two
value and culture systems. Indigenous society is pluralist based on resource-
sharing where individualism is seen as exploitation as one over another.
Success then concerns what you do and how you do it rather than increasing
personal wealth which is in conflict with the cultural value of sharing.
Key point 2.3
Indigenous entrepreneurs as those who create, manage and develop new ventures by and
for indigenous people underpinned by strong desires for self-determination and heritage
preservation.
Other studies have also identified culture-specific characteristics of indig-
enous entrepreneurship. For example in Foley’s (2003) study of urban indig-
enous Australians, entrepreneurial success was not linked with acquisition of
tangible personal assets. Instead it was measured by increased levels of inven-
tory or that a business had been established and not failed. Mapunda’s (2005,
pp. 10–11) study of indigenous Australian and Tanzanian enterprises reveals a
similar finding and cites ‘maintaining the soul and spirit through
relationships’ and ‘providing employment for indigenous people’ above profit
maximization. However, in Foley’s study, some ‘successful’ entrepreneurs
appeared to be moving away from traditional cultural norms and values. As
a result they felt somewhat distanced from their indigenous community
experiencing discrimination resulting in temporary ostracism. This is quite
unlike non-indigenous entrepreneurial culture (particularly amongst ethnic
groups) where the community tends to embrace and value their success and
the entrepreneur is drawn closer to the community as a result (Holt and Keats,
1992). An acute sense of dissonance becomes clear amongst Foley’s intervie-
wees where even investment in their own business creates feelings of guilt
about not sharing with family/community. For example, one particular indig-
enous entrepreneur purchased a used sedan for business use. The community
felt that he had come into money and not shared it. Another example Foley
cites is the family’s expectation of credit or goods for free is when ‘borrowing’
from successful indigenous retailers.
Dimensions, Attitudes and Indigenous Entrepreneurship 33
In an almost contradictory cultural sense these individuals had a notion of
‘face’ where establishing oneself as a ‘legitimate’ business role model for the
community became important through networking with others including
‘white fellas’ committees and panels (Rotary, Lions, golf club and so on).
Interviewees felt that they were creating a positive role model to counteract
racial stereotyping. Additionally, business ‘accountability’ was established
through employing non-indigenous accountants. Community communica-
tion based on kinship and community obligations was replaced by
‘networking’ due to increased time constraints linked to the business enter-
prise. Thus, a positive face was established by actions geared for wider social
acceptance and increased business connections to improve social acceptability
for themselves and their children. The benchmark of success became social
acceptance in the broader business environment. Foley (2003) concludes that
the shift away from long held cultural values and norms to that of business
enterprise and social networking effectively changes the traditional pattern of
indigenous behaviour.
Reflective practice
1. Consider the long-termimpact of entrepreneurial success amongst indigenous societies.
What cultural changes are likely to be created and how will they impact in practice?
Similar patterns have been found elsewhere amongst other indigenous
communities.
Indigenous Canadians recognize that alliances and joint ventures among
themselves and non-aboriginal partners are important to build capacity for
sustainable economic development and self-sufficiency through educa-
tion and training (Anderson, 1999). Peredo’s (2001) research amongst
indigenous Andean countries confirms similar objectives and business
arrangements.
Another more recent study of indigenous entrepreneurship and culture
focused on the Torres Strait region of Australia (Lee-Ross and Mitchell,
2007) using the first four of Hofstede’s cultural dimensions. Here, the
relationships between culture and entrepreneurial attitudes were
4
assessed.
The first objective of this study was to calculate cultural dimension scores
and position them relative to those of other nations following the predic-
tions of Redpath and Nielsen (1997) shown in Table 2.2. All scores for the
4
Power distance (PDI); individualism (IDV); masculinity (MAS; and uncertainty avoidance
(UAI).
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 34
Torres Strait Islands were ranked consistently below those of other non-
indigenous nations. These outcomes broadly corresponded with those
shown in Table 2.2 as:
& Relatively low power distance;
& high collectivism;
& high femininity; and
& low uncertainty.
Following Foley’s (2003) earlier proposal that cultural orientations are
likely to impact on entrepreneurial attitudes; the results confirmed the notion
that this particular model of indigenous entrepreneurship differed from the
non-indigenous construct by virtue of culture. Table 2.3 outlines the proposi-
tions tested in the study.
Table 2.4 shows howentrepreneurial traits were ranked by a comparison of
mean scores calculated from five-point Likert-type questions where
1 = ‘Utmost Importance’ and 5 = ‘Very Little Importance’. All attitudes were
scored above 4 on the original Likert scale which suggests that even the lowest
ranked attitudes were considered as moderately important. Rankings shown
below must therefore be interpreted relative to each other rather than in an
absolute sense.
‘Persistence’, ‘vision’, ‘respond quickly to problems’, and ‘desire to succeed’
were highest of all attitudes. ‘Being curious, ‘being alone’, ‘experimenting’,
‘gamble on a good idea’, and ‘take chances’ were ranked the lowest.
According to Table 2.3 the Torres Strait community is culturally fem-
inine and more concerned with quality than quantity when linking with
the collective of achievement. One would therefore expect collectivity and
consensus rather than a narrow focus on turning a profit or economic
development, hence the expectation of low achievement in financial
terms. However, it is quite difficult to confirm this as persistence, vision,
responding to problems and desire to succeed do not preclude non-eco-
nomic aspects, nor are they exclusively masculine attitudes. They are
perhaps key attitudes which are held as important in both indigenous
and non-indigenous cultures. The difference occurs in how they are inter-
preted, that is financially or not. On the other hand, working with people,
motivating people and working in a team are linked with femininity.
Furthermore, doing things own way, total control and being alone are
ranked relatively low and are alleged to be masculine attitudes charac-
terizing non-indigenous entrepreneurs. Thus, these attitude rankings
appear to support the notion that Torres Strait culture has a female
orientation.
Dimensions, Attitudes and Indigenous Entrepreneurship 35
Asecond cultural predispositionof lowuncertainty avoidance suggests that
Torres Strait islanders are risk-takers, accept uncertainty and are innovators.
The relatively lower rankings of experiment with new ways, gamble on a good
idea, take chances and being curious does not seem to support this claim.
TABLE 2.3 Proposed impact summary of indigenous culture on entrepreneurial traits
Cultural dimension Area and brief Associated traits Propositions
High femininity Quality of life: attitudes
towards achieving
‘quantity’ of work needed
for new venture creation
based on quality of life
rather than economic
development
Working with people,
motivating people,
working in a team,
being creative, desire
to succeed, leadership,
persistence, vision,
feeling sure about
yourself, doing things
own way, being alone,
total control
Low levels of achievement
will be demonstrated
amongst indigenous Torres
Straits’ entrepreneurs via
associated traits as
achievement is linked with
economic growth from a
non-indigenous perspective
Low uncertainty
avoidance
Innovation: generation of
new ideas outside cultural
norms of collectivity, self-
determination and heritage
preservation will not hold
sway
Being creative,
experimenting with new
ways, take chances,
gamble on a good idea,
being curious, clear goals
Low levels of innovation will
be demonstrated amongst
indigenous Torres Straits’
entrepreneurs via associated
traits
Low power distance Self confidence and self
esteem: high unemployment
and welfare dependencies,
poor housing, discrimination
undermine social and
economic development and
little confidence in developing
successful business venture
and dissatisfaction with the
situation
Feeling sure about
yourself, leadership,
desire to succeed, total
control
Low levels of self-confidence
and self-esteem will be
demonstrated amongst
indigenous Torres Straits’
entrepreneurs via associated
traits
High collectivism Personal control: emphasis on
personal relationships whist
maintaining group harmony
and how they benefit the
community.
Being alone, doing things
my own way, working with
people, leadership, working
in a team.
A low level of personal
control will be demonstrated
amongst indigenous Torres
Straits’ entrepreneurs via
associated traits
Opportunity recognition:
consensual decision-making and
problem-solving, benefits for
the community in non-economic
and economic terms, pursuing
opportunity for individual economic
returns is at odds with community
and culture
Being curious, vision, respond
quickly to problems, desire to
succeed
A low level of opportunity
recognition will be
demonstrated amongst
indigenous Torres Straits’
entrepreneurs via associated
traits
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 36
However, the first caveat is that innovations will only be supported if they
resonate with broader cultural norms and second, there is no direct translation
of the word ‘risk’ into any Torres Strait native language. When seeking clar-
ification, an overwhelming majority of respondents simply said ‘either you do
it [take the risk] or you don’t’. The interpretation is that there was no risk
associated with their business start-ups due to their cultural predisposition
and language structure; hence linked attitudes were deemed as unimportant.
However, other low uncertainty avoidance traits of responding quickly to
problems, clear goal, leadership and solving problems were ranked relatively
highly.
Torres Strait islanders appear to have a low tolerance for unequal power
distribution amongst themselves (Hofstede’s third dimension). This is in
contrast to a non-indigenous notion of entrepreneurship where individuals
believe in dominating their social structure (McGrath et al., 1992). This
interpretation is supported by the relatively low ranking of total control and
feeling sure about yourself but does not explain the relatively high ranking of
leadership. One plausible explanation is that many individuals were found to
engage in ‘temporary’ entrepreneurship to raise extra money for one-off cul-
tural events like tombstone openings, weddings, sporting carnivals, concerts
and related travel between islands. As such, these entrepreneurial fund-raising
TABLE 2.4 Rank order of entrepreneurial attitudes in the Torres Straits
1 Persistence
2 Vision
3 Respond quickly to problems
4 Desire to succeed
5 Working with people
6 Leadership
7 Clear goal
8 Solving problems
9 Motivating people
10 Working in a team
11 Feeling sure about yourself
12 Doing things own way
13 Total control
14 Being creative
15 Being curious
16 Being alone
17 Experiment with new ways
18 Gamble on a good idea
19 Take chances
Dimensions, Attitudes and Indigenous Entrepreneurship 37
activities are often ‘unofficial’ and may be also considered as acts of individual
defiance against perceived inequality (and resultant low self-esteem) wrought
by relatively poor wages paid to individuals working on the CDEP scheme and
the negative affects of other initiatives beyond the community’s control.
Unlike the non-indigenous entrepreneurial value system which empha-
sizes individualism, the results suggest that Torres Straits islanders are a
cultural ‘collective’. Hence the first of two propositions that low levels of
personal control will be demonstrated via associated attitudes. There are
clearly some overlaps with other cultural dimensions (for example masculin-
ity/femininity) as collectivism is an overarching cultural norm. Unsurprising-
ly, attitudes of working with people, motivating people and working in a team
have relatively high rankings. Whereas, doing things my own way, being alone
and total control appear towards the latter half of Table 2.4. This is at odds
with non-indigenous interpretations of entrepreneurship, for example,
Mueller and Thomas (2001) consider collectivism to be the antithesis of
entrepreneurship. They note that [non-indigenous] entrepreneurs are ‘. . .
frequently characterized as exhibiting [a high] locus of control’ (p. 59). Simply,
this means that entrepreneurs believe in their own abilities to bring about
changes and business success rather than relying on anything else. Indeed, in
their study of nine countries, locus of control was found to be more prevalent
in individualistic cultures than in collectivist cultures.
The second proposition for the cultural dimension of collectivism shown
in Table 2.3 relates to opportunity recognition. In short, Torres Strait islanders
should demonstrate a low level of this because of the tendency for consensual
decision-making and problem-solving. Furthermore, the ability to spot and
pursue an opportunity effectively is hindered by lengthy community consul-
tation. Additionally, benefits for the community are valued in both non-eco-
nomic and economic terms. The relatively low rankings of all attitudes from
12 to 17 appear to support this notion as do the relatively higher rankings of
more ‘collective’ attitudes.
In summary, there would appear to be a number of key attitudinal differ-
ences between Torres Strait and non-indigenous entrepreneurs. Moreover, the
notion that these disparities are culturally driven seems to be a reasonable
conclusion. Ina general sense all the foregoing evidence including that of other
studies suggests that indigenous entrepreneurship is novel (because until
relatively recently, it has been ignored) and different to its non-indigenous
counterpart. Nonetheless, there are still several important questions yet to be
addressed adequately:
& What is the process of indigenous entrepreneurship or are there many
depending on individual societies and are the aims different?
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 38
& Does indigenous entrepreneurship in different locations show similar
and distinctive patterns of entrepreneurial features and goal structures?
& Does entrepreneurship amongst indigenous society have distinctive
combinations of entrepreneurial features and how has the process of
colonization impacted on them including the creation of pseudo-
societies by virtue of colonists?
& Do indigenous entrepreneurs have unique cognitive processes and
decision-making patterns and if so, how do they impact on key
outcomes?
& How do legal, economic and structural characteristics impact on
culturally occurring attitudes and behaviours in indigenous
communities?
& Given that some indigenous societies are less collective than others (e.
g. Tohono O’odham and Apache tribes of Arizona) what would be an
appropriate mix of collective and individual enterprises for optimum
economic development
& How do language and ‘story-telling’ affect indigenous perspectives of
their world and that of others?
& Can indigenous societies become self-determining and economically
sustainable whilst maintaining their cultural heritage and how useful
will the Contingency model of development become in this context? In
short, how is indigenous tradition reconcilable with innovation.
Reflective practice
1. How much is really known about indigenous entrepreneurship? Can you think of other
questions that might be added to the above list?
Key point 2.4
Unlike the non-indigenous entrepreneurial value system which emphasizes individualism,
Torres Straits islanders are a cultural ‘collective’.
Whilst the above are key questions in the search for a better theoretical
understanding of indigenous entrepreneurship, ina practical sense, many new
indigenous owned and operated hospitality/tourism firms currently exist.
Approximately 200 indigenous tourism businesses exist in Australia generat-
ing $5 million per year with an additional contribution of $200 million per
Dimensions, Attitudes and Indigenous Entrepreneurship 39
year fromthe sales of indigenous arts and crafts (Zeppel, 1998). In the tropical
north of Queensland Australia there are several new and thriving businesses
including:
& Aurukun Fishing and Wetland Charters;
& Cape York Turtle Rescue Camp;
& Djabugay Country Tours;
& Echo Adventure and Cultural Experience; and
& Kuku Yalanji Dreamtine Walks
Whilst the above are examples of indigenous-owned tours and attractions,
indigenous entrepreneurs are involved in other less culturally-defined busi-
nesses including accommodation, visitor service facilities and restaurants
(Mapunda, 2005). However, the long-term success of cultural and ‘extended’
operations depends on careful and appropriate management as a number of
potentially negative outcomes are possible; some are shown in Table 2.5.
In order to minimize the potential negative impacts of indigenous entre-
preneurship it is essential that guidelines should be followed including:
& Emphasize hard work based on structured understanding between
indigenous and non-indigenous peoples;
& Establish empathy between mainstreamand indigenous cultures based
on sensitivity to issues of heritage;
& not turn indigenous peoples into museum curious; and
& not expect indigenous peoples to act in a manner counter to their
traditions; and
& welcome diversity and respect right of indigenous decision-making
within broad public policy guidelines.
TABLE 2.5 Positive and negative impacts of indigenous entrepreneurship
Positive impacts Negative impacts
Economic base to revive indigenous communities Increased cost of living for locals
Maintenance and growth of income generating arts
and crafts
Decline in artistic quality and authenticity
Job and wealth creation amongst indigenous
community by own entrepreneurs
Domination of external interests and control of manage-
ment decision-making process by outsiders
Cultural revival and preservation Exploitation of human cultural resources
Investment in environmental conservation Desecration of sacred sites and natural resources
Development of remote communities Exploitation of remote communities and loss of cultural
identity
Source: Adapted from:Mapunda (2005, p. 7).
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 40
ETHNIC ENTREPRENEURSHIP
There is a temptation to consider indigenous and ethnic entrepreneurship as
one and the same. This is probably because the impact of ‘culture’ features
significantly in both categories. The fact of the matter is both are quite distinct
and separate. Peredo et al. (2004) provide some useful guidelines to help
differentiate the two shown in Table 2.6.
It would also be similarly imprudent to minimize the economic impor-
tance of ethnic entrepreneurship. This is because ethnic firms have an enor-
mous wealth-generating potential. In the USA small ethnic firms account for
over 15 per cent of all businesses generating over $591 billion (US) annually
and employ over 5 million workers (Zimmerer and Scarborough, 2005). In the
UK the percentage of ethnic entrepreneurial firms is smaller but still substan-
tial at 7 per cent (220 000 businesses)http://www.bytestart.co.uk/content/19/
19_1/small-businesses-in-the-u.shtml, August, 2007. South Asian entrepre-
neurs alone own approximately half of all independent shops in Great Britain
and spend around 5 billion Sterling per annum (Management Today, Septem-
ber 1990, p. 57). Furthermore South Asians account for just over 2 per cent of
Britain’s working population with a higher contribution towards employment
and wealth generation since they represent 4 per cent of all employers
(Basu and Goswami, 1999). Asimilar picture emerges in Australia with a total
ethnic presence of nearly 23 per cent which is higher than the USA, Canada,
UK, Switzerland, France or Germany. Approximately 30 per cent of all small
businesses are owned by ethnic entrepreneurs (ABS 2004).
TABLE 2.6 Some key differences between indigenous and ethnic entrepreneurs
Indigenous entrepreneurs Ethnic entrepreneurs
Exclusively concerned with individuals having a close
bond with ancestral territories and the natural
resources in them. A prominent goal of is recovery of
access to and use of their traditional lands
Ethnic entrepreneurship usually concerns immigrant
populations and the situation of relative newcomers to
a region or nation
Lands and resources often represent a basis for the
capacity to engage in entrepreneurial development
Ethnic entrepreneurship looks at the economic interac-
tions with a particular area of new settlement
Ostracism from community of personal wealth is
perceived to exist
Personal wealth and success valued and embraced by
community
Usually connected with community-based economic
development
Typically involves enterprise development at the indi-
vidual or family level
In many countries indigenous people have obtained
quasi-governmental or nation status
Assimilated into host nation
Ethnic Entrepreneurship 41
Successful Australian Ethnic entrepreneurs
Ethnic Business Awards 2006 Winners Announced at the Sydney Opera House
The Ethnic Business Awards were created 18 years ago by Mr Joseph Assaf, to recognise the
contribution of migrants to Australian Business. They have since become one of the longest
running awards in Australia, which is a testament to their success and prestige. This year’s
winners were migrants fromItaly, Sweden, South Africa and Macedonia, who all nowproudly
call Australia home.
The Sydney Opera House set the stage last night for the 18th Ethnic Business Awards (EBA).
His Excellency Major General Michael Jeffery AC CVO MC joined other distinguished guests
at the annual Gala presentation, where immigrant business owners were recognized for their
outstanding contribution to the Australian economy.
Accepting the Medium/Large Business Award, Mr Silvio Pitruzzello of Pantalica Cheese
Company attributed the win to his father Sebastiano. ‘The success of our business comes
from the hard work and passion of my father. He came to Australia from Sicily in the 1960s
with a suitcase and a dream, and now 33 years on, the Pantalica Cheese Company is a
thriving business.’ Mr Pitruzzello said. Representing an assortment of cultural backgrounds
and covering a broad range of industry sectors the EBAs has welcomed over 6000 entries
since its inception. The following businesses were presented with an award: Large Business
Award: Pantalica Cheese Company – received by Mr Silvio Pitruzzello from Italy. Small
Business Award: kikki.K Pty Ltd – received by Ms Kristina Karlsson, Managing Director, from
Sweden. Initiative Award: Skybury Coffee Pty.Ltd – received by Mr Ian MacLaughlin,
Company Director, from South Africa. Women in Business Award: The Education Group –
received by Ms Neda Morris, Director, from Macedonia.
Accepting the Special Initiative Award, presented by Fran Bailey MP, Minister for Small
Business and Tourism, Mr Ian MacLaughlin, who set up Skybury Coffee with his wife Marion
said, ‘Australia was a place where we thought that we could bring up our family in freedom
and prosperity . . . but when we arrived in 1987 we were told that this used to be the lucky
country. My first thought was ‘goodness we have missed the boat’, but I am here to tell you
that this is still the lucky country’. The Hon Fran Bailey MP later commented, ‘The Australian
Government is proud to be associated with the Ethnic Business Awards. These Awards
recognise achievements of people born outside of this country and who have come here and
made a significant contribution to our country. As Small Business Minister, I congratulate all
of tonight’s winners and finalists on their vision and initiative at achieving this success.’
Group Managing Director of Telstra Business, Deena Shiff, said Telstra’s ongoing support of
the Awards recognized the contribution that migrants had made to the success of many
Australian businesses. ‘The courage and determination needed to move to another country
are also essential to build and run a successful business – our winners have clearly
demonstrated the characteristics needed to compete and win in a highly competitive
marketplace and Telstra congratulates them on their efforts.’ In a country where
approximately 20 per cent of the population speak a language other than English at home the
Ethnic Business Awards has grown to become a most anticipated annual event. In his speech
last night founder of the Awards and Chairman of Etcom, Mr Joseph Assaf commented on the
positive impact of multiculturalism to Australian society, a strength reflected in the Ethnic
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 42
Business Awards. ‘In Australia, diversity is a fact of life and because of that, multiculturalism
is a way of life. It is a way of life that enables Australia to harness and promote the ingenuity,
vision and enterprise that characterises many of its new citizens.’ George Frazis, Executive
General Manager of Business and Private Banking at the National Australia Bank (NAB),
said: ‘NAB is as extensive as the community it serves. The myriad of services available to our
clients are as broad as the backgrounds fromwhich they come. We pride ourselves in taking
the time to understand and connect with our clients. That’s one reason why we sponsor these
awards, to help recognise great business.’ The Awards will be televised on SBS at 1pm on
Thursday, November 30 and repeated at 1pmon Saturday, December 2, 2006. They will be
aired twice on Australia Network to an estimated 10.1 million homes across 41 countries, and
replayed by 155 broadcasters throughout the region, seen in 200 000 hotel rooms.
Source:http://www.clickpress.com/releases/Detailed/21997005cp.shtml, 2007.
On the whole, ethnic entrepreneurs have enjoyed much success glob-
ally and many commentators are quick to provide the answers; culture
often forms the basis of their arguments. That is, one that encourages
thrift, hard work and reliance on cheap family labour (Werbner, 1990).
According to Deakins (1996), entrepreneurship is popular amongst ethnic
communities as it is a way out of poverty (in the UK these include Afro-
Caribbean, Indian, Pakistani, Bangladeshi and Greek-Cypriot communi-
ties). However, it may be argued that both cultural characteristics
and overcoming poverty are common to entrepreneurs generally.
Morrison, Rimmington and Williams (1999) insist that ethnic entrepre-
neurs succeed where others fail because they are able to create market
niches which are ‘ethnically protected’ (p. 12), where restaurateurs for
example, are given preferential treatment by ethnic suppliers of raw mate-
rials to satisfy own community demands. In a sense this is similar to
backward vertical growth whereby one company seeks to secure supplies
by buying the supplying firm. This can certainly be seen in the wealth of
ethnic restaurants in capital cities and resorts in most first world coun-
tries globally. Mars and Ward (1984) offer similar advice in the form of
‘immigrant entrepreneurship’ theory in the context of ethnic resources
and opportunities created by an enclave economy. Whilst this theory has
found support (Werbner, 1990), others find that cultural factors may
actually restrict development by creating excessive reliance on the local
ethnic community market, informal sources of finance and family con-
trolled businesses (Ram, 1994). Waldinger, Aldrich, and Ward (1990) note
that long-term business success lies in ability to branch out from the
ethnic enclave economy which in turn is influenced by changes occurring
within the community.
Ethnic Entrepreneurship 43
Reflective practice
1. Are there any specific cultural differences between ethnic and indigenous entrepreneurs?
What facets are common to each group.
Key point 2.5
Ethnic entrepreneurship usually concerns immigrant populations and the situation of
relative newcomers to a region or nation
Ethnic Restaurateurs
Immigrant entrepreneurs in Australia are distributed across all the industries with a
particular presence in retail. These niches derive from specific culinary traditions or by
chance. In New South Wales, half the entrepreneurs in the ‘fish shop, take away food’
and associated outlets are first generation immigrants (Collins, Gibson, Alcorso, Tait and
Castles, 1995).
Many immigrant entrepreneurs have restaurants in Australian cities and towns (Collins and
Castillo, 1998). Chinese restaurants and cafes were a feature of the Australian suburban and
country town landscape (Chin, 1988) and most suburbs and towns had a Greek milk bar to
sell sweets, drinks and meals Collins et al. (1995). Today most Australian regions have
‘ethnic’ restaurants, it is a very feature of their cosmopolitanism. Most immigrant groups have
a presence in the restaurant sector with Italian, Chinese, Thai, Vietnamese and Japanese
being very popular.
Source: Reproduced with permission: Collins (2007).
Legge and Hindle (2004) offer another explanation citing trust as the key
enabler of success. They consider that people of similar ethnicity share a
common denominator in the form of culture. This is different to that of the
host nation or society and will give rise to a feeling of marginalization
amongst the ethnic group. The perceived ‘distance’ from broader society
may heighten trust between individuals leading to high levels of entre-
preneurship. Ward and Jenkins (1984) also consider that ethnic minority
entrepreneurs have a unique competitive advantage over others because of
an access to informal sources of finance in the extended family network
particularly within the Asian community. They state, ‘It is common for
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 44
members of Asian communities to club together to set up a member in
business.’ (p. 119).
An important aspect not considered by these culturally oriented explana-
tions is the role of more obvious resources including:
& education and class background of migrants;
& entrepreneurs access to and use of market information;
& decision-making and managerial ability; and
& strategies used to expand business.
These are important features of generic theories yet are absent from South
Asian or ethnic minority entrepreneurship research (Storey, 1994; and
Basu and Goswami, 1999).
In their study of 118 ethnic business owners in Britain, Basu and Goswami
(1999) found that whilst working long hours, exploiting family labour and
serving an ethnic population had a bearing on success, over reliance on these
factors limited business growth. They concluded that long run success
depends on the origins of enterprise or the initial conditions at start up shown
in Table 2.7.
In a practical sense then, education plays a critical role in lowering barriers
to business entry and growth. Entrepreneurs must invest inskilling employees
and having an ability to delegate to non-family members. Finally, if entrepre-
neurs wish to operate internationally, they should move out of local ethnic
markets and internationalise with appropriate knowledge of home and host
countries.
Whilst acknowledging the impact of cooperative family and community
networks, niche markets and so forth on ethnic entrepreneurial success in
Australia, Collins, Sim, Dhungel, Zabbal and Nole (1997) consider this to be
similarly common to non-ethnic entrepreneurs. After reviewing the limited
amount of research in the field they criticize many studies for failing to
TABLE 2.7 Factors for long-term success of ethnic enterprises
Socio-cultural factors Ability to implement an appropriate expansion strategy
&Hours worked at start-up, entrepreneur’s country of
origin and religion
&Delegation of responsibilities which may include declining
reliance on family and ethnic labour
&Educational qualifications, previous business
experience gained from within or outside family
& Cost reduction through diversification and technological
improvements
&Access to sources of capital and to information by virtue
of other family or community members being in the
same line of business.
& Market development involving a move away from ethnic
customers towards competing in the wider domestic mar-
ket and gradually internationally.
Ethnic Entrepreneurship 45
compare ethnic withnon-ethnic business strategies before proclaiming certain
aspects as typically ethnic. Indeed, Collins (1991) acknowledges the various
cultural explanations for ethnic success but also the more banal but eminently
sensible ideas including:
& the combined policies of the Whitlam (1972–1975), Fraser (1975–
1983), Hawke (1983–1993) and Keating (1993–1996) governments;
and
& Racialized blocked mobility theory (Lever-Tracy, Ip, Kitay, Phillips and
Tracy, 1991) whereby immigrants experience prejudice, discrimination
and a never-ending round of other obstacles including non-recognition
of overseas qualifications and problems gaining access to professional
bodies; and
& Education and class resource theory (Lever-Tracy et al., 1991) where
level of education and resources have a key impact on the rise and
success of ethnic entrepreneurship.
Thus many immigrants have little option but to start their own businesses
(Stromback and Malhotra, 1994).
SUMMARY
The notion of profit maximization amongst entrepreneurs was challenged
depending on a number of factors. Culture was introduced a having a poten-
tially significant impact onthis positionespecially amongst societies holding a
strong sense of cultural values. Culture was then defined and applied to
indigenous societies together with an outline of some key developmental
issues to garner nation-building and self-determination. Some generic models
of economic development were critiqued with a recommendation of the most
appropriate for indigenous society.
Several global regions were compared to identify the role of culture upon
entrepreneurial activity. Culture was then reconceptualized according to
Hofstede’s (2001) model and applied to indigenous Australians through some
recent research in the area. Some key findings were discussed including the
cultural impact of high femininity, low uncertainty avoidance, low power
distance and high collectivism upon entrepreneurial attitudes. Specific atten-
tion was then focused on the indigenous peoples of the Torres Strait region of
Australia where entrepreneurial characteristics were explained through anal-
ysis of cultural predispositions. It was concluded that culture has a significant
impact upon indigenous entrepreneurship and that non-indigenous models
should be treated with caution when seeking to explain the phenomenon. A
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 46
number of questions were also posed in order to gain a fuller understanding of
indigenous entrepreneurship together with the likely negative impact of busi-
ness development if undertaken from a non-indigenous perspective.
The chapter proceeded by highlighting the main differences between in-
digenous and ethnic entrepreneurs and outlining the economic importance of
international ethnic entrepreneurial activity. A number of business enablers
were discussed with an emphasis on those being culturally-bound, stereotyp-
ical, and generic. In short, racism and discrimination were found to be impor-
tant barriers for ethnic entrepreneurs together with access to capital, lowlevels
of education and prior experience.
Key point 2.6
Creativity and innovation are linked but different. Innovation is a systematic and logical
process with the aim of developing a creative idea into a commercially robust product or
service.
The Singapore Gourmet
Jenny and Henry Chin emigrated from South-East Asia to Australia in the 1960s. After going
back home for a whilst they returned to Australia in 1973, encouraged by the changing
political climate that accompanied the election of the WhitlamLabor Government. In Sydney,
Jenny worked as a chief accountant at Express Freight, helping to set up their first computing
system using punch cards. Pregnancy interrupted her career, but two months after the birth
of her first child Jenny returned to work as an accountant, hiring a full-time nanny to look after
her son. After the birth of a second child, Jenny and Henry moved into their first small
business, a fish and chip shop, previously owned by Turkish migrants, in Hay Street near
Sydney’s Chinatown.
Gradually, they began to introduce Singaporean food. Business doubled as the fish and chip
shop was transformed into a Singaporean restaurant. ‘Australian cuisine’ was undergoing a
gradual ethnic revolution. Fortunes for the Chins took a rosy turn as business prospered, but
their ambitions were not fulfilled. They decided to use business profits to expand, opening a
tea house across the road and another restaurant, the Bottomless Pit, in nearby George
Street, where they employed eight people. Only then did Jenny give up her other job and
manage the business full-time. Expansion continued as they opened restaurants on Pier 1
and Pier 2 in the Rocks area under the Sydney Harbour Bridge, and a restaurant in the
western suburb of Bankstown. By 1981–1982 the Chin restaurant empire was worth millions
of dollars a year. However like Jenny’s family in Singapore, the Chins experienced the fickle
fortunes of business as a combination of factors destroyed their burgeoning restaurant
empire.
Summary 47
Impatient creditors and landlords finally resorted to cutting off the electricity just before big
functions. Jenny Chin was forced to sell everything. Shattered and weary, Jenny and Henry
decided to start all over again. They moved to a site about 15 kilometres from the centre of
Sydney, which became their new shop and living premises in one. They were heavily
indebted. Henry worked even when he was ill because, as he put it, ‘the whole family and
everyone depended on me’. Jenny’s professional skills were by then becoming outdated, but
in 1985 she was able to find a job with a car provided. With two incomes, after a whilst they
were able to take up a lease on a shop in the inner-city suburb of St Peters for $250 per week.
This became the new Singapore Gourmet, the site of Jenny and Henry Chin’s current
business.
Jenny and Henry Chin still work in other jobs and run the Singapore Gourmet restaurant. After
work each evening Jenny goes shopping before arriving at the restaurant between 5.30 and
6.00 p.m. to cook. She has the help of three assistants, with her son helping out – ‘for tips
only’ – when they need him. The new Singapore Gourmet has now established a secure
clientele and Jenny and Henry are planning to extend the premises and lengthen the opening
hours.
Comment
This story of ethnic small business illustrates some of the diversity of experiences in this
sector of the economy. For the Chins, restaurants offered a risky business at the luxury end of
the food services market. Hard work overlain by their speculative orientation was to lead them
onto the roller-coaster of rapid business success and failure.
What characterises this story – as with most of the stories of ethnic small business – is the
dreams that these enterprises encapsulate. The post-war immigration net drew in
immigrants from eastern, southern and northern Europe, the Middle East, Asia and both
Americas. Immigration changed the face of Australian society. In major cities, such as
Sydney, Melbourne, Adelaide and Perth, one-half of the population are first or second
generation immigrants. However, the migrant entrepreneur’s freedom may be no more than
the freedom to work at night to finish rush orders. The better opportunities for the children
may become the compulsion to work in the family business after school every day, to help
make ends meet. The free market may be just a veil for control and exploitation by powerful
suppliers or customers. The solution to unemployment may be a costly and temporary one,
as ill-prepared and under-capitalised entrepreneurs go bankrupt and lose everything – even
the family home.
Questions
1. To what do you mainly attribute the Chins entrepreneurial successes?
2. How important was their cultural predisposition in this case?
Source: Reproduced with permission: Collins et al. (1995).
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 48
Entrepreneurs and Small Firm
Ownership
After working through the chapter you should be able to:
& Critically evaluate the meanings of the term entrepreneur;
& Identify the characteristics of growth style entrepreneurs;
& Identify the origins and motives of lifestyle entrepreneurs;
& Analyse the implications of patterns of entrepreneurship in small firm
ownership in hospitality and tourism
INTRODUCTION
The Collins dictionary describes ‘entrepreneur’ as the ‘owner of manger of a
business enterprise who, by risk and initiative, attempt to make profits.’
(1992: 507). In fact the word entrepreneur covers a range of different meanings
and usages in everyday language. The boss of Microsoft, Bill Gates, is de-
scribed as an entrepreneur, as is the person owning a small hotel, restaurant
or bar. Similarly, as the Collins definition highlights, entrepreneur may be
used to describe both those who own businesses and also those who manage
them. Yet owners benefit directly from making profits, where managers are
more likely to be paid a salary and benefit only through bonuses or profit
sharing schemes. Furthermore, it is possible to identify ‘entrepreneurial’
activities even in organizations which are non-profit making, say university
lecturers or health services managers may be ‘entrepreneurial’ in contexts
where there are no profits, only services.
This chapter will discuss the notion of entrepreneurs and entrepreneurial-
ismfroma range of perspective. Life style entrepreneurs, in particular will be a
major focus of the chapter, because small firms represent a major source of
supply of hospitality and tourism services across the world. A high percentage
of businesses in the tourism and hospitality sector (95 per cent) are small
firms, often family operated businesses, this is a common feature to be found
CHAPTER 3
49
across the globe. In the UK, for example, 95 per cent of firms in the sector
employ fewer than 50 employees (the generic definition of a small firm) and
75 per cent employ 10 or fewer employees (by definition they are micro-firms)
(Lashley and Rowson 2006). Indeed many small hotels, guest houses, cafes,
and pubs are not employers, and are run by owner–mangers with family and
friends helping out. Getz, Carlsen, and Marrison (2004) describe these as
predominantly ‘family businesses’. Many held a lifelong ambition to own a
hotel, or some business that gives them greater control of their lives, or
because they think they will enjoy the life of hotel ownership. Few have any
hotel management or business experience and had not worked in a hotel or the
hospitality sector before. Research quoted later confirms that in effect many of
these businesses are ‘commercial homes’ (Lynch, 2005), where the division
between home and the commercial become blurred.
Whilst the largest number of firms are small firm, micro businesses or
merely commercial homes, a small number of large firms dominate large
proportions of the total market. In the UK for example, six firms control
almost 27 000 (45.8 per cent) of the countries 59 000 pubs, multiple
hotel chains control large parts of the total accommodation market. Entre-
preneurship is also a concern to these firms. Business growth and sales build-
ing require managers, in charge of individual hotels, to behave in an
entrepreneurial manner but within the framework of the hotel brand. They
have to be entrepreneurial within limits set by the organization. Some might
call these intrapreneurs (Getz et al., 2004).
Key point 3.1
Entrepreneur is a word that is used to describe a range of different types of individual
covering quite different motives and drives in business organizations.
ENTREPRENEURS
There are several different perceptions of entrepreneurs and the role in busi-
ness growth and development. At the more high profile level, key industry
leaders such as Tim Martin at J D Wetherspoon, or Conrad Hilton, are indi-
viduals who build a business empire fromhumble beginnings. In other words,
they start with one pub, hotel or restaurant and build up a chain of pubs, hotels
or restaurants. They are substantial shareholders in the enterprise and con-
tinue to personally lead the business. On another level, managers running a
corporate business which owns hundreds, or insome cases thousands of units,
are entrepreneurial because they generate growth and profitable businesses as
CHAPTER 3: Entrepreneurs and Small Firm Ownership 50
salaried managers with bonuses, though some describe these as intrapreneurs,
because of their somewhat tangential relationship with the ownership of the
business.
The classical viewof entrepreneurs assumes that personal reward, through
profits and capital growth are what drive these individuals and ultimately
successful economic activity. In fact classical economic theory and some
neo-conservative commentators set the entrepreneur at the heart of regener-
ative economic activity. If only restrictions and disincentives were removed
entrepreneurs would be free to generate more economic activity, jobs and
national wealth, they say. The problemwith this viewis that people who meet
the classic descriptions of entrepreneurs are limited in number. As we shall see
later, many of the people who operate small firms as bars, hotels or restaurants
are inthe main‘lifestyle’ entrepreneurs. The numbers of business operators in
the hospitality sector who are chiefly economically driven, who have ambi-
tions to make a lot of money, and grow the business to become a multi-sited
empire, are few and far between. A survey of around 1300 operators of micro
businesses in hospitality and tourism (Thomas, Lashley, Rowson, Xie,
Jameson, Eaglen, and Parsons, 2000) put this at somewhere in the region of
10–15 per cent of micro-business operators being strongly motivated by eco-
nomic incentives.
Getz et al. (2004) describe entrepreneurs as individuals who work to in-
crease personal benefits in the formof economic gains or in social standing but
who create benefits inthe wider social and economic setting through increased
economic activity, job creation and wealth generation. ‘Walt Disney, Conrad
Hilton and Thomas Cook have radically innovated in their respective sectors,
significantly redefining the nature of products, services and markets that have
contributed to the growth of hospitality and tourism industry over the dec-
ades’ (Getz et al., 2004: 24).
There are some debates as to whether entrepreneurs are people with par-
ticular personality profiles or are merely reacting to the circumstances in
which they find themselves. Kuratko and Hodgetts (1998) suggest that all
individuals have the potential be entrepreneurs, but this fails to acknowledge
that many individuals are not motivated to this economic growth model.
Indeed there may even be a more creatively linked set of motives. That these
growth orientated entrepreneurs enjoy the act of creation and building the
business as much as the economic benefit. Getz et al. suggest that entrepre-
neurial behaviour is embedded in the individual, society and the economy in
contemporary settings. Table 3.1 provides a list of behavioural cues for entre-
preneurs.
Collins (2002) and O’Mahony (2007) both cite examples of the pressure of
being recent migrants into Australia and being excluded formmany economic
Entrepreneurs 51
and business contexts by the discriminatory legislation and practices.
O’Mahony shows that many Irish migrants ended up owning bars and brew-
eries because little else was open to them. Collins (2002) suggests that many
Italian, Greek, and Lebanese opened restaurants as a response to being in
effect, shut out from main stream business activity. Similarly Chinese cafes
opened in many towns and cities brought a cultural diversity to the food and
drink scene in Australia. In contemporary societies, these processes are still at
work. Often migrants use entrepreneurship to break through negative impacts
of social class and ethnic barriers in the wider economic world.
Morrison (2001: 78) suggests the following model as a way of considering
entrepreneurial cues (Figure 3.1).
The advantage of this model is that it does recognise that the entrepreneur
is likely to have to work through a multiplicity of influences. The classic
growth orientated entrepreneur is likely to display certain personality traits,
and characteristics, and be supported by a personal environment and personal
goals which enable and drive entrepreneurship. At the same time the business
idea needs to be robust and sustainable in a social and economic environment
which is both ready for the idea, and which will encourage entrepreneurship
(Getz et al., 2004).
Key point 3.2
Most growth-orientated entrepreneurs are likely to be influenced through a number internal,
such as personality type, and external factors, such as culture and immediate opportunities.
TABLE 3.1 Entrepreneurial behaviour cues
Positive Negative
Social &Role of family and intergenerational role models &Political/religious displacement
&Political unrest
&Conducive culture &Discrimination
&Supportive networks &Unhappy with position in society
&Dissatisfied with blocked
employment opportunities
Economic &Move towards services
&Reversal of highly vertically integrated company structures &Discriminatory legislation
&Phenomenon of ‘dot.com’ businesses &No other way to make money
Psychological Entrepreneurial aspirations of independence,
wealth, need to achieve, social mobility.
Source: Getz et al. (2004: 25).
CHAPTER 3: Entrepreneurs and Small Firm Ownership 52
LIFE STYLE ENTREPRENEURS
Inthe UKpub sector, recent changes inthe management and operationof pubs
and bars reveals much about the perceptions of small firmentrepreneurs. The
majority of pubs in Britain are owned by big corporate pub companies, such as
the Punch Pub company and Enterprise Inns. In fact these two companies
alone own around 19 000 of the nation’s 59 000 pubs. Although they physi-
cally own the pub properties, individually pubs are operated by small firms in a
loose form of franchising (Lashley and Rowson, 2005) through tenancy or
leasehold agreements. Tenancies tend to be looser, more short-term arrange-
ments, whilst leaseholds are more formal and give more economic benefits to
the leaseholder than the tenant enjoys. The leaseholder can, for example, sell
on the lease to another person and the terms of the agreement tend to be over a
longer period than for a tenant. The assumption at the root of the recent
decision of many licensed retail operators to change from tenanted to leased
Personal environment
Supportive social network
plus entrepreneur’s
dissatisfaction with
position therein
In tune with social
trends, values and
behaviours of the day
Personal characteristics
Traits and cultural
conditioning
results in robust strength of
character and talents
Business idea
Desision to behave like an
entrepreneur
Personal goals
Social mobility
and freedom form
established norms
Receptive and conducive
to entrepreneurial
behaviour
Business environment
FIGURE 3.1 Model of entrepreneurial cues.
Life Style Entrepreneurs 53
arrangement is that the short-run relationship implicit in the typical tenancy
acted as a barrier to more entrepreneurial drives by the pub tenant. Many firms
hoped that a longer-term relationship, more economic rents, and more en-
trepreneurial motivations would provide the licensees with growth inspired
incentives for licensees.
Whilst these factors might be important barriers to the entrepreneurial
motives of some, the assumption that all small firms are driven by growth
and profit maximization objectives is questionable. The Leeds Metropolitan
University (Thomas et al., 2000) survey of 1396 small tourismand hospitality
firms showed that only 9 per cent of respondents listed ‘to make a lot of
money’ as a key motivation for owning a small business. Sixty-six per cent
identified to ‘make a reasonable living’, 58 per cent said they ‘wanted to be my
own boss’, and 41 per cent stated that a major reason for owning a small
business was ‘I enjoy this life style’. These findings are consistent with earlier
work on the motives of small firmowners (Beaver and Lashley, 1998). Owners
of these ‘micro firms’ with 10 or fewer employees, are mostly concerned with a
cluster of ‘lifestyle’ motives for their entrepreneurial activities Lockyer and
Morrison (1999). Table 3.2 reproduces the responses from the Leeds study.
The question asked respondents to identify one or more reasons why they were
running their own business.
The values expressed inTable 3.2 lists the total number of respondents who
indicated that the statement reflected one of their top three objectives for
owning the business. These responses give an interesting insight into the
motives of people running small firms. In many ways, those operating
tenanted, leasehold and the occasional franchised business are in a similar
position. Price et al. (2000) have argued that often these businesses are being
run at sub-optimal levels partly because the resources used are not charged at a
fully economic rate due to family members working in the unit at less than
TABLE 3.2 Motivations for owning a small business
Motivation Value (per cent of respondents)
To make a reasonable living 926 (66)
To make a lot of money 125 (9)
To be my own boss 813 (58)
I enjoy this lifestyle 576 (41)
To avoid unemployment 197 (14)
To live in this location 287 (21)
It is a form of semi-retirement 125 (9)
I spotted a market opportunity 246 (18)
Source: Thomas et al. (2000).
CHAPTER 3: Entrepreneurs and Small Firm Ownership 54
market rates. Often the pub represents a ‘free house’ to the family. Hence
business costs and motives are meliorated by these more domestic considera-
tions. In effect, pub tenancy or lease provides both a commercial and a do-
mestic setting for the tenant/lessee and there is a need to understand ‘life style
economics’ (Andrews et al., 2000) so as to better match potential tenants with
properties.
The definitions and categories used by Morrison, Rimmington, and
Williams (1999) are helpful because they suggest a number of categories that
might apply to the core objectives of those engaged in tenanted or leasehold
relationships. In essence they suggest that lifestyle proprietor defines an indi-
vidual who has a multiple set of goals associated with the business. Profitabil-
ity in the business will only be one of these goals. In addition to the
entrepreneurial venture, Beaver, Lashley, and Stewart (1998) suggest that there
a number of other categories of small firmthat may well differ in the nature of
their business motives. They suggest that the lifestyle enterprise, the family
enterprise, the female enterprise, the ethnic minority enterprise and enter-
prises where the dominant motives are for self employment and control are
likely to give different priorities to both profitability and their own develop-
mental needs. They say,
‘Whilst that this is not an exhaustive list of entrepreneurial types, it is
sufficient to show that the motives of those setting up and maintaining
small hospitality firms are not always compatible with ‘rationale
economic’ considerations. Motives associated with personal
preferences or which relate to self-image do not automatically lead to
levels of self-analysis which suggest that a lack of business skills presents
a major threat to their business goals’ (Beaver et al., 1998: 166).
Reflective practice 3.1
Interview the owner of a small hotel in your area and establish his/her origins and motives for
setting up the hotel.
Sweeney (2008) suggests that a number of push and pull factors are at work
in the decision to start a business in this micro-business manner. Push factors
create a situation where individual feel compelled to start the business, where
the pull factors suggest benefits to the individual(s) (Figure 3.2).
Beaver and Lashley (1998) suggest that lifestyle business objectives repre-
sent barriers to the perception of the need for personal development and
Life Style Entrepreneurs 55
growth. Often these firms are economically satisficing. So long as the owner is
able to meet the requirements of a reasonable standard of living they will not
recognise the need to undertake courses that develop their managerial or
entrepreneurial skills (Morrison, 2000). That said, those running small firms
do learn from their actions (Kolb, 1984) and Morrison suggests that personal
networks perform a valuable if informal source of education and training
(2000b).
Key point 3.3
Many micro business in hospitality and tourism are run by individuals who are primarily
motivated by a cluster of factors which tend be more important than the desire for business
growth and profit maximization. They may be referred to as ‘lifestyle’ firms because their key
reasons for running the business are to improve their lifestyle in some way or other.
The relationship between the pub operating company and the tenants/
lessees has many similarities with relationships found between franchisors
and franchisees. The larger organization is attempting to gain benefits of scale
by using the financial and managerial resources provided by the smaller firm.
At the same time they aim to gain from the entrepreneurial drives of the
tenant/lessee under the assumption that entrepreneurship and personal gain
will stimulate extra effort when compared to the performance of salaried
managers. From the small firm’s perspective, the relationship with the larger
firmallows access to the resources and expertise of the larger organization that
might be denied a truly independent enterprise. That said, research into the
motives of those running small firms in the sector shows that frequently
classically entrepreneurial motives are secondary to other more ‘lifestyle’
motives for operating the business. As a consequence many tenants and
lessees are not likely to give the highest priority to business growth and profit
maximization. When compared with the formal business format franchising
Redundancy
Previous job
Needed income
Work from home
Own boss
Lifestyle
Location
Natural Progression
To keep big house
PUSH PULL
FIGURE 3.2 Push and Pull factors motivating business start up.
Source: Sweeney (2008).
CHAPTER 3: Entrepreneurs and Small Firm Ownership 56
arrangements the support given to tenants and leaseholds by the operating
companies is minimal and may prove to be another factor preventing growth
in the small firm.
Using a different metaphor to describe many small hospitality and tourism
firms Getz et al. (2004) describe them as ‘family firms’, whilst Lynch and
MacWhannell (2000) refers to them as ‘commercial homes’. This latter term
has particular resonance in the accommodation sector internationally and
pub sector, in the UK. Typically the domestic accommodation is part of the
same premises as the commercial activity. In fact, both Lynch (2005) and
Sweeney (2008) in different ways explore the relationship between the private
and commercial domains of the same property. The same term can be closely
used to describe the restaurant sector, when, the restaurant and kitchens etc.,
share the same premises as the owners’ private domestic living quarters. All
these terms used to describe the vast majority of small firms in the sector have
merit, and tend to reflect different facets of many small firms operating in
hospitality and tourism.
Key point 3.4
Individuals running tenanted and leased pubs and franchisees, as well as, independent
firms, frequently reflect lifestyle firm characteristics. That is, motives which are not always
primarily concerned with profit maximization and growth.
Clearly, micro-firm reflects a concern with the relative size of the firm
when compared with other firms in the sector. Research quoted later
(Lashley and Rowson, 2007) shows that many hotels, for example, are run
by individuals supported by family and friends, Large numbers of hotels in
Blackpool are operated by an owner manager with few, if any employees.
Most, though not all, are run by families, or at least by individuals who call
on children and other relatives to work in the business as demand and the
‘season’ require. They are as Getz et al. (2004) suggest family businesses
with varying degrees of engagement with family. In larger firms, family
members have formal jobs and roles which contribute to the services being
offered by the firm, and in smaller ones they may help out as and when
needed. In many cases, they are ‘commercial’ homes where customers and
family members live under the same roof, though with variations in the
degree they share the same rooms. In some cases, ‘Private’ notices keep
commercial guest away from rooms being used by family members. In other
cases, commercial guests and family members share common sitting
Life Style Entrepreneurs 57
rooms, dining facilities and bathrooms. To varying degrees they will not be
economically entrepreneurial firms.
In many cases, economic motives for business ownership are secondary to
motives based primarily in a desire to live in a particular location, or to enjoy
more personal control over work, or to avoid labour market problems. In this
latter case, gender based, ethnic based or age based prejudices practiced by
some employers can be avoided through self employment through the lifestyle
firm. A point being developed later, is that hospitality services in the form of
accommodation, pub restaurant settings provide business opportunities
which appear to enjoy low barriers to entry and which appear to require skill
sets shared by all those who have offered hospitality to family and friends.
These links between private domains of hospitality and decisions to start up
businesses in commercial hospitality can be further understood through re-
search into owners of small hotels in Blackpool (Lashley and Rowson, 2007).
Blackpool’s hotel sector is dominated by micro-firms usually managed by
owner managers operating just one hotel and employing few staff, typically
family members often for a few hours per week. Sometimes the owner/man-
ager and partner employ no one and they undertake all the operational tasks
themselves. As suggested earlier many of these micro-firms are, to varying
degrees, ‘lifestyle’ business in which personal and lifestyle reasons dominate
motives for operating the hotel. In circumstances where motives are clearly
not classically entrepreneurial, hotel operators often do not recognise the
business skills needed for effective performance (Morrison, 2002). Hence,
service quality management; investment, financial and cost management;
marketing, people management, and general business strategy, for example,
are at best reliant on informal processes, and frequently non-existent
(Lashley and Rowson, 2006). As a consequence, there can be a high ‘failure’
rate of these micro-business hotel operators and an earlier study by
Lashley and Rowson (2005) estimates that 20–30 per cent of the hotel stock
in Blackpool changes hands each year. Furthermore, the lowskill base of hotel
owners also limits the quality experiences of services provided to visitors.
Following on an earlier pilot study (Lashley and Rowson, 2005) a survey
based on responses from 120 small hotel operators (Lashley and Rowson,
2007) found that just 12 hotels had 20 or more rooms and only 43 (35.8 per
cent) employed any staff. Most of these hotel owners undertook the cleaning,
cooking and other accommodationservice task themselves, or with occasional
help of children, parents or other relatives, ‘Who live with us’. Most had
bought the property after selling a domestic property (99/120–82 per cent).
Just 13 (13.8 per cent) had moved to the hotel from the ownership of another
hotel and 8 from another business (6.7 per cent). BP 050 reported ‘‘I was a
truck driver and lived in Somerset we had a 3 bed roomed house, I was fed up
CHAPTER 3: Entrepreneurs and Small Firm Ownership 58
with my job because of being away frommy wife and family most of the week,
my wife’s had this thing about owning a hotel for years now, and we looked
into it and got this hotel in Blackpool. We actually got more money for our
house than the hotel cost, but we had a big mortgage on the house, and so
when we bought the hotel we had to take a small mortgage but we pay a lot less
for this hotel with eight letting rooms than we did for our three bed roomed
house’’ (p 5). Table 3.3 below shows the sources of finances for those buying
small hotels in Blackpool. The high proportion involving the sales of a house
confirms that for many, the sale represents move into ‘entrepreneurship’
rather than a change in entrepreneurial activity.
The Blackpool study showed over 30 per cent of the respondents said that
they wanted to work for themselves, with 23.4 per cent saying that they were
fed up with their job and wanted to be their own boss. For many respondents,
starting in the hotel business as been a life long dream with 25.8 per cent
saying that they had wanted to do this for years (see Table 3.4).
Key point 3.5
Many owners of small hotels sell a domestic home prior to buying a hotel. Few have
experience of the hotel sector or even small business management.
The following quotations from respondents in the study provide some
insights into the motives involved. BP 001 ‘‘My husband was getting fed up
with his job and there seemed little future in it, I was working in a dead end,
part-time job, and we had talked about having a seaside hotel for years.
Anyway we went to see some friends who lived in Blackpool, and we had a
look around the place, and noticed howreasonably priced the hotels were, and
really it all went from there’’. BP 004 ‘‘Redundancy really, my husband was
TABLE 3.3 Funding the purchase of the hotel
Element Number (per cent)
Sale of house 39 (32.5)
Sale of business 16 (13.4)
Sale of house and mortgage 38 (31.7)
Sale of house and unsecured loan 11 (9.1)
Mortgage 8 (6.6)
Loan 5 (4.2)
Other 3 (2.5)
Total 120 (100.0)
Life Style Entrepreneurs 59
made redundant and we used his redundancy money and the sale of our house
to buy the hotel. We had talked about this many times before, but it was
redundancy that finally pushed us this way’’. BP 020 ‘‘This was the only
way we could find of running a business were we could work together and
basically work from home. Before we worked really hard but barely had
enough time together or for our children’’.
The levels of experience of the respondents varied greatly, of those who
claimed to have any previous hotel or business experience, this often
amounted to little more than working in a retail business, a pub, or a hotel,
very few respondents had actually operated a hotel before, of the 49 (40.8) of
respondents who claimed some form of prior experience only 13 (10.8) had
any ‘real experience’ of hotel ownership. Fifty-nine percent of respondents had
no business or hotel experience at all when they started in their hotels (see
Table 3.5).
There was a common perception amongst the respondents that few skills
were required to operate a hotel and that most of it was just ‘common sense’,
as the following quotes illustrate, BP 118 ‘‘I’ve no experience myself but my
wife’s worked in bars and as waitress for years and she’s very good at dealing
with people’’. BP 114 ‘‘No experience at all, but my son works in catering he’s
a chef (when asked if he worked in the hotel). No, he doesn’t he works in
TABLE 3.4 Reasons for buying hotels in the Blackpool study
Element Number (per cent)
Wanted to work for ourselves 36 (30.0)
Fed up with job decided to be our own boss 28 (23.4)
Wanted to do this for years 31 (25.8)
To avoid unemployment or redundancy 15 (12.5)
Semi retirement 4 (3.3)
Working from home/home with income 6 (5.0)
Total 120 (100.0)
TABLE 3.5 Prior experience of hotel owner respondents
Element Number (per cent)
Prior hotel or business experience 49 (40.8)
No hotel or business experience 71 (59.2)
Total 120 (100.0)
CHAPTER 3: Entrepreneurs and Small Firm Ownership 60
London but he has given us a lot of tips about commercial cooking that have
been useful’’. BP 109 ‘‘We had business experience, but no catering or hotel
experience, it came as a bit of shock for a week or too when we started in the
hotel. In the end our business experience did come through, but the first few
weeks were a tough time’’.
The significant majority of respondents’ explained their decision to buy a
Blackpool hotel around lifestyle issues such as, a ‘our dream for years’, want-
ing to work together, to have an home with an income, and the majority felt
that it was easy to start business which required no particular skills (see
Table 3.6).
Many of the respondents thought that having a house with a income was a
good idea the following illustrates this point, BP 050 ‘‘Because this business is
a ‘house, home and job rolled into one’ that was our motivation, plus I was fed
up with driving trucks for a living and being away from home all the time. My
wife hated her job, and so this was a way out for us, and meant that we could be
our own boss and have a less stressful life. BP 073 ‘‘I liked the idea that we
would have a home that would pay for itself and provide us with jobs’’.
A significant majority of respondents said that Blackpool was their favour-
ite place and often the decision to buy a hotel in Blackpool was driven by good
holiday memories from the past, in many cases this was the hoteliers’
childhood visits to the seaside. Thirty-five per cent of respondents said that
they had chosen Blackpool because of the long season and 24 per cent cited the
cheap hotel prices. There was some overlap between the choices with many
citing the long season, cheap hotel prices and the busiest seaside resort as
reasons. Respondents’ first choices are recorded (see Table 3.7).
Eighty-eight percent of the hoteliers said that both they, and their partner,
worked in the hotel business and that this was there sole business. Twenty-six
per cent did work or have business interests outside of the hotel. This was
typically some form of full-time paid employment Table 3.8.
Twenty-nine of 120 respondent hoteliers (24.1 per cent) in this study were
considering or planning to sell their hotels, some with mixed feelings. Those
TABLE 3.6 Reasons for entering the hotel business in Blackpool
Five elements Number (per cent)
We had wanted to do this for some time/dream of ours 38 (31.7)
This was business where we could work together 16 (13.3)
This is an easy to start business, with no skills needed 33 (27.5)
This is a home with a income 33 (27.5)
Total 120 (100.0)
Life Style Entrepreneurs 61
planning to sell up and move out of the current hotel often expressed mixed
motives for selling their current. Whilst 5/29 declared they were selling their
current hotel so as to buy a bigger hotel, and some declared that they planned
to retire 8/29 the majority were disposing of the hotel for negative reasons.
Table 3.9 shows that 13 respondents mention poor trade as a reason to sell,
seven declared the hotel business had not met their expectations and a further
six felt that customers were the problem. Responses are shown as percentages
of the 29 respondents planning to sell the hotel at the end of the 2006 season.
This represents 24.2 per cent of the 120 respondents in the survey.
BP 006‘‘We are planning to sell up. The customers are getting worse. We
used to have really decent people booking but nowit is all ‘bell ringers’ and you
TABLE 3.7 Reasons for selecting Blackpool
Element Number (per cent)
Long season 42 (35.0)
Cheap hotel prices 29 (24.2)
Busiest UK seaside resort 15 (12.5)
We like Blackpool 34 (28.3)
Total 120 (100.0)
TABLE 3.8 Work and business interests outside the hotel
Element Number (per cent)
We both work in the hotel 88 (73.4)
Working or business outside the hotel 32 (26.6)
Total 120 (100.0)
TABLE 3.9 Declared reasons for selling the hotel
Declare reason Number (per cent) (n=29)
Poor trade 13 (44.8)
Not meeting expectations 7 (24.1)
Customers 6 (20.1)
Retirement 8 (27.6)
Buying a bigger hotel 5 (17.2)
Other 2 (6.7)
CHAPTER 3: Entrepreneurs and Small Firm Ownership 62
never know what you’ll get. Recently we had a family group come to the door
they looked really respectable, and ‘conned me’ by saying that they usually
booked but couldn’t get in at the hotel were they normally stayed, they were
excellent guests, complements about the food and the room, but when they
left they took everything that wasn’t nailed down with them, sheets, towels,
table lamps, pictures off the wall, I called the police but it appears that they give
false details when they booked, they even ‘nicked some of my ornaments from
the lounge. We were thinking about selling up and this really has made up our
minds’’. BP 051‘‘We both really wanted this so badly when we started it was
our dreams come true, but over the last two seasons it has turned into a
nightmare, this place is a ‘money pit’ we always seem to be spending on it.
Really we haven’t made any money since we moved in and now I have lost
interest and we want to sell up, trade is dropping for family hotels in this area
because of the ‘stags and hens’, the centre is almost a ‘no go area’ at weekends
nowwith the single groups all over the place drunk at lunchtime, peeing in the
street, a few weeks back I drove through the centre of Blackpool at 3 pm in the
afternoon and it was packed with single sex groups most of them drunk, and I
couldn’t believe my eyes I saw a group of girls exposing themselves across the
road to a gang of lads, and there were families about at the time I couldn’t
believe what I had just seen’’.
Key point 3.6
There is a significant churn in small business ownership each year in the hospitality and
tourism sector as the realities of pub, hotel or restaurant ownership become realized.
The level of churn in hotel ownership identified here appears to be consis-
tent with observations by professionals in Blackpool’s Tourism sector
(Lashley and Rowson, 2006) who suggested that the level of turnover in
ownership ranged between 20 and 30 per cent. In the original study 10 case
study hotels were in their first year of trading in 2005. By 2006 seven of these
were in the same hotel. One had sold the hotel and moved to another hotel in
North Wales, the other two had sold the hotel and decided that the hotel
business was not for them. Again this indicates around 30 per cent churn.
Given the estimated number of hotels in Blackpool it is possible that some-
thing like 160–230 hotels are changing hands in Blackpool each year. Assum-
ing that the average hotel is valued at £250,000 the value of this churn in
ownership is in the region of £40–£60 million per annum. This represents a
conservative estimate of the property transactions, it takes no account of the
commissions paid to estate agents, solicitors and banks or of the losses
Life Style Entrepreneurs 63
incurred by some hotel operators who find trade less buoyant than anticipated
or that they have bought a ‘money pit’. Nor do these figures take account of
the potential lost custom generated by the merry go round of hotel ownership
with some hotels having a new owner every year (Lashley and Rowson, 2005).
Reflective practice 3.2
Consider the difficulties faced by a destination management teamfaced with large numbers
of the hotel estate in the destination owned by lifestyle entrepreneurs.
Why do hospitality sector businesses hold such appeal for lifestyle entrepreneurs?
Akey aspect of research into small firms in the hospitality sector is the link
between the small firm, the domestic domain and hospitality as a business
activity. The fact that commercial hospitality involves the sale of accommo-
dation, food and drink which are provided in the home and have been supplied
to guests in the home suggests to many of these entrepreneurs that the skills
sets are lowand it is ‘just common sense’. This point was confirmed one of the
interviewees in the Blackpool study he said, (BP 056) ‘‘We wanted to start in
business and this seemed like a way that we could, we had the money to buy
the hotel fromthe sale of our house and you don’t need any special skills, really
it’s just being level headed and using your common sense’’ (Lashley and
Rowson, 2007). The fact that a large number of operators churn ownership,
perhaps suggests that these estimates of their skill base and the skills required
to successfully operate a hotel are woefully out of step. Certainly these links
between having been guests and hosts in private life do suggest to many
individuals that they have the skills for successful commercial operation. This
seems to create a constant stream of people keen to run a bar, a hotel or a
restaurant as form of retirement or perhaps disengagement with the world of
paid employment. The notion that operators can work at home is an attractive
one for many of these individuals.
The opportunity to offer hospitality to fellow human beings is also an
attraction for some individuals. Sweeney’s interviews with small hotel opera-
tors in Scotland confirmed the attractiveness of the hospitality business for
many would be entrepreneurs. Her study shows that there are a range of
degrees of interest in hospitableness. Figure 3.3 presents the continuum of
Economic Eco-social Socio-economic Social
FIGURE 3.3 Typologies of Commercial Home Ownership.
Source: Adapted from Sweeney (2008).
CHAPTER 3: Entrepreneurs and Small Firm Ownership 64
motives for the hoteliers in her study. On one extreme individuals are running
hotels for chiefly economic reasons. These are people who have no particular
attachment to the hotel business other than as a source of income. At the other
end there are people who run hotels because they offer the opportunity to be
hospitable, and the economics issues deemed to be less important. There are
then two other positions where the motives are primarily economic but hospi-
tableness is important to the operators; and others for whom the hospitable-
ness is primarily important though they have concerns about economic
dimensions of the operations Figure 3.3.
These links between the entrepreneur, the home and social opportunities is
one of key attractions for many who enter the accommodation, bar of restau-
rant business. Many interviewees in the Blackpool hotel study (Lashley and
Rowson, 2007) refer to customers as friends or wishing to attract ‘nice people’
as customers. In some cases, entrepreneurs complained about the nature and
character of the customers. There were examples of customers who were the
‘wrong sort’ being turned away the business failing as a result.
Key point 3.7
Given the close proximity of the commercial activity and the home, many hospitality small
firm owners evaluate the customers from the perspective of friendship. Are they people like
us is a frequently asked question?
SUMMARY
This chapter has suggested the enterprise and entrepreneurship is more com-
plex than might be initially thought. Whilst many commentators often imply
that entrepreneurs are the key to business development, employment growth
and economic success, there are clearly many running hospitality and tourism
whose motives are not so focused on economic outcomes. The industry has its
examples of classic entrepreneurs creating and managing multi-site bar, hotel
and restaurant empires, Ray Croc of McDonald’s; Conrad Hiltonof the Hilton
group; and Richard Branson of Virgin Air and Virgin trains, amongst other
things. The scale and magnitude of these corporate enterprises means, that in
most national and international markets, a small number of firms dominate
large sections of the market.
However, the majority of firms running bars, hotels and restaurants are
owned and managed by individual firms operating just one bar, hotel or
restaurant. In some cases, these small firm operators, like their corporate
counterparts, are primarily driven by economic outcomes and the potential
Summary 65
for business growth. That said, many of these bar, hotel and restaurant opera-
tors are not primarily concerned with economic outcomes, they are more
concerned with a cluster of personal outcomes from entrepreneurship. Per-
sonal circumstances which push, or pull, them into entrepreneurial
(Sweeney, 2008) activity are more important. In effect these are lifestyle entre-
preneurs who become the owners and operators of a bar, hotel or restaurant
business because it primarily allows them to meet personal, social goals or
escape disadvantageous economic circumstance.
The chapter also suggested that the hospitality sector is attractive to many
of the lifestyle entrepreneurs because the linkage between domestic hospitality
and commercial hospitality persuades many that they have the skills needed to
succeed. In some cases, the physical proximity of the commercial and the
home suggests that the business will enable closer relationships because they
do not need to ‘go out to work’. In other cases, say in migrant communities,
the sharing of the traditional skills of home cuisine is seen as easy entry into
the commercial world. In other cases, the seeming common sense of the
hospitality offer convinces that they know what to do. Often this fails to
recognise the commercial and business skills required for successful small
firm management, and as a consequence many of those who enter the sector
as first time lifestyle entrepreneurs do not survive in the long-run.
CHAPTER 3: Entrepreneurs and Small Firm Ownership 66
Creativity and the
Entrepreneur
After working through this chapter you should be able to:
& Define creativity in an entrepreneurial context
& Recognize the relationship between creativity and innovation
& Understand the role creativity plays in the entrepreneurial process
& Understand why idea generation is important to the hospitality entrepreneur
INTRODUCTION
Creativity exists in a number of forms and contexts; artists, poets, musicians
and even architects might be considered as individuals who personify the
term. Most people would agree that creativity is an essential attribute of the
entrepreneur. It is both an asset and a process and the outcome can never be
predicted accurately. In the hospitality industry, evidence of entrepreneurial
creativity can be observed virtually everywhere. It is embodied in a myriad of
company logos such as the two ‘Ms’ (MacDonald’s) and Australia’s ‘Big 4
holiday parks’ and the architectural design of hospitality and restaurant build-
ings like Novotel and Pizza Hut. However, large firms do not have a monopoly
oncreativity. Indeed given the relative lack of resources enjoyed by small firms,
entrepreneurial creativity becomes even more important as a competitive tool
and may be seen in many small hospitality firms striving to establish a dis-
tinctive character or brand. These points of differentiation may not be as easily
recognizable as their larger counterparts (for obvious reasons) but they exist
nonetheless. For example the way a building is painted, furnished and fitted
are all expressions of creativity, so too are menus, styles of service and tariff
structures. The point being that creativity in the small hospitality sector is
often modest and may even use and build upon the ideas of others. This is
especially true in a monopolistic business environment where many other
similar firms are competing for business.
CHAPTER 4
67
The following case provides a business example of what may be considered
by some as modest creativity.
Creativity and the Freewheeling Entrepreneurial Spirit
By Nancy Chesworth, PhD
In 1987, Philip and Cathy Guest carefully considered the decision to turn a favourite sport into
a business. In essence, it was a lifestyle choice. Recognizing that their working lives were
taking them in different directions, the couple decided to put their relationship first, and
became their own employers. The decision to find and operate the business was a very
rational one. Both partners listed what they wanted out of life and reached the conclusion that
cycle touring was the obvious choice.
Along with cycling for pleasure and mountain biking, Cathy was an experienced cycle racing
enthusiast. Philip also enjoyed cycling and brought a wealth of experience as an adventure
traveller. In addition, they were accustomed to organizing trips for family and friends.
Ultimately, this combination led to the purchase of ten, top quality, state of the art bicycles,
and Freewheeling Adventures was born.
Philip describes the venture as an ‘educated gamble’. Among the early challenges were
financing and finding a way to make a living while building a business. An optimist tempered
by reality, he stated that a key factor was remaining confident that it could work, while not
really knowing if it would. Another important issue for the couple was remaining financially
independent. They avoided taking out loans or applying for government assistance,
preferring instead to use savings, to mortgage their house, and later sell it, when a more
desirable property became available. Meanwhile, Philip learnt carpentry skills and found a
great deal of work refurbishing the interiors of yachts stored at local marinas. Cathy utilized
her marketing knowledge to work promoting local businesses and charities.
The tourismseason in Nova Scotia is short, thus, it was necessary to plan for slow but steady
growth. This had been achieved through careful planning and dedication to the growth of the
business. In many ways, Cathy and Philip epitomize the qualities they looked for in
employees. Noting that multiple skills were needed to develop and grow a tourismcompany,
they looked for employees who demonstrated energy, enthusiasm, high-level social skills and
a genuine interest in other people as well as innate sales skills and the spirit of
entrepreneurship.
Initially, Cathy baked all of the bread and made all of the lunches for each group. Eventually, a
local source was found to take over this time consuming job, freeing Cathy to focus on other
aspects of the business. Other local providers of various services have been added over the
years as needed and when possible, local residents are hired as guides. Situated in the small
rural community of Hubbards, with their home and business at the same location, this
support of the local community, together with their two active sons, has made their property a
sort of social centre. The addition of a skateboarding half- pipe provided the opportunity for
their sons to learn carpentry skills as well as provide a safe and welcoming recreational
opportunity for the boys and their friends.
In the past twenty years, kayaking trips have been added in the local area where the scenery,
seals, sea birds and the occasional whale enhance the experience. Multi-sport adventures
CHAPTER 4: Creativity and the Entrepreneur 68
include combinations of cycling, hiking and kayaking. Van support is offered on all group
trips, other than self-guided tours. Tours are offered for cyclists at every level of fitness and
experience so as to enable anyone to participate. Accommodation is normally in comfortable
inns that reflect the ambiance of the area. But some surprises await. Some accommodations
are in castles and chateaux, adding a touch of elegance to the adventure. In the same vein,
nutrition is carefully planned with healthy snacks and good quality restaurants part of the
experience.
Making the business into a full-time, year round operation meant considering locations in
other countries. As a result, Freewheeling Adventures now offers guided and self guided
tours around the world in a wide variety of terrains. Each adventure is fully described both on-
line and in the company’s hard-copy brochure. The level of difficulty, an outline of the terrain
and details of each adventure help the client make a well-informed choice.
Freewheeling adventures exemplifies the essence of entrepreneurship. The slow and steady
growth of the company is the product of dedication, planning, flexibility, commitment and
creativity. The result is a profitable business offering high quality adventures to happy,
satisfied customers.
Questions
1. What role did creativity play in the founding of Philip and Cathy’s original business?
2. What role did it play in establishing subsequent business activities and linked experiences
such as kayaking and the provision of accommodation?
3. What role did ‘preparation’ play in their decision to become self-employed?
4. How innovative are these two entrepreneurs?
Source: Nancy Chesworth
This chapter introduces the notion of creativity and how it applies to the
small hospitality entrepreneur. It is defined and considered a key entrepre-
neurial function. Creative idea generation is outlined together with a discus-
sion of the nature of creativity and whether it is innate or an ability that can be
learnt. The chapter continues by exploring stages of the creative process,
identifying behavioural enhancers and barriers and concludes with some
approaches and techniques designed to develop creative thinking in indivi-
duals.
Key point 4.1
The hospitality entrepreneur does not have to be totally original to be creative. Indeed, most
creative business ideas are simply modifications of others.
Introduction 69
CREATIVITY: TOWARDS A DEFINITION
The word innovation is often used interchangeably with creativity, however
there is a difference between the two (see next chapter for a full discussion). In
simple terms, both are important for entrepreneurs but innovation is more
concerned with the logical steps involved in bringing a creative idea to market.
In other words it is the process involved in actualizing creative ideas success-
fully (economically). Therefore creativity becomes the antecedent of innova-
tion but it is no less important. If the hospitality entrepreneur fails to be
creative or later does not implement creative decision-making, the firm will
struggle to survive.
Definitions of creativity abound and as such we can conclude it is a tricky
thing to be certain about. However, many use the word novel, new or original,
for example, Kirby (2003) considers creativity to be the ability to think ‘new’
things. Similarly, The Merriam-Webster Online Dictionary (2008) defines the
verb ‘create’ as:
& to make or bring into existence something new.
More philosophically, Satre (1943) considers the act of creating as liberat-
ing and one where a state of ‘nothingness’ becomes ‘somethingness’. Another
thesis considers a creative human as Godlike. This follows the notion that if
God is the creator, anyone engaged in the act of creation must therefore
become God themselves because they have the power to change their fate.
This is achieved by the individual moving beyond a passive resigned preor-
dained existence into the active role of creation. We can see howthis resonates
with entrepreneurs as presented in Chapter 11 through the personality trait
‘locus of control’! Many entrepreneurs truly believe that they alone are re-
sponsible for their success; context and good fortune make little or no contri-
bution.
Reflective practice
1. How would you describe the relationship between innovation and creativity?
Leaving aside the above comparison with one deity or another, the link
between creativity and entrepreneurship is not new. Schumpeter (1934) first
made these assertions around eighty years ago describing the entrepreneur as
an heroic creative artist and coining the phrase ‘creative destruction’. Many
still hold this as a ‘truth’ (for example, see Berglund, Dahlin, and Johansson,
2007) and consider creativity and the act of creation an essential element of
CHAPTER 4: Creativity and the Entrepreneur 70
the entrepreneurial process. For example, Fontela, Guzman, Perez and Santos
(2006) adopt Guzman’s (1994) to identify creativity within one of three en-
trepreneurial ‘spheres’ shown in Figure 4.1.
The financial sphere is where the entrepreneur acts or responds to obliga-
tions as the financial owner of the firm. The management sphere concerns
corporate direction and management duties. The booster sphere is where the
founder assumes a more humanistic psycho-sociological and creative role
within the organization.
Key point 4.2
Creativity is the process of generating a novel or useful idea of which opportunity recognition
is part.
CREATIVITY: INNATE OR LEARNED
Paradoxically, evidence suggests that as small firms begin to develop and
increase in size there is pressure for the entrepreneur to adopt more of a
managerial role. Managing a small hospitality firm requires a number of
complimentary skills but they are more administrative in nature and concern
implementing policies, procedures, controls and so on (see Chapters 7 and 11
FIGURE 4.1 The functional spheres of the entrepreneur.
Source: Guzman (1994).
Creativity: Innate or Learned 71
for a discussion). Accordingly, there is less time available to engage in creative
behaviour (see Pinard and Allio, 2005). Fontela et al. (2006) agree that as firms
grow entrepreneurial behaviour becomes ‘rational’ focusing on profit maxi-
mization rather than opportunity spotting and creation. However, does this
necessarily have to be the case? Whilst there is clearly a requirement for
hospitality founders to think logically when managing their business, they
must also think laterally. Indeed, according to Fontela et al. (2006), founders
need to understand that to be creative requires an effort to:
‘‘. . . become less rational and more emotional’’ (p. 5).
In other words, in seeking to become creative and forward looking,
entrepreneurs must attempt to contextualize their decision-making accord-
ingly. Necessarily, this means that rationality is limited as the future has
not yet been ‘written’ and so cannot be analyzed objectively. Decisions
become bounded by uncertainty and as such require entrepreneurs to eval-
uate problems relying on lateral rather than rational thought processes.
Fontela et al’s (2006) notion suggests that when hospitality founders think
beyond the present they are not bound by rational certainties. Therefore,
their capacity for creative effectiveness is enhanced once this is recognized.
They also suggest that entrepreneurial thinking shares much with artists
and that art is not mysterious but intuitive based on instrumental life
experiences. In short, entrepreneurs must learn about ideas and how they
are generated.
These authors also introduce the notion of ‘intuition’ into their argument.
Not all commentators do this probably because currently intuition is treated
much the same as creativity was some forty years ago. That is, the word has
‘unscientific’ connotations and cannot therefore be easily explained. Indeed,
some argue that innovation is akin to the supernatural which of course also
adds an implicit rational reason for not exploring the issue. Whilst we do not
discuss intuition in depth here it is still something to note as Fontela et al.
(2006, p. 8) consider it to be ‘. . . part of a legitimate chain of reasoning’. They
also argue that in an artistic sense, any creationis a result of intuitionif related
to a person’s intellect and emotions including the entrepreneur in terms of
innovation/creativity. Whilst intuition is not fully understood, it is certainly
not ‘divine’ but rather, has a possible fundamental relationship with oppor-
tunity spotting and creativity which has yet to be explored in any significant
way.
In addition to the earlier definition of creativity The Merriam-Webster
Online Dictionary (2008) also defines it as:
& to produce through imaginative skill.
CHAPTER 4: Creativity and the Entrepreneur 72
This is interesting as the definition uses the term ‘imaginative skill’
which suggests that whilst creativity may indeed be innate, it can also be
learned. Until recently, this ability was often regarded as somewhat elusive
or magical because it did not fit conveniently into logical and rational modes
of management theory and practice. De Bono (1971) asserts that whilst
creativity is surrounded by an aura of mystery, it remains a skill which
can be learned using the appropriate techniques so long as rational and
logical thinking are temporarily suspended by the individual. Creativity
requires ‘lateral’ thinking which relies on previous experience and intuition.
Essentially, lateral thinking is a way of framing the world, a problem or an
issue.
Thus the notion that creativity is something either one has or has not is
as ridiculous as the idea that all leaders are born and not made! Intuitively
this sounds incorrect and an increasing body of scientific evidence concurs.
Nonetheless, people have a natural tendency to think in a certain manner.
Much of this depends on upbringing, culture, education and so on.
Daft (2005) refers to this bias as a ‘‘cognitive difference’’ (p. 141) explaining
it as the differences in the way people perceive and assimilate data, make
their decisions and relate to other people. Essentially, the brain has two
hemispheres. According to Ornstein (1975) the right side is associated with
creativity and intuition and the left with logical analytical thinking.
Herrmann (1996) has argued that the brain may be divided into four quad-
rants rather than two halves:
& Upper left
T Logical – analytical – fact-based – quantitative
& Lower left
T Organized – sequential – planned – detailed
& Upper right
T Holistic – intuitive – integrating – synthesizing
& Lower right
T Interpersonal – feelings-based – kinaesthetic – emotional
Adapted from Daft (2005, p. 144).
The fact of the matter is that with both the hemisphere and quadrant
models the intuitive and logical thinking can still be metaphorically applied
to the right and left hand sides of the brain respectively. If the entrepreneur
Creativity: Innate or Learned 73
understands her dominant hemisphere or quadrant, that is, how she makes
sense of the world, other areas of the brain may be developed. In the present
case we have an interest in the creative side of the brain. So can we increase
someone’s creativity? Well, according to Goodman (1997) and others the
answer would seem to be ‘yes’ and there are a number of techniques available
to do so.
Reflective practice
1. Interview a hospitality entrepreneur known to you and ask what role creativity played in
their business success.
2. Ask them what they consider the word ‘creative’ to mean
IDEA GENERATION
To succeed in an ever frenetic and competitive hospitality industry business
founders must be energetic, motivated and driven. Necessarily, the creation of
new ways of doing things, new knowledge and satisfying customers is an
essential skill which entrepreneurs must be able to develop. Indeed in small
hospitality firms, creativity is probably the key competitive attribute possessed
when vying for business against larger corporations; expensive marketing
campaigns would not be possible or effective for example. Creative thinking
may therefore be considered
‘‘. . . a core business skill and effective entrepreneurs lead the way in
applying and developing that skill’’ (Zimmerer and Scarborough, 2002,
p. 37).
Thus, hospitality entrepreneurs stand or fall by their capacity to create.
Creativity comes in a number of guises and may not necessarily concern the
invention of totally new services and products but may be a reconfiguration
of resources and other inputs to develop, modify or customize existing
commercial products. Is it easy to be creative? ‘Yes’ and ‘no’; most people
are, they just need a nudge to think about issues, situations and problems
differently. Interestingly, few of us are exceptionally creative, around 10
percent are highly creative and 60 percent have moderate ability in this area
(Morris, 1996).
The following case illustrates the role of prior knowledge on creativity and
also provides implicit comment on whether ‘degrees’ of creativity are suffi-
cient for business success.
CHAPTER 4: Creativity and the Entrepreneur 74
Identifying Opportunities
It was spotting a gap in the market that gave Laurence Beere the impetus to open the
Queensberry hotel in Bath four-and-a-half years ago. He knewthe city well, having worked for
the Savoy Group as operations director and having had a two-and-a-half-years stint as
general manager of Bath’s five-star Royal Crescent hotel. But when the Savoy Group sold up
to Von Essen hotels, he took redundancy and found himself thinking about opening his own
hotel.
Bath, he says, was an obvious location, not simply because he and his family were based
there, but because he reckoned he knewwhat sort of property the city lacked. What he had in
mind was a boutique hotel, combining modern design with an affordable price tag to appeal
to a slightly younger clientele. He explains: ‘‘I knew the market well and there wasn’t much
competition - and still isn’t - as Bath tends to deliver that chintzy, traditional style. I felt there
was a real opportunity for something young and fresh.’’
Getting finance from the bank proved trickier than he had imagined, though. Beere says:
‘‘I was quite naive about what the banks wanted and, looking back, I’d advise using a broker,
as it can save a lot of time.’’
To make an impact on Bath’s competitive dining scene, they decided to refurbish the hotel’s
restaurant first, updating the decor and adding a bar, rather than upgrading less visible areas
such as bedrooms. Doing this, he says, also earned the hotel valuable PR, which in turn paid
off across the business. Occupancy is 83%, up from 69% when they bought the hotel.
‘‘Plenty of people didn’t think we were doing the right thing,’’ Beere admits. ‘‘Our older
guests looked at us as if we were young whippersnappers, changing what they were used to,
but we always knew that the market was there to support it.’’
That understanding of a changing marketplace was something that spurred on Wendy
Bartlett and Ian Mitchell when they set up their contract catering firm, Bartlett Mitchell.
Bartlett feels that, as former Compass employees with years in the industry, they were well
placed to develop their own niche. Bartlett also feels the company, as a smaller operator is
able to adapt to newtrends more readily than some of its competitors, keeping it ahead in the
industry. ‘‘The sector has really changed in the past 10 years,’’ she says. ‘‘Nowadays,
people look for added value and passion - whether it’s boutique hotels, retail or contract
catering - and that’s a big challenge for some of the bigger, more cumbersome firms.’’
Questions
1. Discuss the role played by prior knowledge in the success of Laurence Beere’s Queen-
sberry Hotel.
2. Comment on how it impacted on his creativity.
Sources: Caterer &Hotelkeeper, August 16, 2007, Institute of Hospitality eJournal Collection,
Gale, Institute of Hospitality 28 Apr. 2008 & www.christie.com
Idea Generation 75
Reflective practice
1. Interview a hospitality entrepreneur known to you and ask how they decided upon their
original business idea.
2. Has their business changed since it started?
3. If yes, inquire how and why.
How Much is Too Much?
How creative does one need to be? This is difficult to answer but given that
most small hospitality firms are under capitalized; the relative economy of
lateral thinking and ability to create new innovations cannot be overstated.
This applies to both individual firms and the sector as a whole. There are
several self awareness tests available which help to determine one’s inherent
creative ability. Their reliability and robustness do not form part of this chap-
ter, however, one should always exercise caution when using such diagnostic
instruments. Figure 4.2 is an example of one such test.
FIGURE 4.2 Recognition of common phrases represented as symbols.
Adapted from: Zimmerer and Scarborough (2002, p. 40).
CHAPTER 4: Creativity and the Entrepreneur 76
After reviewing the evidence, Robbins (2005) concludes that most people
have the capacity for creativity so long as they are stimulated in the right way.
He proposes that creativity is a function of:
& Intrinsic motivation – the desire to apply oneself to a job because it is
inherently interesting and satisfying;
& Creative-thinking skills – personality characteristics associated with
creativity including intelligence, independence, self-confidence, risk-
taking, locus of control and a tolerance for ambiguity; and
& Expertise – when the required technical ability, knowledge and other
proficiencies are present in the individual.
Adapted from Robbins (2005).
The following extract fromanaddress by astrophysicist and Nobel Laureate
Padma Vibhushan Subrahmanyan Chandrasekhar illustrates the role of ex-
pertise in the creative process:
Shakespeare’s education was simple, as Elizabethan education was.
While it sufficed and stood him in good stead, Shakespeare was never
persuaded by scholarship as such. Even so, when Shakespeare arrived in
London in 1587, at the age of twenty-three, he had none of the
advantages of a London background that Lodge and Kyd had, or the
advantages of years at Oxford or Cambridge that Peele, Lyly, Greene,
Marlowe, and Nashe had. There can be little doubt that Shakespeare
was acutely aware of his shortcomings and his handicaps. He overcame
themby reading and absorbing whatever came his way. The publication
of the revised second edition of Holinshed’s Chronicles of England,
Scotland, and Ireland, was particularly timely: it provided Shakespeare
with the inspiration for his chronicle plays yet to come (Chandrasekhar,
2001).
It is of course extremely important for the hospitality entrepreneur to keep
abreast of all related business news and economic and political trends. Before
engaging in techniques designed to enhance personal and organizational cre-
ativity, the entrepreneur needs to prepare. This is essential for anyone wishing
to develop and enhance personal and organizational creativity. Kirby (2003)
agrees noting that full benefits will only accrue if the entrepreneur indulges in:
& reading,
& attending associated conferences and trade events,
& networking,
& developing skills of listening,
& questioning, and
Idea Generation 77
& becoming self-aware, that is, what skills does the entrepreneur possess
and what does she need to do to bridge knowledge gaps.
Fontela et al. (2006) agree and the main characteristics of their ‘Booster
Sphere’ in Figure 4.1 are consistent with Kirby’s notion of preparation:
& Motivation;
& ambition;
& innovation;
& cooperation; and
& proactivity.
Essentially, the entrepreneur must be motivated to create an ideal internal
knowledge base and develop linked attitudes and behaviours in order to cap-
italize on their future creativity. Whilst subsequent ‘good’ ideas may appear to
be spontaneous, the individual responsible with have engaged in a specific
process; some stages of which are deliberate and others such as certain ele-
ments of incubation and illumination are not. This process of creativity is
shown in Figure 4.3.
Whilst the above appears to follow a logical and orderly sequence, the
reality is somewhat different. The creative process tends to be less systema-
tized and more recursive. There are no set time limits (save self-imposed ones)
and the entrepreneur may not always engage in every stage. Much will depend
on the context, competing work pressures and the degree of expertise the
individual already possesses in the field of creativity. For example, one person
may be inherently more creative than another or may be more practiced at the
process.
Key point 4.3
There is no secret to creativity; it can be learned. However, there is no substitute for sound
preparation such as background reading and acquisition of related knowledge from other
areas. This will help increase the chances of generating creative yet practical ideas.
Many of the above stages are illustrated in the following case but there is an
emphasis on ‘preparation’.
Close Contest (Management of Entrepreneurs).
By Emma Allen
Successful entrepreneurs rely on more than just flair to build their businesses. Most do a lot of
local research, while some even set up on their former employer’s doorstep.
CHAPTER 4: Creativity and the Entrepreneur 78
Someone newto the area might have thought that the Lygon Arms (left) had the market sewn
up in Broadway, but his local knowledge meant that Barry Hancox could see the gap in the
market that allowed him to open his own venture, Russell’s.
As any successful entrepreneur will tell you, one of the tricks to setting up a thriving business
is to do your research first. However, no amount of investigation can beat having strong local
knowledge built up by first-hand experience working in the area where you intend to buy.
Knowing who your customers are, understanding trading patterns and, crucially, knowing
whether there are any unfilled gaps in the local market will all give you a competitive edge.
For hotelier Barry Hancox, being able to take advantage of all of these helped to establish his
new venture when he opened Russell’s, a restaurant with seven rooms in the quaint
Worcestershire village of Broadway, nearly three years ago. The move was more a change of
view than a relocation for Hancox. Before taking on Russell’s, he had been general manager
at the four-star Lygon Arms hotel, just 200 yards up the road, where he had worked for 16
years.
While Hancox hadn’t planned it, having such a detailed understanding of the local market
was, he says, invaluable. Not that the idea was to create a second Lygon Arms. He and his
business partner, Andrew Riley – who previously owned the Broadway hotel, in the same
village – had a clear vision of what they thought the market needed, and their focus was on a
much more contemporary feel than the more traditional Lygon. Hancox explains: ‘‘We knew
the village needed a good restaurant, and that people were looking for decent food without
the stuffiness - we got in just at the right time. And because we had this huge space up-stairs,
we decided to add bedrooms. The concept just snowballed.’’
There have been clear advantages, however, such as being on the spot to secure the site – an
old design workshop on the village high street. Hancox and Riley say that understanding
seasonal fluctuations in a touristy area was enormously helpful in their early days, while
having good corporate contacts has been useful for building midweek trade. They both also
feel that raising finance would have been much more difficult without their combined local
knowledge. We weren’t seen as such a risk.’’
Hancox also reckons that in some respects he and Riley have a bit of an edge over the Lygon
Arms. ‘‘The Lygon never got that involved with the local trade,’’ he explains. ‘‘It was probably
seen as a bit intimidating, a bit stuffy, but we’ve always had strong support, which you need in
a small place like this.’’ Part of that has been down to well-pitched pricing, such as the
restaurant’s early-evening fixed-price dinner menu, which has drawn in the area’s ‘‘silver’’
clientele. The accommodation is also doing well, with all seven rooms fully booked at
weekends throughout the summer.
Questions
1. List and comment upon the preparation undertaken by Barry Hancox.
2. How did this impact upon his ability to be ‘creative’?
Source: Caterer and Hotelkeeper, August 16, 2007.
COPYRIGHT 2007 Reed Business Information Ltd.
Idea Generation 79
FIGURE 4.3 The creative process.
Adapted from: Zimmerer and Scarborough (2002, pp. 52–55).
CHAPTER 4: Creativity and the Entrepreneur 80
Similar to the above figure, Barringer and Ireland (2006) also consider
creativity as a process noting that successful founders have the ability to
recognize opportunities. They argue that creativity is the process of generating
a novel or useful idea of which opportunity recognition is part and may
therefore also be a creative process; this is shown in Figure 4.4.
Here the process is also viewed systematically moving from preparation to
final elaboration with appropriate feedback loops. It also tacitly acknowledges
that creativity is enhanced by the entrepreneur’s prior experience, cognition,
ability to network and their knowledge of the area. This makes absolute sense,
for example, how can a chef patron create new and exciting dishes without
understanding current eating out trends, fashionable menu items, what her
market will stand and how to cook?
It is one thing for the hospitality founder to be creative when their business
is small but quite another to maintainand encourage creativity inothers as the
hotel grows. Several ‘creative’ strategies and ideas can be implemented to keep
the hospitality founder and her employees motivated. Figure 4.5 shows a
number of key individual and organizational enhancers and detractors.
In addition to the specifics of the creative process shown in Figures 4.3
and 4.4, the above are other behaviours in which the hospitality entrepreneur
may engage. These are designed to optimise individual creativity and to
establish an organizational culture that incubates and perpetuates similarly
across the whole firm. Many of the enhancers and barriers to creativity are
FIGURE 4.4 Creative idea generation.
Adapted from: Barringer and Ireland (2006, p. 38).
Idea Generation 81
intuitive and therefore not problematic to identify. Therefore with careful
planning, they could be applied in small hospitality organizations without
too much difficulty. Moreover, creative behaviours are not difficult to master
and a number of techniques and exercises are available in several formats
ranging from self-help to consultancy workshop formats.
Key point 4.4
In order to enhance creativity in the workplace the entrepreneur must develop an
appropriate culture through engagement with employees and modelling the desired
behaviours.
APPROACHES AND TECHNIQUES
It is important to recognize that thousands of people come up with thousands
more ideas every day, not all are successful, nor will they be pursued.
Entrepreneurs must therefore not only be creative but also innovative so that
FIGURE 4.5 Barriers and enhancers: creativity.
Adapted from: Barringer and Ireland (2006) and Kirby (2003).
CHAPTER 4: Creativity and the Entrepreneur 82
the idea may be applied and realize its full potential. Insimple terms, creativity
becomes the thinking part whereas innovation is the doing or undertaking of a
creative idea. Innovation, its relationship with creativity and role within the
creative process are discussed further in Chapter 5. Moreover, being creative is
about more than coming up with one brilliant and insightful idea but rather
about creative consistency of the founder and their employees. When hospi-
tality entrepreneurs manage to gain competitive advantage over other organi-
zations through implementing a creative idea it never lasts for long. The
composite product (accommodation, food and beverage) is rather limited
and there are only so many configurations available to the customer. It there-
fore becomes increasingly difficult to think of creative ways to secure business.
However, the most successful entrepreneurs manage to spot opportunities and
exploit them through creative thinking. Indeed, the hospitality industry typ-
ically progresses in a uniform manner for given periods of time and then
‘spontaniously’, someone introduces a new concept which is then adapted
and customized by other founders; the pattern repeats itself. For example, the
impact of MacDonald’s on the restaurant industry was so profound that it
gave birth to the fast food industry. Prior to this, diners had produced the same
old fare in the same old manner since the turn of the last century. The
MacDonald’s concept remains vital today and has been adopted and adapted
on an almost ongoing basis.
Key point 4.5
In order to be creative, entrepreneurs must develop the ability to think laterally.
Accor’s concept and design of the Formula 1 accommodation some twenty
years ago was an extension of the traditional Motel. However, the original
hotels had an identifiable design with little in the way of luxury. This was
entirely appropriate for an increasingly mobile and utilitarian customer base.
Since the 1980s the design has been changed regionally to appeal to an inter-
national clientele in Belgium, Germany, Great Britain, The Netherlands,
Spain, Sweden, Switzerland, South Africa, Australia, Brazil and Japan, but
the core underlying principle of this brand remains.
Another example is the early success of ‘conveyor belt’ or Kaiten-zushi
Japanese Sushi restaurants where food is delivered on a conveyor belt akin to a
traditional automotive production line process. The original idea was born
froma failure to recruit enough suitably qualified restaurant staff. The founder,
Yoshiaki Shiraishi, was inspired by observing beer bottles moving around a
Japanese brewery. The opening of the first restaurant in the late 1950s was
Approaches and Techniques 83
followed a decade after by others numbering over 200. Since then these restau-
rants have enjoyed spells of popularity but all are based on Yoshiaki’s original
idea. A more recent and highly successful adaptation is the YO!Shushi chain.
Ten years ago the founder British entrepreneur Simon Woodroffe established a
number of modern hi-tech sushi restaurants in the UK; eleven more have
opened internationally. Nowhe has diversified into the accommodation sector
(YOTEL) and other retail areas. In true entrepreneurial fashion a portion of the
YO! Company’s website reads:
‘‘YO! was always destined to be a retail brand and just happened to be a
sushi bar in its first manifestation.’’ (Mark Norton, designer of the
original YO! Logo)http://www.yocompany.biz/retrieved May 2008.
Interestingly, Woodroffe considers his business to be retail-based rather
than hospitality oriented. In a sense this has allowed him to think unconven-
tionally and creatively about his next venture which in turn has enhanced his
ability to spot opportunities. Currently, his business interests range from
restaurants to architecture and construction!
The following case also showcases creativity through opportunity spotting.
How we Got Started
Entrepreneur Margaret Dunford, 63, got her first taste of the licensed property market 27
years ago when she bought the lease to a run-down pub in Aldershot, Hampshire, with
her then partner. For the first three months the business didn’t make any money.
However, having noticed that there were lots of bedsits in the area, Dunford decided to
launch a take-out service providing cheap meals. Turnover quickly picked up after that.
When the customers brought the plates back they would often stop for a drink. For her
next business Dunford bought a house and turned it into a seven-bedroom B&B – ‘‘one
of the easiest businesses to start’’ – having persuaded the bank to give her 100%
financing.
An early guest at the B&B was a space shuttle engineer who was working on a simulator
nearby. He liked it so much that he recommended it to his colleagues and she received a lot
of trade from them after that, including the astronaut Bill Shepherd. Demand was such that
she persuaded her bank to lend her the funds to open another B&B to cater for them. When
the engineers’ contract ended some six months later she promptly sold the second property
for a profit. But the relationship didn’t end there. NASA invited her over to Florida to see a
shuttle launch and she would later buy a home and a motel business there.
Three years later Dunford sold the motel for a profit. Other properties followed when she
returned to the UK, including a pub in Andover, Hampshire, which she later sold for [pounds
sterling] 400,000, making [pounds sterling] 190,000. Her latest venture is the Woodlands
Cheese & Cider Barn & Tea Rooms, situated at the foot of Cheddar Gorge, Somerset, which
she recently bought through business transfer agent Redwoods. ‘‘Most people don’t
CHAPTER 4: Creativity and the Entrepreneur 84
succeed in business because they don’t want to work at it. But I’m a workaholic,’’ she
laughs.
Source: ‘‘howwe got started.’’ Caterer &Hotelkeeper, Sept 30, 2004), Institute of Hospitality
eJournal Collection, Gale, Institute of Hospitality, 28 Apr. 2008
COPYRIGHT 2004 Reed Business Information Ltd.
RESEARCH AND EXERCISES
The ability to generate ideas is a key skill for the hospitality entrepreneur. This
is not to say that all will develop into successful business opportunities but
becoming practiced in creative techniques is essential. Some approaches are
simply data collection procedures such as surveys where information is col-
lected from a sample of individuals. Others focus on the individual through
self-development exercises, some examples appear below.
& Research oriented approaches
T Surveys
When using research-oriented data collection approaches the
normal protocols apply in order to ensure data is robust and reliable.
For example, survey instruments used must be simple and questions
should be easy for participants to understand. More fundamentally
the sample should be selected randomly and be large enough to
permit useful analysis. On the other hand and in a more practical
sense, some informationis better thannone for the small hospitality
entrepreneur. Indeed, small operators will not necessarily have the
resources available for a full blown scientific survey; in a sense, this
is not always appropriate anyway. The hospitality entrepreneur may
be considering the introduction of a new menu for their small
provincial restaurant. Would a randomsurvey of thousands within a
radius of 200 kilometres be appropriate in this instance? Probably
not but anexisting list of regular patrons could be used to good effect.
T Focus groups
Another method of collecting large amounts of information
efficiently is through the use of focus groups. It is normal to have no
more than 12 group participants who have an interest in the matter
being debated. This format allows open discussion and because it is
a ‘softer’ way to elicit opinions and information, novel ideas will
often emerge. The group usually has one or preferably two
moderators. One tends to lead the discussion around a fewcarefully
chosen themes whilst the other records the information on a flip
Research and Exercises 85
chart or takes notes. There is little that cannot be debated in a focus
group and the discussions contain much rich qualitative data.
Questionnaire surveys do not always deliver data of this quality
unless there are hundreds of questions being posed. Forms
containing too many questions are cumbersome and therefore of
limited value. However, focus groups have some negative associated
outcomes if the entrepreneur is inexperienced at coordinating such
events. For example, it is easy to miss key items of information due
to the richness of the group debate. It is also possible for one or two
members to dominate the discussion. Coordinators must be able to
identify this behaviour early on in the session and take the
appropriate remedial action.
T Other techniques
Approaches like the ‘Delphi Technique’ use the collective
knowledge of industry experts to predict hospitality futures. These
individuals would include senior members of allied international,
national and regional associations like the World Tourism
Association, the UK-based Institute of Hospitality, the Queensland
Hotels Association (Australia), advisory board members, family,
friends, local Chambers of Commerce and so on.
T Brainstorming
This is a common form of training in creativity and its practice is
widespread. These events have the capacity to generate many ideas
in a short space of time. The set up is similar to that used in focus
groups with a moderator/coordinator, flip chart and so on. The thing
which differentiates brainstorming is that no logical evaluation of
ideas is permitted. Obviously, there will be some differences
depending on context, specific purpose and actors but all forms
forbid criticism of anyone’s ideas. This is because first, criticism
makes use of the non-creative left side of the brain; second, nothing
is more effective in stifling ideas than criticism. The purpose during
the early part of the session is quantity of ideas rather than quality.
The more outrageous or seemingly bizarre ideas sometimes prove to
be the most effective stimulators of creativity; carefree expression
should be encouraged by the moderator. Sessions should also move
along a fast pace, this encourages people to react to ideas of others
without having the time to engage logically or rationally.
& Self-development
These tests and exercises are not definitive but should be considered
more as techniques and tools to help the process (making sure you
CHAPTER 4: Creativity and the Entrepreneur 86
select the most appropriate for the job in hand). For example, the
techniques may be divided in to several categories ranging from
defining a problem and idea generation to selection and
implementation.
T Boundary examination
An example of a technique designed to help define problems is
known as ‘Boundary Examination’. Essentially the problem
boundary is the container, which separates highly relevant items
existing inside the boundary fromless relevant ones existing outside
the boundary. If the boundary has been provided for you because
another person has defined the problemit will be inherently skewed
towards their understanding as well as your own. Thus the
boundary setting itself may become part of the problem. De Bono
(1994) recommends a method designed to bring potentially relevant
aspects back into awareness.
- Write down an initial statement of the problem.
- Underline key words.
- Examine each key word for hidden assumptions. Agood way to do
this is to see how the meaning of the statement changes if you
replace a key word by a synonym or near synonym.
- Having explored howthe particular choice of key words affects the
meaning of the statement, see if you can redefine the problemin a
better way.
- The aim is not necessarily to change the position of the boundary
but rather to understand more clearly how the wording of the
problem is affecting our assumptions about the boundary.
Retrieved from ‘‘http://www.mycoted.com/Boundary_
Examination’’, May 2008
T Talking pictures
Another technique, this time for idea generation is called ‘Talking
Pictures’ (Clegg and Birch, 2008) and is most effective when groups
are failing to come up with new business ideas. Individuals should
be divided into teams with each being given a digital camera and
access to a printer. Allow the teams a short fixed time away from
their immediate area and ask to take pictures of unusual objects and
from unusual angles. Reconvene the session with all teams and
invite to distribute their pictures to the other groups. Advise each
teamto use the pictures provided to create associations that occur to
themand then use these associations for idea generation. At the end
of the session you can either collect all of the ideas together by
Research and Exercises 87
writing themonto flipcharts or you can ask the groups to have listed
their own and have these displayed for general perusal.
This technique uses random stimuli as an excursion with the
advantage of a challenge/competition thrown in. The humour
generated from the unusual objects/angles also raises the energy
levels of the group, along with the fact that they have been up and
moving about.
Retrieved from ‘‘http://www.mycoted.com/Talking_Pictures’’,
May 2008
T Other random stimuli examples
Several authors recommend the use of random stimuli of various
kinds and a formal approach may look like this:
- Identify your criteria for ideas – e.g. ideas for solving a problem or
tackling some aspect of it, an idea to be built on, a hypothesis to be
investigated, etc. Spend some time on this stage for better-quality
outcomes later.
- Pick a stimulus at random, by looking or listening to everything
around you indoors and outdoors, something that catches your
attention, opening a newspaper, dictionary, catalogue, book of
pictures, throwing a dice at random or any other method that
appeals to you.
- You should nowrelate this randomstimulus back to your original
problem; this could be done using simple free association.
- On the other hand you could go for a full excursion by describing
the stimulus (howit works, what it does, what effects it has, howit
is used, size, position, etc.). Followed by ‘force-fit’ pieces of this.
comprehensive description back to the problem to recommend
relevant ideas.
- Should a random stimulus fail to work, pick another and keep
trying.
& Combining fixed and random elements
T Choose a specific element of the problem and name it the ‘fixed
element’.
T Now select a random stimulus via any chosen method and free-
associate the way in which these elements could be combined.
You can convey these directly to the problem, or use the 2-
element combination itself to trigger additional ideas.
T Now select a new random stimulus, repeat the process with the
same ‘fixed element’ and after several cycles of this choose a
fresh fixed element and repeat.
CHAPTER 4: Creativity and the Entrepreneur 88
& Select two to three grammatically random stimuli
T Noun + verb;
T Adjective + noun;
T Verb + adverb;
T Noun + verb + noun.
T Try to create an unusual phrase, for example if you observed a
school and a plane flying overhead, that might yield phrases such
as ‘flying school’ or ‘teaching flying’. You could free associate
further phrase combinations from the one created so ‘flying
school’ might generate ‘elevated learning’, and so on.
Retrieved from ‘‘http://www.mycoted.com/Random_Stimuli’’, May 2008
Examples of other creativity exercises may be found at the following URLs:http://www.lifehack.org/articles/lifehack/essential-resources-for-creativity-
163-techniques-30-tips-books.htmlhttp://www.brainstorming.co.uk/tutorials/creativethinkingcontents.htmlhttp://www.members.optusnet.com.au/charles57/Creative/Techniques/in-
dex.htmlhttp://www.virtualsalt.com/crebook2.htm
Reflective practice
1. Given the frenetic pace at which small hospitality firms operate, discuss how you
would maintain personal and organizational creativity whilst engaged in managing the
organization?
SUMMARY
Creativity or the ability to think creatively is an essential part of the small
hospitality entrepreneur’s toolkit. It plays the key role in differentiating one
small firm from another. Indeed, it also allows small independent hospitality
firms to compete with their larger affiliated counterparts. As such, entrepre-
neurs must have an innate or learned ability to think laterally and originally if
they are to survive in the marketplace. Furthermore, being creative is not a
temporary fix but rather a lifelong commitment to ensure the long term
sustainable survival of the small hospitality business.
Few individuals are fortunate enough to possess significant amounts
of innate creativity. However, evidence suggests that creativity can be learned
provided the entrepreneur is motivated to do so and has the required
Summary 89
knowledge and field expertise. This may be achieved by careful planning,
attention to detail and preparation. Stages typically involved in this
process are:
& preparation,
& investigation,
& transformation,
& incubation,
& illumination,
& verification, and
& implementation.
The creative process is not necessarily linear or logical but rather recursive
and organic. In fact, the very act of being creative requires the entrepreneur to
first think in a lateral fashion. For some this is a challenge as traditionally
western management theories promote rational and analytical thought pro-
cesses using the left hemisphere of the brain.
As small firms grow the founder often becomes compelled to act more as a
manager than creator. This inevitable pressure to ensure policies, procedures
and controls are in place tends to stifle lateral thinking and all but eradicate
creativity. There are a number of simple behaviours in which the entrepreneur
can engage to ensure that:
& they remain creative,
& individual workers remain creative, and
& the organization develops and maintains a culture of creativity.
Examples of each include dealing with employees as equals, protecting
those who make honest mistakes and embracing ambiguity. The founder
should also model creativity, support champions and use diversity in the
workforce. Furthermore, the creative entrepreneur should beware of cynicism
or negativity, intolerance of high spirits and ‘play’ in the workplace and relying
on former solutions to earlier problems.
Specific techniques designed to promote creative thinking and decision-
making are wide ranging but some of the more common ones include collect-
ing stakeholder data via surveys, focus groups and use of Delphi-type techni-
ques from industry experts and associated agencies and other international,
national and regional organizations. Each of these approaches must be care-
fully planned and managed as each has inherent strengths and weaknesses.
For example, focus groups are good for collecting qualitative (rich) data but
facilitators must be experienced enough to prevent certain participants from
dominating others in the session as information will be skewed. Similarly,
surveys using questionnaires have the advantage of collecting large amounts
CHAPTER 4: Creativity and the Entrepreneur 90
of information but it may be of limited value particularly if the formis lengthy.
This is because participants tire easily and often fail to take sufficient notice of
questions towards the end of the survey. Telephone surveys also suffer from
this problem especially if category choices have too many response options.
Notwithstanding these challenges, the entrepreneur must ensure any research
undertaken is appropriate for their business. Often a simple approach such as
visits to competitors establishments may be sufficient for creative inspiration.
At a self-development level, many creativity training courses are available
should the hospitality entrepreneur wish to take advantage of them.
Case author
Nancy Chesworth
Department of Business and Tourism
Mount St. Vincent University
Canada
Summary 91
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Innovation, Opportunity
and Protection
After working through this chapter you should be able to:
& Understand the role innovation plays in the entrepreneurial process
& Recognize the relationship between creativity and innovation
& Understand the processes behind spotting opportunities and developing a
new idea
& Recognize the importance of protecting intellectual property in the
hospitality industry
Bannatyne Concept Hotel Launch
Bannatyne Hotels Ltd. has unveiled plans for an innovative concept in Norwich (UK) where
guests can book rooms online for as little as $35 AUD a night.
The hotel, planned for the site adjacent to Bannatyne’s Health Club in Thorpe St Andrews,
will reverse the discount principle applied to late bookings.
Here, the earlier the booking, the cheaper the room will be.
The company opened its first early booking concept in Durham in early 2007, which is
already proving a big hit with business travellers and tourists visiting the North East of
England.
‘Affordability is the key and there are not many hotels that offer
guests modern and comfortable accommodation at such low prices,’
says Nigel Armstrong, managing director of Bannatyne Hotels Ltd.
Questions
1. What underpinned this innovation?
2. What role did creativity play in identifying and establishing a new reservations system?
3. Is the new reservations system an incremental or radical innovation?
4. How easy do you think the Bannatyne concept will be to imitate?
CHAPTER 5
93
Source: Hospitality (2007, p. 8), reproduced with permission
TOWARDS INNOVATION
Most writers in the field of entrepreneurship recognize the importance of
innovation in the business cycle, ranging from Schumpeter’s (1934) ‘creative
destruction’ thesis (see Chapter 1) to more contemporary individuals like
Handy (1990) and Shane (2003). However according to Davila, Epsein and
Sheltonet (2006) authors often use the term innovative and creative inter-
changeably. This suggests that innovation and creativity are linked in some
way. Kirby (2003) notes that innovation it is difficult to define because it is a
process that could apply across a range of entrepreneurial activities. These may
be based on product or process such as the use of high production technology
or implementing and observing a process of change. He concludes that inno-
vation is best understood as a series of principles or steps by which an end
product or service is created. Amabile, Conti and Coon (1996) lend some
support to this idea and consider that:
‘All innovation begins with creative ideas. . .We define innovation as the
successful implementation of creative ideas within an organization. In
this view, creativity by individuals and teams is a starting point for
innovation; the first is necessary but not sufficient condition for the
second’ (pp. 1154–1155).
By way of summary two notions of innovation are shown below:
& the successful exploitation of new ideas (Department of Trade and
Industry, UK).
& A creative idea that is realized [(Frans Johansson)] (Harvard Business
School Press, 2004) (http://en.wikipedia.org/wiki/Innovation, 2007)
Both the above suggest that innovation is a process by which creativity is
harnessed and transformed. For an individual to be innovative they must first
have creative insight and then the ability or tools to exploit the insight for
profit. Thus, innovation is more rational than creativity or as Davila et al.
(2006), write:
‘Innovation, like many business functions, is a. . .process that requires
specific tools, rules, and discipline’ (p. xvii).
How important is innovation in the entrepreneurial process?
Drucker (1985) leaves us in no doubt and states:
CHAPTER 5: Innovation, Opportunity and Protection 94
‘Innovation is the specific tool of entrepreneurs, the means by which
they exploit change as an opportunity for a different business or a
different service. It is capable of being presented as a discipline, capable
of being learned, capable of being practiced . . . And they need to know
and to apply the principles of successful innovation’.
Although Drucker does not mention creativity above, in the present
context innovation and creativity are inextricably linked in the entrepre-
neurial process with the aim of generating a profit. In short, contemporary
innovation in organizations is about change. In such a fast-paced global
trading environment, innovation is now a necessity rather than an optional
extra and together with creativity is crucial elements of the entrepreneurial
process. Thus, entrepreneurs should be both creative and innovative
and have the ability to think laterally. Innovation is therefore the logical
and systematic focus of the process because creative ideas do not auto-
matically succeed nor do they take themselves to market. Drucker (1985)
considers innovation as the process of ‘opportunity spotting’ and some-
thing that can be learned and practiced relatively easily because it is logical
and systematic; no more, no less. Diagrammatically, it is shown in
Figure 5.1.
Although the topic of creativity is dealt with elsewhere in this book, its
relationship with innovation and entrepreneurship is worth revisiting.
Kirby (2003) considers that:
‘. . . creativity is the ability to think new things whilst innovation is the
ability to do new things’ (p. 132).
CREATIVITY AND ENTREPRENEURSHIP
If individuals are to be successful entrepreneurs it seems clear that they need to
be creative, innovative and entrepreneurial. This is a tall order because each of
FIGURE 5.1 The innovation process.
Creativity and Entrepreneurship 95
these elements require different (but overlapping) abilities and skills. Often,
convening groups of individuals with these attributes can improve the chances
of fashioning a creative idea into an innovative marketable product. This is
something that was recognized very earlier in the career of Bill Gates founder
of Microsoft Corporation:
‘We were young, but we had good advice and good ideas. . .Our success
has really been based on partnerships from the very beginning.’
Source:http://entrepreneurs.about.com/od/famousentrepreneurs/a/quota-
tions.htm, 2007.
However, whether teamor individual-based, this does effect its relationship
between with innovation and entrepreneurship. Several models are available
and most view this association as a linear logical process as shown below in
Figure 5.2.
In reality, the above is a simplified version of the complex interactions
between and among the espoused three-stage process. Additionally, two envir-
onments areas of push and pull factors impact on creativity, innovation and
FIGURE 5.2 A process model of creativity, innovation and entrepreneurship.
Adapted from: Schaper and Volery (2004, p. 61).
CHAPTER 5: Innovation, Opportunity and Protection 96
entrepreneurship. For example, the former might consist of advances in sci-
ence and technology (drugs, information communications technology and
other developments) and the latter a combination of new market needs and
societal necessities. For example, the above model helps us map the Landmark
Hotel’s (Landmark Hotel Company Ltd. UK) adoption of a fully integrated
‘chip and Pin’ management information solution to improve guest service,
time and cost saving.
Pilot Rollout Proves Valuable
The Landmark Hotel Company Ltd. along with the Royal Lancaster and K-West, is one of the
capital’s exceptional five-star hotels and has been billed as the UK’s first major hotel to go live
with a fully integrated ‘chip and Pin’ solution in the hospitality sector.
‘When chip and Pin was introduced in the UK in 2003, the card processing industry was
simply not ready for hospitality’ explains Alastair Brown, systems manager at the Landmark.
‘As a result there was a huge amount of planning and testing to be done on already integrated
systems which now had to work with chip and Pin.’
‘The Landmark is unique in the UKin as much as we are the only major hotel, as yet, to have a
fully integrated chip and Pin system for your MICROS-Fidelio property management system’
explains Kevin Byrnes, reception manager. ‘It is this integrated model which makes it so
interesting and different.’
The fully PCI integrated PC-EFT (chip and Pin) solution was installed at the Landmark in
February 2007 to handle the entire hotel’s card processing – with bars and restaurants to
follow at a later date. It is linked to the FidelioV.6 property management system and the
MICROS 3700 Point of Sale systemis to follow. In turn PC-EFT drives four pin entry devices at
the front desk, handling check in and check out.
The solution uses the PC-EFT supervisor model to report on all transactions madder in the
hotel providing a complete management and reporting package for the finance and
accounting functions.
But both Brown and Byrne acknowledge that this point of difference between the Landmark
and other hotels will be short-lived as the companies that installed the systemhave very long
waiting lists.
Questions
1. In terms of creativity, what is the relationship between the Landmark Hotel’s management
and the manufacturer’s of the ‘chip and Pin’ system?
2. In light of the above, which group is the more creative?
3. How are creativity and innovation linked in this case?
Creativity and Entrepreneurship 97
Source: Hospitality (2007, pp. 12–14), Reproduced with permission
Bolton and Thompson (2000) tie creativity with entrepreneurship as the
appropriate context for ideas to become reality. Figure 5.3 helps to clarify their
position through a matrix arrangement proposing a relationship between
creativity and entrepreneurship.
Here the relationship between creativity, innovation and entrepreneurship
is explained in terms of four quadrants. Quadrant B shows the entrepreneur as
a struggler. Ideas are rampant but many are ‘half-baked’ with the individual
having little innovative and entrepreneurial ability to turn ideas into market-
able commercially exploitable products and services. In quadrant D, the indi-
vidual has no innate ability to be creative, innovative nor entrepreneurial. In
quadrant C, things area little different where the firm is not creative but has
the ability to copy and perhaps be incrementally innovative to improve the
product or service. Quadrant A is the only one of the four where creativity,
innovation and entrepreneurship flourish.
Reflective practice
1. To which quadrant do you think most small and micro hospitality businesses belong?
Explain your answer?
FIGURE 5.3 Creativity and entrepreneurship.
Adapted from: Burns (2001, p. 51).
CHAPTER 5: Innovation, Opportunity and Protection 98
IDENTIFYING OPPORTUNITIES
Identifying opportunities for developing ideas is a key ability or skill which
entrepreneurs must already have or acquire. Broad influences on opportunity
identification include demographic changes, changes of public perceptions
through shifting tastes, fashion and culture and new knowledge. Entrepre-
neurs must continually scan and observe environmental trends if they are to
identify upcoming opportunities. Barringer and Ireland (2006) advocate the
use of a PESTanalysis shown in Figure 5.4 to help entrepreneurs in this quest.
This technique is incredibly powerful for environmental scanning.
Obviously, a very detailed information requirement will need extra resources.
However, this is a time consuming exercise and many entrepreneurs can
instead use the services of dedicated research firms for their benefit. Services
vary depending on which firms are used for this purpose but typically they
should provide the entrepreneur with access to a wealth of information,
opportunities to attend entrepreneurial conferences, lists of potential inves-
tors and so on. Rigorous application of such analyses has enabled certain
entrepreneurs to flourish whilst others have failed.
FIGURE 5.4 PEST analysis for identifying a new hospitality product.
Adapted from: Barringer and Ireland (2006, p. 31).
Identifying Opportunities 99
Hospitality Entrepreneur Leads the ‘inn’ Crowd
Years ago, Stephen Zimmerman discovered a formula for success in the volatile hotel
business; think big, but stay small – six rooms small, to be exact. Add an exclusive French
restaurant that caters to the romantic set, and the recipe is complete.
‘Even with the ups and downs of this business, romance never goes out of style,’ says
Zimmerman, comfortably perched in the cozy library of his historic hotel, La Colombe d’Or.
‘It’s romance that sells.’ More than two decades later, the formula still seems to be working
for Zimmerman, whose European-style chateau has remained one of the most sought-after
restaurants and inns in the city.
Aside from servicing Houston’s economic elite, the hotel has played host to a parade of
glitterati running the gamut from former President Bush to Madonna to Bishop Desmond
Tutu. Since it opened in 1980, La Colombe d’Or has, for the most part, flourished – a major
feat in an industry laden with ups and downs in a city that has seen scores of hotels and
restaurants go belly up.
Through clever marketing campaigns, environmental scanning, consistent service and
small, yet significant, improvements over the years, Zimmerman has accomplished what
most all businesses look for – staying power. His friends chalk it up to foresight and vision.
‘He’s an up front guy who is mentally very agile,’ says Dr. Malcolm Gillis, president of Rice
University and a longtime friend of Zimmerman’s. ‘He has interesting ideas all of the time.’
Source: Nancy Sarnoff, Houston Business Journal, May 23, 2003,http://www.bizjournals.
com/houston/stories/2003/05/26/story5.html, 2007
Opportunities may also be viewed as symptoms of a problem emanating
either from the hospitality firm or its industry. Typically these symptoms
include the unexpected, incongruity, inadequacy of processes and changes in
the industry or market. Vyakarnham and Leppard’s (1999) ‘Why Why?’
technique may be applied to any of these symptoms to reveal the true
problem. Essentially, a symptom is identified, for example, diminishing
productivity in the restaurant kitchen. The question is ‘why?’ The symptom
is then broken down into a number of composite possibilities, for example,
‘untrained chefs,’ ‘untrained waiting staff,’ ‘poor quality raw materials’ and
so on. Each of these area in turn is then subjected to another round of ‘why?’
questions. Eventually when all rounds are exhausted the real problem
emerges.
Key point 5.1
Creativity and innovation are linked but different. Innovation is a systematic and logical
process with the aim of developing a creative idea into a commercially robust product or
service.
CHAPTER 5: Innovation, Opportunity and Protection 100
There are other ways of identifying opportunities, however, and many
entrepreneurs go with their instincts especially if they have had a number of
earlier successes. However, initial accomplishments often breed an inflated
sense of confidence and business invulnerability. The business world is full of
failed enterprises because the individual was overly confident having a false
notion of their ability to spot and exploit an opportunity. The following case
underscores this point when Clive Sinclair tried to move his idea of a small
electrically powered passenger vehicle to market.
The C5
Sir Clive Sinclair a British entrepreneur enjoyed significant success as inventor of the world’s
first electronic pocket calculator in 1972 and the UK’s first mass market ZX80 home
computer in the 1970s and ZX Spectrum early 1980s changing the face of home-based
computer gaming. Sinclair was fascinated by electronics and miniaturization and some time
after his initial successes embarked on development of the ill-fated Sinclair C5. This was a
one-person, three-wheeled vehicle using a small motor powered by rechargeable batteries
promoted by Sinclair as a revolutionary advance in personal transport with the potential to
replace the car. In fact, it was not a car at all but was instead a glorified electric tricycle,
powered by an electric battery with a supplementary pedal drive. The C5 was fraught with
design flaws not well received by the press or the public and was not nearly as successful as
Clive’s earlier products. Attracting controversy and derision in equal measure, the C5 fiasco
ended up having a catastrophic effect on Sinclair’s finances. Losses of up to £7 million
eventually forced the company to sell its computer business to Amstrad.
Adapted from:http://www.thebubbleburst.co.uk/bb.php?entry=Clive%Sinclair, 2007http://www.nvg.ntnu.no/sinclair/vehicles/c5.htm, 2007
However, opportunities are identified, they must be further explored prior
to engaging in a full blown feasibility study. An idea can be explored initially
using a concept model. This is not usually as detailed as the fuller feasibility
study but at the very least must include four essential items. A concept model
for a new intranet system in a hotel group is shown in Figure 5.5.
Once the idea has been expressed it may be tested or ‘piloted’ on people
known to you such as family and friends. Issues which detract from the idea
are every bit as important as those which appear to support it; therefore, both
need careful consideration. How are you going to achieve this? At this stage,
entrepreneurs also need to be totally honest with themselves asking critical
questions such as:
& How interesting is this idea to me?
& How interesting is it likely to be to others such as investors?
Identifying Opportunities 101
Introspectionat this stage is vital. Be honest, are youbeing overly subjective
with this idea? A simple cautionary note here should not be underestimated
and whilst you need to be motivated intrinsically:
do not fall in love with your own business idea.
There are many pet projects pursued by entrepreneurs against the advice of
others. Whilst it cannot be denied some are successful they are significantly
outweighed by those doomed to failure. Interestingly, these casualties are
frequent in the resort sector of the UK hospitality industry and there are likely
to be myriad of reasons for poor performance. UK seaside resorts are domi-
nated by small hospitality businesses. The town of Blackpool is representative
of this sector with a profile of micro firms managed by ‘one-property’ owners
employing one or two family members. As such, their owners are not moti-
vated by classical entrepreneurial ambitions of growth (Rowson and Lashley,
FIGURE 5.5 Concept model.
Adapted from: Allen (1999, p. 32).
CHAPTER 5: Innovation, Opportunity and Protection 102
2007) but rather are happy for their hotels to simply support their lifestyle.
With this kind of ‘lifestyle’ firm, entrepreneurs have little knowledge of even
the basics of running a successful business and frequently succumb to the
‘deadly sins’ of entrepreneurship. Lashley and Rowson (2006) note that mat-
ters of basic service quality, marketing, business strategy are at worst, non
existent and at best ‘informal’ (p. 1) in these hospitality micro-firms. Business
success in this sector is also hindered because setting up is straightforward and
unencumbered relative to other business areas. For example, no qualifications
are needed, there are no regulatory bodies or special legal requirements (except
those which apply to all business sectors) and private dwellings are easy to
convert into business premises.
Regional trading conditions notwithstanding, the failure rate of small
UK hospitality firms is noteworthy because it appears to contradict some
espoused wisdom. Overall, entrepreneurial behaviour is motivated by two
dimensions. The first is ‘push’ or necessity-driven and the other is ‘pull’ or
opportunity-driven (see Chapter 1). Relative to other nation states, the UK
has a well developed system of alternative incomes and safety nets such
as its welfare system and a diversified labour market. According to
Minniti, Bygrave and Autio (2006), wherever such economic conditions
exist, opportunity-driven entrepreneurship is more common that the alter-
native. Additionally, there is also a tendency for fewer entrepreneurial
failures because business conditions are conducive and supportive of new
ventures.
Key point 5.2
Before realizing a entrepreneurial idea undertake rigorous research; do not fall in love with
your own business.
Why then are there so many failures? Clearly, a lack of business skills
helps to explain the situation. It is also the case that many individuals
expressing the desire to become hospitality entrepreneurs appears to be in
search of an ‘ideal’ or dream of owning their own hotel or restaurant.
Examples of this abound (see Getz, Carlsen and Morrison, 2004) and pop-
ular television programmes such as ‘‘No Going Back’’ serve to illustrate the
point. Typically, couples are featured who, for some reason best known to
themselves, truly believe they can run a small hospitality firm easily with no
prior qualifications, skills or related experience. In most cases, the pro-
gramme is a sad but revealing insight into how not to run a business.
However, this is only one explanation. There is also the restaurant
Identifying Opportunities 103
entrepreneur who has no idea of what customers require. Often this person
is male, qualified as a chef with a notion that the market requires a ‘top
quality’, high price, high ‘mark up’ a la carte or equivalent operation (con-
sistent with his training). Often these craft individuals have been trained at
the top level perhaps working for a number of years in leading metropolitan
hotels and Michelin-rated restaurants. Many UK seaside resorts have wit-
nessed multiple failures of this kind of restaurant entrepreneur.
Lifestyle Proprietorship and Seasonal Trading: Findings from Scotland
In much of Scotland, especially rural areas away from the urbanized Glasgow-Edinburgh
Central Belt, seasonally operating accommodation businesses remain prevalent. This is
despite advances in off-season trade through increasingly more creative destination
marketing campaigns, investment in year round amenities and the gradual spread of lowcost
air routes, among other facilitating factors. Yet few direct empirical links have been
established between lifestyle proprietorship and the seasonal operation of hospitality
businesses. Indeed, there is a fundamental issue as to whether operating an accommodation
establishment in a seasonal business environment is a ‘lifestyle choice’ or simply a pragmatic
response to prevailing conditions.
A recent large scale survey of independent, seasonally run accommodation businesses in
Scotland including bed and breakfast, guest house, small hotel, holiday park and self-
catering operators aimed to explore associations between seasonal trading and lifestyle
attributes. The study captured all known Scottish tourist establishments operating to a
defined sub-annual ‘season’. Among the 700+ respondents, two-thirds of proprietors
claimed to prefer to operate their business seasonally rather than be open year round, whilst
half the proprietors claimed they choose the length of their operating season to fit in with their
lifestyle (Goulding, 2006).
Of course ‘lifestyle proprietorship’ is a subjective and potentially vague notion. However,
underlying the high incidence of seasonal trading preference and lifestyle choice expressed
within the study is a range of intrinsic personal variables which fall into six distinct clusters.
These include:
&
‘work-life balance’ factors, in which the need for rest, relaxation, ‘getting away’ and free
time are paramount;
&
social priorities, including family commitments and broader socialization activities;
&
‘internalized’ factors around the home environment, including privacy, self-occupancy,
having space back;
&
lifecycle, health and wellbeing, including both physical and mental health, energy and
retirement;
&
migration, in which operating a part-time business fits in with enjoyment of an idealized
physical environment;
&
altruism, including concern for the natural environment and local community impacts;
The study also observed that lifestyle proprietorship based on preference and choice, is an
entrenched condition and mindset among Scotland’s small seasonal accommodation
CHAPTER 5: Innovation, Opportunity and Protection 104
operators. The great majority in the study claimed to have always operated seasonally from
business start-up, many of whom were recent entrants into the industry. Neither revenue
maximization nor significant market expansion beyond his/her temporal boundaries appear
to be top priorities for the seasonally trading lifestyle proprietor.
Whilst many external factors are clearly influential in determining supply-side seasonality, the
lifestyle-oriented, seasonally-predisposed small-scale accommodation operator is a fact of
life in the make-up of Scotland’s tourism sector.
Philip Goulding, June 2007
Reflective practice
Approach a small business owner in the small hospitality sector and enquire how they
identified an opportunity for their successful enterprise.
INNOVATIONS BIG AND SMALL
Interestingly, there is a widely held notion that innovation concerns signifi-
cant change or novel concepts; this is not necessarily so. In the majority of
cases, innovations are little more than a repackaging or reconfiguration of
elements into a newformat giving rise to an amended process or product often
through identifying problems and solving them. According to Kottler (2003)
‘Every problem is a disguised opportunity’ (p. 128).
The advantage of minor innovations is that they usually have a low risk
factor, carry a degree of certainty and yield speedy results. They can be adopted
and implemented at relatively little cost and disruption to foregoing technol-
ogies and processes. However, they often only provide small financial advan-
tage for whoever adopts the idea. Volery and Schaper (2004) classify
innovations as ‘incremental’ or ‘radical’. Incremental innovation is not
uncommon in hospitality organizations, for example, consider the efficiency
differences between a full a la carte ‘silver service’ compared with the less
labour intensive and relatively uncomplicated production and service style of a
table d’hôte system. A similar benefit can be observed when comparing the
table d’hote service with fully ‘plated’ food service. Obviously, before the deci-
sion is taken to replace the full silver service with something less theatrical,
the entrepreneur must be sure that the market will accept the innovation.
Similarly, in the public and large-scale catering sectors innovations of cook-
freeze and chill-freeze food service styles have become increasingly popular.
Innovations Big and Small 105
Not only are these systems more cost saving than a more traditional style of
production and delivery but they are also alleged to preserve more nutrients in
the food which has obvious benefits for recovering patients.
Another example of innovation linked to the hospitality sector is that of the
‘laundry service’. In the hospitality industry firms often take advantage of an
‘external’ laundry service; especially in the small to medium-sized sector
where staffing, wear and tear, machine maintenance and other associated costs
are at best irksome, at worst prohibitive. Many enterprising individuals have
seized the opportunity to provide a worthwhile laundry service by observing
the above problems. Like other contract services which hotels do not consider
worth investing their own time and energy on for example. Maintenance,
cleaning, interior decorating and so on, a laundry service could not be consid-
ered a radical innovation but many ‘service’ firms of this nature have emerged
because owners identified a timely market need or ‘problem to be solved’.
However, the operation of these organizations is easy to copy and as
regional markets mature, less opportunity exists for similar products unless
they offer something over and above their nearest competitors. Firms like
these are continually striving to differentiate themselves in the marketplace
and there is a continual ebb and flow of failures and new entrants.
On the other hand and as the name suggests, radical innovations can be
extremely disruptive, require much ‘nursing’ to get over teething problems but
can potentially bestowsignificant advantages. According to Burns (2001) new
knowledge is probably the least predictable source of innovation but it is the
area which receives most entrepreneurial and media attention because it is
incredibly glamorous. The obvious example here is McDonald’s in the 1950s
as creator and innovator of a newfast food industry having a product featuring
unique systematized preparation and cooking procedures. Radical innova-
tions represent real breakthroughs and have the potential to earn appreciable
profits and establish strategic competitive advantage for individuals and firms.
Quite how long these advantages can be maintained depends on whether the
product or service can be easily copied by others; competitive advantage is
notoriously difficult to sustain. For example, McDonald’s now has many
competitors, Burger King/Hungry Jack’s, KFC, Red Rooster have all copied
and amended the McDonald’s system. Each uses similar ‘formula’ standard-
ized production and delivery systems rooted in those devised by the pioneering
McDonald’s brothers and Ray Croc.
The McDonald’s Story
The McDonald’s story started in 1940 when two brothers, Dick and Mac McDonald opened a
highly successful barbecue restaurant in California. After WWII, they noticed that families
CHAPTER 5: Innovation, Opportunity and Protection 106
were concerned about value for money and that the USA was investing in a more
comprehensive road infrastructure system. They thought this would make future customers
interested in speed of service and so temporarily closed their restaurant. The newly adapted
one featured a simplified menu based around their most popular products with a more
efficient interior. In short, they invented the self-service, drive-in concept that comprised a
limited-menu, paper-service, hand-out operation, featuring cheap hamburgers,
cheeseburgers, soft drinks and French fries. This newconcept proved so successful that they
quickly opened eight more restaurants.
In the mid 1950s, a food service equipment salesman named Ray Kroc became involved at
first as someone who simply owned the national marketing rights to the five-spindle
Multimixers the brothers used to make their milkshakes. His interest in the McDonald’s
business was kindled because they bought 10 of these machines to cater for their successful
business. Ray was subsequently granted exclusive rights to develop and franchise
McDonald’s drive-ins for the United States and opened the 9th McDonald’s restaurant in
Illinios, 1955. Some 6 years later Ray bought the proprietary rights to the McDonald’s system,
including all rights to the rest of the world. The organization that Ray founded proceeded to
add more than 23 000 McDonald’s restaurants and 4500 franchisees across more than 111
countries around the world.
Questions
1. Who were the creators and who were the innovators in the McDonald’s story?
2. Who were the entrepreneurs?
3. How important was the role of Ray Croc in the success of the McDonald’s Corporation?
4. Can you think of some hospitality examples of:
radical innovation and
incremental innovation?
In order to create a sustainable competitive advantage through innovation,
entrepreneurs must utilize strategic resources, that is, those that form the
basis of an entrepreneur’s market position/advantage
1
. By definition, strategic
resources have four dimensions and allow the entrepreneur to implement
strategy by:
& exploiting opportunities,
1
Strategic resources differ fromcommon resources in that the latter enable the firm’s usual
activities but provide no particular advantage against other organisations. Common
resources include financial, physical, human, technological, reputation and organizational
(structure, systems and procedures).
Innovations Big and Small 107
& being non-substitutable,
& being rare, that is, not available to competitors, and
& being difficult to copy.
Controlling all of the above dimensions is very difficult to achieve. That is
why ultimately most firms fail to hang on to any competitive advantage they
might have enjoyed in the short-term.
The characteristics of incremental and radical innovations are summa-
rized in Table 5.1.
Key point 5.3
Most innovations are small using only amended processes and procedure. Whilst the
economic returns are relatively small, they are more assured and cause less organizational
disruption and carry less risk than large innovations.
THE INNOVATIVE SMALL HOSPITALITY BUSINESS
Whilst it can be agreed that innovations are the lifeblood of mature economies
whether big or small, radical or incremental, just how easy is it for entrepre-
neurs to come up with ideas and innovations? According to Kirby (2003) and
others, the odds are stacked against themwhen compared with the scope large
organizations have for developing new and innovative ideas. In short, this is a
resource-based perspective of entrepreneurship and it considers that creative
and novel innovations, no matter howgood, will fail unless adequate resources
are applied. Moreover, large firms also enjoy economies of scale and are there-
fore likely to develop newideas and innovations more cheaply than their small
business entrepreneurial counterparts. Intuitively this seems to make sense as
does its accompanying credo shown in Figure 5.6.
TABLE 5.1 Characteristics of innovation
Incremental innovation Radical innovation
Uniform improvements Novel improvements
Uses existing technologies and processes Uses new technologies and processes
Quick to implement Extended periods of piloting
Immediate gains No short-term gains but long-term advantage
Strengthens customer loyalty Also exploits new markets
Adapted from: Volery and Schaper (2004, p. 57).
CHAPTER 5: Innovation, Opportunity and Protection 108
The key issue for the entrepreneur is to take advantage of imperfect infor-
mation about price whilst going through the process shown above and a tacit
recognitionthat large firms have better access to most resources. These used to
be expressed as the ‘Four Ms’, that is, men, machines, materials and money.
Wickham (2001) prefers to group all into three categories of financial, human
and operating. A more descriptive classification might further divide catego-
ries into:
& financial,
& physical,
& technological,
& human,
& reputation, and
& organizational.
However, for firms to establish and retain sustainable competitive advan-
tage, their resources must not be available to others, non-substitutable. Com-
pany culture may be considered a unique resource in this case, for example, a
team of hotel managers may have been trained and nurtured to perpetuate
company values as they are highly complex, somewhat intangible and thus
difficult to copy. However, the fact that top managers and executives can be
attracted to other companies through better pay and working conditions can-
not be ignored.
According to the resource-based perspective most significant innovations
are more likely to originate with large companies who have abundant required
inputs to take an idea, develop it, innovate and produce. But surely this is not
how large companies work, is it? Derived wisdom suggests that large corpora-
tions are monolithic, lumbering organizations which are often slow on the
uptake or rather inflexible and not particularly good at responding to an
increasingly competitive and fast-paced trading environment. In a
FIGURE 5.6 The process of a resource-based perspective of entrepreneurship.
Adapted from: Schaper and Volery (2004, p. 63).
The Innovative Small Hospitality Business 109
contemporary environment, this is only partially true. Many large firms now
recognize the inherent structural advantages of small organizational struc-
tures such as enhanced flexibility, less bureaucracy, fewer levels of manage-
ment proximity to customers and so on. The ‘small’ firmmodel is also alleged
to engender human resource development, creativity with customers and to
hold innovation as the key to optimum entrepreneurial development of the
organization (see Robbins, Barrett and Storey (2000) and one more. Thus,
large companies nowspin off much smaller, flexible and organic organization-
al structures within the overall designof the firm. An example of this is the rise
in popularity of the intrapreneur (see Chapter 1). This is a person (or persons)
charged with the responsibility of identifying opportunities and applying their
creativity to innovate through developing new products and services. In other
words, these individuals act as ‘company entrepreneurs’. Insome respects this
has similarities with the more traditional Research and Development depart-
ments used by virtually all major corporations. However, a key difference with
the intrapreneurial initiative is that it represents more than just another
department. Of course, people are still charged with their entrepreneurial
responsibilities much as the former R&D centres were but the real difference
is the ‘cultural shift’ adopted. Rather than being seen as another separate
company dimension of their operations, the intrepreneur initiative is viewed
more strategically with appropriate support structures in place. Even as early
as 1994, Naisbitt identifies a number of large companies who have
‘deconstructed’ in line with the above logic including ABB and Grand Metro-
politan.
In his influential book Thriving on Chaos, Peters (1987) proposes the
following support model shown in Figure 5.7.
Whilst independent small firms also take advantage of their structural
advantages they do not have the physical and economic resources and capacity
to create, innovate, produce and market a novel product or service.
Kirby (2003) also adds this lack of capacity is a direct result of having no
new available capital. He cites four main reasons for this and they include
the unwillingness of bank lending, uncertainty of new products especially
those with a significant technological orientation. Others are that tradition-
ally lending institutions such as bank do not consider research and develop-
ment as anything other than an intangible which may not be able to be
protected through copyright and patenting. However some evidence suggests
that despite the odds, small hospitality organizations survive because reinven-
tion may not necessarily be overly costly (depending on the magnitude of the
change) and is effective over short periods. Indeed, common themes of flexi-
bility and short run planning (1 year) characterizes small hospitality firms
which means they have an innate capability for innovation (Edgar and Nisbet,
CHAPTER 5: Innovation, Opportunity and Protection 110
1996). In this sense they do so by providing a continually differentiated prod-
uct (sometimes small, sometimes large) on a seasonal basis in many resort
towns globally. According to Augustyn (2004) tourism firms succeed precisely
because their resources are in short supply as this situation together with high
entrepreneurial aspirations drives the firm innovatively and creatively.
‘‘Needs must when the devil drives’’. Russell and Faulkener (2004) are of a
similar opinion and consider that small hospitality operators thrive on con-
ditions of uncertainty as they tend to have an ability to effectively identify
opportunities amongst conditions of chaos.
Reflective practice
1. Identify a local entrepreneur or someone you know in the small hospitality sector. Ask
themhow innovative they had to be for their business to succeed and remain successful.
Also, how did they deal with other hospitality organizations that may have imitated their
product.
FIGURE 5.7 Corporate support for intrapreneurs.
Adapted from: Kirby (pp. 2003, pp. 135–136).
The Innovative Small Hospitality Business 111
In a more general sense, the effectiveness and advantages of the small firm
are clearly evident in the modern global economy where small businesses
dominate in almost every nation whether they are part of a large company
or a truly small firm owned and operated by a few individuals. Indeed, much
evidence suggests that entrepreneurship and small firms are on the increase
with their underpinning economic role being recognized as imperative for
future growth by all major governments (see Chapter 1).
Seaside Tourism Planning Officer
You know, if I were to pick say, 20 member hotels and restaurants fromour local hospitality and
tourism employers association, most owners would be from away (other parts of the country).
You asked me earlier why this is the case; I think there are several reasons but first you had need
to understand a bit of the history about this seaside town – I’ll give you a potted version.
This town once had enormous wealth from its fishing industry, Herrings to be precise. It
began a couple of hundred years ago and lasted through probably until the early 1960s
although most of the Herring grounds had been fished out by that time. With the development
of the fishing industry came a supporting infrastructure that early tourists and providers could
use. With the advent of the railway system in the 1800s, we had a perfect mode of transport
which tourists used to literally flood into the town. In those days, the industrial heartlands of
the UK provided almost all of the tourist market. Midland factories would shut down for two or
three weeks at a time and all of their workers would jump on the train at their end and jump off
at ours. You can actually see how the hotels, shops and other key enabling elements of
infrastructure developed. Most were originally constructed near to the railway station with
other buildings being added a little further away to take advantage of the town’s major
attraction, the esplanade. There is no real difference between most of the UK’s seaside towns
in terms of layout apart from the market they catered for. For example, Great Yarmouth,
Blackpool and Margate tourists were mainly working class whereas tourists frequenting
Brighton and Bournemouth tended to be from the middle classes. I do not believe there has
been much significant change in markets for the last hundred years or so.
Of course things are different nowas we do not have anywhere near the number of tourists we
used to. It all started around the mid 1960s with the advent of the cheap ‘continental’
package tour to places like Benidormand Majorca. Ever since then, towns like ours have had
to fight tooth a nail to keep the tourists coming. Some have succeeded by differentiating their
‘promise’, others have not done so well; I had count ours in the latter category. You only have
to walk around the town to see once profitable small hotels and guest houses boarded up,
empty or given over for another use. Setting up rest homes for the elderly was a popular
alternative use for these establishments. I remember in the early 1980s it seemed like
everyone had either set one up or was giving it serious consideration. The local council soon
got wise and put a stop to it though.
If I compare the town’s current operating capacity with say 1970, we probably only have
twenty percent of hotels and restaurants trading in the summer season. Of course the trouble
is, tourism is the lifeblood of this region and without it, other businesses have gone under;
everything from local retailers and DIY stores to garages and Taxi firms; we have all suffered.
CHAPTER 5: Innovation, Opportunity and Protection 112
In the very early days there were only a fewhotels in the town; perhaps four or five. The oldest
purpose built hotel was here long before the advent of the railway. In fact it was a ‘coaching
house’ and used to take regular delivery of the mail and provided accommodation for the
coachmen and passengers prior to the emergence of Post Offices in the region. Once the
railways arrived, hotels popped up all over the place with most being converted from private
dwellings. Interestingly, one of the largest hotels on the seafront with 150 rooms is a
conversion of several Victorian Villas. You have never seen such a thing. It is a complete
labyrinth of passageways and corridors.
Getting back to my earlier point, many hoteliers and restaurateurs were born outside the
region. This is an interesting demographic and you will find similar in other seaside resorts,
especially where local industry pay is low compared to elsewhere in the UK. Here for
example, agriculture was the major employer and locals found it difficult to raise the initial
capital to purchase even the smallest guesthouse. Wages of factory workers from the
midlands were relatively handsome in comparison. So, surprise surprise, many erstwhile
tourists sawthe opportunities available to themwhilst enjoying their holidays and snapped up
the relatively lowcosts housing converting to small hospitality operations. This is something of
a flashpoint with the local community even now. Incomers tend to view the locals as lazy and
non-entrepreneurial; locals view incomers as having an unfair advantage.
Questions
1. Identify where entrepreneurial innovation occurs in this case
2. How would you classify the innovations shown in the case?
3. How easy was it for the innovations to be copied?
4. Discuss how this seaside resort could innovate as a collective tourist destination
PROTECTING YOUR INTELLECTUAL PROPERTY
Intellectual property may be defined as, ‘. . .any product of human intel-
lect. . .that is through imagination, creativity and inventiveness, that is intan-
gible but has value in the marketplace’ (Barringer and Ireland (2006, p. 278).
With the advent of information communication technology and e-commerce,
intellectual property is probably more valuable than a firms physical assets.
This importance is compounded by the increasing use of the internet for a
plethora of e transactions, reservation systems, website designs, domain
names and the rise of e-tourism
2
and the companies that operate in this
environment. Essentially there are four types of intellectual property:
2
e-Tourismenables direct booking, easy payment for end-user, business-to-business trading
for product providers, travel agents and resellers. With application of e-tourism, amongst
other things, travellers are able to make online reservations, bookings and receive immediate
confirmation.
Protecting your Intellectual Property 113
& A patent – government confers the originator a right to exclude others
from making, selling or using an invention for the term of the patent
and allows them to make and sell the invention so long as no other
patents are infringed. For example, a new beverage dispenser may
require an element of an earlier (say) patented Hobart food processing
machine. The inventor would need permission from the Hobart
company to make and sell the newmachine. They could refuse, agree or
insist on a licensing fee for the use of its technology.
& Trademark – a word, name, symbol used to identify the origin of a
service/product, for example, Travel Lodge, Ibis, Hyatt and so on.
& Copyright – protects the owner/author of a literary work, software,
drama, music, lyrics, other works of art, sound recordings and
architecture and affords themthe legal right to determine howthe work
is used for economic benefit. Appropriate items include company
specific training manuals and other media used exclusively by one
company.
& Trade secret – essentially this is information that does not require the
above types of protection (although this is not always the case) but is
important if a small hospitality firm wishes to establish and maintain
competitive advantage. For example, if a hotel wants to exploit the
potential benefits of a customer loyalty scheme it will need to keep
details of all customers inorder to establish more intimate and frequent
contact via online news letters and emails. This a powerful way for
small hotels to compete directly and successfully with their larger
counterparts. Not all information can be classified as a trade secret and
if information is disclosed in error or overheard by a competitor it
ceases to remain a trade secret. There is much confusion over this
dimension of intellectual property but in general, the law will not
protect a trade secret unless its owner first does so (Barringer and
Ireland, 2006, pp. 282–295).
Innovations in the tourism and hospitality industry (as in others) have the
potential to bestow significant benefits upon the entrepreneur in terms of
economic returns. However, to create a real competitive advantage they must
be difficult to replicate, copy or imitate. One way of sustaining competitive
edge by minimizing the opportunity for replication by competitors is to
‘protect’ the innovation legally. Indeed, it may also be the case that an innova-
tor/entrepreneur wishes to share their intellectual property for financial gain
through franchising their innovation (examples include, McDonald’s, KFC,
Domino’s Pizzas).
CHAPTER 5: Innovation, Opportunity and Protection 114
In the case of tangible manufactured products, intellectual property issues
are relatively straightforward but for hospitality services this is not the case.
This is why the most common forms of legal protection in the hospitality area
are for products which are manufactured. For example, fast food restaurants
are really nothing more than a production line operating according to strict
guidelines. On the other hand many hotels and restaurants are commonly
differentiated by their location and by the individuals who deliver the service.
The much quoted ‘location, location, location’ byte springs to mind here as a
region simply cannot be copyrighted. Effectively, all hospitality organizations
near to a location of outstanding natural beauty will benefit as these natural
assets will create a competitive advantage for the region but not between each
hotel in the area. However, controllable aspects such as hotel design, service
style, appearance and so on may well qualify as intellectual property and
become appropriate for legal protection. Nonetheless, the very intangible na-
ture of service and ‘atmosphere’ of some establishments is impossible to
capture and replicate exactly. In part this helps explain why so many indepen-
dent small hotels and restaurants remain popular with customers despite the
ever increasing presence of hospitality brands like Hilton, Shangri-La and
Hyatt.
There are a variety of ways to protect intellectual property but the laws
surrounding the issue are in constant flux and differ between countries.
They key consideration for entrepreneurs is to recognize the importance
of legal protection for their innovations and pursue the matter sooner
rather than later to avoid wasted time and missed registration deadlines.
Some practical steps for protecting your hospitality firm are detailed at this
site:http://www.restaurant.org/legal/law_trademark.cfm
Before they can do this hospitality entrepreneurs must understand of what
their intellectual property is comprised, its value and the role it plays in their
potential business success. How can this be achieved when potentially all
aspects of the business has intellectual property? This can be a tricky process
but there are two questions entrepreneurs must ask themselves to determine
which aspects of their business require legal protection (Barringer and Ireland,
2006):
& Is the intellectual property related directly to achieving and sustaining
competitive advantage? For example, all major international hotel
chains such as Hyatt, Hilton and Regal have their own logos which
differentiate them from each other (at least in theory!) as they strive to
convey recognizable and consistent global standards thus creating
customer loyalty. This is also the case with groups of smaller
Protecting your Intellectual Property 115
independent hotels and accommodation providers including Best
Western, Golden Chain Motels, Preferred Hotels & Resorts Worldwide
and Leading Small Hotels of the World.
& Is the itemvaluable in the marketplace? In other words, the hospitality
entrepreneur should test their business idea before investing a
considerable amount of time and effort developing and protecting it.
Figure 5.8 shows a summary of intellectual properties linked to the hospi-
tality industry.
Conduct your Own Intellectual Property Audit
The hospitality industry is dynamic in terms of demand and supply, mergers,
acquisitions and takeovers. Indeed, there are many examples of small firm
takeovers by national and multinational companies. Amongst other things,
the avaricious chains buy out their smaller counterparts because they are
interested in their intellectual capital. They are only too aware that the small
firms sector provides a much sought after, intimate service product that is
often missing from the large and sometimes impersonal atmosphere found in
large hotels. Entrepreneurs should therefore ensure they are fully aware of their
intellectual property and its value when large companies come door-knocking.
It is therefore a good idea to conduct an intellectual property audit. The audit
proforma shown below details some key questions for the procedure, some of
them are more appropriate for the hospitality industry than others
Patents
&
Are services, products and packages under development that warrant protection?
&
Do we have any day-to-day or strategic processes that should be protected?
&
Are our current patent maintenance fees up to date?
&
Has our business changed so much that we do not require any of our existing patents?
&
Do we have accurate documentation about our patents?
Copyrights
&
Do we comply with the copyright license agreements we have entered into, for example, do
we have a music/Performing Rights Society license for our entertainers?
&
Do we have a policy about when copyrightable material should be registered?
&
Do we know where to obtain our licenses?
&
Is there documentation in place protecting our rights to use material we create or pays to
have created?
Trademarks
&
Are we using any slogans, logos, signage that requires trademark protection?
CHAPTER 5: Innovation, Opportunity and Protection 116
FIGURE 5.8 Intellectual properties linked to the hospitality industry.
3
Adapted from: Kaplan (2033, p. 226).
&
Are we going to expand the use of our trademarks elsewhere?
&
Do we need any more trademarks to cover new services?
&
Do we know whether our trademarks are being infringed and, if so, by whom?
Trade secrets
&
Is there leakage of our firms trade secrets by accident or by design?
&
Do we have a policy governing nondisclosure
&
How much information are our employees exposed to and could this be limited?
&
Are our intellectual property security arrangements effective?
Adapted from: Barringer and Ireland (2006, p. 298).
SUMMARY
There is a common misunderstanding of the terms creativity and innovation
not least because several writers and pundits use the terms to mean the
same thing. Whilst they are similar they actually mean two different things.
Creativity is the laterally-oriented antecedent of innovation; innovation is a
systematic logical exercise designed to harness the creative idea and bring it to
a successful entrepreneurial conclusion in the marketplace. This possible in
two ways; the first is a sheer seat of the pants, intuitive and sometimes lucky
hunch (not recommended); the second is a more methodical systematic pro-
cess of environmental scanning and strategic and tactical planning. There
are a number of approaches and techniques that can be used to help the
entrepreneur through this process. It is also a good idea to use ‘concept’
models to pilot an idea prior to a full feasibility study.
Much of the hospitality sector is dominated by small and micro firms.
These organizations are operated by entrepreneurs who often have no prior
experience or skills in the hospitality area. Many of these operations fail for
this reason together with unrealistic expectations of the owners. However, the
structure of small hospitality firms has a number of advantages over the large
organization including flexibility, proximity to the customer and adaptability
to prevailing economic conditions. Some evidence suggests that despite
limited resources available to small hospitality firms, they succeed because
of these structurally inherent capabilities. Indeed, large organizations now
recognize that ‘small is beautiful’ and many have created small more organic
organizational structures within their superstructures giving rise to
‘intrapreneurs’.
Protecting intellectual property in the small firms sector of the hospitality
industry is important as many customers value the personal intimate
CHAPTER 5: Innovation, Opportunity and Protection 118
experience. However, there are many intangibles that cannot be claimed and
protected by any operator, as such the independent entrepreneur-run hotel is
still very much in demand; so too are regions of outstanding natural beauty
and their hotels. Nonetheless, large operators engaging in acquisitions of
small firms will only do so because of the intellectual property the take over
bestows. Entrepreneurs should therefore be familiar with their intellectual
property and take steps to guard it through one or more of the four types of
protection available - patent, copyright, trademark and or trade secret. Entre-
preneurs should also be mindful that the laws governing intellectual property
vary, to a lesser or greater extent, by country.
Summary 119
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The Feasibility Analysis
After working through this chapter you should be able to:
& Understand the term ‘feasibility analysis’ and how it applies in maximizing
the chance of entrepreneurial success.
& Discuss the limited value of intuition and gut reaction when planning to
launch a new hospitality venture.
& Understand the role of research in entrepreneurial success.
& Apply the tenets of Porter’s Five Forces model in a feasibility analysis.
INTRODUCTION
According to the Merriam-Webster Online Dictionary, the word ‘feasible’
means ‘capable of being done or carried out’. In a business or entrepreneurial
sense, a feasibility study or analysis may therefore be understood as an inves-
tigation into something which is capable (or not) of being successful, such as
the initiation and continuation of a new business venture based on a creative
or novel idea. Barringer and Ireland (2006) propose a simpler explanation:
‘‘[Feasibility analysis is] a process of determining if a business idea is
viable’’ (p. 52).
According to White (2007):
‘‘A feasibility study isn’t magic, although it can have a magical effect
on. . . profitability. . . Rather, a feasibility study provides you with data
that replace wishful thinking. The study gives you a rich, detailed and
accurate picture that includes information you really need to know,
rather than information that’s just easily available’’.
Whatever the semantics and whether we are considering starting or buying
and developing an existing business, serious consideration should first be
given to its potential. In other words, the question becomes, ‘Is the idea worth
pursuing?’ In a sense, these considerations will depend on individual
CHAPTER 6
121
preferences and personal circumstances. For example, someone sacrificing
paid employment of 30k will be more likely to proceed, all other things being
equal, with a business idea than another who may be sacrificing a salary of
120k.
The aim of this chapter is to introduce the concept of a feasibility analysis
(or study) and to discuss the basic steps involved. It does this first by consid-
ering the role of feasibility analysis in the context of the hospitality industry.
Then each element of service/product, industry/market, personal/organiza-
tion, and finance is introduced and explained. Further discussion is left until
elsewhere in the book where each is expanded and developed.
Key point 6.1
A feasibility analysis provides essential information to determine whether a business idea is
viable and is an important precursor the business plan.
HOSPITALITY ENTREPRENEURS AND THE ROLE
OF FEASIBILITY ANALYSIS
Whilst the provision of hospitality and tourism services is probably one of the
world’s oldest industries, many entrepreneurs still rely on gut reaction and
intuition as a method of determining whether their venture will be successful.
As discussed in Chapter 1, some hospitality entrepreneurs
1
have a tendency to
be swept away by enthusiasm for their own ideas and launch into a new
business before carefully considering whether:
& there is a market for their service;
& there are adequate sources of start-up and continuing finances; and
& they have the skills to deliver such a service.
Barringer and Ireland (2006) refer to this somewhat cavalier approach as
the ‘ready, fire, aim’ syndrome where the business is launched prematurely.
This almost certainly guarantees ultimate failure or an inordinate amount of
subsequent iteration to (re)establish business objectives. In a sense, the over-
confidence and willingness to followintuitionis not really surprising. After all,
successful entrepreneurs take risks, trust their ownjudgement and have a clear
vision of the way their business ought to be; do they not? Well actually, yes, but
the successful business person takes ‘measured’ risks, makes a judgement and
1
This behaviour is not uncommon amongst entrepreneurs in other sectors (see Bhide,
2000).
CHAPTER 6: The Feasibility Analysis 122
forms a business vision in a less haphazard fashion. Unfortunately, the pop-
ular media loves a winner and goes to great lengths to ensure that the public
shares the enthusiasmand success without showing the extensive preparatory
planning involved. Whilst it is true that occasionally mavericks appear in the
limelight, for us lesser mortals a reliance on carefully collected facts and
figures is the sensible way to maximize the chances of entrepreneurial success.
Thus, intuition alone is an unreliable way of ascertaining future success of a
hospitality venture.
Inorder to gain a more reliable picture of whether a business idea is likely to
be successful requires a dispassionate and systematic approach through a
feasibility study. There are a number of techniques associated models and
approaches which may be used for this purpose. All include a requirement
for information about selecting an appropriate site, market analysis, concept
and mix development and financial feasibility. This does not necessarily have
to be conducted by the entrepreneurs; instead professionally performed anal-
yses may be commissioned. However, these services can be costly and so long
as a few simple rules are followed most people are perfectly capable of con-
ducting an adequate and systematic feasibility study. Figure 6.1 shows the
main elements of a feasibility analysis and where it features in the overall
planning process.
Many entrepreneurs inthe micro seasonal sector of the hospitality industry
have objectives which are not always consistent with those usually ascribed to
FIGURE 6.1 The role of feasibility analysis in developing successful business ideas.
Adapted from: Barringer and Ireland (2006, p. 54).
Hospitality Entrepreneurs and the Role of Feasibility Analysis 123
founders of ‘growth firms’. Instead, the aspirations and skill sets of these
entrepreneurs are modest, preferring ‘lifestyle proprietorship’ with neither
revenue maximization or market expansion as priorities. Business objectives
tend to be personally defined. Goulding’s (2006) study of UK-based small
hospitality firms concurs and concludes that instead of clear commercial
objectives, operations are inextricably linked to intrinsic personal variables
emphasizing the need for rest and relaxation, social priorities, family commit-
ments and privacy. The above positioning of the analyses, elements and pro-
cess hold true irrespective of whether entrepreneurs are keen to set up growth
or lifestyle firms.
However, there are a number of reasons why many hospitality entrepre-
neurs might (erroneously) consider the above figure redundant when planning
for a new business. These including ease of entry into the industry and a
perception that required skills are little more than an extension of those used
in a domestic setting. There is much to be said for intuition as a partial driver
of management decision-making but the feasibility stage of a new venture is
probably not best suited to this approach. The latter point is important be-
cause some evidence (reference) suggests that many hospitality entrepreneurs
do not have industry-specific skills or qualifications and lack basic business
knowledge. Moreover, the industry demands little in the way of special legal
requirements to start trading and there are precious few regulatory industry
bodies. It is therefore unsurprising to learnthat conversionof private dwellings
into business premises remains a common route to entrepreneurship in the
hospitality industry (Lashley and Rowson, 2006). The following vignette based
on the BBC’s (UK) From Hell to Hotel television broadcast illustrates the
impetuous nature of some would be hospitality entrepreneurs.
The St. Giles House Hotel
At the turn of this century, a rather well-off (financially secure) husband and wife team
decided to purchase a dilapidated shell of a building in the city of Norwich in the UK. The
defunct General Post Office construction site was deemed ideal for a high-class luxury hotel.
The main investors for the initiative were family members who ultimately financed the project
to the tune of several millions. During the refurbishment the couple had to persuade family
benefactors to reinvest significant extra sums in order for the hotel to open.
During the course of the broadcasts viewers witnessed the highs but mainly lows of the
conversion process up until the grand opening of the hotel. During early stage-setting
broadcasts, interviewers were keen to knowabout the impetus for the idea and howdata was
obtained about the primary market segment for the St. Giles. The couple indicated that
owning and running a hotel had always been a dream and they felt that the time was right to
embark on their venture. The process of identifying a primary market for the hotel was
similarly idiosyncratic. The couple felt that customers’ tastes and preferences would mirror
CHAPTER 6: The Feasibility Analysis 124
their own somewhat ostentatious expectations. Moreover, when enquiries were made about
the husband and wife’s hospitality training and expertise, none was forthcoming. Indeed,
their total sum of knowledge appeared to be based on a former cosmopolitan lifestyle which
included extensive travel and international hotel patronage. They agreed that these
experiences had equipped them with knowledge sufficient to own and run their own hotel
successfully.
The remainder of the broadcasts journalled a litany of mistakes, crises and errors arguably
rooted in a complete lack of management, people and operational skills. Many staff were
treated in a questionable manner and expected to take on other duties besides those
hospitality-related. As a result many staff left or where asked to leave including managers.
After missing several launch deadlines, the hotel was finally opened with an almost
completely new staff profile. Once the ‘honeymoon’ period subsided, occupancy and
restaurant bookings declined significantly. At this point the television series ended and
viewers were left wondering about the future of the St. Giles House Hotel. In 2007 the
predictable fate of the venture was made clear. Shortly after the hotel was opened, the
original investors withdrew and it was taken over by a new company. The husband and wife
teamstill remain but have no strategic decision-making autonomy and play a minimal role in
the operation of the enterprise.
Questions
1. List and explain the mistakes made by this entrepreneurial couple.
2. How would a feasibility analysis have helped them avoid some of the pitfalls seen above?
3. Give three examples of research methods which could have been used to help the St. Giles
House Hotel identify its niche market.
Reflective practice
1. How would you ensure emotional detachment from your business idea to improve its
chances of success?
2. Contact successful hospitality entrepreneurs known to you and ask whether they used
intuition or feasibility exclusively or a combination of both methods when deciding on
launching their business.
PERSONAL CHARACTERISTICS
In order to runa hospitality business successfully individuals need appropriate
skills and, some argue, specific characteristics. The preferable scenario is when
the founder already possesses them. For example, to run a restaurant, food
Personal Characteristics 125
preparation and service skills are key. Of course as an owner-operator there
will be a wide range of other skills necessary ranging from how to change beer
kegs to book-keeping. If, after a while a decisionis made to expand the business
or relocate to a bigger premises, there may be good reason to employ people to
take care of these operational tasks on your behalf. In this instance, alternative
skills such as those of basic management and marketing will be required.
However, whether you already have appropriate abilities or a willingness
to embrace them depends to an extent on personal characteristics such
as stamina, commitment and dedication. There is overwhelming evidence
to suggest that many businesses fail soon after opening due to a lack of them
(see Chapter 1). Entrepreneurial traits/characteristics have already been intro-
duced as important predictors of success in Chapter 2, and here Burns (2001)
considers them as:
& stamina;
& commitment and dedication;
& opportunism;
& ability to bounce back;
& motivation to excel; and
& tolerance of risk, ambiguity and uncertainty.
Table 6.1 shows a feasibility checklist abstracted from the Canada
Business Network (2007) website and contains questions pertaining to some
of Burn’s entrepreneurial characteristics.
2
This type of analysis does not stop with the entrepreneur (although for
micro businesses it is likely to in the first instance) but may be expanded to
encompass the whole organization to determine an overall organizational
competency. The process of introspection and diagnosing allows the entrepre-
neur to determine their ‘suitability’ before embarking on their business jour-
ney. If resulting gaps are exposed it may reveal a shortfall of skills or traits but
does not necessarily guarantee business failure. It is simply a technique which
may be used so that the entrepreneur becomes self-aware of potential weak-
nesses. It is then up to the individual to take remedial action in the form of
personal education and skilling or even a shift of focus to the abilities of others
by establishing a network of business friends and colleagues. In fact this is a
basic requirement of effective entrepreneurship. Establishing extensive net-
works allows some personal capability gaps to be ‘managed’ by using the
attributes of others. In exchange for external advice and experience, the entre-
preneur may extend an invitation to the colleague; perhaps a place on the
board of directors or
2
This reproduction is not represented as an official version of the materials reproduced, nor
as having been made in affiliation with or with the endorsement of Canada Business.
CHAPTER 6: The Feasibility Analysis 126
advisors would be appropriate.
Key point 6.2
There are certain entrepreneurial characteristics including stamina, commitment dedication
which are important in optimizing chances of new business success.
Networking may also give rise to ‘clustering’ or collaboration co-existing
with competition in some sectors. In short, clustering invites firms to focus on
their core activities but also to collaborate and build relationships with others
to access, develop and share internal resources. This approach allows
TABLE 6.1 Feasibility characteristics checklist
The product or service
Yes No
Do you like to make your own decision?
Do you enjoy competition?
Do you have will power and self-discipline?
Do you plan ahead?
Do you get things done on time?
Can you take advice from others?
Are you adaptable to changing conditions?
The next series of questions stress the physical, emotional and financial strains of a new business
Yes No
Do you understand that owning your own business may entail working 12–16 h a day,
probably 6 days a week, and maybe on holidays?
Do you have the physical stamina to handle a business?
Do you have the emotional strength to withstand the strain?
Are you prepared to lower your standard of living for several months or years?
Are you prepared to lose your savings?
Specific personal considerations
Yes No
Do you know which skills and areas of expertise are critical to the success of your project?
Do you have these skills?
Does your idea effectively utilize your own skills and abilities?
Can you find personnel that have the expertise you lack?
Do you know why you are considering this project?
Will your project effectively meet your career aspirations?
Personal Characteristics 127
companies to build collectively on their strengths. The benefits of this ongoing
dialogue and information exchange between firms allows them to improvise,
innovate and accelerate their development much more effectively than if each
was operating independently. They also benefit from ‘knowledge bleeds or
‘spill over’ by virtue of being in close proximity and enhanced flexibility to
react quickly to shifts in customer demands. This enhanced form of network-
ing extends beyond industry sector to include broader memberships extended
to industry suppliers, research and development institutions and government
departments providing development and extension services. Hospitality clus-
ters are typically found in resort towns of the UK and Europe for example
Aviemore, Bath, Lausanne and Cannes.
Reflective practice
1. Discuss which personal characteristics and skills you believe important for launching a
successful hospitality venture.
2. Using the above questionnaire, reflect on your strengths and weaknesses.
3. Can missing characteristics be learned?
4. How important is it to learn them?
COMPETITION
New business entrepreneurs could do worse than follow a key piece of advice
fromTzun Zu’s Chinese military treatise written during the 6th century, that
is, ‘knowyour enemy’. In other words, howdoes your service compare or differ
fromthat of the your competition? Howcan this information be obtained and
used? It will depend very much on the exact nature of the business and how
much can be afforded. For example, if the trading environment is slow and
predictable with only a few competitors research can be relatively simple and
rudimentary. However, this environment is extremely rare in hospitality and
tourismexcept in brand newlocations in developing global regions. Even here,
multinational players soon recognize the potential for business and seek to
dominate the market. This is an interesting point because, all things being
equal, entering a market with fewer competitors would seem more favorable
than one which economists refer to as ‘monopolistic competition’ where
many small operators are vying for business. Unfortunately, the trading envi-
ronment is rarely simple. Whilst one would seek to avoid this situation as a
newentrant, entering a market with only a fewplayers is also unwise as a first
step. The key issue here is how substantial are the few? In other words, a
market highly concentrated by say three large organizations will confer
CHAPTER 6: The Feasibility Analysis 128
benefits to themdue to their independent and combined strength, established
market position and relatively abundant resource base. Whilst one only has to
observe that large and small hospitality organizations do indeed exist in
resorts internationally with many enjoying business success, it is more diffi-
cult to succeed and sustain (despite the natural locational advantages
bestowed on all hospitality organizations in the region). The following case
illustrates some of the opportunities and challenges faced by entrepreneurs
entering a market.
Small and Medium Hospitality Enterprises in New Zealand: too Many New
Entrants?
New Zealand’s hospitality industry has grown significantly in the last decade, confirming its
importance for the nation’s economy. The number of restaurant, cafe, and accommodation
operations grew by almost 40 per cent between 1999 and 2005; equally as impressive is the
growth (76.4 per cent) in the number of full-time employees in the industry during the same
period (Statistics New Zealand, 1999, 2005). These developments suggest potential
opportunities for current and future hospitality businesses. For example, it is no secret that
New Zealand has recently become a more known tourist destination, possibly with some
collaboration from the movie industry, and that the international tourist market has
increased.
However, despite such positive outlook, there are a number of issues that demonstrate the
challenges that small and medium enterprises (SMEs) in the hospitality as well as in other
industries face. For example, reports suggest that on average 5.75 times more newcomers
start their ventures than what New Zealand’s economy can actually sustain (Pinfold, 2001).
The number of new start ups in already saturated industries, or the level of owners’
preparedness to start a venture can have a direct impact on the lifetime of SMEs. Challenges
may be more severe for hospitality business owners, as these have to wrestle with a wide array
of bureaucratic, economic, and labour issues, and in recent years with consistent decreases
of returns (Stewart, 2006).
To investigate challenges and other business related areas of concern, a study was
conducted with the assistance of owners of small and medium hospitality operations in
Christchurch and Wellington. A total of 255 hospitality enterprises that included cafes,
motels, restaurants, bars and bakeries were approached in these two cities, and invited to
participate completing a questionnaire sent to them. In total, 62 (24.3 per cent) responses
were obtained.
It was found that 51.6 per cent of the participating businesses had been operating for three
years or less, and within this group, 22 (68.8 per cent) had been operating for two years or
less. This finding suggests a high per centage of new entrants in the small sample of this
study. Several reasons might be behind owners’ decision to abandon or sell their hospitality
business. For example, the most pressing challenges among participants were lack of skilled
labour, with 56.5 per cent of responses, competition from other hospitality businesses (41.9
per cent), and local authorities’ rules, including signage and/or costs of compliance (40.3 per
Competition 129
cent). In contrast, lack of customers was the least important issue for participants, with only
19.4 per cent of responses.
Interestingly, when ownership structures of the hospitality operators were investigated, it
became clear that most operations (74.2 per cent) had already existed prior to being taken
over or purchased by the current owner(s). Adding this to the large per centage of
participating businesses that had been operating for three years or less (51.6 per cent)
provides further evidence of the high ownership mobility among hospitality SMEs. That only
12 (19.4 per cent) of all respondents in this study started their hospitality operations from
scratch only confirms the difficulties among many businesses to survive in a very challenging
environment.
Participants worked on average 60.6 h per week. Not surprisingly, on average their
hospitality businesses represented 84.3 per cent of their yearly income. To be independent
or to be one’s own boss (83.9 per cent), to make money (72.6 per cent), to change lifestyle
(62.9 per cent) and passion for the hospitality industry (58 per cent) are participants’ main
reasons for starting their hospitality business. In contrast, as it would be expected, working in
the hospitality industry ‘as a hobby’ (4.8 per cent) is participants’ least important reason for
being in this industry.
While future research could further investigate the overall validity of this study, or if any
changes have occurred in the business structure of hospitality SMEs, the overall findings
suggest a number of areas that newentrants, or even those already in the hospitality industry,
should closely pay attention to.
Questions
1. What challenges other than the ones discussed in this case do you think are affecting
hospitality SMEs as we speak? Think about your own suburb, city, or country.
2. What potential strategies, if any, would you suggest for hospitality SMEs in this study to
minimise the apparent high per centage of ‘casualties’ among businesses?
Possible answers
1. A number of individuals may be entering the hospitality industry to make an investment
they expect to recover, or reap benefits from, quickly. As positive results in the form
of high profits, or even beyond break-even point, are not to materialise within a short-
term, disillusion or disappointment may set in among new entrants, persuading a
number of them to sell their businesses, or simply abandon the hospitality industry
altogether.
2. While it is a complex issue with no simple solution, assistance should be made available by
local chambers of commerce, the hospitality industry itself through a task force advising
new entrants, or government agencies. Educational institutions (degree providers) could
also significantly contribute educating and advising would be entrants about industry
requirements so that these would be better equipped, and about potential challenges
they might face in the industry.
CHAPTER 6: The Feasibility Analysis 130
Source: Alonso (2007).
Understanding the market and its exact competitive nature relative to your
service is quite clearly fraught with difficulty. Hospitality entrepreneurs need
many answers before they can even think about starting a business or
approaching potential investors for start-up funding. The $64 000 question
becomes:
& When is the best time for launching the new business?
This seems straight forward enough as an enquiry but the answer can
appear somewhat inexact as it depends on a myriad of environmental and
contextual conditions and variables. However, these answers are worthwhile
pursuing to optimize the chances of entrepreneurial success.
Key point 6.3
In general, markets are most attractive when they contain only a few competitors. However,
this very much depends on the degree of market concentration.
Some commentators speak of ‘industry attractiveness’. Simply, if it is
attractive it would be reasonable to enter and vice versa but how does one
measure ‘attractiveness’. Linked to this is whether the industry will remain
attractive and for how long? This depends on its inherent dynamism, for
example, information communication technology is notoriously fast-moving
compared to say that of the museum curator. So too, industries such as
hospitality will have sectors which are more or less dynamic. The key is to
take a strategic perspective, focus on the appropriate areas and ask the right
questions. Barringer and Ireland (2006, p. 61) consider an industry to be
attractive according to a ‘must’ list:
& must be large and growing and important to customers that is ‘must’
have rather than ‘would like’;
& must not be ‘mature’ where product is tired and price competition is
intense;
& must have high operating margins; and
& must not be ‘crowded’ as crowding gives rise to fierce price competition
and low margins.
Another useful way to ascertain attractiveness is by brainstorming all
of the likely information you are likely to need for the potential business.
Competition 131
There are also a number of business models available for guidance; a
popular one is Michael Porter’s Five Forces Model and it is shown below
(Figure 6.2).
The construct has value because it alerts the nascent entrepreneur to
several key areas prior to market entry. These may be considered as
‘information requirements’ and once established may be pursued via a num-
ber of sources; some examples are shown in Table 6.2.
The World Wide Web is also an excellent source of market information
and many of the above have their own sites. It is also worthwhile conducting
online searches via an appropriate search engine. However, the entrepreneur
must not take this intelligence unquestioningly. Its credibility depends on a
number of factors such as why the research was commissioned, who
commissioned it and why. All information is political and will therefore
have an inherent bias. Entrepreneurs must avail themselves of this back-
ground information whenever possible if they are to make balanced
FIGURE 6.2 Porter’s five forces.
Source: Porter (1985, p. 6).
CHAPTER 6: The Feasibility Analysis 132
informed business decisions. However, even seemingly objective and unbi-
ased information may be based on questionable premises and therefore have
weaknesses.
Reflective practice
1. To what extent do you believe Michael Porter’s five forces model is a practical option for
the hospitality entrepreneur?
2. Discuss why you think this is so.
Complimentary sources of information are those which the entrepreneur
may elicit themselves using any number of research methods. Indeed, it is
most unlikely that secondary data (even if reliable) will be sufficient for fully
TABLE 6.2 Information sources for feasibility analysis
Source Example Information
Publications Books, professional and industry journals,
business magazines and daily broadsheet
newspapers that is Hospitality, Economist,
In Touch in Business, Management Today,
HR Monthly
Overviews of general economic
trends, features on specific
industries and regions, service
and product intelligence
Databases Independent vendors, market consultants
in possession of consumer lists, telephone
and business directories from extant
businesses
Electoral registers, property
ownership, purchasing behaviour
Government Central and state government and
government agencies
Regulated industries and sectors,
Hansard, commissioned inquiries
International, national and regional
trade associations, chambers of
commerce, trade shows
World Tourism Organization, Institute of
Hospitality, Australian Hotels Association
Published surveys and other
research related to business
interests of members
Annual company reports All publicly listed organizations Financial performance, goals,
profile of executives and senior
management, forecasting and
comments on state of industry
Universities and other educational
institutions
Rigorous published academic research,
opportunity-spotting for innovative
business ideas
Tourism Management, International
Journal of Hospitality Management,
Journal of Management Development,
Journal of Small Business and
Enterprise Development
Adapted from: Schaper and Volery (2004).
Competition 133
informed decision-making. Despite the fact that no one ever has ‘perfect’
information, the gap often inherent in the avilable secondary data can be filled
(at least in part) by the entrepreneur gathering data themselves or commission
someone else to do it. In fact, it would be unwise for any business to proceed
without this sort of knowledge input as potential sites, markets and so on all
have their own idiosyncracies by virtue of context and timing. Simple exam-
ples of primary data collection methods include observing how other similar
establishments operate by visitation. Nothing could be simpler that booking
reservations at nearby restaurants or accommodation in hotels within your
vicinity. A wealth of information can be collected in this way including staff-
ing, style of service, interior design, menu style, pricing and so on. Entrepre-
neurs looking for more ‘scientific’ and potentially richer information could
use interviewing and focus groups techniques or alternatively use trained
rearchers.
Similar to the judicious use of secondary data, primary data must also be
treated cautiously due to a number of potential biases and inaccuracies which
could affect its value. According to Schaper and Volery (2004), the main causes
or error are:
& Nature of the sample – is it of the general population or the intended
market?
& Is the research method appropriate for the respondents and nature of
the research question?
& Are the questions appropriate – do tyey allow respondents to really
give their own opinion or do they only allow a response to be
categorized into one or two categories when clearly more should be
used?
& How high is the response rate?
& Has the research been conducted that can be repeated by someone else –
reliability
& Does the information measure what it is supposed to. For example, if a
respondent is asked about their preference for a particular variety of tea
can this be generalized to their propensity to consume it and other hot
and cold beverages?
& Can these results be generalized to other groups of people not included
in the study?
Reflective practice
CHAPTER 6: The Feasibility Analysis 134
1. You have an idea to open a small bed and breakfast in a popular resort destination. With
limited resources, what primary form(s) of data collection would you use for your feasibility
study?
2. Same question for a small bistro in a city centre location.
3. Same question for a small hotel on a tropical resort island.
ORIGINATING OR FOLLOWING?
When planning to introduce products and services, the entrepreneur needs to
consider whether they are newor simply augmentations of existing ones. If the
former, there will be no secondary data available on which to identify a likely
demand. A comprehensive understanding of primary data-gathering research
techniques and methods is therefore of primary importance. In this situation,
other considerations are also important such as whether the innovator wants
to deal with issues that arise from being the first operator in a particular field
including lengthy lead times prior to profit-making, ease of immitation by
competitors and significantly higher costs to bring the service to market.
On the other hand, analyzing markets for services that already exist is
much easier than for those that do not and usually less costly. It is certainly
more common as most new services are simply an addition or augmentation
of other preexisting ones (Audretsch, 1995). For example, some styles of food
service delivery require chefs to both prepare and then arrange/present food on
the plate to be delivered to the customer by the food server. Others such as
Gueridon service, sees the food server preparing the dish in front of customers
and then serving the finished item (although this style of service is becoming
increasingly rare). Breakthrough hospitality services are uncommon but one
example would be the ‘stone grill’ concept where restaurant customers cook
the food themselves. Another (and more significant) example is that of the
MacDonald’s hamburger. Although the food item itself was not novel, the
actual service concept underpinning the item was groundbreaking and the
owner, Ray Croc, enjoyed what Barringer and Ireland (2006) refer to as ‘first
TABLE 6.3 Range of innovations in hotels
Frequent guest programs Database management
Strategic alliances Direct to consumer marketing
Computer reservations systems Internet
Branding Travel agent valuation
Service quality management In-room sales and entertainment
Franchising and management fee Core business management
Adapted from: Lewis and Chambers (2000).
Originating or Following? 135
mover advantage’ for a considerable amount of time before the concept was
copied by other organizations. Table 6.3 shows some examples of competitive
innovations in hotels in the most recent 15 years.
Being the first to offer a service or product means that the originator can
enjoy dominance over the whole market including a powerful and recognizable
brand image. On the other hand, disadvantages include costly set up costs and
greater risk of failure. It may also be the case that even if the first mover
manages to build market share, business success is not always forthcoming.
Moreover, some industries are not structured in a way that rewards first
movers. The hospitality industry is one such sector where ‘second movers’
are often, after studying the originator, able to move in quickly with a refined
and potentially more successful product. Besides, hospitality customers are
typically diverse with a broad range of tastes and preferences which cannot be
satisfied by one service type or where one can be substituted for another.
An important element of market feasibility is successfully identifying a
niche for the entrepreneur’s product. Essentially, a market segment or niche is
a specific subgroup of individuals with a set of characteristics which differen-
tiate them (or the niche) from other consumers (Frederick, Kuratko and
Hodgetts, 2007). As an example, these authors note that specific segments
exist amongst Australian wine drinkers. A similar classification could be
applied to beer drinkers in the UK particularly if ‘Real Ale’ enthusiasts are
included in the total market for beer consumption. These might be ritual-
oriented drinkers; premium inconspicuous drinkers; fashion-oriented drin-
kers and social beer drinkers.
Small hospitality business often begin by selling to niche markets before
broadening their horizons. The key is to identify a segment that is large
enough to enable entrepreneurial success without invoking direct competi-
tion. The paradox is that the more successful a niche, the more limited the
time frame for the entrepreneur to remain successful without expanding
significantly to combat increased competition. An example here is where
ethnic entrepreneurs initially cater for people sharing their own same cultural
background, that is, their intended market (see Chapter 2). For example, inthe
city of Birmingham, UK, a few Pakistani entrepreneurs established the first
‘Balti’ curry houses in the mid 1970s to satisfy a small and culturally defined
demand. Thirty years later, the popularity of these restaurants and demand
therefore has expanded to such an extent that the termBalti house is common
parlance country-wide amongst the ethnic and non-ethnic groups alike with
many original recipes nowappearing in generic and dedicated published cook-
books (for example, see Chapman, 1998).
CHAPTER 6: The Feasibility Analysis 136
Reflective practice
1 What advantages and disadvantages would face the entrepreneur introducing a new
hospitality service?
2 What advantages and disadvantages would face the entrepreneur introducing an imitation
or copied hospitality service?
FINANCES
An important stage of the feasibility analysis concerns finances. A detailed
analysis is not usually required here as we simply want to gain an impression
of whether the idea is likely to be a success or not. Therefore, it is wholly
appropriate not to get bogged down in minutiae and financial forecasting but
rather, focus on the main areas of:
& capital requirements,
& rate of return, and
& breaking even and other positive aspects associated with the business.
Once these preliminary analyses have been completed and the idea
remains a reasonable prospect, financial projection statements can be com-
pleted, usually for the first three years of the operation. Usually, these details
are included in the business plan (see Chapter 9).
In plain English, a capital requirement simply means how much money
(capital) will the business need to start up and from where will it come? An
exact amount is not necessary for a feasibility analysis but the estimate should
be realistic and account for all likely financial requirements. Typically, they
might inlcude cost of premises purchase, staff hire, equipment costs, training,
marketing, business launches and so on. Afull discussion on raising capital is
not appropriate here but some sources include:
& personal savings/assets;
& loans from family, friends, banks or similar institutions;
& business ‘angels’ and venture capitalists.
In the SME sector of the hospitality and tourism industry, most sources of
capital are from personal assets and from family and friends. Conversion of
private dwellings remains one of the most common routes for industry en-
trance. These sources of start-up capital are common elsewhere and reflect the
current position in the generic small business sector.
Whilst securing sufficient funding is clearly important, the actual
sources of capital also warrant serious consideration. The saying, ‘There
Finances 137
is no such thing as a free lunch’ could not be more appropriate. Capital for
start-up will have an associated ‘cost’ and more ‘risky’ ventures attract
higher costs for the entrepreneur. A useful metaphor here is Marlowe’s play
The Tragical History of Doctor Faustus based on the original Faust story
where, in exchange for power and knowledge, the main character sells his
soul to the devil. The moral in an entrepreneurial sense is that financiers
want a return on their investment and the more substantial the investment
the more they will require as a reward for their risk. This does not only apply
in a strict financial sense but may also influence the way a business is
managed and operated. For example, a family member providing 75 per cent
of all start-up funding may waive a financial reward (return on investment)
in favour of having a stake in the business which translates into (but not
limited to) making most of the strategic business decisions. Indeed, this
may even happen tacitly in that a family benefactor may feel ‘entitled’ to
have a significant input into running the business by virtue of their financial
contribution and also by dint of their position in the family hierarchy!
Obviously, there are a myriad of these configurations and sometimes small
family businesses become challenged less by the act of trading and more by
the complex interfamily relationships and power structures. The moral here
is that for the entrepreneur there are always strings attached when seeking
start-up capital whether emotional and/or financial.
The emotional side of capital funding has warranted little attention by
commentators but all rightly note that understanding and forecasting a finan-
cial rate of return is essential. Typically, projections calculated include ‘return
on assets’, ‘return on equity’ and ‘return on investment’ (see Chapter 9) and
are used to see whether the projections are appropriate, that is, do they justify
pursuing the business idea. Whilst there is a degree of subjectivity involved
several issues must be considered ranging from the actual amount of capital
required and the time it will take to obtain the return to inherent risks and
what economists refer to as the opportunity costs involved. For example, is
there a better investment alternative such as a high interest bank or building
society account? In other words, what would the potential investor stand to
gain (or lose) by investing in your hotel or restaurant in preference to other
available investment opportunities?
Key point 6.5
Sometimes small family businesses become challenged less by the act of trading and more
by the complex interfamily relationships and power structures. The moral here is that for the
entrepreneur there are always strings attached when seeking start-up capital whether
emotional and/or financial.
CHAPTER 6: The Feasibility Analysis 138
Another key set of questions must be addressed at this stage of the feasibility
analysis. According to Schaper and Volery (2004) they can be summarized as:
& How long will it take before the venture reaches break even point?
& How long before cash returns exceed disbursements?
& When will the business be profitable? If this takes too long, the venture
will fail.
Barringer and Ireland (2006) draw attention to other issues related to
financial feasibility:
& steady and rapid sales growth during the initial five years ina defined
market segment or niche;
& high percentege of repeat business;
& ability to forecast income and expenditure;
& internally generated funds to finance and sustain growth;
& availability of an exit opportunity for investors to convert equity into
cash (an acquisition or initial public offering).
Reflective practice
1. Interview a hospitality entrepreneur known to you asking for an estimation of when their
new venture began to break even?
2. How did they cope financially before their business became profitable?
3. Now they operate a successful business, what is their most significant ongoing cost(s)?
DEMOGRAPHICS
Demographic data is a key part of any feasibility analysis and is reasonably
inexpensive to obtain and fairly straightforward, right? Wrong. As with all data
in raw form it forms a collection of numbers which can be interpreted in a
variety of ways. Typically demographic studies illustrate findings as circles at
specific kilometre intervals around a region (like a dartboard without the
number segments). According to White (2007) these areas rarely form neat
and tidy concentric circles as consumers are not attracted equally from all
points of the compass. So what is the best way to identify a market for a
restaurant for example?
Around 80 per cent of the restaurant’s custom will come from local resi-
dents, the remainder will come from those living outside the primary and
secondary areas. Understandably, the primary market is likely to be bigger
Demographics 139
than the secondary market and a feasibility analysis must scrutinize a number
of factors to determine the size and shape of the market areas and how much
business the restaurant is likely to generate. Table 6.4 contains an indicative
summary of what factors to include in the analysis.
Whilst the above serves as a useful checklist, these items are by no means
exclusive and other equally important aspects must be considered including
the size of restaurant’s geographic market, who is attracted, how often they
visit and howmuch they spend. Restaurant design is also a key issue. Will the
operation have a theme? If so how will it be incorporated into the layout and
quality of internal fixtures and fittings? Feasibility analyses therefore must be
able to target the socio-economic lifestyles of its market(s) in preference
to simply identifying an ‘average customer’ demographically; this is too sim-
plistic. When calculating patronage, spend, and intended restaurant design/
ambience the entrepreneur needs more detailed knowledge including
Table 6.4:
& customer values, lifestyles and actual behaviour;
TABLE 6.4 Summary and considerations of a feasibility analysis
&Exact location and site remembering that only a short distance can have an effect on the size of the market area and the
amount of business
&Visibility of signage, major road attractiveness and access
&Co-tenancies, which includes other tenants or uses in the shopping center or in surrounding properties
&Layout of the site and relationship of the entrances and parking to the building’s entrance
&Natural and man-made physical features make act as barriers. For example, as rivers and mountains, cemeteries and
industrial areas may require potential customers to travel a considerable distance to your restaurant even if they only live a
few kilometers away
T Other barriers tend to be psychological in nature and concern how your business is perceived by association with
proximal physical features, often man-made, ranging from unsightly and run-down buildings to the quality of residential
estates
TThese psychological barriers can be alternately viewed as opportunities. They key is to know your market and establish
your business objectives accordingly. For example, a fine-dining restaurant would find little success on a city-based light
industrial estate. However, a medium-priced take-away operation in this location would have a better chance of doing
well because its fare would be more appropriate to its primary market – that is industrial workers
T In a city or town centre location, shopping and entertainment nodes create patterns of travel. These influence the
restaurant’s exposure to residents in their non-working hours. However, being improperly located within a node could be
problematic as being located in a mall may render the restaurant inconvenient to visit
T Travel patterns are important as if the population normally travels in a southerly direction for entertainment and dining,
they may resist going north or west to get to your restaurant. Travel times are also key as they are more important than
travel distance. Moreover, traffic density also has a psychological impact on peoples’ willingness to drive to particular
locations. For example, a longer route which has less traffic and is therefore less stressful is often preferred to a shorter
high density trip
Adapted from: White (2007).
CHAPTER 6: The Feasibility Analysis 140
& with whom they associate or avoid; and
& of which socio-economic lifestyle groups is your primary market
comprised?
For example, knowing that the income of one particular male demographic
is between $50 000AUand $60 000AUtells nothing of food-related tastes and
buying behaviour. One particular restaurant design or concept may attract a
particular group but not another. Not knowing about their preferences and
behaviour will prevent the entrepreneur from operating optimally; relying on
gut reaction here will just not do. In the hospitality industry amongst chef
restaurateurs (particularly amongst those with limited resources and business
savvy), it is often believed that customers share the same love of food and wine
as themselves. In some cases, chefs believe they can ‘educate’ their customers
out of their preferences for less ostentatious dishes. Whilst this is com-
mendable in one sense it is also incredibly arrogant and fool hardy in another.
Occasionally, there may be an isolated success story or two. However in the
main, businesses started intuitively with little more than the entrepreneur’s
belief that others share their predispositions are doomed to failure as many
anecdotal tales from the hospitality industry will attest.
Key point 6.4
Typically demographic studies illustrate findings as circles at specific kilometre intervals
around a region (like a dartboard without the number segments), these areas rarely form
neat and tidy concentric circles as consumers are not attracted equally fromall points of the
compass.
SUMMARY
Feasibility analyses determine whether a business idea is worth pursuing or
not. This can be framed in a number of ways but answers key questions such
as:
& Is there a market for the considered service or business idea?
& Are there adequate sources of start-up and continuing funds? and
& Does the entrepreneur have the skills or other means to deliver this
service?
In the hospitality industry (but not exclusively) there is a tendency for
entrepreneurs to commit emotionally to a newventure and launch before first
conducting a thorough and systematic analysis of all pertinent factors. This
Demographics 141
process is key to optimise chances of business success irrespective of whether
the venture is of the ‘lifestyle’ or ‘growth’ types.
Feasibility analyses should be comprehensive but appropriate to the new
venture focussing on areas of:
& personal characteristics of the entrepreneur;
& nature of the competition;
& availability of start-up and continuing finances including rate of return
and breaking even; and
& demographic information.
This information can be obtained from a variety of sources including that
which has already been published and also by a process of primary data
collection. The latter is particularly important if the new service is a truly
novel concept because in these circumstances data will not be readily available
given the originality of the idea. However, making sense of secondary data and
collecting reliable primary data is fraught with difficulty. The former type will
almost certainly contain errors and biases to a lesser or greater extent depend-
ing on who commissioned the research, why and how the data was gathered
and interpreted. Collection of original data requires a full understanding of
appropriate research methods to avoid drawing inappropriate conclusions.
This research may be either commissioned from a dedicated professional
organization or undertaken by the entrepreneur. The choice most often
depends on available resources but the process itself does not necessarily have
to be overly onerous. Ultimately, the amount of data required on which to base
an initial ‘yes’ or ‘no’ decision rests with the entrepreneur. However at the
very least, they should be confident that most bases are covered. Nascent
entrepreneurs should speak with experts and or familiariz themselves with
at least one construct (checklist) designed to ascertain ‘industry
attractiveness’. This should allow an educated estimate of whether the ven-
ture is likely to be a success. The following stage is a more detailed inspection
of the market, finances, organizational readiness and so on in the form of
business plan.
Case author
Small and medium hospitality enterprises in New Zealand: too many new
entrants?
Dr Abel D Alonso
Edith Cowan University
School of Marketing, Tourism and Leisure
Australia
CHAPTER 6: The Feasibility Analysis 142
The Family Business: Who’s to
Bless and Who’s to Blame?
After working through this chapter you should be able to:
& Identify the inherent advantages family firms have over non-family firms
& Understand the roles of key individuals in the family firm
& Discuss the nature of conflict in family businesses
& Identify why a significant number of family businesses fail to be transferred
successfully
INTRODUCTION
The Collins English Dictionary and Thesaurus (1992) defines ‘Family’ as ‘[a]
parent and children or near relatives’. A family business is more difficult to
classify. According to Litz (1997) and Sharma (2004) this is because the field
itself is still relatively newand under-researched; therefore, several definitions
exist. Litz (1995) suggests that a business can be defined as ‘family’ when its
ownership and management are concentrated within a family unit.
Shanker and Astrachan (1996) are more prescriptive and note that the
criteria used to define a family business can include:
& Percentage of ownership;
& Voting control;
& Power over strategic decisions;
& Involvement of multiple generations; and
& Active management of family members.
The Australian Family and Private Business Survey of 1997 classifies a
business as ‘family’ when any one or more of the four following criteria are
met:
& More than 50 per cent of the ownership is held by a single family;
& More than50 per cent of the ownership is held by more thanone family;
CHAPTER 7
143
& A single family group effectively controls the business; or
& The majority of senior management is drawn from the same family.
In 2003 the same survey opted for a self-identification method, asking
businesses to nominate whether they thought they were either a family or
non-family business (Smyrnios, Walker, Le, Phan, Vuong, and Young, 2003).
Currently, Entrepreneur.com, defines a family firm as:
A business actively owned and/or managed by more than one member
of the same family,http://www.entrepreneur.com/encyclopedia/term/
82060.html, retrieved February 2008.
These definitions are unhelpful in terms of furthering scientific research in
the field as they do not allow direct comparison between studies. However,
they are useful here as they have a commonality and introduce the notion of
‘family control’ or dominance of the business by one or more family members
which is appropriate for this chapter. Nonetheless, an assessment of the extent
to which family businesses exists cannot be accurate due to definitional differ-
ences but we can make some reasonable assumptions. For example after
reviewing the evidence, the Centre for Labor Research concluded that 67 per
cent of Australian firms consider themselves to be family businesses (Spoehr,
Nukic and Robertson, 2005). In the US, around 92 per cent of American
businesses are classified as family businesses (Shanker and Astrachan,
1996). This makes the sector significant in terms of employment provision
and wealth generation.
Reflective practice
1. How would you help overcome the challenge of defining small family hospitality firms?
This chapter identifies the difficulties in obtaining an accurate profile of
small family owned hospitality firms and continues by discussing some typ-
ical roles played by family members in newhospitality businesses. Anotion of
new venture teams is introduced and the use of ‘external’ advisors outlined
including governmental and non-governmental sources. The chapter con-
tinues by discussing the advantages that small hospitality family firms have
over those managed by others and how conflict may be recognized and
addressed. Finally, transferring the family business and succession planning
are introduced with some suggestions how the complex process may be man-
aged effectively.
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 144
HOSPITALITY AND TOURISM
Most hospitality and tourism enterprises fall into the small or micro firm
category. Unfortunately, it is difficult to be entirely accurate due to the non-
uniform manner in which the information is collected. However, aggregated
data suggests that internationally most hotels are small to medium-sized (Lee-
Ross, 1999). In Australia, they form 90 per cent of total hotel stock (Lee-
Ross, 1998). Similarly, in the UK around 85 per cent of hotel firms are small
(Sheldon, 1993). The Australian and UK profiles are reflected globally and
Morisson (1998) comments that internationally, ‘The small firmcontinues to
play a significant role within the hotel industry . . .’ (p. 191). Moreover, owner-
operators account for 85 per cent of all hotels (MSI, 1996). This is confirmed
by Wanhill (1997) who notes that the small and medium-sized hospitality
sector is dominated by family businesses. It may therefore be concluded that
family plays a vital role in the hospitality and tourism industry and that to
understand entrepreneurship therein necessarily requires an understanding of
how families think, interact and operate.
When it comes to starting a newhospitality business, there is a temptation
to rush headlong into the process without first giving due consideration to
those who will actually be involved. Often at start-up there may only be one
person, the founder, and perhaps a ‘significant’ other who will probably be
holding down a job elsewhere to ensure an income stream at this crucial early
stage of the business. Assuming the entrepreneur wishes to growthe firm(not
all do) creates a situationwhere one individual simply cannot undertake all the
required activities, certainly not in the long-term. So who exactly becomes
involved in running small hospitality firms? The following hypothetical case
helps us to identify some key people and also highlights other issues including
poor planning, impoverished knowledge of alternative sources of finance, role
ambiguity and obligations of family members.
The ‘Sea View’ Bed and Breakfast
Stella and Gary Slack purchased a B&B in a UK seasonal seaside town. Formerly, they were
locals living elsewhere in the town and so had a reasonable understanding of the tourist
demand for accommodation during the busy summer months.
Stella held down a job in a local retail outlet whilst Gary worked for a gas and oil rig
maintenance company. Tired of his ‘two weeks on’ and ‘two weeks off’ shift-working
arrangements both he and Stella decided to start afresh as small hoteliers. After giving notice,
Gary quit his job and they purchased and an existing B&Bbusiness in need of some ‘tender
loving care’; Stella remained employed elsewhere as they would have to rely on her job for
income during the ‘off-season’ when the business was closed.
Hospitality and Tourism 145
After extensive refurbishment during the winter months, Stella and Gary opened their doors
for business in June of the following year. At first, trade was slow but they had received a
number of bookings fromthe regular trade established by their predecessors. Stereotypically,
Stella did much of the cooking and Gary looked after general maintenance and some waiting
at tables. As the summer season began to gather pace, their B & B became busy with many
‘walk-ins’ and increased prior bookings. This demand meant that for a period of around six
‘peak’ weeks, they managed to let all eight of their bedrooms almost every night.
Understandably, this created extra work; far more than they could deal with by themselves.
So like many new entrepreneurs they relied on family members, friends and locals to fill
positions including, room attendants, wait staff and kitchen assistant. All individuals were
paid the going rate for the job including family and friends. Some were bona fide employees
whilst other were paid ‘cash in hand’. As the season started to become quieter, some staff
were no longer required.
After several successful Summer seasons, Stella and Gary decided to expand their business
premises. Luckily the adjacent B & B was up for sale and the couple were most keen on
making a purchase. However, they could not raise enough capital to secure the deal so they
approached family members in the hope of an interest free loan. Much to their delight a
brother and sister in law came to the rescue but with one condition. The new couple wanted
joint ownership and, occupying similar roles, to work alongside Stella and Gary in the new
venture.
After little thought, virtually no negotiation or scenario planning, Stella and Gary agreed to the
condition. Soon after the house was purchased both converted into one large B & B with 16
bedrooms. After decorating and renaming the new B & B, all was set for their first busy
summer season.
1. Howwould employing these individuals have affected the running of Stella and Gary’s B&
B and how should they have planned for the busy period?
2. How would the founders have advertised these employment positions?
3. What knowledge would Stella and Gary have needed to ensure their staff were enjoying fair
and legal employment conditions?
4. What impact would the new couple have on the operation of the B & B?
5. Take an educated guess at some of the opportunities and challenges associated with joint
ownerships and working with partners.
Source: the authors
Key point 7.1
Family plays a vital role in the hospitality and tourism industry and that to understand
entrepreneurship therein necessarily requires an understanding of how families think,
interact and operate.
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 146
THE CHOSEN FEW
As discussed in Chapter 1, many hospitality enterprises fail in the first year or
so of operating. Reasons cited include poor marketing, inability to innovate,
poor business planning, failure to delegate responsibility and so on. These
shortcomings are essentially people-related, that is, many entrepreneurs lack
relevant expertise and experience. Barringer and Ireland (2006) refer to this as
the ‘. . . liability of newness . . .’ (p. 127) where firms struggle because of
inexperienced and inflexible founders and associates. One of the biggest hur-
dles is for the entrepreneur to identify their weaknesses and be totally honest
about it. This is important when starting a business and questions the founder
needs to ask herself include:
1. What do I know?
2. What don’t I know?
3. What do I need to know?
4. Who has this expertise and knowledge?
5. How do I access and use these skills?
Satisfying these questions for some may be difficult, because entrepreneurs
typically have a strong ‘locus of control’ (see Chapter 2) and as such, may not
like to admit their shortcomings. However even before start-up, it is essential
that founders are smart enough to realize that they may not have all of the
answers and relevant business experience to run a small hospitality firm
successfully. They may be deficient in a number of areas and require the advice
and expertise of others. The best situation is where the family group is het-
erogeneous (within reason) and all individuals bring different knowledge and
experience to bear on the new firm. However, a more usual scenario is where
family members only possess a few complimentary skills or where the family
group is so small (two people) that neither person has the required business
knowledge.
So what can entrepreneurs do to address these knowledge and skill gaps?
Fortunately, free advice is usually available from an array of public agencies
and interest groups. Local tourismand hospitality associations are good places
to seek advice. Several examples of generic small business services are shown
below:
& Australian government sites -http://www.business.gov.au/Business+
Entry+Point/How-to+guides/Thinking+of+starting+a+business/&http://www.australia.gov.au/Small_Business
& www.business.qld.gov.au/mentoring
The Chosen Few 147
& National Network of Area Consultative Committees funded by the
Australian Government, working to promote regional development
www.fnqacc.com;
& Council of Small Business of Australia Ltd. -http://www.cosboa.org/
webs/cosboa/cosboaweb.nsf/
& Small Enterprise Association of Australia and New Zealand - http://
www.seaanz.asn.au/
& UKGovernment -http://www.businesslink.gov.uk/bdotg/action/home?
domain=www.businesslink.gov.uk&target=http://www.businesslink.
gov.uk/
& Advice for small business (UK) -http://www.smallbusiness.co.uk/ &http://www.smallbusinessadvice.org.uk/sbas.asp
& US Small Business Administration -http://www.sba.gov/
& European Small Business Advice -http://www.esba-europe.org/
& Small Business Europe -http://www.smallbusinesseurope.org/en/
Similar services are offered in other countries and are free with advice being
offered on all aspects of running a small business including, staffing, strategies
for growth, marketing, sources of finance, strategic planning and so on. Alter-
natively entrepreneurs can avail themselves of similar services from private
firms who charge for such a service.
Another option for hospitality founders is to acquire and apply knowledge
but this could take time and prove costly in the long run. Networking with
others in industry associations and elsewhere through social outlets may also
allow the entrepreneur access to business knowledge and information. Wher-
ever the hospitality founder seeks information she must be eager and quick to
learn if it is to be used effectively and developed. Family businesses are often at
an advantage here as the knowledge acquired stays within the firm and grows
organically over time with the addition of new family members. Whilst fo-
cused industry-relevant acumen is advantageous, prior generic business savvy
is also important when starting a new business. So too is an awareness of
funding availability. The following case illustrates this point.
How I Got Started
Nantwich-based entrepreneur Andrew Donaldson was running storage businesses in and
around Manchester when he decided to get into the hotels business.
He began by setting up his own company, The Egryn, to buy the Egryn hotel in the North
Wales seaside resort of Abersoch. And he quickly secured [pounds sterling] 450 000 of
financing from Bank of Scotland Corporate, which was recommended to him by his
accountants.
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 148
Donaldson’s main aim was to attract young families and budget travellers by offering cost-
effective, comfortable rooms on a sliding price scale. Although there are numerous hotels
and B&Bs in the area, he felt that holiday-makers on a tighter budget were not really catered
for, leaving a lucrative gap in the market. Fortunately, Bank of Scotland Corporate shared his
vision.
Having bought the hotel, Donaldson used the remainder of the cash to refurbish and extend
the property, turning the former owner’s accommodation into a three-bedroom, self-catered
chalet, bringing the total number of bedrooms available to 10, along with one-bedroom staff
accommodation.
And he certainly didn’t hang about. Contractors were lined up and waiting and, after
Donaldson got the keys on 1 July, ‘with a lot of hard work and endeavour’ the new-look Egryn
was open for business within 48 hours.
Occupancy rates have been good so far, with the self-catering chalet let out for the whole of
the summer. If the project continues to be a success, Donaldson, who set up his first business
in 1991 with a loan from the Prince’s Trust, aims to develop further sites in the area, making
the most of his storage knowhow.
‘Buying a hotel is a first for me,’ he says, laughing, ‘although the two
companies both work along the same principle of letting out space.’
Source: Donaldson, A. (2004) How I got started, Caterer and Hotelkeeper, Sept. 2, p. 105.
Reflective practice
1. Interview a entrepreneur known to you asking how they identified their knowledge and
skills gap and how they addressed the problem.
A checklist of those who may be involved directly and indirectly in a new
venture is shown in Table 7.1. Clearly some roles apply to family members
whereas other more specialized ones do not.
The above list is by no means exhaustive, for example, the last category of
‘Other professionals’ is vast as each person offers a different service. Moreover,
a decision to hire such people must not be taken lightly, a variety of issues need
to be considered beforehand. Shaper and Volery (2004) caution that business
consultants must not be considered a panacea for all business challenges and
the founder should engage in their own research before using such services.
These authors provide a useful summary of criteria which must be addressed
prior to engaging the services of business consultants; they are shown in
Figure 7.1.
The Chosen Few 149
An important issue not shown above is that of entrepreneurial confidence.
Often the founders of small hospitality firms have technical knowledge and
little else. It is vital that rapport is established between founder and consultant
if the bases of the new firm are to be established to optimize its chances of
future success. Some consultants are passive whereby the client is assisted in
finding their own solutions. Others adopt a more dominant role as problem-
solver (solicitor or accountant), whilst some challenges are of a more fixed
nature. For example, a hotelier might decide to adopt computer software to
deal with guest reservations. In this instance the consultant may be an
TABLE 7.1 New venturers
Players Details
Founding team &Can be more effective than individual entrepreneur as mutual psychological support
offered to each member;
&Past successes are a good predictor of new venture also allows trust to be developed;
&Heterogeneity provides good basis for inter team debate provided individuals are
significantly different to each other;
&Power struggles may ensue as venture develops;
&Members must have appropriate skills, knowledge and experience and operational ability
linked to the venture. Restaurateurs should ideally have food production and service
abilities in addition to higher management capabilities.
Key employees &Decision to hire based on solid planning, some founders may play key staffing roles,
especially in a family business where flexibility is key;
&Good ‘job fit’ is essential, recruited through existing founder network, advertisements in
various media, executive search firms for management staff.
Board of directors &Necessary when firm becomes incorporated, not usual in hospitality SMEs especially
at start-up;
&Directors add ‘legitimacy’ to firm, sends signals to customers, employees and investors;
&May be founders or external who oversee appointment of managers, declaration of dividends
and affairs of the firm, usually meet quarterly
&Other key role is ongoing support and guidance for founders and managers, therefore essential
that directors have appropriate experience.
Advisory board &Ongoing panel of experts, similar role to directors but has no legal responsibility for firm
Lenders and investors &In the family firm these will probably be relatives and friends. May also be keen to observe the
hotel closely and to become involved depending on the significance of the investment;
&Can be a cause of conflict where investor has different ideas of operating compared with
founders and managers;
&Can provide invaluable help and advice in areas including recruitment, market knowledge, as
directors or advisors.
Other professionals &These include, lawyers, accountants, architects, business consultants and so on;
&Small hospitality businesses might use a consultant for advice in several areas as employing
one person in each designated area would be too costly.
Source: Adapted from Barringer and Ireland (2006, pp. 128–140).
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 150
employee of the software manufacturing firm hired to give specific instruc-
tions about how to use the new system. In any event, the type of problem
usually dictates the consultancy style.
Key point 7.2
Before opting to use a consultant for business advice founders must engage in their own
research to establish the credibility of the potential advisor.
ADVANTAGES OF THE FAMILY BUSINESS
Leach (1996) cites seven advantages enjoyed by family firms:
& Specialist knowledge and know-how protected and retained by the
family;
& Free advice from experienced family members;
& Extensive business and social networks;
& Extensive knowledge of markets, suppliers etc;
& Commitment through family ties;
& Cultural long-term stability and positivity relative to non family firms;
& Reliability and pride building strong relationships with customers;
FIGURE 7.1 Key selection criteria.
Adapted from: Shaper and Volery (2004, p. 232).
Advantages of the Family Business 151
& Short-lines of communication allows fast decision-making;
& Family usually willing to advance loans at zero or low interest with
‘flexible’ repayments;
& Initial passion of founder may be transferred inter-generationally;
& Resilience of family members during times of crisis;
& Long-range planning although not necessarily of the ‘formal type’; and
& Employment flexibility in terms of time and effort and whether to
accept a full salary all of the time especially when business is not
performing.
Adapted from: Leach (1996) and Deakins and Freel (2006).
Sirmon and Hitt (2003) also consider the family firm to have several
inherent advantages noting that success depends on the management of a
few unique resources. The first is how complimentary the skill sets of imme-
diate family are. Second, a recognition that individual family members are
likely to have a variety of complimentary external networks and linkages. The
third resource is the nature of family capital which is often unfettered by red
tape, is ’flexible’ (in some cases interest-free!), and may be relied on in cases of
emergency (including free labour). Finally because of the trust element present
in family firms, much of the costs associated with ‘official’ policies, proce-
dures, security systems and so on are at a minimum. Burns (2001, p. 359)
agrees noting that a business culture characterized by task orientation, and
performance management is at a disadvantage because it lacks a strong sense
of emotional attachment which characterizes the family-firm.
However, family businesses also have their problems, the most obvious
being nepotism. Deakins and Freel (2006) consider that the overarching man-
agement style exhibited in small firms tends to be autocratic and malignantly
paternalistic. Overwhelming evidence suggests that this is also the case in the
hospitality and tourism industry. Family firms are prone to conflict for a
number of reasons which are discussed in the next section.
Reflective practice
1. Through either desk research or by interviewing a hospitality entrepreneur known to you,
identify some key inherent advantages that family businesses enjoy.
FAMILY CONFLICT
Business founders typically experience higher workloads than virtually all
categories of employee (Harris, Saltstone and Fabroni, 1999). It would
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 152
therefore be reasonable to expect high stress levels amongst these individuals.
Furthermore, these extreme conditions are likely to engender conflict in the
workplace. This may also be compounded by other issues if working closely
with family members. Conflict within the family is likely to negatively impact
on venture performance by lowering the well-being of the founder and subse-
quently hinders work performance (Sheldon, 1993, p. 289). Shelton (2006)
defines work–family conflict as:
‘A form of inter-role conflict arising because pressures emanating from
one role are incompatible with those from another role’ (p. 288).
So does this mean that conflict is reduced when the work/life interface is
managed appropriately? The answer is ‘yes’ but there appear to be other chal-
lenges and nuances within the family group which must also be considered.
So how is conflict best reduced in family businesses? The evidence is
conflicting but some cautious generalizations can be made. In small to medi-
um-sized hospitality firms, co-founders are often family members. However,
convening the family team or rather the appropriate configuration thereof is
essential and may be challenging due to the inherent roles played by indivi-
duals as family members. For example, who will be the leader of the family
business, the child, father, mother, uncle etc.? The extra dynamic here is that
of the ‘traditional’ hierarchical structure of the family and the culturally bound
relationships between members. Lambing and Kuehl (2007) note that family
businesses are complex precisely because they are based on family relation-
ships rather than the relatively simple notion of making money. There may be
cases of nepotism, sibling rivalry for the top job and disharmony between
parents and children. These challenges may be exacerbated when offspring
marry and the family becomes extended. Not to mention the extra financial
burden accompanying the advent of more members joining the business.
What about the relatively simpler family profile of only two members?
Many small hospitality firms are comprised of only husband and wife (or
similar) and employ others only during the busy periods. Even this situation
may create a double edged sword. Figure 7.2 identifies some related advantages
and disadvantages.
Essentially, the issue here is ‘business creep’, that is, when work and family
life become merged. This often happens during the early stages because cou-
ples (and other members) are intent on making their business successful to
the exclusion of everything else; family life therefore takes second place. In
extreme cases, this can continue until it is hard to distinguish the family from
the firm. Anxieties and work-related stress can manifest in the home envi-
ronment. Ultimately, these pressures can result in couples divorcing and
other family members becoming estranged. Interestingly, divorce rates and/
Family Conflict 153
or separations amongst hospitality managers are high at 33 per cent
(Shrimpton, 2002). So too is alcoholism which may also reflect the significant
stress levels under which family members work (Crosland, 2007).
So how can the impact of business creep be mitigated? Several coping
strategies exist and they fall into two categories. The first considers psycho-
logical coping responses to negative emotions surrounding work–family con-
flict (see Ashforth, 2000). For example, suppression of behaviour and thoughts
between the work and family domain, fixation and significant focus on only
one domain to counteract the negative consequences of the other and limited
involvement in one area to cope with demands from the other.
There are a number of practical steps which may help limit the negative
effects of working side by side with a partner. Probably the easiest to imple-
ment is establishing separate times to discuss business and personal matters.
A somewhat more challenging practice is to describe each partner’s behaviour
and then discuss it. If all else fails, a family business consultant may be used or
even a family relationships counsellor! (Lambing and Kuehl, 2007).
The second strategy looks at role manipulation. Rooted in the earlier work
of Moen and Yu (2000), Shelton (2006) advances the notion that role elimi-
nation, role reduction and role-sharing are key considerations for high per-
forming family businesses (particularly for female entrepreneurs). Evidence
suggests that work-family conflict may be lowered more effectively (than
internal coping mechanisms) by adopting appropriate work-family manage-
ment strategies as they can reduce conflict by changing the configuration of
competing family and work demands. Moreover, if used judiciously these
FIGURE 7.2 Advantages and disadvantages of family ‘couples’.
Adapted from: Lambing and Kuehl (2007, p. 95).
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 154
measures can also reduce the requirement for psychological coping mechan-
isms (Shelton, 2006). The strategies shownbelowhelp lower family conflict by
organizing, sequencing and delegating work and family activities:
& Role elimination – no role in family
& Role reduction – smaller family role or deferring a family until business
is established
& Role sharing
T delegation of role played in the venture (participative management
techniques)
T delegation of family role by outsourcing family obligations
The actual strategy chosen will depend on the salience of work and family
roles (i.e. which is most important) and the type and quality of external
resources available. The founder has to find an optimum ‘fit’ taking these
factors into consideration. Shelton (2006) advances the idea that salience may
be mapped against external resources as shown in Table 7.2.
It also goes without saying that in a business sense, both partners must
share goals for the growth and development of the firmand allocation of roles.
Furthermore, these issues are seldom static and may change over time as the
business changes and matures. It is essential to revisit any original agreements
on a regular basis.
The road is obviously fraught with difficulties and some commentators, in a
general sense, recommend the use of a ‘family council’ whereby members meet
regularly to discuss and debate major issues. Advisory boards may also be used to
help ameliorate the inherent problems of governing a family business. Burns
(2001) advises a four-step approach to resolving conflict within the family:
& Address the critical issues relating to family involvement in the
business, that is, how does the business relate to the family and vice
versa;
& Establish a family council to express views and set ground rules;
TABLE 7.2 Optimal work-family management strategy choices
Internal family salience
Low High
External resources High Delegate family role (role-share) Delegate venture role (role share)
Low No family (role elimination) Defer family
Smaller family (role reduction)
Source: Shelton (2006, p. 292).
Family Conflict 155
& Construct a family constitution by developing a written statement of
the family’s values, beliefs and objectives; and
& Monitoring progress and maintaining regular communication through
council meetings.
Adapted from: Burns (2001, p. 367).
In a practical sense resolving family conflict is unlikely to be as smooth
as suggested by the above model but these elements are important and the
wise family business founder(s) would be advised to give each adequate
attention.
Key point 7.3
There are two overall strategies for mitigating the negative impacts of business creep. The
first considers psychological coping responses to negative emotions surrounding work-
family conflict. The second is the manipulation of the work-family situation by role
elimination, role reduction and role-sharing.
Reflective practice
1. What strategy would you adopt to avoid business creep in the small family owned and run
hospitality firm and why?
SUCCESSION PLANNING IN THE FAMILY BUSINESS
The effective transference of the small hospitality firmfromone generation to
another (i.e. succession) is a direct result of thorough planning and commu-
nication as it addresses a number of key questions including:
& Will the business be transferred on a certain date or by a certain date?
The former is immediate whilst the other is a longer term option and,
all things being equal, the preferable pathway;
& Who will be the successor and are they ready and capable of running the
business successfully? If not, howwill the transition period be managed
and by whom until the ‘heir’ is sufficiently skilled?
& Does the heir want to take over the hospitality enterprise?
& Do they know that parents are planning to hand it over? and
& When will the business be transferred?
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 156
The following case illustrates some of the above issues.
A Success Story
Like many hotel owners, long-time Best Western member Don Seaton grew up in a lodging
industry family. More than 50 years ago, his parents owned a small, independent property in
the Lake Tahoe region of California.
‘I started out when I was eight years old, doing the laundry,’ Seaton
said. ‘We didn’t have dryers back then, so my job also involved taking
the clothes to the back line, drying and folding them.’
Looking at a career in education, Seaton went on to college, but after graduation, he found it
difficult to make ends meet on a teacher’s salary. In 1960, his father offered him a full-time
marketing position at the property, which by then was a Travelodge. Seaton then started out
on his own, acquiring a Travelodge in Clearwater Beach, Fla. Seaton sold the property, but by
1973, his family had acquired a membership for the 110-room Best Western Seawake Inn,
also in Clearwater Beach.
Now, almost 30 years later, his daughter Wendy Damsker is manager of the Seawake. His
other two children also have worked in the lodging industry. And Seaton’s Best Western
portfolio now includes the 116-room Best Western Crystal River Resort in Crystal River, Fla.,
and the 124-room Best Western Harbor View in Melbourne, Fla.
As the son of a hotelier and father of children who wish to continue in the business, Seaton
typifies the ‘sandwich generation.’
When it came time for Seaton to take over the business, he chose not to accept the
inheritance of his parent’s stock, but to acquire their interest equally with his wife. Seaton and
his wife now own 50 per cent, with the remaining 50 per cent split among his three children.
In part, this has been undertaken as a strategy to blunt the otherwise significant impact of
inheritance taxes.
‘In our kind of business, it’s very important that the next generation
doesn’t get clobbered by these taxes,’ said Seaton, who also has six
grandchildren-none of which has shown an interest to make lodging
their career choice.
When imparting grandfatherly advice, Seaton encourages them to be flexible. Like family
entrepreneurs in other industries, he knows the fourth generation of a hotel family doesn’t
tend to be locked into the family tradition.
Sid Friedman is president and CEO of Philadelphia-based Corporate Financial Services, a
consulting firm that helps manage the generational transition in hospitality industry families.
Friedman said he believes successful succession planning is an art comprising prudent
financial planning and managing the human relationships and pride that come into play as
part of family life.
When it comes to the financial aspects, Friedman is a big believer in family-limited
partnerships.
Succession Planning in the Family Business 157
‘When you start bringing your kids into the business, the growth is in
your kids’ names, not in yours,’ he said.
Gift taxes on bequeathed-limited partnerships are significantly lower
than estate taxes.
‘Limited partnerships help get the assets out of the estate,’ said Bill
Meyer, co-owner of Meyer Jabara Hotels, a company based in West
Palm Beach, Fla., with a 25-hotel portfolio. ‘The [Internal Revenue
Service] will attribute the limited-partnership interest with a 25-per
cent discounted value for estate-tax purposes. Gifts of a limited-
partnership interest don’t have control aspects, which is why the IRS
discounts the value of that gift.’
Meyer’s father and the father of his business partner, Bill Jabara, are 40-year veterans who
still play important roles in their hotel businesses. Their franchises include Holiday Inn,
Sheraton, Marriott and Hilton.
Family matters come into play when heirs who have been substantially vested feel they
should have the major say in day-to-day hotel-management affairs. Friedman said disputes
might result if the parents don’t want to cede control. He recommends setting up two classes
of stock, with parents retaining a majority of voting shares.
Friedman said that while some children in a given family might be interested in continuing in
the hotel business, others might not. In such cases, he suggested awarding ownership with a
ratio partially determined by each child’s degree of interest.
Michael Gulesarian is certainly an interested member of a second-generation hotel family.
His father, 68-year-old Ed Gulesarian, owns a 175-room Sheraton Commander hotel in
Cambridge, Mass. Trained as an engineer, Ed Gulesarian has been with the property since
1969. That year, his own father, who started in the residential suites business in 1946 and
acquired the Commander in 1960, brought him into the business.
Ed Gulesarian still owns the 75-year-old Sheraton Commander, but his son Michael is general
manager. At times, this can lead to generational disputes about how much authority the
offspring has.
‘He is basically running the place and really doing an excellent job,’
Ed Gulesarian said. ‘I have given the reins to him, but sometimes I
stick my nose in things. I find it difficult to let go.’
Gulesarian has yet to work out the financial aspects of generational transfer.
‘We have to do some more estate planning,’ he said. ‘Three weeks
ago, the sermon in church was, ’Do what you can do today, and don’t
leave it to tomorrow.’ That’s probably right.’
Cendant Corp. franchisee Rick Williams also grew up in the hospitality industry as one of
three brothers in an entrepreneurial family that first owned several motels in Georgia during
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 158
the 1960s. He recalled overhearing conversations about the business as a child, but his
education didn’t stop there.
‘Throughout the years, my exposure went beyond the dinner table,’
Williams said. ‘I bell-hopped, checked rooms and desk-clerked.’
Williams is responsible for the 10-property hotel armof Adel, Ga.-based Williams Investment
Co. Because Williams was more interested in the hospitality business than his siblings, he
said they have complemented each other. His father, John Williams, still drops by the office.
Source: Shaw(2002) Successful succession transfers take prudent financial planning, Hotel
& Motel Management,http://www.hotelmotel.com/hotelmotel/article/articleDetail.jsp?
id=37172, Retrieved February 2008.
Unfortunately succession planning in small family firms is an area which
is often haphazard and ‘organic’. Smyrnios et al. (2003) note that amongst
first generation family firms in Australia, only just over half survive into
second generation with around a quarter of this proportion following through
to the third generation. North American succession statistics are similar with
only 30 per cent of businesses surviving the first generation (Ward, 1988) with
a mere 15 per cent passing to the third generation (Morris, Williams, Jeffrey
and Avila, 1997). These authors consider a lack of planning as the major
reason for failure including family quarrels leading to poor decision-making
or no decision-making, irrational division of family assets, appointment of
incompetent managers and so on. The hypothetical case below illustrates
some of these challenges.
Growing Pains
David and Ruth Edwards were a successful entrepreneurial couple who owned a seventy-
bedroom seaside hotel. Originally some 25 years earlier, they bought into an equal
partnership arrangement with four existing partners. After a couple of years, they raised
enough capital to buy out all of them and became proud sole owners of their establishment.
In their late thirties at the time of purchase, they had a son Eric aged 16 who began to work in
various roles. Eric continued to gain operational hospitality skills and experience, even
working for short periods in other hotels, up until he left the region to attend university. During
this time Eric returned during vacations to work for his parents in the family business.
After graduation, he returned to work full-time in the hotel but now as a supervisor/junior
manager. Happy to be working in this new capacity, Eric was keen to be given more
responsibility for the strategic side of the business. He and his father also now broached the
idea of succession once David and Ruth neared retirement age. Eric greeted this with
enthusiasm but was disappointed with the outcome. Discussions simply consisted of ill-
focused exchanges about what might or might not happen in the future with his father
Succession Planning in the Family Business 159
constantly stating that ‘One day son, all of this will be yours’. This was rather frustrating for
Eric but he was unsure what he should do next, after all it was his parent’s business and they
could really do what they liked with it.
As the years went by Eric’s role as manager really amounted to nothing more than providing
emergency cover across most departments when staff failed to turn in for work. In fact, the
only time Eric was granted any managerial responsibility was on his parent’s one day off every
week. And on these days he would receive a constant stream of telephone calls from his
mother telling himwhat he should and should not be doing when dealing with issues that may
arise on that day.
On a more personal level, Eric was feeling discontented as recently he sought to move out of
the family home into a place of his own. Much to his disappointment he was unable to arrange
a mortgage for a nearby house because his salary was relatively low in comparison with other
paid employment for a man of his qualifications and experience. Begrudgingly he had to
approach his parents to raise extra capital for the purchase. They of course were more than
happy to do so but Eric was starting to feel beholden to them and began to question his
financial worth and as a member of the family business. After undertaking desk research on
salary levels for comparable occupations he became even more disgruntled.
A couple of years later Eric got married to Layla. She had extensive management experience
in hotels but left her most recent position to accompany Eric in the family business. All four
family members now worked together and Eric hoped that this new situation would tacitly
persuade his parents to give himand Layla more real managerial responsibilities in the hotel.
In more private moments, Eric and Layla sawthat the business was doing reasonably well but
there was much roomfor improvement, particularly in the area of banqueting and weddings.
Fortunately, they could cater for these events with virtually no disruption to the ongoing
business of the hotel as it had several kitchens and function rooms which could be easily
cordoned off whilst events were taking place. After much discussion, from their notes, they
drew up a comprehensive business plan and presented it to David and Ruth. It was received
rather coldly and unenthusiastically despite their being few costs apart from employing a
limited number of wait staff as and when the situation demanded. After the ensuing
discussions where the parents were non-committal, nothing more was said about the matter.
Six months later Eric once again tried to convince his parents about the worth of the idea. He
was informed that while the scheme seemed reasonable, both David and Ruth were quite
happy with the way things were and could not really see anything other than extra work being
created for everyone, if the new idea was pursued.
Eric and Layla felt that this response was not only typical of people entrenched in a particular
way of thinking and working but also short-sighted. After all, the family business would soon
be expected to support four people rather than David, Ruth and, to some extent, Eric. They
also considered his father’s attitude to be rather disrespectful of their feelings and abilities.
Later that year Eric and Layla found paid employment elsewhere and moved to a different
region.
Some ten years later, David and Ruth decided to sell the family business and retire. After a
lengthy five years on the real estate market, the hotel was purchased by a Chinese
consortium for a vastly reduced price.
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 160
1. Discuss the important succession planning and issues revealed in this case.
2. Identify the major problems from the perspectives of Eric; and his parents.
3. Suggest how things could have been managed more effectively.
Source: the authors
Unfortunately, this case reflects a common situation where there is unclear
communicationbetween the founders and their children. It also highlights the
common entrepreneurial challenge of an inability or unwillingness to delegate
responsibility. Finally, it exposes howunsatisfactory transferring (or not as the
case may be!) a business can be if succession plans are not seriously considered
well in advance of retirement. There is really no substitute for careful planning
when family businesses are passed from generation to generation. However,
even with a succession plan in place, transferring a family business is
challenging.
The following case similarly illustrates the often ‘unspoken’ and un-
planned process of succession.
Kingtree Lodge: Savouring Success
Website:http://www.kingtreelodge.com.au
David and Cheryl Rourke are the original start-up owners of Kingtree Lodge and Kingtree
Wines in the Ferguson Valley. This valley is a lush and verdant part of the Geographe Wine
Region, 38 kms east of the regional port city of Bunbury and some 200 kms south of the state
capital Perth, Western Australia. The decision to move to Ferguson Valley was in part a
‘tree-change’ for the couple since the valley is a certainly a wonderful place to live, work or
visit. In this context, their investment decision did have a lifestyle aspect to it which is
reflected in the way they have structured the business.
Built in 1991, the property consists of a federation style award winning two storey lodge built
frombeautiful local polished hardwood timbers. The main building is over 950 square metres
in size and is situated high up overlooking 100 acres of prime valley land. The property was
purpose-built to accommodate the family and up to eight guests in separate areas of the two
storey structure. The business mix includes a vineyard, cafe and the hosted accommodation,
all of which this couple run with some help from their eldest son Peter.
The wines from the vineyard have collected many awards including the Gold Medal at the
Qantas/Mount Barker Show, Silver and Bronze Medals at the Perth Royal Show and Silver
and Bronze Medals at the Geographe Wine Show. This entrepreneurial couple have built up
the property to nowbe worth in excess of AUD$2,500,000 with no debts to external parties. It
is all too easy for the casual observer to forget that they work long hours and have all the
market and seasonal risks attendant with running a hospitality and viticulture business.
Success has come through hard work, attention to detail and a positive ‘can do’ approach to
life and business.
Succession Planning in the Family Business 161
At the time of writing this case Cheryl was 52 years of age and David was 74, they have two
children aged 22 (Peter) and 11 (Olivia) from their marriage of 24 years. Considering their
age, it is apparent that the Rourkes have already given considerable thought to who will
inherit the property if something were to happen to them. Olivia is too young to consider her
future career and Peter is still undecided about the long termviability of working on the farm.
The vision that the Rourkes now articulate is one where son Peter and his new wife will work
the vineyard part-time, build a home on the property and perhaps continue to work off-farm.
At present Peter and his wife are trying life off the farm, working in higher paid opportunities
that are the result of the mining boom happening in the northern parts of Western Australia.
Until Peter returns home and makes a career decision the future of the winery remains in
limbo, to sell or to pass on to the children. With father David nowhaving turned 75 he wants to
retire in the near future, so some tough decisions are needed.
It seems unlikely that the hosted accommodation business will be viable once Cheryl decides
to retire because they need and want to continue living in the property. When discussions of
succession switch to the hosted accommodation Cheryl quips that her ‘retirement plan was
death’. The top floor of the lodge was designed as a retirement space for the Rourkes. Once
they retire, the downstairs hosted accommodation area will be used to vacation the family
they nowhave, and any newgrand children. So, even as they plan for the possible end of one
component of the business they look forward to enjoying new beginnings.
Source: Weber, 2007
Burns (2001) explains the succession process through a model based on
that of Churchill and Hatten (1987). Essentially there are four stages involved
in the transfer of power:
& Owner managed firm – early stage when founder has control and son/
daughter are introduced to the business permanently;
& Training and development – decisionis made to pass business onto heir
and process of training and development takes place;
& Partnership – heir shows enough acumen and knowledge and founder
relinquishes some control and engages in more delegation and power
sharing; and
& Power transfer – strategic planning, management control and
operational responsibility shifts to the incoming generation with
founder playing a less active role in business and ultimately retiring.
Adapted from: Burns (2001, p. 362)
Key point 7.4
Amongst first generation family firms in Australia, only just over half survive into second
generation with around a quarter of this proportion following through to the third generation.
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 162
In reality, handovers are not quite as prescriptive or systematic as the model
suggests and conflicts may be frequent taking a variety of forms with a number of
behavioural outcomes. These include the orientation of the founder which,
according to Lambing and Kuehl (2007), is linked with their strong locus of
control. This means they are loath to relinquish control of their business to
anyone including their children. This may manifest as jealousy as the
entrepreneur’s control ebbs away. The founder may also ensure boundaries
are unclear so that they can still exert significant power in the decision-making
process. Aless extreme versionis where the original owner expects their offspring
to manage the business in exactly the same manner as they have done. This can
create enormous problems where second generation family members have dif-
ferent ambitions and attitudes (Deakins and Freel, 2006). Managing a family
business with limited autonomy where major decisions are still being taken by
the founder is a recipe for disaster (as illustrated by the ‘Growing pains’ case).
There may also be the issue of sibling rivalry (O’Brien, 1998). What hap-
pens when there are many children, power-sharing? This sounds like a rea-
sonable solutionbut it does not always work especially if the founders make no
distinction between heirs active in the firm and those who are not. Perhaps
appointing the most qualified sibling as leader could help but what constitutes
‘most qualified’? Will the remaining siblings accept this decision as
fair? Martin, Martin, Martin, and Mabbert (2002) identify the following
‘succession risk factors’:
& firms where there is no distinct management team and employing
between 10 and 50 employees;
& where business success is attributable to owner’s personal goals;
& where founder is unable to delegate decision-making effectively;
& an absence of an internal successor; and
& when owner ignores the need for succession.
The key for successful transition is to begin planning early so that trans-
ference is a gradual process rather than one ‘transplanted’ onto the heir.
Moreover, the planning process should be intergenerational and involve both
active and non-active family members. It is often useful to develop something
in writing which sets out roles, responsibilities, objectives and a management
framework. It is also important to remember that transferring a small hospi-
tality firm will have financial and tax implications. Call in solicitors and
accountants to give expert legal and financial advice. For example, in many
countries, founders can ‘gift’ business assets up to a certain sumper annumto
the next generation without incurring financial penalties and minimize in-
heritance tax upon the death of the founder. Planning for retirement is also an
important but often overlooked element in the context of business
Succession Planning in the Family Business 163
transference. This will have positive financial and emotional outcomes so long
as the decision to retire is resolute (Burns, 2001).
Reflective practice
1. Through desk research, identify two successful intergenerational hospitality firms and
discuss the reasons for their accomplishments. Now repeat the exercise for two family
firms who have not enjoyed similar success.
Assuming heirs do not want to establish different careers, Deakins and
Freel (2006) advance the notion that for successful transition, founders must
have a full understanding of their situation and ensure that the successor
receives appropriate training. In order to ensure clarity of roles and responsi-
bilities it is a good idea to include such in the firm’s business plan to avoid
squabbles but also to inform potential investors should this be desired in the
future.
Harvey (2004) concurs and identifies several key factors in successful tran-
sitions including:
& Understanding the need for change and planning for it;
& Willingness of founder to foresee retirement;
& Recognising the importance of business education amongst heirs;
& Making sure individuals are trained;
& Ensuring heirs work elsewhere to broaden their business experience
and aspirations;
& Ensuring heirs have a comprehensive knowledge of the family business
where possible; and
& Engendering motivation amongst heirs to run the business.
Adapted from: Deakins and Freel (2006)
Manikutty (2004) proposes that for a family firm to be successful after
transferral it must focus on several independent variables grouped under three
headings of governance, business philosophy and culture and managerial
practices. Specifically, the variables are:
& Governance
T A greater number of external members serving on the board of
directors;
T Decisions being taken collectively rather than the Chief Executive
Officer; and
T Having a clear succession plan.
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 164
& Business philosophy and culture
T A continuation of the founder’s business philosophy by the
subsequent generation; and
T An adherence by subsequent family members to the cultural norms
of the founder.
& Management practices
T Delegation of important decisions to lower levels;
T Prioritization of team management as preferred practice;
T Focus on strategy; and
T Sophisticated and systematic financial, marketing and operational
planning; and a use of outside services of consultants and advisors.
Adapted from: Manikutty (2004).
SUMMARY
Notwithstanding the difficulties of defining and therefore establishing an
accurate quantumof family owned and operated hospitality firms, they would
appear to dominate the hospitality industry internationally. Many fail within
their first few years of operation but others succeed. This chapter has over-
viewed some of the probable causes for these outcomes.
There can be no doubt that many small family owned hospitality busi-
nesses become established due to the enthusiasm and sheer hard work of the
founders. However, the ability and willingness of these individuals to engage in
appropriate planning would appear less than forthcoming. Before start-up,
founders need to identify their own strengths and weaknesses to determine
who will actually be involved in the business. Many small hospitality enter-
prises are family run and for this reason have a number of potential advantages
of those operated by managers and employees. A few of these are:
& Commitment;
& Resilience;
& A cheap or even free labour force;
& Long-term stability; and
& ‘Flexible’ financing.
However, the above benefits will only occur provided account is taken of the
attributes each family member brings to the firm, that is, they must be com-
plimentary to avoid role conflict and duplication. Moreover, other challenges
arise including a potential for nepotism, sibling rivalry, exploitation and so on.
Summary 165
A common problem encountered in small hospitality firms especially in the
early stages is ‘business creep’ where work and family life become merged.
Newentrepreneurs have a tendency to devote all of their time and effort to the
new business and relegate or put family life on hold. This is understandable
during start up but if allowed to perpetuate can have a number of negative
outcomes including divorce or separation for couples, estranged family mem-
bers and ultimate failure of the small hospitality firm. There are some prac-
tical measures and coping strategies which if adopted may help mitigate
business creep including:
& limiting involvement in either work or family domain to cope with the
demands from either area;
& establishing separate times to discuss business and personal matters;
and
& delegation of family responsibility to another person and so on.
An overall strategy is to establish a family council where members meet
regularly and discuss major issues.
One could be forgiven for thinking handing over a family business to
successive generations is a fairly straightforward affair. However, this is not
the case and succession planning or transferring the family firm is an area
where careful planning is an absolute must. Aggregated evidence suggests
that between 30 and 50 per cent of all small businesses survive into second
generation, with significantly fewer following through into the successive
generation. There are a variety of challenges to the smooth handover of a
family business; some concern issues of financial planning but many more
surround the emotions of the founders and heir(s). For example, some
owners tend to resent losing power after transferring the firm and actively
seek to limit the decision making autonomy of the new family member.
Similarly, founders may have not considered the matter of retirement to
any great extent and are left making decisions for which they nor their
successors are prepared. Other challenges where founders have more than
one child include sibling rivalry, identifying criteria most effective when
delegating power and control and whether to include children who are not
already active in the business.
Proceeding on the basis that family members do not see employment
elsewhere and are internally motivated to take over the firm, there are some
key issues which founders need to consider to increase the likelihood of
successful transitions:
& An understanding of the need for change and planning for it (including
foreseeing retirement);
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 166
& Ensuring heirs receive appropriate prior business and skills training
including acquisition of experience outside the family firm; and
& Ensuring heirs have a comprehensive knowledge of the family business.
Case author
Dr Paull Weber
Curtin University of Technology
Australia
Summary 167
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Hospitality, Commercial
Homes and Entrepreneurship
After working through the chapter you should be able to:
& Critically discuss hospitality and hospitableness in the context of small firms
& Recognise the attractiveness of commercial hospitality to owner/managers
& Evaluate the linkages between commercial homes and hospitality businesses
& Recognise the tensions and dilemmas inherent in commercial homes
INTRODUCTION
The prevalence of small firms in the hospitality and tourism sector is a
dominant feature of the international industry. Even in advanced market
economies where a small number of firms dominate most markets, most
individual hotels restaurants and bars are owned and managed by small firms.
Whilst recognizing that a small number of hotel groups, restaurant groups and
some country pub groups, do control a disproportionately large share of these
markets, most premises are owned by small firms. Frequently, these are micro
firms, employing fewer than 10 staff, and in many cases they employ none,
other than family members who ‘help out’ as needed (Lashley and Rowson,
2003, 2005, 2007).
Whilst there are clearly economic and location factors which limit oppor-
tunities for economies of scale and require the location of hotels, restaurants
and bars to be close to their markets, the sector has attractions for the small
firm entrepreneurs. The nature of hospitality, its cultural meanings and links
to domestic experiences suggest for many would be entrepreneurs that they
have the skills needed to offer hospitality services commercially (Lashley and
Rowson, 2008). The ‘commercial home’ provides a setting for a number of
levels of commercial engagement. Also, and perhaps more importantly, it
allows different levels of engagements as host. This chapter suggests that
hospitality and opportunities for engagement with hospitality and acts of
CHAPTER 8
169
hospitableness is a significant attraction to those looking for business oppor-
tunities, for working closely with the family, or for undertaking work which
limits engagement with the labour market. The chapter explore some of the
emergent issues and debates surrounding hospitality and hospitableness be-
fore going on to discuss issues and dynamics flowing from studies of the
commercial home.
Reflective practice 8.1
Describe your most memorable experience of being a guest in a hospitality setting. This may
be in a private dwelling or in a commercial setting. What makes it memorable.
ON HOSPITALITY AND HOSPITABLENESS
The emergence of the hospitality to describe commercial service delivery in
bars, hotels, restaurants and other catering activities provides a chance to look
at these commercial operations with a more critical eye because of the implied
meaning that these businesses provide more than services for monetary ex-
change. Hospitality has deep cultural significances across the globe. Although
there may be some cultural variations, hospitality implies:
& altruistic giving,
& welcome for strangers, and
& feeling of safety and security.
Certainly, recent academic enquiry and debate amongst academics suggest
that hospitality and hospitableness are worthy avenues of study in their own
right (Lashley and Morrison, 2000; Lashley, Lynch, and Morrison, 2007;
Molz and Gibson, 2007). The study of hospitality fromsocial science perspec-
tives has enabled a better understanding of host–guest relationships in an
array of
& commercial,
& non-commercial, and
& domestic settings.
In some cases, social scientists have used hospitality as a metaphor for
understanding societal interactions between host communities and the guests
who come as tourists, asylum seekers, foreign workers, or migrants. In the
case of entrepreneurial firms, hospitality can be studied to the extent that
it persuades individuals that there are opportunities to generate income.
Many seem to think they have the necessary skills to provide commercial
hospitality. In some cases, the perceptions are that the provision of food, drink
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 170
and bed spaces requires no skill. It is something they do at home (Lashley and
Rowson, 2008).
Key point 8.1
Studying hospitality as a wider social phenomenon helps explain why so many would be
entrepreneurs consider that they have the skills necessary for business success providing
commercial hospitality services.
Lashley (2000) initially proposed that a three domain model helped to set
the context of hospitality using a Venn diagram to distinguish between cul-
tural/social; private/domestic and commercial domains but to also show how
the domains potentially overlap and influence each other Figure 8.1.
Whilst it was recognized that the Venn diagramwas unsophisticated, it did
allow a discussion of the three domains to take place and the following will
highlight some of the emerging issues that have implications for the manage-
ment of hospitality and tourism. The Venn diagram also suggested a way of
thinking about hospitality that looked beyond the immediate commercial
activities in hotels, restaurants, bars and cafes, etc.
& Hospitality was also likely to be practiced in private domestic settings,
and this was likely to be a site of learning about hospitality that might
ultimately inform hospitality practitioners in commercial settings.
Host
Physiological needs
Psychological needs
Extraction of surplus
Services for profit
Producer limitations
Market limitations
Private
Social
Commercial
Dealing with strangers
Mutuality
Status and prestige
Managing the
hospitality experience
FIGURE 8.1 The three domains of hospitality.
On hospitality and hospitableness 171
& Both would be set withina social and cultural setting that would inform
expectations of both guests and hosts about hospitality transactions.
& The social and cultural domain provides the setting in which both the
private expectations of hospitality and commercial delivery of
hospitality goods and service take place.
The French philosopher Jacques Derrida said,
‘Not only is there a culture of hospitality, but there is no culture that is
not also a culture of hospitality. All cultures compete in this regard and
present themselves as more hospitable than the others. Hospitality –
this is culture itself.’ (2002: 361).
The social/cultural domain
The quotation from Derrida (2002) suggests that these are claims made by all
cultures, and are indications of the human decency with which a society seeks
to define itself. Derrida tends to assume a timeless and unchanging aspect of
hospitality.
& It is clear that modern industrialized societies do not have the same
cultural and religious obligations to be hospitable to strangers.
& There is not now, as there would have been in medieval England
(Heal, 1990), or Austinia Rome (Lomaine, 2005), ancient Greece or
Judea (O’Gorman, 2007) a need to offer shelter, food and drink to
strangers.
& Nor is there a widely held social intention to ‘turn strangers into
friends’ (Selwyn, 2000).
That is not to say that these obligations do not exist in contemporary
societies across the globe, as will be discuss later, there are examples of soci-
eties where these obligations on both guests and hosts are taken very seriously,
and in some cases with deadly consequences when transgressions occur
(Lashley, 2008).
& A common theme in all these settings is that the obligation to offer
hospitality to strangers was both cultural and religious.
& Socially defined meanings of decency included requirements to offer
shelter to strangers, to provide food and drink and protection from
danger.
& These obligations extended to all, irrespective of status or origins.
& These social and cultural obligations were reinforced by religious
strictures and in both Greek and Roman, and later Christian parables
suggested that the Gods, or Jesus, often assumed a disguise as a poor
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 172
traveller, so as to test the hospitality offered to strangers by hosts, and
woe-betide any host who refused a request for hospitality.
& In all these Greek, Roman and Christian contexts, the parables suggest
that a failure to be hospitable would result in all worldly goods being
taken away from the inhospitable wrongdoer.
Writing about hospitality in the early medieval England, Heal (1990) sug-
gests that there were strong moral cultural obligations to offer hospitality to
travellers, strangers and the homeless. The host was to offer protection and
safety as well as nourishment and a place to sleep. She says these obligations
were founded on five underlying principles:
1. that the relationship between host and guest is a ‘natural’ one (i.e. that
it is grounded in the nature of social life);
2. that an intrinsic part of being a host is having regard for the sacred
nature of the guest (which refers, broadly, to the honour and status to
which a guest may bring to the host);
3. that hospitality is noble;
4. that altruistic giving is an established and expected part of English social
life;
5. that hospitality and the social relationships and exchanges it engenders
are at least as important as those formed in the market place (22).
Although the obligations to be hospitable no longer have the moral author-
ity they once had in advanced industrial societies, moralists continued to
make reference to them throughout the 20th Century. Selwyn (2000) traces
sermons by religious leaders stretching into the nineteenth and twentieth
centuries which were extolling the virtues of giving hospitality. Even in
1930s USA the Catholic Workers movement advocated re-engaging with
medieval ideas of hospitality as a way of providing support for unemployed
and poverty stricken people (Selwyn, 2000). Writing form a Christian
perspective, Nouwen (1975) argues that hospitality should consist of the
following facets:
& Free and friendly space – creating physical, emotional and spiritual
space for the stranger.
& Stranger becomes a guest – treated as a guest and potential ‘friend’.
& Guest protected – offer sanctuary to the guest
& Host give gifts – the host welcomes the guest by providing the best gifts
possible.
& Guest gives gifts – the guest reciprocates and gives gifts to host.
& All guests are important and gifted – the host values the guest and gains
value from them.
On hospitality and hospitableness 173
& Acceptance, not hostility – especially the kinds of subtle hostility,
which makes fun of strangers or puts them into embarrassing
situations.
& Compassion – hospitality is basically a sense of compassion.
Whilst these obligations to offer hospitality do not have the same social and
cultural force that they once had, many individuals are still concerned about
hospitality and being good hosts, and also we must not forget, good guests.
Sherringham and Daruwalla (2007) remind us of an old Italian saying, which
roughly translates as, ‘Guests are like fish, after three days they stink’.
These obligations to offer hospitality to strangers are of interest for a
number of reasons.
& First, the moral and ethical dimensions of hospitality provide an
interesting point of comparison with the current commercial delivery
of hospitality goods and service. ‘Treat the customers as though he/she
was guest in your own home’ (Lashley, 2000: 13) is howone restaurant
company attempted to instruct staff in the levels of service required.
Of course this instruction only applied if the customer was able to pay.
& Second, these moral, ethical and personal commitments to provide
hospitality, although not so widely held across the society promoted as
they were inthe past, may well be held by individuals who want to make
a living out their passion to entertain in a hospitable way. Hence the
sector may be attractive to entrepreneurs with a specific interest in
hospitality, learnt through the wider culture or through religious
teaching.
& Third, the models of hospitality from the past or through ethical
teaching may help entrepreneurs to be gain competitive advantage by
adapting the principals of hospitality to informservice deliver and build
customer relationships, ‘Turning customers into friends’ (Lashley and
Morrison, 2004).
Key point 8.2
Cultural obligations to offer hospitality and to be hospitable provide important ethical modes
which can guide contemporary entrepreneurial practice.
On hospitableness
Typically hospitality and hospitableness are expressions of altruistic generos-
ity driven by pure motives and a desire to serve others without immediate
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 174
promise of reward. Telfer (2000) considers the philosophy of hospitality, and
suggests that there is a distinction between hospitality and hospitableness.
Telfer’s work suggests that the motives of hospitality are what defines whether
hospitality is genuine or not. Providing hospitality because the host has an
ulterior motive or for personal gain, is not said to be true hospitality.
Interestingly this raises an issue of interesting debate about the meaning of
true hospitality and the role of reciprocity. Hospitality practiced by elite fam-
ilies in Augustinian Rome was founded on the principle of reciprocity as an
early form of tourism (Lomaine, 2005). Affluent Romans developed networks
of relationships with other families with whomthey stayed as guests and then
acted as hosts when their former hosts were intending to travel.
For Telfer (2000), these reciprocal arrangements do suggest ulterior
motives and question the nature of the hospitality. This does also raise
issues about the nature of commercial hospitality because one reading of
Telfer’s assessment is that commercial hospitality is not likely to be hospi-
table because of the provision of hospitality being linked to the ulterior
motive of profit generation.
Telfer (2000) suggests truly hospitable behaviour is motivated by genuine
needs to please and care for others, and should not be practiced to deliberately
impress the guest or for the expectation of repayment. She says hospitable
motives include the following:
& the desire to please others, stemming from general friendliness and
benevolence or from affection for particular people; concern or
compassion;
& the desire to meet another’s need;
& a desire to entertain one’s friends or to help those in trouble.
& a desire to have company or to make friends, and the desire for the
pleasures of entertaining – what we may call the wish to entertain as a
pastime.
Key point 8.3
Truly hospitable behaviour is different from offering hospitality because it is motivated by
genuine needs to meet the needs of others and hospitableness.
Consideration of hospitableness is valuable to hospitality operators be-
cause it can provide a model for staff training as well as service quality defini-
tion and management which can build a genuine competitive advantage for
On hospitality and hospitableness 175
hospitality entrepreneurs. If strangers/customers can be converted to friends
they are likely to be much more loyal customers.
The private/domestic domain
Whilst there are cultural and social expectations about hospitality which set
the broad rules about both the treatment of guests by hosts, and the behaviour
of guests when they are being hosted, the practice of practical hospitality is
experienced mostly in domestic private settings.
& Entertaining family and friends for dinner, offering drinks to visitors
and even accommodating them are activities that are widespread in
most societies.
& Typically individuals would therefore experience being guests in other
families’ homes, and being hosts when others come to their home.
The rituals associated with hosts and hosting behaviour is itself a topic
worthy of study. Rules about guests making contributions to the host in the
form of wine, gifts, or dishes to be consumed are worthy of study across
communities.
& Insome cases, the guest who turns up for dinner without a contribution
of a bottle of wine would be regarded as lacking generosity and taking
advantage of the host.
& In other cases, hosts might be offended by the guest who arrives with
wine, food, etc. because it suggests that the hosts cannot afford to
entertain the guest.
Certainly, these obligations and expectations will be largely shared through
the sharing of cultural and social norms of what is appropriate (Lashley et al.,
2007).
The key concern for hospitality and tourism operators is the extent that
these motives and desire can be captured, promoted and delivered in a com-
mercial context. In principle, Telfer suggests that where hosts are offering
hospitality for personal gain, or for vanity or solely out of a sense of duty the
actions are not genuinely hospitable. Warde and Martens (2000) research on
‘dining out’ suggested that dinners interviewabout their experiences of dining
in commercial and domestic setting stated that the experiences in domestic
setting was more authentic than those in commercial restaurants.
& The domestic/private domain of hospitality provides a bench mark
against which commercial hospitality is judged.
& Respondents often use the language of domestic hospitality to evaluate
their experiences in commercial settings (Lashley et al., 2005)
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 176
& It is also a source of learning about host and guest relations which can
be used during communications with guests and with staff in
commercial operations. For example, one UK based restaurant group
required service workers to ‘treat customers as though they are guests in
your own home’ (Lashley, 2001: 70).
The link between the private domestic domain and commercial activities
as a source of learning also extends to career choice as many subsequent chefs
initially take their inspiration from within the home (O’Mahony, 2003).
& Research on top award winning chefs by O’Mahony suggests that a
common theme with all the winners was that they had developed their
love of cooking and entertaining with a mother or grandmother.
& Lashley’s (1985) research into leading hotel and restaurant chef profiles
also revealed that they typically developed an enjoyment of food and
cooking in the home with a mother, grandmother, or other significant
female family member.
Furthermore, the link between the domestic domain of hospitality and
commercial activities has a major influence on hospitality entrepreneurial
activity. This occurs in two ways.
First, many commercial hospitality activities are set in domestic dwellings.
The ‘commercial home’ in the small hotel and bed and breakfast sector, or in
farm stay settings involve guests entering the private domestic dwelling.
& Often the decision has involved selling domestic home to buy the hotel.
Lashley and Rowson (2005, 2007) found that over 70 per cent of hotel
owners in Blackpool’s small hotel sector had sold a house in order to
purchase the hotel.
Lynch and MacWhannell (2000), Lynch (2005), and Sweeney and Lynch
(2006) have undertaken research exploring the relationship between commer-
cial hosts and their paying guests. There appear to be different levels of en-
gagement with between hosts and guest.
& In some cases, hosts accept and treat paying guest as they would family
and friends. In other words, there are few‘no go areas’; guests and hosts
dine together, use the same sitting room and sleep in bedrooms still
adorned with family bric-a-brac.
& At the other end of the scale, guests and hosts occupy different parts
of the property, eating in separate dining rooms, sitting different in
rooms and guest sleep in bedrooms which have been made to be
depersonalized. Lynch (2005) points to some important tensions in the
On hospitality and hospitableness 177
expectations of guest inthese small properties compared withhosts and
their advisors.
Overseas visitors often choose these smaller hotels and guest house
precisely because they want to live with a ‘real family’. However, the hotel
proprietor wants to establish some distance from their paying customers, and
tourism official frequently advise them to professionalize their relationship
with guests, making it less friendly and more anonymous like a traditional
larger hotel.
The second link to between domestic and commercial domains of hospi-
tality is in the nature of the assumed skill sets required to operate a commer-
cial hotel, bar or restaurants. Through the domestic nature of providing
sleeping accommodation, food and drink many new business start ups under-
estimate the skills needed for successful commercial hospitality operations
(Lashley and Rowson, 2007).
The domestic/private domain of hospitality provides valuable insights for
those interested in marketing commercial hospitality experiences. It estab-
lishes a context in which individuals perform acts of hospitality and display
their qualities of hospitableness. The domain also establishes the sense of
authenticity of the hospitality experience. The assumption being that those
who invite guests to stay or dine, in their home are motivated by the desire to
entertain, though as Telfer (2000) shows, these motives may not always be
genuine. Individuals may be offering hospitality out of a sense of vanity, for
ulterior motives or because they feel an obligation to do so. Certainly, the
domestic/private domain is an important setting for both learning the obliga-
tions to be a good host and guest, and the specific skills need to run accom-
modation, bar and restaurant operations.
Key point 8.4
The private/domestic domain of hospitality provides a key learning environment for learning
social and cultural expectations of hospitality and it can provide a basis for learning skills
relevant to commercial hospitality.
The commercial domain
One of the key issues relating to hospitality provision in the commercial sector
relates to the authenticity of the hospitality provided.
& Are commercial hospitality products and services merely another
service?
& Can commercial hospitality ever be genuinely hospitable?
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 178
& Are models of cultural and privates hospitality of any value?
Slattery (2002) and Jones (2004) argues that restaurant, bar and hotel
services are essentially economic and involve a management activity. The study
of hospitality from wider social science perspectives has limited utility. In this
view the guest-host transaction is essential monetary transaction whereby the
host supplies food, drink and/or accommodation for payment in money. This
chapter argues that the study of hospitality from these wider perspectives is a
worthy exercise in itself, but it can also inform the management of hospitality
commercial provision. By considering the nature and quality of the host–guest
transaction, commercial hospitality can develop long term relationships with
guests and build competitive advantage through the relationship.
Ritzer (2007) suggests that there are powerful drivers in commercial hos-
pitality organizations that will lead hospitality provision becoming
‘inhospitable’. Ritzer’s comments on McDonaldization suggests that there
are corporate drivers to increase
1. efficiency,
2. calculability,
3. predictability and
4. control.
These lead ultimately to the creation of systems which acts as a barrier to
frontline performance of hospitality. These McDonaldizing processes inhibit
performances which are hospitable and at the same time they generate cus-
tomer feelings of being undervalued as individuals. These standardizing and
systemising processes therefore are a fundamental aspect of the approach to
managing hospitality services inbars, restaurants and hotels and effect remove
the ‘hospitality’ fromthe transaction. In Telfer’s (2000) terms the commercial
transaction provides an ulterior motive for offering hospitality and therefore
prevents genuine hospitality.
Telfer (2000) does suggest that it is not inevitable that commercial hospi-
tality will invariably be a less than authentic version of hospitality in the
home. She suggests that it is possible that those who have an interest in,
and who value, hospitality will be drawnto work inthe commercial hospitality
sector. They may run their own hospitality businesses, or choose to work in
roles that enable them to be hospitable.
Key point 8.5
There are clearly some tendencies to McDonaldize commercial hospitality and tourism
services, however, it is possible that entrepreneurs with a strong personal need to be
On hospitality and hospitableness 179
hospitable may be drawn to opening business which offer guests accommodation, food and
drink in a hospitable context.
Work by Lashley et al. (2005) on ‘memorable meals’ suggests that the
emotional dimensions of the meal where much more significant than the
quality of the food in creating memorable meals. The research asked respon-
dents to provide a written account of their most memorable meal. The texts
were subjected to semiotic analysis and a multi-dimensional image of the meal
emerged:
& the nature of the occasion of the meal,
& fellow diners who made up the company with whom they dined,
& characteristics that contributed to the atmosphere, food eaten,
& overall setting, and
& the service provided.
The occasion was typically some significant event in which the social
dynamic of the meal reinforced the emotional significance of the event. Here
the event is made more significant by the hospitality setting. The occasion of
the meal or holiday is often a celebration of bonding and togetherness with
family and friends. The company of others comes across strongly in these
accounts, and although one account involved the company of just one other
person, most involved groups of people, and none involved an individual
diner on their own. The atmosphere created by the setting, other people and
their treatment by hosts provide emotional dimensions to meal occasions
which are vital to creating memorable occasions. Interestingly, few of the
respondents mentioned the food consumed or quality of dishes as part of their
descriptions.
The dominant impression is that these emotional dimensions of
hospitality are what make these meal occasions special, and it will be these
emotional dimensions of their visit that make for memorable hospitality and
tourism events. Interestingly, when asked to recount their most memorable
meal experiences about half the respondents quoted occasions which were in
domestic settings, whilst the other half occasions were incommercial settings.
Key point 8.6
Commercial hospitality activities provide would be entrepreneurs with business
opportunities in which they feel they already possess the key skills or a setting to exercise
their hospitality skills a personal need to be hospitable.
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 180
ATTRACTIVENESS OF HOSPITALITY ACTIVITIES
The study of hospitality froma wider set of social science perspectives is useful
in developing an understanding of entrepreneurship in the provision of ac-
commodation, food and drink products and services.
& The fact that entrepreneurs regard the provision of these products and
service as ones with which they have a developed expertise is directly
related to the domestic provision of hospitality.
Would be entrepreneurs, typically, have acted as hosts provided accommo-
dation, food and drink to guest who either visited or stayed in their home. In
turn, they themselves will typically have been guests in other people’s homes
and received these ‘hospitality services’ from other hosts as friends, relatives
or other acquaintances.
& So for many new entrants to the industry, there is no perceived skill
deficit which might hamper their decision to pursue an entrepreneurial
decision to buy a guest house, hotel, bed and breakfast, pub, inn,
restaurant of cafe.
Furthermore, individuals with domestic dwellings of the right size, loca-
tion or structure have been able to consider turning part of their domestic
space over to commercial activities.
& Accommodation services, in particular, lend themselves to this
commercialization of the home, or parts of it, to commercial activities.
But there are also examples of individuals using domestic premises to
provide food and beverage services through outside catering, banqueting and
contract catering in workplaces. Licensing restrictions over the sale of alcohol,
will in many countries, limit the conversion of the domestic space to com-
mercials bars and pubs, but many of these licensed premises were originally
domestic dwellings.
& Linkages between gender roles in the home and income generation
outside the home typically result in the commercial home providing
opportunities for women to become, or remain, economically active
without entering the labour market (Lynch and MacWhannell, 2000)
In fact the linkage between the commercial home and economic activity
which avoids the labour market is a powerful attraction for many would be
entrepreneurs. Research with ‘lifestyle style entrepreneurs’ (Lashley and
Attractiveness of hospitality activities 181
Rowson, 2001, 2005, 2007) suggests that there are a number of motives for
engaging in commercial activities from a home base.
In the pub sector in the UK, for example, it is possible to take over a pub
operation via a tenancy or leasehold arrangement where the ‘in-going’ is
literally a few thousand pounds. One respondent in a major pub company
suggested that the pubs with lower sales level would be let as tenancies,
typically ranging between £5000 and £7000; whilst pubs with higher sales
volumes might be let via leasehold arrangements costing between £40 000 and
£50 000 (Lashley and Rowson, 2001). In neither case, are the capital require-
ments prohibitive for many would be entrepreneurs. In addition, families
looking for accommodation and some form of economic income stream are
attracted to this sector.
& Many pub companies looking for tenants or leaseholders who are
former service personnel from the armed services or the police because
those with long service will come out with a ‘lump sum’ to pay for the
tenancy of lease.
In this latter case, people who have had a career in the service and are now
looking for work on ‘civvy street’ take on a pub because it provides themwith a
potential business opportunity and income stream as well as domestic dwell-
ing area above the pub. They are in effect avoiding the labour market and
gaining access to a ‘free house’ associated with the business.
& The fact that 30–40 per cent of these properties can change hands each
year is a by-product of the mismatch between the expectations of and
the realities of life as an entrepreneur in the pub business (Lashley and
Rowson, 2001)
The restaurant and take away meals market are attractive to members of
ethnic minorities (Collins, 2000). French, Italian, Greek, Indian sub-conti-
nent and Chinese migrants inparticular are found inmany European, US, and
Australian cities. O’Mahony (2007) highlights the important role that Irish
migrants played in the development of ‘hotels’ in Victoria. The Nineteen
Century British colonial powers excluded Irish migrants from positions of
power and prestige. The Irish migrants found commercial opportunities in
the brewing and pub/restaurant sector, often described as ‘hotels’ (Table 8.1).
Key point 8.7
Low barriers to entry into commercial hospitality businesses means that many potential
entrepreneurs running small firms face few restrictions on business start ups.
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 182
COMMERCIAL HOMES
The link between commercial hospitality business activities and the home is a
complex one, covering varying degrees of business intensity. Lynch (2005)
takes more accommodation service model. Table 8.2 replicates his list of
categories and types of commercial homes.
The commercial home title in the way Lynch employs the term has two
dimensions. The first recognises that in many of these establishments guest
and host share the same premises with a varying degree of proximity and
shared space. Lynch and MacWhannell (2000) suggest that there are several
potential levels of interaction between hosts and guests within the premises.
The second dimension is that the concept of the home, and homeliness are
often implied in the construction of the design of the property and the mar-
keting offer to guests. Often the size of the property is restricted to a small
TABLE 8.1 Hospitality venues as attractions for would be entrepreneurs
Hospitality establishment type Attracted groups of would be entrepreneurs
Bed and breakfasts Married women
Cultural homestays Married couples
Farmhouse stays Other relationships
Guest houses Redundant workers
Host families Semi-retirees
Small family run hotels Lifestyle changers
Those looking for more personal control
Those attracted to the area
------------------------------------------------------------------------------------------------------------------------
Pubs Ex service personnel
Inns Former police officers
Bars Lifestyle changers
Redundant workers
Families looking for a ‘free house’
------------------------------------------------------------------------------------------------------------------------
Restaurants Migrants
Cafes Married couples
Snack bars Lifestyle changers
Take-away restaurants Those who enjoy cooking
------------------------------------------------------------------------------------------------------------------------
Contract catering Married women
Dinner party catering Married couples
Office catering Collectives of men and women
Commercial homes 183
number of rooms more like a private home, or in a location which suggests
more historic (and more hospitable?) times. This second dimension brings us
back to anearlier point that the word hospitality allows the commercial offer of
hospitality to link psychologically to private hospitality.
Lynch and MacWhannell (2000) suggest three levels of interaction between
commercial hosts and commercial guest in the home setting. At its most
closely linked to notions of private hospitality, commercial guests and their
hosts share much of the space of the private dwelling. Bedrooms are similar
decor to those used by host family members. Sweeney’s work (2008) shows
that in this type of establishment many of the guest’s rooms are adorned with
personal ornaments and photographs fromthe host family. Indeed being made
to feel ‘one of the family’ is probably an important aspect of this business offer
to its clients. So much of the dining space, and living space is shared between
hosts and guests. That said, there will be some areas which are held as ‘no go
areas’ for guests. Kitchens and private bathrooms are two common features
(Lynch and MacWhannell, 2000).
Asecond model involves hosts sharing the same premises with commercial
guests though there is much more delineation of ‘private’ ‘no go’ areas.
Typically dining facilities and lounges, as well as bedrooms and bathroom
TABLE 8.2 Commercial hospitality and tourism home types
Categories of commercial homes Examples of types of commercial homes
Traditional commercial homes Bed and breakfasts
Cultural homestays
Farmhouse stays
Guest houses
Host families
‘Monarch of the Glen’ properties
Religious retreats
Self-catering properties
Small family run hotels
Writers retreats
Virtual reality commercial homes Boutique hotels
Country house hotels
Timeshares
Townhouse hotels
‘Backdrop’ hotels Houses used as visitor attractions
Houses used as film sets
Source: Lynch (2005: 39).
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 184
facilities are separated out for commercial guests. Frequently, commercial guest
areas are made more ‘professional’ by making them less personal to the hosts.
Often local tourismofficials encourage the more anonymous hotel like decor in
these premises. Sometimes working counter visitors and strangers to an area
who are motivated by the need to stay with a ‘real family’ (Lynch, 2005).
Self-catering where the owners live away from premises is the third
commercial home model identified by Lynch and MacWhannell (2000). Here,
the owner lives away form the premises occupied by the commercial guest.
They suggest two variants where the property is a ‘second home’ or an invest-
ment property bought specifically for letting. Again, the nature of home and
the artefacts with which the property is adorned communicate meaning here.
Whilst Lynch and MacWhannell’s (2000) model is related to the accom-
modation sector, it does have relevance to the pub and bar, restaurants and
contract catering sectors. In the pub sector for example, many properties
would fit into the second model where the owner/manager, tenant/leaseholder
live on the same premises as the commercial activity, but there are clearly
delineated areas which are private to the hosts and family. Commercial guest
rarely enter these parts of the property and then only be special invitation of
the commercial. Some restaurants, cafes, snack bars and takeaway premises
also have private areas which are personal to the hosts and not shared with
commercial guests.
Both the pub and bars, and restaurant, cafe, snack bar and takeaway pre-
mises also involve operations where the commercial guests consume hospi-
tality goods and services, but where the owner manager does not have a private
dwelling on the same premises. Here the arrangement is more a ‘lock up’ in
which the notion of the ‘commercial home’ still exists but with greater em-
phasis on the commercial than the home. That said, many owner managers
will regard the commercial aspect as part of their ‘home’. It is their property
and guests are entering their personal space, even though it is not shared with
private domestic hospitality space.
Small firms operating contract catering, workplace catering, business
lunches or dinner service out of their domestic dwelling are in yet another
relationship with their clients. The private dwelling’s kitchen and storage
facilities are used to produce hospitality products but the hospitality is con-
sumed in the guests’ premises or dwelling. The hospitality service provider
providing host products and services is at once host and guest (Table 8.3).
Hospitality services offered by small firms cover a wide range of different
forms of commercial home. Each represents a different level of interaction
between commercial hosts and commercial guests. In the majority of accom-
modation service operations commercial hosts and guests share the same
premises, though with varying degrees of levels of sharing common areas.
Commercial homes 185
There are some, small accommodation premises where hosts live away from
the property in which guests are staying. Typically, these might be self-catering
operations but there are some small hotels and guests houses where the owner
managers do live on the same premises as commercial guests. In other cases,
guests and host do not share the same premises, because the commercial
operation takes the form of a lock up which is closed to guests when the
business is not open for trading, and hosts have their own private dwelling
elsewhere. Finally some small hospitality businesses are run out of private
dwellings and the hospitality is consumed out of guest’s premises.
Key point 8.8
Commercial homes describes the situation in which many hospitality entrepreneurs operate.
To varying degrees the entrepreneur’s home is the site of commercial activity.
TABLE 8.3 Levels of interaction between commercial hosts and commercial guests
Levels of interaction Hospitality types
Hosts and guests share much of the private dwelling space Bed and breakfasts
Cultural homestays
Farmhouse stays
Guest houses
Host families
Small family run hotels
Host and guest share the same premises but much private
space is off limits to commercial guests
Bed and breakfasts
Guest houses
Small hotels
Inns, pubs and bars
Restaurants, cafes, snack bars and takeaways
Owners live away from the premises Self catering in second home
Self catering in an investment property
Owners live away from the premises which take the
form of a lock up
Pubs and bars
Restaurants, cafes, snack bars and takeaways
Some guest houses and small hotels
Hosts use guest premises to service
hospitality experiences
Small scale contract catering
Workplace catering
Business lunch services
Domestic dinner services
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 186
Sweeney’s work (2008) provides some interesting insights into the motives
and concerns of those running commercial homes as the venue for hospitality
operations. Table 8.4 shows that for most of her interviewees the need to offer
hospitality with a commercial context was most important to most of her
interviewees in guesthouses, bed and breakfast places and small hotels. Chap-
ter 3 suggested that most of her interviewees could be located on a continuing
starting with purely economic motives at one extreme and pure hospitality
motives at the other end. Table 8.4 shows the clustering against each of the
four positions.
As Table 8.4 confirms the majority of respondents suggest that motives to
enter into the accommodation sector have intertwined motives. The need for
economic activity but also associated with a need to be hospitable or at least to
offer hospitality to others. There are more respondents who see the sector as
chiefly about generating economic benefits though a significant majority of
these are claiming to do achieve these in the performance of hospitality ser-
vices.
TABLE 8.4 Typologies of commercial home owners
Economic motives Economic-hospitable motives Hospitable- economic motives Hospitable motives
2 respondents 13 respondents 8 respondents 2 respondents
Adapted from: Sweeney (2008: 231).
TABLE 8.5 Positive and negative discourses of hosting
Positive Negative
Own boss Tied to home
Better lifestyle On 24 h call
Working from home Long working hours
Extra income Family time interrupted
Generate money for children Very busy
Afford larger property Little time to themselves
Meeting new people Missed social occasions
Having time off Difficult to be spontaneous
Gives status Summer holidays limited with children
Learning new skills Not having their home to themselves
Cost effective for home Inferiority complex about work
Socially desirable
Increased confidence
Source: Sweeney (2008: 244).
Commercial homes 187
Sweeney (2008) goes on to provide some insights into the positive and
negative discourses in the hosts’ perceptions of hosting in a commercial
enterprise. Mostly these relate to comments which enable the continuation
of domestic roles and relationships but with economic benefits, though rec-
ognizing that the underside of the commercial home involves limitations on
the freedom to act and do as the family pleases (Table 8.5).
Key point 8.9
The hospitality commercial home offers considerable benefits to those entrepreneurs who
want an income stream whilst working from a home base. In addition the commercial home
brings with it some considerable disadvantages.
The nature of the commercial home and the nature of the business enter-
prise being pursued by the entrepreneur are likely to influence perceptions of
the benefits and limitations of the commercial home. Research on churn in
ownership in small hotels (Lashley and Rowson, 2007) and the tenanted and
leased pub sector (Lashley and Rowson, 2001) suggests that the change in
ownership within the stock of small hotels and tenanted/franchised pubs is in
the region of 20–30 per cent per annum.
Any local tourism officer or pub estate manager recognises a cluster of
problems of concern by the ease with which it is possible to open hospitality
business units. Most countries do have laws relating to the registration of
premises providing accommodation, food and/or drink. In many cases, would
be entrepreneurs have to be licensed to cover customer safety, in some cases,
even to practice hospitality. Mostly, however, the barriers to entry to hospital-
ity business opportunities are relatively low. Many bed and breakfast places,
family hotels, guest houses, restaurants, pubs and inns can be bought for the
price of medium sized domestic dwelling (Lashley and Rowson, 2001, 2007).
Even a McDonald’s restaurant franchise in the UK works out at about
£250 000 (Lashley, 2000), thoughthere are some considerable barriers to entry
for would be franchisees fromoutside of the company management structure.
Generally, however, the low barriers to entry in hospitality enterprise ac-
tivities present those concerned with service quality being offered by owner
managers of hospitality enterprises with major problems. Local authority
tourism officers in Blackpool, for example, are concerned that the low skill
levels of people buying small hotels, guest house and bed and breakfast units
make difficulties for driving up levels of service quality on the town’s accom-
modation sector (Lashley and Rowson, 2007). Similarly, the pub companies,
like the Punch Pub Company are aware that their tenant and leaseholder low
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 188
skill sets are major inhibitors to business growth and development (Lashley
and Lincoln, 2001). To this end the Punch Pub Company now require all new
tenants/leaseholders to take a compulsory 10-day training programme prior to
their taking over one of the company’s pubs (Lashley and Rowson, 2002).
The high levels of churn in business ownership or tenancy/lease arrange in
these small businesses also create problems for those concerned with improve-
ments in service quality, improving business productivity, or building com-
petitive advantage against other resorts or firms. In effect there is a
considerable portion of the entrepreneurs who are at lowlevels on the learning
curve at anyone time (Lashley and Rowson, 2008).
SUMMARY
This chapter has suggested that the study of hospitality as a human and social
phenomenon is helpful in understanding the attractiveness of the sector to
many would be entrepreneurs. The fact that hospitality is one of those cultural
signifiers by which people attempt to distinguish themselves from other com-
munities or groups suggest that many assume that their community is natu-
rally more hospitable. In addition, the fact that many have been hosts in their
own domestic/private setting, and have been guests in the private/domestic
settings of others, provides entrepreneurs with a confident evaluation of their
skills. Many assume that they have the skills needed to run their own hotel,
pub or restaurant (Lashley and Rowson, 2002, 2005, 2007).
The overlap between the commercial home and the hospitality service
provision intertwines amongst these entrepreneurs. The commercial home
enables entrepreneurs to be economically active whilst at the same time linked
to family roles and responsibilities, and maintain social links through hospi-
tality activities. Sweeney’s work (2008) shows that many small firm entrepre-
neurs have aspiration to meet both economic goals and hospitality related
social goals. The accommodation sector most clearly provides an exemplar of
hosts and guests sharing the same property and in some instances living
spaces overlap. That said, the chapter has argued that all small hospitality
enterprises involve some aspect of host and guest interactions in shared
spaces. In the restaurant, and bar and cafe/snack bar sectors, for example, it
is not unusual for these entrepreneurs to live on the same premises as the
business.
Low barriers to entry, in the form of relatively low capital investment
requirements and the perceived low skill sets required attract many would
entrepreneurs who have limited experience of the commercial hospitality
sector, or even of small business ownership for that matter (Lashley and
Commercial homes 189
Rowson, 2001, 2006, 2008). As a consequence, there can be problems of
service quality management, of limitations on productivity and business
growth. Relatively high levels of churn in business ownership increase these
problems for interested parties outside of the business, and cause some major
difficulties for the would be entrepreneurs themselves.
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 190
Preparing a Business Plan
After working through this chapter you should be able to:
& Understand the need to produce and work to a business plan
& Gather the information and background detail needed for the plan
& Write up and present an effective business plan
& Work to the plan making the necessary adjustments needed.
INTRODUCTION
It is useful to prepare a business plan for your business. For independent
business in freehold, tenanted, leased or franchised businesses, a business plan
is essential. Even managed units in chain organizations can benefit from
producing a business plan. Business plans assist managers to plan the direction
of the business, compare performance with the plan, and take corrective action.
& Preparing a business plan allows you to think about the mission and
key objectives of the business, and the actions needed to achieve the
objectives.
& Identify the information needed to understand the customers and
competition.
& Develop a competitive business strategy for the business.
& Plan all the activities needed to make the strategy work.
& Forecast the results of the plan to overcome difficulties.
& Keep track of the business and take corrective action where needed.
Preparing a business plan helps managers to understand the business and
the planning process. It is this process that is important to the manger’s role as
a manager and owner, because the hospitality sector is fast moving and dy-
namic and a plan provides a sense of direction and purpose. It enables mangers
to make changes and amendments as circumstances unfold. The business
plan shows how the business will contribute to overall goals and objectives of
the organization.
CHAPTER 9
191
DESCRIBING THE BUSINESS
The business planning process starts with a clear description of the business,
the management and team and core business activities.
Mission statement, objectives and actions
The mission statement and objectives are important because they help to give
everyone in the business focus and a sense of purpose. Also they help all to
consider problems and difficulties to be overcome Figure 9.1.
Mission statements
In large organizations, these will be provided by the organization, managers
need to understand the statement and encourage team members to under-
stand their contribution to achieving the mission. A good mission state-
ment provides an organization with focus, and helps to concentrate
managers and employees on the key activities, and to avoid trying to do
too many things. In particular the mission statement should cover the
following points:
FIGURE 9.1 The pyramid of goals.
CHAPTER 9: Preparing a Business Plan 192
& What business is this and what is its purpose?
& What needs to be achieved over the next 1–3 years?
& How will this be achieved – what are the core values and standards?
Mission statements should not be too bland, nor should it be so general
that is difficult to know what business the organization is in.
Objectives
Objectives are the specific objectives to be achieved over the next 3 years. They
have to be written in specific and measurable terms. For example,
1. Increase sales by 20 per cent over three years
2. Reduce employee turnover by 10 per cent each year
3. Increase customer satisfaction scores by 5 per cent within 1 year
By defining the key objectives the plan is providing a set of targets so that
are more likely to achieve the overall purpose of the business. They provide a
measurable set of pointers that guide actions over the forthcoming period.
Tasks
Tasks are the specific activities that you need to undertake to achieve the
objectives set. They are the ‘how’ statements that will make the objectives
happen. For example,
1. Identify complementary customer occasions, so as to attract new
customers to the business.
2. Target businesses who might undertake joint products with my
products and services.
3. Direct promotional material and special offers to customer who use the
business in quiet periods.
Actions
In this case the plan is showing what needs to be done and when, what will
happen on Monday morning, thinking ahead to the various actions needed
and when. For example,
1. Survey existing customers and potential customers.
2. Visit all competitor units in the area.
3. In August start recruitment and training of staff needed for the
Christmas season.
The identification of objectives, tasks and actions are the most important
because they are useful in helping to achieve the overall mission as set by the
organization.
Describing the business 193
Key point 9.1
Defining core aims and objectives, tasks to be completed and actions needed to complete
them is an essential tool of business planning.
DESCRIPTION OF THE PRODUCTS AND SERVICES
Even in situations where a person is managing a hospitality organization it is
worthwhile focusing on one of the key products and services that you are
supplying to customers. Hospitality and tourism operations often involve
the sale of a mixture of food and beverage items. These need to be analyzed:
& by meal types – say between set meals and snacks,
& between types of drinks – alcoholic and soft drinks,
& through other income streams – say from machines or
accommodation, and
& where accommodation is also offered for sale, the analysis should also
include room sales and types.
Table 9.1 provides a framework which can be used to note the range of
products and services being supplied. It may also be used to identify potential
gaps and opportunities that could be added as part of the business develop-
ment.
Increasingly, the analysis should also consider the primary customer
occasions the business is servicing, and identify potential complementary
occasions that might be tapped as a source of sales growth.
Customer occasion show that customers come to the business for one of a
number of reasons even the same customer may visit the business with
different occasions and service needs. Also flowing from this analysis of the
customer occasions at the core of the business, it is also necessary to list the
key critical success factors which customer regards as core to success. These
need to be a key focus of the business because they will impact upon the
TABLE 9.1 Product and service analysis
CHAPTER 9: Preparing a Business Plan 194
customers’ evaluation of the success. The business plan helps to focus on
these.
& Analysis of product sales mix variations through different parts of the
day can be helpful
& Analysis of customer occasions associated with different time periods
can also be helpful to identify opportunities
Key point 9.2
A thorough analysis of products and services supplied in total and in different time periods
helps focus the business plan on opportunities and potential actions.
THE MANAGER AND TEAM
Acareful consideration of the experience, training and development and skills
available within both the management team and the employees is a valuable
starting point to considering the skill needs of the unit. Clearly the plan can
help you:
& identify potential strengths in the team;
& highlight key skills and experiences that can be used for projects and
special initiatives;
& focus on skill shortages and development needs for the future;
& progression plan employees’ and mangers’ career development.
An organization chart showing both job roles and named job holders clari-
fies the relationships and identifies potential career progression, and develop-
mental needs. Increasingly, hospitality and tourism businesses are concerned
with availability of key staff at all levels. Clearly, the right management team
skills and experiences, capable of running and developing a multi-million
pound business are vital. In addition, the inability to attract, recruit, and train
employees is further compounded in many organizations by high levels of staff
turnover that often represents a key weakness and substantial additional cost
to the business. A clear commitment to build a strong team and increasing
staff retention needs to be a key part of the overall policies and objectives as
well as the analysis of the team.
1. Explain the thinking behind the company’s mission statement and
show how the team will work to achieve the mission.
2. List the objectives for the business:
(a) long term,
The manager and team 195
(b) short term
3. List the tasks and actions needed to take to achieve the objectives.
4. Describe products and service as if to a new employee.
5. How do these goods and services differ from competitors?
6. Are there possible complementary occasions through which it is
possible to attract new customers?
7. What relevant skills and talents are available with the team?
8. What are the shortages of skills and talents? Howwill the teamplan to
fill the gaps?
9. What are current levels of staff retention and staff turnover?
10. What are the current levels of financial performance – cost levels, sales
growth, profit levels, etc., and targets for the future?
Key point 9.3
The teamat both frontline and management levels is crucial to business success. Employing
the right people, developing their skills, and ensuring motivated performance are all
essential.
MARKET RESEARCH
Many branded hospitality and tourism operators commission research on the
brand, customers, competitors and markets on national and international
levels. Entrepreneurs in large and small firms need to understand these issues
as they relate to the particular business and community in which it is located.
An important element of the manager’s task, therefore,
& should involve thinking about the core customer needs the business is
servicing,
& the types of customer who are attracted to the business,
& the activities of competitors and,
& the general conduct of the market in which the business operates.
An ongoing analysis of these issues helps keep the plan in focus and to react
to any changes that come up. Thus the unforeseen opening of a competitor
unit or the closure of a major local employer may have adverse impacts to
which the business needs to react.
CHAPTER 9: Preparing a Business Plan 196
CUSTOMERS
The focus advanced in this text suggests that each business represents a series
of tangible and intangible benefits in products and services to customers.
These can be best understood through an analysis of the ‘occasions’ that
customers visit the establishment.
The key starting point of the plan is to consider the various customer needs
which are being serviced through the business, and the factors that are critical
for success. Furthermore this planning process needs to be further developed
by an analysis of the customers themselves Table 9.2.
Reflective practice
1. In a business known to you conduct some research on a sample of customers.
2. Identify the occasions being serviced by the organization at different times.
These matters need careful consideration because over recent decades
hospitality and tourism businesses have emerged round changes in the pop-
ulation and their spending power. Here are just a few examples.
& More women working and having careers interrupted by having
children, not stopped by them
& More two income households
TABLE 9.2 Customer segmentation through demographics
Socio-economic group How do customers comprise the key socio-economic groups? Issues to do with income,
status and employment can have important consequences, particularly when building up a
picture of key employers for whom the business’ customers work.
Life cycle position A description of the life cycle position(s) of key customer also helps you to analyse the number
of potential customers in your locality and their needs and concerns from businesses like yours.
Gender The mixture of male and female customers has a number of consequences for the product
and services you offer. Healthy eating options on the menu, the provision of non-smoking areas,
and security are issues that may be important issues where a substantial number of customers
are women.
Geographical What kinds of area do customers mostly live in? What hosing types and locations are there
other similar areas that might yield customers? What developments are there in these areas
that might impact on your business?
Life style Are there issues about environmental awareness, health consciousness, or appeals that can
be made to those concerned with material rewards? In some units, a series of healthy options
might attract customers to use the unit more frequently.
Personality What personality types mostly dominate the customer base? Are there additional opportunities
to attract similar customers or a different sort of customer at different times?
Customers 197
& More single households.
& More elderly people living longer and with higher incomes
& General increases in people eating out
& More people concerned about healthy eating
These changes have resulted in some additional opportunities, for
example, retired customers can be attracted to use restaurants and bars
during the late afternoon and early evening through price offers of special
offers. More women with independent income mean that more women
are looking to be able to eat and drink on their own, or with other women
like themselves. More health consciousness and growth in vegetarianism
mean that most menu offers have to include vegetarian and healthy eating
options.
Key customer occasions and critical success factors
The following briefly outlines the key customer occasions appropriate to
examples of hospitality and tourism operations in general. The list provided
was not exhaustive and specific businesses may well be meeting other cus-
tomer needs that result in themvisiting the restaurant, bar or hotel that is not
included here.
Employing the concept of customer occasions as a way of thinking about
customers and their needs allows a focus which recognises that the same
customer may use the same business for different reasons or occasions. Each
occasion represents a specific use with different customer expectations of a
successful service encounter. There are therefore, different critical success
factors which service deliverers need to understand, and deliver, if the customer
is to leave in a satisfied state of mind.
The business plan needs to list the core customer occasions and the
potential complementary occasions that might yield more customers.
Refuel
Can’t be bothered to cook
Family outing
Special Meal Out
Out on the Town
Staying Away
In addition, your business plan needs to list the critical success factors
that are at the heart of customer expectations of a successful visit to the
business.
CHAPTER 9: Preparing a Business Plan 198
Key point 9.4
A thorough understanding of customers through demographic analysis and occasionally
through different time periods enables the business plan to be focused on customer needs
though the identification of potential opportunities.
COMPETITORS
Research on local competitors is an important source of information on which
to plan the business activities. Many hospitality and tourism markets are
dominated by ‘me too brands and businesses’. That is, offers that are aiming
at similar market segments and offering to satisfy similar customer needs on
similar customer occasions. Business planners need to know their current
strengths and weakness so that they can
& learn from their strengths, and
& attack their weaknesses.
Remember, there are both immediate and second order competitors for the
customers’ spend. Initially, it is important to concentrate on the immediate,
first order competitors, but planners need also to think about the other com-
petitors who are also meeting similar customer needs to the same customer
base as the business is working with. The business may well have its own
features in relation to customers that will add to following list of key concerns.
TABLE 9.3 Competitor analysis
Factor Competitor Own unit
Visibility and access
Menu and range
Service style
Additional offers
Facilities
Seating
Opening hours
Pricing and special offers
General cleanliness
Promotional activities
Estimated sales revenue
Average check size or transaction value
Internal competitor audit
Competitors 199
The important point is that the issue under investigation needs to be relevant
to the business and the customer needs it is aiming to serve Table 9.3.
When drawing up the business plan planners need to have an honest
accurate picture of the strengths and weaknesses of competitors and this
should then inform development of the plan. Where is it possible to build
genuine competitive advantage? What actions and targets are required to gain
the competitive edge needed.
Flowing from the initial research, there is a need to be constantly tracking
competitors. Planners must explore issues beyond the immediate customers,
goods and services offered. Usually businesses are competing in the same
labour markets, and in the same local environment, so there may also be a
need to explore wage rates and incomes, and their links with local employers,
schools, local government, planning offices, etc.
THE LOCAL ENVIRONMENT
The business plan now must consider the local environment because these
provide a context of opportunities and threats that will impact onthe business.
Contacts with relevant government authorities can help to identify some
useful data about the economic, political, social and legal environment. Again
these items flowfroma thorough marketing analysis, but here are some issues
which might be considered:
& Local population demographic profile – trends and changes.
& General level of economic activity – employment – incomes – changes
and future trends.
& Local offices or factories – major employers that may impact on the
business – either closing or expanding.
& Any planned traffic changes or other planning decisions that might
impact.
& The general approach of the planning authorities about this type of
business.
The key is scanning the future for potential impacts on the business. Do
they potentially generate more customers or fewer? As Wellington once said,
‘The value of recognisance is knowing what is over the hill’. In fast moving
hospitality and tourismbusinesses you have to be aware of changes before they
occur. By this scanning planners will be in a better situation to benefit from
increased customer, or best suited to deal with problems.
1. What is the geographical area from which customers are likely to be
drawn? Consider numbers locations, housing stock, etc.
CHAPTER 9: Preparing a Business Plan 200
2. What are the customer needs expressed in customer occasions that
will be the businesses core customers? Identify potential customer
occasions.
3. Consider the critical success factors for each of these customer groups,
and differences between groups.
4. Are the markets from which business aims to draw increasing, or
declining?
5. Are there potential changes in customer tastes, or habits that might
either increase or reduce sales?
6. List the competitors with whom the business will directly compete.
7. List competitor opportunities to satisfy the same customer needs.
8. Highlight the strengths and weaknesses of their approach to serve
these customers.
9. Match these with the businesses strengths and weaknesses compare
these with customers.
10. Describe the local economic and social context in which the business
is located.
11. Identify local firms who might be used to form alliances with the
business.
12. Identify the key threats and opportunities posed by the local
environment.
Key point 9.5
Effective business plans take account of both competitor activity and environmental factors
on local, national and international levels. They shape the environment in which the
individual business operators.
COMPETITIVE BUSINESS STRATEGY
Planners are now in a position to formulate a competitive business strategy
that will help plan tactics and actions over the short, medium and long term.
Planners need to think about the short term as actions within the next year,
medium term as over one but under two years and long term as three years
plus. Insome contexts, the business strategy interms of the overall directionof
the business will be decided and shaped at senior levels. Broadly, there are three
types of strategy that organizations follow, these are briefly described below.
Overall cost leadership usually large firms who can take advantage of reduced
costs through economies of scale. The size of the business allows the firmto
work on reduced costs due to lower production and distribution costs,
Competitive business strategy 201
greater purchasing power with supplier, reduced advertising and selling
costs. In addition to provide a Uniformity Dominant service, McDonald’s
Restaurants also follow a policy that has much in common with price
leadership.
Differentiation, through quality, good design and image, that creates brand
loyalty and a willingness to pay a price premium. In some cases, the ‘label’
is the key benefit to the customer. TGI Friday Restaurants are in part
attempting to gain competitive advantage in this way.
Focus, here a company focuses a particular market segment on a narrow
market segment that is too specialized to attract competitors. By
specializing in such a way, the firm makes the market its own. In some
cases, being the only supplier of a particular service to a local market can
have elements of this, though in many cases the entry barriers for
hospitality and tourism firms are too low to make it a realistic national
strategy.
The overall business strategy brings together the various elements of the
mission and objectives, market research, and marketing strategies, the market
place, and the marketing mix leading to an overall plan shown. The service
marketing mix needs to be stated in the business plan, and where the appro-
priate plan needs to give local flavour that will help interpret the action required.
Pricing
As shown earlier in the chapter, pricing is one of the elements of the marketing
mix. Here are a few key pointers to pricing.
& The selling price shapes customer perceptions – higher prices can
communicate a perception of higher quality.
& Price is associated with concept of value, but customers use the
perceptions of the benefits to assess with the price paid represents good
value.
& Many competitive markets are price sensitive, and small changes in
price can result in large changes in customer demand.
& It is possible to adopt approaches where prices are held constant but
bonus offers and the promotional mix increase sales.
The business plan needs a clear statement about the pricing strategy of the
brand and how you will use this in local campaigns.
CHAPTER 9: Preparing a Business Plan 202
Advertising and promotion
Business planners need to communicate with local market, both customers
and would-be customers. Advertising is paid for messages in the form of say
local press advertising, whilst promotions are those activities that will help
generate sales.
The marketing plan needs to consider how sales will be promoted through
an array of different activities. Here are some examples that might be consid-
ered.
& Local newspapers and ‘free sheets’ are often effective that they reach
target markets and are increasingly able to tailor their messages to
specific localities. These are the most effective when tied to an
‘editorial’ piece say round a story about the business it is of local
interest.
& Leaflets dropped through door ways or sent by post to target post code
areas are also useful in that these can direct messages to the people
most likely to use the establishment.
& Links with complementary firms – cinemas, theatres and other leisure
venues can provide joint offers – say pre-theatre dinners, or price off
vouchers to attract them to the business.
The business plan needs to show how planners will promote the business
over the period.
& What are the aims and objectives?
& How much is it worth?
& Which methods will be used?
& What benefits are expected?
& How will check the results?
Place
The business plan needs to consider the nature of the premises, these provide
sources of tangible and intangible benefits to customers. Issues such as the
approach and appearance externally, the signage fromvarious approaches, the
cleanliness, visibility to the inside, external decor, the provision of smoking
areas, car parking facilities may all be issues that are benefits or limitations.
Internally, the overall atmosphere, cleanliness, decor, music, toilet provi-
sion, the availability of children’s play areas etc., are also issues that need to be
considered, because they may require capital expenditure to meet changed
customer expectations.
Competitive business strategy 203
Often it is said that location is the key to success in hospitality and tourism
businesses, but difficulties can be overcome with the right attention to service,
customer expectations and promotional activity.
The business plan should include an analysis of the facilities so that these
can be analyzed and actions taken relating to the strengths and weaknesses
they pose for meeting and exceeding customer expectations.
1. What are the key cost elements that the business has to incur to make
an operating profit?
2. What is the overall price strategy?
3. How do prices compare with competitors?
4. Are there differences amongst customers in their price sensitivity?
5. What are your key objectives for advertising and promotional
activities?
6. What methods are being used to achieve the objectives and why?
7. How will the results be monitored and evaluated?
8. Are premises adequate for future needs?
9. What development work is needed and why?
Operations
Operations are the name given to the activities required to make the strategy
happen. In hospitality and tourism operations, these activities cover the pro-
duction and service of food and drink, and in some cases accommodation. The
business plan needs to showin detail howproducts are service will be supplied
to customers.
1. It is useful to start with an indication of what it is the business is selling
in broad terms, though an appendix could include the full product
range.
2. From this it is necessary to indicate the opening hours of the business
and the sales mix at different times of day.
3. Provide an organizational plan that shows the organization of the
business and indicates the key job roles required to produce the
goods and services. This will indicate the management posts
involved and broad statements of responsibilities. Again, the
appendix can be used to provide job descriptions (showing duties
and responsibilities) and person specifications (showing skills and
qualities) needed for each job title, where these are important for the
plan.
4. The plan will also indicate how will the individuals be managed,
rewarded and motivated. Issues to do with group and team work in the
CHAPTER 9: Preparing a Business Plan 204
management of particular customer groups and customer occasions. In
other words, how will the critical success factors be managed?
5. Following fromthis the planshould indicate the businesses approach to
customer complaint handling and the responsibilities for dealing with
customer satisfaction.
6. The business plan needs to consider the management of materials and
cash involved in the operation.
7. In most hospitality and tourism operations there are strict legal
responsibilities associated with food hygiene, health and safety,
licensing, and other responsibilities to customers and staff. The plan
should show how these matters are handled and managed.
The operational plan lays down a blueprint of the key issues that are
priorities for the delivery of a successful business which is likely to deliver
satisfied customers and employees.
Key point 9.6
The business plan needs to clearly demonstrate the means by which it will operate and
deliver customer satisfaction and achieve the mission.
FORECASTING RESULTS
The business plan was described earlier in the chapter as a map, and the
ultimate aim of a business offering hospitality and tourism products is to
deliver a profitable operation which will make a positive contribution to the
owner’s financial performance.
Sales forecasts
The sales forecast is arguably the most important set of figures to arise from
the planning process. The sales forecasts help to establish the targets that you
will use through the year and establish a set of business profit and loss
accounts that will indicate profits or losses.
& Estimates of sales fromvarious income streams – meals – non-alcoholic
and alcoholic beverages – machines and accommodation, etc., will need
to be, above all else, based on sound reasoning. Previous trading
experience will be necessary to build a reasonable estimate of likely
sales patterns, even in a new business. In many cases, however, the
team will be managing a business that has been trading for some time.
Forecasting results 205
The following points provide a check list of issues to bear in mind when
calculating and justifying the sales forecasts.
& How big is the market, bearing in mind the customer profile the
business will be wanting to attract and the local population within the
catchment area. Is the overall market growing or shrinking and at what
rate? Avoid unsubstantiated statements - the team need to be
convinced that the targets are achievable.
& Howmany customers are there who are likely to buy fromthe business
and how much do they spend on average per visit? Are there seasonal
variations or variations between customer types? Hospitality and
tourism traders can get some information about the area, customer
types, traffic flows, footfalls, etc fromboth the local authority and from
research organizations.
& The desired income approach is appropriate for these operations and
the aim is to achieve the forecast. By a thorough analysis of potential
sales there is a chance to make adjustments if sales slip for some reason.
& Are the product life cycle issues to consider? Some hospitality and
tourism businesses, pubs for example, are working in markets where
customer visits are in decline, though there are growing opportunities
through the provision of restaurant services.
How long a period should your sales forecasts cover? In fast moving retail
markets it would be unusual to planmore thanthree years ahead and most will
operate a twelve months cycle.
Operating profit statement
The operating profits statement sets out to match income with expenditure
over the appropriate time period of the business plan. It is the way profit and
loss can be calculated for the period.
Sales income
This shows the total budget sales income for each month over the year. The
figure will include the total income from all the unit’s revenue earning activ-
ities – sales of meals, snacks, alcoholic and non alcoholic drinks, machines,
accommodation etc., by each month as they are likely to occur. That is, the
plan must consider potential variations month by month. Traditionally, hos-
pitality and tourismoperations in the UKexperience lowsales in January after
peaks in December.
CHAPTER 9: Preparing a Business Plan 206
Cost of sales
To show a trading profit is necessary to deduct the costs of the materials
purchased to produce the goods sold. Thus the cost of all the food, drinks,
and other materials directly used to produce the goods sold are deducted from
the sales revenue. The trading profit is the balance after costs of the materials
directly used to generate sales revenue have been deducted. Usually these costs
could represent an average and be calculated as a percentage, though there may
be major differences between the profitability of different income streams and
products.
Labour costs
Again these relate to the costs of producing the products and services associ-
ated with the sales revenue generated. Thus the total direct labour costs of
kitchen, bar, restaurant, and accommodation are calculated as a means of
arriving at a gross profits. That is the surplus after the costs directly associated
with generating the sales revenue has been taken into account. Again the costs
of labour can be calculated as a percentage, though there are differences be-
tween departments and section depending on the labour intensity and the use
of supplies that require different amounts of handling by staff.
Table 9.4 shows an example from an extract of accounts for hospitality
retail operation such as yours.
The gross profit shows how much income will be generated after the
immediate costs of producing the products and services sold. However, these
TABLE 9.4 Extract fromgross profit budget for Mr Bean Restaurant – Chelmsford
YEAR XXX Chelmsford
Sales (£)
Food 900 000
Beverages 50 000
950 000
Cost of sales (£)
Food 225 000
Beverages 20 000
Total 245 000
Trading profit (£) 705 000
Staff wages (hourly paid) (£) 175 000
Gross profit 530 000
Forecasting results 207
are not the only expenses. Managers’ salaries and other administration costs,
as well as rents, rates, lighting and electricity, unit based advertising, staff
uniforms, and other expenses will need to be taken into account to show the
profit contribution that your unit makes to the overall business.
Table 9.5 shows an example from the same organization, but shows how
the operation profit can be calculated.
Clearly, a branded hospitality and tourism business is different from an
independent business because it is unusual for these organizations to produce
unit specific balance sheets. However, each business will be considered as a
business investment and the return on capital employed might be an issue
that company’s accounts might want to consider.
Key point 9.6
Forecasts of business outputs and achievements need to be as sensible and realistic as
possible. It is important to avoid overly optimistic or overly pessimistic predictions.
TABLE 9.5 Extract fromgross profit budget for Mr Bean Restaurant – Chelmsford
Year Nottingham
Sales (£)
Food 900 000
Beverages 50 000
Cost of sales (£)
Food 225 000
Beverages 20 000
Total 245 000
Trading profit (£) 705 000
Staff wages (hourly paid) (£) 175 000
Gross profit 530 000
Lease and local tax 90 000
Electricity and gas 20 000
Management and admin 54 000
Promotional activity 48 000
Maintenance 36 000
Other consumable 36 000
Depreciation 30 000
Restaurant profit contribution 216 000
CHAPTER 9: Preparing a Business Plan 208
WRITING UP, PRESENTING AND WORKING WITH
THE BUSINESS PLAN
The business plan is both a document to be presented to colleagues – showing
how the team plan to mange the business; it is also a document that the team
will use through the year, to work from and to assess progress. The business
plan, therefore, needs to be presented in a professional manner, and be capable
of easy access.
Presentation of the written document
The business plan needs to conform to professional standards in the way it is
written and presented.
& A simple business folder with a spiral binding will be sufficient.
& It must be word processed (typed).
& The layout should be much closer to a report than a memo or essay.
& The page layout should use wide margins, and be pleasing on the eye,
and it should be printed on singles sides of A4 paper.
& It should paginated.
& Obviously tables, figures and graphs aid understanding and are a quick
way of communicating information, though these should also be
explained and discussed in the text.
Remember, the appendix should be used to provide useful background
information, all information that is essential to the plan must be included
in the main body of the text.
Layout and content
There is no formally accepted business plan format, and a business plan for a
unit that is part of a multi-unit organization has to be different from a plan of
an independent business. The balance sheet section and the justifications,
that an independent business is required to include, are not needed in a
document for these purposes.
The front cover of the document should clearly state the name of the
business and the date of the business plan. It is important that it is clear that
this is the latest version of the plan.
The second sheet behind the front cover should be an executive summary
and will include:
1. The current trading position of the restaurant, past successes and the
general appraisal of performance over recent years.
Writing up, presenting and working with the business plan 209
2. The products and services currently being sold and the units ranking
compared with competitors.
3. The customers and the potential customer base in the area, and the
reasons why they use the unit.
4. The unit’s aims and objectives, in the short term, and the strategies to
be employed in achieving them.
5. A summary of forecasts, sales and profits.
The table of contents
The table of contents are valuable because they help the reader work round the
document and focus on the issues of immediate concern. The team will be
using this document so they need to be able to turn to the sections that are of
interest at a specific time. It is helpful, for example, for the document to be
paginated and for the contents page to indicate page numbers where the
various headings can be found.
There are a number of ways of numbering pages and sections. It is the most
appropriate to use a system that gives every section a new number and sub-
sections are broken down to decimal points.
Though there are likely to be variations between different businesses, the
following is an example to work from and that might be useful as basis for
designing your own document.
Here’s an example
Sample table of contents
Section
Executive summary
The Business and Management
1.1 History and overview of progress to date
1.2 Current mission
1.3 Objectives and actions needed
1.4 The team
The Products and Services
2.1 Products and services
2.2 Current sales mix
Market and Competition
3.1 Description of customers
3.2 Customer occasions, needs and benefits
3.3 Market segments
3.4 Market size in the area
CHAPTER 9: Preparing a Business Plan 210
3.5 Location of customers and flows
3.6 Market projects over the period
3.7 Competition
Competitive Business Strategy
4.1 Pricing policy
4.2 Promotional plans
4.3 Premises
4.4 Competitor responses
Operations
5.1 Critical success factors
5.2 Quality management and control
5.3 Organization structure
5.4 Employee management and motivation
Forecasts and results
6.1 Sales forecasts
6.2 Operational budget
6.3 Business objectives and actions plans
The writing of the plan may have to go through several stages, at least a first
draft that the teamwill need to showand discuss with colleagues, and a second
draft that will be the final document. It is important that the final draft is clear
and well written, free from spelling and grammatical errors. The document
has to be both detailed enough to show that you have though through the
issues and records your thinking at the time, but the document must not be
overly long. So part of the editing process is to ensure that the information that
is needed is in the document and that you have not over written parts.
WORKING WITH THE BUSINESS PLAN
The business plan should be used throughout the year to monitor and keep
track of progress. The assumptions and calculations built into the plan should
make sense to the team of the time so they need to think critically about the
how they will use the plan to guide trading performance.
Sales analysis – hourly, daily, weekly and monthly sales audits can keep track
of issues such as the sales mix, sales of most profitable lines, average
transaction values, numbers of transactions, party sizes, irregular flows in
the times customer use the business, etc.
Promotional plans and activities – impacts of particular offers, bonuses,
national and local initiatives that were more, or less, successful.
Working with the business plan 211
Customers – who are regular users and what is the level of customer retention;
their location and reasons for coming to the business; demographic profiles;
complaints and comments of satisfaction, customer focus groups, mystery
customer reports.
Employees – staff retention and labour turnover, staff satisfaction surveys,
costs of training, benefits from training and developments, sales analysis
and up-selling opportunities, labour costs and investment in human
capital.
Competitor activities – making records of their initiatives that impact
negatively on sales, and how they respond to the team’s initiatives.
Cost control and profitability – ensuring that the teamkeep control of the costs
of the materials and labour need for the production of goods and services, is
essential in developing the basis for profitable performance.
CONCLUSION
The business plan provides the team with a detailed map of how the business
will develop and will undertake its activities. It is essentially a tactical account
of the business and the issues that need to be managed for it to meet the
business commitment to customer satisfaction, sales and profitability growth,
continued success in the community in which it is located.
Though there are no hard and fast rules about how this type of business
plan should be presented it is important that the team undertake the research
necessary and undertake the activities suggested in this chapter in as thorough
a manner as possible. The more the teaminvests in making rational decisions
based on a sound understanding of the most relevant information the more
likely that the planwill forma sound basis for arriving at the desired objectives.
The business plan, is above all else a working document designed to assist
the team to plan with sense and realism, and through which to monitor
performance against desired objectives. Regular use of the document and
comparing performance against predicted performance is an essential feature
of how the document should be used. In some cases, adjustments to the plan
need to be made to the plan in the light of events which have happened.
CHAPTER 9: Preparing a Business Plan 212
Leadership and the
Entrepreneur: ‘‘I’m right
Behind You Leading the Way’’
After working through this chapter you should be able to:
& Understand the role of entrepreneur as leader
& Identify the behavioural attributes of entrepreneurial leadership style
& Recognize the entrepreneurial role changes as hospitality firms develop
& Understand the role of teams in the growing hospitality firm
INTRODUCTION AND DEFINITIONS
Entrepreneurial success can be attributed to a number of factors including
expert knowledge of a technical field together with a sound understanding of
markets and the behaviour of competitors. Good fortune is also something
which differentiates mediocre enterprises from their successful counterparts
(see Chapter 11 for a discussion). However, capitalizing on this knowledge,
cognisance and luck requires a long-term entrepreneurial perspective and a
recognition that consistent high performance depends on a collective effort
rather than that of a single ‘heroic’ founder. In other words, successful small to
medium-sized hospitality enterprises must have effective leadership. Interest-
ingly despite the hyperbole surrounding such entrepreneurs as Richard Bran-
son, Anita Roddick, Donald Trump and others, the role of entrepreneur and
leader are not always synonymous. History attests to a number of failures
whichcould be attributed to poor leadership skills. Making the transitionfrom
an insular creator or innovator to an inspirational and consistent motivator of
people is a challenge which some fail to manage.
As small hospitality firms grow, the role of the founder needs to develop
accordingly. No longer can the entrepreneur rely on an intuitive or even
haphazard style of management that may well have been appropriate in the
CHAPTER 10
213
early stages when the organization was small and had few staff. Most growth
models (Greiner, 1972; Churchill and Lewis, 1983; Scott and Bruce, 198)
acknowledge that the role of the founder needs to change as the business
develops and grows. For example, Churchill and Lewis group these changes
into founder’s goals, management and strategic and operational ability. The
emphasis of each depends on the entrepreneur’s attributes and the develop-
mental stage or size of the firm. To lead a growing hospitality firm effectively
the founder must nowbeginto consider their role as one of facilitator and team
leader rather than an entrepreneurial ‘hero’.
According to Burns (2001) leaders should have the ability to establish a
vision and generate ideas so followers understand the firm’s challenges, its
values and where it needs to be within a certain time frame. They are respon-
sible for ensuring their firms work as a unified whole in pursuit of a common
goal by providing appropriate guidance to followers who are motivated in their
place of work (Yukl, 2006). Leaders must also be able to undertake long-term
strategic planning so that the firm can achieve its aims or satisfy its vision.
Strategies may be planned or emergent. If the latter, leaders must be able to
spot the successful ones and exploit them.
Several definitions of leadership exist but that cited by Daft (2005) serves
the purpose of this book adequately as it helps to clarify of what leadership is
comprised:
‘‘Leadership is an influence relationship amongst leaders
[entrepreneurs] and followers who intend real changes and outcomes
that reflect their shared purpose’’ (p. 5).
This contemporary idea of leadership is something quite different to earlier
versions which considered it to be a one-way power and control relationship
between superiors and subordinates. ‘New’ leadership actively seeks and
embraces change rather than one person maintaining a status quo in order
to keep their position of power. Moreover, change is viewed as something
constructive and a reflection of the shared purpose of all involved irrespective
of organizational position; with the purpose aimed at sharing a vision created
by the leader (and in some cases the followers). Ultimately we can see that
entrepreneurial leadership has a strong visionary dimension with a significant
people or ‘follower’ focus.
Key point 10.1
To lead a growing hospitality firm effectively the founder must consider their role as one of
facilitator and team leader rather than an individual entrepreneurial ‘hero’.
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 214
This chapter explores the concept of leadership by introducing some key
historical and contemporary developments in the field. It continues by out-
lining the transition from founder to leader whilst the firm is growing with a
focus on ‘people’ and team leadership skills. Here, we are less concerned with
how this happens, as this is discussed elsewhere in the book, but what the
founder needs to do in order to lead the growth effectively. Finally, organiza-
tional culture is discussed in an attempt to highlight its overarching influence
and importance to the area of leadership in small to medium-sized hospitality
organizations.
Making a racket
by Colin Morris
David Lloyd, as they say, knows his own mind. Indeed, he is on intimate terms with it. He
thinks The City is ‘‘full of crooks’’, Hull’s sports fans don’t know what’s good for them and
the All England Lawn Tennis and Croquet Club should tear up its hallowed turf in favour of a
more modern surface or risk becoming irrelevant on the world tennis stage and he’s not shy
about sharing such wisdom. So much so, that the Guardian recently quipped: ‘‘A legend in
his own change of ends, Lloyd should do British tennis a favour and keep it buttoned.’’
Having spent an afternoon with the man I can tell the Guardian, and anyone else who cares-
that this is as likely as unearthing a multi-grand slam winner who is British.
I met Lloyd in his uber-posh Wisley Golf and Country Club near Waking, where the suburbs of
south London give way to the green rolling hills of Surrey. It is impressive. Words like rarefied,
stunning and immaculate come to mind- and that’s just the gravel on the drive leading up to
the clubhouse.
Once inside, a front-office employee with cut-glass accent directs me to the lounge where I
may await Mr Lloyd’s arrival. In front of me lies the splendour of the club’s superb 18
th
green
– inside is the kind of drinking establishment you would expect to find in a middle England
inspired heaven. But the conversation in the room isn’t about birdies and bogeys but about
David Lloyd’s involvement in the troubled Clubhaus venture, a golf course chain that he
studiously backed away fromthat is nowfacing the scrutiny of the DTI – with Lloyd crying foul
from the sidelines.
My eavesdropping is interrupted by the man himself. All smiles, a quick handshake and then
a brisk walk to an empty conference room for a more ’private conversation’. Despite a
pronounced limp, Lloyd walks way too fast. The obvious starting point is David Lloyd Leisure –
the fitness chain he created 20 years ago, spread throughout England with great success and
sold on to brewer Whitbread. He continued to work in partnership with the brewer for a while,
but eventually the relationship turned sour. Indeed, it doesn’t take long for the legendary
Lloyd pugnatiousness to surface and, as if on cue, he delivers a scathing assessment of
corporate Britain: ‘‘Big companies are all the same – they make sure all the directors have a
chauffeur driven car – but that’s not in the shareholders’ interest.’’
The former British tennis number one rates Whitbread’s handling of David Lloyd Leisure as
sub-par. He wasn’t happy with the way Whitbread handled its staff, treating them as
Introduction and Definitions 215
‘‘numbers instead of people’’ and was even more displeased with what the brewer sawas an
acceptable bottom line. ‘‘They (Whitbread) were happy with an 11 per cent return on the
business (when I ran it) we wouldn’t get out of bed for less than 15. I told Whitbread ‘You’ve
got this great business – why don’t you step back and let me make you money’?’’.
Lloyd finally sold out to the brewer in 1995 to go his own way. ‘‘I used to enjoy going to work
but when I went to work (after Whitbread came in) I hated it. They were destroying a great
business and I couldn’t stand it.’’ So much for pulling your punches. Lloyd may have left his
leisure business behind, and his name with it a situation that he admits ‘‘bothers me
sometimes’’ – but he wasn’t about to sit around his country club hideaway and sulk. He hung
on to his tennis school along with a variety of interests managed under the umbrella of David
Lloyd Associates and remained a central figure in British tennis.
Tim Henman was an early protege and Lloyd led both him and Greg Rusedski when he was
captain of England’s Davis Cup team. It didn’t work out particularly well and Lloyd was
replaced with Roger Taylor last year. Outside tennis, Lloyd kept himself busy with a variety of
ventures, most notably his involvement in Clubhaus which has turned messy – and a dabble
in pro sports that doesn’t involve fuzzy balls when he strode into Hull and snapped up the
city’s professional sports trinity of Hull City Football Club along with Rugby Leaguers Hull
Kingston Rovers and Hull FC The Hull dreamwas typical of efforts to wring money fromlower
echelon football clubs in the late 90’s – but with some twists only David Lloyd could provide.
He scooped up Hull City Football Club and its Boothferry Park ground with the team on the
brink of financial ruin, along with the city’s two bitterly divided rugby clubs.
The plan was deceptively simple, instead of three clubs playing fromthree different run-down
grounds Lloyd would build one modern stadiumwhere the gate receipts fromall three teams
would keep the clubs and stadium humming, while the various real estate deals around the
grounds would line Lloyd pockets. The x-factor, the one thing Lloyd hadn’t figured into to his
equation, was the intractable nature of the average English sports fan. In Hull, Lloyd finally
bumped heads with a constituency as stubborn, headstrong and opinionated as himself. ‘‘It
seemed really simple and logical,’’ reflects Lloyd. ‘‘Trouble is, between the two different
sides (Hull RFC and Hull KR) there is war. Fans wouldn’t cross to the other side of the city to
watch their team. They would rather stay in a leaking stadiumwith asbestos in the roof and no
hot food than cross to the other side of town (and into enemy territory) to a nice new
stadium.’’
Unable to link the three teams under a rainbow of harmony, Lloyd was eventually forced to
sell his stake in 1998 – with Hull City on the brink of Football League elimination. Ironically,
Hull City Football Club and rugby leaguers Hull FC will share a stadium from 2003 after all.
Atypical to the end, Lloyd put in almost £1 million of his own cash to leave Hull City debt free.
But it hasn’t been all bad news for Lloyd – in fact even the bad news has been good. Lloyd was
involved with the golf and country club chain Clubhaus in its infancy and was excited about
the prospects of the business. But when it came time to stump up his own cash Lloyd
performed due diligence and didn’t like what he saw when the company opened up its
books.
‘‘An entrepreneur is not a gambler. He’ll put his cash and his head on the line but you have to
put controls in as well because, after all, it’s a dream. They (Clubhaus) had a good idea but
they tried to make everything too big, too fast with lots of paper and no cash.’’
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 216
Months after Lloyd backed away from the company, Clubhaus is labouring under debts of
£105 million and is facing an inquiry by the DTI into its bookkeeping. In a bid to stay afloat
Clubhaus, a publicly traded company, has swapped outstanding bonds for equity in the
company – effectively waylaying its shareholders. The move incensed many who owned
shares, including Lloyd and Eddie Shah, the former newspaper tycoon who is reported to be
writing a novel about the debacle.
While Lloyd holds no grudges with management at Clubhaus, ‘‘They were nice guys’’, he
was outraged by the equity-for-bonds swap and is even more furious that investigating bodies
don’t want to look at the due diligence he performed on the company long before its troubles
came to light. ‘‘The City is a rip-off in a lot of ways, which is sad. There’s punters out there
who don’t know what’s going on and auditors need to be taken to task. We are talking about
people’s life savings in some cases.’’ Perhaps- but not in the case of David Lloyd himself,
who’s exposure to Clubhaus was minimal.
Lloyd has kept his powder dry for another venture into, you guessed it, the leisure centre
business. Next Generation, which has seen Lloyd teaming up with his son Scott, was
launched three years ago but is currently in the throes of a significant rollout. The venture has
seen Lloyd move away from the mass market to concentrate on the more discerning
customer. Clubs are often built in the exclusive suburbs where land is more expensive, are
more spacious and contain unusual features such as children’s gyms, cinemas, homework
rooms and creches. Indeed, Lloyd is planning to spend £50 million on just four clubs this year
at London’s Maida Vale, Bristol, York and Dartford. With a further ten clubs planned for the
next three years, this is quite a hefty initial outlay, but he has managed to secure backing for
the venture from the Bank of Scotland, Royal Bank of Scotland and a number of private
investors. Understandably, he hasn’t sought to raise any funds through the City.
Questions
1. What leadership characteristics does this entrepreneur display?
2. What style (s) of leadership does this entrepreneur display?
3. Discuss what impact his early sporting career is likely to have had on his business
perspectives.
4. Identify and discuss issues of organizational culture amongst the companies mentioned in
this article.
5. Identify and comment on some of the business decisions made by this entrepreneur.
Reproduced with permission, Hospitality, July/August, 2002, pp. 38–40.
LEADERSHIP THINKING
The emergence of leadership theories could hardly be described as proactive. In
a business sense they have evolved due to shifts in the socio-economic climate
in which they were positioned originally. Daft (2005) summarises the major
Leadership Thinking 217
approaches as Great Man, Trait, Behavioural, Individualized, Contingency,
Influence and Relational. A discussion of each appears below.
Great man theories (early 1900s – 1950s)
Leaders are always male heros and born with universal natural leadership
qualities which inspire and influence others to obey unquestioningly. Many
hundreds of traits have been identified such as creativity, self-confidence, risk-
taking propensity, intelligence, drive and so on. Despite a consensus that traits
and leadership effectiveness are difficult to predict in all situations, traits
remainpopular with some being identified as powerful predictors of leadership
behaviour (Bass and Stogdill, 1990).
Trait theories (1940s to present)
Rooted in the above theory whereby early researchers sought to identify spe-
cific traits which would predispose individuals to become great leaders. Some
traits are now recognised as having a role in predicting whether someone is
likely to be an effective leader but a robust and reliable list of such traits is yet to
be identified.
Behaviour theories (1940s and 1950s to present)
Research here focuses on what an individual does rather than who they are by
dint of traits. Similar to trait theory effective and ineffective leadership is
defined by behavioural differences between these two extremes. This school
coined the terms ‘autocratic’ and ‘democratic’. Essentially, the autocrat pre-
fers centralized power being derived from position, controlling rewards and
coercion. The equal and opposite is the democrat who prefers to delegate
authority, encourages others to participate and relies on followers’ knowledge.
A significant contribution to the field was that of Tannenbaum and Schmidt
(1958) who recognised that leadership style is dynamic and exists at any point
along the autocratic (or ‘boss-centred’) and democratic (or ‘subordinate-cen-
tred’) leadership scale. The extreme points of the continuumare characterized
by managers making decisions and announcing them with no consultation to
one where managers encourage followers to work with a degree of autonomy
within defined limits.
Other seminal studies on leadership behaviour include the ‘Ohio State
Studies’ from where the exclusive terms ‘Consideration’ and ‘Initiating
Structure’ styles emerged. The former concerns the sensitivity with which
the leader treats followers, for example, are their ideas and feelings
respected? The initiating structure style focuses more on the work task
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 218
and the extent to which the leader directs followers toward a designated
objective. Other related studies were conducted at the University of Michi-
gan with similar outcomes. On this occasion, leadership behaviour was
classified as ‘Employee-centred’ or ‘Job-centred’. These studies differed
from the Ohio-based research in that both behaviours could be adopted by
leaders simultaneously.
Another behavioural contribution adding to that of the former two studies
was that of Blake and Mouton (1978). Their Leadership Grid shown in
Figure 10.1 summarizes the tenets of their leadership theory.
Like the Ohio and Michigan State studies, the grid features two continua
with concern for people and concern for results as their focus. Research
suggests that entrepreneurs may be both people and results oriented simulta-
neously. Five leadership styles are shown in the figure with the universal ‘high
high’ or ‘teammanagement’ being the preferred approach in most situations.
However, the assumption here is that leaders use the same leadership style
with all followers.
Reflective practice
1. In your opinion, is it possible for leaders to have high concern for results and for people?
2. Which of the above five styles of leadership would be most appropriate for:
&
A fast-food restaurant
&
A fine dining restaurant
&
A motel
&
A busy small city hotel
&
A busy small resort hotel
Individualized Leadership
Yammarinowand Danserau (2002) contend that an individualized leadership
style is more effective whereby the leader strikes a different relationship with
each individual in the firm. Daft (2005) considers this to be based on ‘Dyadic
theory’ or two-person exchanges where each party give and receives from the
other. Leaders are said to provide a sense of self-worth for the follower
(amongst other things) and the follower offers a commitment to the job and
the firm. Ultimately this individualized exchange can be extrapolated more
broadly to build cross company networks. However, this style of leadership
ultimately results in the creation of two overall groups of followers; an ‘in’ and
an ‘out’ group. Much like the existence of a two tier hospitality labour force
Leadership Thinking 219
(year-round and seasonal workers), the in groups enjoys preferential treatment
and quality exchanges with their leader whereas the out group do not. Instead
the pattern of exchanges is more likely to be based on coercion and formal
authority.
FIGURE 10.1 The leadership grid.
Adapted from: Blake and Mouton (1978).
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 220
Contingency theories (late 1950s to present)
Given the equivocal nature of results from the above constructs, situations
and contexts were then identified as variables most likely to impact on lead-
ership behaviour. Simply, researchers proposed that situations can be effec-
tively managed by analysis and a subsequent change inleadership behaviour to
match the requirements of the context. Contextual variables may be grouped
into categories of:
& The work environment;
& The external environment; and
& The characteristics and tasks of followers.
Contingency theories hold that effective leadership styles depend on their
fit with the context or the situation and the requirements of the followers. In
short, there is no universal optimum way to lead, it very much depends on
other issues. The basic assumption here is that leaders have the ability to
diagnose situations and behave accordingly. Based onthe trait theorists notion
of concern for task and concern for people, a leader who has a high concern for
tasks will focus on short-term planning, task clarification and monitoring.
Alternatively, a focus on people or relationship behaviours will optimise beha-
viours including support provision, recognition for work done well, empow-
erment and so on. Several contingency models exist with some differences
between them however, they all agree that appropriate leadership depends on
situational characteristics. The main contributors to this field are Fiedler,
Hersey and Blanchard, House (Path-goal theory) and Vroom-Jago.
According to Fiedler (1954) situations are characterized by three elements:
& Quality of leader – follower relations – working atmosphere (trust,
respect, confidence in leader);
& Task structure – extent of definition, clear goals and instructions; and
& Position power – over followers, planning, directing, rewarding,
punishing.
The possible configurations of situations using these three criteria vary from
‘favourable’ where leader–member relations are healthy, leader position power
is strong and task structure is high to ‘unfavourable’ situations where relations
are poor, position power is weak and task structure is low. For this approach to
be successful, the leader must first understand where they fit along the rela-
tionship/task scale and then see whether the situational elements (relations,
position power and task structure) are favourable or unfavourable. There are
various instruments available to diagnose leadership style. One example linked
to Fiedler’s theory is known as the Least Preferred Co-worker scale (LPC). The
Leadership Thinking 221
scale used is a form of semantic differential with adjectives including efficient
vs. inefficient; open vs. guarded; gloomy vs. cheerful and so on. If the entrepre-
neur uses positive words to describe the least preferred co-worker she is a
‘relationship-oriented’ leader. If negatives are used then the entrepreneur is
deemed ‘task-oriented’. Like most instruments, the LPC has its critics.
Hersey and Blanchard’s (1982) model focuses on the characteristics of
followers as the main situational elements. Essentially, an effective leadership
style must consider the nature and state or prior development of followers.
Follower development is divided into four overall characteristics shown in
Figure 10.2.
The model suggests that when workers are at a low state of readiness as
they have poor ability and skills (or may even be unwilling to take responsi-
bility), a telling style of leadership works best. This would be where the
hospitality entrepreneur has codified a set of instructions for a food server in
the delivery of say a Cappuccino coffee. At the other extreme, where followers
are well educated and are willing to accept responsibility for their own behav-
iour, a delegating style of leadership is most appropriate. This model is simpler
than Fiedler’s as one only has to consider followers rather than other situa-
tional variables.
Key point 10.2
Effective leadership depends on a diagnosis of followers’ state of readiness and instigation of
the appropriate style.
Other contingency constructs include Path-Goal Theory (PGT)
(House, 1971) where it is incumbent on the leader to increase follower
FIGURE 10.2 A situational theory of leadership.
Adapted from: Daft (2005, p. 91).
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 222
motivation by clarifying what they must do in order to receive rewards. She is
also responsible for increasing meaningful rewards for followers. The main
difference between this contingency theory and that of Fiedler is that PGT
suggests leaders change their behaviour to match the situation. These beha-
viours are classified as supportive, directive, achievement-oriented and par-
ticipative. Situational contingencies here are follower characteristics (similar
to those of Hersey and Blanchard) and the work environment which is classi-
fied according to the presence of task structure, nature of formal authority
system and the follower work-group characteristics (education and quality of
relationships) (Daft, 2005, pp. 93–100).
Essentially, all contingency theories consider howthe situation impacts on
leadership behaviour. Being able to identify and understand how tasks, fol-
lowers and other contextual variables interact, allows the hospitality entre-
preneur to adopt an appropriate leadership style.
Influence theories (1960s to present)
These constructs explore the two-way process of ‘influence’ between leaders
and followers. Charisma and visionary leadership fall into this category where-
by an individual emerges as a leader based on their behaviour (rooted in
personality). These inquiries attempt to identify charismatic behaviour and
the context giving rise to the phenomenon. This approach has much in com-
mon with the earlier ‘Great Man’ theories of leadership.
Relational theories (1960s to present)
These models look at how leaders and followers interact and influence each
other (not to be confused with Influence theories). This perspective regards
leadership as a shared process whereby followers become engaged meaning-
fully in the process, highlighting the key role played by interpersonal relation-
ships. These tenets are enshrined in both ‘Transformational’ and ‘Servant’
leadership theories. The former is alleged to develop followers in to leaders.
The second considers the leader as the servant of others rather than the
controller or directors of followers.
Adapted from: Daft (2005, pp. 23–25).
Reflective practice
1. Think of an entrepreneur known to you and consider how useful the above theories are in
explaining their behaviour.
2. 1 How would you measure the success of an entrepreneur in the hospitality industry?.
Leadership Thinking 223
FOUNDER TO LEADER
The following questions and answers were abstracted from three interviews
conducted with hospitality leaders in the UK.
Stan Counsell – Consultant to the hospitality industry and owner of an environmental
certification business –UK
What’s the best aspect of your work?
Helping others to achieve their objectives
What’s the biggest lesson you’ve learned in business?
Tenacity will usually overcome adversity
What do you think makes a good manager?
An ability to get the job done, while paying attention to the needs of the team as well as
individuals. Being able to plan for the expected and cope with the unexpected
Joanna Chugh – Cluster finance director Marriot Hotels – UK
Name three qualities that define a good manager?
Leadership, discipline and drive
What’s the best aspect of your job?
Watching people I’ve recruited and trained do well for themselves. I am delighted to see my
team move on to bigger and better positions
How would you describe your management style?
I enjoy training and coaching and always try to be non-prescriptive. I want to give the team
around me the opportunity to step up to the challenge and make decisions for themselves.
Decision-making is a skill that all future managers need to sharpen and practice. I try and
instil in my teamto bring me their solution, along with their problemand we can talk about it.
Andrew McKenzie – Managing Director – Donnington Valley Hotel and Spa.
Name three qualities that define a good manager?
Fairness, openness, clarity and humour.
What’s the best aspect of your job?
Being amazed by most of the great young people who work with me.
How would you describe your management style?
Open, fair, clear and happy.
Adapted from: Hospitality, February 2004, p. 25, Dec, 2007, p. 70, March, 2008, p. 70.
Whilst the thrust of questions is management focused, the answers from
the three leaders reveal their main approaches to leadership. All would appear
to be based ona modernstyle whichvalues empowerment, equity and a delight
in the success of followers.
The modern view of leadership results from ‘enlightened’ thinking, a
greater understanding of what motivates people and an acknowledgement
that one should do what is morally and ethically appropriate when dealing
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 224
with people; it is also rooted in plain good business sense. There is little doubt
that the world is now in a constant state of ever increasing change. Indeed,
Daft (2005) considers that predictability is a thing of the past. Instead it has
been replaced by random events much espoused by chaos theorists (for exam-
ple, see Gleick, 1987). It is therefore in the best interest of entrepreneurs to
take note that such significant events require a new leadership approach.
Table 10.1 shows a summary of responses to these circumstances.
In the current environment hospitality entrepreneurs must either use or
develop personal skills and qualities to establish a compelling and shared
vision or direction for the business. They must be able to motivate and inspire
all employees to embrace external or internally generated change and establish
a culture of integrity (Daft, 2005). This is different to the entrepreneur as a
manager where concern is targeted at administrative and procedural efficiency
and effectiveness through organizing, planning, directing, controlling and so
on. Obviously both are important roles and in small hospitality firms the
founder will be expected to occupy them both to a lesser or greater degree
depending on context. Indeed it is difficult to imagine a situation where they
do not coexist. However during later stages of growth, sound team leadership
is essential if the firm is to succeed.
Stages of growth have already been discussed elsewhere in this book and so
we will not be discussing them at length here. However, the transition of a
business founder to teamleader (and player) is an essential part of this process
and the entrepreneur must be able to behave in an appropriate manner accord-
ing to the stage of growth the firm is experiencing. For example, as an hospi-
tality firm matures the founder should begin to think as a team leader rather
than a lonely ‘crisis manager’ and seek to employ individuals with sound team
management skills despite the contextual difficulties inherent in the
TABLE 10.1 A new reality for entrepreneurs
Old reality New reality
Control and directing subordinates Empowerment of followers
Competition between individuals, departments and other
firms
Appropriate collaboration between all stakeholders
Uniformity of employees Diversity of followers – new ideas and innovations
Self-interest Higher purpose – accountability, integrity and responsibility
Hero – celebrity-type status, self-promoting Humble and hard-working behind scenes, promoting and
developing others
Adapted from: Daft (2005, p. 8).
Founder to Leader 225
industry.
1
Zimmerer and Scarborough (2002) offer some guidance by discuss-
ing management styles and matching them with organizational growth.
Table 10.2 suggests that teamleadership skills become increasingly important
through growth and especially during the ‘Entrepreneur-to-employee’s stage.
Similarly, Frederick, Kuratko, and Hodgetts (2007) discuss the changing
role of the founder during the firm’s growth stages through the decision-
making process. They explain that entrepreneurs typically face certain risks
depending on which stage of growth the firm has reached. These stages are
matched by a certain ‘type’ of entrepreneur:
I. Entrepreneurial genius – new company, enthusiastic founder with
little interest in anything other than the firm’s success;
II. Benevolent dictator – founders act as parents surrendering no
autonomy to followers;
III. Dissociated director – founders may feel alienated as they begin to
realize that followers do not want to depend on them to make all
TABLE 10.2 Guiding management styles for growing hospitality firms
Style Details
Craftsman &One person does everything
&Focus on quality
&Minimal operating expenses
&Limitations on growth unless others are employed
Classic &Other employees involved to exploit opportunities
&Delegation limited
&Tight control regime operated by founder
Entrepreneur-plus-employee &Shift from entrepreneur only to team working with significant delegation of
responsibilities to trusted others
&Team members must be ready for this change and to accept extra responsibilities
Partnership &Sharing responsibilities with new partners or shareholders
&Skills must be complimentary
&Increased potential for disagreements between main players
Adapted from: Zimmerer and Scarborough (2002, pp. 502–503).
1
In the SME sector of the hospitality industry this is easier said than done for a number of
reasons including the job insecurity seasonality bestows. Another key challenge is a lack of
career structure within independent hotels. A reasonable strategy would be to offer
incentives linked to the continuing success of the entrepreneurial hotel. What could be
offered really depends on the context, stage of growth of the firm, whether the individual
hotel is linked with others informally or in the form of a joint venture and so on.
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 226
decisions, however, many will still work at an operational hands on
level despite this. At this point, a key decision must be made whether
to growfurther or remain the same. Adecision to growwill necessarily
mean that founders must operate more strategically and delegate
responsibilities to others; and
IV. Visionary leader – leadership used to position hospitality firm
strategically for sustainable growth. Founders at this level tend to be
removed from day-to-day operations, communicate openly with
followers and adopt a more transformational style of leadership.
Adapted from: Frederick et al. (2007, p. 458).
Once again the founder as leader becomes important during a latter stage of
organizational development.
Key point 10.3
Leaders now operate in a ‘new reality’ characterized by empowerment, leaders and
followers rather than control and direction of subordinates.
ENTREPRENEURIAL LEADERS
According to Frederick et al. (2007), entrepreneurial leadership is the most
important factor in managing high growth ventures successfully. Drawing on
the work of Ireland and Hitt (1999) they also hold that ‘strategic leadership’ is
most effective for fast growing entrepreneurial organizations. Using
Ireland, Hitt and Hoskisson (2001) they choose to define entrepreneurial
leadership as:
‘‘. . . the entrepreneur’s ability to anticipate, envision, maintain
flexibility, think strategically and work with others to initiate changes
that will create a viable future for the organization’’ (p. 468).
Given the near celebrity status of often cited entrepreneurs such as
Conrad Hilton and Lord Forte and the mythology surrounding their suc-
cesses, it is often assumed that they are also effective leaders; this is not
necessarily the case. Whilst some evidence suggests that entrepreneurs and
leaders have many characteristics in common (see Dubrin and Dalglish,
2003) there are some differences. For example, Dalglish and Evans (2000)
consider a key difference to be the way leaders deal with interpersonal
relationships. A common reason for many individuals to opt for an en-
trepreneurial lifestyle is because of their dislike of working closely with and
taking orders from others. This is not an ideal characteristic on which to
Entrepreneurial Leaders 227
base effective leadership. On the other hand, the hospitality industry is
awash with small or lifestyle firms employing only one or two family
members. In this instance, dealing with others and delegating responsibil-
ity may not be an imperative. These small organizations tend to rely on the
entrepreneur replicating their family leadership role as partner or parent
which is often autocratic.
However, in a growing hospitality firm entrepreneurs must overcome
their communication shortfalls because the role of leader relies on the
ability to motivate and inspire followers toward a well-communicated
and shared vision. Moreover, if the small hospitality business is to grow
significantly, the entrepreneur’s ability to apply these skills externally
through networking, seeking alliances, partnerships and joint ventures is
also crucial.
Notwithstanding the various contributions made to the field of lead-
ership by competing theories, there exist several desirable behaviours
about which commentators agree. Zimmerer and Scarborough (2002) note
that today’s workforce is altogether more knowledgeable and sophisti-
cated than at any other time in history. their expectations are there-
fore similarly urbane. Figure 10.3 provides a summary of these desirable
behaviours.
Burns’ (2001) perspective of behaviours common to both leaders and
entrepreneurs is not dissimilar to the above and includes:
& Stamina;
& Commitment and dedication;
& Opportunism;
& Ability to bounce back;
& Motivation to excel; and
& Tolerance of risk, ambiguity and uncertainty.
Do these behavioural tendencies then give rise to an identifiable leadership
style amongst hospitality entrepreneurs? The question is difficult to answer.
Inpractice it is difficult to be overly prescriptive because small business owners
and contexts differ wildly. Leadership styles are wide and varied even outside
the entrepreneurial context. Instead, it would be fair to say that styles of
leadership are driven by a combination of contextual and personal factors (this
is the major tenet of the contingency theorists). Typically, the hospitality
entrepreneur is viewed as single-minded, driven, hard-working (and expects
the same of others) and, to some extent, charismatic (Dubrin and Dalglish,
2003). Whilst charisma is difficult to categorize exactly, it is rooted in an array
of variables including personality traits, culture, contextual variables and
situations.
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 228
Reflective practice
1 Consider three leaders that have been described as charismatic. To what extent were their
personal circumstances and/or world events responsible for their leadership style?
According to these authors entrepreneurial leadership style emerges from
various configurations of the characteristics shown in Figure 10.4.
Once again we see recognizable behavioural characteristics in common
between the perspectives of Zimmerer and Scarborough (2002),
Burns (2001) and the above authors. For example all contain characteris-
tics or equivalent of achievement, commitment, enthusiasm and so on.
FIGURE 10.3 Behaviours for effective leadership.
Adapted from: Zimmerer and Scarborough (2002, pp. 485–487).
Entrepreneurial Leaders 229
FIGURE 10.4 Behavioural attributes of entrepreneurial leadership style.
Adapted from: Bubrin and Dalglish (2003, pp. 316–318).
However, we can also see some typical behavioural weaknesses amongst
entrepreneurs.
Key point 10.4
Entrepreneurial leadership is the most important factor in managing high growth ventures
successfully.
If the founder is not skilled in such areas these abilities must be ac-
quired otherwise the firm may either become unsuccessful or enjoy only
limited growth. An area entrepreneurs typically have difficulty with is
developing interpersonal empathy and communication. It is also the case
that as firms grow management becomes difficult so the founder must also
consider delegating responsibility to other capable people. The adage that
to be successful means surrounding oneself with a talented team of people
could not be truer than when the lifestyle firm moves into rapid growth
phase. So what can the hospitality entrepreneur do to improve their ability
as leader? The obvious answer of ‘skills acquisition’ is rather glib but,
resources permitting, this is exactly what must be done. However, these
skills may be ‘borrowed or ‘purchased’ by recruiting individuals who
already possess the desired behavioural attributes. It is therefore vital that
the hospitality entrepreneur creates an appropriate framework for this to
take place. Second, an organizational culture should be established which
will reinforce and maintain these behaviours. As firms grow there is a
consensus that entrepreneurs should adopt a team leadership approach
and the following section introduces the idea of teams in the small hospi-
tality firm.
Reflective practice
1. Think of an entrepreneur known to you. How would you describe their behavioural
characteristics.
2. A successful entrepreneur may not necessarily be an effective leader. Why do you believe
this to be the case?
TEAMS
There is much discourse inthe literature concerning teams and groups, that is,
what are they; are they the same; if not, howare they different? In short, teams
and groups differ according to the degree of interdependence individual
Teams 231
members enjoy when engaged in work. Group members tend to work inde-
pendently of each other whereas teams rely heavily on members integrated
outputs in order to complete the overall task successfully. Jobs can be designed
with groups or teams in mind. For example traditionally, restaurant kitchens
used a team of chefs each having a part to play in the production of a menu
item. In the small hospitality firm these individual tasks are often combined
and undertaken by a single person for reasons of cost saving (amongst others).
In any event, whether the entrepreneur chooses to classify employees as a
team or a close working group makes little difference in terms of providing
effective leadership.
Clegg, Kornberger and Pitsis (2008) define a team as:
‘‘Two or more people psychologically contracted together to achieve a
common organizational goal in which all individuals involved share at
least some level of responsibility and accountability for the outcome’’
(p. 92).
Essentially, a team leader needs to achieve inter-member harmony and
cohesion whilst optimizing productivity. In service industries, productivity
is difficult to define but essentially concerns transferring inputs into outputs
at the lowest possible cost (Robbins, 2005, p. 27). This is no easy task and is
doomed to failure if the members are haphazardly assembled. All other things
being equal, members of the management team need to have complimentary
rather than competing skills. They also need to be heterogeneous to capitalize
on their differing perspectives but not so different that they have absolutely
nothing in common.
After reviewing the evidence, Robbins (2005) concludes that team effec-
tiveness depends on a number of factors. They are summarised below in
Figure 10.5.
To build an effective team, entrepreneurial leaders should consider:
& Communicating clear performance standards, setting the tone for such
early on such as at the first meeting;
& Creating a compelling context;
& Setting clear rules for team member behaviour and abide by them
yourself;
& Ensuring teamis supplied with appropriate information about the task
in hand;
& Giving feedback regularly both formal and informal;
& Making sure members have complimentary skills and abilities;
& Ensuring team’s activities resonate with the overall strategy of the
hospitality firm;
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 232
& Being able to identify conflict and the emergence of political behaviour
within the team and dealing with the situations promptly; and
& Encouraging creativity and risk-taking.
Adapted from Katzenbach and Smith (1993); and Hultman (1998).
Obviously the degree to which each of these actions is pursued depends on
the contextual specifics of each situation. Clearly structural issues of context
process and work design have a key role in the effectiveness of hospitality
FIGURE 10.5 A model of team effectiveness.
Adapted from: Robbins (2005, p. 278).
Teams 233
management teams (although work design variables seem more appropriate
for operational activities). Scant attention to any of them could result in
disaster but if a management team has an inappropriate composition, no
amount of content, structure or process will remedy the situation. There
has been much research attention on the composition of teams (for example,
see Margerison and McCann, 1990; Stevens and Campion, 199). All author-
ities agree that individuals should be selected carefully to obtain the optimum
mix of skills and abilities. In a practical sense, management team members
almost always occupy more than one role. This is especially the case in small
hospitality firms where the management teammay only number between two
to four individuals. These managers have the difficulty of occupying multiple
roles.
Reflective practice
1. Team working is often held as an effective way of operating an hospitality business. Can
you give some examples when this may not necessarily be the case?
The pioneering work of Belbin (1981) helps to identify and explain what
these roles are. There has been subsequent research but much still retains
the tenets of the earlier author’s work. Belbin identifies nine key roles
played by members of management teams. In no particular order they are
classified as:
& The plant – creative and solves challenging problems but tends to get
too absorbed in their role to communicate effectively;
& The shaper – thrives on pressure and has a strong drive but may be
tactless and provocative;
& The team-worker – cooperative and diplomatic but may be prone to
indecisiveness;
& The implementer – reliable, conservative and practical but may resist
change;
& The resource investigator – explores opportunities and develops
contacts but quick to lose interest in an idea;
& The co-ordinator – clarifies the teams goals and delegates effectively but
may be seen as offloading too much of their own work;
& The monitor evaluator – judges accurately and has a strategic focus but
may not inspire others;
& The specialist – self-motivated and provides rare skills but has ability to
focus too much on minutiae; and
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 234
& The completer finisher – conscientious and delivers on time but may
worry unnecessarily and be reluctant to delegate.
Adapted from Belbin (1981).
Reflective practice
1. Consider a small hospitality firmemploying only four people including the owner. Which of
Belbin’s team roles would you consider essential for such an operation?
As discussed previously in this chapter team working is the ideal approach
for hospitality firms when growing and developing. However, even with the
best intention, teams will have difficulty prevailing when they are not sup-
ported by an appropriate organizational culture. Culture has been described as
the ‘social glue’ which holds organizational practices together. The following
section discusses what it is, how it is established and applies to hospitality
firms.
CULTURE
Organisational culture may be viewed from two perspectives (Legge, 1995).
That is, organizations either ‘have’ it or organisations actually ’are’ it. The
former is a structural view and the second holds that culture is separate from
any framework imposed by management and is best described as a root system
of meanings (Gregory, 1983). One can see immediately that if culture is
‘objective’ or a summary of organisational values it is manageable. Conversely
if we adopt the second perspective, culture is now an outcome of social inter-
action. As such, it may only be possible to describe or interpret it. This is not to
say that management has no impact on organisational culture, just that all
members of the organisation have their own constructions of reality. In prac-
tice, both espoused and spontaneous cultures exist alongside each other so
managers should have an understanding of how the latter impacts on the
former.
Reflective practice
1. Think of two dissimilar small or medium-sized hospitality business known to you or that
you have identified through a literature/desk search. Describe the culture that each
appears to have and how you came to that decision.
2. What impact has the founder had on the organizational culture?
Culture 235
If the entrepreneurial leader fails to establish an appropriate culture, fol-
lowers will begin to form one of their own. Situations like these are all too
common in the hospitality industry, particularly in the unaffiliated sector
where some entrepreneurs fail to identify, create and reinforce a common
set of values for followers. This may not be so important where the firm is
small employing only a handful of people as its culture often tends to be an
extension of the founders beliefs and attitudes. Such a small group of followers
may not always need a formal and organized set of core values but employers
will nonetheless have expectations of behaviour. Moreover, communicating
these may not be overly difficult as the channels are likely to be short and
direct. Usually, they are encapsulated in items like job descriptions, recruit-
ment and selection protocols and by virtue of being in close proximity to the
founder for most of the time. However, as the organization grows, communi-
cation channels become more complex and there is an increased chance of
‘drop out’ and misunderstanding. In other words, the effective proliferation of
these values to others becomes more difficult. The hospitality entrepreneur
must not assume that all followers will share her values, beliefs and attitudes.
Indeed, the nature of the hospitality labour market and characteristics of
the industry present extra challenges for the entrepreneur. Any attempt to
create an organizational culture must account for the fact that much hospi-
tality work is unskilled, temporary, seasonal or part-time with reduced bene-
fits and working conditions. Levels of labour turnover are extremely high in
some sectors and ‘tipping’ is still an accepted way for some employers to
justify low pay. Traditionally, management is autocratic and despotic and
union membership is low. There is also a mindset shared by some employees
inthe seasonal tourist sector that hospitality employment is not a ‘serious’ job
only to be tolerated until something better turns up. Finally, some workers
viewhospitality jobs as little more than an opportunity to enjoy a paid holiday.
These are significant contextual factors which if ignored will seriously under-
mine any attempt to create a positive organizational culture.
ORGANIZATIONAL CULTURE: WHY BOTHER?
Why is the establishment of an organizational culture so important? Some
argue that a strong culture is a replacement for company policies and proce-
dures. Peters and Waterman (1982) claim that culture replaces the need for
formal protocol because everyone knows exactly what needs to be done.
Robbins (2001) defines organisational culture as:
‘‘A common perception held by the organisation’s members; a system
of shared meaning’’ (p. 510).
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 236
In an organizational sense, culture is tricky to define because it is com-
prised of so many things but is often described as a code of conduct which
governs the way people act and think in the work place. In service industries
and particularly in small hospitality firms, culture can have a significant
impact on success or failure. The most effective entrepreneurs recognize the
role played by workers in service delivery and the potential impact that they
have every time they interact with customers. A leader’s ability to create and
maintain (and change if necessary) an appropriate service-oriented culture for
their business is therefore important.
According to Robbins (2001) organizational cultures are based on several
characteristics shown in Figure 10.6.
The position of individual firms along the ‘low’/‘high’ scale for each char-
acteristic has driven others to create cultural typologies. For example,
Handy (1990) conceptualises four different, but not exclusive, types of ‘power’,
‘role’, ‘task’ and ‘person’. The power culture is often found in small firms
where much is based on trust, empathy and personal communication. The
role culture tends to be present in larger firms and where there are strict
controls, bureaucracy and a strong sense of positional power. Leaders, by
definition, have authority within hospitality organizations. Their authority
can be either conferred by dint of their official role and status or emergent from
the degree of respect they receive from followers. French and Raven (1960)
classify five sources of power into:
& Legitimate – authority granted by individual’s position within the firm
where followers simply accept the formal authority of that person;
& Reward – authority to bestow; and
& Coercive – authority to withhold or punish.
These are conferred by position power defined by the firm’s policies and
procedures. The remaining two sources of power are ‘Expert’ and
‘Referent’ power and are based on the entrepreneur’s special knowledge
and or their personal characteristics. Ideally, the leader’s sources should be
expert and referent as they stem from followers’ respect and admiration.
The positional sources of power tend to be less about effective leadership
but more about an individual’s role within the firm. Founders should bear
in mind that the accomplishment of the organization’s goals requires more
that leadership based on positional power. Handy’s task culture charac-
terises firms who are project or matrix oriented and the person culture has
a focus on the person where autonomy is enjoyed where control is agreed
by mutual consent.
Founders should be aware that if left unchecked their firms may begin with
a task culture but end up with a power culture especially if the entrepreneur
Organizational Culture: Why Bother? 237
has difficulty delegating. In turn, this culture may morph into a role culture
where job titles become more important that the job itself.
Other typologies also exist but all basically tell a similar story, for example,
Deal and Kennedy (1982) refer to cultures of:
& Macho;
& Work hard/play hard;
& Bet-your-company; and
& Process.
FIGURE 10.6 Primary characteristics of organisational culture.
Adapted from: Robbins (2001, pp. 510–511).
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 238
Armed with the knowledge that all organizational cultures are subject to
key influences and that all can be described along continua defined by
basic characteristics we can begin to think about what makes for a suc-
cessful culture. After reviewing the evidence, Zimmerer and Scarborough
(2002) argue that entrepreneurial firms need to focus on the following
principles:
& Respect for work life balance through flexible scheduling, job sharing,
part-time work, on site day care and so on;
& A sense of purpose through defining the hospitality firm’s vision and
communicating it clearly to everyone;
& Promoting a sense of fun in the workplace;
& Valuing and pursuing diversity in the work place to build strength
through use of different skills, talents and abilities of followers;
& Promoting a high sense of ethical and moral responsibility in the work
place;
& Use of participative management styles consistent with new
transformational leadership approaches; and
& Retain a life long learning environment inorder to attract, motivate and
retain followers.
Key point 10.5
The elements affecting the formation of organisational culture are philosophy of founders,
selection criteria and socialisation to founders’ mindset.
Similarly based on the earlier work of Timmons (1999), Burns (2001)
considers that a desirable entrepreneurial organizational culture is based on
six dimensions:
& Extent to which employee’s are committed to organizational goals;
& Extent to which they feel recognized and rewarded for good
performance;
& Degree to which org goals, policies and procedures and understood;
& Degree to which high standards are expected;
& Extent to which employees feel responsible for goal achievement
without excessive monitoring; and
& Extent to which a sense of team cohesion is present.
Organizational Culture: Why Bother? 239
How do we know what kind of culture an hospitality organization has?
Cultural artefacts are relatively easy to identify in a firm and may include
dress code, use of ‘company language’
2
and the physical appearance of a
building such as that used by various fast-food restaurants internationally.
Other facets of culture are more subtle and therefore less easily observed.
Schein (1985) explains the differences between the observable and non-
observable factors through levels of culture. For example, dress code exists
at level one (artefacts and creations) whereas values and basic assumptions
are ‘invisible’ or ‘taken for granted’. An example of Schein’s level two
(values) would be why work groups behave as they do, for example, is it
permissible to call the employer or managers by first name? The extent to
which members hold these behavioural values and norms as unquestionable
determines whether the organisational culture is ‘strong’ or ‘weak’. Level
three concerns basic and tacit assumptions that determine how members
perceive, think, and feel. This stage represents that which is taken for
granted by the group or that which is so deeply rooted it enters the uncon-
scious. If a strong team culture is to be established and sustained success-
fully by the founder, this is the level at which training and socialisation
procedures should focus.
So how does the hospitality entrepreneur establish and sustain an appro-
priate organizational culture? Robbins (2001) considers the following to be
important (Figure 10.7):
& Philosophy of founders – early culture formation when firm first
established; founder’s vision easily imparted to all members; for
example, original Forte and Marriott groups union-busting and
paternalistic culture is a philosophy of both Charles Forte and Bill
Marriott; founders able to influence ‘espoused’ or formal culture but
not actual/informal or ‘culture-in-practice’;
& Selection criteria – staff hired in founders’ image; other human
resource practices such as training and reward systems linked similarly;
& Top management – behave in a manner which supports original
philosophy; rituals and physical symbols which reinforce key values,
norms and goals; and
& Socialization – to founders’ mindset, success perceived as linked
directly with founding philosophy; self–perpetuating, sustained by
2
The Disney corporation is a prime example where staff are referred to as ‘cast members’
and jobs become ‘performances’ (Zimmerer and Scarborough, 2002).
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 240
legends of how firm began which justifies present behaviour or culture
in the past, for example Conrad Hilton, Richard Branson; use of
company ‘language’, for example in many hotels staff from different
departments are often referred to by use of acronyms or other terms
(KPs – kitchen porters or stewards; food service staff may be labelled,
rather disparagingly, as ‘plate carriers’ by chefs).
Adapted from Lashley and Lee-Ross (2003).
SUMMARY
There is a tendency to believe that successful entrepreneurs make good
leaders. Whilst there are individuals who excel in both roles there are also
others for whom leadership is something more of a challenge. Effective lead-
ership requires certain abilities and skills, for example, does the entrepreneur
have the capacity to analyse and diagnose work contexts and situations before
behaving in the capacity of leader?
Many theories exist all having their own perspective on the best way to lead
organizations. In the main they are complimentary with the possible excep-
tion of the newer postmodern constructs which regard leaders as stewards and
servants. In short the leadership role here becomes inverted to the extent that
followers become leaders and vice versa. Nonetheless, founders of small and
growing hospitality firms need to grasp and use this knowledge and that
afforded them by experience and good fortune if they are to be both notable
entrepreneurs and leaders.
Whilst firms stay small (and many do in the hospitality industry) the
requirement for the business founder to grow and develop into an effective
leader is of lesser importance than when firms move from the lifestyle type
into the entrepreneurial firm. During the transition, there are a number of
FIGURE 10.7 Key elements affecting the formation of organisational culture.
Adapted from: Robbins (2001, p. 523).
Summary 241
behavioural characteristics which are essential for robust leadership. These
include respecting and supporting employees, embracing change, leading by
example, creating an appropriate culture, communicating effectively and so
on. However, evidence suggests that entrepreneurs are not particularly adept at
interpersonal relations and communication. These are two key areas which
must be addressed as firms grow and employ more people otherwise the
hospitality business is likely to be compromised. Indeed, as the firm grows
most commentators agree that the entrepreneur must adopt a team approach
to running the company. To do this well requires the establishment of good
interpersonal relationships and effective communication amongst and be-
tween the team.
Thus, the founder must have a basic understanding of organizational
culture and the levels at which it manifests itself and how to affect and
maintain core values through:
& establishing and perpetuating through selection criteria;
& embodiment through the management team; and
& socialization.
She must also be aware of some important environmental and labour
market characteristics likely to influence organizational culture such as
‘tipping’, temporary, casual and part-time working, attitudes of some hospi-
tality workers and so on. Finally, the founder must be clear that if little attempt
is made to espouse an official culture another version will surely fill the void.
In many instances this ‘culture in practice’ will impact negatively on the
organization.
Case: Simon Says. . ..
By Michael Fahy
It wasn’t really surprising to learn that Simon Woodroffe had once been a stage designer for
Rod Stewart and The Moody Blues. After all with his cultivated sideburns and trademark
yellow suede boots, the 50 year old entrepreneur looks as if he has just walked in from the
latest Spinal Tap video. To describe Woodroffe as flamboyant would be an understatement,
but the founder and chairman of YO! Sushi argues that business needs a dash of colour. He
thinks we should all dreama little more too, so long as we have the courage of our convictions
and follow them.
I’ve yet to meet the person who, even at the risk of their own financial security, went out to do
what they dreamed of and regretted it, regardless of success or failure. It has certainly worked
for him. After leaving school with only three ‘O’ levels he became a roadie and eventually
found himself sitting in the same rooms as Stevie Wonder, the Rolling Stones and others.
Seizing the opportunity, he set about convincing them that their stage shows needed
fireworks, trapeze wires and other cunning stunts. He then established a company to deliver
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 242
his service. After playing his part in Live Aid, he went off to set up a TV company securing the
rights to live concerts and selling them to broadcasters around the world.
After turning 40 he decided his potential had not yet been realized and so decided to start a
retail business so he could be at the ‘sharp end’. He considered a number of ideas but none
really grabbed him. A Japanese friend suggested he should open a conveyor belt shushi bar
with food served by girls in black PVC. He immediately began researching the prospect and
was initially disappointed to find the idea was not totally original. ‘‘Then I opened another
magazine and at the top of the page it said ‘How to open your own conveyor belt sushi bar’. I
thought this is too good to be true. Three months later he had a business plan, knew a huge
amount about sushi and had outline sketches of the YO! logo. His problem, however, was a
lack of cash. He says he wasn’t interested in building a conventional restaurant and wanted
YO! Sushi to be a kind of Planet Hollywood for the 1990s – a chain that would grow
remarkably quickly. Yet apart from his own £150 000, the money was hardly flowing in. He
had dismissed the idea of venture capital as ‘‘too scary’’, but had managed to land £100 000
through the Government Loan Guarantee scheme. He also borrowed £50 000 from a
childhood friend and £50 000 ‘‘from a bloke I met off the street in Paris’’.
Moreover, the launch of his first restaurant was delayed by around a year as the property
company with whomhe was signing a deal sold its entire portfolio. With hindsight, he argues
this was the best thing that could have happened, as he ditched many parts of a blander
concept for something much more radical. For instance, he introduced huge plate glass
windows so people could see the food moving around on the conveyor from outside. He also
blagged some satellite equipment and TVs fromSony, so he could beamin Japanese TV. The
piece de resistance, though, was the robots. He had approached an industrial manufacturer
about building robots that could dispense drinks to diners but was quoted the rather
ridiculous price of £700 000 more than the combined budget for his first two restaurants.
Eventually, he was put in touch with a man who designed robotic systems for wheelchairs
through Edinburgh University’s robotics department who said he could build the first two for
less than £50 000. Each robot followed a wire circuit which was placed underneath
restaurant floors. They also had individual voices and characteristics. Four weeks before the
first YO! Sushi was due to open on London’s Poland Street, a prototype was brought onto the
site for a trial and everyone downed tools to watch it. ‘‘I remember thinking ‘‘That is the
making of this place people are going to come in at least to have a look at that. Especially
when it spoke!’’
He had also attracted two corporate ’sponsors’ – Sony had provided him with the TVs and
Nippon Air had given him a couple of flight upgrades. Then Honda provided him with a six
month loan of a ‘Girocycle.’ I wrote back to them saying that I was so pleased I’d decided to
make them an official sponsor, and if I didn’t hear from them within seven days I’d assume
they’d agreed. Of course, I knew big companies were incapable of responding quickly, so I
had my third sponsor.’’ This turned out to be more useful than he’d imagined. Once the
restaurant was open, the customers had started to flock in and he started thinking that he
could continue without any external funding. He’d contacted his biggest creditor (who he
owed £250 000), showed him around the booming restaurant and asked for a minimum of
six months’ grace on payment. ‘‘I heard later they’d had this big meeting at which one of the
Summary 243
senior guys said ’let’s give the guy a chance – it’s probably going to work but if it does all go
wrong those Japanese giants who are behind it will cough up the money’.’’
Woodroffe made sure that it didn’t and set about expanding YO! Sushi while thinking up ideas
for other ventures and becoming the newVirgin around the world. Unsurprisingly, he says he
is a big fan of Richard Branson and is a firmbeliever in building a series of businesses around
the one brand, saying that the instant recognition given to a new business far outweighs bad
publicity affecting another part ‘‘Why build a mountain twice?’’ he asks. ‘‘If you look around
the world, nobody does these brand extensions. I’ve heard people talking about Virgin,
Stelios and YO! in the same breath, but we’re a tiny, tiny company compared to the others.’’
He currently has 16 YO! Sushi restaurants, spread mainly across London but an Edinburgh
unit opened last August and one is planned for the food hall of Manchester Selfridges by
September. There has also been a number of spin-offs fromthe restaurants including events
Catering, food delivery and YO! Branded Sushi for Sainsbury’s. He has also opened three
basement bars underneath restaurants known as YO!-Below which have self-service beer
taps and smoke-extracting ashtrays on each table. Staff have also been trained in giving out
massages to stressed customers. He says the next business to be launched will be YO!tel,
which is described as a cross between a Japanese capsule hotel and British Airways First
Class. He admits that he has been talking about this for years, but feels it is important that he
gets it right. ‘‘If we are successful with YO!tel, then it will followvery quickly that we can go into
all sorts of different areas,’’ he says ‘‘I sometimes think we’re like a pop group,’’ he says,
‘‘We’ve had our first album, we’ve done lots of spin offs fromthe first album, but I don’t think
until we’ve had a second album that we can seriously call ourselves a big band.’’
Questions
1. What leadership characteristics does this entrepreneur display?
2. How would you describe his leadership style?
3. What impact would his early life as a roadie have had on his entrepreneurial style?
4. Has this entrepreneur made the transition from founder to leader?
5. If so, estimate the point at which the change was made.
6. What role has dedicated ‘business’ education played in this entrepreneur’s success?
Reproduced with permission, Hospitality, July/August, 2002, pp. 38–40.
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 244
Growth: the Harder I Work
the Luckier I Get
After working through this chapter you should be able to:
& Discuss the growth of small hospitality firms as it applies to entrepreneurial
and lifestyle firms;
& Understand the strengths and weaknesses of ‘growth’ models;
& Discuss the major components of growth strategies for small; hospitality
firms and the role good fortune plays in their success; and
& Outline the major challenges the entrepreneur faces during the growth
of firms.
INTRODUCTION
Take 10 budding entrepreneurs, furnish with a certain sum of money and
instructions to start, grow and sustain a successful small hospitality busi-
ness; some would succeed, some would fail and others simply ‘tread water’.
Obviously, exact amounts of financing, time frames and so on would need
to be established for everyone to compete equally but there would still be
different outcomes for these firms. The key questions would be ‘why’ and
‘what’ caused them?
To understand why firms grow (or not) requires knowledge and acquired
experience of economic conditions, markets, individual capabilities, strategic
competence, an awareness of company strengths/weaknesses and so on. Fur-
thermore, it is one thing simply ticking off these boxes but quite another to
understand how all of this knowledge works holistically to bring about firm
growth. Indeed, a single configuration of these factors would most certainly
not be appropriate for all business development. There is yet another conun-
drum; what role does good fortune play in the successful growth of the small
hospitality firm?
CHAPTER 11
245
Dictionary.com, defines the word ‘growth’ in several ways:
& to increase by natural development as any living organism;
& to form and increase in size by an inorganic process;
& to arise or issue as a natural development from an original happening,
circumstance, or source.
Reflective practice
1. How would you define the organic and inorganic growth of small hospitality firms?
In an entrepreneurship context, commentators often divide organisations
into growth or entrepreneurial and ‘lifestyle’ firms (see Chapter 5). The intent
of the former is to achieve sustained growth through market expansion and
increasing profitability, that is, through economic growth. These firms play a
major role in wealth creation and yet only represent a minority of small
hospitality firms. For example using aggregated data, Deakins and Freel
(2006) assert ‘‘. . .out of every 100 small firms, four will provide around
50 per cent of all employment over a given time period’’ (p. 159). On the other
hand, lifestyle firms are more concerned with survival by generating enough
income to sustain a given living standard for the owner(s). Here, economic
growth is part of a more holistic strategic aimbut remains consistent with the
above definitions. Thus, even though the hospitality industry is dominated by
small and micro lifestyle businesses we can still assert that they are concerned
with growing and developing albeit differently to truly entrepreneurial firms.
This perspective broadly concurs with that of Schaper and Volery (2004) who
make a similar case on the basis that all firms share at least one of three goals;
all of which pertain to growth. These are:
& Survival; and
& Consolidation and continued success; and/or
& To expand or grow.
The following case is a typical example of a small hospitality lifestyle firm
Changing the Harrogate Model: Alison’s ‘Spur of the Moment’ lifestyle
business.
Notes froma meeting with Alison Evans, co-owner and operator of Westlands House Bed and
Breakfast, Buxton, 22nd May 2007
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 246
Alison has recently resigned a teaching position with the University of Derby Buxton to work
full-time on a three room bed and breakfast business established in February 2005. Alison,
and her husband Alex, own the business, which was purchased in December 2004. Alison is
now in her forties, the couple have no children and were wondering what the future would
hold for them. They would often drive into the country at weekends just for something
different to do; they were easily bored. Alison is a Derbyshire lass and her husband was
brought up in Devon and Yorkshire. Now they run a thriving and attractive bed and breakfast
business from their own home. Alison has been recently inspected and given a four star and
silver award for her efforts.
The property is a well maintained late Victorian (circa 1901) stone house, semi-detached with
a front and back garden and on-site parking for cars. Alison said that she and Alex more or
less spontaneously bought the property with the intention of running a business. They have a
mortgage on the property but were able to extend themselves financially by selling a
previously owned freehold property elsewhere.
The house extends over four levels. There is a cellar which the couple eventually may convert
into further living space. The ground floor has an elegant living roomwith deeply upholstered
furniture, a sunny dining room, entrance lobby and kitchen–all used by guests. The first floor
has three well-appointed guest rooms–doubles or twins with en-suite bathrooms. One room
has a particularly large bathroomand a magnificent view fromthe bedroomto the rear of the
property over the spectacular and rugged Derbyshire moors. The road frontage is very neat
and well maintained and, at time of interview, leafy and verdant whilst being easily accessible
(5 minutes by car) to downtown Buxton with its Opera House and Georgian and Edwardian
terraces.
Buxton is a pretty elevated spa town, at 300 m, almost at the head of the River Wye in the High
Peak Borough of the Peak District. There are just over 20 000 residents in the town and
excellent rail and road links with Cheshire, Manchester and Sheffield. In any year in excess of
25 million visitors, predominantly from the domestic United Kingdom market, visit Buxton
and environs. Most visitors are keen to see the natural scenery and enjoy short and long walks
and hiking. A significant proportion of Alison’s guests come for two major events in the town
itself each season—the Gilbert and Sullivan Opera season and the Buxton Festival in July. In
addition there are a number of smaller venues dotted around the town that are used for
events such as Antique Fairs. One could assume that Alison made a wise choice in investing
in property for her business based largely on Buxton’s centrality in the United Kingdom and
proximity to the former grimy industrial metropolitan areas of the Midlands and North.
However, Alison is a Buxtonian by birth so in many ways she has made a commitment to her
town in this business.
In the first 2 years of operation Alison, and to a lesser degree Alex, worked exceedingly hard to
make Westlands a successful bed and breakfast business. Alison rose each morning by 7 am
to prepare for a day of cooked English breakfast (eggs, bacon, black pudding, oatcakes,
sausage and rounds of toast) and, having farewelled her guests, would make her way into the
University campus to work full-time as an early childhood lecturer. At night she would return
to Westlands, clear up after departed guests, make beds and wash and iron bed linen to the
point of exhaustion. Alex had, and still has, a full time job outside of the bed and breakfast.
His role has been accounts, finances and general support. Alex does not cook or clean or do
Introduction 247
maintenance; those roles are filled by Alison. The telephone is answered by whoever is
available. Alison and Alex have an answering machine and can access incoming calls away
fromthe business as required. Alison is the prime contact and host for the business and, for 2
years, managed the business whilst holding down a full-time job. To understand the
operating success of the business one must acknowledge the role of technology. Alison
claims to have received most reservations through her website. It cost her £800 to set-up but
this is money well spent. The second technological asset is the credit card processor. Nowall
bookings are taken with a deposit against a credit card, effectively minimising the risk of no-
shows. Alison understands that for major events bookings are made up to 6 months in
advance. Even late bookings are usually made a week prior. Alison is therefore seldom
dependent on cold callers and last minute clients. She receives referrals from the
neighbouring establishment which acts as a top-up. Alison estimates 20 per cent of her
business is derived from repeat customers and referrals and the balance is from the Buxton
Tourism Information Centre. Adding value by offering evening meals is considered
unnecessary. Alison knows that there are many restaurants with a variety of cuisine and at a
range of grades within easy walking distance. Shrewdly she worked out that clients expect
fine dining experiences but are not prepared to pay for that standard of service under her own
roof. Understanding the market needs and preferences and expectations is an important part
of this case study.
Alison is fortunate in having a local network of bed and breakfast owners. Her neighbour,
Hillary, runs a successful and slightly larger business (5 rooms and 5 stars) and has provided
Alison with a lot of information to help her understand the customers’ needs and, more
importantly referral business when her accommodation is full. The adjoining house, on the
other side of the property, has recently been sold and may revert to a bed and breakfast
business which will mean three sets of accommodation businesses in a row. Alison is not
anxious about this; she sees that there is sufficient demand for accommodation to make this
an asset to her own operation. She assumes that the standards required of a bed and
breakfast business would raise the tone of the street and she would welcome professional
neighbours rather than a noisy family with teenagers.
In future Alison may consider expanding her business by converting the cellar and using
existing second floor rooms that are currently occupied by Alison, for further guest
accommodation. Alison and Alex could use the cellar for their own quarters.
Alison is a person of neat and tidy appearance and by her own account, a people person. This
couple have a defined division of labour and responsibilities. Alison is the operational partner
and Alex is in charge of finances. Alex is somewhat risk-averse, what Alison calls cautious,
and an important check on Alison’s tendency to impulsiveness. Alison recognises that the
challenge to a successful, quality product delivered to the clients is her outgoing nature
coupled to her ability to operate with networks of useful people for both her business and for
herself. Alison and Alex have become shrewd judges of people and behaviour. Despite the
characteristics described, Alison admits to originally having fears about having guests in her
home. I suspect that after 2 years she has been able to overcome this trepidation and she
admits that she can get a good night’s rest now.
Many of the factors which impact this business depend on good judgement and prior
knowledge. Insurance as appropriate, redecoration as required and to an expected level of
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 248
quality, minimised risk, partnerships, networks, and understanding the impacts that running
a bed and breakfast has on one’s lifestyle are all considered relevant in this case study.
Alison and Alex can manage 2 weeks in each year to take a break from the business. This is
partially due to being able to judge the peak demand periods surrounding events in Buxton
(Opera, festivals and weddings) and partly to developing some skills in judging booking
patterns and trends. Although this is the first year that Alison has committed totally to the bed
and breakfast it is apparent that this decision was properly considered and relevant factors
weighed up. Alison admits to the learning curve having been steep but reflects on support
and advice from friends and being smart about decisions and the market.
It is apparent that a good understanding of the market and supply in Buxton was central to
Alison’s decision to focus on this lifestyle business.
Source: Wiltshier (2007).
Clearly, both lifestyle and entrepreneurial perspectives are important so a
discussion of growth must consider both. The main aim for this chapter is
therefore to identify key factors responsible for the sustainable growth of
hospitality organisations. It does this by first reviewing two important
‘growth’ models to clarify the stages through which firms progress when
developing together with a discussion of some challenges faced by the entre-
preneur at these times. Second, the chapter discusses several strategic growth
perspectives addressing whether growthshould be pursued inthe first instance
and then identifies key elements of each approach including the key enablers,
dimensions and interrelatedness. The role of Ansoff’s (1968) product/service/
market matrix in decision-making is also introduced. The chapter continues
by considering some important barriers to the growth of small hospitality
firms.
Key point 11.1
A comprehensive discussion of growth must include both entrepreneurial and lifestyle firms.
GROWTH MODELS
There have been several attempts to conceptualise the manner in which firms
grow and some of the challenges that will be encountered along the way. The
best known of these include Greiner (1972) and Churchill and Lewis (1983).
Scott and Bruce (1987) and Burns (1996) used the Churchill and Lewis con-
struct as a basis for their adaptations and additions.
Greiner’s model essentially maps five stages of growth each characterized
by a period of crisis which must be managed by shifting leadership style and
Growth Models 249
practices and procedures in order to progress to the next stage of the model.
The model is shown in Figure 11.1.
In short, each stage of the above model is defined by a particular entrepre-
neurial behaviour. For example, creativity characterizes stage 1, whereas col-
laboration defines stage 5. As the organisation grows within a stage it reaches a
crisis point, that is, the point at which behaviour becomes inappropriate if it is
to develop. In stage 1, ‘random’ creativity becomes difficult to harness pro-
ductively unless the business establishes clear leadership and vision for all
stakeholders. Stage 4 is characterised by a more managerial ‘coordination’
approach with clarity of goals and control procedures. The firm is now far
too complex for only one entrepreneur to manage and thus begins to lose its
original character. The standard policies and procedures are nowlikely to cause
excessive bureaucratic ‘red tape’. The model advocates a move toward collab-
oration between employees with a focus on ‘mission’ rather than slavishly
adhering to standard practice. This perennial problem for all growth firms is a
significant challenge. The entrepreneur must try and capture the original spirit
of the small firm by establishing an appropriate business culture.
FIGURE 11.1 Greiner’s growth model.
Source: Greiner (1972).
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 250
Greiner’s construct may also be expressed in a tabular format as shown
Table 11.1.
The Churchill and Lewis’ (1983) model similarly follows the five-stage life-
cycle pattern of Greiner (1972) but is more general and has no crises which
precipitate the movement from one stage to the next. The stages are:
& I Existence;
& II Survival;
& III Success;
& IV Take-off; and
& V Maturity.
Reflective practice
1. Through an internet search or through a small hospitality organization know to your
consider whether either of the growth models in this chapter accurately reflect its growth
and development?
Essentially, both constructs map the growth of firms from a relatively
simple beginning where most things are fuzzy or difficult to define through
to a highly formal bureaucratic structure which then has to be reconceptua-
lised. Flexibility and qualities of the early simple structure must be reintro-
duced and retained through advanced leadership and management
TABLE 11.1 Greiner’s model of firm growth
Attribute Stage 1
Creativity
Stage 2
Direction
Stage 3
Delegation
Stage 4
Co-ordination
Stage 5 Collaboration
Management Produce
and sell
Operational
efficiency
Market expansion Organizational
consolidation
Problem-solving
and innovation
Organization structure Informal Centralized and
functional
Decentralized and
geographical
Line staff and
product groups
Matrix
Top management style Individualistic Directive Delegation Watchdog Participative
Control system Market results Standards and
cost centres
Reports and
profit centres
Plans and
investment centres
Mutual goal setting
Management
reward emphasis
Ownership Salary and
performance-
based
Individual
bonuses
Profit sharing and
stock options
Team bonus
Crises Leadership Autonomy Control Red tape Unknown
Adapted from: Deakins and Freel (2006: p. 163).
Growth Models 251
techniques. Another difference between the two models is that Churchill and
Lewis differentiate between lifestyle and growth firms. During the third stage
(success) there are two options. The first is ‘disengagement’ whereby the
entrepreneur can choose to exploit an emerging niche and go no further.
The second is the growth option where the entrepreneur chooses to establish
a vision, strategy and clear objectives for continued expansion. However, like
most models, both are simple representations of reality and should only be
used heuristically. Burns (2001) and Deakins and Freel (2006) provide an
adequate critique shown in Table 11.2.
Key point11.2
Growth models help map the progress and development of firms but often do not reflect the
reality of all growth situations. As such they should be only used for guidance, orientation and
to aid decision-making for hospitality firms as much depends on context and situational
specifics.
The following case illustrates a lifestyle-type firm where the entrepreneurs
have managed to successfully integrate their business and way of life.
Lifestyle Tourism Entrepreneurship in a South Australia wine Region
Is it possible to combine your entrepreneurial pursuits with your lifestyle? Ben and Lisa
Thompson believe that it is not only possible, but essential to their full enjoyment of life to
conceive of their livelihood synonymously with their personal lifestyle. They are people who
have sought and found a happy balance between comfort and necessity. They are also
examples of what Richards and Wilson (2006), called ‘prosumers’, people engaged in a
mixture of skilled production and consumption. Richards and Wilson cited lifestyle
entrepreneurs as examples of this, such as the avid surfer who opens a surf-related business
as a means of supporting a lifestyle preference. The Thompsons, both in their 60s,
have realized this combination in a tourism context through the establishment and
TABLE 11.2 Critique of growth models—some factors
&Most firms do not grow and therefore fail to reach the second or third stages.
&Growth experienced may not follow the prescribed pattern.
&Firms will plateau at particular stages and not progress further.
&The sequence of factors inherent in the models is not supported, for example many firms lurch
from crisis to crisis in an unprescribed manner whilst other may have a relatively uniform unhindered progression.
Adapted from: Burns (2001) and Deakins and Freel (2006).
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 252
operation of a vineyard, accommodation and restaurant complex in McLaren Vale,
South Australia.
McLaren Vale is located in the Fleurieu Peninsula, one of the state of South Australia’s 12
tourismregions. The region attracts more domestic same day visits than any other SA region
(2.1 million) except the capital city of Adelaide (SATC, 2007). The Fleurieu Peninsula is
positioned as the Water, Wine and Wildlife Region, and McLaren Vale is the region’s
dominant wine destination with approximately 50 cellar doors, and is joining the select group
of areas that can claim to be part of the ‘cradle of the Australian wine industry’ (Faulkner,
Oppermann and Fredline, 1999). Recent developments in McLaren Vale’s marketing and
management have raised the destination’s profile, such as the construction of a gateway
Visitor Information Centre, the integration of neighbouring wine producers with the local
destination management organisation, and an active events agenda that emphasises the
combination of food and wine, such as the annual Sea and Vines Festival, and Meet your
Maker events when tourists spend a weekend with McLaren Vale winemakers.
Ben (a former government official) and Lisa (a former corporate executive) traded their city
life in Adelaide for a more rural existence in McLaren Vale. Long-time self-described ‘wine
romantics’ and lovers of country living, they saw the potential in a block of land with one
residential building on it to establish a vineyard and hospitality operation that would allow
them to pursue their love of wine. They began the project in 1998, and by 2007 had
established a viable restaurant, catering and accommodation business, and had harvested
and bottled a modest amount of their first grape crop. As Ben said, ‘We took this three
bedroom, three bathroom house which was entirely the wrong design and the wrong shape
and colour and wrong everything else but in the most wonderful location. We decided we
wanted to turn it into something that fitted the location on our terms. And we knew we were
going to end up with some money at the end of it.’
While they feel that the change has been overwhelmingly positive, in many ways they have
traded some constraints for others. As Lisa explains, ‘in the office you’re within the office
system discipline. Here it’s my own discipline, well not quite because it’s also the discipline
imposed by the vineyard, the guestrooms, and the food and beverage operations.’
Additionally, vineyard and hospitality work is physically demanding, and can take a heavy toll,
particularly on a body that is wearing out. The biggest trade-off has been financial, as the
returns generated in their new venture have fallen below their combined earning capacity in
their former careers. However, the Thompsons feel that this has been more than offset by the
psychic gains that they have realized in terms of greater happiness and satisfaction.
References
Faulkner, B., Oppermann, M., and Fredline, E. (1999) Destination competitiveness: an
exploratory examination of South Australia’s core attractions. Journal of Vacation Marketing
5(2):125–139.
Richards, G., and Wilson, J. (2006) Developing creativity in tourist experiences: a solution to
the serial reproduction of culture? Tourism Management 27(6):1209–1223.
South Australian Tourism Commission (SATC), (2007) Fleurieu Peninsula regional tourism
profile, June, Adelaide, pp 1–4 www.tourism.sa.gov.au/publications.
Growth Models 253
Source: Gross (2007).
CHALLENGES FOR THE ENTREPRENEUR
Burns’ (1996, pp. 241–242) notion of an entrepreneurial organization helps to
explain the shift of procedural and behavioural emphasis as firms grow. He
notes that on start up the entrepreneur sits at the centre of the firm with all
reporting to her and operations are characterized by:
& An informal management style with all business decisions being
similarly predisposed;
& Informal staff employer relationships;
& Hands-on training;
& Influencing structures rather than rigid control;
& Personal relationship-building; and
& Job flexibility.
It is also important to note that small entrepreneurial firms are by no
means problem-free, especially if the entrepreneur has little or no experience
of employing people. For example, where employees are not provided with
clear guidelines, roles and responsibilities, communication can often be-
come unclear between entrepreneur, employee and vice versa. In these situa-
tions employer/employee psychological contracts can become confused with
misunderstandings becoming common. Ultimately this leads to unrest,
dissatisfaction and can often lead to high levels of labour turnover. These
situations may be particularly acute in small businesses where the entre-
preneur employs family and friends. The negative fall-out is not only bad for
business but also compromises former friendships and family relationships.
The adage of actors never working with children or animals is appropriate
here, that is, never work with family or friends!
Notwithstanding the problems that may occur resulting from commu-
nication breakdown and misunderstandings, Burns’ idea of the small en-
trepreneurial firm structure can work well with only a few employees but
once staff numbers begin increasing a different and more formal approach
is warranted. Once the organization reaches this point a more formal
design and clear structure become key. The negative side of formal report-
ing structures and hierarchies are well documented elsewhere (e.g., see
Robbins, 2007, etc.) but, all things being equal, to operate efficiently and
effectively, firms must adopt a structure which is appropriate to their size.
Clearly, one cannot be too prescriptive here as even large and hierarchical
organizations often establish smaller more organic internal structures for
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 254
the purpose of intrapreneurship. However at a pinch, simple standardized
jobs are more suited to hierarchies and where the trading environment is
undynamic and predictable; complex/creative jobs and a dynamic environ-
ment require flatter and more flexible organization design.
Of course technically the above prescriptions seem reasonable, however,
people (including entrepreneurs) have a number of attitudes and behaviours
which may actually detract from this logic. The small entrepreneurial firm is
organic and some commentators note that it is simply an extension of the
entrepreneur’s personality and idiosyncracies. Du Toit (1980) takes this fur-
ther by arguing that entrepreneurs were formerly difficult employees. Whilst
this may be the case for some, there is general agreement that a key entrepre-
neurial trait is locus of control (Rotter, 1966; Cromie, 2000) where the indi-
vidual attributes success to their own input rather than the impact of other
variables. Indeed, an opportunity to gain control over one’s destiny is one of
the four most common reasons given by entrepreneurs for starting their own
business (Zimmerer and Scarborough, 1996). Some cruelly refer to individuals
with this characteristic as ‘control freaks’!
The potential problemwith an overly controlling and inexperienced found-
er is that they are likely to ‘meddle’ or micro-manage in the belief that only
they can achieve the optimum outcome for their business even after stage one
of Greiner’s (1972) model has been surpassed. Kirby (2003) refers to this as
‘founder’s disease’ (p. 287) which can cause an inordinate amount of pro-
blems in all areas of the business including role ambiguity for managers,
informal reporting structures, staff alienation through reduced job tasks and
autonomy and so on. To avoid these negative outcomes Kirby (2003, p. 287)
notes that entrepreneurs must appreciate that:
& As firms grow they become more complex;
& They cannot make all of the decisions;
& Science cannot clone the founder; and
& Their authority will never equal the degree of responsibility.
In short, as firms growso too must the entrepreneur by learning newskills.
They must avoid the hands on approach in favour of a more strategic, mon-
itoring and decision-making role. This can be difficult, at start-up founders
typically spend almost 90 per cent of their effort ‘doing’ and 10 per cent
‘thinking’. Clearly, delegation is important here so the firm will need to have
a more formal structure including new control systems and team-working
rather than relying on informal relationships and ill-defined operating proce-
dures of the past.
Challenges for the Entrepreneur 255
A firm deciding to grow rather than remaining in lifestyle mode faces a
number of challenges and choices. Growth models are reasonable in expres-
sing the various stages through which the firm passes (notwithstanding the
weaknesses identified earlier) but they do not make clear those issues respon-
sible for success. These matters are vital and entrepreneurs must reflect and
understand them if growth is to be sustainable.
Key point11.3
The successful growth of hospitality firms depends not only issues of context but also the
ability of the founder to become less ‘hands on’ and to develop a number of management
competencies.
Reflective practice
1. Interview an entrepreneur known to you. Investigate what major challenges they faced
during the growth of their hospitality firms and how they were dealt with.
A SECRET FORMULA FOR SUCCESSFUL GROWTH?
We have already established that a key trait of entrepreneurs is a strong sense
of locus of control. It is therefore unsurprising that many successful ones
attribute their success to personal efforts and competencies rather than
anything else. A few may acknowledge that luck or chance played a role
but many others do not. Research has identified a number of key enablers
but not necessarily a winning formula. Good fortune is difficult to rational-
ise and is downplayed in much the same way as some chief executive officers
overstate how their strategy, vision and insightfulness were responsible for
record windfall profits, turnover, reduced costs and so on. Similarly, when
national rates of interest and inflation are low governments are quick to
point out the sage-like nature of their fiscal and monetary policies in bring-
ing about such a state of affairs. In fact, many argue that these issues are
more to do with global booms and recessions. The question becomes, was a
particular government successful economically because it was riding an
international period of good fortune? The answer is probably yes, although
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 256
economic and societal issues can be exacerbated at a nation state level by
government policy.
Ultimately entrepreneurs are human beings (believe it or not!) and invest
significant amounts of time and effort into their projects. When asking them
the $64,000 ‘luck’ question many would probably answer, ‘The harder I work,
the luckier I get’ and in a sense this is understandable given the sacrifices they
have made and the amount of personal ego involved.
Obviously, arguing that all one needs to be a successful entrepreneur in the
hospitality industry is good fortune would be something of an oversimplifica-
tion. Whilst high early business failure rates might suggest that a reliance on
chance alone is a factor, one must have the certain skills and abilities in order
to capitalize on luck or chance if it is encountered. This is the essential
difference between highly successful firms and those which become compro-
mised and a number of researchers consider good fortune to be the differenti-
ating factor (e.g., Reid and Jacobsen, 1988; Nelson and Winter, 1978). Indeed,
the often quoted and perhaps mythological ‘location, location, location’ by
Conrad Hilton is a tacit acknowledgement of good fortune. It certainly would
be for budding entrepreneurs who happen to reside in a popular tourist desti-
nation prior to start-up and who want to convert their existing premises into a
Bed and Breakfast or something similar. The same could not be said of entre-
preneurs living elsewhere but relocating after identifying opportunities in
primary tourist areas. Burns agrees (2001) noting that the distinguishing
feature of successful entrepreneurs is recognising an opportunity and acting
on it.
So what actually is a growth strategy and of what is it comprised? There is
no shortage of available constructs and they are all quite similar. The only real
differences between them are the focus and perspectives adopted. However
first, Barringer and Ireland (2006) point out that developing a growth strategy
will depend on whether the small hospitality firm can realistically take
advantage of the following:
& Economies of scale–where increasing production lowers the average
cost of each unit (bed night, restaurant meal, etc.). In the hospitality
industry, economies of scale achieved through bulk purchase (in an
attempt to minimize variable costs) are insignificant compared to
other sectors but other economies may be realized through a sound
knowledge of the product. For example, hotels have a limited
amount of bedrooms to sell at a particular time. There is also the
linked matter of ‘perishability’ where sales failure results in a
missed revenue generating opportunity forever due to its
intangibility and dimensionless nature. This defining characteristic
A secret formula for successful growth? 257
is usually dealt with by careful manipulation of room rates and yield
management procedures. This is a common tactic used in other
service industries (transport, entertainment, etc.) where fixed costs
are similarly high.
& A scalable business model–where increased revenues will cost less to
deliver than current revenues. This is clearly the case in the hospitality
sector when all variable costs are covered and significant contributions
are made to fixed costs and also helps to explain why hotels can offer
such vast accommodation price reductions; profits increase as sales
escalate. Clearly their is a fixity of supply issue here which limits actual
growth unless the entrepreneur decides to acquire another property by
various means including outright purchase, lease, amalgamating with
another company, joint venture of partnership. However, before taking
such a step the entrepreneur must be convinced that demand will
increase.
& Influence and power–closely linked with market leadership through
setting industry standards, enhanced access to major customers and
suppliers and prestige. It also augments the firm’s resilience and ability
to recover from bad publicity. For example, neither of the above cases
had any lasting negative effect on either company. Additionally, risk
management becomes more effective with more expertise on which to
draw from an inflated pool of employees and managers. Thus, better
risk-management occurs through an ability to attract and retain
good workers.
Top 100 Hotel Companies:
Is Bigger Better?
Chart: Top 100 Hotel Companies
By M.A. Baumann H&MM Contributing Editor
Is bigger better? Do bulging portfolios, brand segmentation, globalization and unprecedented
growth give some companies a distinct advantage over others? Critics claim that size affects
quality and consistency. They believe midtier firms actually can outperform the
megacompanies by using a more-focused approach. Super-players say it isn’t so, arguing
that combined resources, brand identity and sheer magnitude give them stronger hands in
shaping the industry’s future and creating a healthier bottom line.
Mark Mutkoski, industry analyst for BT Alex.Brown in New York, explained the ‘bigger is
better’ argument.
‘There are a lot of advantages to being bigger’ he said. ‘It’s more efficient to have more assets
and brands. You also have a greater revenue base over which to spread costs. Particularly in
franchising, you have to have critical mass before you can generate invested returns on
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 258
capital. If you’re large, typically you have a greater asset base and have more opportunity to
go in and focus efforts internally and focus on return.’
Large companies also have better access to capital, more-liquid stocks, and can borrow
unsecured debt at attractive prices, which provides a huge advantage over smaller outfits,
Mutkoski said.
Source:http://www.hotel-online.com/News/PressReleases1998_4th/Oct98_
BiggerBetter.html, accessed January 2008.
& Firms may seek growth due to significant increased demand from
individual and other key customers. Failure to do so might risk loss of
business.
& Market leadership–where the firm is usually number one or two in a
particular niche. Being a market leader has particular advantages not
only for securing extra business but also in terms of becoming a
preferred employer and likely future business partner with former
competitors. However, along with certain benefits come a number of
disadvantages including increased public scrutiny through inflated
stakeholder expectations of fairness and justice. The case belowis some
years old, however, the issue raised is perennial.
Adapted from Barringer and Ireland (2006: pp. 311–312).
Reflective practice
ProfitNike Accused of ‘Slave’ Child Labor by Andreas Harsono
(AR) JAKARTA–An Indonesian labor advocate said that American shoe maker Nike Inc. is
employing Indonesian children under 16 years old to produce their athletic sneakers,
confirming an earlier report by an American lobbying group that the children work in
sweatshops like ‘slaves.’
Indera Nababan of the non-profit Yakoma PGI labor advocacy organization said on Monday
that the employees are paid the official minimum wage of 5 200 Indonesian rupiah (US
$2.17) per day, which is ‘just enough to survive to the following day to work again.’
‘How can you live with [$2.17] in an expensive metropolis like Jakarta’ asked Nababan,
adding that Nike Inc. has more than a dozen subcontractors in Indonesia, one of which, PT
Nikomas Gemilang, based about 100 km west of Jakarta in Serang, employs child workers,
he said.
‘We are subsidizing, encouraging and failing to criticize the enslavement of young people
in the Third World.’
Source: Albion Monitor June 30, 1996 (http://www.monitor.net/monitor).
A secret formula for successful growth? 259
Similarly, McDonald’s is open to constant scrutiny for its business
practices including employee working conditions, employment policies and
ethical use of food products as the case below attests.
Fat flap at McDonald’s
May 3, 2001: 4:01 p.m. ET
McDonald’s refutes class action suit alleging deceptive use of
beef flavouring
‘While we are not familiar with the details of the litigation filed in Seattle, we have never made
any vegetarian claims about our French fries or any other product’, McDonald’s said in a
statement.
The statement is in response to Seattle attorney Harish Bharti’s decision to sue Oak Brook,
Ill.-based McDonald’s after reading an e-mail from the company to a California man
acknowledging its suppliers use tiny amounts of beef flavouring to flavour its fries. Bharti, who
filed the suit on behalf of all vegetarians, said the e-mail contradicts previous claims
McDonald’s has made assuring customers it uses 100 per cent vegetable oil for its fries.
‘This is an outrage. This is the height of corporate greed’, Bharti told CNNfn.com. ‘How can
you be so insensitive? This is something that is ingested. You can’t take it back’.
In its statement, McDonald’s said beef flavouring is added during potato processing at the
plant, and is standard in making French fries. McDonald’s Corp. said it ‘has always used’
beef flavouring in its French fries, refuting allegations made in a class action lawsuit brought
against it by a vegetarian lawyer.
‘The natural flavouring consists of a minuscule amount of beef extract’, the company said.
‘These fries are then shipped to our restaurants. Our French fries are cooked in vegetable oil
at our restaurants’.
Source:http://money.cnn.com/2001/05/03/news/mcdonalds/accessed
January 2008.
Presuming that one or more of the above criteria can be realized by the
business a decision may then be made to proceed in developing the small
hospitality firm.
Storey (1994) divides the key enablers of small firm growth into three
overall areas, each having a number of components shown in Table 11.3.
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 260
Schaper and Volery (2004) agree but use a different perspective where
business growth is viewed from three perspectives of financial, strategic and
organizational. The first concerns performance and how well the firm serves
its markets through conversion of resources it is allocated into assets. Growth
here provides the means for acquisition of further resources which stimulates
strategic growth. Financial growth is also aided by sound strategy which con-
tributes to further asset growth within a broader and growing organisational
design or structure. These relationships are shown in Figure 11.2.
Not too dissimilarly, Burns (2001: p. 272–273) agrees and considers four
important elements for successful growth, these are entrepreneurial character
FIGURE 11.2 Dimensions and interrelatedness of growth dimensions.
Adapted from Schaper and Volery (2004: p. 342).
TABLE 11.3 Key enablers for small firm growth
Entrepreneur Organization Strategy
Education Location Market positioning – niche with focus
on quality (in short-term)
Management experience Size and age – bigger firms are more
likely to survive due to accumulated
resources although new firms tend
to grow faster than old ones
Innovation
Motivation Niche – some will be more attractive
than others
Effective management recruitment
as firms become increasing complex
to manage by founder
Ability to build teams Ownership – of other businesses External equity where possible
will contribute to growth
Age as a proxy for accumulated
experience and wealth
Adapted from: Deakins and Freel (2003).
A secret formula for successful growth? 261
(comprised of key characteristics including risk-taking, desire for achieve-
ment, locus of control etc.); business culture (including overall ambition to
grow); company strengths (including effective management team, financial
control and comprehensive understanding of the market); and making good
business decisions including:
& Using quality rather than price;
& Domination of a niche;
& Ongoing innovation; and
& Exploiting company areas of strength to compete.
In order to maximise the potency of each area, Burns (2001) recommends a
re-engagement with the original pre start-up SWOTanalyses to identify the
strengths and weaknesses of current performance; conditions and situations
will have undoubtedly changed since start-up. He then advocates developing a
market strategy for the service being offered in terms of what would be appro-
priate generically; the stage in its life cycle; and how it fits with other hospi-
tality services offered.
Key point11.4
Whilst we can be reasonably confident about the essential ingredients for small hospitality
firm growth, the ‘recipe’ or configuration of these inputs is less clear.
Additionally, Burns (2001) adopts Ansoff’s (1968) product/market matrix
model to help the conceptual phase of this planning process and is shown in
Figure 11.3. This permits a systematic appraisal so risks and opportunities can
be identified for each of the four quadrants.
When considering these, the entrepreneur needs to ask a series of questions
before making a final decision:
& Existing service/existing market
T Withdrawal
& Is industry consolidating?
& Have you achieved good growth so far?
& Can you adapt to changing conditions to grow business?
T Consolidation (same service different operating procedures)
& Is market growing or declining?
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 262
& Is market mature?
T Penetration (selling more of same to existing and new customers)
& Do you understand your customers fully and their buying
behaviour?
& Is market static, declining or growing?
& New service/existing market
T Service development
& Any market opportunities?
& Replacing old service or selling alongside?
FIGURE 11.3 The service/market matrix.
Adapted from Burns (2001).
A secret formula for successful growth? 263
& Small or large differences between old and new services?
& Can you copy a competitor or will you need to a better service?
& Growth or mature phase for service?
& Are your customers loyal and growing?
& Do you have a strong customer focus?
& Do they ‘trust’ you?
& Existing service/new market
T Market development
& Are economies of scale important to your firm?
& Is your service nearing decline?
& Barriers to entry and exit: high or low?
& New service/new market
T Diversification
& Both are location based and each has challenges. However,
international growth in the micro and small-firm sector of the
hospitality industry is insignificant (with some exceptions) and
so will not be discussed here. Small-scale geographical
expansion can be seen in many resort regions whereby the
successful entrepreneur may own a small hotel along the busy
coastal strip and another establishment in the hinterland. Such
examples are common and one advantage of this kind of growth
is the inherent risk-spreading throughcross-subsidization of one
organization by the other.
& Especially important where seasonality impacts on trade. For
example, Great Yarmouth in the UK is a typical sea-side ‘bucket
and spade’ resort attracting many lowto mediumspend tourists
from June to September. Only a few miles inland, the Norfolk
Broads attracts a somewhat different and more sophisticated
market with a higher disposable income and expectations.
TABLE 11.4 Related diversification
Horizontal integration Activities are complimentary with firm’s current ones (see above example)
Forward vertical integration Firm establishes a presence ‘nearer’ customer. Hotels may only integrate horizontally
or backward vertically as they are directly at the client interface.
Backward vertical integration Firm becomes own supplier. Hotels may diversify into travel agencies, transport,
raw materials, linen supply, etc. The rationale here, amongst other things, is to control
quality and reduce competition by establishing a direct chain from customer and
supplier to hotel.
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 264
Whilst this market is also seasonal, a reasonable year-round
trade is enjoyed by boat-hire companies, pubs and hotels alike.
Recognizing this opportunity, several local entrepreneurs have
grown geographically from the seaside location to the
hinterland.
& Clearly, one cannot expect the same style of hospitality
enterprise to thrive in both locations but provided market
expectations are satisfied in both and the service offered reflects
this, this type of growth can be successful.
This is an example of related diversification where the service remains in
the same industry but outside its present market and service style or complex-
ity. For example, accommodation and menu choice might be limited for the
seaside location but considerably more complicated or ‘customized’ for the
Broadland market having higher expectations. The three types of related
diversification are shown in Table 11.4.
In short a key question for the hospitality entrepreneur is how risky are
these options? According to Burns (2001) the lowest risk lies in market pen-
etration, followed by service development with diversification (particularly
into unrelated industries) as the least risk averse option. However, Ansoff’s
(1968) model is a simple guide and no more. Nonetheless it does allow a less
subjective assessment of entrepreneurial options and pathways for growth.
Most small hospitality firms, like others in different sectors, tend to grow
internally by increment offering their existing product to the same and new
markets or new services to existing customers (Burns, 1994). The following
case is an example of both locational good fortune and risk management in
terms of potential growth opportunities.
Marketing Wine and Wine Tourism in the ‘Fortunate Islands’.
Source: Alonso, Sherridan and Scherrer (2007).For many decades the Canary Islands have
been a synonym of sunshine, package holidays and mass tourism, and a very popular
destination for many travellers that mainly come from the U.K., Germany, Scandinavia and
mainland Spain. Because of their mild climate and natural beauty, these islands are dubbed
‘fortunate’. Not surprisingly, the number of tourists visiting the Spanish archipelago in recent
years has reached the 10 million mark, more than six times the total number of its local
residents.
Unknown to many tourists is the fact that the Canary Islands have produced wine for
centuries, and some of the varieties are only produced in selected areas of the islands, and
nowhere else in the world. However, for a long time the local wine industry went through a
phase of decline, and eventually wine became a product for local consumption, with little or
no impact outside the archipelago. This situation progressively changed in the early 1990s as
A secret formula for successful growth? 265
regional local wine denominations of origin were created, in part as a European Union (EU)
initiative to preserve traditional foods, local culture and local landscapes (Sainz, 2002).
Today, the Canary Islands not only continue to produce many unique varieties of wines, but
the quality of the local wines has also increased, earning theminternational recognition. The
vast majority of the islands’ wineries are small and medium in size and family owned, and
many are open to the public, for the most part offering tasting rooms, and cellar door sales.
However, the recent re-development of the Canary wine industry also includes a blend of
hospitality and wine with the opening of some restaurants, space for conferences on some
winery grounds, and promotion of wine trails to visitors (Tacoronte-Acentejo, 2006).
With sunshine, beaches, and landscape being among tourists’ top reasons to visit the
islands, other potential attractions, including the local wine industry, have been relegated to a
secondary role. In fact, while currently efforts to promote and market the islands’ wine
regions are being undertaken, still very little is known about the local wine, wine tourism and
wineries.
To investigate this relatively unknown industry, a study was conducted among wineries from
the islands of Tenerife and La Palma. A total of 61 businesses were approached in both
islands and their owners/managers invited for an interview; 23 wineries accepted the
invitation to participate in the study, a 37.6 per cent response rate.
The winery owners and managers felt that there was considerable potential for wine tourism
in the Canary Islands but this was often undermined by factors outside of their control.
Stricter drink-drive laws, for example, had reduced visits to wineries and less participation in
wine tasting, a crucial tool in the cellar door sales process. International terrorism sparked
new aviation laws limiting the quantity of liquids permitted in in-cabin luggage. This reduced
cellar door sales as tourists could not carry wine on board, as it exceeded the volume limits,
and they did not feel comfortable with placing wine in their checked luggage in case it spilled
or spoiled. Some winery owners even felt that the traditional tourismindustry was sabotaging
their local wine tourism efforts by importing cheap local wines rather than serving local
Canary Island wines at hotels and restaurants. Package deal tourism to the Canary Islands
encouraged tourism enclaves rather than the exploration of the Canary Islands which could
foster a rich culture of local wine production.
At the end of the day, winery owners wanted to build stronger associations with tourism but
only in scenarios where there would be a genuine, quality, wine tourism experience. Their
goal was to build relationships with the tourists and convert them into customers but also
achieve important long term goals such as building brand recognition and positive world of
mouth experiences of wine in the Canary Islands.
Questions
1 Using Ansoff’s product/service/market matrix identify the strategy chosen by winery own-
ers for future development of their industry and comment on the riskiness of this option?
2 Identify strategies that could help local wineries link their product to the tourism market?
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 266
3 Discuss potential difficulties wineries may face in the process of marketing their wines to
tourists.
Key point 11.5
Accepted wisdom concludes that an effective strategy for small business growth is to focus
on quality rather than price; dominate a particular niche; innovate continually; exploit
company areas of strength.
Reflective practice
1. Interview a successful entrepreneur known to you. Find out what role opportunity and
good fortune played in the development of their hospitality firm.
2. What other issues do they think are responsible for their success.
3. Were there any skills and competencies they had to acquire in order to become success-
ful business founders?
INTRINSIC AND EXTRINSIC GROWTH
Barringer and Ireland (2006) take a slightly different perspective of small firm
development using the lens of intrinsic or internal and extrinsic or external
growth. This focuses on matters intrinsic to firms such as whether to intro-
duce, improve or enhance existing products. This internal growth may also be
achieved by reconfiguring marketing strategies and expansion into other geo-
graphical areas including the international arena. In other words, develop-
ment is a function of in-house skills and competencies; Mcdonald’s is an
example of a firm that has expanded internally. The other means of growth
is through extrinsic or external means. Simply, this means using third parties
in the form of mergers, alliances, joint ventures and so on. The use of a third
party is not limited to physical ‘bricks and mortar’. Recent evidence suggests
that from almost 20,000 small UK businesses a key mode of external expan-
sion in the Hotels & Restaurants’ sector is through e-commerce, notably
through own web sites and those of third parties (Carter and Mason, 2006).
Another important mode of external expansion for hotels remains the
‘franchise’ and Ibis, Comfort Inn, Mercure and Courtyard are examples of
Intrinsic and extrinsic growth 267
this approach. Additionally, many smaller hotels use the affiliated network
model typified by Best Western.
Both types of growth have associated advantages and disadvantages. The
main advantages of growing internally are based on incremental advances. A
measured uniform growth strategy helps to ensure development is managed
effectively requiring few significant changes. Additionally, the firm can exer-
cise more control over quality standards and maintain its organisational
culture. Moreover, a strategy of internal growth is more likely to foster inno-
vation and intrapreneurship as long as appropriate rewards are bestowed on
employees such as bonuses and accelerated promotion. Conversely, internal
growth may be too slow-paced to achieve significant economies, market pen-
etration and competitive advantage in particular geographical areas. This is
typical in the hospitality industry where acquisitions and mergers are com-
monplace. Innovative service package ideas will almost certainly require input
from organizations elsewhere in the service chain. Such new ideas would be
difficult to offer by only one firm. Additionally, a basic issue is that of capacity
and the effect of over supply. Too many new organizations providing the same
product in a particular tourist location, be it accommodation or food and
beverage provision, will ultimately force prices down and thus reduce overall
profitability.
External growth may also be an option for expansion as acquisition of other
firms effectively reduces competition, allows access to older establish brands
and may lead to increased economies of scale. Additionally, expansion permits
sharing of expertise and helps to diversify risk. On the other hand, external
growth has some challenges which are similar to those experienced by firms
growing internally although more extreme innature. Essentially these fall into
categories of organizational culture and operating procedure differences. For
example, styles of service delivery and quality management philosophy and
practice may differ between firms. These may be exacerbated if a firmchooses
to expand internationally. Indeed, legal differences in employment law and
antitrust regulations may prove significant for example.
However a small hospitality firmchooses to growit is necessary to consider
whether to develop new products (if entrepreneurs can identify a need to
satisfy), to provide products that add value, to strike an appropriate balance
between quality and price, to identify and exploit a niche, and to make sure the
feasibility analysis is iterative. Firms will also increase their chances of sus-
tainable growth (to a point) if they consider issues of service improvement,
extension and differentiation. For example, the notorious Club 18–30 club
was an ingenious marketing ruse by the Horizon Travel to fill unused seats on
night flights to tourist destinations in continental Europe. Whilst the brand
has been bought and sold by a number of companies the concept is still popular
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 268
despite (or perhaps because of) some negative publicity about the antics of
customers and the occasional risque slogan such as ‘One Swallow Doesn’t
Make a Summer’!
Club 18–30’s controversial past
By Clare Matheson
BBC News Online business reporter
The antics of Club 18–30 reps in Greece have earned the company another bout of negative
publicity. BBC News Online goes behind the headlines to look at a company that has
dominated the youth holiday market for years.
Despite being for 18–30 year olds the brand is now 38 years old
Club 18–30 began life in 1965 when it took 580 yuppies to the Costa Brava, an event that the
tour operator claims ‘made history’. But Club 18–30 really came into its own in the 1970s
and 1980s under the wing of ILGgroup, entering into common parlance as the generic name
for youth holidays.
All change
Even though ILG later collapsed in 1991, Club 18–30 survived, and was rescued by a
management buy-out and re-launched as ‘The Club.’
In 1994 it reverted to its old name, but by 1999 it was all change again after Thomas Cook
Group bought the brand. The group says it now owns 65 per cent of the youth holiday market
and takes more than 110,000 guests away each year–most expecting a break filled with sun,
sea, sex and sangria. And the formula seems to work. In the financial year of 2001–2002,
Club 18–30 racked up sales worth £48 million, and ‘still managed to achieve a good profit’
despite only partly achieving its targets.
Sun, sea and sex
Club 18–30 prides itself on the belief: ‘Nothing is sacred, if it’s going to be a good laugh then
we’re in’.
That marketing has pulled in millions of holidaymakers, keen to align themselves with the
party-loving attitude it promotes.
But that ‘in your face’ label has attracted plenty of controversy.
In 1995, its tongue-in-cheek adverts earned it a place in the Advertising Standards
Authority’s Hall of Shame–it was the second most complained about firm that year.
‘Irresponsible’
The Saatchi & Saatchi ads generated 490 complaints centred on posters featuring the
taglines ‘Beaver Espana’ and ‘It’s not all sex, sex, sex. There’s a bit of sun and sea as well.’
Even today, Club 18–30 cannot steer clear of controversy. Three of its reps have just been
acquitted of organising bar crawls in Faliriki, despite a ban brought in last week after a man
Intrinsic and extrinsic growth 269
killed a tourist. And last month, five of the firm’s reps quit after allegedly taking part in ‘live sex
acts’ on a beach in the Greek resort of Kavos.
Future controversy
But will the latest upsets affect the firm? Spokesman David Smithson said that ‘from past
experience’ the current controversy was unlikely to affect business.
‘It’s a product that’s aimed at a very specific target audience who are not discouraged by
publicity’, he added A case in point, he described the raunchy 1990s advertising campaign
as ‘successful’ and achieving ‘its objective.’
‘It’s a younger audience that tends to recognise these incidents are blown out of proportion
by the media’, Mr Smithson added. ‘But that’s not to say we like or seek negative publicity’.
Questions
1 Discuss whether Club 18–30 is an example of internal, external or a combination of both
kinds of growth.
2 Identify the extent to which Club 18–30 is an example of service improvement, extension or
differentiation.
Source:http://news.bbc.co.uk/1/hi/business/3163077.stm, accessed
January 2007.
BARRIERS TO GROWTH
It is one thing to advance notions of growth enabling factors and another to
identify those whichact as barriers to growth. Data aggregated by the Cranfield
School of Management holds six primary culprits:
& A lack of planning–over two-thirds of owner-managed firms studied
with a turnover of £10 million did not have any;
& A lack of market focus–many small firms diversify too early and lack
market focus;
& Alack of effective leadership during times of change–most founders run
their growing businesses as they did in start-up;
& Inappropriate objectives–sales growth is the sole and primary target, set
without regard to others including gross margin, profit and cash
generation;
& Failure to work ‘smartly’ and inability to delegate – too many owner-
managers spend time interfering and overseeing work which others are
employed to undertake. The most key activity for the owner-manager is
focusing on future business strategy for the business; and
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 270
& Lacking a financial strategy and poor accountability–a majority of
entrepreneurial firms in the UK use overdrafts as a long-termmeans of
finance. This is due to ignorance of alternative sources, the ease with
which overdrafts may be obtained and a result of having no business
plans.
Adapted from CUSM (2007).
Key point 11.6
Barriers to enter the hospitality industry are relatively low. Despite this, the rate of business
failure is high. However, it is possible to mitigate the effect of each above barrier by careful
research and planning. Therefore, the success or failure of the small hospitality firmdepends
on the extent to which the founder works ‘smarter’ rather than harder.
An earlier 1997 study by the ESRCCentre for Business Research found that
increased competition, availability and cost of finance for expansion and
marketing and sales skills were the most important barriers to small firm
growth (Burns, 2001).
Based on the earlier work of Penrose (1959), Barringer and Ireland (2006)
note that in addition to entrepreneurship, ‘managerial capacity’ is essential to
administer opportunities as they are spotted. They consider this to be high on
the list of those factors which challenge the growth of firms and use the terms
‘Adverse selection. . .’ (p. 315) and ‘Moral hazard. . .’ (p. 315) to explain the
dilemma. Essentially, the former describes a situation where increased
demand for labour creates a situation where the firm may not be able to
achieve good ‘job fit’. Moral hazard is similarly unfortunate situation where
newworkers fail to share the aims and objectives of the founder. In short, there
is no consistent organizational culture. The entrepreneur may hire managers
to ensure this does not happen but this often results in a hierarchical structure
with a pool of isolated and sometimes estranged managers. Clearly, growth
becomes a challenge in itself and managers must be selected carefully with the
knowledge that they will need to be trained, socialized and motivated in
order to minimise problems as the firm grows.
Reflective practice
1. Interview a successful hospitality entrepreneur known to you. Ask if there were any
significant obstacles to overcome prior to start-up. If so, how were they overcome?
Barriers to Growth 271
SUMMARY
The term ‘growth’ is often only applied to the truly entrepreneurial firm as
opposed to the ‘lifestyle’ organisation. This chapter contends that the process
of growth needs to be understood in a more holistic way and as such is a
pertinent topic for discussion irrespective of firm type. For example, all firms
grow in one way or another as they are concerned with survival and/or con-
solidation and continued success and/or expansion. Moreover, they both make
significant societal and economic contributions.
A firm’s development may be conceptualised in a number of ways, this
chapter discussed the ‘growth’ model approach as, for the sake of simplicity,
divides progress into five stages. Each of these stages is characterized by a
particular set of activities and leadership/management styles. For the sake of
efficiency and effectiveness, with growth comes a need to make management
and operational changes to cope with the new working environment. Some
firms choose deliberate growth and will continue through all stages explicit in
growth models but most hospitality firms rarely progress beyond the second or
third stages. These constructs are useful for ‘journey’ mapping and insight but
they do not address the inherent challenges of the growing firm in any detail.
Along with entrepreneurial success through growthcomes the requirement
for skill development and new competencies. This includes an acute need for
delegation as once firms reach a certain size it becomes impossible for the
founder to do everything. This problem is sometimes known as ‘founders
disease’ where the entrepreneur ‘meddles’ in the work of her employees.
Ultimately this can cause a number of problems if left unchecked including
high labour turnover, role conflict and poor morale.
It is difficult to be prescriptive about enablers of successful growth but
number of approaches are relevant here. They are similar in nature and con-
tent but often frame essential inputs differently for example Deakins and Freel
(2003) divide them into three generic areas of entrepreneur, organization and
strategy, Shaper and Volery (2004) focus on dimensions of finance, strategy
and organization and their interrelationships. Burns (2001) prefers to use a
frame which assess growth options in terms of the market and how risky they
might be. However, before adopting any of them, the entrepreneur must
answer an number of key questions, for example would growth allow the firm
to take advantage of economies of scale. The hospitality industry differs from
other industries including retail and manufacturing as the product is intan-
gible and economies from suppliers of raw materials are not significant rela-
tively speaking nor are they significantly different between competitors
irrespective of firm size (within reason). Once this and other questions have
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 272
been answered to the satisfaction of the founder, a decision may be made to
grow and develop the hospitality firm.
Accepted wisdom concludes that an effective strategy for small business
growth is to focus on quality rather than price; dominate a particular niche;
innovate continually; exploit company areas of strength. The strategic frame-
work to achieve this differs between commentators but all agree that the basic
elements must include:
& An entrepreneur of appropriate character having traits including risk-
taking, locus of control, desire for achievement, etc;
& A positive business culture including and overall ambition to grow;
& A company possessing certain strengths including an effective
management team, good financial control and a comprehensive
understanding of its market; and
& An ability to make good business decisions.
However, there are a number of barriers to growth of which founders must
be aware including a lack of planning, market focus and effective leadership.
Others include having inappropriate objectives, impoverished knowledge of
sources of finance and an inability to delegate. Clearly, these obstacles are not
inherent or systemic in the hospitality industry. Indeed, the sector has low
barriers to entry which in some ways may prove disadvantageous to some
operators due to the sheer volume of competition. However, these challenges
can be overcome by the entrepreneur so long as they are prepared to focus more
attention on strategic matters rather than continuing to operate technically.
In short, the fate of small businesses is less to do with working harder but
rather, working smarter.
CASE
Riu Hotels: From a Small Family Business to an International Company
September 25, 2001–Riu Hotels: from a small family business to an international company
came into being in 1953 with a small hotel in Majorca, and now has 96 establishments with
12,000 employees and is present in 10 countries.
A total of 96 holiday hotels with categories ranging from three to five stars in Spain, Portugal,
the Caribbean, the United States, North Africa and the eastern Mediterranean, offering
globally 25,960 rooms and just over 50,000 beds,with 1.5 million customers and 12,000
employees, united by one motto: give the guest service with heart. These figures sum up the
RIUGroup’s (www.riu.com) current situation. This small family business was created in1953
in Playa de Palma (Majorca), with the purchase of the small 80-bed hotel San Francisco, and
has now become the 31st biggest hotel chain in the world, specialising in sun and beach
Case 273
holidays, with guests mainly of central European origin but also an incipient American
clientele (from the United States, Canada and Argentina) as well as Spanish guests.
The chain had a turnover of 105,000 million Pesetas (567 million dollars) in the year 2000
and foresees 120,000 million (14.3 per cent more) for the year 2001. This data consolidates
RIU as the second largest chain in Spain in terms of turnover.
RIU’s establishments are located in the Balearic Islands (16), the Canary Islands (36),
Portugal (2), Baleares España Andalusia (7), Gerona (1), the Dominican Republic (7) Cuba
(2), Florida (2), Mexico (4), Jamaica (1), Tunisia (11), Bulgaria (5), Cyprus (1) and
Madeira (1).
RIU Hotels head office has been in the Riu Centre, in Playa de Palma, since 1982. One
hundred fifty metres from the Riu Centre, on the beach front, is the Riu San Francisco, the
chain’s very first establishment, where the family business was started up in 1953 by
Mr. Juan Riu and his son, Mr. Luis Riu Bertran, both natives of the La Garrocha region of
Gerona in Catalonia.
Luis Riu Bertran was chief executive of the chain until his death, at the age of 65, on 7th April
1998. Since then the company has been directed by the second generation, in the form of
Mr. Riu Beltran’s two children: Carmen Riu G€ uell (a specialist in administration and finance)
and Luis Riu G€ uell (in charge of expansion). Both born in Palma, they share the post of chief
executive.
All the hotels in the chain are managed by Riusa-II, a company created in 1993 for the
running of hotels, 50 per cent of which belongs to the Riu family, with the other 50 per cent
being held by the German tour operator TUI, RIU’s traditional partner and number one tour
operator in Europe.
Riusa-II and some shareholder-type companies together make up the RIU Hotels & Resorts
Group.
For its part, TUI (www.tui.com), a member of the HTU (Hapag Turistik Union) tourism
consortium, renamed the TUI Group on January 1st 200, constitutes the tourism division of
the industrial group PREUSSAG (www.preussag.de), the 21st biggest company in Germany
in 1999. PREUSSAG purchased TUI in 1998 as part of its strategy to transfer investments to
the tourism sector.
As from August 23rd 2001 the tourism consortium adopted the new name of ‘World of TUI.’
(www.the-world-of-tui.com)
Since its creation RIU Hotels has never shared out profits. They are reinvested in full in the
creation of new hotels, the renovation of those already in existence or the purchase of other
establishments. Like the 11 Iberotel hotels acquired in 1993 and the nine hotels bought from
the British Belhaven chain. In this way the company has basically self-financed its growth
and its current level of debt is low.
After the creation of the family business in the 1950s, the company grew in the ’60s due to
the opening up of Spain to Europe and the consequent in rush of European holiday tourists to
Spanish beaches. After increasing its number of hotels in Majorca and consolidating itself as
a company, in the ’80s RIUexpanded its activity in the Canary Islands, an archipelago which,
added to the attraction of its beaches, is also a non-seasonal destination due to its mild
climate, allowing hotels to remain open all year round.
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 274
Due to the importance of the turnover contributed to the chain by the Canaries
(approximately half), RIU established part of its head offices in Playa del Ingles in Gran
Canaria, amongst them the Human Resources Department and the Staff Training Centre,
devoted to the retraining of the chain’s professionals. After its solid expansion in the Canary
Islands (where it is now the leader in the supply of accommodation), Riu Hotels began its
internationalisation in the ’90s, with the inauguration of the hotel Riu Ta?no in Punta Cana
(Dominican Republic). From this island, the beaches of which are amongst the most
beautiful in the world, the chain has expanded to Cuba, Florida, Mexico, Jamaica and the
Portuguese island of Madeira.
In November of 1997 RIU acquired the emblematic hotel Maspalomas Oasis in Gran
Canaria, one of the best holiday establishments in Europe, and since then the chain’s
flagship in Spain.
At the beginning of 1998 the chain opened a Contracting and Sales Office in Madrid with the
aim of opening up to the Spanish outward bound market, and struck up agreements with
Spain’s most important wholesalers. In mid-1999 RIU took over the management of
12 hotels in the Iberotel chain in Tunisia (8), Morocco (One hotel, later dissociated from the
chain), Bulgaria (2) and Cyprus (1). Thus, the chain began its expansion in North Africa and
the Eastern Mediterranean.
In the case of Morocco and Bulgaria this was RIU’s debut of the franchise formula, with
which the chain hopes to incorporate more new hotels over the coming years, preferably in
Andalusia, the Algarve (Portugal) and the Canary Islands.
In October of 1999, 31 RIU hotels ranked amongst the 100 best hotels in the world in the
holiday sector, according to the votes of TUI customers, for which the TUI-Holly prizes are
awarded. And furthermore four RIU hotels were amongst the top 10, with the Riu Palace
Maspalomas in first place for the second time in just 10 years of its existence. On 15th
November 1999 the Riu Palace Mexico, a luxury five-star hotel, was opened. This
establishment is buried deep in the Mayan Riviera and is the chain’s new flagship outside
of Spain.
High quality of service and personalised treatment of guests constitute the cornerstone of
RIU’s philosophy, a philosophy which has allowed a modest family business with 80 beds to
be turned into an international hotel chain with over 50,000 in four decades. A chain which is
still expanding, exclusively in sun and beach holiday destinations, without abandoning the
values on which its success is founded, and which foresees an increase in its
accommodation capacity in the first years of the 21st century with new hotels in the Canary
Islands, Andalusia, Tunisia, Bulgaria, the Caribbean, the United States and Africa.
Questions
1. Map the development of Riu Hotels using the growth theories in this chapter. Discuss the
strategy followed, the challenges faced and how they were managed as the firm grew?
Case 275
Source:http://www.hotel-online.com/News/PR2001_3rd/Sept01_RIU.
html, accessed January 2008.
Case authors
Dr Abel D Alonso
Edith Cowan University
School of Marketing, Tourism and Leisure
Australia
Dr Michael J. Gross
School of Management
University of South Australia
Australia
Dr Lynnaire Sheridan
Edith Cowan University
School of Marketing, Tourism and Leisure
Australia
Dr Pascal Scherrer
Edith Cowan University
School of Marketing, Tourism and Leisure
Australia
Peter Wiltshier
School of Culture and Lifestyle
University of Derby
UK
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Index
A
aboriginals, 24
accommodation service model, 182
types of, 182, 183
Accor’s concept, 83
achievement, 32
actions, 193
advertising and promotion, 202
advisory boards, 155
alcoholism, 153
altruistic generosity, 174
expressions of, 174
anxieties, 153
artificial community-based land
tenure, 23
Asian community, 44
atmosphere, 115
audit proforma, 116
Australian government sites, 147
Australian wine drinker, 135
autocratic, 218
average customer, 139
B
balance sheet section, 209
Balti curry houses, 136
Bannatyne Concept Hotel Launch,
93
barriers to growth, 270
BBC’s (UK) From Hell to Hotel tele-
vision broadcast, 124
behaviour theories, 218
benevolent dictator, 226
Blackpool study, 59, 64
Blackpool’s hotel sector, 58
Blackpool’s tourism sector, 63
boat-hire companies, 264
year-round trade, 264
Bolton Committee Report, 9
UK-based definition, 9
boundary examination, 87
brainstorming, 86, 132
Britain’s working population, 41
Burn’s entrepreneurial
characteristics, 126
business, 192
describing, 192
business angel, 6
business communication
sense, 21
business creep, 153
impact of, 154
business culture, 261
business cycle, 94
importance of innovation in, 94
business failure, 5
business founders, 152
business objectives, 124
business ownership, 58
economic motives for, 58
business philosophy and culture,
164, 165
business plan, 5, 191, 203, 208
presenting, 208
working with, 208, 211
writing up, 208
business planners, 199, 202
business world, 101
buying behaviour, 140
C
capital funding, 137
emotional side of, 137
Catholic workers movement, 173
cavalier approach, 122
changing entrepreneurial
environment, 23
chill-freeze food service, 105
Chinese cafes, 52
civvy street, 182
classic growth orientated
entrepreneur, 52
classical economic theory, 51
clustering, 127
coercive, 237
cognitive difference, 73
colonization process, 23
impact of, 23
commercial domain, 178
commercial guest, 184, 185
commercial home, 50, 57, 169, 177,
182, 185, 188
nature of, 188
commercial hospitality, 170,
177–179
commercial hosts and guest, 183
interaction between, 183
commercial operations, 170
commercial service delivery, 170
community communication, 34
company culture, 109
company entrepreneurs, 110
company management structure,
188
company strengths, 261
competition, 129
competitive business strategy, 201
competitor activities, 210
competitors, 198
consensual decision-making, 32
consideration, 218
consolidation, 262
contingency approach, 25, 26
contingency models, 221
contingency theories, 221, 223
controllable aspects, 115
conveyor belt, 83
copyright, 114
cost control and profitability, 210
cost leadership, 201
cost of sales, 206
couples divorcing, 153
creative destruction, 7, 70
creative idea generation, 69
creative thinking, 74
creativity, 70, 73, 74, 83, 95, 98
definition, 70
strategies, 81
crisis manager, 225
289
critical success factors, 198
cultural artifacts, 239
culture, 21, 22, 235
definitions of, 22
customer occasion, 194
customers, 196, 210
D
data-gathering research techniques,
134
understanding of, 134
decision-making idiosyncrasies, 10
decision-making process, 7, 163
decision-making role, 255
Delphi technique, 86, 90
democratic, 218
demographic data, 139
differentiation, 201
dining out, 176
research on, 176
disengagement, 252
dissociated director, 226
diversification, 263
domestic dwellings, 181
domestic markets, 7
domestic/private domain, 178
Dyadic theory, 219
E
ebb and flow relationship, 13
e-commerce, 113
economic conditions, 245
economic development, 13, 25
models of, 25
economic growth, 246
economic growth model, 51
economic income stream, 182
economic rational man, 25
economic returns, 114
economies of scale, 257
education, 45
effective entrepreneurship, 126
basic requirement of, 126
effective leadership style, 222
employee-centred, 219
employees, 210
entrepreneur’s disposal, 5
entrepreneurial behaviour, 4
entrepreneurial activity, 8, 13, 21
early stage of, 8
engagement in, 21
entrepreneurial attitude, 32
entrepreneurial challenge, 160
entrepreneurial confidenc, 150
entrepreneurial creativity, 67
entrepreneurial cues, 52
entrepreneurial environment, 2
entrepreneurial firms, 170, 239
principles, 239
entrepreneurial genius, 226
entrepreneurial leader, 227, 236
entrepreneurial leadership, 214, 229
entrepreneurial organizational cul-
ture, 239
six dimensions, 239
entrepreneurial sense, 137
moral in, 137
entrepreneurial success, 213
entrepreneurial traits, 126
entrepreneurs, 1, 3, 4, 11, 14, 45, 49,
50, 51, 82, 95, 99, 115, 116, 132,
226, 252, 254
challenges for, 254
classical view of, 51
different meaning, 49
key ability, 99
key consideration for, 115
their business, 252
type of, 226
way of life, 252
entrepreneurship, 1, 3, 4, 6, 13, 31,
38, 50, 52, 94, 95, 98, 103, 108,
124
common route to, 124
creativity and, 95
deadly sins of, 103
definition, 2, 3
economy and, 13
government, 7
history, 6
non-indigenous interpretations
of, 38
resource-based perspective of,
108
ethnic minority entrepreneurship
research, 45
ethnic entrepreneurship, 41, 43, 136
economic importance of, 41
ethnic minority enterprise, 55
ethnic restaurateur, 44
e-tourism, 113
rise of, 113
European Small Business Advice,
148
expert, 237
external environment, 221
extrinsic growth, 267
extrovert, 1
F
family, 143, 153
relationships, 153
traditional hierarchical structure
of, 153
family business, 50, 143, 148, 151,
153, 156, 160, 163
advantages of, 151
consultants, 154
leader of, 153
managing, 163
succession planning in, 156
transferring, 160
family conflict, 152, 156
four-step approach, 155
family control, 144
family council, 155
use of, 155
family enterprise, 55
family firm, 57, 152, 164
family relationships counselor, 154
fashion-oriented drinkers, 135
fast food industry, 83
fast food restaurants, 115
fast-paced trading environment, 109
feasibility analysis, 122, 136, 138,
139
concept of, 122
role of, 122
feasible, 121
entrepreneurial sense, 121
finances, 136
financial burden, 153, 154
financial feasibility, 138
financial growth, 260
financial sphere, 71
firm’s growth stages, 226
first wave interventions, 24
five leadership styles, 219
five-stage life-cycle pattern, 251
focus, 202
Foley’s interviewees, 33
followers, 221
characteristics of, 221
tasks of, 221
work-group characteristic, 223
food services sector, 16
food-related tastes, 140
forecasting results, 205
INDEX 290
formula’ standardized production,
106
founder’s disease, 255
founders, 240
philosophy of, 240
founder to leader, 224
four Ms, 109
free house, 55, 182
G
Global Entrepreneurship Monitor
2005 Executive Report, 8
Global Entrepreneurship Monitor,
27
global poverty, 11
global poverty, ways of fighting, 11
globalized business
environment, 7
Good fortune, 213
good fortune, 245
Good fortune, 256
good guests, 174
governance, 164
government authorities, 200
government authorities, Contacts
with, 200
Great man theories, 218
Greiner’s model, 249
gross domestic product (GDP), 27
gross profit, 207
Growing Pains, 159
Growing Pains, hypothetical case,
159
growth firms, 124
GROWTH MODELS, 249
Growth models, 255
growth orientated
entrepreneurs, 51
Gueridon service, 135
guest’s rooms, 184
guest–host transaction, 179
guests, 176
guests, 184
guests, behaviour of, 176
guests, no go areas, 184
guests, treatment of, 176
H
Handy’s task culture, 237
Harrogate model, 246
heritage orientation, 31
hi-tec services industries, 16
Hofstede’s cultural dimensions, 29,
34
holistic strategic aim, 246
hospitable behaviour, 175
hospitable motives, 175
hospitableness, 170, 174, 175, 178
consideration of, 175
qualities of, 178
hospitality, 125, 169–175, 178–180,
203
commercial domains of, 178
cultural meanings, 169
cultural obligations to, 173
cultural variations, 170
domestic domains of, 177, 178
domestic experiences, 169
domestic/private domain of, 178
emergence of, 170
emotional dimensions of, 180
engagement with, 169
key to success in, 203
medieval ideas of, 173
motives of, 175
nature of, 169
philosophy of, 174
sense of authenticity of, 178
social science perspectives, 178
unchanging aspect of, 172
way of thinking, 171
writing about, 173
hospitality activities, 180
attractiveness of, 180
hospitality and tourism operators,
176
concern for, 176
hospitality and tourism sector, 145,
169
small firms in, 169
hospitality customers, 135
hospitality entrepreneur, 77, 85,
115, 122, 124, 131, 225, 230,
236
as leader, 231
current environment, 225
hospitality entrepreneurial activity,
177
major influence on, 177
hospitality firm, 115
steps for protecting, 115
hospitality founders, 148
option for, 148
hospitality industry, 1, 5, 11, 21, 74,
83, 114, 116, 123, 135, 140
innovations in, 114
micro seasonal sector of, 123
hospitality micro-firms, 103
hospitality organizations, 105
hospitality sector, 51
business operators in, 51
hospitality services, 135, 181, 185
host–guest relationship, 170
understanding of, 170
hosting behaviour, 176
hosting, 187
negative discourses, 187
positive discourses, 187
hosts and guest, 177
engagement with between, 177
human decency, 172
indications of, 172
I
idea generation, 74
identifiable leadership style, 228
imaginative skill, 73
immigrant entrepreneurship
theory, 43
incremental innovation, 105, 108
characteristics of, 108
indigenous Andean countries, 34
research, 34
indigenous entrepreneurship, 24,
30, 31–34, 40
attitudes and, 31
culture-specific characteristics
of, 33
definition of, 32
negative impacts of, 40
indigenous society, 33
individualism/collectivism (IDV),
29
individualized leadership, 219
industry-relevant acumen, 148
industry-specific skills, 124
influence and power, 258
influence theories, 223
information, 133
complimentary sources of, 133
information communication tech-
nology, 113, 132
information requirements, 132
initiating structure, 218
innovation, 83, 94, 98, 105
innovative small hospitality
business, 108
intellectual property, 113, 114, 115
INDEX 291
audit, 116
protecting, 113
types of, 113
International Year of Microcredit, 11
intrapreneurs, 50, 51
intrinsic growth, 267
introspection and diagnosing, 126
process of, 126
introspection, 102
J
job-centred, 219
K
Key customer occasions, 198
concept of, 198
Kirby’s notion of preparation, 78
kitchen porters (KPs), 241
knowledge bleeds, 128
L
labour costs, 206
labour market problems, 58
lack of finance, 11
large-scale catering sectors, 105
launching new business, 131
best time for, 131
laundry service, 106
layout and content, 209
leader’s sources, 237
leader–member relations, 221
leadership behaviour, 218
seminal studies on, 218
leadership, 214, 224
contemporary idea of, 214
definitions of, 214
modern view of, 224
leadership styles, 228
leadership thinking, 217
leasehold agreements, 54
least preferred co-worker scale
(LPC), 221
Leeds Metropolitan University, 54
legitimate, 237
life style economics, 55
life style entrepreneurs, 49, 51, 53
lifestyle business objectives, 56
lifestyle proprietor, 55
lifestyle proprietorship, 124
lifestyle style entrepreneurs, 181
research with, 181
lifestyle tourism entrepreneurship,
252
lifestyle-type firm, 252
local environment, 200
local tourism and hospitality asso-
ciations, 147
lumbering organizations, 109
M
McDonald’s, 259
concept, 83
employee working conditions,
259
employment policies, 259
ethical use of food products, 259
story, 106
McDonaldization processes, 179
management practices, 165
management sphere, 71
management team, 195, 234
members of, 234
nine key roles, 234
manager and team, 195
manager’s task, 196
element of, 196
managerial capacity, 270
managerial coordination approach,
250
managers’ salaries, 207
market development, 263
market leadership, 259
market research, 196
market segment, 135
marketing plan, 5, 202
Marlowe’s play, 137
masculinity/femininity (MAS), 29
medium-sized companies, 9
medium-sized entrepreneurial
firms, 15
medium-sized firms sector, 8
memorable meals, 179, 180
emotional dimensions of, 179
Michael Porter’s five forces model,
132
Michelin-rated restaurants, 104
micro firms, 54, 169
micro lifestyle businesses, 246
micro-business hotel operators, 58
micro-business manner, 56
micro-business operators, 51
microfinancing, 11
micro-firm, 57, 58
minor innovations, 105
advantage of, 105
mission statements, 192
modernization process, 25
dependency’ model of, 25
monetary policies, 256
sage-like nature of, 256
monopolistic business environ-
ment, 67
monopolistic competition, 129
moral hazard, 271
multinational companies, 116
takeovers by, 116
multi-sited empire, 51
‘must’ list, 132
N
national companies, 116
takeovers by, 116
national culture, 22, 26
Native American communities, 23
negative fall-out, 254
neo-conservative commentators, 51
nepotism, 153
networking, 127, 148
new business entrepreneurs, 129
new hospitality business, 145
starting, 145
new intranet system, 101
concept model for, 101
New Zealand’s hospitality industry,
129
niche, 135
Nineteen Century British colonial
powers, 182
non-aboriginal partners, 34
non-active family members, 163
non-ethnic entrepreneurs, 45
non-family business, 144
non-indigenous approach, 33
non-indigenous entrepreneurial
culture, 33
non-indigenous entrepreneurial val-
ue system, 38
non-indigenous entrepreneurship,
26
non-profit organizations, 8
non-trading period, 11
North American succession statis-
tics, 159
notion of intuition, 72
novel concepts, 105
nursing, 106
INDEX 292
O
Only Fools and Horses (UK televi-
sion program), 2, 7
excerpt from, 2, 7
operating profit statement, 206
operations, 204
opportunity spotting, 95
opportunity-driven entrepreneur-
ship, 103
organizational creativity, 77
organizational culture, 215, 231,
236
importance, 236
owner managed firm, 162
owner-managers, 11
P
Pakistani entrepreneurs, 136
partner’s behaviour, 154
partnership, 162
patent, 113
path-goal theory (PGT), 222
penetration, 262
performance management, 152
personal characteristics, 125, 126
PESTanalysis, 99
pilot study, 58
planning process, 163, 191
poor business planning, 147
poor marketing, 147
power, 237
five sources of, 237
power distance (PDI), 29
power transfer, 162
power-sharing, 163
practical hospitality, 176
practice of, 176
premium inconspicuous drinker,
135
pricing, 202
prior generic business onus, 148
private domestic domain, 177
and commercial activities, 177
private domestic dwelling, 177
guests entering, 177
private home, 183
private/domestic domain, 176
products and services, 134, 194
description of, 194
planning to introduce, 134
projections, 137
promotional plans and activities,
210
psychological coping responses, 154
pub sector, 181, 185
pull environment, 5
push factors, 56
push environment, 5
Q
questionnaire surveys, 86
R
radical innovations, 106, 108
characteristics of, 108
real family, 177, 184
reciprocity, 175
role of, 175
red tape, 250
referent, 237
relational theories, 223
relationship-oriented leader, 222
research-oriented data collection
approaches, 85
reservation systems, 113
resource-based perspective, 109
restaurant entrepreneur, 103–104
restaurant industry, 83
restaurant’s geographic market, 139
size of, 139
retirement, 163
planning for, 163
reward, 237
risk-taking, 31
risk-tolerance, 29
ritual-oriented drinkers, 135
role elimination, 154, 155
role reduction, 154, 155
role sharing, 154, 155
S
sale of alcohol, 181
licensing restrictions over, 181
sales analysis, 210
sales forecasts, 205
sales income, 206
savouring success, 160
scalable business model, 257
Seaside Tourism Planning Officer,
112
second wave, 24
selection criteria, 240
self awareness tests, 76
self-catering operations, 184, 185
self-determination, 31
self-development exercises, 85
self-esteem, 32
self-identification method, 144
servant leadership theories, 223
service development, 262
service quality management, 58
services and hospitality, 15
sibling rivalry, 153
skills acquisition, 230
sleeping accommodation, 178
small accommodation premises,
185
small and medium-sized enterprises
(SMEs), 8, 9, 137
UK-based definition, 9
small and medium-sized hospitality
sector, 145
Small Business Act, 9
small entrepreneurial firm struc-
ture, 254
Burns’ idea of, 254
small entrepreneurial firm, 255
small family firms, 159
planning in, 159
small firm model, 110
small firms sector, 116
small hospitality business, 136
small hospitality family firms, 144
advantages, 144
small hospitality lifestyle firm, 246
example of, 246
small to medium-sized hospitality
firms, 153
small-scale geographical expansion,
264
social beer drinkers, 135
social glue, 235
social innovators, 11
social/cultural domain, 172
socialisation, 240
societal interactions, 170
societal poverty, 32
socio-economic lifestyles, 139
sole trader, 11
South Asian entrepreneurs, 41
spill over, 128
staff training, 175
model for, 175
standardizing processes, 179
start-up business phase, 32
start-up capital, 137
sources of, 137
stone grill concept, 135
INDEX 293
strategic leadership, 227
strategic resources, 107
success story, 157
success, 32, 33
Successful Australian Ethnic
entrepreneurs, 42
successful entrepreneurs, 33, 83, 95,
122
successful growth, 256
secret formula for, 256
succession process, 160
unplanned process of, 160
Sweeney’s interviews, 64
SWOTanalyses, 262
systemising processes, 179
T
table d’hôte system, 105
table of contents, 209–210
take away meals market, 182
talking pictures, 87
tangible manufactured products,
114
task, 193
team leadership approach,
231
team management, 219
teams, 231
technological landscape, 4
tenancies, 54
the big picture, 27
three domain model, 171
tipping, 236
top management, 240
Torres Strait community, 35
Torres Strait islanders, 24, 36,
37, 38
Torres Strait Islands, 27
TEA index for, 27
Torres Strait native language, 37
total entrepreneurial activity (TEA)
index, 27
tourism industry, 114
innovations in, 114
trade secret, 114
trademark, 114
training and development, 162
trait theories, 218
transfer of power, 162
four stages in, 162
transformational leadership
theories, 223
tread water, 245
U
UK Companies Act of 1985, 9
UK Government, 148
UK hospitality industry, 102
resort sector of, 102
UK pub sector, 53
UK seaside resorts, 102
UK-based small hospitality firms,
124
study of, 124
Uncertainty avoidance (UAI), 29
unclear communication, 160
US Small Business Administration,
148
V
Venn diagram, 171
virtuous cycle, 13
visionary leader, 226
W
website designs, 113
white fellas committees and
panels, 34
‘Why Why?’ technique, 100
Windsor Hotel, 18
withdrawal, 262
work environment, 221
work–family conflict, 152, 154
work-family management
strategies, 154
work-related stress, 153
World Wide Web, 132
world’s oldest industries, 122
would be entrepreneurs, 181
would-be customers, 202
written document, 208
presentation of, 208
Y
YO!Shushi chain, 84
INDEX 294
doc_700736938.pdf
Most of us have an intuitive understanding of what entrepreneurs are due to much publicized activities of characters such as Richard Branson (Virgin), Anita Roddick (Bodyshop), Bill Gates (Microsoft) and others. The international hospitality industry of course has its own icons such as Charles Forte, Conrad Hilton and Ray Croc. Indeed, some of these figures have almost reached superstar status appearing on reality television programs and having cameo roles in movies.
Entrepreneurship and Small Business
Management in the Hospitality Industry
The Hospitality, Leisure and Tourism Series
Butterworth-Heinemann’s Hospitality, Leisure and Tourism series
of books is aimed at both academic courses and management
development programmes. The series represents a planned and
targeted approach to the subject and the portfolio of titles provide
texts that match management development needs through various
stages from introductory to advanced. The series gives priority to the
publication of practical and stimulating books that are recognised as
being of consistent high quality.
The Series Editor
Professor Conrad Lashley is Professor of Leisure Retailing, Centre for
Leisure Retailing at Nottingham Business School, UK. His research
interests have largely been concerned with service quality management,
and speci?cally employee empowerment in service delivery. He works
closely with several major industry organisations including the British
Institute of Innkeeping, J D Wetherspoon Scottish and Newcastle
Retail and McDonald’s Restaurants Limited.
Entrepreneurship and Small Business
Management in the Hospitality Industry
Darren Lee-Ross
School of Business, James Cook University,
Australia
Conrad Lashley
Nottingham Business School,
United Kingdom
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v
Contents
CHAPTER 1 Context, Theoretical Perspectives and De?nitions . . . . . . . . . . 1
CHAPTER 2 Indigenous and Ethnic Entrepreneurship: A Cultural
Perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CHAPTER 3 Entrepreneurs and Small Firm Ownership . . . . . . . . . . . . . . . 49
CHAPTER 4 Creativity and the Entrepreneurship . . . . . . . . . . . . . . . . . . . . 67
CHAPTER 5 Innovation, Opportunity and Protection . . . . . . . . . . . . . . . . . . 93
CHAPTER 6 The Feasibility Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121
CHAPTER 7 The Family Business: Who’s to Bless and Who’s to Blame? . .143
CHAPTER 8 Hospitality, Commercial Homes and Entrepreneurship . . . . 169
CHAPTER 9 Preparing a Business Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
CHAPTER 10 Leadership and the Entrepreneur: “I’m Right Behind You
Leading the Way” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213
CHAPTER 11 Growth: the Harder I Work the Luckier I Get . . . . . . . . . . . . 245
REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
vi
Entrepreneurship is a fascinating practical and academic area of study. As a
phenomenon it is has been around in one form or another since the earliest
civilizations including the Mayans, Ancient Greeks and Romans up to
relatively more recent times of the Renaissance (15th and 17th centuries),
Industrial Revolution (18th and 19th centuries) throughout the 20th century
up to the present day.
Interestingly, the number of entrepreneurs and establishment of small
?rms has dramatically and uniformly increased globally over the most
recent 10 years. Reasons for this include globalization, liberalization of
labour markets and enactment of entrepreneur-friendly government policies
such as removal of barriers to competition and other trade restrictions.
The prospect of starting one’s own business is not as daunting as it used
to be. Free advice and start-up grants are now available from a variety of
sources including government agencies and non-pro?t organizations. These
initiatives have helped a booming small to medium-sized sector create more
wealth than ?rms at any other time. This phenomenon can also be said of
new and emerging economies, ethnic groups within larger host nation states
and indigenous entrepreneurship. The latter developments are particularly
pertinent to the tourism and hospitality industry as many nascent nations
are recognising the role entrepreneurism plays in economic development and
the alleviation of poverty and dependence on public subsidy for citizens.
However, environmental enablers of entrepreneurship are only one side
of the story and this is where the more academically oriented perspective of
the phenomenon begins. Essentially, it is argued that entrepreneurs have
certain characteristics and which predispose them to behave in a particular
way. ‘Risk-taking’ and a ‘desire for achievement’ are often quoted as being
key necessary traits. In reality, the picture is rather more complicated, for
example, some individuals may have been ‘pushed’ into self-employment by
virtue of redundancy. Many of them could hardly be described as being risk-
takers yet there are many examples of resounding business success. Equally,
there are those spectacular failures who not only possess the appropriate
internal characteristics of entrepreneurs but have been ‘pulled’ into the ?eld
because of its perceived intrinsic bene?ts.
Beyond this question is the fundamental role entrepreneurs play in the
economy in terms of employment and wealth generation. Indeed, small
businesses are the backbone of the tourism and hospitality industry and,
depending on which statistics one uses, represent somewhere between
75 to 95 percent of all ?rms globally in this sector. It would be reasonable
to assert that the incumbent entrepreneurs are industrious, multi-talented,
Preface
Preface vii
creative and innovative. They work hard, weather signi?cant hardships
during business start-up and bear all of the risks involved in making such a
personal sacri?ce.
The aims of this book are:
To explore both the complexity of entrepreneurial theory and •
practice applied to the tourism and hospitality industry. It does this
by exploring some key theoretical concepts and grounds them in a
number of practical real-life scenarios;
To move back and forth between strategy and operations in order to •
illustrate the linkage between the two areas and explain how both
perspectives are necessary for entrepreneurial success;
To engender a sense of enthusiasm about the ?eld by not only •
discussing some of the major challenges and opportunities but by
providing the knowledge and skills required to start a small business
and drastically improve the chances of sustaining it successfully.
The chapters of this book invite readers to ponder their reading through
a series of re?ective activities. This allows them to both think actively about
themes, concepts and issues and then apply them to a number of suggested
scenarios. Authors have deliberately designed the book to actively engage
readers as re?ective practitioners. Re?ective practitioners are required by
modern hospitality and tourism organizations. The term describes managers
who are able to complete physical tasks as well as re?ect and think about
their actions. Reading this book, therefore is intended to be an active process
whereby readers think about the practical implications of what is being
communicated. The authors are informed by the work of Kolb who suggests
learning needs to engage actions as well as theorising and thinking.
Kolb (1983) states the most effective learning as involving all aspects of
the learning styles. They must re?ect on actions undertaken – see how these
re?ections ?t with theories – consider how they might need to alter future
actions, and then act.
For the purposes of this book, and for future activities, we suggest that
the process of learning needs to move through the stages outline on Kolb’s
model. Active experience needs to be followed by re?ection including
the critical evaluation of the experience; and consideration of how these
experiences inform or adapt theoretical understanding; and how this might
inform future actions. Traditionally this is shown as a cycle, however, it is
more accurately a series of spirals where the process of acting, re?ecting,
theorising and deciding of future actions leads to new learning situations
leading on from the past.
Chapter 1 discusses issues of historical and contemporary context of
entrepreneurship concluding that the global ?eld is vast and continuing.
viii Preface
Some de?nitions are explored concluding that entrepreneurs are dif?cult to
classify given their diverse backgrounds. Some key attributes of entrepreneurs
are explored including the ability to spot the opportunity and develop it
into a sound business proposal. Issues of personality and environment are
discussed. The quaint notion of running small hospitality ?rms ‘risk-free’ is
also introduced.
Chapter 2 scrutinizes entrepreneurship through a cultural lens discussing
and de?ning indigenous and ethnic dimensions and how they impact upon
small ?rms. The key developmental role of entrepreneurship amongst
indigenous societies is discussed together with an outline of the main
differences between indigenous and ethnic entrepreneurship.
Chapter 3 evaluates the meanings of the term entrepreneur, comparing
and contrasting ‘growth’ and lifestyle entrepreneurs in terms of their origins
and motives. The overriding pattern of small business ownership and its
impact on hospitality and tourism provision is then considered.
Chapter 4 considers the notion of creativity in an entrepreneurial context
and its relationship with innovation and how it impacts on the entrepreneurial
process. Emphasis is placed on the lifelong commitment to idea generation
in small hospitality ?rms along with some important techniques to develop
and enhance creativity within the individual. Ultimately, the relationship
between creativity and ‘mystery’ is debunked and the ability is advanced as
one that can be learned.
Chapter 5 de?nes innovation as a systematic logical exercise designed
to harness creative ideas and bring them to a successful entrepreneurial
conclusion in the marketplace. The chapter then discusses its role in the
entrepreneurial process and identi?es its relationship with creativity.
Opportunity spotting and the subsequent development of business ideas is
then introduced and the importance of a methodical systematic process of
environmental scanning and strategic and tactical planning is emphasized
in this context.
Chapter 6 explores the term ‘feasibility analysis’ and how it applies in
maximizing the chance of entrepreneurial success. Porter’s Five Forces is
identi?ed and applied as a suitable model. The prevalence of intuition and
gut reaction are discussed and their weaknesses identi?ed when planning to
launch new hospitality ventures. The chapter proceeds by outlining the role
and importance of research in entrepreneurial success.
Chapter 7 identi?es the inherent advantages family ?rms have over non-
family ?rms whilst recognising the roles of key individuals in the family
?rm. Some of these include commitment, resilience and long-term stability.
The impact of con?ict on small family businesses in the hospitality industry
is outlined. The process of business transferral is discussed along with
the many accompanying challenges faced by entrepreneurs and second-
generation successors.
Chapter 8 discusses hospitality and hospitableness in the context of
small ?rms. It also introduces the notion of attractiveness of commercial
Preface ix
hospitality to owners/managers. The linkages between commercial homes
and hospitality businesses are evaluated. Tensions and dilemmas inherent in
commercial homes are also outlined.
Chapter 9 addresses the need for producing and working to a business
plan described as a working document designed to assist planning with sense
and realism, and through which to monitor performance against desired
objectives. The key activity of writing and presenting an effective business
plan is discussed together with the role of feedback and iteration during the
process.
Chapter 10 deals with the entrepreneur as leader and identi?es the
behavioural attributes of entrepreneurial leadership style. The changing role
of the leader/entrepreneur as hospitality ?rms developer is explored. The
assumption that successful entrepreneurs and sound leadership naturally
go together is discussed and challenged. Major theories of leadership are
explored as a basis for effective leadership. The chapter then introduces some
major intrinsic entrepreneurial characteristics said to detract from effective
leadership. An entrepreneur’s understanding of organizational culture is
then identi?ed as key for effective performance in small hospitality ?rms.
Chapter 11 outlines the major issues involved in the discourse of small
entrepreneurial and lifestyle hospitality ?rm growth. The strengths and
weaknesses of growth models are outlined together with a discussion of
the major components of expansion strategies for small hospitality ?rms.
‘Good fortune’ is explored and the role plays in entrepreneurial success. The
chapter then discusses the major challenges or barriers faced during growth
stages of ?rms.
x
Acknowledgements
This book is dedicated to my wife Amanda for her intellect, patience and support
– the brightest and the best.
Darren Lee-Ross
Context, Theoretical
Perspectives and Definitions
After working through this chapter you should be able to:
& Understand that defining entrepreneurship is problematic but hinges on an
interplay between key personal attributes and appropriate environmental
opportunities
& Recognize key changes in the macro environment enabling increased
entrepreneurial activity
& Define small firms and identify their key characteristics and distinguish
between entrepreneurs and owner/managers
& Identify the contribution of small firms and entrepreneurism to the service
and hospitality sectors of economies
INTRODUCTION
Most of us have an intuitive understanding of what entrepreneurs are due to
much publicized activities of characters such as Richard Branson (Virgin),
Anita Roddick (Bodyshop), Bill Gates (Microsoft) and others. The internation-
al hospitality industry of course has its own icons such as Charles Forte,
Conrad Hilton and Ray Croc. Indeed, some of these figures have almost
reached superstar status appearing on reality television programs and having
cameo roles in movies. Therefore, it would be reasonable to suggest that most
of us would link entrepreneurship with a particular personality trait or
type and many writers have sought to do so (for example, see Hornaday
1982; Timmons Smollen, and Dingee, 1985; Lessem, 1986; Gibb, 1990; &
Wickham, 1998). The likely ones here are ‘charismatic’ and ‘extrovert’.
However, these characteristics are too simplistic to provide an adequate
description of what constitutes the entrepreneur. Definitions of entrepreneur-
ship emanate from several disciplines including the ‘great person’ school;
classical and neoclassical economics; psychology; sociology; and management
CHAPTER 1
1
(Yeung, 2002). Other researchers have sought to explain entrepreneurship
by linking it with national culture (for example see, Shane, 1995;
McGrath, MacMillan, and Scheinberg, 1992; and Mueller and Thomas,
2001). Others including Meredith, Nelson et al. (1982) and Zimmerer and
Scarborough (2005) have focused on the entrepreneurial environment. There-
fore understandably, one single universal definition of entrepreneurship is
problematic given its multidisciplinary nature.
Many writers agree with Kirby (2003) and Chell, Haworth &Brealey (1991)
who state respectively that:
‘there is no agreed definition of. . .what constitutes. . . entrepreneurship’
(p. 10).
‘there is still no standard, universally accepted definition of
entrepreneurship’ (p. 1).
Baumol (1993) goes further suggesting that:
‘‘Any attempt at rigid definition of the term entrepreneur. . .[should] be
avoided. . .because whatever attributes are selected, they are sure to
prove excessively restrictive, ruling out some feature, activity, or
accomplishment of this inherently subtle and elusive character’’ (p. 7).
However, if we stay with the idea of popular media icons, especially ficti-
tious ones such as Dell Boy Trotter and Arthur Daley from UK television
programs ‘Only Fools and Horses’ and ‘Minder’ in the 1990s it becomes fairly
obvious that any definition must necessarily include elements of both the
individual and the environmental opportunities present.
Excerpt from ‘Only Fools and Horses’ BBCTV, UK, 1983
1. Del Boy has just sold a number of broken lawnmower engines to his brother Rodney and
business partner Mickey Pearce via an auction. Both Rodney and Mickey do not, as yet,
realize that del is the vendor:
Del: I never thought I’d get rid of ‘em Rodney but you know me, ‘He who dares wins’.
Actually, I’ve made a tidy little profit.
Rodney: What are we gonna do with ‘em.
Del: Why don’t you do what I did. Find yourself a couple of right little plonkers (idiots) with
cash on the hip.
Up until the end of the last century many definitions failed to consider the
key role played by the environment upon entrepreneurs and entrepreneurial
success and vice versa. Definitions tended to fall into two exclusive categories,
CHAPTER 1: Context, Theoretical Perspectives and Definitions 2
one featured personality traits and behavioural characteristics of (for example,
see Hornaday 1982; Wickham, 1998). However, others looked at the environ-
ment for situations where entrepreneurs were likely to develop and thrive (see
Meredith, Nelson and Neck 1982; Zimmerer and Scarborough, 2005). Essen-
tially, the area of entrepreneurship necessarily involves more than just a
simple enquiry of who the person is and what they do or the environment.
The phenomenon is a complex amalgam of both the individual and opportu-
nity. Common sense suggests that any definition of entrepreneurship should
include both dimensions by considering what Shane (2003) refers to as the
individual–opportunity nexus. Given the above, it would seem reasonable to
define the entrepreneur as:
‘. . .one who creates a newbusiness inthe face of risk and uncertainty for
the purpose of achieving profit and growth by identifying significant
opportunities and assembling necessary resources to capitalize on
them’ (Zimmerer and Scarborough, 2005, p. 3).
Just as entrepreneurs are difficult to define so too is identifying a typical one
as they come in all shapes and sizes from different educational, cultural and
industrial backgrounds. However, using data from over 35 countries,
Minniti, Bygrace and Autio (2006) help us to provide a composite picture of
the entrepreneur. He or she is likely to:
& Be based in a middle income country;
& Survive in high income countries;
& Be opportunity-driven as success if necessity-driven is less likely;
& Not offer new products or services;
& Own businesses likely to have limited or no growth potential;
& Be between 25 and 34 years (early stage entrepreneurs);
& Be a man;
& Have post school or graduate qualifications; and
& Be more likely to have confidence in own skills, know other
entrepreneurs, be more alert to unexploited opportunities and less
likely to let fear of failure prevent them from starting new business.
Adapted from: Minniti et al. (2006, pp. 10–11).
Key point 1.1
Defining entrepreneurs is difficult as they are a composite of variables. These include personal
traits and characteristics and environmental enablers. Some argue that entrepreneurial
success stands or falls by the right person being in the right place at the right time.
Introduction 3
Using our above definition and type, entrepreneurs and entrepreneurship
may now be understood as a certain individual or individuals (‘copreneurs’)
engaged in the process of creating a new business venture as shown in
Figure 1.1.
A key element here is the entrepreneur as the person who identifies an
opportunity. The propensity for being able to spot a gap in the market is a
difficult and complex area to describe. So too is identifying a sustainable
competitive advantage setting the idea apart from the competition. Several
authors have identified various specific traits (Hornaday, 1982; Timmons
Smollen, and Dingee, 1985; Lessem, 1986; Gibb 1990; Wickham, 1998) be-
lieved to play a role in this regard, with locus of control, need for achievement
and risk-taking being key. However, traits alone do not adequately explain
entrepreneurial behaviour. Other elements such as aspirations, experience
and cultural background undoubtedly make a contribution. Moreover, respond-
ing appropriately to the environment is also a fundamental enabler of new
venture formation. The political, economic, social and technological landscape
must therefore also be favourable for entrepreneurship to flourish.
Reflective practice
1. Can you think of a famous entrepreneur or someone you knowwould be recognized as an
entrepreneur? To what do you attribute their success, luck, skill, talent, propensity for risk-
taking, leadership ability or a combination of them?
Environment
Political
Economic
Social
Technological
OPPORTUNITY
Entrepreneur
Skills
Personality
Aspirations
Experience
Evaluation of
opportunity
Market
research
Gather
resources
Decision
Go ahead
or
Abandon
FIGURE 1.1 Entrepreneurial process of creating a new business venture.
Adapted from: Schaper and Volery (2004).
CHAPTER 1: Context, Theoretical Perspectives and Definitions 4
Once an opportunity is identified, the potential venture must be assessed
by various means at the entrepreneur’s disposal. There is no standard way of
doing this and the complexity and extent of feasibility studies, business plans,
marketing plans and so on will vary depending on the idea and the market. A
decision has then to be taken whether to continue with the notion or to
abandon it. Typically, decisions to pursue (or not) an entrepreneurial idea
are taken within the context of either a ‘push’ or ‘pull’ environment. The
former is where the individual has been made redundant or is unhappy with
their current working conditions. The latter pull factors concern market at-
tractiveness such as opportunity to increase personal wealth, personal devel-
opment and status. Once all of these variables have been assessed, compared
and scrutinized, a final decision to continue with the venture can be made.
This is a crucial phase inthe process and Figure 1.1 suggests that it is a rational
one. However in practice, decisions to exploit an opportunity through venture
creation are often a complete mystery! In other words, they appear to be
illogical, especially if the rate of small business failures is anything to go by.
1
Key point 1.2
Typically, entrepreneurial activity is initiated by push or pull factors. Push factors include,
being made redundant, low level of income or general unhappiness with current
employment. Pull factors include the chance of increasing personal wealth, chance to be
own boss and status.
There are a number of reasons for business failure but most fall into the
categories of managerial incompetence and lack of experience (Kirby, 2003).
Another is that often, budding entrepreneurs become emotionally attached to
their business ideas and, despite the odds, will pursue them even though
objective evidence suggesting the contrary. This is particularly the case in
the hospitality industry where individuals consistently fall in love with the
idea of opening their own restaurant or public house or opt to become self-
employed for non-economic reasons (see Thomas, Friel, Jameson, and
Parsons, 1997). For example, there seems to be a notion that running a
restaurant or bar is not really serious work at all. Besides, fraternizing and
socializing with customers cannot be that difficult or taxing can it? Well
actually, it can. In practice, owners will be working incredibly long hours
1
Although difficult to be accurate, Kirby (2003) estimates small business failures within the
first year of trading at 38 per cent and by the end of year two at 57 per cent. Similar estimates
are made by others including Zimmerer and Scarborough (1996).
Introduction 5
occupying many different roles ranging from bar tender, bookkeeper, recep-
tionist, room attendant, chef, wait person whilst at all times maintaining an
air of ‘mein host’. Indeed, several studies have shown that a lengthy working
hours contributes to early business failure (for example, see William and
Collins, 1995). Therefore before taking the ‘plunge’, entrepreneurs should
always remember not to ‘fall in love’ with the idea of owning and running
their own business.
Reflective practice
1. Give some examples of business entrepreneurs who despite prevailing economic condi-
tions or against advice of others continued with their dream; were they successful or
unsuccessful?
There are undoubtedly benefits of being an entrepreneur but there are also a
number of challenges; Table 1.1 provides a summary.
HISTORY, GOVERNMENT AND THE ECONOMY
Entrepreneurship is not a modern concept and the term is said to have orig-
inated with the 18th century economist Richard Cantillon who used it to
describe someone who bore risk, made plans, organized and owned factors
of production–land, labour and capital (Coulter, 2001). The termentrepreneur
evolved over the next two centuries and with the advent of the industrial
revolution it became viewed as something separate from management
with similarities to what is currently considered a venture capitalist or
‘business angel’. More recently, writers such as Joseph Schumpter and Peter
Drucker added other dimensions to the term. For example, Schumpeter
TABLE 1.1 Entrepreneurs: pros and cons
Pros Cons
Independence and relative freedom from constraints
including decision-making
Change, risk, uncertainty of income and the requirement to
make many decisions in new ‘unknown’ areas
Able to use many skills, abilities and talents Many skills and abilities required, complete responsibility
Accountable to oneself and control over own destiny Lower quality of life in early stages with notable potential or failure
Status, achievement and chance to reach one’s
full potential
Long hours and ‘hard work’
Potential for greater financial rewards
Adapted from: Zimmerer and Scarborough (1996) and Coulter (2001).
CHAPTER 1: Context, Theoretical Perspectives and Definitions 6
considered the entrepreneur as one engaged in ‘creative destruction’, that
is, one who replaces inefficient and ineffective approaches with better and
improved ones. For Schumpeter, innovation was a key element of entre-
preneurship. A complimentary addition to the term was that of Peter
Drucker who introduced the notion of spotting opportunity and acting
upon it.
Excerpt from ‘Only Fools and Horses’ BBCTV, UK, 1983
2. Del Boy is explaining to his grandad what a good week’s trading he’s enjoyed:
Del:I’ve had a good week as it goes. I’ve sold everything including those multicoloured
woolen tea cosies I bought.
Grandad: Who on earth want woolen tea cozies in this day and age?
Del: No, no, no. I took them over to Mrs Murphy to stitch up all the holes and then flogged
(sold) ‘em down at the youth centre as beanie hats.
Until fairly recently international and domestic markets were relatively
structured and insular with a legal framework which arguably discouraged
entrepreneurial activity. Large companies and corporations with ‘traditional’
vertical higherarchies and centralized decision-making processes benefited
from these turgid conditions. At the same time individuals enjoyed job secu-
rity and usually had only one career in their working lifetime. In the 21st
century this is no longer the case, with the gradual rise in economic impor-
tance and employment of the international service sector at the expense of
manufacturing (see Sweet, 2001; Economist intelligence Unit, 200). Addition-
ally, there are at least two generations of people (X – born 1965–1976 and Y–
born 1977–1994) who know nothing other than employment flexibility,
multi-careers and job changes. In the new globalized business environment
many large corporations have downsized, ‘outsourced’ and implemented
sweeping changes resulting in massive redundancies and further job insecu-
rities. In part, this has resulted in an increased pool of talented and creative
people willing to engage in entrepreneurial activity.
Key point 1.3
Global entrepreneurial activity is now higher than at any other time in recent history.
Government has a key role to play increating an environment conducive to
entrepreneurship. Many have recognized the key contribution of the small
History, Government and the Economy 7
business sector to the economy and have liberalized the marketplace aggres-
sively implementing ‘entrepreneurship friendly’ policies such as removal of
barriers to competition and other trade restrictions. The prospect of starting
one’s own business is therefore not as daunting as it used to be. Literally
hundreds of government agencies and non-profit organizations have been
established to provide free expertise, research grants and advice to nascent
entrepreneurs and small business owners. A small international sample is
shown below:
UK Government Department of Trade and Industry – Small Business
Service;
Australian Government – AusIndustry – Small Business Incubator Pro-
gram, Small Business Advisor Service;
US Government – Small Business Administration Agency;
Government of India – Ministry of Small Scale Industries – National
Institute for Entrepreneurship and Small Business Development;
The Asia Foundation – Indonesia;
New Zealand Government – National Economic Development Agency –
New Zealand Trade and Enterprise;
Jamaican Government – Jamaica Business Development Center; and
Brazilian Government – National Deliberative Council – Brazilian Micro
and Small Business Support Service.
Such initiatives have helped a booming small to medium-sized
firms sector create more wealth than firms at any time previously
(Burns, 2001). The UK’s DTI (2006) estimate the number of SMEs in
2005 to number 59 000 (1.4 per cent) more than at the start of 2004. They
note, ‘. . . this is the eighth successive year that companies have increased in
number’ (p. 3). Furthermore, small and medium-sized enterprises (SMEs)
together accounted for more than half of all employment (58.7 per cent or 13
million) and turnover (51.1 per cent or £1300 billion.). Small enterprises
alone (0–49 employees) accounted for 46.8 per cent of employment and
36.4 per cent of turnover.
A similar picture emerges elsewhere, for example, SMEs comprise around
90–95 per cent of all firms in the European Community and the USAwith an
increasing number of new firms emerging year after year (Burns, 2001, p. 3).
According to the Global Entrepreneurship Monitor 2005 Executive Report,
other countries having notable increasing rates of entrepreneurial activity
include Venezuela, Thailand, New Zealand, Jamaica, China, Brazil, Australia
and the USA where a range of between 25 (Venezuela) to 11 (USA) per cent of
the adult population is either a new business owner or in an early stage of
entrepreneurial activity (Minniti et al., 2006, p. 18). In short, there has been a
significant global movement toward self-employment through individual
CHAPTER 1: Context, Theoretical Perspectives and Definitions 8
choice and (probable) government-driven entrepreneurship-friendly macro–
conditions.
Reflective practice
Identify any local government (and other agency) support structures and systems available
to entrepreneurs in your region. How easy are they to access.
What are Small Firms?
Generally small or small to medium-sized (SME) firms are used as a proxy for
entrepreneurial activity but what exactly are they? Many definitions exist
because of their global diversity and characteristics. One UK-based definition
supplied by the Bolton Committee Report (Bolton, 1971) considers themto be
independent, managed by owners or part-owners and having a small market
share. The report also recognizes size in terms of relativity. For example, a firm
could be small in one sector where the market is large with many competitors;
whereas a business of similar size could be deemed large in another sector with
fewer and smaller firms within it. In North America, the Small Business
Act states that a small business is independently owned and operated and
not dominant in its field of operation but recognizes that the definition
will vary from industry to industry to reflect industry differences accurately
(http://www.sba.gov/services/contractingopportunities/sizestandardstopics/
size/index.html, 2007). However, these contributions are not particularly
helpful when making comparisons international or otherwise.
More definitive help is provided by the UK Companies Act of 1985. A
company is said to be ‘small’ if it either has a turnover of not more than
£5.6 million; a balance sheet total of not more than £2.8 million; and not
more than 50 employees. Medium-sized companies similarly must have a
turnover of not more than £22.8 million; a balance sheet total of not more
than £11.4 million; not more than 250 employees.
2
Similar ‘financial’
approaches are evident from the USA, Australia and the EU but suffer from
a problemof obsolescence due to national and international economic fluctua-
tions of interest rates and inflation for example. Furthermore, despite a Euro-
pean Commission directive for a single definition of SMEs from2005, annual
adjustments still have to be made to financial thresholds; these changes are
not necessary for numbers employed (http://www.sbs.gov.uk/sbsgov/action/layer?
r.l1=7000000229&topicId=7000000237&r.l2=7000000243&r.s=tl, 2007).
2
Must satisfy at least two of these three criteria to qualify for small or small to medium-sized
form status.
History, Government and the Economy 9
It is also the case that whilst similar, in practice, working definitions of small
firms occupy a range driven by the particular aims and objectives of the event,
for example, a research study, census, industry sponsored event and so on.
Therefore for practical statistical and international comparative purposes, the
number of employees working in a firmis probably the most useful measure of
size and some examples are shown in Table 1.2.
Size however defined, is not the only thing that distinguishes small firms
from their larger counterparts. There are a number of other key characteristics
including the personality and behaviour of the owner/entrepreneur. This indi-
vidual will make most, if not all, business decisions including those directly
effecting employees. Indeed, the small firm can easily be understood as an
extension of the entrepreneur with all of their decision-making idiosyncrasies
rolled into one! The contact between employer and workers is likely to take on
more of a personalized tone as there are fewer employees and they spend muchof
their time working alongside their employer. Furthermore, small organizations
have less well-defined guidelines for roles, responsibilities and relationships;
they are in effect an extension of the entrepreneur’s personality and attitudes.
Reflective practice
How useful is using number of employees to define firms as small mediumor large? Is this a
global standard measure of a firm’s size?
Other issues that small businesses typically have to contend with include a
shortage of funds. Internationally, most small businesses are still financed
‘informally’ by personal savings and donations from family and friends.
TABLE 1.2 A comparison of international definitions of firm size by employees
UK Micro: up to 9 employees
Small: up to 49 employees
Medium: up to 249 employees
European Union Small: up to 50 employees
Medium: up to 250 employees
Australia Micro: fewer than 5 people, including non-employing businesses
Small: 5 or more employees, but less than 20
Medium: up to 200 employees
USA Small: up to 100
Medium: up to 500
Sources: Department of Trade and Industry,Trewin, D. (2002) andhttp://encyclopedia.thefreedictionary.com/small+business,
retrieved July 2008.
CHAPTER 1: Context, Theoretical Perspectives and Definitions 10
Fewer than 0.01 per cent of nascent entrepreneurs launch new ventures with
formal venture capital or business angel investments despite the amount of
attention they receive by policy makers (Minniti et al., 2006, p. 55).
3
However,
that is not to underplay the emergence of ‘microfinancing’ and its role
amongst the ‘working poor’. Essentially, this is where social innovators pro-
vide small loans to entrepreneurs without the need for collateral. Since the
inception of microfinance in the 1970s, it has become one of the most sus-
tainable ways of fighting global poverty. According to Minniti et al. (2006) in
2005, ‘The International Year of Microcredit, around 40 per cent of the
world’s poorest people were being reached by the initiative.
Lack of finance means that entrepreneurs generally operate within a short
timeframe and have to make a healthy turnaround (although not always a
profit) within a matter of months rather than years. This is particularly so in
the seasonal seaside sector of the hospitality industry where operators have to
earn a sufficient income in a short period to remain solvent during the fallow
non-trading period in any 1 year. This puts an enormous burden on the
entrepreneur and most decisions are short-term and directly related to this
constraint. Long-term strategies are therefore inappropriate for small firms
apart from those with key potential financiers such as banks and other similar
institutions. Small firms also tend to operate within a narrow market so
diversification to spread risk is not an option. For example, a small seasonal
hotel may have a contract with a coach operator for say, weekly senior’s
holidays; it is likely that all rooms will be taken. If the contract is cancelled
at short notice the loss of this one customer would have a significant impact on
the business. A larger national hotel chain would not be so vulnerable as it
would have alternative markets on which to draw. According to Burns (2001),
characteristics which really define small firms can be summarized in Table 1.3.
Entrepreneurs and Owner-managers
So what is the difference between entrepreneurs and owner-managers? This is
a much debated issue. In one sense, there may be no difference if the entre-
preneur owns and manages the firm as a Sole Trader. On the other hand,
managers do not always own the enterprise; it may be a smaller unit of a huge
conglomerate. Would this necessarily mean that the manager fails to qualify
for entrepreneurship status? The answer is ‘possibly’, depending on how
much control the manager has over the firm and whether they display certain
3
The United States continues to dominate venture capital investment in high-tech
companies. For example, six times as much classic venture capital was invested in the USA
as in all the European nations combined.
History, Government and the Economy 11
entrepreneurial characteristics like innovation and risk (to be discussed and
developed in Chapter 3). Indeed, others have addressed this very issue by
introducing the term ‘intrapreneur’ into the nonclemature. This simply
means someone behaving as an entrepreneur within a broader framework of
a large company at the behest of the employer. However, even this term may
not necessarily apply to the manager.
Burns (2001) provides a useful summary of this conundrumindicating that
irrespective of ownership, owner managers and managers may both qualify for
the title entrepreneur. This, with the additional category of intrapreneur is
shown in Figure 1.2.
TABLE 1.4 Differences between entrepreneurship and owner-managers
Entrepreneurship Owner–management
Definition of the field Process where an individual discovers,
evaluates and exploits opportunities independently
Administration of a small independent
business venture
Firm size Large, medium or small Small
Degree of risk Variable Lower
Number of people involved
in the business
Small to large number Small
Economic sector Private, government and not-for-profit Private sector
Growth focus High Variable
Key attributes of individual High need for: achievement; internal locus
of control; creativity and innovation; growth
Moderate need for Achievement; good
organizational skills to manage efficiently;
little innovation; moderate growth
Adapted from:Holt (1992, p. 11).
TABLE 1.3 Characteristics of small firms
One or two owners often family
Financed by owners, relatives and friends
Limited and uncertain markets
Low levels of new profit
Inability to influence prices
Uncertain entrepreneurial aspirations and motives (lifestyle firm or growth firm)
a
Short-run decision making
Short seasonal business cycle (for most sectors of the hospitality industry)
One location
Adapted from: Burns (2001) and Shaper and Volery (2004).
a
Lifestyle firms are those set up primarily to provide ‘adequate’ income with no growthaspirations. Growthfirms on the
other hand are set up with the aim of prospering and growing.
CHAPTER 1: Context, Theoretical Perspectives and Definitions 12
Holt (1992) is more prescriptive and his position is summarized in
Table 1.4.
THE ECONOMY AND ENTREPRENEURSHIP
Whilst governments have long recognized the importance of entrepreneur-
ial activity on the broader economy, the exact relationship between them is
not simply cause and effect. For example, different levels of economic
development set the environment where entrepreneurs make decisions.
These decisions pre-determine the type and quantity and capacity for
entrepreneurship in any one country. In other words, the causal link be-
tween entrepreneurial activity and economic growth and the role of small
firms in determining a country’s competitiveness and productivity is
equivocal. However, countries having similar per capita GDP often show
similar levels of entrepreneurial activity (Acs, Arenius, Hay, and Minniti,
2005). There is little doubt that the entrepreneurial sector provides em-
ployment opportunities and scope for the creation of new markets at low
levels of per capita income but as this increases, larger and established
organizations tend to satisfy the demand of growing markets. As large
companies become more active, there is usually a reduction in the number
of newer smaller ones. Interestingly, as per capita GDP increases, the
level of entrepreneurial activity increases again as individuals have more
personal resources on which to set up new businesses and establish a
competitive advantage. In short, entrepreneurial activity and economic
development have something of an ‘ebb and flow’ relationship depending
on a number of prevailing pre-existing circumstances. Despite this
inexact association, Minniti et al. (2006) characterize the relationship
between entrepreneurship and aggregate economic activity as shown in
Figure 1.3.
Owner--managers Managers
Entrepreneurs
Intrapreneurs
FIGURE 1.2 Managers, owner–managers and entrepreneurs/intrapreneurs.
Adapted from: Burns (2001, p. 7).
The Economy and Entrepreneurship 13
These authors consider entrepreneurship to be vital for economic growth
as small firms innovate, fill market niches, increase competition and promote
economic efficiency.
Reflective Practice
Could you be an entrepreneur? Answer the following questions to find out:
1. When you look at an ink blot how many things can you see?
Just one
More than just one
The inkblot or Rorschach test targets a tolerance for ambiguity which is thought to be a good
indicator of an entrepreneur.
2. You are seated in the front row of a theatre and the performer beckons you on stage to help
with the act. Would you:
Run out crying?
Accept the invitation with glee?
Entrepreneurs must have an ability to think on their feet and to sell themselves and their
business to everyone.
3. You are considering taking a cycling holiday, which would you prefer?
A mountain bike excursion over rugged terrain
Riding on a smooth road surface
In business, there is no such thing as a smooth ride. Success is very often littered with hazards,
potholes and frustrations.
Can you take no for an answer?
Yes
No
Banks, investors, venture capitalists and other financiers may turn your proposals down many
times. Rejection should motivate you to try harder.
General
national
framework
conditions
Social,
cultural,
political
context
Entrepreneurial
framework
Major firms
(Primary
economy)
and medium
firms
(Secondary
economy)
opportunity
Entrepreneurial
skills and capacity
New
establishments
and new firms
National
economic
growth
FIGURE 1.3 The global entrepreneurship monitor conceptual model.
Source: Minniti et al. (2006).
CHAPTER 1: Context, Theoretical Perspectives and Definitions 14
You are thinking of buying a new home. Do you:
Purchase one that’s already built
Find a vacant plot of land and build a new one?
Entrepreneurs are builders and architects of their own businesses. They have to identify an
opportunity, establish a robust and appropriate structure whilst staying within budget. Some may
literally opt for property development as their entrepreneurial business!
Your neighbour’s cute little kids knock on your front door trying to raise money for their school by
selling raffle tickets. Do you:
Buy some
Buy none
If you can say ‘no’, so much the better. Running your own business often means saying ‘no’ as
well as ‘yes’ to family, friends, relatives and others.
Can you watch and absorb a news programme, edit presentation, listen to music:
Yes
No
Start-up firms do not have the luxury of division of labour. You will have to occupy many different
roles including that of CEO, marketing manager, HR manager, technical roles and often at the
same time.
You’ve made plans for taking a holiday. Just prior to leaving, the plumbing springs a leak and the
electricity blows a fuse. Do you:
Get really angry
Take it in your stride, postpone the holiday and fix the problems
Entrepreneurs must be flexible and deal with problems as they arise.
Entrepreneurial aptitude:
If you answered all eight correctly you fall into the category of individuals having an
entrepreneurial aptitude. If you answered four correctly, start a part-time entrepreneurial
venture or find a ‘co-preneur’ to help. Fewer than four answered correctly; don’t give up your
day job
Adapted from:Coulter (2001).
SERVICES AND HOSPITALITY
The service sector of many economies has a high proportion of small to
medium-sized entrepreneurial firms. Entrepreneurial and small business
‘activity’ in Minniti et al’s, (2006) ‘four business’ sector comparison reveals
that ‘‘consumer-oriented’’ (p. 31) firms dominate the global economy.
4
In
the USA for example, the service sector is responsible for 92 per cent of all
jobs and 85 per cent of the gross domestic product (Zimmerer and
Scarborough, 2005, p. 12).
4
‘‘Consumer-oriented: where the primary customer is a physical person (e.g. retail,
restaurants and bars, lodging. . .and recreation’’ (Minniti et al., 2006, p. 30).
Services and Hospitality 15
This is partially explained with recent advances in technology via the
laptop computer, printers, faxes, voice mail and so on. However, hi-tec services
industries are not the only ones dominated by small firms. More ‘traditional’
areas such as hospitality and tourismhave always been characterized by small
firms (Haber, 2005, p. 582). Many commentators suggest that this is due to
relatively low barriers to entry including modest start up costs, marginal
economies of scale, chance to establish small ‘lifestyle’ businesses and nature
of the hospitality service product. Figure 1.4 shows a comparison between all
service and small to medium-sized firms in Australia. Figure 1.5 compares the
number of all firms and SMEs in the accommodation, cafe and restaurant
sector.
In Australia, SMEs have consistently dominated the services sector with
around 96 per cent of all firms falling into the small to medium-sized category.
From 1983–1984 to 1997–1998 SMEs showed significant growth, with more
moderate but consistent growth thereafter.
Likewise, the Australian accommodation, cafes and restaurants sector
is dominated by SMEs with approximately 89 per cent of all firms falling
into this category. Additionally, the number of SMEs increased dramatically
between 1983–1984 and 1997–1998 with a more uniformgrowth from1997–
1998 to 2000–2001.
A similar scenario exists in many other countries, for example, in the
UK 98.5 per cent of all hotels and restaurants (category 55) employ less than
50 people (www.sbs.gov.uk/SBS_Gov_files/researchandstats/SMEStatsUKAnd
Regions2005.xls ‘UK Whole Economy’!A1, 2007). In the USA, the Accom-
modation and Food Services sector is dominated by small businesses with
1400
1200
1000
800
600
400
200
0
1983-84 1997-98 1998-99 1999-
2000
2000-
2001
N
u
m
b
e
r
o
f
f
i
r
m
s
(
0
0
0
s
)
All service firms
SME service firms
FIGURE 1.4 All service and small to medium-sized firms in Australia 1983/4–2000/1.
Adapted from: Small Business in Australia, 2001, ABS Catalogue No. 1321.0 (2002) number of
businesses and persons employed in the private sector by industry division, Chapter 3.
CHAPTER 1: Context, Theoretical Perspectives and Definitions 16
approximately 75 per cent of all firms employing fewer than 50 people
(US Census Bureau, 2005).
SUMMARY
After some discussion, entrepreneurs were identified as being ‘atypical’ that is
not easily defined as they appear in a number of guises having different back-
grounds upbringings and so on. After a brief review of key historical develop-
ments and definitive insights, it was noted that successful entrepreneurs must
be able to spot an opportunity and environmental conditions need to be
sympathetic to any innovations advanced. Furthermore, the entrepreneurial
process was outlined from an initial ‘opportunity spotting’ to the eventual
decision to either pursue the idea or to let it be. The final stage of the process
was advanced as logical ‘decision-making’ Unfortunately, this stage of the
model is arguably the most difficult to understand as many decisions to
proceed with an entrepreneurial idea have little relevance with prevailing
economic or market conditions. This is particularly the case in the hospitality
industry where there is a perennial preconceived notion that running a small
restaurant or hotel is at best risk-free and at worst physically undemanding.
Whilst there is general agreement that entrepreneurs play a pivotal role in
broader economic development, the exact relationship between them was
described as a complex ‘ebb and flow’, with one not always being able to
predict the other. An overview of economic enablers revealed the pivotal role
of contemporary business practice in setting appropriate conditions for
N
u
m
b
e
r
o
f
f
i
r
m
s
(
0
0
0
s
)
All accom, cafes, rests
SME accom, cafes,
rests
45
40
35
30
25
20
15
10
5
0
1983-
84
1997-
98
1998-
99
1999-
2000
2000-
2001
FIGURE 1.5 Comparison between all firms and SMEs in the accommodation, cafes and
restaurants sector in Australia 1984–2000/1.
Adapted from: Small Business in Australia, 2001, ABS Catalogue No. 1321.0 (2002) number of
businesses and persons employed in the private sector by industry division, Chapter 3.
Summary 17
entrepreneurial activity with registered small businesses more prevalent glob-
ally now than at any other time. Government agencies and not for profit
organizations now provide a myriad of initiatives, support and advice for
nascent entrepreneurs including information and access to venture capital-
ists; although this is form of finance is six times more prevalent in the USA
than the rest of the world combined.
Small firms were described and defined in statistical terms and through
characteristics specific to small organizations including, limited capital rais-
ing capacity, frenetic activity during busy trading periods (typically seasonal in
the hospitality industry), and a lack of formal rules, regulations and proce-
dures. Entrepreneurs and small business owner–managers were also discussed
with these terms not always being mutually exclusive.
Finally, the service sectors of several developed countries were overviewed
showing the clear dominance of small and SMEs. A similar picture was also
revealed for the hospitality and restaurant industry where around 75–99 per
cent of all firms were identified as small or small to medium sized.
Reflective practice
&
Define entrepreneurship.
&
Discuss the notion that entrepreneurs are neither made nor born.
&
What role does the government play in enabling entrepreneurial activity?
&
What is the relationship between economic development and entrepreneurial activity?
&
What are the similarities and differences between entrepreneurs and owner managers?
&
How important are entrepreneurs in the tourism and hospitality sectors of economies?
CASE: The Windsor Hotel Ltd.
In the late 1950s, a young couple worked and met at the Queen’s hotel in Birmingham, UK.
The Queen’s was only one of many British Transport hotels dotted around the country at that
time built originally to accommodate rail passengers using the network. In the early 1960s,
this along with many other sister hotels was sold or demolished. Regrettably, David and
Greta were forced to look elsewhere for work. In those days, job opportunities were in
abundance especially in industrial Birmingham and so both found jobs soon after being
made redundant fromthe Queen’s hotel. Ideally, they would both have liked to remain in the
hospitality industry but they now had a young son and so opted for factory work as it was
much better paid.
Over the next couple of years, Greta’s family decided they would like to move to Great
Yarmouth where they had enjoyed many happy holidays. Greta’s parents were coming up to
retirement age and thought the change of surroundings would be appropriate at their time of
CHAPTER 1: Context, Theoretical Perspectives and Definitions 18
life. After much family discussion, David and Greta decided to follow them but for reasons
quite different to her parents. Great Yarmouth in the 1950s was booming seaside resort much
like others including Blackpool, Margate and Bournemouth. These were the days when
hospitality firms needed very little (if any) promotion due to the excessive demand from the
domestic mass-tourist market. Having a hospitality industry background and experience
both David and Greta had an inkling that setting up their own small guest house business
might just be viable. On the basis of this hunch, and that Greta wanted to be near to her
parents in their declining years, they sold their property in Birmingham and bought an eight-
bedroom guest house a couple of streets back from the sea front esplanade.
To their delight, the guest house was enormously successful although David and Greta had to
do most of the work themselves. Recognising the ‘healthy’ state of the market a couple of
years later in 1966, they bought the house next door and converted both into one 16 bedroom
guest house. Over the next 10 years David and Greta became well-known in the town as they
joined their local Rotary and Lions clubs, attended many employer association meetings and
networking events. Whilst their business continued building on its initial success there was
one increasing threat on their business horizon, that of the cheap Spanish continental
package holiday. Recognising this, they set about undertaking some elementary business
research to see what could be done to counter this challenge. In short, David and Greta
identified a market that they were not currently satisfying, that of a higher spending quality
conscious segment; not at all like what the traders in great Yarmouth referred to as ‘the
bucket and spade brigade’. Worryingly, the image of their existing guest house appealed only
to the extant lower income tourists. They decided that the purchase of a new upmarket hotel
was probably the only answer for continued success into the future. However, even the sale of
their business, accrued savings and a bank loan would not be enough to secure a business
property of the type they had envisaged. For the next few years, they thought long and hard
about the issue but resolved that they would never be able to realize their dreams. Instead
they, together with other small guest house owners, debated and discussed what Great
Yarmouth as a town could do to address the falling tourism demand.
At one particular Lion’s club meeting, David was approached by one of the town’s leading
hotel owners. In fact, Jeremy Ingold owned his own 60 bedroom four star hotel and was a
partner in the Windsor hotel, the largest privately owned hotel in Great Yarmouth. In brief, he
and the other partners had seen the Windsor’s performance decline uniformly since they had
bought it from Trust House Forte some five years earlier. Their strategy was to take a ‘hands
off’ approach to running the Windsor by employing a manger to take care of operations. After
a five year period and a succession of unsuccessful managers, the Windsor was in danger of
failing. Jeremy explained the situation to David and, based on the reputation of the guest
house, invited him and Greta to become full salaried managers of the hotel.
The Windsor was just like the hotel that David and Greta had identified a whilst earlier. It had
three stars (Royal Automobile Club), 80 bedrooms, four bars, a huge ballroom and several
function suites. Excitedly, David discussed the proposal with his wife. Despite the misgivings
of their current situation, Greta was far more cautious about the idea, pointing out that they
would no longer be their own boss nor have the security of their own small firm. ‘‘Why would
you want to go back to earning a wage?’’ she said. David had to agree and admitted that his
emotions had got the better of him but the proposition started a long process of deliberation
Summary 19
and extended discussion with Jeremy Ingold and the other partners to see whether their idea
could be amended to David and Greta’s advantage. One potentially key point strategically
was that all partners were in their mid fifties and upwards. Greta pointed out that they would
soon be retiring and would need to make some significant decisions about the Windsor and
their role as partners. In other words, they would soon be considering appropriate exit
strategy. ‘‘If they are taking this hotel seriously, they must also recognize that any manager
must be fully committed to the business. I think we should negotiate first an equal partnership
deal and second speak about their impending retirements, after all it cannot be more than 10
years away at most.’’ said Greta. David and Greta agreed and decided to propose a clause
whereby they would have an option to buy out the other partners in due course. Over the next
couple of months a deal was struck including the equal partnership and buy out options.
During their first summer season at the Windsor, they befriended a bank manager who stayed
at the hotel for three months during the first year of trading. He was to manage the local
branch and stay at the hotel whilst searching for a house and moving his family to Great
Yarmouth. David and Greta spoke to their newfriend about their plans and that they intended
to buy out their partners the following year. In short, the bank manager arranged for an
‘unsecured loan’
5
of a specific amount for David and Greta to buy the hotel. Fortunately, their
partners were not unreasonable and were happy to take a modest sumeach for their portion
of the Windsor.
David and Greta owned and operated the Windsor successfully for just over 25 years. By
2000, the domestic tourism market in great Yarmouth had declined to such an extent that
even the larger three and four star hotels had become effected. They had little option but to
sell the business but to whom? Clearly it would not be to anyone or any company that relied on
domestic tourism income alone. David and Greta decided to advertise the sale of their
business via a few selective media ensuring a wide range of potential buyers. After 2 years
and a number of unsatisfactory offers, they accepted a modest proposal from a Chinese
company already owning a number of other tourism-related businesses including travel
agents and tour operations. For David and Greta this was a stroke of fortune as the purchase
represented a form of vertical integration for the Chinese buyers. Thus they would not be
relying on the ever dwindling domestic tourist. Currently, the Windor hotel remains successful
but the focus has moved toward the international market, specifically Chinese.
1. Discuss David and Greta’s ability to spot an opportunity
2. How ambitious are this couple?
3. Can you identify some key entrepreneurial characteristics for David and Greta? Are they
the same for each person?
4. How important was ‘fate’ in David and Greta’s entrepreneurial career?
5. How important are exit strategies in entrepreneurship?
6. Comment on whether David and Greta’s businesses were ‘lifestyle’ or ‘growth’.
5
A loan where investors (in this case the bank) do not require the security of an existing
asset; usually only for small amounts.
CHAPTER 1: Context, Theoretical Perspectives and Definitions 20
Indigenous and Ethnic
Entrepreneurship: A Cultural
Perspective
After working through this chapter you should be able to:
& Define indigenous entrepreneurship
& Discuss the role of culture upon indigenous and ethnic entrepreneurship
& Recognize the crucial developmental role of entrepreneurship amongst
indigenous societies
& Appreciate the key differences between indigenous and ethnic
entrepreneurship
INTRODUCTION
According to Legge and Hindle (2004) the received wisdom that all entre-
preneurs are purely profit motivated is only partially true. Indeed, it may be
argued that engagement in entrepreneurial activity linked exclusively with
financial profit (see Chapter 1) is fleeting depending on what drives the
entrepreneur, the developmental stage of the venture and the environment
in which the business is operating. This is especially the case in the
hospitality industry where a majority of firms are small and of the
‘lifestyle’ nature (see Chapter 5). Evidence also suggests that this may
be true for entrepreneurs in indigenous societies albeit a function of their
culture rather than simply opting to focus attention elsewhere (Hindle and
Lansdowne, 2005). Culture is important in a general business communi-
cation sense as differences in language, philosophies and traditions
between nations have the potential to create barriers to international
trade. However under closer scrutiny, several studies have shown that
culture has a powerful influence on entrepreneurship (for example, see
Shane, 1995).
CHAPTER 2
21
The aim of the current chapter is to illustrate and discuss the role of
culture upon indigenous and ethnic entrepreneurship. It does this by defining
culture and:
& comparing global geographical regions to give a generic perspective on
entrepreneurial activity;
& introducing Hofstede’s (1994) construct of cultural dimensions as a
framework for identifying specific cultural variables amongst
indigenous entrepreneurs;
& identifying some cultural differences between indigenous and non-
indigenous entrepreneurship;
& outlining recent studies of entrepreneurship amongst indigenous
Australians including Torres Strait islanders linking Hofstede’s
cultural dimensions with key entrepreneurial characteristics;
& introducing ethnic entrepreneurship and identifying the differences
between it and its indigenous counterpart.
Key point 2.1
Profit maximization is not usually the aim of lifestyle firms in the hospitality industry, nor is it
that of indigenous entrepreneurial firms. However, culture has a key role to play in this
respect for the latter.
DEFINITIONS AND CONDITIONS
Many definitions of culture exist, for example:
‘The beliefs, values and mores that the inhabitants of a nation share’
Zimmerer and Scarborough (2005, p. 479).
‘. . . the collective programming of the mind that distinguishes the
members of one category of people from another’ (Hofstede, 1980, p. 5)
Tayeb (1994) considers culture to be shared feelings, thinking, norms and
values that guide people’s behaviour. We may also consider culture as a com-
plex mix of common enduring values, norms, ideas and symbols handed down
generationally which shape current attitudes and behaviour. However, this
does not mean that a single ‘national culture’ is common to all inhabitants
of a country. Nations or peoples are seldom homogenous and many cultural
‘pockets’ exist for a variety of historical reasons. For example, former British
colonies including Australia, Canada and the USA will almost certainly have
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 22
had their indigenous culture usurped by invading nations to a greater or
lesser extent.
The Changing Entrepreneurial Environment
Prior to the abolition of slavery in 1838 many unscrupulous Non-indigenous entrepreneurs
thrived all over the former British Empire (particularly in the Caribbean) ranging from
plantation owners to slave captains. Once the practice was abolished the outcome was
significant (although well deserved!) for these business owners as the following extract from
Pax Britannica: Heaven’s Command attests:
‘The greatest triumph of the evangelicals was the abolition of slavery.
Economically its results had been devastating. Planters were ruined from
Antigua to Mauritius. Middlemen of Ashanti, slave captains of Merseyside,
overseers of Nassau, found themselves without an occupation’ (Morris, J.
1993, p. 19).
The immediate and frantic emigration of entrepreneurs, wholesale mismanagement
and abdication of duty by the British government brought about rampant poverty
and dependency to the region. However, in the 21st century regions of the Caribbean
are thriving. For example, Jamaica is ranked fourth globally for its entrepreneurial activity
(see Minniti, Bygrave, and Autio, 2006), much of which is provided by tourism. http://
www.islandhideaways.com/islands.php?island_id=11. Nonetheless, indigenous
entrepreneurs in other Caribbean nations including Barbados have experienced more
difficulty. This is due to the legacy of business domination by the minority white
community and a deliberate move to undermine the efforts of the indigenous
population through restrictive legislation and other discriminatory policies
(Neblett and Green, 2005).
Source: the present authors
Commentators consider most indigenous societies to be a collective
valuing community and heritage. However, these findings are necessarily
moderated by the impact of the colonization process and some challenge
these commonly held notions. After reviewing the evidence, Peredo,
Anderson, Galbraith, Honig, and Dana (2004) reveal that prior to Euro-
pean influence many Native American communities paralleled the former
showing individualism, personal property ownership, use of individual
capital and exploitation of natural resources. Galbraith and Stiles (2003)
argue that the artificial community-based land tenure and ownership
system of modern reservations forces a more collective orientation on
entrepreneurial behaviours than would otherwise have existed. Indigenous
Definitions and Conditions 23
communities in Australia may also have shared a more individualistic
cultural orientation for the same reasons. Whilst this is a difficult point
to argue, it is clear that shifting forces of economics, colonialism and
enforced regional migration is a pattern all indigenous communities have
endured giving rise to poverty, poor education and health (Peredo et al.,
2004). Indigenous Australians have certainly borne the brunt of many
unfortunate but well intended governmental policies. Aboriginals and
Torres Strait Islanders are the most socially, economically and culturally
disadvantaged group in Australian society (Commonwealth of Australia,
1992). As a result they rely on welfare systems which Pearson (1999)
refers to as flawed as they do not demand economic and social reciprocity
which is a fundamental feature of indigenous culture. Mead (2000, p. 44)
agrees commenting that long-term dependence of welfare payments
results in a ‘culture of defeat’. According to Anderson (2002) these ex-
treme conditions underscore the need to encourage entrepreneurship in
indigenous societies to rebuild their communities and improve their socio
economic conditions based on a solid foundation of tradition and culture.
Furthermore, research into indigenous entrepreneurship would permit
culturally appropriate education for nascent entrepreneurs with a partic-
ular focus on generic economic development of indigenous society for the
benefit of whole communities.
To remedy this situation, many including indigenous leaders, have
advocated a coordinated governmental approach in facilitating indigenous
entrepreneurial activity, particularly in the tourism and hospitality indus-
try (see Foley, 2003). Among indigenous peoples, leaders such as Noel
Pearson holds entrepreneurship as an important way to construct a
vibrant economy leading to nation-rebuilding and self-determination
(Anderson and Gilbertson, 2004). These initiatives for economic develop-
ment are known as ‘second wave’ and attempt to wean many in indige-
nous society off welfare dependency resulting from early public sector ‘first
wave’ interventions (Peredo et al., 2004). The New Zealand government
has been particularly proactive in this respect resulting in an increasing
number of Maori self-employed (Sullivan and Margaritis, 2000). However,
this is no easy accomplishment as many indigenous individuals lack re-
quired business skills and have relatively low level of education. In the case
of Maori, the problem has been overcome by the Tainui and Ngai Tahu
seeking professional help outside their community (New Zealand Herald,
15 July 1999). The casino gaming initiative amongst the Kumeyaay peo-
ples in California has also been similarly successful (Galbraith and Stiles,
2003).
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 24
Reflective practice
1. How would you help overcome the challenge of low education levels amongst indigenous
entrepreneurs?
MODELS OF ECONOMIC DEVELOPMENT
Whilst there is an obvious case for encouraging entrepreneurship in indige-
nous societies, authorities need to proceed with caution and scrutinize
their underlying assumptions. For example, from the 1950s onwards
‘Modernization’ models of economic development were held as the primary
form of transforming traditional societies into contemporary ones (see
Inkeles and Smith 1974; and Kuznets, 1971). These are based onthe Taylorian
notion of ‘economic rational man’, where humans are self-interested, clear
thinking and logical being motivated by money. More subtly, traditions, her-
itage and language are all considered obstacles in the modernization process.
Understandably, applications of this philosophy have been largely unsuccess-
ful with initial levels of poverty and other uniquely contextual issues being
ignored but ultimately undermining such developmental efforts (Peredo et al.,
2004).
Another major development in this context is that of the ‘Dependency’
model of modernization. Here, multinational corporations, International
Monetary Fund, developed industrial nations and others are viewed by some
as colonists (Klitgaard, 1990). Peredo et al. (2004) note that rather thanleading
developing nations, they are held in a constant state of dependency through
economic exploitation by the very agencies designed to do the opposite. In
sum, they consider both Modernization and Dependency models to be fun-
damentally flawed in their pursuit of equity, economic development and self-
determination for developing countries. However, there is now interest in the
‘Contingency’ construct which is quite different to the above in that it con-
siders:
& development need not be defined by the developed world; and
& interaction between peoples and the global economy may be
different to that advocated by the modernization and dependency
perspectives.
Indeed with Contingency, it is important to understand and respect the
definitions offered by those who require development. The main advantage
here is flexibility and inclusiveness, that is, it allows the input of
Models of Economic Development 25
experience from other societies, perspectives and cultures (Tucker, 1999)
and promotes:
& sustainable coalitions
& partnerships;
& trust;
& reciprocity; and
& due diligence.
The contingency approach would appear to potentially accommodate
the moderating impact of many variables including that of culture upon
business activity and entrepreneurship. The big questions are does culture
have an impact on entrepreneurial activity and does indigenous entre-
preneurship involves values, motives and performance evaluations that
differ from non-indigenous entrepreneurship. If national cultures are
being used as the cornerstone of the current argument, the answer is
most certainly ‘yes’ depending on the recency and regularity of contact
between both parties and the extent to which the indigenous community
values it traditions and heritage. Foley (2003) believes that culture is a
powerful driver of attitudes. Lindsay (2005) goes further and considers
culture to be a key enabler of entrepreneurship amongst indigenous
society. He suggests that no significant differences exist between indige-
nous cultural values and those of the entrepreneur, that is, they are one
and the same. Others making this connection include Shane (1995);
McGrath, MacMillan and Scheinberg (1992); Mueller and Thomas
(2001); and Lindsay (2005).
Thus, attempts to better understand indigenous entrepreneurship should
avoid using non-indigenous entrepreneurship constructs as they:
& Fail to adequately consider some key cultural characteristics likely to
impact on associated traits, characteristics and behaviour;
& do not value preservation of heritage, self-determination and the
community (Hindle and Lansdowne, 2005); and
& do not embrace a whole economic development perspective nor
consider the position of indigenous self-determination.
Reflective practice
1. Do you believe this to be a fair critique of the modernization and dependency models of
economic development? What other constructs could be used in the context of indige-
nous tourism and hospitality services?
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 26
Key point 2.2
Among indigenous peoples entrepreneurship is an important way to construct a vibrant
economy leading to nation-rebuilding and self-determination.
THE BIG PICTURE
Geographical location linked with culture would appear to have an impact on
entrepreneurship. Figure 2.1 shows averaged data from the Global Entre-
preneurship Monitor (Minniti et al., 2006) and reveals some acute differences
between regions in terms of entrepreneurial activity.
With the exceptions of Eastern Europe and Latin America, all global loca-
tions show an increase in entrepreneurial activity between 2002 and 2005.
However, there are notable differences between some regions with a ‘low’
activity cluster of developed Asia, Eastern Europe and the European Union
and a ‘high’ clustering of the Commonwealth including the USA, Latin
Americas and developing Asia
1
. In short, there has been a significant global
movement toward self-employment through individual choice and govern-
ment-driven entrepreneurship-friendly macro conditions. However within
this complex set of drivers, culture has a key role to play, particularly amongst
indigenous societies. For example, the Total entrepreneurial activity index
(TEA) of indigenous Torres Strait islanders by far outstrips that of other states
with a comparable gross domestic product (GDP) and is actually similar to
those with a higher GDP
2
; Table 2.1 shows these comparisons.
The TEA index for the Torres Strait Islands is almost double that of Argen-
tina and around five times higher than that of South Africa. This is consistent
with the notion that where waged employment is scarce and economic con-
ditions poor, individuals are motivated toward self-employment. However,
Noorderhaven, Thurik, Wennekers, and van Stel (2004) point out that eco-
nomic ‘pull’ and ‘push’ (see Chapter 1) variables have a ‘low explanatory
1
Between 2002 and 2005 some countries shifted categories and others took no part in the
2005 GEM survey whilst others were added.
2
To obtain a relative impression of entrepreneurism in the Torres Straits, two techniques
were used. The first was based on the Global Entrepreneurial Monitor Research Program
(GEM) construct which calculates a total entrepreneurial activity score (TEA). This is
obtained by dividing an estimated 500 entrepreneurs (TSPZA, 2005) by the total workforce
(2116) and provides a standardized picture of entrepreneurial activity by country. The second
technique examines the gross domestic product (GDP) per capita index internationally as
advocated by Sullivan, Buckingham, Maley, and Hughes (1999) and Sloman and Norris
(2002).
The Big Picture 27
power’ (p. 460) and that culture is key in predicting a nation’s rate of entrepre-
neurial activity. Carree, van Stel, Thurik and Wennekers (2002) also challenge
the notion that the state of industrial development fully explains a nation’s
entrepreneurial activity. Wennekers, Noorderhaven, Hofstede and Thurik
(2001) argue similarly noting that culture is an important explanatory sup-
ply-side factor along with demographics and a person’s economic situation.
Similarly, they hold that entrepreneurial activity is culturally bound stemming
from differences between countries which are risk averse and risk-seeking for
example. In other words one would expect greater entrepreneurial activity
TABLE 2.1 A comparison of TEA and GDP between the Torres Strait and other nations
Country Total entrepreneurial activity (TEA) Index
a
Gross domestic product per capita ($)
Torres Strait Islands 23.6 3 590
Argentina 14.1 3 865
South Africa 6 3 746
Australia 20.4 30 695
New Zealand 28.2 23 460
Japan 7.4 36 105
Singapore 11.9 23 041
Adapted from: Lee-Ross and Mitchell, (2007) andMinniti et al. (2006).
a
Nascent, new and established businesses.
20
18
16
14
12
10
8
6
4
2
0
Asia
(developed)
Eastern
Europe
European
Union
Commonwealth
including USA
Latin
America
Asia
(developing)
Global regions
2005
2002
FIGURE 2.1 Total entrepreneurial activity by region 2002–2005
Source: Adapted from: Legge and Hindle (2004) and Minniti et al. (2006).
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 28
where individuals have a high propensity for risk-taking. Conversely, societies
which are culturally predisposed to avoid risk are likely to prefer waged em-
ployment rather than owning their own business. Risk-tolerance is a key
characteristic of some emerging economies and certainly of many indigenous
societies (Lee-Ross and Mitchell, 2007, p. 15). Therefore, in order to empower
indigenous communities through entrepreneurship successfully there must
first be an understanding of the role culture plays in this regard.
HOFSTEDE’S CULTURAL DIMENSIONS
Probably the most often cited researchers in the field of national culture linked
to entrepreneurship and business activity are Trompenaars and Hofstede. In
particular, Hofstede (2001) seeks to explain organizational behaviour by fram-
ing it in a broader cultural framework. His model of cultural dimensions was
developed from studying values in the workplace and how they are influenced
by culture. Hofstede’s original model identifies four primary dimensions:
& Power distance (PDI) – ‘the extent to which the less powerful members
of institutions and organizations within a country expect and accept
that power is distributed unequally’ (Hofstede, 1994, p. 28). A ‘low’
score indicates a non-acceptance of unequal power distribution;
& Individualism/collectivism (IDV) – ‘everyone is expected to look after
himself or herself and his or her immediate family [with] collectivism
as its opposite . . . [from] birth onwards [societies] are integrated into
strong, cohesive in-groups, which throughout people’s lifetime
continue to protect them in exchange for unquestioning loyalty’
(Hofstede, 1994, p. 51). A low score indicates a strong cultural
predisposition for collectivism;
& Masculinity/femininity (MAS) – ‘gender roles are clearly distinct, men
are . . . assertive, tough, and focused on material success whereas
women are . . . modest, tender, and concerned with the quality of life;
femininity pertains to . . . gender roles overlap[ing]’ (Hofstede, 1994,
p. 82–3). A low score indicates a cultural predisposition towards
femininity; and
& Uncertainty avoidance (UAI) – ‘the extent to which the members of a
culture feel threatened by uncertain or unknown situations’
(Hofstede, 1994, p. 113). A low score suggests a society that is
comfortable with uncertainty.
Consistent with its popularity elsewhere, Hofstede’s construct has also
been used to examine the culture of indigenous societies relative to
Hofstede’s Cultural Dimensions 29
entrepreneurship. Specifically, researchers have made correlations between
cultural dimensions and various entrepreneurial traits (for example, see
Wennekers et al., 2001; and Lindsay, 2005).
Reflective practice
1. Think of a tourism or hospitality owner known to you. Intuitively, can you identify any of
Hofstede’s cultural dimensions for this person?
TOWARDS A DEFINITION
Definitions of indigenous peoples vary considerably as they tend to focus on
different aspects. However following the work of Peredo et al. (2004, p. 5), this
chapter considers that they may be defined operationally via three main ele-
ments with the last playing a key role in an understanding of indigenous
entrepreneurship:
& descent frompopulations inhabiting a region prior to later inhabitants;
& geographical, political, and/or economic domination by later
inhabitants of immigrants; and
& maintenance of some distinctive social cultural norms and
institutions.
The final element is important because indigenous communities regard
the activity of entrepreneurship as more than a means of providing economic
benefits. It is regarded as a key way of rebuilding their communities and re-
establishing control over their traditional lands and heritage. Some examples
of indigenous societies currently engaged in entrepreneurial activity include:
& First Nations – Canada
& Metis and Inuits – Canada
& Quechuas – Peru
& Aymaras – Peru
& Maoris – New Zealand
& Kumeyaay – USA
& Australian Aboriginals – Australia
& Torres Straits – Australia.
An additional but complimentary definition, considers indigenous entre-
preneurs as those who create, manage and develop new ventures by and for
indigenous people underpinned by strong desires for self-determination and
heritage preservation (Lindsay, 2005).
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 30
Entrepreneurship therefore becomes a more holistic culturally-bound con-
struct than its non-indigenous counterpart. According to Lindsay (2005), this
helps explain why there are relatively less ‘recognizable’ indigenous entrepre-
neurial firms as the objectives are different. For example, indigenous culture
requires that the entrepreneur’s family, extended family and community be-
come involved in the development of new venture
3
as opposed to a focus on
individual autonomy in entrepreneurship. There is therefore more complexity
than in non-indigenous firms. In short, economic objectives including rapid
growth, increasing assets and share prices are at best only equally important as
non-economic ones. Issues including self-determination, heritage orientation
and other indigenous values must also be considered. Encompassed in this
definition are a number of cultural factors which impact on the attitudes of
indigenous peoples in particular ways. Lindsay’s (2005) comparison of
‘common’ indigenous entrepreneurial cultural values with those of non-in-
digenous entrepreneurship (using Hofstede’s construct) serves as a useful
starting point in this respect and is shown in Table 2.2.
DIMENSIONS, ATTITUDES AND INDIGENOUS
ENTREPRENEURSHIP
Conceptually, it is evident that cultural values between indigenous and non-
indigenous entrepreneurs are quite different with the exception of low uncer-
tainty avoidance. Several researchers have attempted to link cultural dimen-
sions with entrepreneurial attitudes. Risk-taking and innovation are two such
traits with the latter being understood as the generation of new ideas.
Redpath and Nielsen (1997) note that tolerance of ideas (risk-taking) is an
TABLE 2.2 A comparison of cultural entrepreneurial values using Hofstede’s cultural construct
Hofstede’s cultural
value dimension
Indigenous entrepreneurial
values Redpath and Nielsen (1997)
Non-indigenous entrepreneurial
values (McGrath et al., 1992)
Individualism/collectivism High collectivism/low individualism Low collectivism/high individualism
Power distance Low power distance High power distance
Uncertainty avoidance Low uncertainty avoidance Low uncertainty avoidance
Masculinity/femininity High femininity/low masculinity Low femininity/high masculinity
Source:Lindsay (2005).
3
In terms of population, indigenous Australians represent only 2.2 per cent making thema
minority, alienated from mainstream society with little recognition for their business
activities (Foley, 2003).
Dimensions, Attitudes and Indigenous Entrepreneurship 31
indigenous cultural value so long as these notions resonate with the commu-
nity’s collective norms. After reviewing the evidence Lindsay argues that
innovation is one composite part of an overall ‘Entrepreneurial attitude’.
Other components are:
& Achievement – associated with business start up and growth results;
and
& self-esteem – amalgam of self-confidence and perceived business
competency.
From the earlier definition of indigenous entrepreneurship, attitude is
influenced uniquely by indigenous culture as it is driven by self-determination
and preservation of heritage. Furthermore, success is measured by both eco-
nomic and non-economic dimensions. Individual autonomy is also redundant
as it is replaced by the whole community to whom the entrepreneur must be
accountable. This limits the effect of individual personal control as it is sub-
ordinate to collective influences, that is, personal control over business
becomes supplanted by a preoccupation with family and community influence
over business.
Taking each of the above attitudes in order, Lindsay (2005) argues that:
& Achievement is at odds with the non-indigenous preoccupation of
economic growth due to differences in time orientation and a
disinclination to compete. Consensual decision-making and
prioritising family issues also detract from non-indigenous
entrepreneurship. In Hofstede’s terms, decision-making is influenced
by a cultural orientation of femininity (Redpath and Nielsen, 1997).
This is quite different to masculine cultures where work is prioritised.
Measurements of success (achievements) are directly related to quality
(of life) rather than quantity (of work). This is a key factor in starting
and running a business as evidence suggests that hours of work have a
direct and positive correlation with business success (measured in non-
indigenous terms of course!).
& Access to sufficient start-up funding is also important for future
success. Although indigenous society is a collective, the typical sharing
of financial resources from family and friends in a start-up business
phase is non-existent because of societal poverty (Fuller, Dansie, Jones
and Holmes, 1999). Having no resources and lack of business
education is likely to cause feelings of low self-esteem in indigenous
communities.
Additionally, Shane and Venkataraman (2000) consider opportunity rec-
ognition another important entrepreneurial attitude. This is the ability to
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 32
identify gaps in the market and to take advantage of them economically.
Indigenous society (which has already been identified as collective, consensual
and feminine) bases these on the likely benefits accruing to the community in
non-economic and economic terms rather than a non-indigenous focus on the
latter. Lindsay (2005) notes that indigenous entrepreneurs do not lack this
ability but appropriate opportunities in their society are different to those of
others. Moreover, if they adopt a non-indigenous approach they may become
ostracized from their community given the sharp differences between the two
value and culture systems. Indigenous society is pluralist based on resource-
sharing where individualism is seen as exploitation as one over another.
Success then concerns what you do and how you do it rather than increasing
personal wealth which is in conflict with the cultural value of sharing.
Key point 2.3
Indigenous entrepreneurs as those who create, manage and develop new ventures by and
for indigenous people underpinned by strong desires for self-determination and heritage
preservation.
Other studies have also identified culture-specific characteristics of indig-
enous entrepreneurship. For example in Foley’s (2003) study of urban indig-
enous Australians, entrepreneurial success was not linked with acquisition of
tangible personal assets. Instead it was measured by increased levels of inven-
tory or that a business had been established and not failed. Mapunda’s (2005,
pp. 10–11) study of indigenous Australian and Tanzanian enterprises reveals a
similar finding and cites ‘maintaining the soul and spirit through
relationships’ and ‘providing employment for indigenous people’ above profit
maximization. However, in Foley’s study, some ‘successful’ entrepreneurs
appeared to be moving away from traditional cultural norms and values. As
a result they felt somewhat distanced from their indigenous community
experiencing discrimination resulting in temporary ostracism. This is quite
unlike non-indigenous entrepreneurial culture (particularly amongst ethnic
groups) where the community tends to embrace and value their success and
the entrepreneur is drawn closer to the community as a result (Holt and Keats,
1992). An acute sense of dissonance becomes clear amongst Foley’s intervie-
wees where even investment in their own business creates feelings of guilt
about not sharing with family/community. For example, one particular indig-
enous entrepreneur purchased a used sedan for business use. The community
felt that he had come into money and not shared it. Another example Foley
cites is the family’s expectation of credit or goods for free is when ‘borrowing’
from successful indigenous retailers.
Dimensions, Attitudes and Indigenous Entrepreneurship 33
In an almost contradictory cultural sense these individuals had a notion of
‘face’ where establishing oneself as a ‘legitimate’ business role model for the
community became important through networking with others including
‘white fellas’ committees and panels (Rotary, Lions, golf club and so on).
Interviewees felt that they were creating a positive role model to counteract
racial stereotyping. Additionally, business ‘accountability’ was established
through employing non-indigenous accountants. Community communica-
tion based on kinship and community obligations was replaced by
‘networking’ due to increased time constraints linked to the business enter-
prise. Thus, a positive face was established by actions geared for wider social
acceptance and increased business connections to improve social acceptability
for themselves and their children. The benchmark of success became social
acceptance in the broader business environment. Foley (2003) concludes that
the shift away from long held cultural values and norms to that of business
enterprise and social networking effectively changes the traditional pattern of
indigenous behaviour.
Reflective practice
1. Consider the long-termimpact of entrepreneurial success amongst indigenous societies.
What cultural changes are likely to be created and how will they impact in practice?
Similar patterns have been found elsewhere amongst other indigenous
communities.
Indigenous Canadians recognize that alliances and joint ventures among
themselves and non-aboriginal partners are important to build capacity for
sustainable economic development and self-sufficiency through educa-
tion and training (Anderson, 1999). Peredo’s (2001) research amongst
indigenous Andean countries confirms similar objectives and business
arrangements.
Another more recent study of indigenous entrepreneurship and culture
focused on the Torres Strait region of Australia (Lee-Ross and Mitchell,
2007) using the first four of Hofstede’s cultural dimensions. Here, the
relationships between culture and entrepreneurial attitudes were
4
assessed.
The first objective of this study was to calculate cultural dimension scores
and position them relative to those of other nations following the predic-
tions of Redpath and Nielsen (1997) shown in Table 2.2. All scores for the
4
Power distance (PDI); individualism (IDV); masculinity (MAS; and uncertainty avoidance
(UAI).
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 34
Torres Strait Islands were ranked consistently below those of other non-
indigenous nations. These outcomes broadly corresponded with those
shown in Table 2.2 as:
& Relatively low power distance;
& high collectivism;
& high femininity; and
& low uncertainty.
Following Foley’s (2003) earlier proposal that cultural orientations are
likely to impact on entrepreneurial attitudes; the results confirmed the notion
that this particular model of indigenous entrepreneurship differed from the
non-indigenous construct by virtue of culture. Table 2.3 outlines the proposi-
tions tested in the study.
Table 2.4 shows howentrepreneurial traits were ranked by a comparison of
mean scores calculated from five-point Likert-type questions where
1 = ‘Utmost Importance’ and 5 = ‘Very Little Importance’. All attitudes were
scored above 4 on the original Likert scale which suggests that even the lowest
ranked attitudes were considered as moderately important. Rankings shown
below must therefore be interpreted relative to each other rather than in an
absolute sense.
‘Persistence’, ‘vision’, ‘respond quickly to problems’, and ‘desire to succeed’
were highest of all attitudes. ‘Being curious, ‘being alone’, ‘experimenting’,
‘gamble on a good idea’, and ‘take chances’ were ranked the lowest.
According to Table 2.3 the Torres Strait community is culturally fem-
inine and more concerned with quality than quantity when linking with
the collective of achievement. One would therefore expect collectivity and
consensus rather than a narrow focus on turning a profit or economic
development, hence the expectation of low achievement in financial
terms. However, it is quite difficult to confirm this as persistence, vision,
responding to problems and desire to succeed do not preclude non-eco-
nomic aspects, nor are they exclusively masculine attitudes. They are
perhaps key attitudes which are held as important in both indigenous
and non-indigenous cultures. The difference occurs in how they are inter-
preted, that is financially or not. On the other hand, working with people,
motivating people and working in a team are linked with femininity.
Furthermore, doing things own way, total control and being alone are
ranked relatively low and are alleged to be masculine attitudes charac-
terizing non-indigenous entrepreneurs. Thus, these attitude rankings
appear to support the notion that Torres Strait culture has a female
orientation.
Dimensions, Attitudes and Indigenous Entrepreneurship 35
Asecond cultural predispositionof lowuncertainty avoidance suggests that
Torres Strait islanders are risk-takers, accept uncertainty and are innovators.
The relatively lower rankings of experiment with new ways, gamble on a good
idea, take chances and being curious does not seem to support this claim.
TABLE 2.3 Proposed impact summary of indigenous culture on entrepreneurial traits
Cultural dimension Area and brief Associated traits Propositions
High femininity Quality of life: attitudes
towards achieving
‘quantity’ of work needed
for new venture creation
based on quality of life
rather than economic
development
Working with people,
motivating people,
working in a team,
being creative, desire
to succeed, leadership,
persistence, vision,
feeling sure about
yourself, doing things
own way, being alone,
total control
Low levels of achievement
will be demonstrated
amongst indigenous Torres
Straits’ entrepreneurs via
associated traits as
achievement is linked with
economic growth from a
non-indigenous perspective
Low uncertainty
avoidance
Innovation: generation of
new ideas outside cultural
norms of collectivity, self-
determination and heritage
preservation will not hold
sway
Being creative,
experimenting with new
ways, take chances,
gamble on a good idea,
being curious, clear goals
Low levels of innovation will
be demonstrated amongst
indigenous Torres Straits’
entrepreneurs via associated
traits
Low power distance Self confidence and self
esteem: high unemployment
and welfare dependencies,
poor housing, discrimination
undermine social and
economic development and
little confidence in developing
successful business venture
and dissatisfaction with the
situation
Feeling sure about
yourself, leadership,
desire to succeed, total
control
Low levels of self-confidence
and self-esteem will be
demonstrated amongst
indigenous Torres Straits’
entrepreneurs via associated
traits
High collectivism Personal control: emphasis on
personal relationships whist
maintaining group harmony
and how they benefit the
community.
Being alone, doing things
my own way, working with
people, leadership, working
in a team.
A low level of personal
control will be demonstrated
amongst indigenous Torres
Straits’ entrepreneurs via
associated traits
Opportunity recognition:
consensual decision-making and
problem-solving, benefits for
the community in non-economic
and economic terms, pursuing
opportunity for individual economic
returns is at odds with community
and culture
Being curious, vision, respond
quickly to problems, desire to
succeed
A low level of opportunity
recognition will be
demonstrated amongst
indigenous Torres Straits’
entrepreneurs via associated
traits
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 36
However, the first caveat is that innovations will only be supported if they
resonate with broader cultural norms and second, there is no direct translation
of the word ‘risk’ into any Torres Strait native language. When seeking clar-
ification, an overwhelming majority of respondents simply said ‘either you do
it [take the risk] or you don’t’. The interpretation is that there was no risk
associated with their business start-ups due to their cultural predisposition
and language structure; hence linked attitudes were deemed as unimportant.
However, other low uncertainty avoidance traits of responding quickly to
problems, clear goal, leadership and solving problems were ranked relatively
highly.
Torres Strait islanders appear to have a low tolerance for unequal power
distribution amongst themselves (Hofstede’s third dimension). This is in
contrast to a non-indigenous notion of entrepreneurship where individuals
believe in dominating their social structure (McGrath et al., 1992). This
interpretation is supported by the relatively low ranking of total control and
feeling sure about yourself but does not explain the relatively high ranking of
leadership. One plausible explanation is that many individuals were found to
engage in ‘temporary’ entrepreneurship to raise extra money for one-off cul-
tural events like tombstone openings, weddings, sporting carnivals, concerts
and related travel between islands. As such, these entrepreneurial fund-raising
TABLE 2.4 Rank order of entrepreneurial attitudes in the Torres Straits
1 Persistence
2 Vision
3 Respond quickly to problems
4 Desire to succeed
5 Working with people
6 Leadership
7 Clear goal
8 Solving problems
9 Motivating people
10 Working in a team
11 Feeling sure about yourself
12 Doing things own way
13 Total control
14 Being creative
15 Being curious
16 Being alone
17 Experiment with new ways
18 Gamble on a good idea
19 Take chances
Dimensions, Attitudes and Indigenous Entrepreneurship 37
activities are often ‘unofficial’ and may be also considered as acts of individual
defiance against perceived inequality (and resultant low self-esteem) wrought
by relatively poor wages paid to individuals working on the CDEP scheme and
the negative affects of other initiatives beyond the community’s control.
Unlike the non-indigenous entrepreneurial value system which empha-
sizes individualism, the results suggest that Torres Straits islanders are a
cultural ‘collective’. Hence the first of two propositions that low levels of
personal control will be demonstrated via associated attitudes. There are
clearly some overlaps with other cultural dimensions (for example masculin-
ity/femininity) as collectivism is an overarching cultural norm. Unsurprising-
ly, attitudes of working with people, motivating people and working in a team
have relatively high rankings. Whereas, doing things my own way, being alone
and total control appear towards the latter half of Table 2.4. This is at odds
with non-indigenous interpretations of entrepreneurship, for example,
Mueller and Thomas (2001) consider collectivism to be the antithesis of
entrepreneurship. They note that [non-indigenous] entrepreneurs are ‘. . .
frequently characterized as exhibiting [a high] locus of control’ (p. 59). Simply,
this means that entrepreneurs believe in their own abilities to bring about
changes and business success rather than relying on anything else. Indeed, in
their study of nine countries, locus of control was found to be more prevalent
in individualistic cultures than in collectivist cultures.
The second proposition for the cultural dimension of collectivism shown
in Table 2.3 relates to opportunity recognition. In short, Torres Strait islanders
should demonstrate a low level of this because of the tendency for consensual
decision-making and problem-solving. Furthermore, the ability to spot and
pursue an opportunity effectively is hindered by lengthy community consul-
tation. Additionally, benefits for the community are valued in both non-eco-
nomic and economic terms. The relatively low rankings of all attitudes from
12 to 17 appear to support this notion as do the relatively higher rankings of
more ‘collective’ attitudes.
In summary, there would appear to be a number of key attitudinal differ-
ences between Torres Strait and non-indigenous entrepreneurs. Moreover, the
notion that these disparities are culturally driven seems to be a reasonable
conclusion. Ina general sense all the foregoing evidence including that of other
studies suggests that indigenous entrepreneurship is novel (because until
relatively recently, it has been ignored) and different to its non-indigenous
counterpart. Nonetheless, there are still several important questions yet to be
addressed adequately:
& What is the process of indigenous entrepreneurship or are there many
depending on individual societies and are the aims different?
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 38
& Does indigenous entrepreneurship in different locations show similar
and distinctive patterns of entrepreneurial features and goal structures?
& Does entrepreneurship amongst indigenous society have distinctive
combinations of entrepreneurial features and how has the process of
colonization impacted on them including the creation of pseudo-
societies by virtue of colonists?
& Do indigenous entrepreneurs have unique cognitive processes and
decision-making patterns and if so, how do they impact on key
outcomes?
& How do legal, economic and structural characteristics impact on
culturally occurring attitudes and behaviours in indigenous
communities?
& Given that some indigenous societies are less collective than others (e.
g. Tohono O’odham and Apache tribes of Arizona) what would be an
appropriate mix of collective and individual enterprises for optimum
economic development
& How do language and ‘story-telling’ affect indigenous perspectives of
their world and that of others?
& Can indigenous societies become self-determining and economically
sustainable whilst maintaining their cultural heritage and how useful
will the Contingency model of development become in this context? In
short, how is indigenous tradition reconcilable with innovation.
Reflective practice
1. How much is really known about indigenous entrepreneurship? Can you think of other
questions that might be added to the above list?
Key point 2.4
Unlike the non-indigenous entrepreneurial value system which emphasizes individualism,
Torres Straits islanders are a cultural ‘collective’.
Whilst the above are key questions in the search for a better theoretical
understanding of indigenous entrepreneurship, ina practical sense, many new
indigenous owned and operated hospitality/tourism firms currently exist.
Approximately 200 indigenous tourism businesses exist in Australia generat-
ing $5 million per year with an additional contribution of $200 million per
Dimensions, Attitudes and Indigenous Entrepreneurship 39
year fromthe sales of indigenous arts and crafts (Zeppel, 1998). In the tropical
north of Queensland Australia there are several new and thriving businesses
including:
& Aurukun Fishing and Wetland Charters;
& Cape York Turtle Rescue Camp;
& Djabugay Country Tours;
& Echo Adventure and Cultural Experience; and
& Kuku Yalanji Dreamtine Walks
Whilst the above are examples of indigenous-owned tours and attractions,
indigenous entrepreneurs are involved in other less culturally-defined busi-
nesses including accommodation, visitor service facilities and restaurants
(Mapunda, 2005). However, the long-term success of cultural and ‘extended’
operations depends on careful and appropriate management as a number of
potentially negative outcomes are possible; some are shown in Table 2.5.
In order to minimize the potential negative impacts of indigenous entre-
preneurship it is essential that guidelines should be followed including:
& Emphasize hard work based on structured understanding between
indigenous and non-indigenous peoples;
& Establish empathy between mainstreamand indigenous cultures based
on sensitivity to issues of heritage;
& not turn indigenous peoples into museum curious; and
& not expect indigenous peoples to act in a manner counter to their
traditions; and
& welcome diversity and respect right of indigenous decision-making
within broad public policy guidelines.
TABLE 2.5 Positive and negative impacts of indigenous entrepreneurship
Positive impacts Negative impacts
Economic base to revive indigenous communities Increased cost of living for locals
Maintenance and growth of income generating arts
and crafts
Decline in artistic quality and authenticity
Job and wealth creation amongst indigenous
community by own entrepreneurs
Domination of external interests and control of manage-
ment decision-making process by outsiders
Cultural revival and preservation Exploitation of human cultural resources
Investment in environmental conservation Desecration of sacred sites and natural resources
Development of remote communities Exploitation of remote communities and loss of cultural
identity
Source: Adapted from:Mapunda (2005, p. 7).
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 40
ETHNIC ENTREPRENEURSHIP
There is a temptation to consider indigenous and ethnic entrepreneurship as
one and the same. This is probably because the impact of ‘culture’ features
significantly in both categories. The fact of the matter is both are quite distinct
and separate. Peredo et al. (2004) provide some useful guidelines to help
differentiate the two shown in Table 2.6.
It would also be similarly imprudent to minimize the economic impor-
tance of ethnic entrepreneurship. This is because ethnic firms have an enor-
mous wealth-generating potential. In the USA small ethnic firms account for
over 15 per cent of all businesses generating over $591 billion (US) annually
and employ over 5 million workers (Zimmerer and Scarborough, 2005). In the
UK the percentage of ethnic entrepreneurial firms is smaller but still substan-
tial at 7 per cent (220 000 businesses)http://www.bytestart.co.uk/content/19/
19_1/small-businesses-in-the-u.shtml, August, 2007. South Asian entrepre-
neurs alone own approximately half of all independent shops in Great Britain
and spend around 5 billion Sterling per annum (Management Today, Septem-
ber 1990, p. 57). Furthermore South Asians account for just over 2 per cent of
Britain’s working population with a higher contribution towards employment
and wealth generation since they represent 4 per cent of all employers
(Basu and Goswami, 1999). Asimilar picture emerges in Australia with a total
ethnic presence of nearly 23 per cent which is higher than the USA, Canada,
UK, Switzerland, France or Germany. Approximately 30 per cent of all small
businesses are owned by ethnic entrepreneurs (ABS 2004).
TABLE 2.6 Some key differences between indigenous and ethnic entrepreneurs
Indigenous entrepreneurs Ethnic entrepreneurs
Exclusively concerned with individuals having a close
bond with ancestral territories and the natural
resources in them. A prominent goal of is recovery of
access to and use of their traditional lands
Ethnic entrepreneurship usually concerns immigrant
populations and the situation of relative newcomers to
a region or nation
Lands and resources often represent a basis for the
capacity to engage in entrepreneurial development
Ethnic entrepreneurship looks at the economic interac-
tions with a particular area of new settlement
Ostracism from community of personal wealth is
perceived to exist
Personal wealth and success valued and embraced by
community
Usually connected with community-based economic
development
Typically involves enterprise development at the indi-
vidual or family level
In many countries indigenous people have obtained
quasi-governmental or nation status
Assimilated into host nation
Ethnic Entrepreneurship 41
Successful Australian Ethnic entrepreneurs
Ethnic Business Awards 2006 Winners Announced at the Sydney Opera House
The Ethnic Business Awards were created 18 years ago by Mr Joseph Assaf, to recognise the
contribution of migrants to Australian Business. They have since become one of the longest
running awards in Australia, which is a testament to their success and prestige. This year’s
winners were migrants fromItaly, Sweden, South Africa and Macedonia, who all nowproudly
call Australia home.
The Sydney Opera House set the stage last night for the 18th Ethnic Business Awards (EBA).
His Excellency Major General Michael Jeffery AC CVO MC joined other distinguished guests
at the annual Gala presentation, where immigrant business owners were recognized for their
outstanding contribution to the Australian economy.
Accepting the Medium/Large Business Award, Mr Silvio Pitruzzello of Pantalica Cheese
Company attributed the win to his father Sebastiano. ‘The success of our business comes
from the hard work and passion of my father. He came to Australia from Sicily in the 1960s
with a suitcase and a dream, and now 33 years on, the Pantalica Cheese Company is a
thriving business.’ Mr Pitruzzello said. Representing an assortment of cultural backgrounds
and covering a broad range of industry sectors the EBAs has welcomed over 6000 entries
since its inception. The following businesses were presented with an award: Large Business
Award: Pantalica Cheese Company – received by Mr Silvio Pitruzzello from Italy. Small
Business Award: kikki.K Pty Ltd – received by Ms Kristina Karlsson, Managing Director, from
Sweden. Initiative Award: Skybury Coffee Pty.Ltd – received by Mr Ian MacLaughlin,
Company Director, from South Africa. Women in Business Award: The Education Group –
received by Ms Neda Morris, Director, from Macedonia.
Accepting the Special Initiative Award, presented by Fran Bailey MP, Minister for Small
Business and Tourism, Mr Ian MacLaughlin, who set up Skybury Coffee with his wife Marion
said, ‘Australia was a place where we thought that we could bring up our family in freedom
and prosperity . . . but when we arrived in 1987 we were told that this used to be the lucky
country. My first thought was ‘goodness we have missed the boat’, but I am here to tell you
that this is still the lucky country’. The Hon Fran Bailey MP later commented, ‘The Australian
Government is proud to be associated with the Ethnic Business Awards. These Awards
recognise achievements of people born outside of this country and who have come here and
made a significant contribution to our country. As Small Business Minister, I congratulate all
of tonight’s winners and finalists on their vision and initiative at achieving this success.’
Group Managing Director of Telstra Business, Deena Shiff, said Telstra’s ongoing support of
the Awards recognized the contribution that migrants had made to the success of many
Australian businesses. ‘The courage and determination needed to move to another country
are also essential to build and run a successful business – our winners have clearly
demonstrated the characteristics needed to compete and win in a highly competitive
marketplace and Telstra congratulates them on their efforts.’ In a country where
approximately 20 per cent of the population speak a language other than English at home the
Ethnic Business Awards has grown to become a most anticipated annual event. In his speech
last night founder of the Awards and Chairman of Etcom, Mr Joseph Assaf commented on the
positive impact of multiculturalism to Australian society, a strength reflected in the Ethnic
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 42
Business Awards. ‘In Australia, diversity is a fact of life and because of that, multiculturalism
is a way of life. It is a way of life that enables Australia to harness and promote the ingenuity,
vision and enterprise that characterises many of its new citizens.’ George Frazis, Executive
General Manager of Business and Private Banking at the National Australia Bank (NAB),
said: ‘NAB is as extensive as the community it serves. The myriad of services available to our
clients are as broad as the backgrounds fromwhich they come. We pride ourselves in taking
the time to understand and connect with our clients. That’s one reason why we sponsor these
awards, to help recognise great business.’ The Awards will be televised on SBS at 1pm on
Thursday, November 30 and repeated at 1pmon Saturday, December 2, 2006. They will be
aired twice on Australia Network to an estimated 10.1 million homes across 41 countries, and
replayed by 155 broadcasters throughout the region, seen in 200 000 hotel rooms.
Source:http://www.clickpress.com/releases/Detailed/21997005cp.shtml, 2007.
On the whole, ethnic entrepreneurs have enjoyed much success glob-
ally and many commentators are quick to provide the answers; culture
often forms the basis of their arguments. That is, one that encourages
thrift, hard work and reliance on cheap family labour (Werbner, 1990).
According to Deakins (1996), entrepreneurship is popular amongst ethnic
communities as it is a way out of poverty (in the UK these include Afro-
Caribbean, Indian, Pakistani, Bangladeshi and Greek-Cypriot communi-
ties). However, it may be argued that both cultural characteristics
and overcoming poverty are common to entrepreneurs generally.
Morrison, Rimmington and Williams (1999) insist that ethnic entrepre-
neurs succeed where others fail because they are able to create market
niches which are ‘ethnically protected’ (p. 12), where restaurateurs for
example, are given preferential treatment by ethnic suppliers of raw mate-
rials to satisfy own community demands. In a sense this is similar to
backward vertical growth whereby one company seeks to secure supplies
by buying the supplying firm. This can certainly be seen in the wealth of
ethnic restaurants in capital cities and resorts in most first world coun-
tries globally. Mars and Ward (1984) offer similar advice in the form of
‘immigrant entrepreneurship’ theory in the context of ethnic resources
and opportunities created by an enclave economy. Whilst this theory has
found support (Werbner, 1990), others find that cultural factors may
actually restrict development by creating excessive reliance on the local
ethnic community market, informal sources of finance and family con-
trolled businesses (Ram, 1994). Waldinger, Aldrich, and Ward (1990) note
that long-term business success lies in ability to branch out from the
ethnic enclave economy which in turn is influenced by changes occurring
within the community.
Ethnic Entrepreneurship 43
Reflective practice
1. Are there any specific cultural differences between ethnic and indigenous entrepreneurs?
What facets are common to each group.
Key point 2.5
Ethnic entrepreneurship usually concerns immigrant populations and the situation of
relative newcomers to a region or nation
Ethnic Restaurateurs
Immigrant entrepreneurs in Australia are distributed across all the industries with a
particular presence in retail. These niches derive from specific culinary traditions or by
chance. In New South Wales, half the entrepreneurs in the ‘fish shop, take away food’
and associated outlets are first generation immigrants (Collins, Gibson, Alcorso, Tait and
Castles, 1995).
Many immigrant entrepreneurs have restaurants in Australian cities and towns (Collins and
Castillo, 1998). Chinese restaurants and cafes were a feature of the Australian suburban and
country town landscape (Chin, 1988) and most suburbs and towns had a Greek milk bar to
sell sweets, drinks and meals Collins et al. (1995). Today most Australian regions have
‘ethnic’ restaurants, it is a very feature of their cosmopolitanism. Most immigrant groups have
a presence in the restaurant sector with Italian, Chinese, Thai, Vietnamese and Japanese
being very popular.
Source: Reproduced with permission: Collins (2007).
Legge and Hindle (2004) offer another explanation citing trust as the key
enabler of success. They consider that people of similar ethnicity share a
common denominator in the form of culture. This is different to that of the
host nation or society and will give rise to a feeling of marginalization
amongst the ethnic group. The perceived ‘distance’ from broader society
may heighten trust between individuals leading to high levels of entre-
preneurship. Ward and Jenkins (1984) also consider that ethnic minority
entrepreneurs have a unique competitive advantage over others because of
an access to informal sources of finance in the extended family network
particularly within the Asian community. They state, ‘It is common for
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 44
members of Asian communities to club together to set up a member in
business.’ (p. 119).
An important aspect not considered by these culturally oriented explana-
tions is the role of more obvious resources including:
& education and class background of migrants;
& entrepreneurs access to and use of market information;
& decision-making and managerial ability; and
& strategies used to expand business.
These are important features of generic theories yet are absent from South
Asian or ethnic minority entrepreneurship research (Storey, 1994; and
Basu and Goswami, 1999).
In their study of 118 ethnic business owners in Britain, Basu and Goswami
(1999) found that whilst working long hours, exploiting family labour and
serving an ethnic population had a bearing on success, over reliance on these
factors limited business growth. They concluded that long run success
depends on the origins of enterprise or the initial conditions at start up shown
in Table 2.7.
In a practical sense then, education plays a critical role in lowering barriers
to business entry and growth. Entrepreneurs must invest inskilling employees
and having an ability to delegate to non-family members. Finally, if entrepre-
neurs wish to operate internationally, they should move out of local ethnic
markets and internationalise with appropriate knowledge of home and host
countries.
Whilst acknowledging the impact of cooperative family and community
networks, niche markets and so forth on ethnic entrepreneurial success in
Australia, Collins, Sim, Dhungel, Zabbal and Nole (1997) consider this to be
similarly common to non-ethnic entrepreneurs. After reviewing the limited
amount of research in the field they criticize many studies for failing to
TABLE 2.7 Factors for long-term success of ethnic enterprises
Socio-cultural factors Ability to implement an appropriate expansion strategy
&Hours worked at start-up, entrepreneur’s country of
origin and religion
&Delegation of responsibilities which may include declining
reliance on family and ethnic labour
&Educational qualifications, previous business
experience gained from within or outside family
& Cost reduction through diversification and technological
improvements
&Access to sources of capital and to information by virtue
of other family or community members being in the
same line of business.
& Market development involving a move away from ethnic
customers towards competing in the wider domestic mar-
ket and gradually internationally.
Ethnic Entrepreneurship 45
compare ethnic withnon-ethnic business strategies before proclaiming certain
aspects as typically ethnic. Indeed, Collins (1991) acknowledges the various
cultural explanations for ethnic success but also the more banal but eminently
sensible ideas including:
& the combined policies of the Whitlam (1972–1975), Fraser (1975–
1983), Hawke (1983–1993) and Keating (1993–1996) governments;
and
& Racialized blocked mobility theory (Lever-Tracy, Ip, Kitay, Phillips and
Tracy, 1991) whereby immigrants experience prejudice, discrimination
and a never-ending round of other obstacles including non-recognition
of overseas qualifications and problems gaining access to professional
bodies; and
& Education and class resource theory (Lever-Tracy et al., 1991) where
level of education and resources have a key impact on the rise and
success of ethnic entrepreneurship.
Thus many immigrants have little option but to start their own businesses
(Stromback and Malhotra, 1994).
SUMMARY
The notion of profit maximization amongst entrepreneurs was challenged
depending on a number of factors. Culture was introduced a having a poten-
tially significant impact onthis positionespecially amongst societies holding a
strong sense of cultural values. Culture was then defined and applied to
indigenous societies together with an outline of some key developmental
issues to garner nation-building and self-determination. Some generic models
of economic development were critiqued with a recommendation of the most
appropriate for indigenous society.
Several global regions were compared to identify the role of culture upon
entrepreneurial activity. Culture was then reconceptualized according to
Hofstede’s (2001) model and applied to indigenous Australians through some
recent research in the area. Some key findings were discussed including the
cultural impact of high femininity, low uncertainty avoidance, low power
distance and high collectivism upon entrepreneurial attitudes. Specific atten-
tion was then focused on the indigenous peoples of the Torres Strait region of
Australia where entrepreneurial characteristics were explained through anal-
ysis of cultural predispositions. It was concluded that culture has a significant
impact upon indigenous entrepreneurship and that non-indigenous models
should be treated with caution when seeking to explain the phenomenon. A
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 46
number of questions were also posed in order to gain a fuller understanding of
indigenous entrepreneurship together with the likely negative impact of busi-
ness development if undertaken from a non-indigenous perspective.
The chapter proceeded by highlighting the main differences between in-
digenous and ethnic entrepreneurs and outlining the economic importance of
international ethnic entrepreneurial activity. A number of business enablers
were discussed with an emphasis on those being culturally-bound, stereotyp-
ical, and generic. In short, racism and discrimination were found to be impor-
tant barriers for ethnic entrepreneurs together with access to capital, lowlevels
of education and prior experience.
Key point 2.6
Creativity and innovation are linked but different. Innovation is a systematic and logical
process with the aim of developing a creative idea into a commercially robust product or
service.
The Singapore Gourmet
Jenny and Henry Chin emigrated from South-East Asia to Australia in the 1960s. After going
back home for a whilst they returned to Australia in 1973, encouraged by the changing
political climate that accompanied the election of the WhitlamLabor Government. In Sydney,
Jenny worked as a chief accountant at Express Freight, helping to set up their first computing
system using punch cards. Pregnancy interrupted her career, but two months after the birth
of her first child Jenny returned to work as an accountant, hiring a full-time nanny to look after
her son. After the birth of a second child, Jenny and Henry moved into their first small
business, a fish and chip shop, previously owned by Turkish migrants, in Hay Street near
Sydney’s Chinatown.
Gradually, they began to introduce Singaporean food. Business doubled as the fish and chip
shop was transformed into a Singaporean restaurant. ‘Australian cuisine’ was undergoing a
gradual ethnic revolution. Fortunes for the Chins took a rosy turn as business prospered, but
their ambitions were not fulfilled. They decided to use business profits to expand, opening a
tea house across the road and another restaurant, the Bottomless Pit, in nearby George
Street, where they employed eight people. Only then did Jenny give up her other job and
manage the business full-time. Expansion continued as they opened restaurants on Pier 1
and Pier 2 in the Rocks area under the Sydney Harbour Bridge, and a restaurant in the
western suburb of Bankstown. By 1981–1982 the Chin restaurant empire was worth millions
of dollars a year. However like Jenny’s family in Singapore, the Chins experienced the fickle
fortunes of business as a combination of factors destroyed their burgeoning restaurant
empire.
Summary 47
Impatient creditors and landlords finally resorted to cutting off the electricity just before big
functions. Jenny Chin was forced to sell everything. Shattered and weary, Jenny and Henry
decided to start all over again. They moved to a site about 15 kilometres from the centre of
Sydney, which became their new shop and living premises in one. They were heavily
indebted. Henry worked even when he was ill because, as he put it, ‘the whole family and
everyone depended on me’. Jenny’s professional skills were by then becoming outdated, but
in 1985 she was able to find a job with a car provided. With two incomes, after a whilst they
were able to take up a lease on a shop in the inner-city suburb of St Peters for $250 per week.
This became the new Singapore Gourmet, the site of Jenny and Henry Chin’s current
business.
Jenny and Henry Chin still work in other jobs and run the Singapore Gourmet restaurant. After
work each evening Jenny goes shopping before arriving at the restaurant between 5.30 and
6.00 p.m. to cook. She has the help of three assistants, with her son helping out – ‘for tips
only’ – when they need him. The new Singapore Gourmet has now established a secure
clientele and Jenny and Henry are planning to extend the premises and lengthen the opening
hours.
Comment
This story of ethnic small business illustrates some of the diversity of experiences in this
sector of the economy. For the Chins, restaurants offered a risky business at the luxury end of
the food services market. Hard work overlain by their speculative orientation was to lead them
onto the roller-coaster of rapid business success and failure.
What characterises this story – as with most of the stories of ethnic small business – is the
dreams that these enterprises encapsulate. The post-war immigration net drew in
immigrants from eastern, southern and northern Europe, the Middle East, Asia and both
Americas. Immigration changed the face of Australian society. In major cities, such as
Sydney, Melbourne, Adelaide and Perth, one-half of the population are first or second
generation immigrants. However, the migrant entrepreneur’s freedom may be no more than
the freedom to work at night to finish rush orders. The better opportunities for the children
may become the compulsion to work in the family business after school every day, to help
make ends meet. The free market may be just a veil for control and exploitation by powerful
suppliers or customers. The solution to unemployment may be a costly and temporary one,
as ill-prepared and under-capitalised entrepreneurs go bankrupt and lose everything – even
the family home.
Questions
1. To what do you mainly attribute the Chins entrepreneurial successes?
2. How important was their cultural predisposition in this case?
Source: Reproduced with permission: Collins et al. (1995).
CHAPTER 2: Indigenous and Ethnic Entrepreneurship: A Cultural Perspective 48
Entrepreneurs and Small Firm
Ownership
After working through the chapter you should be able to:
& Critically evaluate the meanings of the term entrepreneur;
& Identify the characteristics of growth style entrepreneurs;
& Identify the origins and motives of lifestyle entrepreneurs;
& Analyse the implications of patterns of entrepreneurship in small firm
ownership in hospitality and tourism
INTRODUCTION
The Collins dictionary describes ‘entrepreneur’ as the ‘owner of manger of a
business enterprise who, by risk and initiative, attempt to make profits.’
(1992: 507). In fact the word entrepreneur covers a range of different meanings
and usages in everyday language. The boss of Microsoft, Bill Gates, is de-
scribed as an entrepreneur, as is the person owning a small hotel, restaurant
or bar. Similarly, as the Collins definition highlights, entrepreneur may be
used to describe both those who own businesses and also those who manage
them. Yet owners benefit directly from making profits, where managers are
more likely to be paid a salary and benefit only through bonuses or profit
sharing schemes. Furthermore, it is possible to identify ‘entrepreneurial’
activities even in organizations which are non-profit making, say university
lecturers or health services managers may be ‘entrepreneurial’ in contexts
where there are no profits, only services.
This chapter will discuss the notion of entrepreneurs and entrepreneurial-
ismfroma range of perspective. Life style entrepreneurs, in particular will be a
major focus of the chapter, because small firms represent a major source of
supply of hospitality and tourism services across the world. A high percentage
of businesses in the tourism and hospitality sector (95 per cent) are small
firms, often family operated businesses, this is a common feature to be found
CHAPTER 3
49
across the globe. In the UK, for example, 95 per cent of firms in the sector
employ fewer than 50 employees (the generic definition of a small firm) and
75 per cent employ 10 or fewer employees (by definition they are micro-firms)
(Lashley and Rowson 2006). Indeed many small hotels, guest houses, cafes,
and pubs are not employers, and are run by owner–mangers with family and
friends helping out. Getz, Carlsen, and Marrison (2004) describe these as
predominantly ‘family businesses’. Many held a lifelong ambition to own a
hotel, or some business that gives them greater control of their lives, or
because they think they will enjoy the life of hotel ownership. Few have any
hotel management or business experience and had not worked in a hotel or the
hospitality sector before. Research quoted later confirms that in effect many of
these businesses are ‘commercial homes’ (Lynch, 2005), where the division
between home and the commercial become blurred.
Whilst the largest number of firms are small firm, micro businesses or
merely commercial homes, a small number of large firms dominate large
proportions of the total market. In the UK for example, six firms control
almost 27 000 (45.8 per cent) of the countries 59 000 pubs, multiple
hotel chains control large parts of the total accommodation market. Entre-
preneurship is also a concern to these firms. Business growth and sales build-
ing require managers, in charge of individual hotels, to behave in an
entrepreneurial manner but within the framework of the hotel brand. They
have to be entrepreneurial within limits set by the organization. Some might
call these intrapreneurs (Getz et al., 2004).
Key point 3.1
Entrepreneur is a word that is used to describe a range of different types of individual
covering quite different motives and drives in business organizations.
ENTREPRENEURS
There are several different perceptions of entrepreneurs and the role in busi-
ness growth and development. At the more high profile level, key industry
leaders such as Tim Martin at J D Wetherspoon, or Conrad Hilton, are indi-
viduals who build a business empire fromhumble beginnings. In other words,
they start with one pub, hotel or restaurant and build up a chain of pubs, hotels
or restaurants. They are substantial shareholders in the enterprise and con-
tinue to personally lead the business. On another level, managers running a
corporate business which owns hundreds, or insome cases thousands of units,
are entrepreneurial because they generate growth and profitable businesses as
CHAPTER 3: Entrepreneurs and Small Firm Ownership 50
salaried managers with bonuses, though some describe these as intrapreneurs,
because of their somewhat tangential relationship with the ownership of the
business.
The classical viewof entrepreneurs assumes that personal reward, through
profits and capital growth are what drive these individuals and ultimately
successful economic activity. In fact classical economic theory and some
neo-conservative commentators set the entrepreneur at the heart of regener-
ative economic activity. If only restrictions and disincentives were removed
entrepreneurs would be free to generate more economic activity, jobs and
national wealth, they say. The problemwith this viewis that people who meet
the classic descriptions of entrepreneurs are limited in number. As we shall see
later, many of the people who operate small firms as bars, hotels or restaurants
are inthe main‘lifestyle’ entrepreneurs. The numbers of business operators in
the hospitality sector who are chiefly economically driven, who have ambi-
tions to make a lot of money, and grow the business to become a multi-sited
empire, are few and far between. A survey of around 1300 operators of micro
businesses in hospitality and tourism (Thomas, Lashley, Rowson, Xie,
Jameson, Eaglen, and Parsons, 2000) put this at somewhere in the region of
10–15 per cent of micro-business operators being strongly motivated by eco-
nomic incentives.
Getz et al. (2004) describe entrepreneurs as individuals who work to in-
crease personal benefits in the formof economic gains or in social standing but
who create benefits inthe wider social and economic setting through increased
economic activity, job creation and wealth generation. ‘Walt Disney, Conrad
Hilton and Thomas Cook have radically innovated in their respective sectors,
significantly redefining the nature of products, services and markets that have
contributed to the growth of hospitality and tourism industry over the dec-
ades’ (Getz et al., 2004: 24).
There are some debates as to whether entrepreneurs are people with par-
ticular personality profiles or are merely reacting to the circumstances in
which they find themselves. Kuratko and Hodgetts (1998) suggest that all
individuals have the potential be entrepreneurs, but this fails to acknowledge
that many individuals are not motivated to this economic growth model.
Indeed there may even be a more creatively linked set of motives. That these
growth orientated entrepreneurs enjoy the act of creation and building the
business as much as the economic benefit. Getz et al. suggest that entrepre-
neurial behaviour is embedded in the individual, society and the economy in
contemporary settings. Table 3.1 provides a list of behavioural cues for entre-
preneurs.
Collins (2002) and O’Mahony (2007) both cite examples of the pressure of
being recent migrants into Australia and being excluded formmany economic
Entrepreneurs 51
and business contexts by the discriminatory legislation and practices.
O’Mahony shows that many Irish migrants ended up owning bars and brew-
eries because little else was open to them. Collins (2002) suggests that many
Italian, Greek, and Lebanese opened restaurants as a response to being in
effect, shut out from main stream business activity. Similarly Chinese cafes
opened in many towns and cities brought a cultural diversity to the food and
drink scene in Australia. In contemporary societies, these processes are still at
work. Often migrants use entrepreneurship to break through negative impacts
of social class and ethnic barriers in the wider economic world.
Morrison (2001: 78) suggests the following model as a way of considering
entrepreneurial cues (Figure 3.1).
The advantage of this model is that it does recognise that the entrepreneur
is likely to have to work through a multiplicity of influences. The classic
growth orientated entrepreneur is likely to display certain personality traits,
and characteristics, and be supported by a personal environment and personal
goals which enable and drive entrepreneurship. At the same time the business
idea needs to be robust and sustainable in a social and economic environment
which is both ready for the idea, and which will encourage entrepreneurship
(Getz et al., 2004).
Key point 3.2
Most growth-orientated entrepreneurs are likely to be influenced through a number internal,
such as personality type, and external factors, such as culture and immediate opportunities.
TABLE 3.1 Entrepreneurial behaviour cues
Positive Negative
Social &Role of family and intergenerational role models &Political/religious displacement
&Political unrest
&Conducive culture &Discrimination
&Supportive networks &Unhappy with position in society
&Dissatisfied with blocked
employment opportunities
Economic &Move towards services
&Reversal of highly vertically integrated company structures &Discriminatory legislation
&Phenomenon of ‘dot.com’ businesses &No other way to make money
Psychological Entrepreneurial aspirations of independence,
wealth, need to achieve, social mobility.
Source: Getz et al. (2004: 25).
CHAPTER 3: Entrepreneurs and Small Firm Ownership 52
LIFE STYLE ENTREPRENEURS
Inthe UKpub sector, recent changes inthe management and operationof pubs
and bars reveals much about the perceptions of small firmentrepreneurs. The
majority of pubs in Britain are owned by big corporate pub companies, such as
the Punch Pub company and Enterprise Inns. In fact these two companies
alone own around 19 000 of the nation’s 59 000 pubs. Although they physi-
cally own the pub properties, individually pubs are operated by small firms in a
loose form of franchising (Lashley and Rowson, 2005) through tenancy or
leasehold agreements. Tenancies tend to be looser, more short-term arrange-
ments, whilst leaseholds are more formal and give more economic benefits to
the leaseholder than the tenant enjoys. The leaseholder can, for example, sell
on the lease to another person and the terms of the agreement tend to be over a
longer period than for a tenant. The assumption at the root of the recent
decision of many licensed retail operators to change from tenanted to leased
Personal environment
Supportive social network
plus entrepreneur’s
dissatisfaction with
position therein
In tune with social
trends, values and
behaviours of the day
Personal characteristics
Traits and cultural
conditioning
results in robust strength of
character and talents
Business idea
Desision to behave like an
entrepreneur
Personal goals
Social mobility
and freedom form
established norms
Receptive and conducive
to entrepreneurial
behaviour
Business environment
FIGURE 3.1 Model of entrepreneurial cues.
Life Style Entrepreneurs 53
arrangement is that the short-run relationship implicit in the typical tenancy
acted as a barrier to more entrepreneurial drives by the pub tenant. Many firms
hoped that a longer-term relationship, more economic rents, and more en-
trepreneurial motivations would provide the licensees with growth inspired
incentives for licensees.
Whilst these factors might be important barriers to the entrepreneurial
motives of some, the assumption that all small firms are driven by growth
and profit maximization objectives is questionable. The Leeds Metropolitan
University (Thomas et al., 2000) survey of 1396 small tourismand hospitality
firms showed that only 9 per cent of respondents listed ‘to make a lot of
money’ as a key motivation for owning a small business. Sixty-six per cent
identified to ‘make a reasonable living’, 58 per cent said they ‘wanted to be my
own boss’, and 41 per cent stated that a major reason for owning a small
business was ‘I enjoy this life style’. These findings are consistent with earlier
work on the motives of small firmowners (Beaver and Lashley, 1998). Owners
of these ‘micro firms’ with 10 or fewer employees, are mostly concerned with a
cluster of ‘lifestyle’ motives for their entrepreneurial activities Lockyer and
Morrison (1999). Table 3.2 reproduces the responses from the Leeds study.
The question asked respondents to identify one or more reasons why they were
running their own business.
The values expressed inTable 3.2 lists the total number of respondents who
indicated that the statement reflected one of their top three objectives for
owning the business. These responses give an interesting insight into the
motives of people running small firms. In many ways, those operating
tenanted, leasehold and the occasional franchised business are in a similar
position. Price et al. (2000) have argued that often these businesses are being
run at sub-optimal levels partly because the resources used are not charged at a
fully economic rate due to family members working in the unit at less than
TABLE 3.2 Motivations for owning a small business
Motivation Value (per cent of respondents)
To make a reasonable living 926 (66)
To make a lot of money 125 (9)
To be my own boss 813 (58)
I enjoy this lifestyle 576 (41)
To avoid unemployment 197 (14)
To live in this location 287 (21)
It is a form of semi-retirement 125 (9)
I spotted a market opportunity 246 (18)
Source: Thomas et al. (2000).
CHAPTER 3: Entrepreneurs and Small Firm Ownership 54
market rates. Often the pub represents a ‘free house’ to the family. Hence
business costs and motives are meliorated by these more domestic considera-
tions. In effect, pub tenancy or lease provides both a commercial and a do-
mestic setting for the tenant/lessee and there is a need to understand ‘life style
economics’ (Andrews et al., 2000) so as to better match potential tenants with
properties.
The definitions and categories used by Morrison, Rimmington, and
Williams (1999) are helpful because they suggest a number of categories that
might apply to the core objectives of those engaged in tenanted or leasehold
relationships. In essence they suggest that lifestyle proprietor defines an indi-
vidual who has a multiple set of goals associated with the business. Profitabil-
ity in the business will only be one of these goals. In addition to the
entrepreneurial venture, Beaver, Lashley, and Stewart (1998) suggest that there
a number of other categories of small firmthat may well differ in the nature of
their business motives. They suggest that the lifestyle enterprise, the family
enterprise, the female enterprise, the ethnic minority enterprise and enter-
prises where the dominant motives are for self employment and control are
likely to give different priorities to both profitability and their own develop-
mental needs. They say,
‘Whilst that this is not an exhaustive list of entrepreneurial types, it is
sufficient to show that the motives of those setting up and maintaining
small hospitality firms are not always compatible with ‘rationale
economic’ considerations. Motives associated with personal
preferences or which relate to self-image do not automatically lead to
levels of self-analysis which suggest that a lack of business skills presents
a major threat to their business goals’ (Beaver et al., 1998: 166).
Reflective practice 3.1
Interview the owner of a small hotel in your area and establish his/her origins and motives for
setting up the hotel.
Sweeney (2008) suggests that a number of push and pull factors are at work
in the decision to start a business in this micro-business manner. Push factors
create a situation where individual feel compelled to start the business, where
the pull factors suggest benefits to the individual(s) (Figure 3.2).
Beaver and Lashley (1998) suggest that lifestyle business objectives repre-
sent barriers to the perception of the need for personal development and
Life Style Entrepreneurs 55
growth. Often these firms are economically satisficing. So long as the owner is
able to meet the requirements of a reasonable standard of living they will not
recognise the need to undertake courses that develop their managerial or
entrepreneurial skills (Morrison, 2000). That said, those running small firms
do learn from their actions (Kolb, 1984) and Morrison suggests that personal
networks perform a valuable if informal source of education and training
(2000b).
Key point 3.3
Many micro business in hospitality and tourism are run by individuals who are primarily
motivated by a cluster of factors which tend be more important than the desire for business
growth and profit maximization. They may be referred to as ‘lifestyle’ firms because their key
reasons for running the business are to improve their lifestyle in some way or other.
The relationship between the pub operating company and the tenants/
lessees has many similarities with relationships found between franchisors
and franchisees. The larger organization is attempting to gain benefits of scale
by using the financial and managerial resources provided by the smaller firm.
At the same time they aim to gain from the entrepreneurial drives of the
tenant/lessee under the assumption that entrepreneurship and personal gain
will stimulate extra effort when compared to the performance of salaried
managers. From the small firm’s perspective, the relationship with the larger
firmallows access to the resources and expertise of the larger organization that
might be denied a truly independent enterprise. That said, research into the
motives of those running small firms in the sector shows that frequently
classically entrepreneurial motives are secondary to other more ‘lifestyle’
motives for operating the business. As a consequence many tenants and
lessees are not likely to give the highest priority to business growth and profit
maximization. When compared with the formal business format franchising
Redundancy
Previous job
Needed income
Work from home
Own boss
Lifestyle
Location
Natural Progression
To keep big house
PUSH PULL
FIGURE 3.2 Push and Pull factors motivating business start up.
Source: Sweeney (2008).
CHAPTER 3: Entrepreneurs and Small Firm Ownership 56
arrangements the support given to tenants and leaseholds by the operating
companies is minimal and may prove to be another factor preventing growth
in the small firm.
Using a different metaphor to describe many small hospitality and tourism
firms Getz et al. (2004) describe them as ‘family firms’, whilst Lynch and
MacWhannell (2000) refers to them as ‘commercial homes’. This latter term
has particular resonance in the accommodation sector internationally and
pub sector, in the UK. Typically the domestic accommodation is part of the
same premises as the commercial activity. In fact, both Lynch (2005) and
Sweeney (2008) in different ways explore the relationship between the private
and commercial domains of the same property. The same term can be closely
used to describe the restaurant sector, when, the restaurant and kitchens etc.,
share the same premises as the owners’ private domestic living quarters. All
these terms used to describe the vast majority of small firms in the sector have
merit, and tend to reflect different facets of many small firms operating in
hospitality and tourism.
Key point 3.4
Individuals running tenanted and leased pubs and franchisees, as well as, independent
firms, frequently reflect lifestyle firm characteristics. That is, motives which are not always
primarily concerned with profit maximization and growth.
Clearly, micro-firm reflects a concern with the relative size of the firm
when compared with other firms in the sector. Research quoted later
(Lashley and Rowson, 2007) shows that many hotels, for example, are run
by individuals supported by family and friends, Large numbers of hotels in
Blackpool are operated by an owner manager with few, if any employees.
Most, though not all, are run by families, or at least by individuals who call
on children and other relatives to work in the business as demand and the
‘season’ require. They are as Getz et al. (2004) suggest family businesses
with varying degrees of engagement with family. In larger firms, family
members have formal jobs and roles which contribute to the services being
offered by the firm, and in smaller ones they may help out as and when
needed. In many cases, they are ‘commercial’ homes where customers and
family members live under the same roof, though with variations in the
degree they share the same rooms. In some cases, ‘Private’ notices keep
commercial guest away from rooms being used by family members. In other
cases, commercial guests and family members share common sitting
Life Style Entrepreneurs 57
rooms, dining facilities and bathrooms. To varying degrees they will not be
economically entrepreneurial firms.
In many cases, economic motives for business ownership are secondary to
motives based primarily in a desire to live in a particular location, or to enjoy
more personal control over work, or to avoid labour market problems. In this
latter case, gender based, ethnic based or age based prejudices practiced by
some employers can be avoided through self employment through the lifestyle
firm. A point being developed later, is that hospitality services in the form of
accommodation, pub restaurant settings provide business opportunities
which appear to enjoy low barriers to entry and which appear to require skill
sets shared by all those who have offered hospitality to family and friends.
These links between private domains of hospitality and decisions to start up
businesses in commercial hospitality can be further understood through re-
search into owners of small hotels in Blackpool (Lashley and Rowson, 2007).
Blackpool’s hotel sector is dominated by micro-firms usually managed by
owner managers operating just one hotel and employing few staff, typically
family members often for a few hours per week. Sometimes the owner/man-
ager and partner employ no one and they undertake all the operational tasks
themselves. As suggested earlier many of these micro-firms are, to varying
degrees, ‘lifestyle’ business in which personal and lifestyle reasons dominate
motives for operating the hotel. In circumstances where motives are clearly
not classically entrepreneurial, hotel operators often do not recognise the
business skills needed for effective performance (Morrison, 2002). Hence,
service quality management; investment, financial and cost management;
marketing, people management, and general business strategy, for example,
are at best reliant on informal processes, and frequently non-existent
(Lashley and Rowson, 2006). As a consequence, there can be a high ‘failure’
rate of these micro-business hotel operators and an earlier study by
Lashley and Rowson (2005) estimates that 20–30 per cent of the hotel stock
in Blackpool changes hands each year. Furthermore, the lowskill base of hotel
owners also limits the quality experiences of services provided to visitors.
Following on an earlier pilot study (Lashley and Rowson, 2005) a survey
based on responses from 120 small hotel operators (Lashley and Rowson,
2007) found that just 12 hotels had 20 or more rooms and only 43 (35.8 per
cent) employed any staff. Most of these hotel owners undertook the cleaning,
cooking and other accommodationservice task themselves, or with occasional
help of children, parents or other relatives, ‘Who live with us’. Most had
bought the property after selling a domestic property (99/120–82 per cent).
Just 13 (13.8 per cent) had moved to the hotel from the ownership of another
hotel and 8 from another business (6.7 per cent). BP 050 reported ‘‘I was a
truck driver and lived in Somerset we had a 3 bed roomed house, I was fed up
CHAPTER 3: Entrepreneurs and Small Firm Ownership 58
with my job because of being away frommy wife and family most of the week,
my wife’s had this thing about owning a hotel for years now, and we looked
into it and got this hotel in Blackpool. We actually got more money for our
house than the hotel cost, but we had a big mortgage on the house, and so
when we bought the hotel we had to take a small mortgage but we pay a lot less
for this hotel with eight letting rooms than we did for our three bed roomed
house’’ (p 5). Table 3.3 below shows the sources of finances for those buying
small hotels in Blackpool. The high proportion involving the sales of a house
confirms that for many, the sale represents move into ‘entrepreneurship’
rather than a change in entrepreneurial activity.
The Blackpool study showed over 30 per cent of the respondents said that
they wanted to work for themselves, with 23.4 per cent saying that they were
fed up with their job and wanted to be their own boss. For many respondents,
starting in the hotel business as been a life long dream with 25.8 per cent
saying that they had wanted to do this for years (see Table 3.4).
Key point 3.5
Many owners of small hotels sell a domestic home prior to buying a hotel. Few have
experience of the hotel sector or even small business management.
The following quotations from respondents in the study provide some
insights into the motives involved. BP 001 ‘‘My husband was getting fed up
with his job and there seemed little future in it, I was working in a dead end,
part-time job, and we had talked about having a seaside hotel for years.
Anyway we went to see some friends who lived in Blackpool, and we had a
look around the place, and noticed howreasonably priced the hotels were, and
really it all went from there’’. BP 004 ‘‘Redundancy really, my husband was
TABLE 3.3 Funding the purchase of the hotel
Element Number (per cent)
Sale of house 39 (32.5)
Sale of business 16 (13.4)
Sale of house and mortgage 38 (31.7)
Sale of house and unsecured loan 11 (9.1)
Mortgage 8 (6.6)
Loan 5 (4.2)
Other 3 (2.5)
Total 120 (100.0)
Life Style Entrepreneurs 59
made redundant and we used his redundancy money and the sale of our house
to buy the hotel. We had talked about this many times before, but it was
redundancy that finally pushed us this way’’. BP 020 ‘‘This was the only
way we could find of running a business were we could work together and
basically work from home. Before we worked really hard but barely had
enough time together or for our children’’.
The levels of experience of the respondents varied greatly, of those who
claimed to have any previous hotel or business experience, this often
amounted to little more than working in a retail business, a pub, or a hotel,
very few respondents had actually operated a hotel before, of the 49 (40.8) of
respondents who claimed some form of prior experience only 13 (10.8) had
any ‘real experience’ of hotel ownership. Fifty-nine percent of respondents had
no business or hotel experience at all when they started in their hotels (see
Table 3.5).
There was a common perception amongst the respondents that few skills
were required to operate a hotel and that most of it was just ‘common sense’,
as the following quotes illustrate, BP 118 ‘‘I’ve no experience myself but my
wife’s worked in bars and as waitress for years and she’s very good at dealing
with people’’. BP 114 ‘‘No experience at all, but my son works in catering he’s
a chef (when asked if he worked in the hotel). No, he doesn’t he works in
TABLE 3.4 Reasons for buying hotels in the Blackpool study
Element Number (per cent)
Wanted to work for ourselves 36 (30.0)
Fed up with job decided to be our own boss 28 (23.4)
Wanted to do this for years 31 (25.8)
To avoid unemployment or redundancy 15 (12.5)
Semi retirement 4 (3.3)
Working from home/home with income 6 (5.0)
Total 120 (100.0)
TABLE 3.5 Prior experience of hotel owner respondents
Element Number (per cent)
Prior hotel or business experience 49 (40.8)
No hotel or business experience 71 (59.2)
Total 120 (100.0)
CHAPTER 3: Entrepreneurs and Small Firm Ownership 60
London but he has given us a lot of tips about commercial cooking that have
been useful’’. BP 109 ‘‘We had business experience, but no catering or hotel
experience, it came as a bit of shock for a week or too when we started in the
hotel. In the end our business experience did come through, but the first few
weeks were a tough time’’.
The significant majority of respondents’ explained their decision to buy a
Blackpool hotel around lifestyle issues such as, a ‘our dream for years’, want-
ing to work together, to have an home with an income, and the majority felt
that it was easy to start business which required no particular skills (see
Table 3.6).
Many of the respondents thought that having a house with a income was a
good idea the following illustrates this point, BP 050 ‘‘Because this business is
a ‘house, home and job rolled into one’ that was our motivation, plus I was fed
up with driving trucks for a living and being away from home all the time. My
wife hated her job, and so this was a way out for us, and meant that we could be
our own boss and have a less stressful life. BP 073 ‘‘I liked the idea that we
would have a home that would pay for itself and provide us with jobs’’.
A significant majority of respondents said that Blackpool was their favour-
ite place and often the decision to buy a hotel in Blackpool was driven by good
holiday memories from the past, in many cases this was the hoteliers’
childhood visits to the seaside. Thirty-five per cent of respondents said that
they had chosen Blackpool because of the long season and 24 per cent cited the
cheap hotel prices. There was some overlap between the choices with many
citing the long season, cheap hotel prices and the busiest seaside resort as
reasons. Respondents’ first choices are recorded (see Table 3.7).
Eighty-eight percent of the hoteliers said that both they, and their partner,
worked in the hotel business and that this was there sole business. Twenty-six
per cent did work or have business interests outside of the hotel. This was
typically some form of full-time paid employment Table 3.8.
Twenty-nine of 120 respondent hoteliers (24.1 per cent) in this study were
considering or planning to sell their hotels, some with mixed feelings. Those
TABLE 3.6 Reasons for entering the hotel business in Blackpool
Five elements Number (per cent)
We had wanted to do this for some time/dream of ours 38 (31.7)
This was business where we could work together 16 (13.3)
This is an easy to start business, with no skills needed 33 (27.5)
This is a home with a income 33 (27.5)
Total 120 (100.0)
Life Style Entrepreneurs 61
planning to sell up and move out of the current hotel often expressed mixed
motives for selling their current. Whilst 5/29 declared they were selling their
current hotel so as to buy a bigger hotel, and some declared that they planned
to retire 8/29 the majority were disposing of the hotel for negative reasons.
Table 3.9 shows that 13 respondents mention poor trade as a reason to sell,
seven declared the hotel business had not met their expectations and a further
six felt that customers were the problem. Responses are shown as percentages
of the 29 respondents planning to sell the hotel at the end of the 2006 season.
This represents 24.2 per cent of the 120 respondents in the survey.
BP 006‘‘We are planning to sell up. The customers are getting worse. We
used to have really decent people booking but nowit is all ‘bell ringers’ and you
TABLE 3.7 Reasons for selecting Blackpool
Element Number (per cent)
Long season 42 (35.0)
Cheap hotel prices 29 (24.2)
Busiest UK seaside resort 15 (12.5)
We like Blackpool 34 (28.3)
Total 120 (100.0)
TABLE 3.8 Work and business interests outside the hotel
Element Number (per cent)
We both work in the hotel 88 (73.4)
Working or business outside the hotel 32 (26.6)
Total 120 (100.0)
TABLE 3.9 Declared reasons for selling the hotel
Declare reason Number (per cent) (n=29)
Poor trade 13 (44.8)
Not meeting expectations 7 (24.1)
Customers 6 (20.1)
Retirement 8 (27.6)
Buying a bigger hotel 5 (17.2)
Other 2 (6.7)
CHAPTER 3: Entrepreneurs and Small Firm Ownership 62
never know what you’ll get. Recently we had a family group come to the door
they looked really respectable, and ‘conned me’ by saying that they usually
booked but couldn’t get in at the hotel were they normally stayed, they were
excellent guests, complements about the food and the room, but when they
left they took everything that wasn’t nailed down with them, sheets, towels,
table lamps, pictures off the wall, I called the police but it appears that they give
false details when they booked, they even ‘nicked some of my ornaments from
the lounge. We were thinking about selling up and this really has made up our
minds’’. BP 051‘‘We both really wanted this so badly when we started it was
our dreams come true, but over the last two seasons it has turned into a
nightmare, this place is a ‘money pit’ we always seem to be spending on it.
Really we haven’t made any money since we moved in and now I have lost
interest and we want to sell up, trade is dropping for family hotels in this area
because of the ‘stags and hens’, the centre is almost a ‘no go area’ at weekends
nowwith the single groups all over the place drunk at lunchtime, peeing in the
street, a few weeks back I drove through the centre of Blackpool at 3 pm in the
afternoon and it was packed with single sex groups most of them drunk, and I
couldn’t believe my eyes I saw a group of girls exposing themselves across the
road to a gang of lads, and there were families about at the time I couldn’t
believe what I had just seen’’.
Key point 3.6
There is a significant churn in small business ownership each year in the hospitality and
tourism sector as the realities of pub, hotel or restaurant ownership become realized.
The level of churn in hotel ownership identified here appears to be consis-
tent with observations by professionals in Blackpool’s Tourism sector
(Lashley and Rowson, 2006) who suggested that the level of turnover in
ownership ranged between 20 and 30 per cent. In the original study 10 case
study hotels were in their first year of trading in 2005. By 2006 seven of these
were in the same hotel. One had sold the hotel and moved to another hotel in
North Wales, the other two had sold the hotel and decided that the hotel
business was not for them. Again this indicates around 30 per cent churn.
Given the estimated number of hotels in Blackpool it is possible that some-
thing like 160–230 hotels are changing hands in Blackpool each year. Assum-
ing that the average hotel is valued at £250,000 the value of this churn in
ownership is in the region of £40–£60 million per annum. This represents a
conservative estimate of the property transactions, it takes no account of the
commissions paid to estate agents, solicitors and banks or of the losses
Life Style Entrepreneurs 63
incurred by some hotel operators who find trade less buoyant than anticipated
or that they have bought a ‘money pit’. Nor do these figures take account of
the potential lost custom generated by the merry go round of hotel ownership
with some hotels having a new owner every year (Lashley and Rowson, 2005).
Reflective practice 3.2
Consider the difficulties faced by a destination management teamfaced with large numbers
of the hotel estate in the destination owned by lifestyle entrepreneurs.
Why do hospitality sector businesses hold such appeal for lifestyle entrepreneurs?
Akey aspect of research into small firms in the hospitality sector is the link
between the small firm, the domestic domain and hospitality as a business
activity. The fact that commercial hospitality involves the sale of accommo-
dation, food and drink which are provided in the home and have been supplied
to guests in the home suggests to many of these entrepreneurs that the skills
sets are lowand it is ‘just common sense’. This point was confirmed one of the
interviewees in the Blackpool study he said, (BP 056) ‘‘We wanted to start in
business and this seemed like a way that we could, we had the money to buy
the hotel fromthe sale of our house and you don’t need any special skills, really
it’s just being level headed and using your common sense’’ (Lashley and
Rowson, 2007). The fact that a large number of operators churn ownership,
perhaps suggests that these estimates of their skill base and the skills required
to successfully operate a hotel are woefully out of step. Certainly these links
between having been guests and hosts in private life do suggest to many
individuals that they have the skills for successful commercial operation. This
seems to create a constant stream of people keen to run a bar, a hotel or a
restaurant as form of retirement or perhaps disengagement with the world of
paid employment. The notion that operators can work at home is an attractive
one for many of these individuals.
The opportunity to offer hospitality to fellow human beings is also an
attraction for some individuals. Sweeney’s interviews with small hotel opera-
tors in Scotland confirmed the attractiveness of the hospitality business for
many would be entrepreneurs. Her study shows that there are a range of
degrees of interest in hospitableness. Figure 3.3 presents the continuum of
Economic Eco-social Socio-economic Social
FIGURE 3.3 Typologies of Commercial Home Ownership.
Source: Adapted from Sweeney (2008).
CHAPTER 3: Entrepreneurs and Small Firm Ownership 64
motives for the hoteliers in her study. On one extreme individuals are running
hotels for chiefly economic reasons. These are people who have no particular
attachment to the hotel business other than as a source of income. At the other
end there are people who run hotels because they offer the opportunity to be
hospitable, and the economics issues deemed to be less important. There are
then two other positions where the motives are primarily economic but hospi-
tableness is important to the operators; and others for whom the hospitable-
ness is primarily important though they have concerns about economic
dimensions of the operations Figure 3.3.
These links between the entrepreneur, the home and social opportunities is
one of key attractions for many who enter the accommodation, bar of restau-
rant business. Many interviewees in the Blackpool hotel study (Lashley and
Rowson, 2007) refer to customers as friends or wishing to attract ‘nice people’
as customers. In some cases, entrepreneurs complained about the nature and
character of the customers. There were examples of customers who were the
‘wrong sort’ being turned away the business failing as a result.
Key point 3.7
Given the close proximity of the commercial activity and the home, many hospitality small
firm owners evaluate the customers from the perspective of friendship. Are they people like
us is a frequently asked question?
SUMMARY
This chapter has suggested the enterprise and entrepreneurship is more com-
plex than might be initially thought. Whilst many commentators often imply
that entrepreneurs are the key to business development, employment growth
and economic success, there are clearly many running hospitality and tourism
whose motives are not so focused on economic outcomes. The industry has its
examples of classic entrepreneurs creating and managing multi-site bar, hotel
and restaurant empires, Ray Croc of McDonald’s; Conrad Hiltonof the Hilton
group; and Richard Branson of Virgin Air and Virgin trains, amongst other
things. The scale and magnitude of these corporate enterprises means, that in
most national and international markets, a small number of firms dominate
large sections of the market.
However, the majority of firms running bars, hotels and restaurants are
owned and managed by individual firms operating just one bar, hotel or
restaurant. In some cases, these small firm operators, like their corporate
counterparts, are primarily driven by economic outcomes and the potential
Summary 65
for business growth. That said, many of these bar, hotel and restaurant opera-
tors are not primarily concerned with economic outcomes, they are more
concerned with a cluster of personal outcomes from entrepreneurship. Per-
sonal circumstances which push, or pull, them into entrepreneurial
(Sweeney, 2008) activity are more important. In effect these are lifestyle entre-
preneurs who become the owners and operators of a bar, hotel or restaurant
business because it primarily allows them to meet personal, social goals or
escape disadvantageous economic circumstance.
The chapter also suggested that the hospitality sector is attractive to many
of the lifestyle entrepreneurs because the linkage between domestic hospitality
and commercial hospitality persuades many that they have the skills needed to
succeed. In some cases, the physical proximity of the commercial and the
home suggests that the business will enable closer relationships because they
do not need to ‘go out to work’. In other cases, say in migrant communities,
the sharing of the traditional skills of home cuisine is seen as easy entry into
the commercial world. In other cases, the seeming common sense of the
hospitality offer convinces that they know what to do. Often this fails to
recognise the commercial and business skills required for successful small
firm management, and as a consequence many of those who enter the sector
as first time lifestyle entrepreneurs do not survive in the long-run.
CHAPTER 3: Entrepreneurs and Small Firm Ownership 66
Creativity and the
Entrepreneur
After working through this chapter you should be able to:
& Define creativity in an entrepreneurial context
& Recognize the relationship between creativity and innovation
& Understand the role creativity plays in the entrepreneurial process
& Understand why idea generation is important to the hospitality entrepreneur
INTRODUCTION
Creativity exists in a number of forms and contexts; artists, poets, musicians
and even architects might be considered as individuals who personify the
term. Most people would agree that creativity is an essential attribute of the
entrepreneur. It is both an asset and a process and the outcome can never be
predicted accurately. In the hospitality industry, evidence of entrepreneurial
creativity can be observed virtually everywhere. It is embodied in a myriad of
company logos such as the two ‘Ms’ (MacDonald’s) and Australia’s ‘Big 4
holiday parks’ and the architectural design of hospitality and restaurant build-
ings like Novotel and Pizza Hut. However, large firms do not have a monopoly
oncreativity. Indeed given the relative lack of resources enjoyed by small firms,
entrepreneurial creativity becomes even more important as a competitive tool
and may be seen in many small hospitality firms striving to establish a dis-
tinctive character or brand. These points of differentiation may not be as easily
recognizable as their larger counterparts (for obvious reasons) but they exist
nonetheless. For example the way a building is painted, furnished and fitted
are all expressions of creativity, so too are menus, styles of service and tariff
structures. The point being that creativity in the small hospitality sector is
often modest and may even use and build upon the ideas of others. This is
especially true in a monopolistic business environment where many other
similar firms are competing for business.
CHAPTER 4
67
The following case provides a business example of what may be considered
by some as modest creativity.
Creativity and the Freewheeling Entrepreneurial Spirit
By Nancy Chesworth, PhD
In 1987, Philip and Cathy Guest carefully considered the decision to turn a favourite sport into
a business. In essence, it was a lifestyle choice. Recognizing that their working lives were
taking them in different directions, the couple decided to put their relationship first, and
became their own employers. The decision to find and operate the business was a very
rational one. Both partners listed what they wanted out of life and reached the conclusion that
cycle touring was the obvious choice.
Along with cycling for pleasure and mountain biking, Cathy was an experienced cycle racing
enthusiast. Philip also enjoyed cycling and brought a wealth of experience as an adventure
traveller. In addition, they were accustomed to organizing trips for family and friends.
Ultimately, this combination led to the purchase of ten, top quality, state of the art bicycles,
and Freewheeling Adventures was born.
Philip describes the venture as an ‘educated gamble’. Among the early challenges were
financing and finding a way to make a living while building a business. An optimist tempered
by reality, he stated that a key factor was remaining confident that it could work, while not
really knowing if it would. Another important issue for the couple was remaining financially
independent. They avoided taking out loans or applying for government assistance,
preferring instead to use savings, to mortgage their house, and later sell it, when a more
desirable property became available. Meanwhile, Philip learnt carpentry skills and found a
great deal of work refurbishing the interiors of yachts stored at local marinas. Cathy utilized
her marketing knowledge to work promoting local businesses and charities.
The tourismseason in Nova Scotia is short, thus, it was necessary to plan for slow but steady
growth. This had been achieved through careful planning and dedication to the growth of the
business. In many ways, Cathy and Philip epitomize the qualities they looked for in
employees. Noting that multiple skills were needed to develop and grow a tourismcompany,
they looked for employees who demonstrated energy, enthusiasm, high-level social skills and
a genuine interest in other people as well as innate sales skills and the spirit of
entrepreneurship.
Initially, Cathy baked all of the bread and made all of the lunches for each group. Eventually, a
local source was found to take over this time consuming job, freeing Cathy to focus on other
aspects of the business. Other local providers of various services have been added over the
years as needed and when possible, local residents are hired as guides. Situated in the small
rural community of Hubbards, with their home and business at the same location, this
support of the local community, together with their two active sons, has made their property a
sort of social centre. The addition of a skateboarding half- pipe provided the opportunity for
their sons to learn carpentry skills as well as provide a safe and welcoming recreational
opportunity for the boys and their friends.
In the past twenty years, kayaking trips have been added in the local area where the scenery,
seals, sea birds and the occasional whale enhance the experience. Multi-sport adventures
CHAPTER 4: Creativity and the Entrepreneur 68
include combinations of cycling, hiking and kayaking. Van support is offered on all group
trips, other than self-guided tours. Tours are offered for cyclists at every level of fitness and
experience so as to enable anyone to participate. Accommodation is normally in comfortable
inns that reflect the ambiance of the area. But some surprises await. Some accommodations
are in castles and chateaux, adding a touch of elegance to the adventure. In the same vein,
nutrition is carefully planned with healthy snacks and good quality restaurants part of the
experience.
Making the business into a full-time, year round operation meant considering locations in
other countries. As a result, Freewheeling Adventures now offers guided and self guided
tours around the world in a wide variety of terrains. Each adventure is fully described both on-
line and in the company’s hard-copy brochure. The level of difficulty, an outline of the terrain
and details of each adventure help the client make a well-informed choice.
Freewheeling adventures exemplifies the essence of entrepreneurship. The slow and steady
growth of the company is the product of dedication, planning, flexibility, commitment and
creativity. The result is a profitable business offering high quality adventures to happy,
satisfied customers.
Questions
1. What role did creativity play in the founding of Philip and Cathy’s original business?
2. What role did it play in establishing subsequent business activities and linked experiences
such as kayaking and the provision of accommodation?
3. What role did ‘preparation’ play in their decision to become self-employed?
4. How innovative are these two entrepreneurs?
Source: Nancy Chesworth
This chapter introduces the notion of creativity and how it applies to the
small hospitality entrepreneur. It is defined and considered a key entrepre-
neurial function. Creative idea generation is outlined together with a discus-
sion of the nature of creativity and whether it is innate or an ability that can be
learnt. The chapter continues by exploring stages of the creative process,
identifying behavioural enhancers and barriers and concludes with some
approaches and techniques designed to develop creative thinking in indivi-
duals.
Key point 4.1
The hospitality entrepreneur does not have to be totally original to be creative. Indeed, most
creative business ideas are simply modifications of others.
Introduction 69
CREATIVITY: TOWARDS A DEFINITION
The word innovation is often used interchangeably with creativity, however
there is a difference between the two (see next chapter for a full discussion). In
simple terms, both are important for entrepreneurs but innovation is more
concerned with the logical steps involved in bringing a creative idea to market.
In other words it is the process involved in actualizing creative ideas success-
fully (economically). Therefore creativity becomes the antecedent of innova-
tion but it is no less important. If the hospitality entrepreneur fails to be
creative or later does not implement creative decision-making, the firm will
struggle to survive.
Definitions of creativity abound and as such we can conclude it is a tricky
thing to be certain about. However, many use the word novel, new or original,
for example, Kirby (2003) considers creativity to be the ability to think ‘new’
things. Similarly, The Merriam-Webster Online Dictionary (2008) defines the
verb ‘create’ as:
& to make or bring into existence something new.
More philosophically, Satre (1943) considers the act of creating as liberat-
ing and one where a state of ‘nothingness’ becomes ‘somethingness’. Another
thesis considers a creative human as Godlike. This follows the notion that if
God is the creator, anyone engaged in the act of creation must therefore
become God themselves because they have the power to change their fate.
This is achieved by the individual moving beyond a passive resigned preor-
dained existence into the active role of creation. We can see howthis resonates
with entrepreneurs as presented in Chapter 11 through the personality trait
‘locus of control’! Many entrepreneurs truly believe that they alone are re-
sponsible for their success; context and good fortune make little or no contri-
bution.
Reflective practice
1. How would you describe the relationship between innovation and creativity?
Leaving aside the above comparison with one deity or another, the link
between creativity and entrepreneurship is not new. Schumpeter (1934) first
made these assertions around eighty years ago describing the entrepreneur as
an heroic creative artist and coining the phrase ‘creative destruction’. Many
still hold this as a ‘truth’ (for example, see Berglund, Dahlin, and Johansson,
2007) and consider creativity and the act of creation an essential element of
CHAPTER 4: Creativity and the Entrepreneur 70
the entrepreneurial process. For example, Fontela, Guzman, Perez and Santos
(2006) adopt Guzman’s (1994) to identify creativity within one of three en-
trepreneurial ‘spheres’ shown in Figure 4.1.
The financial sphere is where the entrepreneur acts or responds to obliga-
tions as the financial owner of the firm. The management sphere concerns
corporate direction and management duties. The booster sphere is where the
founder assumes a more humanistic psycho-sociological and creative role
within the organization.
Key point 4.2
Creativity is the process of generating a novel or useful idea of which opportunity recognition
is part.
CREATIVITY: INNATE OR LEARNED
Paradoxically, evidence suggests that as small firms begin to develop and
increase in size there is pressure for the entrepreneur to adopt more of a
managerial role. Managing a small hospitality firm requires a number of
complimentary skills but they are more administrative in nature and concern
implementing policies, procedures, controls and so on (see Chapters 7 and 11
FIGURE 4.1 The functional spheres of the entrepreneur.
Source: Guzman (1994).
Creativity: Innate or Learned 71
for a discussion). Accordingly, there is less time available to engage in creative
behaviour (see Pinard and Allio, 2005). Fontela et al. (2006) agree that as firms
grow entrepreneurial behaviour becomes ‘rational’ focusing on profit maxi-
mization rather than opportunity spotting and creation. However, does this
necessarily have to be the case? Whilst there is clearly a requirement for
hospitality founders to think logically when managing their business, they
must also think laterally. Indeed, according to Fontela et al. (2006), founders
need to understand that to be creative requires an effort to:
‘‘. . . become less rational and more emotional’’ (p. 5).
In other words, in seeking to become creative and forward looking,
entrepreneurs must attempt to contextualize their decision-making accord-
ingly. Necessarily, this means that rationality is limited as the future has
not yet been ‘written’ and so cannot be analyzed objectively. Decisions
become bounded by uncertainty and as such require entrepreneurs to eval-
uate problems relying on lateral rather than rational thought processes.
Fontela et al’s (2006) notion suggests that when hospitality founders think
beyond the present they are not bound by rational certainties. Therefore,
their capacity for creative effectiveness is enhanced once this is recognized.
They also suggest that entrepreneurial thinking shares much with artists
and that art is not mysterious but intuitive based on instrumental life
experiences. In short, entrepreneurs must learn about ideas and how they
are generated.
These authors also introduce the notion of ‘intuition’ into their argument.
Not all commentators do this probably because currently intuition is treated
much the same as creativity was some forty years ago. That is, the word has
‘unscientific’ connotations and cannot therefore be easily explained. Indeed,
some argue that innovation is akin to the supernatural which of course also
adds an implicit rational reason for not exploring the issue. Whilst we do not
discuss intuition in depth here it is still something to note as Fontela et al.
(2006, p. 8) consider it to be ‘. . . part of a legitimate chain of reasoning’. They
also argue that in an artistic sense, any creationis a result of intuitionif related
to a person’s intellect and emotions including the entrepreneur in terms of
innovation/creativity. Whilst intuition is not fully understood, it is certainly
not ‘divine’ but rather, has a possible fundamental relationship with oppor-
tunity spotting and creativity which has yet to be explored in any significant
way.
In addition to the earlier definition of creativity The Merriam-Webster
Online Dictionary (2008) also defines it as:
& to produce through imaginative skill.
CHAPTER 4: Creativity and the Entrepreneur 72
This is interesting as the definition uses the term ‘imaginative skill’
which suggests that whilst creativity may indeed be innate, it can also be
learned. Until recently, this ability was often regarded as somewhat elusive
or magical because it did not fit conveniently into logical and rational modes
of management theory and practice. De Bono (1971) asserts that whilst
creativity is surrounded by an aura of mystery, it remains a skill which
can be learned using the appropriate techniques so long as rational and
logical thinking are temporarily suspended by the individual. Creativity
requires ‘lateral’ thinking which relies on previous experience and intuition.
Essentially, lateral thinking is a way of framing the world, a problem or an
issue.
Thus the notion that creativity is something either one has or has not is
as ridiculous as the idea that all leaders are born and not made! Intuitively
this sounds incorrect and an increasing body of scientific evidence concurs.
Nonetheless, people have a natural tendency to think in a certain manner.
Much of this depends on upbringing, culture, education and so on.
Daft (2005) refers to this bias as a ‘‘cognitive difference’’ (p. 141) explaining
it as the differences in the way people perceive and assimilate data, make
their decisions and relate to other people. Essentially, the brain has two
hemispheres. According to Ornstein (1975) the right side is associated with
creativity and intuition and the left with logical analytical thinking.
Herrmann (1996) has argued that the brain may be divided into four quad-
rants rather than two halves:
& Upper left
T Logical – analytical – fact-based – quantitative
& Lower left
T Organized – sequential – planned – detailed
& Upper right
T Holistic – intuitive – integrating – synthesizing
& Lower right
T Interpersonal – feelings-based – kinaesthetic – emotional
Adapted from Daft (2005, p. 144).
The fact of the matter is that with both the hemisphere and quadrant
models the intuitive and logical thinking can still be metaphorically applied
to the right and left hand sides of the brain respectively. If the entrepreneur
Creativity: Innate or Learned 73
understands her dominant hemisphere or quadrant, that is, how she makes
sense of the world, other areas of the brain may be developed. In the present
case we have an interest in the creative side of the brain. So can we increase
someone’s creativity? Well, according to Goodman (1997) and others the
answer would seem to be ‘yes’ and there are a number of techniques available
to do so.
Reflective practice
1. Interview a hospitality entrepreneur known to you and ask what role creativity played in
their business success.
2. Ask them what they consider the word ‘creative’ to mean
IDEA GENERATION
To succeed in an ever frenetic and competitive hospitality industry business
founders must be energetic, motivated and driven. Necessarily, the creation of
new ways of doing things, new knowledge and satisfying customers is an
essential skill which entrepreneurs must be able to develop. Indeed in small
hospitality firms, creativity is probably the key competitive attribute possessed
when vying for business against larger corporations; expensive marketing
campaigns would not be possible or effective for example. Creative thinking
may therefore be considered
‘‘. . . a core business skill and effective entrepreneurs lead the way in
applying and developing that skill’’ (Zimmerer and Scarborough, 2002,
p. 37).
Thus, hospitality entrepreneurs stand or fall by their capacity to create.
Creativity comes in a number of guises and may not necessarily concern the
invention of totally new services and products but may be a reconfiguration
of resources and other inputs to develop, modify or customize existing
commercial products. Is it easy to be creative? ‘Yes’ and ‘no’; most people
are, they just need a nudge to think about issues, situations and problems
differently. Interestingly, few of us are exceptionally creative, around 10
percent are highly creative and 60 percent have moderate ability in this area
(Morris, 1996).
The following case illustrates the role of prior knowledge on creativity and
also provides implicit comment on whether ‘degrees’ of creativity are suffi-
cient for business success.
CHAPTER 4: Creativity and the Entrepreneur 74
Identifying Opportunities
It was spotting a gap in the market that gave Laurence Beere the impetus to open the
Queensberry hotel in Bath four-and-a-half years ago. He knewthe city well, having worked for
the Savoy Group as operations director and having had a two-and-a-half-years stint as
general manager of Bath’s five-star Royal Crescent hotel. But when the Savoy Group sold up
to Von Essen hotels, he took redundancy and found himself thinking about opening his own
hotel.
Bath, he says, was an obvious location, not simply because he and his family were based
there, but because he reckoned he knewwhat sort of property the city lacked. What he had in
mind was a boutique hotel, combining modern design with an affordable price tag to appeal
to a slightly younger clientele. He explains: ‘‘I knew the market well and there wasn’t much
competition - and still isn’t - as Bath tends to deliver that chintzy, traditional style. I felt there
was a real opportunity for something young and fresh.’’
Getting finance from the bank proved trickier than he had imagined, though. Beere says:
‘‘I was quite naive about what the banks wanted and, looking back, I’d advise using a broker,
as it can save a lot of time.’’
To make an impact on Bath’s competitive dining scene, they decided to refurbish the hotel’s
restaurant first, updating the decor and adding a bar, rather than upgrading less visible areas
such as bedrooms. Doing this, he says, also earned the hotel valuable PR, which in turn paid
off across the business. Occupancy is 83%, up from 69% when they bought the hotel.
‘‘Plenty of people didn’t think we were doing the right thing,’’ Beere admits. ‘‘Our older
guests looked at us as if we were young whippersnappers, changing what they were used to,
but we always knew that the market was there to support it.’’
That understanding of a changing marketplace was something that spurred on Wendy
Bartlett and Ian Mitchell when they set up their contract catering firm, Bartlett Mitchell.
Bartlett feels that, as former Compass employees with years in the industry, they were well
placed to develop their own niche. Bartlett also feels the company, as a smaller operator is
able to adapt to newtrends more readily than some of its competitors, keeping it ahead in the
industry. ‘‘The sector has really changed in the past 10 years,’’ she says. ‘‘Nowadays,
people look for added value and passion - whether it’s boutique hotels, retail or contract
catering - and that’s a big challenge for some of the bigger, more cumbersome firms.’’
Questions
1. Discuss the role played by prior knowledge in the success of Laurence Beere’s Queen-
sberry Hotel.
2. Comment on how it impacted on his creativity.
Sources: Caterer &Hotelkeeper, August 16, 2007, Institute of Hospitality eJournal Collection,
Gale, Institute of Hospitality 28 Apr. 2008 & www.christie.com
Idea Generation 75
Reflective practice
1. Interview a hospitality entrepreneur known to you and ask how they decided upon their
original business idea.
2. Has their business changed since it started?
3. If yes, inquire how and why.
How Much is Too Much?
How creative does one need to be? This is difficult to answer but given that
most small hospitality firms are under capitalized; the relative economy of
lateral thinking and ability to create new innovations cannot be overstated.
This applies to both individual firms and the sector as a whole. There are
several self awareness tests available which help to determine one’s inherent
creative ability. Their reliability and robustness do not form part of this chap-
ter, however, one should always exercise caution when using such diagnostic
instruments. Figure 4.2 is an example of one such test.
FIGURE 4.2 Recognition of common phrases represented as symbols.
Adapted from: Zimmerer and Scarborough (2002, p. 40).
CHAPTER 4: Creativity and the Entrepreneur 76
After reviewing the evidence, Robbins (2005) concludes that most people
have the capacity for creativity so long as they are stimulated in the right way.
He proposes that creativity is a function of:
& Intrinsic motivation – the desire to apply oneself to a job because it is
inherently interesting and satisfying;
& Creative-thinking skills – personality characteristics associated with
creativity including intelligence, independence, self-confidence, risk-
taking, locus of control and a tolerance for ambiguity; and
& Expertise – when the required technical ability, knowledge and other
proficiencies are present in the individual.
Adapted from Robbins (2005).
The following extract fromanaddress by astrophysicist and Nobel Laureate
Padma Vibhushan Subrahmanyan Chandrasekhar illustrates the role of ex-
pertise in the creative process:
Shakespeare’s education was simple, as Elizabethan education was.
While it sufficed and stood him in good stead, Shakespeare was never
persuaded by scholarship as such. Even so, when Shakespeare arrived in
London in 1587, at the age of twenty-three, he had none of the
advantages of a London background that Lodge and Kyd had, or the
advantages of years at Oxford or Cambridge that Peele, Lyly, Greene,
Marlowe, and Nashe had. There can be little doubt that Shakespeare
was acutely aware of his shortcomings and his handicaps. He overcame
themby reading and absorbing whatever came his way. The publication
of the revised second edition of Holinshed’s Chronicles of England,
Scotland, and Ireland, was particularly timely: it provided Shakespeare
with the inspiration for his chronicle plays yet to come (Chandrasekhar,
2001).
It is of course extremely important for the hospitality entrepreneur to keep
abreast of all related business news and economic and political trends. Before
engaging in techniques designed to enhance personal and organizational cre-
ativity, the entrepreneur needs to prepare. This is essential for anyone wishing
to develop and enhance personal and organizational creativity. Kirby (2003)
agrees noting that full benefits will only accrue if the entrepreneur indulges in:
& reading,
& attending associated conferences and trade events,
& networking,
& developing skills of listening,
& questioning, and
Idea Generation 77
& becoming self-aware, that is, what skills does the entrepreneur possess
and what does she need to do to bridge knowledge gaps.
Fontela et al. (2006) agree and the main characteristics of their ‘Booster
Sphere’ in Figure 4.1 are consistent with Kirby’s notion of preparation:
& Motivation;
& ambition;
& innovation;
& cooperation; and
& proactivity.
Essentially, the entrepreneur must be motivated to create an ideal internal
knowledge base and develop linked attitudes and behaviours in order to cap-
italize on their future creativity. Whilst subsequent ‘good’ ideas may appear to
be spontaneous, the individual responsible with have engaged in a specific
process; some stages of which are deliberate and others such as certain ele-
ments of incubation and illumination are not. This process of creativity is
shown in Figure 4.3.
Whilst the above appears to follow a logical and orderly sequence, the
reality is somewhat different. The creative process tends to be less systema-
tized and more recursive. There are no set time limits (save self-imposed ones)
and the entrepreneur may not always engage in every stage. Much will depend
on the context, competing work pressures and the degree of expertise the
individual already possesses in the field of creativity. For example, one person
may be inherently more creative than another or may be more practiced at the
process.
Key point 4.3
There is no secret to creativity; it can be learned. However, there is no substitute for sound
preparation such as background reading and acquisition of related knowledge from other
areas. This will help increase the chances of generating creative yet practical ideas.
Many of the above stages are illustrated in the following case but there is an
emphasis on ‘preparation’.
Close Contest (Management of Entrepreneurs).
By Emma Allen
Successful entrepreneurs rely on more than just flair to build their businesses. Most do a lot of
local research, while some even set up on their former employer’s doorstep.
CHAPTER 4: Creativity and the Entrepreneur 78
Someone newto the area might have thought that the Lygon Arms (left) had the market sewn
up in Broadway, but his local knowledge meant that Barry Hancox could see the gap in the
market that allowed him to open his own venture, Russell’s.
As any successful entrepreneur will tell you, one of the tricks to setting up a thriving business
is to do your research first. However, no amount of investigation can beat having strong local
knowledge built up by first-hand experience working in the area where you intend to buy.
Knowing who your customers are, understanding trading patterns and, crucially, knowing
whether there are any unfilled gaps in the local market will all give you a competitive edge.
For hotelier Barry Hancox, being able to take advantage of all of these helped to establish his
new venture when he opened Russell’s, a restaurant with seven rooms in the quaint
Worcestershire village of Broadway, nearly three years ago. The move was more a change of
view than a relocation for Hancox. Before taking on Russell’s, he had been general manager
at the four-star Lygon Arms hotel, just 200 yards up the road, where he had worked for 16
years.
While Hancox hadn’t planned it, having such a detailed understanding of the local market
was, he says, invaluable. Not that the idea was to create a second Lygon Arms. He and his
business partner, Andrew Riley – who previously owned the Broadway hotel, in the same
village – had a clear vision of what they thought the market needed, and their focus was on a
much more contemporary feel than the more traditional Lygon. Hancox explains: ‘‘We knew
the village needed a good restaurant, and that people were looking for decent food without
the stuffiness - we got in just at the right time. And because we had this huge space up-stairs,
we decided to add bedrooms. The concept just snowballed.’’
There have been clear advantages, however, such as being on the spot to secure the site – an
old design workshop on the village high street. Hancox and Riley say that understanding
seasonal fluctuations in a touristy area was enormously helpful in their early days, while
having good corporate contacts has been useful for building midweek trade. They both also
feel that raising finance would have been much more difficult without their combined local
knowledge. We weren’t seen as such a risk.’’
Hancox also reckons that in some respects he and Riley have a bit of an edge over the Lygon
Arms. ‘‘The Lygon never got that involved with the local trade,’’ he explains. ‘‘It was probably
seen as a bit intimidating, a bit stuffy, but we’ve always had strong support, which you need in
a small place like this.’’ Part of that has been down to well-pitched pricing, such as the
restaurant’s early-evening fixed-price dinner menu, which has drawn in the area’s ‘‘silver’’
clientele. The accommodation is also doing well, with all seven rooms fully booked at
weekends throughout the summer.
Questions
1. List and comment upon the preparation undertaken by Barry Hancox.
2. How did this impact upon his ability to be ‘creative’?
Source: Caterer and Hotelkeeper, August 16, 2007.
COPYRIGHT 2007 Reed Business Information Ltd.
Idea Generation 79
FIGURE 4.3 The creative process.
Adapted from: Zimmerer and Scarborough (2002, pp. 52–55).
CHAPTER 4: Creativity and the Entrepreneur 80
Similar to the above figure, Barringer and Ireland (2006) also consider
creativity as a process noting that successful founders have the ability to
recognize opportunities. They argue that creativity is the process of generating
a novel or useful idea of which opportunity recognition is part and may
therefore also be a creative process; this is shown in Figure 4.4.
Here the process is also viewed systematically moving from preparation to
final elaboration with appropriate feedback loops. It also tacitly acknowledges
that creativity is enhanced by the entrepreneur’s prior experience, cognition,
ability to network and their knowledge of the area. This makes absolute sense,
for example, how can a chef patron create new and exciting dishes without
understanding current eating out trends, fashionable menu items, what her
market will stand and how to cook?
It is one thing for the hospitality founder to be creative when their business
is small but quite another to maintainand encourage creativity inothers as the
hotel grows. Several ‘creative’ strategies and ideas can be implemented to keep
the hospitality founder and her employees motivated. Figure 4.5 shows a
number of key individual and organizational enhancers and detractors.
In addition to the specifics of the creative process shown in Figures 4.3
and 4.4, the above are other behaviours in which the hospitality entrepreneur
may engage. These are designed to optimise individual creativity and to
establish an organizational culture that incubates and perpetuates similarly
across the whole firm. Many of the enhancers and barriers to creativity are
FIGURE 4.4 Creative idea generation.
Adapted from: Barringer and Ireland (2006, p. 38).
Idea Generation 81
intuitive and therefore not problematic to identify. Therefore with careful
planning, they could be applied in small hospitality organizations without
too much difficulty. Moreover, creative behaviours are not difficult to master
and a number of techniques and exercises are available in several formats
ranging from self-help to consultancy workshop formats.
Key point 4.4
In order to enhance creativity in the workplace the entrepreneur must develop an
appropriate culture through engagement with employees and modelling the desired
behaviours.
APPROACHES AND TECHNIQUES
It is important to recognize that thousands of people come up with thousands
more ideas every day, not all are successful, nor will they be pursued.
Entrepreneurs must therefore not only be creative but also innovative so that
FIGURE 4.5 Barriers and enhancers: creativity.
Adapted from: Barringer and Ireland (2006) and Kirby (2003).
CHAPTER 4: Creativity and the Entrepreneur 82
the idea may be applied and realize its full potential. Insimple terms, creativity
becomes the thinking part whereas innovation is the doing or undertaking of a
creative idea. Innovation, its relationship with creativity and role within the
creative process are discussed further in Chapter 5. Moreover, being creative is
about more than coming up with one brilliant and insightful idea but rather
about creative consistency of the founder and their employees. When hospi-
tality entrepreneurs manage to gain competitive advantage over other organi-
zations through implementing a creative idea it never lasts for long. The
composite product (accommodation, food and beverage) is rather limited
and there are only so many configurations available to the customer. It there-
fore becomes increasingly difficult to think of creative ways to secure business.
However, the most successful entrepreneurs manage to spot opportunities and
exploit them through creative thinking. Indeed, the hospitality industry typ-
ically progresses in a uniform manner for given periods of time and then
‘spontaniously’, someone introduces a new concept which is then adapted
and customized by other founders; the pattern repeats itself. For example, the
impact of MacDonald’s on the restaurant industry was so profound that it
gave birth to the fast food industry. Prior to this, diners had produced the same
old fare in the same old manner since the turn of the last century. The
MacDonald’s concept remains vital today and has been adopted and adapted
on an almost ongoing basis.
Key point 4.5
In order to be creative, entrepreneurs must develop the ability to think laterally.
Accor’s concept and design of the Formula 1 accommodation some twenty
years ago was an extension of the traditional Motel. However, the original
hotels had an identifiable design with little in the way of luxury. This was
entirely appropriate for an increasingly mobile and utilitarian customer base.
Since the 1980s the design has been changed regionally to appeal to an inter-
national clientele in Belgium, Germany, Great Britain, The Netherlands,
Spain, Sweden, Switzerland, South Africa, Australia, Brazil and Japan, but
the core underlying principle of this brand remains.
Another example is the early success of ‘conveyor belt’ or Kaiten-zushi
Japanese Sushi restaurants where food is delivered on a conveyor belt akin to a
traditional automotive production line process. The original idea was born
froma failure to recruit enough suitably qualified restaurant staff. The founder,
Yoshiaki Shiraishi, was inspired by observing beer bottles moving around a
Japanese brewery. The opening of the first restaurant in the late 1950s was
Approaches and Techniques 83
followed a decade after by others numbering over 200. Since then these restau-
rants have enjoyed spells of popularity but all are based on Yoshiaki’s original
idea. A more recent and highly successful adaptation is the YO!Shushi chain.
Ten years ago the founder British entrepreneur Simon Woodroffe established a
number of modern hi-tech sushi restaurants in the UK; eleven more have
opened internationally. Nowhe has diversified into the accommodation sector
(YOTEL) and other retail areas. In true entrepreneurial fashion a portion of the
YO! Company’s website reads:
‘‘YO! was always destined to be a retail brand and just happened to be a
sushi bar in its first manifestation.’’ (Mark Norton, designer of the
original YO! Logo)http://www.yocompany.biz/retrieved May 2008.
Interestingly, Woodroffe considers his business to be retail-based rather
than hospitality oriented. In a sense this has allowed him to think unconven-
tionally and creatively about his next venture which in turn has enhanced his
ability to spot opportunities. Currently, his business interests range from
restaurants to architecture and construction!
The following case also showcases creativity through opportunity spotting.
How we Got Started
Entrepreneur Margaret Dunford, 63, got her first taste of the licensed property market 27
years ago when she bought the lease to a run-down pub in Aldershot, Hampshire, with
her then partner. For the first three months the business didn’t make any money.
However, having noticed that there were lots of bedsits in the area, Dunford decided to
launch a take-out service providing cheap meals. Turnover quickly picked up after that.
When the customers brought the plates back they would often stop for a drink. For her
next business Dunford bought a house and turned it into a seven-bedroom B&B – ‘‘one
of the easiest businesses to start’’ – having persuaded the bank to give her 100%
financing.
An early guest at the B&B was a space shuttle engineer who was working on a simulator
nearby. He liked it so much that he recommended it to his colleagues and she received a lot
of trade from them after that, including the astronaut Bill Shepherd. Demand was such that
she persuaded her bank to lend her the funds to open another B&B to cater for them. When
the engineers’ contract ended some six months later she promptly sold the second property
for a profit. But the relationship didn’t end there. NASA invited her over to Florida to see a
shuttle launch and she would later buy a home and a motel business there.
Three years later Dunford sold the motel for a profit. Other properties followed when she
returned to the UK, including a pub in Andover, Hampshire, which she later sold for [pounds
sterling] 400,000, making [pounds sterling] 190,000. Her latest venture is the Woodlands
Cheese & Cider Barn & Tea Rooms, situated at the foot of Cheddar Gorge, Somerset, which
she recently bought through business transfer agent Redwoods. ‘‘Most people don’t
CHAPTER 4: Creativity and the Entrepreneur 84
succeed in business because they don’t want to work at it. But I’m a workaholic,’’ she
laughs.
Source: ‘‘howwe got started.’’ Caterer &Hotelkeeper, Sept 30, 2004), Institute of Hospitality
eJournal Collection, Gale, Institute of Hospitality, 28 Apr. 2008
COPYRIGHT 2004 Reed Business Information Ltd.
RESEARCH AND EXERCISES
The ability to generate ideas is a key skill for the hospitality entrepreneur. This
is not to say that all will develop into successful business opportunities but
becoming practiced in creative techniques is essential. Some approaches are
simply data collection procedures such as surveys where information is col-
lected from a sample of individuals. Others focus on the individual through
self-development exercises, some examples appear below.
& Research oriented approaches
T Surveys
When using research-oriented data collection approaches the
normal protocols apply in order to ensure data is robust and reliable.
For example, survey instruments used must be simple and questions
should be easy for participants to understand. More fundamentally
the sample should be selected randomly and be large enough to
permit useful analysis. On the other hand and in a more practical
sense, some informationis better thannone for the small hospitality
entrepreneur. Indeed, small operators will not necessarily have the
resources available for a full blown scientific survey; in a sense, this
is not always appropriate anyway. The hospitality entrepreneur may
be considering the introduction of a new menu for their small
provincial restaurant. Would a randomsurvey of thousands within a
radius of 200 kilometres be appropriate in this instance? Probably
not but anexisting list of regular patrons could be used to good effect.
T Focus groups
Another method of collecting large amounts of information
efficiently is through the use of focus groups. It is normal to have no
more than 12 group participants who have an interest in the matter
being debated. This format allows open discussion and because it is
a ‘softer’ way to elicit opinions and information, novel ideas will
often emerge. The group usually has one or preferably two
moderators. One tends to lead the discussion around a fewcarefully
chosen themes whilst the other records the information on a flip
Research and Exercises 85
chart or takes notes. There is little that cannot be debated in a focus
group and the discussions contain much rich qualitative data.
Questionnaire surveys do not always deliver data of this quality
unless there are hundreds of questions being posed. Forms
containing too many questions are cumbersome and therefore of
limited value. However, focus groups have some negative associated
outcomes if the entrepreneur is inexperienced at coordinating such
events. For example, it is easy to miss key items of information due
to the richness of the group debate. It is also possible for one or two
members to dominate the discussion. Coordinators must be able to
identify this behaviour early on in the session and take the
appropriate remedial action.
T Other techniques
Approaches like the ‘Delphi Technique’ use the collective
knowledge of industry experts to predict hospitality futures. These
individuals would include senior members of allied international,
national and regional associations like the World Tourism
Association, the UK-based Institute of Hospitality, the Queensland
Hotels Association (Australia), advisory board members, family,
friends, local Chambers of Commerce and so on.
T Brainstorming
This is a common form of training in creativity and its practice is
widespread. These events have the capacity to generate many ideas
in a short space of time. The set up is similar to that used in focus
groups with a moderator/coordinator, flip chart and so on. The thing
which differentiates brainstorming is that no logical evaluation of
ideas is permitted. Obviously, there will be some differences
depending on context, specific purpose and actors but all forms
forbid criticism of anyone’s ideas. This is because first, criticism
makes use of the non-creative left side of the brain; second, nothing
is more effective in stifling ideas than criticism. The purpose during
the early part of the session is quantity of ideas rather than quality.
The more outrageous or seemingly bizarre ideas sometimes prove to
be the most effective stimulators of creativity; carefree expression
should be encouraged by the moderator. Sessions should also move
along a fast pace, this encourages people to react to ideas of others
without having the time to engage logically or rationally.
& Self-development
These tests and exercises are not definitive but should be considered
more as techniques and tools to help the process (making sure you
CHAPTER 4: Creativity and the Entrepreneur 86
select the most appropriate for the job in hand). For example, the
techniques may be divided in to several categories ranging from
defining a problem and idea generation to selection and
implementation.
T Boundary examination
An example of a technique designed to help define problems is
known as ‘Boundary Examination’. Essentially the problem
boundary is the container, which separates highly relevant items
existing inside the boundary fromless relevant ones existing outside
the boundary. If the boundary has been provided for you because
another person has defined the problemit will be inherently skewed
towards their understanding as well as your own. Thus the
boundary setting itself may become part of the problem. De Bono
(1994) recommends a method designed to bring potentially relevant
aspects back into awareness.
- Write down an initial statement of the problem.
- Underline key words.
- Examine each key word for hidden assumptions. Agood way to do
this is to see how the meaning of the statement changes if you
replace a key word by a synonym or near synonym.
- Having explored howthe particular choice of key words affects the
meaning of the statement, see if you can redefine the problemin a
better way.
- The aim is not necessarily to change the position of the boundary
but rather to understand more clearly how the wording of the
problem is affecting our assumptions about the boundary.
Retrieved from ‘‘http://www.mycoted.com/Boundary_
Examination’’, May 2008
T Talking pictures
Another technique, this time for idea generation is called ‘Talking
Pictures’ (Clegg and Birch, 2008) and is most effective when groups
are failing to come up with new business ideas. Individuals should
be divided into teams with each being given a digital camera and
access to a printer. Allow the teams a short fixed time away from
their immediate area and ask to take pictures of unusual objects and
from unusual angles. Reconvene the session with all teams and
invite to distribute their pictures to the other groups. Advise each
teamto use the pictures provided to create associations that occur to
themand then use these associations for idea generation. At the end
of the session you can either collect all of the ideas together by
Research and Exercises 87
writing themonto flipcharts or you can ask the groups to have listed
their own and have these displayed for general perusal.
This technique uses random stimuli as an excursion with the
advantage of a challenge/competition thrown in. The humour
generated from the unusual objects/angles also raises the energy
levels of the group, along with the fact that they have been up and
moving about.
Retrieved from ‘‘http://www.mycoted.com/Talking_Pictures’’,
May 2008
T Other random stimuli examples
Several authors recommend the use of random stimuli of various
kinds and a formal approach may look like this:
- Identify your criteria for ideas – e.g. ideas for solving a problem or
tackling some aspect of it, an idea to be built on, a hypothesis to be
investigated, etc. Spend some time on this stage for better-quality
outcomes later.
- Pick a stimulus at random, by looking or listening to everything
around you indoors and outdoors, something that catches your
attention, opening a newspaper, dictionary, catalogue, book of
pictures, throwing a dice at random or any other method that
appeals to you.
- You should nowrelate this randomstimulus back to your original
problem; this could be done using simple free association.
- On the other hand you could go for a full excursion by describing
the stimulus (howit works, what it does, what effects it has, howit
is used, size, position, etc.). Followed by ‘force-fit’ pieces of this.
comprehensive description back to the problem to recommend
relevant ideas.
- Should a random stimulus fail to work, pick another and keep
trying.
& Combining fixed and random elements
T Choose a specific element of the problem and name it the ‘fixed
element’.
T Now select a random stimulus via any chosen method and free-
associate the way in which these elements could be combined.
You can convey these directly to the problem, or use the 2-
element combination itself to trigger additional ideas.
T Now select a new random stimulus, repeat the process with the
same ‘fixed element’ and after several cycles of this choose a
fresh fixed element and repeat.
CHAPTER 4: Creativity and the Entrepreneur 88
& Select two to three grammatically random stimuli
T Noun + verb;
T Adjective + noun;
T Verb + adverb;
T Noun + verb + noun.
T Try to create an unusual phrase, for example if you observed a
school and a plane flying overhead, that might yield phrases such
as ‘flying school’ or ‘teaching flying’. You could free associate
further phrase combinations from the one created so ‘flying
school’ might generate ‘elevated learning’, and so on.
Retrieved from ‘‘http://www.mycoted.com/Random_Stimuli’’, May 2008
Examples of other creativity exercises may be found at the following URLs:http://www.lifehack.org/articles/lifehack/essential-resources-for-creativity-
163-techniques-30-tips-books.htmlhttp://www.brainstorming.co.uk/tutorials/creativethinkingcontents.htmlhttp://www.members.optusnet.com.au/charles57/Creative/Techniques/in-
dex.htmlhttp://www.virtualsalt.com/crebook2.htm
Reflective practice
1. Given the frenetic pace at which small hospitality firms operate, discuss how you
would maintain personal and organizational creativity whilst engaged in managing the
organization?
SUMMARY
Creativity or the ability to think creatively is an essential part of the small
hospitality entrepreneur’s toolkit. It plays the key role in differentiating one
small firm from another. Indeed, it also allows small independent hospitality
firms to compete with their larger affiliated counterparts. As such, entrepre-
neurs must have an innate or learned ability to think laterally and originally if
they are to survive in the marketplace. Furthermore, being creative is not a
temporary fix but rather a lifelong commitment to ensure the long term
sustainable survival of the small hospitality business.
Few individuals are fortunate enough to possess significant amounts
of innate creativity. However, evidence suggests that creativity can be learned
provided the entrepreneur is motivated to do so and has the required
Summary 89
knowledge and field expertise. This may be achieved by careful planning,
attention to detail and preparation. Stages typically involved in this
process are:
& preparation,
& investigation,
& transformation,
& incubation,
& illumination,
& verification, and
& implementation.
The creative process is not necessarily linear or logical but rather recursive
and organic. In fact, the very act of being creative requires the entrepreneur to
first think in a lateral fashion. For some this is a challenge as traditionally
western management theories promote rational and analytical thought pro-
cesses using the left hemisphere of the brain.
As small firms grow the founder often becomes compelled to act more as a
manager than creator. This inevitable pressure to ensure policies, procedures
and controls are in place tends to stifle lateral thinking and all but eradicate
creativity. There are a number of simple behaviours in which the entrepreneur
can engage to ensure that:
& they remain creative,
& individual workers remain creative, and
& the organization develops and maintains a culture of creativity.
Examples of each include dealing with employees as equals, protecting
those who make honest mistakes and embracing ambiguity. The founder
should also model creativity, support champions and use diversity in the
workforce. Furthermore, the creative entrepreneur should beware of cynicism
or negativity, intolerance of high spirits and ‘play’ in the workplace and relying
on former solutions to earlier problems.
Specific techniques designed to promote creative thinking and decision-
making are wide ranging but some of the more common ones include collect-
ing stakeholder data via surveys, focus groups and use of Delphi-type techni-
ques from industry experts and associated agencies and other international,
national and regional organizations. Each of these approaches must be care-
fully planned and managed as each has inherent strengths and weaknesses.
For example, focus groups are good for collecting qualitative (rich) data but
facilitators must be experienced enough to prevent certain participants from
dominating others in the session as information will be skewed. Similarly,
surveys using questionnaires have the advantage of collecting large amounts
CHAPTER 4: Creativity and the Entrepreneur 90
of information but it may be of limited value particularly if the formis lengthy.
This is because participants tire easily and often fail to take sufficient notice of
questions towards the end of the survey. Telephone surveys also suffer from
this problem especially if category choices have too many response options.
Notwithstanding these challenges, the entrepreneur must ensure any research
undertaken is appropriate for their business. Often a simple approach such as
visits to competitors establishments may be sufficient for creative inspiration.
At a self-development level, many creativity training courses are available
should the hospitality entrepreneur wish to take advantage of them.
Case author
Nancy Chesworth
Department of Business and Tourism
Mount St. Vincent University
Canada
Summary 91
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Innovation, Opportunity
and Protection
After working through this chapter you should be able to:
& Understand the role innovation plays in the entrepreneurial process
& Recognize the relationship between creativity and innovation
& Understand the processes behind spotting opportunities and developing a
new idea
& Recognize the importance of protecting intellectual property in the
hospitality industry
Bannatyne Concept Hotel Launch
Bannatyne Hotels Ltd. has unveiled plans for an innovative concept in Norwich (UK) where
guests can book rooms online for as little as $35 AUD a night.
The hotel, planned for the site adjacent to Bannatyne’s Health Club in Thorpe St Andrews,
will reverse the discount principle applied to late bookings.
Here, the earlier the booking, the cheaper the room will be.
The company opened its first early booking concept in Durham in early 2007, which is
already proving a big hit with business travellers and tourists visiting the North East of
England.
‘Affordability is the key and there are not many hotels that offer
guests modern and comfortable accommodation at such low prices,’
says Nigel Armstrong, managing director of Bannatyne Hotels Ltd.
Questions
1. What underpinned this innovation?
2. What role did creativity play in identifying and establishing a new reservations system?
3. Is the new reservations system an incremental or radical innovation?
4. How easy do you think the Bannatyne concept will be to imitate?
CHAPTER 5
93
Source: Hospitality (2007, p. 8), reproduced with permission
TOWARDS INNOVATION
Most writers in the field of entrepreneurship recognize the importance of
innovation in the business cycle, ranging from Schumpeter’s (1934) ‘creative
destruction’ thesis (see Chapter 1) to more contemporary individuals like
Handy (1990) and Shane (2003). However according to Davila, Epsein and
Sheltonet (2006) authors often use the term innovative and creative inter-
changeably. This suggests that innovation and creativity are linked in some
way. Kirby (2003) notes that innovation it is difficult to define because it is a
process that could apply across a range of entrepreneurial activities. These may
be based on product or process such as the use of high production technology
or implementing and observing a process of change. He concludes that inno-
vation is best understood as a series of principles or steps by which an end
product or service is created. Amabile, Conti and Coon (1996) lend some
support to this idea and consider that:
‘All innovation begins with creative ideas. . .We define innovation as the
successful implementation of creative ideas within an organization. In
this view, creativity by individuals and teams is a starting point for
innovation; the first is necessary but not sufficient condition for the
second’ (pp. 1154–1155).
By way of summary two notions of innovation are shown below:
& the successful exploitation of new ideas (Department of Trade and
Industry, UK).
& A creative idea that is realized [(Frans Johansson)] (Harvard Business
School Press, 2004) (http://en.wikipedia.org/wiki/Innovation, 2007)
Both the above suggest that innovation is a process by which creativity is
harnessed and transformed. For an individual to be innovative they must first
have creative insight and then the ability or tools to exploit the insight for
profit. Thus, innovation is more rational than creativity or as Davila et al.
(2006), write:
‘Innovation, like many business functions, is a. . .process that requires
specific tools, rules, and discipline’ (p. xvii).
How important is innovation in the entrepreneurial process?
Drucker (1985) leaves us in no doubt and states:
CHAPTER 5: Innovation, Opportunity and Protection 94
‘Innovation is the specific tool of entrepreneurs, the means by which
they exploit change as an opportunity for a different business or a
different service. It is capable of being presented as a discipline, capable
of being learned, capable of being practiced . . . And they need to know
and to apply the principles of successful innovation’.
Although Drucker does not mention creativity above, in the present
context innovation and creativity are inextricably linked in the entrepre-
neurial process with the aim of generating a profit. In short, contemporary
innovation in organizations is about change. In such a fast-paced global
trading environment, innovation is now a necessity rather than an optional
extra and together with creativity is crucial elements of the entrepreneurial
process. Thus, entrepreneurs should be both creative and innovative
and have the ability to think laterally. Innovation is therefore the logical
and systematic focus of the process because creative ideas do not auto-
matically succeed nor do they take themselves to market. Drucker (1985)
considers innovation as the process of ‘opportunity spotting’ and some-
thing that can be learned and practiced relatively easily because it is logical
and systematic; no more, no less. Diagrammatically, it is shown in
Figure 5.1.
Although the topic of creativity is dealt with elsewhere in this book, its
relationship with innovation and entrepreneurship is worth revisiting.
Kirby (2003) considers that:
‘. . . creativity is the ability to think new things whilst innovation is the
ability to do new things’ (p. 132).
CREATIVITY AND ENTREPRENEURSHIP
If individuals are to be successful entrepreneurs it seems clear that they need to
be creative, innovative and entrepreneurial. This is a tall order because each of
FIGURE 5.1 The innovation process.
Creativity and Entrepreneurship 95
these elements require different (but overlapping) abilities and skills. Often,
convening groups of individuals with these attributes can improve the chances
of fashioning a creative idea into an innovative marketable product. This is
something that was recognized very earlier in the career of Bill Gates founder
of Microsoft Corporation:
‘We were young, but we had good advice and good ideas. . .Our success
has really been based on partnerships from the very beginning.’
Source:http://entrepreneurs.about.com/od/famousentrepreneurs/a/quota-
tions.htm, 2007.
However, whether teamor individual-based, this does effect its relationship
between with innovation and entrepreneurship. Several models are available
and most view this association as a linear logical process as shown below in
Figure 5.2.
In reality, the above is a simplified version of the complex interactions
between and among the espoused three-stage process. Additionally, two envir-
onments areas of push and pull factors impact on creativity, innovation and
FIGURE 5.2 A process model of creativity, innovation and entrepreneurship.
Adapted from: Schaper and Volery (2004, p. 61).
CHAPTER 5: Innovation, Opportunity and Protection 96
entrepreneurship. For example, the former might consist of advances in sci-
ence and technology (drugs, information communications technology and
other developments) and the latter a combination of new market needs and
societal necessities. For example, the above model helps us map the Landmark
Hotel’s (Landmark Hotel Company Ltd. UK) adoption of a fully integrated
‘chip and Pin’ management information solution to improve guest service,
time and cost saving.
Pilot Rollout Proves Valuable
The Landmark Hotel Company Ltd. along with the Royal Lancaster and K-West, is one of the
capital’s exceptional five-star hotels and has been billed as the UK’s first major hotel to go live
with a fully integrated ‘chip and Pin’ solution in the hospitality sector.
‘When chip and Pin was introduced in the UK in 2003, the card processing industry was
simply not ready for hospitality’ explains Alastair Brown, systems manager at the Landmark.
‘As a result there was a huge amount of planning and testing to be done on already integrated
systems which now had to work with chip and Pin.’
‘The Landmark is unique in the UKin as much as we are the only major hotel, as yet, to have a
fully integrated chip and Pin system for your MICROS-Fidelio property management system’
explains Kevin Byrnes, reception manager. ‘It is this integrated model which makes it so
interesting and different.’
The fully PCI integrated PC-EFT (chip and Pin) solution was installed at the Landmark in
February 2007 to handle the entire hotel’s card processing – with bars and restaurants to
follow at a later date. It is linked to the FidelioV.6 property management system and the
MICROS 3700 Point of Sale systemis to follow. In turn PC-EFT drives four pin entry devices at
the front desk, handling check in and check out.
The solution uses the PC-EFT supervisor model to report on all transactions madder in the
hotel providing a complete management and reporting package for the finance and
accounting functions.
But both Brown and Byrne acknowledge that this point of difference between the Landmark
and other hotels will be short-lived as the companies that installed the systemhave very long
waiting lists.
Questions
1. In terms of creativity, what is the relationship between the Landmark Hotel’s management
and the manufacturer’s of the ‘chip and Pin’ system?
2. In light of the above, which group is the more creative?
3. How are creativity and innovation linked in this case?
Creativity and Entrepreneurship 97
Source: Hospitality (2007, pp. 12–14), Reproduced with permission
Bolton and Thompson (2000) tie creativity with entrepreneurship as the
appropriate context for ideas to become reality. Figure 5.3 helps to clarify their
position through a matrix arrangement proposing a relationship between
creativity and entrepreneurship.
Here the relationship between creativity, innovation and entrepreneurship
is explained in terms of four quadrants. Quadrant B shows the entrepreneur as
a struggler. Ideas are rampant but many are ‘half-baked’ with the individual
having little innovative and entrepreneurial ability to turn ideas into market-
able commercially exploitable products and services. In quadrant D, the indi-
vidual has no innate ability to be creative, innovative nor entrepreneurial. In
quadrant C, things area little different where the firm is not creative but has
the ability to copy and perhaps be incrementally innovative to improve the
product or service. Quadrant A is the only one of the four where creativity,
innovation and entrepreneurship flourish.
Reflective practice
1. To which quadrant do you think most small and micro hospitality businesses belong?
Explain your answer?
FIGURE 5.3 Creativity and entrepreneurship.
Adapted from: Burns (2001, p. 51).
CHAPTER 5: Innovation, Opportunity and Protection 98
IDENTIFYING OPPORTUNITIES
Identifying opportunities for developing ideas is a key ability or skill which
entrepreneurs must already have or acquire. Broad influences on opportunity
identification include demographic changes, changes of public perceptions
through shifting tastes, fashion and culture and new knowledge. Entrepre-
neurs must continually scan and observe environmental trends if they are to
identify upcoming opportunities. Barringer and Ireland (2006) advocate the
use of a PESTanalysis shown in Figure 5.4 to help entrepreneurs in this quest.
This technique is incredibly powerful for environmental scanning.
Obviously, a very detailed information requirement will need extra resources.
However, this is a time consuming exercise and many entrepreneurs can
instead use the services of dedicated research firms for their benefit. Services
vary depending on which firms are used for this purpose but typically they
should provide the entrepreneur with access to a wealth of information,
opportunities to attend entrepreneurial conferences, lists of potential inves-
tors and so on. Rigorous application of such analyses has enabled certain
entrepreneurs to flourish whilst others have failed.
FIGURE 5.4 PEST analysis for identifying a new hospitality product.
Adapted from: Barringer and Ireland (2006, p. 31).
Identifying Opportunities 99
Hospitality Entrepreneur Leads the ‘inn’ Crowd
Years ago, Stephen Zimmerman discovered a formula for success in the volatile hotel
business; think big, but stay small – six rooms small, to be exact. Add an exclusive French
restaurant that caters to the romantic set, and the recipe is complete.
‘Even with the ups and downs of this business, romance never goes out of style,’ says
Zimmerman, comfortably perched in the cozy library of his historic hotel, La Colombe d’Or.
‘It’s romance that sells.’ More than two decades later, the formula still seems to be working
for Zimmerman, whose European-style chateau has remained one of the most sought-after
restaurants and inns in the city.
Aside from servicing Houston’s economic elite, the hotel has played host to a parade of
glitterati running the gamut from former President Bush to Madonna to Bishop Desmond
Tutu. Since it opened in 1980, La Colombe d’Or has, for the most part, flourished – a major
feat in an industry laden with ups and downs in a city that has seen scores of hotels and
restaurants go belly up.
Through clever marketing campaigns, environmental scanning, consistent service and
small, yet significant, improvements over the years, Zimmerman has accomplished what
most all businesses look for – staying power. His friends chalk it up to foresight and vision.
‘He’s an up front guy who is mentally very agile,’ says Dr. Malcolm Gillis, president of Rice
University and a longtime friend of Zimmerman’s. ‘He has interesting ideas all of the time.’
Source: Nancy Sarnoff, Houston Business Journal, May 23, 2003,http://www.bizjournals.
com/houston/stories/2003/05/26/story5.html, 2007
Opportunities may also be viewed as symptoms of a problem emanating
either from the hospitality firm or its industry. Typically these symptoms
include the unexpected, incongruity, inadequacy of processes and changes in
the industry or market. Vyakarnham and Leppard’s (1999) ‘Why Why?’
technique may be applied to any of these symptoms to reveal the true
problem. Essentially, a symptom is identified, for example, diminishing
productivity in the restaurant kitchen. The question is ‘why?’ The symptom
is then broken down into a number of composite possibilities, for example,
‘untrained chefs,’ ‘untrained waiting staff,’ ‘poor quality raw materials’ and
so on. Each of these area in turn is then subjected to another round of ‘why?’
questions. Eventually when all rounds are exhausted the real problem
emerges.
Key point 5.1
Creativity and innovation are linked but different. Innovation is a systematic and logical
process with the aim of developing a creative idea into a commercially robust product or
service.
CHAPTER 5: Innovation, Opportunity and Protection 100
There are other ways of identifying opportunities, however, and many
entrepreneurs go with their instincts especially if they have had a number of
earlier successes. However, initial accomplishments often breed an inflated
sense of confidence and business invulnerability. The business world is full of
failed enterprises because the individual was overly confident having a false
notion of their ability to spot and exploit an opportunity. The following case
underscores this point when Clive Sinclair tried to move his idea of a small
electrically powered passenger vehicle to market.
The C5
Sir Clive Sinclair a British entrepreneur enjoyed significant success as inventor of the world’s
first electronic pocket calculator in 1972 and the UK’s first mass market ZX80 home
computer in the 1970s and ZX Spectrum early 1980s changing the face of home-based
computer gaming. Sinclair was fascinated by electronics and miniaturization and some time
after his initial successes embarked on development of the ill-fated Sinclair C5. This was a
one-person, three-wheeled vehicle using a small motor powered by rechargeable batteries
promoted by Sinclair as a revolutionary advance in personal transport with the potential to
replace the car. In fact, it was not a car at all but was instead a glorified electric tricycle,
powered by an electric battery with a supplementary pedal drive. The C5 was fraught with
design flaws not well received by the press or the public and was not nearly as successful as
Clive’s earlier products. Attracting controversy and derision in equal measure, the C5 fiasco
ended up having a catastrophic effect on Sinclair’s finances. Losses of up to £7 million
eventually forced the company to sell its computer business to Amstrad.
Adapted from:http://www.thebubbleburst.co.uk/bb.php?entry=Clive%Sinclair, 2007http://www.nvg.ntnu.no/sinclair/vehicles/c5.htm, 2007
However, opportunities are identified, they must be further explored prior
to engaging in a full blown feasibility study. An idea can be explored initially
using a concept model. This is not usually as detailed as the fuller feasibility
study but at the very least must include four essential items. A concept model
for a new intranet system in a hotel group is shown in Figure 5.5.
Once the idea has been expressed it may be tested or ‘piloted’ on people
known to you such as family and friends. Issues which detract from the idea
are every bit as important as those which appear to support it; therefore, both
need careful consideration. How are you going to achieve this? At this stage,
entrepreneurs also need to be totally honest with themselves asking critical
questions such as:
& How interesting is this idea to me?
& How interesting is it likely to be to others such as investors?
Identifying Opportunities 101
Introspectionat this stage is vital. Be honest, are youbeing overly subjective
with this idea? A simple cautionary note here should not be underestimated
and whilst you need to be motivated intrinsically:
do not fall in love with your own business idea.
There are many pet projects pursued by entrepreneurs against the advice of
others. Whilst it cannot be denied some are successful they are significantly
outweighed by those doomed to failure. Interestingly, these casualties are
frequent in the resort sector of the UK hospitality industry and there are likely
to be myriad of reasons for poor performance. UK seaside resorts are domi-
nated by small hospitality businesses. The town of Blackpool is representative
of this sector with a profile of micro firms managed by ‘one-property’ owners
employing one or two family members. As such, their owners are not moti-
vated by classical entrepreneurial ambitions of growth (Rowson and Lashley,
FIGURE 5.5 Concept model.
Adapted from: Allen (1999, p. 32).
CHAPTER 5: Innovation, Opportunity and Protection 102
2007) but rather are happy for their hotels to simply support their lifestyle.
With this kind of ‘lifestyle’ firm, entrepreneurs have little knowledge of even
the basics of running a successful business and frequently succumb to the
‘deadly sins’ of entrepreneurship. Lashley and Rowson (2006) note that mat-
ters of basic service quality, marketing, business strategy are at worst, non
existent and at best ‘informal’ (p. 1) in these hospitality micro-firms. Business
success in this sector is also hindered because setting up is straightforward and
unencumbered relative to other business areas. For example, no qualifications
are needed, there are no regulatory bodies or special legal requirements (except
those which apply to all business sectors) and private dwellings are easy to
convert into business premises.
Regional trading conditions notwithstanding, the failure rate of small
UK hospitality firms is noteworthy because it appears to contradict some
espoused wisdom. Overall, entrepreneurial behaviour is motivated by two
dimensions. The first is ‘push’ or necessity-driven and the other is ‘pull’ or
opportunity-driven (see Chapter 1). Relative to other nation states, the UK
has a well developed system of alternative incomes and safety nets such
as its welfare system and a diversified labour market. According to
Minniti, Bygrave and Autio (2006), wherever such economic conditions
exist, opportunity-driven entrepreneurship is more common that the alter-
native. Additionally, there is also a tendency for fewer entrepreneurial
failures because business conditions are conducive and supportive of new
ventures.
Key point 5.2
Before realizing a entrepreneurial idea undertake rigorous research; do not fall in love with
your own business.
Why then are there so many failures? Clearly, a lack of business skills
helps to explain the situation. It is also the case that many individuals
expressing the desire to become hospitality entrepreneurs appears to be in
search of an ‘ideal’ or dream of owning their own hotel or restaurant.
Examples of this abound (see Getz, Carlsen and Morrison, 2004) and pop-
ular television programmes such as ‘‘No Going Back’’ serve to illustrate the
point. Typically, couples are featured who, for some reason best known to
themselves, truly believe they can run a small hospitality firm easily with no
prior qualifications, skills or related experience. In most cases, the pro-
gramme is a sad but revealing insight into how not to run a business.
However, this is only one explanation. There is also the restaurant
Identifying Opportunities 103
entrepreneur who has no idea of what customers require. Often this person
is male, qualified as a chef with a notion that the market requires a ‘top
quality’, high price, high ‘mark up’ a la carte or equivalent operation (con-
sistent with his training). Often these craft individuals have been trained at
the top level perhaps working for a number of years in leading metropolitan
hotels and Michelin-rated restaurants. Many UK seaside resorts have wit-
nessed multiple failures of this kind of restaurant entrepreneur.
Lifestyle Proprietorship and Seasonal Trading: Findings from Scotland
In much of Scotland, especially rural areas away from the urbanized Glasgow-Edinburgh
Central Belt, seasonally operating accommodation businesses remain prevalent. This is
despite advances in off-season trade through increasingly more creative destination
marketing campaigns, investment in year round amenities and the gradual spread of lowcost
air routes, among other facilitating factors. Yet few direct empirical links have been
established between lifestyle proprietorship and the seasonal operation of hospitality
businesses. Indeed, there is a fundamental issue as to whether operating an accommodation
establishment in a seasonal business environment is a ‘lifestyle choice’ or simply a pragmatic
response to prevailing conditions.
A recent large scale survey of independent, seasonally run accommodation businesses in
Scotland including bed and breakfast, guest house, small hotel, holiday park and self-
catering operators aimed to explore associations between seasonal trading and lifestyle
attributes. The study captured all known Scottish tourist establishments operating to a
defined sub-annual ‘season’. Among the 700+ respondents, two-thirds of proprietors
claimed to prefer to operate their business seasonally rather than be open year round, whilst
half the proprietors claimed they choose the length of their operating season to fit in with their
lifestyle (Goulding, 2006).
Of course ‘lifestyle proprietorship’ is a subjective and potentially vague notion. However,
underlying the high incidence of seasonal trading preference and lifestyle choice expressed
within the study is a range of intrinsic personal variables which fall into six distinct clusters.
These include:
&
‘work-life balance’ factors, in which the need for rest, relaxation, ‘getting away’ and free
time are paramount;
&
social priorities, including family commitments and broader socialization activities;
&
‘internalized’ factors around the home environment, including privacy, self-occupancy,
having space back;
&
lifecycle, health and wellbeing, including both physical and mental health, energy and
retirement;
&
migration, in which operating a part-time business fits in with enjoyment of an idealized
physical environment;
&
altruism, including concern for the natural environment and local community impacts;
The study also observed that lifestyle proprietorship based on preference and choice, is an
entrenched condition and mindset among Scotland’s small seasonal accommodation
CHAPTER 5: Innovation, Opportunity and Protection 104
operators. The great majority in the study claimed to have always operated seasonally from
business start-up, many of whom were recent entrants into the industry. Neither revenue
maximization nor significant market expansion beyond his/her temporal boundaries appear
to be top priorities for the seasonally trading lifestyle proprietor.
Whilst many external factors are clearly influential in determining supply-side seasonality, the
lifestyle-oriented, seasonally-predisposed small-scale accommodation operator is a fact of
life in the make-up of Scotland’s tourism sector.
Philip Goulding, June 2007
Reflective practice
Approach a small business owner in the small hospitality sector and enquire how they
identified an opportunity for their successful enterprise.
INNOVATIONS BIG AND SMALL
Interestingly, there is a widely held notion that innovation concerns signifi-
cant change or novel concepts; this is not necessarily so. In the majority of
cases, innovations are little more than a repackaging or reconfiguration of
elements into a newformat giving rise to an amended process or product often
through identifying problems and solving them. According to Kottler (2003)
‘Every problem is a disguised opportunity’ (p. 128).
The advantage of minor innovations is that they usually have a low risk
factor, carry a degree of certainty and yield speedy results. They can be adopted
and implemented at relatively little cost and disruption to foregoing technol-
ogies and processes. However, they often only provide small financial advan-
tage for whoever adopts the idea. Volery and Schaper (2004) classify
innovations as ‘incremental’ or ‘radical’. Incremental innovation is not
uncommon in hospitality organizations, for example, consider the efficiency
differences between a full a la carte ‘silver service’ compared with the less
labour intensive and relatively uncomplicated production and service style of a
table d’hôte system. A similar benefit can be observed when comparing the
table d’hote service with fully ‘plated’ food service. Obviously, before the deci-
sion is taken to replace the full silver service with something less theatrical,
the entrepreneur must be sure that the market will accept the innovation.
Similarly, in the public and large-scale catering sectors innovations of cook-
freeze and chill-freeze food service styles have become increasingly popular.
Innovations Big and Small 105
Not only are these systems more cost saving than a more traditional style of
production and delivery but they are also alleged to preserve more nutrients in
the food which has obvious benefits for recovering patients.
Another example of innovation linked to the hospitality sector is that of the
‘laundry service’. In the hospitality industry firms often take advantage of an
‘external’ laundry service; especially in the small to medium-sized sector
where staffing, wear and tear, machine maintenance and other associated costs
are at best irksome, at worst prohibitive. Many enterprising individuals have
seized the opportunity to provide a worthwhile laundry service by observing
the above problems. Like other contract services which hotels do not consider
worth investing their own time and energy on for example. Maintenance,
cleaning, interior decorating and so on, a laundry service could not be consid-
ered a radical innovation but many ‘service’ firms of this nature have emerged
because owners identified a timely market need or ‘problem to be solved’.
However, the operation of these organizations is easy to copy and as
regional markets mature, less opportunity exists for similar products unless
they offer something over and above their nearest competitors. Firms like
these are continually striving to differentiate themselves in the marketplace
and there is a continual ebb and flow of failures and new entrants.
On the other hand and as the name suggests, radical innovations can be
extremely disruptive, require much ‘nursing’ to get over teething problems but
can potentially bestowsignificant advantages. According to Burns (2001) new
knowledge is probably the least predictable source of innovation but it is the
area which receives most entrepreneurial and media attention because it is
incredibly glamorous. The obvious example here is McDonald’s in the 1950s
as creator and innovator of a newfast food industry having a product featuring
unique systematized preparation and cooking procedures. Radical innova-
tions represent real breakthroughs and have the potential to earn appreciable
profits and establish strategic competitive advantage for individuals and firms.
Quite how long these advantages can be maintained depends on whether the
product or service can be easily copied by others; competitive advantage is
notoriously difficult to sustain. For example, McDonald’s now has many
competitors, Burger King/Hungry Jack’s, KFC, Red Rooster have all copied
and amended the McDonald’s system. Each uses similar ‘formula’ standard-
ized production and delivery systems rooted in those devised by the pioneering
McDonald’s brothers and Ray Croc.
The McDonald’s Story
The McDonald’s story started in 1940 when two brothers, Dick and Mac McDonald opened a
highly successful barbecue restaurant in California. After WWII, they noticed that families
CHAPTER 5: Innovation, Opportunity and Protection 106
were concerned about value for money and that the USA was investing in a more
comprehensive road infrastructure system. They thought this would make future customers
interested in speed of service and so temporarily closed their restaurant. The newly adapted
one featured a simplified menu based around their most popular products with a more
efficient interior. In short, they invented the self-service, drive-in concept that comprised a
limited-menu, paper-service, hand-out operation, featuring cheap hamburgers,
cheeseburgers, soft drinks and French fries. This newconcept proved so successful that they
quickly opened eight more restaurants.
In the mid 1950s, a food service equipment salesman named Ray Kroc became involved at
first as someone who simply owned the national marketing rights to the five-spindle
Multimixers the brothers used to make their milkshakes. His interest in the McDonald’s
business was kindled because they bought 10 of these machines to cater for their successful
business. Ray was subsequently granted exclusive rights to develop and franchise
McDonald’s drive-ins for the United States and opened the 9th McDonald’s restaurant in
Illinios, 1955. Some 6 years later Ray bought the proprietary rights to the McDonald’s system,
including all rights to the rest of the world. The organization that Ray founded proceeded to
add more than 23 000 McDonald’s restaurants and 4500 franchisees across more than 111
countries around the world.
Questions
1. Who were the creators and who were the innovators in the McDonald’s story?
2. Who were the entrepreneurs?
3. How important was the role of Ray Croc in the success of the McDonald’s Corporation?
4. Can you think of some hospitality examples of:
radical innovation and
incremental innovation?
In order to create a sustainable competitive advantage through innovation,
entrepreneurs must utilize strategic resources, that is, those that form the
basis of an entrepreneur’s market position/advantage
1
. By definition, strategic
resources have four dimensions and allow the entrepreneur to implement
strategy by:
& exploiting opportunities,
1
Strategic resources differ fromcommon resources in that the latter enable the firm’s usual
activities but provide no particular advantage against other organisations. Common
resources include financial, physical, human, technological, reputation and organizational
(structure, systems and procedures).
Innovations Big and Small 107
& being non-substitutable,
& being rare, that is, not available to competitors, and
& being difficult to copy.
Controlling all of the above dimensions is very difficult to achieve. That is
why ultimately most firms fail to hang on to any competitive advantage they
might have enjoyed in the short-term.
The characteristics of incremental and radical innovations are summa-
rized in Table 5.1.
Key point 5.3
Most innovations are small using only amended processes and procedure. Whilst the
economic returns are relatively small, they are more assured and cause less organizational
disruption and carry less risk than large innovations.
THE INNOVATIVE SMALL HOSPITALITY BUSINESS
Whilst it can be agreed that innovations are the lifeblood of mature economies
whether big or small, radical or incremental, just how easy is it for entrepre-
neurs to come up with ideas and innovations? According to Kirby (2003) and
others, the odds are stacked against themwhen compared with the scope large
organizations have for developing new and innovative ideas. In short, this is a
resource-based perspective of entrepreneurship and it considers that creative
and novel innovations, no matter howgood, will fail unless adequate resources
are applied. Moreover, large firms also enjoy economies of scale and are there-
fore likely to develop newideas and innovations more cheaply than their small
business entrepreneurial counterparts. Intuitively this seems to make sense as
does its accompanying credo shown in Figure 5.6.
TABLE 5.1 Characteristics of innovation
Incremental innovation Radical innovation
Uniform improvements Novel improvements
Uses existing technologies and processes Uses new technologies and processes
Quick to implement Extended periods of piloting
Immediate gains No short-term gains but long-term advantage
Strengthens customer loyalty Also exploits new markets
Adapted from: Volery and Schaper (2004, p. 57).
CHAPTER 5: Innovation, Opportunity and Protection 108
The key issue for the entrepreneur is to take advantage of imperfect infor-
mation about price whilst going through the process shown above and a tacit
recognitionthat large firms have better access to most resources. These used to
be expressed as the ‘Four Ms’, that is, men, machines, materials and money.
Wickham (2001) prefers to group all into three categories of financial, human
and operating. A more descriptive classification might further divide catego-
ries into:
& financial,
& physical,
& technological,
& human,
& reputation, and
& organizational.
However, for firms to establish and retain sustainable competitive advan-
tage, their resources must not be available to others, non-substitutable. Com-
pany culture may be considered a unique resource in this case, for example, a
team of hotel managers may have been trained and nurtured to perpetuate
company values as they are highly complex, somewhat intangible and thus
difficult to copy. However, the fact that top managers and executives can be
attracted to other companies through better pay and working conditions can-
not be ignored.
According to the resource-based perspective most significant innovations
are more likely to originate with large companies who have abundant required
inputs to take an idea, develop it, innovate and produce. But surely this is not
how large companies work, is it? Derived wisdom suggests that large corpora-
tions are monolithic, lumbering organizations which are often slow on the
uptake or rather inflexible and not particularly good at responding to an
increasingly competitive and fast-paced trading environment. In a
FIGURE 5.6 The process of a resource-based perspective of entrepreneurship.
Adapted from: Schaper and Volery (2004, p. 63).
The Innovative Small Hospitality Business 109
contemporary environment, this is only partially true. Many large firms now
recognize the inherent structural advantages of small organizational struc-
tures such as enhanced flexibility, less bureaucracy, fewer levels of manage-
ment proximity to customers and so on. The ‘small’ firmmodel is also alleged
to engender human resource development, creativity with customers and to
hold innovation as the key to optimum entrepreneurial development of the
organization (see Robbins, Barrett and Storey (2000) and one more. Thus,
large companies nowspin off much smaller, flexible and organic organization-
al structures within the overall designof the firm. An example of this is the rise
in popularity of the intrapreneur (see Chapter 1). This is a person (or persons)
charged with the responsibility of identifying opportunities and applying their
creativity to innovate through developing new products and services. In other
words, these individuals act as ‘company entrepreneurs’. Insome respects this
has similarities with the more traditional Research and Development depart-
ments used by virtually all major corporations. However, a key difference with
the intrapreneurial initiative is that it represents more than just another
department. Of course, people are still charged with their entrepreneurial
responsibilities much as the former R&D centres were but the real difference
is the ‘cultural shift’ adopted. Rather than being seen as another separate
company dimension of their operations, the intrepreneur initiative is viewed
more strategically with appropriate support structures in place. Even as early
as 1994, Naisbitt identifies a number of large companies who have
‘deconstructed’ in line with the above logic including ABB and Grand Metro-
politan.
In his influential book Thriving on Chaos, Peters (1987) proposes the
following support model shown in Figure 5.7.
Whilst independent small firms also take advantage of their structural
advantages they do not have the physical and economic resources and capacity
to create, innovate, produce and market a novel product or service.
Kirby (2003) also adds this lack of capacity is a direct result of having no
new available capital. He cites four main reasons for this and they include
the unwillingness of bank lending, uncertainty of new products especially
those with a significant technological orientation. Others are that tradition-
ally lending institutions such as bank do not consider research and develop-
ment as anything other than an intangible which may not be able to be
protected through copyright and patenting. However some evidence suggests
that despite the odds, small hospitality organizations survive because reinven-
tion may not necessarily be overly costly (depending on the magnitude of the
change) and is effective over short periods. Indeed, common themes of flexi-
bility and short run planning (1 year) characterizes small hospitality firms
which means they have an innate capability for innovation (Edgar and Nisbet,
CHAPTER 5: Innovation, Opportunity and Protection 110
1996). In this sense they do so by providing a continually differentiated prod-
uct (sometimes small, sometimes large) on a seasonal basis in many resort
towns globally. According to Augustyn (2004) tourism firms succeed precisely
because their resources are in short supply as this situation together with high
entrepreneurial aspirations drives the firm innovatively and creatively.
‘‘Needs must when the devil drives’’. Russell and Faulkener (2004) are of a
similar opinion and consider that small hospitality operators thrive on con-
ditions of uncertainty as they tend to have an ability to effectively identify
opportunities amongst conditions of chaos.
Reflective practice
1. Identify a local entrepreneur or someone you know in the small hospitality sector. Ask
themhow innovative they had to be for their business to succeed and remain successful.
Also, how did they deal with other hospitality organizations that may have imitated their
product.
FIGURE 5.7 Corporate support for intrapreneurs.
Adapted from: Kirby (pp. 2003, pp. 135–136).
The Innovative Small Hospitality Business 111
In a more general sense, the effectiveness and advantages of the small firm
are clearly evident in the modern global economy where small businesses
dominate in almost every nation whether they are part of a large company
or a truly small firm owned and operated by a few individuals. Indeed, much
evidence suggests that entrepreneurship and small firms are on the increase
with their underpinning economic role being recognized as imperative for
future growth by all major governments (see Chapter 1).
Seaside Tourism Planning Officer
You know, if I were to pick say, 20 member hotels and restaurants fromour local hospitality and
tourism employers association, most owners would be from away (other parts of the country).
You asked me earlier why this is the case; I think there are several reasons but first you had need
to understand a bit of the history about this seaside town – I’ll give you a potted version.
This town once had enormous wealth from its fishing industry, Herrings to be precise. It
began a couple of hundred years ago and lasted through probably until the early 1960s
although most of the Herring grounds had been fished out by that time. With the development
of the fishing industry came a supporting infrastructure that early tourists and providers could
use. With the advent of the railway system in the 1800s, we had a perfect mode of transport
which tourists used to literally flood into the town. In those days, the industrial heartlands of
the UK provided almost all of the tourist market. Midland factories would shut down for two or
three weeks at a time and all of their workers would jump on the train at their end and jump off
at ours. You can actually see how the hotels, shops and other key enabling elements of
infrastructure developed. Most were originally constructed near to the railway station with
other buildings being added a little further away to take advantage of the town’s major
attraction, the esplanade. There is no real difference between most of the UK’s seaside towns
in terms of layout apart from the market they catered for. For example, Great Yarmouth,
Blackpool and Margate tourists were mainly working class whereas tourists frequenting
Brighton and Bournemouth tended to be from the middle classes. I do not believe there has
been much significant change in markets for the last hundred years or so.
Of course things are different nowas we do not have anywhere near the number of tourists we
used to. It all started around the mid 1960s with the advent of the cheap ‘continental’
package tour to places like Benidormand Majorca. Ever since then, towns like ours have had
to fight tooth a nail to keep the tourists coming. Some have succeeded by differentiating their
‘promise’, others have not done so well; I had count ours in the latter category. You only have
to walk around the town to see once profitable small hotels and guest houses boarded up,
empty or given over for another use. Setting up rest homes for the elderly was a popular
alternative use for these establishments. I remember in the early 1980s it seemed like
everyone had either set one up or was giving it serious consideration. The local council soon
got wise and put a stop to it though.
If I compare the town’s current operating capacity with say 1970, we probably only have
twenty percent of hotels and restaurants trading in the summer season. Of course the trouble
is, tourism is the lifeblood of this region and without it, other businesses have gone under;
everything from local retailers and DIY stores to garages and Taxi firms; we have all suffered.
CHAPTER 5: Innovation, Opportunity and Protection 112
In the very early days there were only a fewhotels in the town; perhaps four or five. The oldest
purpose built hotel was here long before the advent of the railway. In fact it was a ‘coaching
house’ and used to take regular delivery of the mail and provided accommodation for the
coachmen and passengers prior to the emergence of Post Offices in the region. Once the
railways arrived, hotels popped up all over the place with most being converted from private
dwellings. Interestingly, one of the largest hotels on the seafront with 150 rooms is a
conversion of several Victorian Villas. You have never seen such a thing. It is a complete
labyrinth of passageways and corridors.
Getting back to my earlier point, many hoteliers and restaurateurs were born outside the
region. This is an interesting demographic and you will find similar in other seaside resorts,
especially where local industry pay is low compared to elsewhere in the UK. Here for
example, agriculture was the major employer and locals found it difficult to raise the initial
capital to purchase even the smallest guesthouse. Wages of factory workers from the
midlands were relatively handsome in comparison. So, surprise surprise, many erstwhile
tourists sawthe opportunities available to themwhilst enjoying their holidays and snapped up
the relatively lowcosts housing converting to small hospitality operations. This is something of
a flashpoint with the local community even now. Incomers tend to view the locals as lazy and
non-entrepreneurial; locals view incomers as having an unfair advantage.
Questions
1. Identify where entrepreneurial innovation occurs in this case
2. How would you classify the innovations shown in the case?
3. How easy was it for the innovations to be copied?
4. Discuss how this seaside resort could innovate as a collective tourist destination
PROTECTING YOUR INTELLECTUAL PROPERTY
Intellectual property may be defined as, ‘. . .any product of human intel-
lect. . .that is through imagination, creativity and inventiveness, that is intan-
gible but has value in the marketplace’ (Barringer and Ireland (2006, p. 278).
With the advent of information communication technology and e-commerce,
intellectual property is probably more valuable than a firms physical assets.
This importance is compounded by the increasing use of the internet for a
plethora of e transactions, reservation systems, website designs, domain
names and the rise of e-tourism
2
and the companies that operate in this
environment. Essentially there are four types of intellectual property:
2
e-Tourismenables direct booking, easy payment for end-user, business-to-business trading
for product providers, travel agents and resellers. With application of e-tourism, amongst
other things, travellers are able to make online reservations, bookings and receive immediate
confirmation.
Protecting your Intellectual Property 113
& A patent – government confers the originator a right to exclude others
from making, selling or using an invention for the term of the patent
and allows them to make and sell the invention so long as no other
patents are infringed. For example, a new beverage dispenser may
require an element of an earlier (say) patented Hobart food processing
machine. The inventor would need permission from the Hobart
company to make and sell the newmachine. They could refuse, agree or
insist on a licensing fee for the use of its technology.
& Trademark – a word, name, symbol used to identify the origin of a
service/product, for example, Travel Lodge, Ibis, Hyatt and so on.
& Copyright – protects the owner/author of a literary work, software,
drama, music, lyrics, other works of art, sound recordings and
architecture and affords themthe legal right to determine howthe work
is used for economic benefit. Appropriate items include company
specific training manuals and other media used exclusively by one
company.
& Trade secret – essentially this is information that does not require the
above types of protection (although this is not always the case) but is
important if a small hospitality firm wishes to establish and maintain
competitive advantage. For example, if a hotel wants to exploit the
potential benefits of a customer loyalty scheme it will need to keep
details of all customers inorder to establish more intimate and frequent
contact via online news letters and emails. This a powerful way for
small hotels to compete directly and successfully with their larger
counterparts. Not all information can be classified as a trade secret and
if information is disclosed in error or overheard by a competitor it
ceases to remain a trade secret. There is much confusion over this
dimension of intellectual property but in general, the law will not
protect a trade secret unless its owner first does so (Barringer and
Ireland, 2006, pp. 282–295).
Innovations in the tourism and hospitality industry (as in others) have the
potential to bestow significant benefits upon the entrepreneur in terms of
economic returns. However, to create a real competitive advantage they must
be difficult to replicate, copy or imitate. One way of sustaining competitive
edge by minimizing the opportunity for replication by competitors is to
‘protect’ the innovation legally. Indeed, it may also be the case that an innova-
tor/entrepreneur wishes to share their intellectual property for financial gain
through franchising their innovation (examples include, McDonald’s, KFC,
Domino’s Pizzas).
CHAPTER 5: Innovation, Opportunity and Protection 114
In the case of tangible manufactured products, intellectual property issues
are relatively straightforward but for hospitality services this is not the case.
This is why the most common forms of legal protection in the hospitality area
are for products which are manufactured. For example, fast food restaurants
are really nothing more than a production line operating according to strict
guidelines. On the other hand many hotels and restaurants are commonly
differentiated by their location and by the individuals who deliver the service.
The much quoted ‘location, location, location’ byte springs to mind here as a
region simply cannot be copyrighted. Effectively, all hospitality organizations
near to a location of outstanding natural beauty will benefit as these natural
assets will create a competitive advantage for the region but not between each
hotel in the area. However, controllable aspects such as hotel design, service
style, appearance and so on may well qualify as intellectual property and
become appropriate for legal protection. Nonetheless, the very intangible na-
ture of service and ‘atmosphere’ of some establishments is impossible to
capture and replicate exactly. In part this helps explain why so many indepen-
dent small hotels and restaurants remain popular with customers despite the
ever increasing presence of hospitality brands like Hilton, Shangri-La and
Hyatt.
There are a variety of ways to protect intellectual property but the laws
surrounding the issue are in constant flux and differ between countries.
They key consideration for entrepreneurs is to recognize the importance
of legal protection for their innovations and pursue the matter sooner
rather than later to avoid wasted time and missed registration deadlines.
Some practical steps for protecting your hospitality firm are detailed at this
site:http://www.restaurant.org/legal/law_trademark.cfm
Before they can do this hospitality entrepreneurs must understand of what
their intellectual property is comprised, its value and the role it plays in their
potential business success. How can this be achieved when potentially all
aspects of the business has intellectual property? This can be a tricky process
but there are two questions entrepreneurs must ask themselves to determine
which aspects of their business require legal protection (Barringer and Ireland,
2006):
& Is the intellectual property related directly to achieving and sustaining
competitive advantage? For example, all major international hotel
chains such as Hyatt, Hilton and Regal have their own logos which
differentiate them from each other (at least in theory!) as they strive to
convey recognizable and consistent global standards thus creating
customer loyalty. This is also the case with groups of smaller
Protecting your Intellectual Property 115
independent hotels and accommodation providers including Best
Western, Golden Chain Motels, Preferred Hotels & Resorts Worldwide
and Leading Small Hotels of the World.
& Is the itemvaluable in the marketplace? In other words, the hospitality
entrepreneur should test their business idea before investing a
considerable amount of time and effort developing and protecting it.
Figure 5.8 shows a summary of intellectual properties linked to the hospi-
tality industry.
Conduct your Own Intellectual Property Audit
The hospitality industry is dynamic in terms of demand and supply, mergers,
acquisitions and takeovers. Indeed, there are many examples of small firm
takeovers by national and multinational companies. Amongst other things,
the avaricious chains buy out their smaller counterparts because they are
interested in their intellectual capital. They are only too aware that the small
firms sector provides a much sought after, intimate service product that is
often missing from the large and sometimes impersonal atmosphere found in
large hotels. Entrepreneurs should therefore ensure they are fully aware of their
intellectual property and its value when large companies come door-knocking.
It is therefore a good idea to conduct an intellectual property audit. The audit
proforma shown below details some key questions for the procedure, some of
them are more appropriate for the hospitality industry than others
Patents
&
Are services, products and packages under development that warrant protection?
&
Do we have any day-to-day or strategic processes that should be protected?
&
Are our current patent maintenance fees up to date?
&
Has our business changed so much that we do not require any of our existing patents?
&
Do we have accurate documentation about our patents?
Copyrights
&
Do we comply with the copyright license agreements we have entered into, for example, do
we have a music/Performing Rights Society license for our entertainers?
&
Do we have a policy about when copyrightable material should be registered?
&
Do we know where to obtain our licenses?
&
Is there documentation in place protecting our rights to use material we create or pays to
have created?
Trademarks
&
Are we using any slogans, logos, signage that requires trademark protection?
CHAPTER 5: Innovation, Opportunity and Protection 116
FIGURE 5.8 Intellectual properties linked to the hospitality industry.
3
Adapted from: Kaplan (2033, p. 226).
&
Are we going to expand the use of our trademarks elsewhere?
&
Do we need any more trademarks to cover new services?
&
Do we know whether our trademarks are being infringed and, if so, by whom?
Trade secrets
&
Is there leakage of our firms trade secrets by accident or by design?
&
Do we have a policy governing nondisclosure
&
How much information are our employees exposed to and could this be limited?
&
Are our intellectual property security arrangements effective?
Adapted from: Barringer and Ireland (2006, p. 298).
SUMMARY
There is a common misunderstanding of the terms creativity and innovation
not least because several writers and pundits use the terms to mean the
same thing. Whilst they are similar they actually mean two different things.
Creativity is the laterally-oriented antecedent of innovation; innovation is a
systematic logical exercise designed to harness the creative idea and bring it to
a successful entrepreneurial conclusion in the marketplace. This possible in
two ways; the first is a sheer seat of the pants, intuitive and sometimes lucky
hunch (not recommended); the second is a more methodical systematic pro-
cess of environmental scanning and strategic and tactical planning. There
are a number of approaches and techniques that can be used to help the
entrepreneur through this process. It is also a good idea to use ‘concept’
models to pilot an idea prior to a full feasibility study.
Much of the hospitality sector is dominated by small and micro firms.
These organizations are operated by entrepreneurs who often have no prior
experience or skills in the hospitality area. Many of these operations fail for
this reason together with unrealistic expectations of the owners. However, the
structure of small hospitality firms has a number of advantages over the large
organization including flexibility, proximity to the customer and adaptability
to prevailing economic conditions. Some evidence suggests that despite
limited resources available to small hospitality firms, they succeed because
of these structurally inherent capabilities. Indeed, large organizations now
recognize that ‘small is beautiful’ and many have created small more organic
organizational structures within their superstructures giving rise to
‘intrapreneurs’.
Protecting intellectual property in the small firms sector of the hospitality
industry is important as many customers value the personal intimate
CHAPTER 5: Innovation, Opportunity and Protection 118
experience. However, there are many intangibles that cannot be claimed and
protected by any operator, as such the independent entrepreneur-run hotel is
still very much in demand; so too are regions of outstanding natural beauty
and their hotels. Nonetheless, large operators engaging in acquisitions of
small firms will only do so because of the intellectual property the take over
bestows. Entrepreneurs should therefore be familiar with their intellectual
property and take steps to guard it through one or more of the four types of
protection available - patent, copyright, trademark and or trade secret. Entre-
preneurs should also be mindful that the laws governing intellectual property
vary, to a lesser or greater extent, by country.
Summary 119
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The Feasibility Analysis
After working through this chapter you should be able to:
& Understand the term ‘feasibility analysis’ and how it applies in maximizing
the chance of entrepreneurial success.
& Discuss the limited value of intuition and gut reaction when planning to
launch a new hospitality venture.
& Understand the role of research in entrepreneurial success.
& Apply the tenets of Porter’s Five Forces model in a feasibility analysis.
INTRODUCTION
According to the Merriam-Webster Online Dictionary, the word ‘feasible’
means ‘capable of being done or carried out’. In a business or entrepreneurial
sense, a feasibility study or analysis may therefore be understood as an inves-
tigation into something which is capable (or not) of being successful, such as
the initiation and continuation of a new business venture based on a creative
or novel idea. Barringer and Ireland (2006) propose a simpler explanation:
‘‘[Feasibility analysis is] a process of determining if a business idea is
viable’’ (p. 52).
According to White (2007):
‘‘A feasibility study isn’t magic, although it can have a magical effect
on. . . profitability. . . Rather, a feasibility study provides you with data
that replace wishful thinking. The study gives you a rich, detailed and
accurate picture that includes information you really need to know,
rather than information that’s just easily available’’.
Whatever the semantics and whether we are considering starting or buying
and developing an existing business, serious consideration should first be
given to its potential. In other words, the question becomes, ‘Is the idea worth
pursuing?’ In a sense, these considerations will depend on individual
CHAPTER 6
121
preferences and personal circumstances. For example, someone sacrificing
paid employment of 30k will be more likely to proceed, all other things being
equal, with a business idea than another who may be sacrificing a salary of
120k.
The aim of this chapter is to introduce the concept of a feasibility analysis
(or study) and to discuss the basic steps involved. It does this first by consid-
ering the role of feasibility analysis in the context of the hospitality industry.
Then each element of service/product, industry/market, personal/organiza-
tion, and finance is introduced and explained. Further discussion is left until
elsewhere in the book where each is expanded and developed.
Key point 6.1
A feasibility analysis provides essential information to determine whether a business idea is
viable and is an important precursor the business plan.
HOSPITALITY ENTREPRENEURS AND THE ROLE
OF FEASIBILITY ANALYSIS
Whilst the provision of hospitality and tourism services is probably one of the
world’s oldest industries, many entrepreneurs still rely on gut reaction and
intuition as a method of determining whether their venture will be successful.
As discussed in Chapter 1, some hospitality entrepreneurs
1
have a tendency to
be swept away by enthusiasm for their own ideas and launch into a new
business before carefully considering whether:
& there is a market for their service;
& there are adequate sources of start-up and continuing finances; and
& they have the skills to deliver such a service.
Barringer and Ireland (2006) refer to this somewhat cavalier approach as
the ‘ready, fire, aim’ syndrome where the business is launched prematurely.
This almost certainly guarantees ultimate failure or an inordinate amount of
subsequent iteration to (re)establish business objectives. In a sense, the over-
confidence and willingness to followintuitionis not really surprising. After all,
successful entrepreneurs take risks, trust their ownjudgement and have a clear
vision of the way their business ought to be; do they not? Well actually, yes, but
the successful business person takes ‘measured’ risks, makes a judgement and
1
This behaviour is not uncommon amongst entrepreneurs in other sectors (see Bhide,
2000).
CHAPTER 6: The Feasibility Analysis 122
forms a business vision in a less haphazard fashion. Unfortunately, the pop-
ular media loves a winner and goes to great lengths to ensure that the public
shares the enthusiasmand success without showing the extensive preparatory
planning involved. Whilst it is true that occasionally mavericks appear in the
limelight, for us lesser mortals a reliance on carefully collected facts and
figures is the sensible way to maximize the chances of entrepreneurial success.
Thus, intuition alone is an unreliable way of ascertaining future success of a
hospitality venture.
Inorder to gain a more reliable picture of whether a business idea is likely to
be successful requires a dispassionate and systematic approach through a
feasibility study. There are a number of techniques associated models and
approaches which may be used for this purpose. All include a requirement
for information about selecting an appropriate site, market analysis, concept
and mix development and financial feasibility. This does not necessarily have
to be conducted by the entrepreneurs; instead professionally performed anal-
yses may be commissioned. However, these services can be costly and so long
as a few simple rules are followed most people are perfectly capable of con-
ducting an adequate and systematic feasibility study. Figure 6.1 shows the
main elements of a feasibility analysis and where it features in the overall
planning process.
Many entrepreneurs inthe micro seasonal sector of the hospitality industry
have objectives which are not always consistent with those usually ascribed to
FIGURE 6.1 The role of feasibility analysis in developing successful business ideas.
Adapted from: Barringer and Ireland (2006, p. 54).
Hospitality Entrepreneurs and the Role of Feasibility Analysis 123
founders of ‘growth firms’. Instead, the aspirations and skill sets of these
entrepreneurs are modest, preferring ‘lifestyle proprietorship’ with neither
revenue maximization or market expansion as priorities. Business objectives
tend to be personally defined. Goulding’s (2006) study of UK-based small
hospitality firms concurs and concludes that instead of clear commercial
objectives, operations are inextricably linked to intrinsic personal variables
emphasizing the need for rest and relaxation, social priorities, family commit-
ments and privacy. The above positioning of the analyses, elements and pro-
cess hold true irrespective of whether entrepreneurs are keen to set up growth
or lifestyle firms.
However, there are a number of reasons why many hospitality entrepre-
neurs might (erroneously) consider the above figure redundant when planning
for a new business. These including ease of entry into the industry and a
perception that required skills are little more than an extension of those used
in a domestic setting. There is much to be said for intuition as a partial driver
of management decision-making but the feasibility stage of a new venture is
probably not best suited to this approach. The latter point is important be-
cause some evidence (reference) suggests that many hospitality entrepreneurs
do not have industry-specific skills or qualifications and lack basic business
knowledge. Moreover, the industry demands little in the way of special legal
requirements to start trading and there are precious few regulatory industry
bodies. It is therefore unsurprising to learnthat conversionof private dwellings
into business premises remains a common route to entrepreneurship in the
hospitality industry (Lashley and Rowson, 2006). The following vignette based
on the BBC’s (UK) From Hell to Hotel television broadcast illustrates the
impetuous nature of some would be hospitality entrepreneurs.
The St. Giles House Hotel
At the turn of this century, a rather well-off (financially secure) husband and wife team
decided to purchase a dilapidated shell of a building in the city of Norwich in the UK. The
defunct General Post Office construction site was deemed ideal for a high-class luxury hotel.
The main investors for the initiative were family members who ultimately financed the project
to the tune of several millions. During the refurbishment the couple had to persuade family
benefactors to reinvest significant extra sums in order for the hotel to open.
During the course of the broadcasts viewers witnessed the highs but mainly lows of the
conversion process up until the grand opening of the hotel. During early stage-setting
broadcasts, interviewers were keen to knowabout the impetus for the idea and howdata was
obtained about the primary market segment for the St. Giles. The couple indicated that
owning and running a hotel had always been a dream and they felt that the time was right to
embark on their venture. The process of identifying a primary market for the hotel was
similarly idiosyncratic. The couple felt that customers’ tastes and preferences would mirror
CHAPTER 6: The Feasibility Analysis 124
their own somewhat ostentatious expectations. Moreover, when enquiries were made about
the husband and wife’s hospitality training and expertise, none was forthcoming. Indeed,
their total sum of knowledge appeared to be based on a former cosmopolitan lifestyle which
included extensive travel and international hotel patronage. They agreed that these
experiences had equipped them with knowledge sufficient to own and run their own hotel
successfully.
The remainder of the broadcasts journalled a litany of mistakes, crises and errors arguably
rooted in a complete lack of management, people and operational skills. Many staff were
treated in a questionable manner and expected to take on other duties besides those
hospitality-related. As a result many staff left or where asked to leave including managers.
After missing several launch deadlines, the hotel was finally opened with an almost
completely new staff profile. Once the ‘honeymoon’ period subsided, occupancy and
restaurant bookings declined significantly. At this point the television series ended and
viewers were left wondering about the future of the St. Giles House Hotel. In 2007 the
predictable fate of the venture was made clear. Shortly after the hotel was opened, the
original investors withdrew and it was taken over by a new company. The husband and wife
teamstill remain but have no strategic decision-making autonomy and play a minimal role in
the operation of the enterprise.
Questions
1. List and explain the mistakes made by this entrepreneurial couple.
2. How would a feasibility analysis have helped them avoid some of the pitfalls seen above?
3. Give three examples of research methods which could have been used to help the St. Giles
House Hotel identify its niche market.
Reflective practice
1. How would you ensure emotional detachment from your business idea to improve its
chances of success?
2. Contact successful hospitality entrepreneurs known to you and ask whether they used
intuition or feasibility exclusively or a combination of both methods when deciding on
launching their business.
PERSONAL CHARACTERISTICS
In order to runa hospitality business successfully individuals need appropriate
skills and, some argue, specific characteristics. The preferable scenario is when
the founder already possesses them. For example, to run a restaurant, food
Personal Characteristics 125
preparation and service skills are key. Of course as an owner-operator there
will be a wide range of other skills necessary ranging from how to change beer
kegs to book-keeping. If, after a while a decisionis made to expand the business
or relocate to a bigger premises, there may be good reason to employ people to
take care of these operational tasks on your behalf. In this instance, alternative
skills such as those of basic management and marketing will be required.
However, whether you already have appropriate abilities or a willingness
to embrace them depends to an extent on personal characteristics such
as stamina, commitment and dedication. There is overwhelming evidence
to suggest that many businesses fail soon after opening due to a lack of them
(see Chapter 1). Entrepreneurial traits/characteristics have already been intro-
duced as important predictors of success in Chapter 2, and here Burns (2001)
considers them as:
& stamina;
& commitment and dedication;
& opportunism;
& ability to bounce back;
& motivation to excel; and
& tolerance of risk, ambiguity and uncertainty.
Table 6.1 shows a feasibility checklist abstracted from the Canada
Business Network (2007) website and contains questions pertaining to some
of Burn’s entrepreneurial characteristics.
2
This type of analysis does not stop with the entrepreneur (although for
micro businesses it is likely to in the first instance) but may be expanded to
encompass the whole organization to determine an overall organizational
competency. The process of introspection and diagnosing allows the entrepre-
neur to determine their ‘suitability’ before embarking on their business jour-
ney. If resulting gaps are exposed it may reveal a shortfall of skills or traits but
does not necessarily guarantee business failure. It is simply a technique which
may be used so that the entrepreneur becomes self-aware of potential weak-
nesses. It is then up to the individual to take remedial action in the form of
personal education and skilling or even a shift of focus to the abilities of others
by establishing a network of business friends and colleagues. In fact this is a
basic requirement of effective entrepreneurship. Establishing extensive net-
works allows some personal capability gaps to be ‘managed’ by using the
attributes of others. In exchange for external advice and experience, the entre-
preneur may extend an invitation to the colleague; perhaps a place on the
board of directors or
2
This reproduction is not represented as an official version of the materials reproduced, nor
as having been made in affiliation with or with the endorsement of Canada Business.
CHAPTER 6: The Feasibility Analysis 126
advisors would be appropriate.
Key point 6.2
There are certain entrepreneurial characteristics including stamina, commitment dedication
which are important in optimizing chances of new business success.
Networking may also give rise to ‘clustering’ or collaboration co-existing
with competition in some sectors. In short, clustering invites firms to focus on
their core activities but also to collaborate and build relationships with others
to access, develop and share internal resources. This approach allows
TABLE 6.1 Feasibility characteristics checklist
The product or service
Yes No
Do you like to make your own decision?
Do you enjoy competition?
Do you have will power and self-discipline?
Do you plan ahead?
Do you get things done on time?
Can you take advice from others?
Are you adaptable to changing conditions?
The next series of questions stress the physical, emotional and financial strains of a new business
Yes No
Do you understand that owning your own business may entail working 12–16 h a day,
probably 6 days a week, and maybe on holidays?
Do you have the physical stamina to handle a business?
Do you have the emotional strength to withstand the strain?
Are you prepared to lower your standard of living for several months or years?
Are you prepared to lose your savings?
Specific personal considerations
Yes No
Do you know which skills and areas of expertise are critical to the success of your project?
Do you have these skills?
Does your idea effectively utilize your own skills and abilities?
Can you find personnel that have the expertise you lack?
Do you know why you are considering this project?
Will your project effectively meet your career aspirations?
Personal Characteristics 127
companies to build collectively on their strengths. The benefits of this ongoing
dialogue and information exchange between firms allows them to improvise,
innovate and accelerate their development much more effectively than if each
was operating independently. They also benefit from ‘knowledge bleeds or
‘spill over’ by virtue of being in close proximity and enhanced flexibility to
react quickly to shifts in customer demands. This enhanced form of network-
ing extends beyond industry sector to include broader memberships extended
to industry suppliers, research and development institutions and government
departments providing development and extension services. Hospitality clus-
ters are typically found in resort towns of the UK and Europe for example
Aviemore, Bath, Lausanne and Cannes.
Reflective practice
1. Discuss which personal characteristics and skills you believe important for launching a
successful hospitality venture.
2. Using the above questionnaire, reflect on your strengths and weaknesses.
3. Can missing characteristics be learned?
4. How important is it to learn them?
COMPETITION
New business entrepreneurs could do worse than follow a key piece of advice
fromTzun Zu’s Chinese military treatise written during the 6th century, that
is, ‘knowyour enemy’. In other words, howdoes your service compare or differ
fromthat of the your competition? Howcan this information be obtained and
used? It will depend very much on the exact nature of the business and how
much can be afforded. For example, if the trading environment is slow and
predictable with only a few competitors research can be relatively simple and
rudimentary. However, this environment is extremely rare in hospitality and
tourismexcept in brand newlocations in developing global regions. Even here,
multinational players soon recognize the potential for business and seek to
dominate the market. This is an interesting point because, all things being
equal, entering a market with fewer competitors would seem more favorable
than one which economists refer to as ‘monopolistic competition’ where
many small operators are vying for business. Unfortunately, the trading envi-
ronment is rarely simple. Whilst one would seek to avoid this situation as a
newentrant, entering a market with only a fewplayers is also unwise as a first
step. The key issue here is how substantial are the few? In other words, a
market highly concentrated by say three large organizations will confer
CHAPTER 6: The Feasibility Analysis 128
benefits to themdue to their independent and combined strength, established
market position and relatively abundant resource base. Whilst one only has to
observe that large and small hospitality organizations do indeed exist in
resorts internationally with many enjoying business success, it is more diffi-
cult to succeed and sustain (despite the natural locational advantages
bestowed on all hospitality organizations in the region). The following case
illustrates some of the opportunities and challenges faced by entrepreneurs
entering a market.
Small and Medium Hospitality Enterprises in New Zealand: too Many New
Entrants?
New Zealand’s hospitality industry has grown significantly in the last decade, confirming its
importance for the nation’s economy. The number of restaurant, cafe, and accommodation
operations grew by almost 40 per cent between 1999 and 2005; equally as impressive is the
growth (76.4 per cent) in the number of full-time employees in the industry during the same
period (Statistics New Zealand, 1999, 2005). These developments suggest potential
opportunities for current and future hospitality businesses. For example, it is no secret that
New Zealand has recently become a more known tourist destination, possibly with some
collaboration from the movie industry, and that the international tourist market has
increased.
However, despite such positive outlook, there are a number of issues that demonstrate the
challenges that small and medium enterprises (SMEs) in the hospitality as well as in other
industries face. For example, reports suggest that on average 5.75 times more newcomers
start their ventures than what New Zealand’s economy can actually sustain (Pinfold, 2001).
The number of new start ups in already saturated industries, or the level of owners’
preparedness to start a venture can have a direct impact on the lifetime of SMEs. Challenges
may be more severe for hospitality business owners, as these have to wrestle with a wide array
of bureaucratic, economic, and labour issues, and in recent years with consistent decreases
of returns (Stewart, 2006).
To investigate challenges and other business related areas of concern, a study was
conducted with the assistance of owners of small and medium hospitality operations in
Christchurch and Wellington. A total of 255 hospitality enterprises that included cafes,
motels, restaurants, bars and bakeries were approached in these two cities, and invited to
participate completing a questionnaire sent to them. In total, 62 (24.3 per cent) responses
were obtained.
It was found that 51.6 per cent of the participating businesses had been operating for three
years or less, and within this group, 22 (68.8 per cent) had been operating for two years or
less. This finding suggests a high per centage of new entrants in the small sample of this
study. Several reasons might be behind owners’ decision to abandon or sell their hospitality
business. For example, the most pressing challenges among participants were lack of skilled
labour, with 56.5 per cent of responses, competition from other hospitality businesses (41.9
per cent), and local authorities’ rules, including signage and/or costs of compliance (40.3 per
Competition 129
cent). In contrast, lack of customers was the least important issue for participants, with only
19.4 per cent of responses.
Interestingly, when ownership structures of the hospitality operators were investigated, it
became clear that most operations (74.2 per cent) had already existed prior to being taken
over or purchased by the current owner(s). Adding this to the large per centage of
participating businesses that had been operating for three years or less (51.6 per cent)
provides further evidence of the high ownership mobility among hospitality SMEs. That only
12 (19.4 per cent) of all respondents in this study started their hospitality operations from
scratch only confirms the difficulties among many businesses to survive in a very challenging
environment.
Participants worked on average 60.6 h per week. Not surprisingly, on average their
hospitality businesses represented 84.3 per cent of their yearly income. To be independent
or to be one’s own boss (83.9 per cent), to make money (72.6 per cent), to change lifestyle
(62.9 per cent) and passion for the hospitality industry (58 per cent) are participants’ main
reasons for starting their hospitality business. In contrast, as it would be expected, working in
the hospitality industry ‘as a hobby’ (4.8 per cent) is participants’ least important reason for
being in this industry.
While future research could further investigate the overall validity of this study, or if any
changes have occurred in the business structure of hospitality SMEs, the overall findings
suggest a number of areas that newentrants, or even those already in the hospitality industry,
should closely pay attention to.
Questions
1. What challenges other than the ones discussed in this case do you think are affecting
hospitality SMEs as we speak? Think about your own suburb, city, or country.
2. What potential strategies, if any, would you suggest for hospitality SMEs in this study to
minimise the apparent high per centage of ‘casualties’ among businesses?
Possible answers
1. A number of individuals may be entering the hospitality industry to make an investment
they expect to recover, or reap benefits from, quickly. As positive results in the form
of high profits, or even beyond break-even point, are not to materialise within a short-
term, disillusion or disappointment may set in among new entrants, persuading a
number of them to sell their businesses, or simply abandon the hospitality industry
altogether.
2. While it is a complex issue with no simple solution, assistance should be made available by
local chambers of commerce, the hospitality industry itself through a task force advising
new entrants, or government agencies. Educational institutions (degree providers) could
also significantly contribute educating and advising would be entrants about industry
requirements so that these would be better equipped, and about potential challenges
they might face in the industry.
CHAPTER 6: The Feasibility Analysis 130
Source: Alonso (2007).
Understanding the market and its exact competitive nature relative to your
service is quite clearly fraught with difficulty. Hospitality entrepreneurs need
many answers before they can even think about starting a business or
approaching potential investors for start-up funding. The $64 000 question
becomes:
& When is the best time for launching the new business?
This seems straight forward enough as an enquiry but the answer can
appear somewhat inexact as it depends on a myriad of environmental and
contextual conditions and variables. However, these answers are worthwhile
pursuing to optimize the chances of entrepreneurial success.
Key point 6.3
In general, markets are most attractive when they contain only a few competitors. However,
this very much depends on the degree of market concentration.
Some commentators speak of ‘industry attractiveness’. Simply, if it is
attractive it would be reasonable to enter and vice versa but how does one
measure ‘attractiveness’. Linked to this is whether the industry will remain
attractive and for how long? This depends on its inherent dynamism, for
example, information communication technology is notoriously fast-moving
compared to say that of the museum curator. So too, industries such as
hospitality will have sectors which are more or less dynamic. The key is to
take a strategic perspective, focus on the appropriate areas and ask the right
questions. Barringer and Ireland (2006, p. 61) consider an industry to be
attractive according to a ‘must’ list:
& must be large and growing and important to customers that is ‘must’
have rather than ‘would like’;
& must not be ‘mature’ where product is tired and price competition is
intense;
& must have high operating margins; and
& must not be ‘crowded’ as crowding gives rise to fierce price competition
and low margins.
Another useful way to ascertain attractiveness is by brainstorming all
of the likely information you are likely to need for the potential business.
Competition 131
There are also a number of business models available for guidance; a
popular one is Michael Porter’s Five Forces Model and it is shown below
(Figure 6.2).
The construct has value because it alerts the nascent entrepreneur to
several key areas prior to market entry. These may be considered as
‘information requirements’ and once established may be pursued via a num-
ber of sources; some examples are shown in Table 6.2.
The World Wide Web is also an excellent source of market information
and many of the above have their own sites. It is also worthwhile conducting
online searches via an appropriate search engine. However, the entrepreneur
must not take this intelligence unquestioningly. Its credibility depends on a
number of factors such as why the research was commissioned, who
commissioned it and why. All information is political and will therefore
have an inherent bias. Entrepreneurs must avail themselves of this back-
ground information whenever possible if they are to make balanced
FIGURE 6.2 Porter’s five forces.
Source: Porter (1985, p. 6).
CHAPTER 6: The Feasibility Analysis 132
informed business decisions. However, even seemingly objective and unbi-
ased information may be based on questionable premises and therefore have
weaknesses.
Reflective practice
1. To what extent do you believe Michael Porter’s five forces model is a practical option for
the hospitality entrepreneur?
2. Discuss why you think this is so.
Complimentary sources of information are those which the entrepreneur
may elicit themselves using any number of research methods. Indeed, it is
most unlikely that secondary data (even if reliable) will be sufficient for fully
TABLE 6.2 Information sources for feasibility analysis
Source Example Information
Publications Books, professional and industry journals,
business magazines and daily broadsheet
newspapers that is Hospitality, Economist,
In Touch in Business, Management Today,
HR Monthly
Overviews of general economic
trends, features on specific
industries and regions, service
and product intelligence
Databases Independent vendors, market consultants
in possession of consumer lists, telephone
and business directories from extant
businesses
Electoral registers, property
ownership, purchasing behaviour
Government Central and state government and
government agencies
Regulated industries and sectors,
Hansard, commissioned inquiries
International, national and regional
trade associations, chambers of
commerce, trade shows
World Tourism Organization, Institute of
Hospitality, Australian Hotels Association
Published surveys and other
research related to business
interests of members
Annual company reports All publicly listed organizations Financial performance, goals,
profile of executives and senior
management, forecasting and
comments on state of industry
Universities and other educational
institutions
Rigorous published academic research,
opportunity-spotting for innovative
business ideas
Tourism Management, International
Journal of Hospitality Management,
Journal of Management Development,
Journal of Small Business and
Enterprise Development
Adapted from: Schaper and Volery (2004).
Competition 133
informed decision-making. Despite the fact that no one ever has ‘perfect’
information, the gap often inherent in the avilable secondary data can be filled
(at least in part) by the entrepreneur gathering data themselves or commission
someone else to do it. In fact, it would be unwise for any business to proceed
without this sort of knowledge input as potential sites, markets and so on all
have their own idiosyncracies by virtue of context and timing. Simple exam-
ples of primary data collection methods include observing how other similar
establishments operate by visitation. Nothing could be simpler that booking
reservations at nearby restaurants or accommodation in hotels within your
vicinity. A wealth of information can be collected in this way including staff-
ing, style of service, interior design, menu style, pricing and so on. Entrepre-
neurs looking for more ‘scientific’ and potentially richer information could
use interviewing and focus groups techniques or alternatively use trained
rearchers.
Similar to the judicious use of secondary data, primary data must also be
treated cautiously due to a number of potential biases and inaccuracies which
could affect its value. According to Schaper and Volery (2004), the main causes
or error are:
& Nature of the sample – is it of the general population or the intended
market?
& Is the research method appropriate for the respondents and nature of
the research question?
& Are the questions appropriate – do tyey allow respondents to really
give their own opinion or do they only allow a response to be
categorized into one or two categories when clearly more should be
used?
& How high is the response rate?
& Has the research been conducted that can be repeated by someone else –
reliability
& Does the information measure what it is supposed to. For example, if a
respondent is asked about their preference for a particular variety of tea
can this be generalized to their propensity to consume it and other hot
and cold beverages?
& Can these results be generalized to other groups of people not included
in the study?
Reflective practice
CHAPTER 6: The Feasibility Analysis 134
1. You have an idea to open a small bed and breakfast in a popular resort destination. With
limited resources, what primary form(s) of data collection would you use for your feasibility
study?
2. Same question for a small bistro in a city centre location.
3. Same question for a small hotel on a tropical resort island.
ORIGINATING OR FOLLOWING?
When planning to introduce products and services, the entrepreneur needs to
consider whether they are newor simply augmentations of existing ones. If the
former, there will be no secondary data available on which to identify a likely
demand. A comprehensive understanding of primary data-gathering research
techniques and methods is therefore of primary importance. In this situation,
other considerations are also important such as whether the innovator wants
to deal with issues that arise from being the first operator in a particular field
including lengthy lead times prior to profit-making, ease of immitation by
competitors and significantly higher costs to bring the service to market.
On the other hand, analyzing markets for services that already exist is
much easier than for those that do not and usually less costly. It is certainly
more common as most new services are simply an addition or augmentation
of other preexisting ones (Audretsch, 1995). For example, some styles of food
service delivery require chefs to both prepare and then arrange/present food on
the plate to be delivered to the customer by the food server. Others such as
Gueridon service, sees the food server preparing the dish in front of customers
and then serving the finished item (although this style of service is becoming
increasingly rare). Breakthrough hospitality services are uncommon but one
example would be the ‘stone grill’ concept where restaurant customers cook
the food themselves. Another (and more significant) example is that of the
MacDonald’s hamburger. Although the food item itself was not novel, the
actual service concept underpinning the item was groundbreaking and the
owner, Ray Croc, enjoyed what Barringer and Ireland (2006) refer to as ‘first
TABLE 6.3 Range of innovations in hotels
Frequent guest programs Database management
Strategic alliances Direct to consumer marketing
Computer reservations systems Internet
Branding Travel agent valuation
Service quality management In-room sales and entertainment
Franchising and management fee Core business management
Adapted from: Lewis and Chambers (2000).
Originating or Following? 135
mover advantage’ for a considerable amount of time before the concept was
copied by other organizations. Table 6.3 shows some examples of competitive
innovations in hotels in the most recent 15 years.
Being the first to offer a service or product means that the originator can
enjoy dominance over the whole market including a powerful and recognizable
brand image. On the other hand, disadvantages include costly set up costs and
greater risk of failure. It may also be the case that even if the first mover
manages to build market share, business success is not always forthcoming.
Moreover, some industries are not structured in a way that rewards first
movers. The hospitality industry is one such sector where ‘second movers’
are often, after studying the originator, able to move in quickly with a refined
and potentially more successful product. Besides, hospitality customers are
typically diverse with a broad range of tastes and preferences which cannot be
satisfied by one service type or where one can be substituted for another.
An important element of market feasibility is successfully identifying a
niche for the entrepreneur’s product. Essentially, a market segment or niche is
a specific subgroup of individuals with a set of characteristics which differen-
tiate them (or the niche) from other consumers (Frederick, Kuratko and
Hodgetts, 2007). As an example, these authors note that specific segments
exist amongst Australian wine drinkers. A similar classification could be
applied to beer drinkers in the UK particularly if ‘Real Ale’ enthusiasts are
included in the total market for beer consumption. These might be ritual-
oriented drinkers; premium inconspicuous drinkers; fashion-oriented drin-
kers and social beer drinkers.
Small hospitality business often begin by selling to niche markets before
broadening their horizons. The key is to identify a segment that is large
enough to enable entrepreneurial success without invoking direct competi-
tion. The paradox is that the more successful a niche, the more limited the
time frame for the entrepreneur to remain successful without expanding
significantly to combat increased competition. An example here is where
ethnic entrepreneurs initially cater for people sharing their own same cultural
background, that is, their intended market (see Chapter 2). For example, inthe
city of Birmingham, UK, a few Pakistani entrepreneurs established the first
‘Balti’ curry houses in the mid 1970s to satisfy a small and culturally defined
demand. Thirty years later, the popularity of these restaurants and demand
therefore has expanded to such an extent that the termBalti house is common
parlance country-wide amongst the ethnic and non-ethnic groups alike with
many original recipes nowappearing in generic and dedicated published cook-
books (for example, see Chapman, 1998).
CHAPTER 6: The Feasibility Analysis 136
Reflective practice
1 What advantages and disadvantages would face the entrepreneur introducing a new
hospitality service?
2 What advantages and disadvantages would face the entrepreneur introducing an imitation
or copied hospitality service?
FINANCES
An important stage of the feasibility analysis concerns finances. A detailed
analysis is not usually required here as we simply want to gain an impression
of whether the idea is likely to be a success or not. Therefore, it is wholly
appropriate not to get bogged down in minutiae and financial forecasting but
rather, focus on the main areas of:
& capital requirements,
& rate of return, and
& breaking even and other positive aspects associated with the business.
Once these preliminary analyses have been completed and the idea
remains a reasonable prospect, financial projection statements can be com-
pleted, usually for the first three years of the operation. Usually, these details
are included in the business plan (see Chapter 9).
In plain English, a capital requirement simply means how much money
(capital) will the business need to start up and from where will it come? An
exact amount is not necessary for a feasibility analysis but the estimate should
be realistic and account for all likely financial requirements. Typically, they
might inlcude cost of premises purchase, staff hire, equipment costs, training,
marketing, business launches and so on. Afull discussion on raising capital is
not appropriate here but some sources include:
& personal savings/assets;
& loans from family, friends, banks or similar institutions;
& business ‘angels’ and venture capitalists.
In the SME sector of the hospitality and tourism industry, most sources of
capital are from personal assets and from family and friends. Conversion of
private dwellings remains one of the most common routes for industry en-
trance. These sources of start-up capital are common elsewhere and reflect the
current position in the generic small business sector.
Whilst securing sufficient funding is clearly important, the actual
sources of capital also warrant serious consideration. The saying, ‘There
Finances 137
is no such thing as a free lunch’ could not be more appropriate. Capital for
start-up will have an associated ‘cost’ and more ‘risky’ ventures attract
higher costs for the entrepreneur. A useful metaphor here is Marlowe’s play
The Tragical History of Doctor Faustus based on the original Faust story
where, in exchange for power and knowledge, the main character sells his
soul to the devil. The moral in an entrepreneurial sense is that financiers
want a return on their investment and the more substantial the investment
the more they will require as a reward for their risk. This does not only apply
in a strict financial sense but may also influence the way a business is
managed and operated. For example, a family member providing 75 per cent
of all start-up funding may waive a financial reward (return on investment)
in favour of having a stake in the business which translates into (but not
limited to) making most of the strategic business decisions. Indeed, this
may even happen tacitly in that a family benefactor may feel ‘entitled’ to
have a significant input into running the business by virtue of their financial
contribution and also by dint of their position in the family hierarchy!
Obviously, there are a myriad of these configurations and sometimes small
family businesses become challenged less by the act of trading and more by
the complex interfamily relationships and power structures. The moral here
is that for the entrepreneur there are always strings attached when seeking
start-up capital whether emotional and/or financial.
The emotional side of capital funding has warranted little attention by
commentators but all rightly note that understanding and forecasting a finan-
cial rate of return is essential. Typically, projections calculated include ‘return
on assets’, ‘return on equity’ and ‘return on investment’ (see Chapter 9) and
are used to see whether the projections are appropriate, that is, do they justify
pursuing the business idea. Whilst there is a degree of subjectivity involved
several issues must be considered ranging from the actual amount of capital
required and the time it will take to obtain the return to inherent risks and
what economists refer to as the opportunity costs involved. For example, is
there a better investment alternative such as a high interest bank or building
society account? In other words, what would the potential investor stand to
gain (or lose) by investing in your hotel or restaurant in preference to other
available investment opportunities?
Key point 6.5
Sometimes small family businesses become challenged less by the act of trading and more
by the complex interfamily relationships and power structures. The moral here is that for the
entrepreneur there are always strings attached when seeking start-up capital whether
emotional and/or financial.
CHAPTER 6: The Feasibility Analysis 138
Another key set of questions must be addressed at this stage of the feasibility
analysis. According to Schaper and Volery (2004) they can be summarized as:
& How long will it take before the venture reaches break even point?
& How long before cash returns exceed disbursements?
& When will the business be profitable? If this takes too long, the venture
will fail.
Barringer and Ireland (2006) draw attention to other issues related to
financial feasibility:
& steady and rapid sales growth during the initial five years ina defined
market segment or niche;
& high percentege of repeat business;
& ability to forecast income and expenditure;
& internally generated funds to finance and sustain growth;
& availability of an exit opportunity for investors to convert equity into
cash (an acquisition or initial public offering).
Reflective practice
1. Interview a hospitality entrepreneur known to you asking for an estimation of when their
new venture began to break even?
2. How did they cope financially before their business became profitable?
3. Now they operate a successful business, what is their most significant ongoing cost(s)?
DEMOGRAPHICS
Demographic data is a key part of any feasibility analysis and is reasonably
inexpensive to obtain and fairly straightforward, right? Wrong. As with all data
in raw form it forms a collection of numbers which can be interpreted in a
variety of ways. Typically demographic studies illustrate findings as circles at
specific kilometre intervals around a region (like a dartboard without the
number segments). According to White (2007) these areas rarely form neat
and tidy concentric circles as consumers are not attracted equally from all
points of the compass. So what is the best way to identify a market for a
restaurant for example?
Around 80 per cent of the restaurant’s custom will come from local resi-
dents, the remainder will come from those living outside the primary and
secondary areas. Understandably, the primary market is likely to be bigger
Demographics 139
than the secondary market and a feasibility analysis must scrutinize a number
of factors to determine the size and shape of the market areas and how much
business the restaurant is likely to generate. Table 6.4 contains an indicative
summary of what factors to include in the analysis.
Whilst the above serves as a useful checklist, these items are by no means
exclusive and other equally important aspects must be considered including
the size of restaurant’s geographic market, who is attracted, how often they
visit and howmuch they spend. Restaurant design is also a key issue. Will the
operation have a theme? If so how will it be incorporated into the layout and
quality of internal fixtures and fittings? Feasibility analyses therefore must be
able to target the socio-economic lifestyles of its market(s) in preference
to simply identifying an ‘average customer’ demographically; this is too sim-
plistic. When calculating patronage, spend, and intended restaurant design/
ambience the entrepreneur needs more detailed knowledge including
Table 6.4:
& customer values, lifestyles and actual behaviour;
TABLE 6.4 Summary and considerations of a feasibility analysis
&Exact location and site remembering that only a short distance can have an effect on the size of the market area and the
amount of business
&Visibility of signage, major road attractiveness and access
&Co-tenancies, which includes other tenants or uses in the shopping center or in surrounding properties
&Layout of the site and relationship of the entrances and parking to the building’s entrance
&Natural and man-made physical features make act as barriers. For example, as rivers and mountains, cemeteries and
industrial areas may require potential customers to travel a considerable distance to your restaurant even if they only live a
few kilometers away
T Other barriers tend to be psychological in nature and concern how your business is perceived by association with
proximal physical features, often man-made, ranging from unsightly and run-down buildings to the quality of residential
estates
TThese psychological barriers can be alternately viewed as opportunities. They key is to know your market and establish
your business objectives accordingly. For example, a fine-dining restaurant would find little success on a city-based light
industrial estate. However, a medium-priced take-away operation in this location would have a better chance of doing
well because its fare would be more appropriate to its primary market – that is industrial workers
T In a city or town centre location, shopping and entertainment nodes create patterns of travel. These influence the
restaurant’s exposure to residents in their non-working hours. However, being improperly located within a node could be
problematic as being located in a mall may render the restaurant inconvenient to visit
T Travel patterns are important as if the population normally travels in a southerly direction for entertainment and dining,
they may resist going north or west to get to your restaurant. Travel times are also key as they are more important than
travel distance. Moreover, traffic density also has a psychological impact on peoples’ willingness to drive to particular
locations. For example, a longer route which has less traffic and is therefore less stressful is often preferred to a shorter
high density trip
Adapted from: White (2007).
CHAPTER 6: The Feasibility Analysis 140
& with whom they associate or avoid; and
& of which socio-economic lifestyle groups is your primary market
comprised?
For example, knowing that the income of one particular male demographic
is between $50 000AUand $60 000AUtells nothing of food-related tastes and
buying behaviour. One particular restaurant design or concept may attract a
particular group but not another. Not knowing about their preferences and
behaviour will prevent the entrepreneur from operating optimally; relying on
gut reaction here will just not do. In the hospitality industry amongst chef
restaurateurs (particularly amongst those with limited resources and business
savvy), it is often believed that customers share the same love of food and wine
as themselves. In some cases, chefs believe they can ‘educate’ their customers
out of their preferences for less ostentatious dishes. Whilst this is com-
mendable in one sense it is also incredibly arrogant and fool hardy in another.
Occasionally, there may be an isolated success story or two. However in the
main, businesses started intuitively with little more than the entrepreneur’s
belief that others share their predispositions are doomed to failure as many
anecdotal tales from the hospitality industry will attest.
Key point 6.4
Typically demographic studies illustrate findings as circles at specific kilometre intervals
around a region (like a dartboard without the number segments), these areas rarely form
neat and tidy concentric circles as consumers are not attracted equally fromall points of the
compass.
SUMMARY
Feasibility analyses determine whether a business idea is worth pursuing or
not. This can be framed in a number of ways but answers key questions such
as:
& Is there a market for the considered service or business idea?
& Are there adequate sources of start-up and continuing funds? and
& Does the entrepreneur have the skills or other means to deliver this
service?
In the hospitality industry (but not exclusively) there is a tendency for
entrepreneurs to commit emotionally to a newventure and launch before first
conducting a thorough and systematic analysis of all pertinent factors. This
Demographics 141
process is key to optimise chances of business success irrespective of whether
the venture is of the ‘lifestyle’ or ‘growth’ types.
Feasibility analyses should be comprehensive but appropriate to the new
venture focussing on areas of:
& personal characteristics of the entrepreneur;
& nature of the competition;
& availability of start-up and continuing finances including rate of return
and breaking even; and
& demographic information.
This information can be obtained from a variety of sources including that
which has already been published and also by a process of primary data
collection. The latter is particularly important if the new service is a truly
novel concept because in these circumstances data will not be readily available
given the originality of the idea. However, making sense of secondary data and
collecting reliable primary data is fraught with difficulty. The former type will
almost certainly contain errors and biases to a lesser or greater extent depend-
ing on who commissioned the research, why and how the data was gathered
and interpreted. Collection of original data requires a full understanding of
appropriate research methods to avoid drawing inappropriate conclusions.
This research may be either commissioned from a dedicated professional
organization or undertaken by the entrepreneur. The choice most often
depends on available resources but the process itself does not necessarily have
to be overly onerous. Ultimately, the amount of data required on which to base
an initial ‘yes’ or ‘no’ decision rests with the entrepreneur. However at the
very least, they should be confident that most bases are covered. Nascent
entrepreneurs should speak with experts and or familiariz themselves with
at least one construct (checklist) designed to ascertain ‘industry
attractiveness’. This should allow an educated estimate of whether the ven-
ture is likely to be a success. The following stage is a more detailed inspection
of the market, finances, organizational readiness and so on in the form of
business plan.
Case author
Small and medium hospitality enterprises in New Zealand: too many new
entrants?
Dr Abel D Alonso
Edith Cowan University
School of Marketing, Tourism and Leisure
Australia
CHAPTER 6: The Feasibility Analysis 142
The Family Business: Who’s to
Bless and Who’s to Blame?
After working through this chapter you should be able to:
& Identify the inherent advantages family firms have over non-family firms
& Understand the roles of key individuals in the family firm
& Discuss the nature of conflict in family businesses
& Identify why a significant number of family businesses fail to be transferred
successfully
INTRODUCTION
The Collins English Dictionary and Thesaurus (1992) defines ‘Family’ as ‘[a]
parent and children or near relatives’. A family business is more difficult to
classify. According to Litz (1997) and Sharma (2004) this is because the field
itself is still relatively newand under-researched; therefore, several definitions
exist. Litz (1995) suggests that a business can be defined as ‘family’ when its
ownership and management are concentrated within a family unit.
Shanker and Astrachan (1996) are more prescriptive and note that the
criteria used to define a family business can include:
& Percentage of ownership;
& Voting control;
& Power over strategic decisions;
& Involvement of multiple generations; and
& Active management of family members.
The Australian Family and Private Business Survey of 1997 classifies a
business as ‘family’ when any one or more of the four following criteria are
met:
& More than 50 per cent of the ownership is held by a single family;
& More than50 per cent of the ownership is held by more thanone family;
CHAPTER 7
143
& A single family group effectively controls the business; or
& The majority of senior management is drawn from the same family.
In 2003 the same survey opted for a self-identification method, asking
businesses to nominate whether they thought they were either a family or
non-family business (Smyrnios, Walker, Le, Phan, Vuong, and Young, 2003).
Currently, Entrepreneur.com, defines a family firm as:
A business actively owned and/or managed by more than one member
of the same family,http://www.entrepreneur.com/encyclopedia/term/
82060.html, retrieved February 2008.
These definitions are unhelpful in terms of furthering scientific research in
the field as they do not allow direct comparison between studies. However,
they are useful here as they have a commonality and introduce the notion of
‘family control’ or dominance of the business by one or more family members
which is appropriate for this chapter. Nonetheless, an assessment of the extent
to which family businesses exists cannot be accurate due to definitional differ-
ences but we can make some reasonable assumptions. For example after
reviewing the evidence, the Centre for Labor Research concluded that 67 per
cent of Australian firms consider themselves to be family businesses (Spoehr,
Nukic and Robertson, 2005). In the US, around 92 per cent of American
businesses are classified as family businesses (Shanker and Astrachan,
1996). This makes the sector significant in terms of employment provision
and wealth generation.
Reflective practice
1. How would you help overcome the challenge of defining small family hospitality firms?
This chapter identifies the difficulties in obtaining an accurate profile of
small family owned hospitality firms and continues by discussing some typ-
ical roles played by family members in newhospitality businesses. Anotion of
new venture teams is introduced and the use of ‘external’ advisors outlined
including governmental and non-governmental sources. The chapter con-
tinues by discussing the advantages that small hospitality family firms have
over those managed by others and how conflict may be recognized and
addressed. Finally, transferring the family business and succession planning
are introduced with some suggestions how the complex process may be man-
aged effectively.
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 144
HOSPITALITY AND TOURISM
Most hospitality and tourism enterprises fall into the small or micro firm
category. Unfortunately, it is difficult to be entirely accurate due to the non-
uniform manner in which the information is collected. However, aggregated
data suggests that internationally most hotels are small to medium-sized (Lee-
Ross, 1999). In Australia, they form 90 per cent of total hotel stock (Lee-
Ross, 1998). Similarly, in the UK around 85 per cent of hotel firms are small
(Sheldon, 1993). The Australian and UK profiles are reflected globally and
Morisson (1998) comments that internationally, ‘The small firmcontinues to
play a significant role within the hotel industry . . .’ (p. 191). Moreover, owner-
operators account for 85 per cent of all hotels (MSI, 1996). This is confirmed
by Wanhill (1997) who notes that the small and medium-sized hospitality
sector is dominated by family businesses. It may therefore be concluded that
family plays a vital role in the hospitality and tourism industry and that to
understand entrepreneurship therein necessarily requires an understanding of
how families think, interact and operate.
When it comes to starting a newhospitality business, there is a temptation
to rush headlong into the process without first giving due consideration to
those who will actually be involved. Often at start-up there may only be one
person, the founder, and perhaps a ‘significant’ other who will probably be
holding down a job elsewhere to ensure an income stream at this crucial early
stage of the business. Assuming the entrepreneur wishes to growthe firm(not
all do) creates a situationwhere one individual simply cannot undertake all the
required activities, certainly not in the long-term. So who exactly becomes
involved in running small hospitality firms? The following hypothetical case
helps us to identify some key people and also highlights other issues including
poor planning, impoverished knowledge of alternative sources of finance, role
ambiguity and obligations of family members.
The ‘Sea View’ Bed and Breakfast
Stella and Gary Slack purchased a B&B in a UK seasonal seaside town. Formerly, they were
locals living elsewhere in the town and so had a reasonable understanding of the tourist
demand for accommodation during the busy summer months.
Stella held down a job in a local retail outlet whilst Gary worked for a gas and oil rig
maintenance company. Tired of his ‘two weeks on’ and ‘two weeks off’ shift-working
arrangements both he and Stella decided to start afresh as small hoteliers. After giving notice,
Gary quit his job and they purchased and an existing B&Bbusiness in need of some ‘tender
loving care’; Stella remained employed elsewhere as they would have to rely on her job for
income during the ‘off-season’ when the business was closed.
Hospitality and Tourism 145
After extensive refurbishment during the winter months, Stella and Gary opened their doors
for business in June of the following year. At first, trade was slow but they had received a
number of bookings fromthe regular trade established by their predecessors. Stereotypically,
Stella did much of the cooking and Gary looked after general maintenance and some waiting
at tables. As the summer season began to gather pace, their B & B became busy with many
‘walk-ins’ and increased prior bookings. This demand meant that for a period of around six
‘peak’ weeks, they managed to let all eight of their bedrooms almost every night.
Understandably, this created extra work; far more than they could deal with by themselves.
So like many new entrepreneurs they relied on family members, friends and locals to fill
positions including, room attendants, wait staff and kitchen assistant. All individuals were
paid the going rate for the job including family and friends. Some were bona fide employees
whilst other were paid ‘cash in hand’. As the season started to become quieter, some staff
were no longer required.
After several successful Summer seasons, Stella and Gary decided to expand their business
premises. Luckily the adjacent B & B was up for sale and the couple were most keen on
making a purchase. However, they could not raise enough capital to secure the deal so they
approached family members in the hope of an interest free loan. Much to their delight a
brother and sister in law came to the rescue but with one condition. The new couple wanted
joint ownership and, occupying similar roles, to work alongside Stella and Gary in the new
venture.
After little thought, virtually no negotiation or scenario planning, Stella and Gary agreed to the
condition. Soon after the house was purchased both converted into one large B & B with 16
bedrooms. After decorating and renaming the new B & B, all was set for their first busy
summer season.
1. Howwould employing these individuals have affected the running of Stella and Gary’s B&
B and how should they have planned for the busy period?
2. How would the founders have advertised these employment positions?
3. What knowledge would Stella and Gary have needed to ensure their staff were enjoying fair
and legal employment conditions?
4. What impact would the new couple have on the operation of the B & B?
5. Take an educated guess at some of the opportunities and challenges associated with joint
ownerships and working with partners.
Source: the authors
Key point 7.1
Family plays a vital role in the hospitality and tourism industry and that to understand
entrepreneurship therein necessarily requires an understanding of how families think,
interact and operate.
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 146
THE CHOSEN FEW
As discussed in Chapter 1, many hospitality enterprises fail in the first year or
so of operating. Reasons cited include poor marketing, inability to innovate,
poor business planning, failure to delegate responsibility and so on. These
shortcomings are essentially people-related, that is, many entrepreneurs lack
relevant expertise and experience. Barringer and Ireland (2006) refer to this as
the ‘. . . liability of newness . . .’ (p. 127) where firms struggle because of
inexperienced and inflexible founders and associates. One of the biggest hur-
dles is for the entrepreneur to identify their weaknesses and be totally honest
about it. This is important when starting a business and questions the founder
needs to ask herself include:
1. What do I know?
2. What don’t I know?
3. What do I need to know?
4. Who has this expertise and knowledge?
5. How do I access and use these skills?
Satisfying these questions for some may be difficult, because entrepreneurs
typically have a strong ‘locus of control’ (see Chapter 2) and as such, may not
like to admit their shortcomings. However even before start-up, it is essential
that founders are smart enough to realize that they may not have all of the
answers and relevant business experience to run a small hospitality firm
successfully. They may be deficient in a number of areas and require the advice
and expertise of others. The best situation is where the family group is het-
erogeneous (within reason) and all individuals bring different knowledge and
experience to bear on the new firm. However, a more usual scenario is where
family members only possess a few complimentary skills or where the family
group is so small (two people) that neither person has the required business
knowledge.
So what can entrepreneurs do to address these knowledge and skill gaps?
Fortunately, free advice is usually available from an array of public agencies
and interest groups. Local tourismand hospitality associations are good places
to seek advice. Several examples of generic small business services are shown
below:
& Australian government sites -http://www.business.gov.au/Business+
Entry+Point/How-to+guides/Thinking+of+starting+a+business/&http://www.australia.gov.au/Small_Business
& www.business.qld.gov.au/mentoring
The Chosen Few 147
& National Network of Area Consultative Committees funded by the
Australian Government, working to promote regional development
www.fnqacc.com;
& Council of Small Business of Australia Ltd. -http://www.cosboa.org/
webs/cosboa/cosboaweb.nsf/
& Small Enterprise Association of Australia and New Zealand - http://
www.seaanz.asn.au/
& UKGovernment -http://www.businesslink.gov.uk/bdotg/action/home?
domain=www.businesslink.gov.uk&target=http://www.businesslink.
gov.uk/
& Advice for small business (UK) -http://www.smallbusiness.co.uk/ &http://www.smallbusinessadvice.org.uk/sbas.asp
& US Small Business Administration -http://www.sba.gov/
& European Small Business Advice -http://www.esba-europe.org/
& Small Business Europe -http://www.smallbusinesseurope.org/en/
Similar services are offered in other countries and are free with advice being
offered on all aspects of running a small business including, staffing, strategies
for growth, marketing, sources of finance, strategic planning and so on. Alter-
natively entrepreneurs can avail themselves of similar services from private
firms who charge for such a service.
Another option for hospitality founders is to acquire and apply knowledge
but this could take time and prove costly in the long run. Networking with
others in industry associations and elsewhere through social outlets may also
allow the entrepreneur access to business knowledge and information. Wher-
ever the hospitality founder seeks information she must be eager and quick to
learn if it is to be used effectively and developed. Family businesses are often at
an advantage here as the knowledge acquired stays within the firm and grows
organically over time with the addition of new family members. Whilst fo-
cused industry-relevant acumen is advantageous, prior generic business savvy
is also important when starting a new business. So too is an awareness of
funding availability. The following case illustrates this point.
How I Got Started
Nantwich-based entrepreneur Andrew Donaldson was running storage businesses in and
around Manchester when he decided to get into the hotels business.
He began by setting up his own company, The Egryn, to buy the Egryn hotel in the North
Wales seaside resort of Abersoch. And he quickly secured [pounds sterling] 450 000 of
financing from Bank of Scotland Corporate, which was recommended to him by his
accountants.
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 148
Donaldson’s main aim was to attract young families and budget travellers by offering cost-
effective, comfortable rooms on a sliding price scale. Although there are numerous hotels
and B&Bs in the area, he felt that holiday-makers on a tighter budget were not really catered
for, leaving a lucrative gap in the market. Fortunately, Bank of Scotland Corporate shared his
vision.
Having bought the hotel, Donaldson used the remainder of the cash to refurbish and extend
the property, turning the former owner’s accommodation into a three-bedroom, self-catered
chalet, bringing the total number of bedrooms available to 10, along with one-bedroom staff
accommodation.
And he certainly didn’t hang about. Contractors were lined up and waiting and, after
Donaldson got the keys on 1 July, ‘with a lot of hard work and endeavour’ the new-look Egryn
was open for business within 48 hours.
Occupancy rates have been good so far, with the self-catering chalet let out for the whole of
the summer. If the project continues to be a success, Donaldson, who set up his first business
in 1991 with a loan from the Prince’s Trust, aims to develop further sites in the area, making
the most of his storage knowhow.
‘Buying a hotel is a first for me,’ he says, laughing, ‘although the two
companies both work along the same principle of letting out space.’
Source: Donaldson, A. (2004) How I got started, Caterer and Hotelkeeper, Sept. 2, p. 105.
Reflective practice
1. Interview a entrepreneur known to you asking how they identified their knowledge and
skills gap and how they addressed the problem.
A checklist of those who may be involved directly and indirectly in a new
venture is shown in Table 7.1. Clearly some roles apply to family members
whereas other more specialized ones do not.
The above list is by no means exhaustive, for example, the last category of
‘Other professionals’ is vast as each person offers a different service. Moreover,
a decision to hire such people must not be taken lightly, a variety of issues need
to be considered beforehand. Shaper and Volery (2004) caution that business
consultants must not be considered a panacea for all business challenges and
the founder should engage in their own research before using such services.
These authors provide a useful summary of criteria which must be addressed
prior to engaging the services of business consultants; they are shown in
Figure 7.1.
The Chosen Few 149
An important issue not shown above is that of entrepreneurial confidence.
Often the founders of small hospitality firms have technical knowledge and
little else. It is vital that rapport is established between founder and consultant
if the bases of the new firm are to be established to optimize its chances of
future success. Some consultants are passive whereby the client is assisted in
finding their own solutions. Others adopt a more dominant role as problem-
solver (solicitor or accountant), whilst some challenges are of a more fixed
nature. For example, a hotelier might decide to adopt computer software to
deal with guest reservations. In this instance the consultant may be an
TABLE 7.1 New venturers
Players Details
Founding team &Can be more effective than individual entrepreneur as mutual psychological support
offered to each member;
&Past successes are a good predictor of new venture also allows trust to be developed;
&Heterogeneity provides good basis for inter team debate provided individuals are
significantly different to each other;
&Power struggles may ensue as venture develops;
&Members must have appropriate skills, knowledge and experience and operational ability
linked to the venture. Restaurateurs should ideally have food production and service
abilities in addition to higher management capabilities.
Key employees &Decision to hire based on solid planning, some founders may play key staffing roles,
especially in a family business where flexibility is key;
&Good ‘job fit’ is essential, recruited through existing founder network, advertisements in
various media, executive search firms for management staff.
Board of directors &Necessary when firm becomes incorporated, not usual in hospitality SMEs especially
at start-up;
&Directors add ‘legitimacy’ to firm, sends signals to customers, employees and investors;
&May be founders or external who oversee appointment of managers, declaration of dividends
and affairs of the firm, usually meet quarterly
&Other key role is ongoing support and guidance for founders and managers, therefore essential
that directors have appropriate experience.
Advisory board &Ongoing panel of experts, similar role to directors but has no legal responsibility for firm
Lenders and investors &In the family firm these will probably be relatives and friends. May also be keen to observe the
hotel closely and to become involved depending on the significance of the investment;
&Can be a cause of conflict where investor has different ideas of operating compared with
founders and managers;
&Can provide invaluable help and advice in areas including recruitment, market knowledge, as
directors or advisors.
Other professionals &These include, lawyers, accountants, architects, business consultants and so on;
&Small hospitality businesses might use a consultant for advice in several areas as employing
one person in each designated area would be too costly.
Source: Adapted from Barringer and Ireland (2006, pp. 128–140).
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 150
employee of the software manufacturing firm hired to give specific instruc-
tions about how to use the new system. In any event, the type of problem
usually dictates the consultancy style.
Key point 7.2
Before opting to use a consultant for business advice founders must engage in their own
research to establish the credibility of the potential advisor.
ADVANTAGES OF THE FAMILY BUSINESS
Leach (1996) cites seven advantages enjoyed by family firms:
& Specialist knowledge and know-how protected and retained by the
family;
& Free advice from experienced family members;
& Extensive business and social networks;
& Extensive knowledge of markets, suppliers etc;
& Commitment through family ties;
& Cultural long-term stability and positivity relative to non family firms;
& Reliability and pride building strong relationships with customers;
FIGURE 7.1 Key selection criteria.
Adapted from: Shaper and Volery (2004, p. 232).
Advantages of the Family Business 151
& Short-lines of communication allows fast decision-making;
& Family usually willing to advance loans at zero or low interest with
‘flexible’ repayments;
& Initial passion of founder may be transferred inter-generationally;
& Resilience of family members during times of crisis;
& Long-range planning although not necessarily of the ‘formal type’; and
& Employment flexibility in terms of time and effort and whether to
accept a full salary all of the time especially when business is not
performing.
Adapted from: Leach (1996) and Deakins and Freel (2006).
Sirmon and Hitt (2003) also consider the family firm to have several
inherent advantages noting that success depends on the management of a
few unique resources. The first is how complimentary the skill sets of imme-
diate family are. Second, a recognition that individual family members are
likely to have a variety of complimentary external networks and linkages. The
third resource is the nature of family capital which is often unfettered by red
tape, is ’flexible’ (in some cases interest-free!), and may be relied on in cases of
emergency (including free labour). Finally because of the trust element present
in family firms, much of the costs associated with ‘official’ policies, proce-
dures, security systems and so on are at a minimum. Burns (2001, p. 359)
agrees noting that a business culture characterized by task orientation, and
performance management is at a disadvantage because it lacks a strong sense
of emotional attachment which characterizes the family-firm.
However, family businesses also have their problems, the most obvious
being nepotism. Deakins and Freel (2006) consider that the overarching man-
agement style exhibited in small firms tends to be autocratic and malignantly
paternalistic. Overwhelming evidence suggests that this is also the case in the
hospitality and tourism industry. Family firms are prone to conflict for a
number of reasons which are discussed in the next section.
Reflective practice
1. Through either desk research or by interviewing a hospitality entrepreneur known to you,
identify some key inherent advantages that family businesses enjoy.
FAMILY CONFLICT
Business founders typically experience higher workloads than virtually all
categories of employee (Harris, Saltstone and Fabroni, 1999). It would
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 152
therefore be reasonable to expect high stress levels amongst these individuals.
Furthermore, these extreme conditions are likely to engender conflict in the
workplace. This may also be compounded by other issues if working closely
with family members. Conflict within the family is likely to negatively impact
on venture performance by lowering the well-being of the founder and subse-
quently hinders work performance (Sheldon, 1993, p. 289). Shelton (2006)
defines work–family conflict as:
‘A form of inter-role conflict arising because pressures emanating from
one role are incompatible with those from another role’ (p. 288).
So does this mean that conflict is reduced when the work/life interface is
managed appropriately? The answer is ‘yes’ but there appear to be other chal-
lenges and nuances within the family group which must also be considered.
So how is conflict best reduced in family businesses? The evidence is
conflicting but some cautious generalizations can be made. In small to medi-
um-sized hospitality firms, co-founders are often family members. However,
convening the family team or rather the appropriate configuration thereof is
essential and may be challenging due to the inherent roles played by indivi-
duals as family members. For example, who will be the leader of the family
business, the child, father, mother, uncle etc.? The extra dynamic here is that
of the ‘traditional’ hierarchical structure of the family and the culturally bound
relationships between members. Lambing and Kuehl (2007) note that family
businesses are complex precisely because they are based on family relation-
ships rather than the relatively simple notion of making money. There may be
cases of nepotism, sibling rivalry for the top job and disharmony between
parents and children. These challenges may be exacerbated when offspring
marry and the family becomes extended. Not to mention the extra financial
burden accompanying the advent of more members joining the business.
What about the relatively simpler family profile of only two members?
Many small hospitality firms are comprised of only husband and wife (or
similar) and employ others only during the busy periods. Even this situation
may create a double edged sword. Figure 7.2 identifies some related advantages
and disadvantages.
Essentially, the issue here is ‘business creep’, that is, when work and family
life become merged. This often happens during the early stages because cou-
ples (and other members) are intent on making their business successful to
the exclusion of everything else; family life therefore takes second place. In
extreme cases, this can continue until it is hard to distinguish the family from
the firm. Anxieties and work-related stress can manifest in the home envi-
ronment. Ultimately, these pressures can result in couples divorcing and
other family members becoming estranged. Interestingly, divorce rates and/
Family Conflict 153
or separations amongst hospitality managers are high at 33 per cent
(Shrimpton, 2002). So too is alcoholism which may also reflect the significant
stress levels under which family members work (Crosland, 2007).
So how can the impact of business creep be mitigated? Several coping
strategies exist and they fall into two categories. The first considers psycho-
logical coping responses to negative emotions surrounding work–family con-
flict (see Ashforth, 2000). For example, suppression of behaviour and thoughts
between the work and family domain, fixation and significant focus on only
one domain to counteract the negative consequences of the other and limited
involvement in one area to cope with demands from the other.
There are a number of practical steps which may help limit the negative
effects of working side by side with a partner. Probably the easiest to imple-
ment is establishing separate times to discuss business and personal matters.
A somewhat more challenging practice is to describe each partner’s behaviour
and then discuss it. If all else fails, a family business consultant may be used or
even a family relationships counsellor! (Lambing and Kuehl, 2007).
The second strategy looks at role manipulation. Rooted in the earlier work
of Moen and Yu (2000), Shelton (2006) advances the notion that role elimi-
nation, role reduction and role-sharing are key considerations for high per-
forming family businesses (particularly for female entrepreneurs). Evidence
suggests that work-family conflict may be lowered more effectively (than
internal coping mechanisms) by adopting appropriate work-family manage-
ment strategies as they can reduce conflict by changing the configuration of
competing family and work demands. Moreover, if used judiciously these
FIGURE 7.2 Advantages and disadvantages of family ‘couples’.
Adapted from: Lambing and Kuehl (2007, p. 95).
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 154
measures can also reduce the requirement for psychological coping mechan-
isms (Shelton, 2006). The strategies shownbelowhelp lower family conflict by
organizing, sequencing and delegating work and family activities:
& Role elimination – no role in family
& Role reduction – smaller family role or deferring a family until business
is established
& Role sharing
T delegation of role played in the venture (participative management
techniques)
T delegation of family role by outsourcing family obligations
The actual strategy chosen will depend on the salience of work and family
roles (i.e. which is most important) and the type and quality of external
resources available. The founder has to find an optimum ‘fit’ taking these
factors into consideration. Shelton (2006) advances the idea that salience may
be mapped against external resources as shown in Table 7.2.
It also goes without saying that in a business sense, both partners must
share goals for the growth and development of the firmand allocation of roles.
Furthermore, these issues are seldom static and may change over time as the
business changes and matures. It is essential to revisit any original agreements
on a regular basis.
The road is obviously fraught with difficulties and some commentators, in a
general sense, recommend the use of a ‘family council’ whereby members meet
regularly to discuss and debate major issues. Advisory boards may also be used to
help ameliorate the inherent problems of governing a family business. Burns
(2001) advises a four-step approach to resolving conflict within the family:
& Address the critical issues relating to family involvement in the
business, that is, how does the business relate to the family and vice
versa;
& Establish a family council to express views and set ground rules;
TABLE 7.2 Optimal work-family management strategy choices
Internal family salience
Low High
External resources High Delegate family role (role-share) Delegate venture role (role share)
Low No family (role elimination) Defer family
Smaller family (role reduction)
Source: Shelton (2006, p. 292).
Family Conflict 155
& Construct a family constitution by developing a written statement of
the family’s values, beliefs and objectives; and
& Monitoring progress and maintaining regular communication through
council meetings.
Adapted from: Burns (2001, p. 367).
In a practical sense resolving family conflict is unlikely to be as smooth
as suggested by the above model but these elements are important and the
wise family business founder(s) would be advised to give each adequate
attention.
Key point 7.3
There are two overall strategies for mitigating the negative impacts of business creep. The
first considers psychological coping responses to negative emotions surrounding work-
family conflict. The second is the manipulation of the work-family situation by role
elimination, role reduction and role-sharing.
Reflective practice
1. What strategy would you adopt to avoid business creep in the small family owned and run
hospitality firm and why?
SUCCESSION PLANNING IN THE FAMILY BUSINESS
The effective transference of the small hospitality firmfromone generation to
another (i.e. succession) is a direct result of thorough planning and commu-
nication as it addresses a number of key questions including:
& Will the business be transferred on a certain date or by a certain date?
The former is immediate whilst the other is a longer term option and,
all things being equal, the preferable pathway;
& Who will be the successor and are they ready and capable of running the
business successfully? If not, howwill the transition period be managed
and by whom until the ‘heir’ is sufficiently skilled?
& Does the heir want to take over the hospitality enterprise?
& Do they know that parents are planning to hand it over? and
& When will the business be transferred?
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 156
The following case illustrates some of the above issues.
A Success Story
Like many hotel owners, long-time Best Western member Don Seaton grew up in a lodging
industry family. More than 50 years ago, his parents owned a small, independent property in
the Lake Tahoe region of California.
‘I started out when I was eight years old, doing the laundry,’ Seaton
said. ‘We didn’t have dryers back then, so my job also involved taking
the clothes to the back line, drying and folding them.’
Looking at a career in education, Seaton went on to college, but after graduation, he found it
difficult to make ends meet on a teacher’s salary. In 1960, his father offered him a full-time
marketing position at the property, which by then was a Travelodge. Seaton then started out
on his own, acquiring a Travelodge in Clearwater Beach, Fla. Seaton sold the property, but by
1973, his family had acquired a membership for the 110-room Best Western Seawake Inn,
also in Clearwater Beach.
Now, almost 30 years later, his daughter Wendy Damsker is manager of the Seawake. His
other two children also have worked in the lodging industry. And Seaton’s Best Western
portfolio now includes the 116-room Best Western Crystal River Resort in Crystal River, Fla.,
and the 124-room Best Western Harbor View in Melbourne, Fla.
As the son of a hotelier and father of children who wish to continue in the business, Seaton
typifies the ‘sandwich generation.’
When it came time for Seaton to take over the business, he chose not to accept the
inheritance of his parent’s stock, but to acquire their interest equally with his wife. Seaton and
his wife now own 50 per cent, with the remaining 50 per cent split among his three children.
In part, this has been undertaken as a strategy to blunt the otherwise significant impact of
inheritance taxes.
‘In our kind of business, it’s very important that the next generation
doesn’t get clobbered by these taxes,’ said Seaton, who also has six
grandchildren-none of which has shown an interest to make lodging
their career choice.
When imparting grandfatherly advice, Seaton encourages them to be flexible. Like family
entrepreneurs in other industries, he knows the fourth generation of a hotel family doesn’t
tend to be locked into the family tradition.
Sid Friedman is president and CEO of Philadelphia-based Corporate Financial Services, a
consulting firm that helps manage the generational transition in hospitality industry families.
Friedman said he believes successful succession planning is an art comprising prudent
financial planning and managing the human relationships and pride that come into play as
part of family life.
When it comes to the financial aspects, Friedman is a big believer in family-limited
partnerships.
Succession Planning in the Family Business 157
‘When you start bringing your kids into the business, the growth is in
your kids’ names, not in yours,’ he said.
Gift taxes on bequeathed-limited partnerships are significantly lower
than estate taxes.
‘Limited partnerships help get the assets out of the estate,’ said Bill
Meyer, co-owner of Meyer Jabara Hotels, a company based in West
Palm Beach, Fla., with a 25-hotel portfolio. ‘The [Internal Revenue
Service] will attribute the limited-partnership interest with a 25-per
cent discounted value for estate-tax purposes. Gifts of a limited-
partnership interest don’t have control aspects, which is why the IRS
discounts the value of that gift.’
Meyer’s father and the father of his business partner, Bill Jabara, are 40-year veterans who
still play important roles in their hotel businesses. Their franchises include Holiday Inn,
Sheraton, Marriott and Hilton.
Family matters come into play when heirs who have been substantially vested feel they
should have the major say in day-to-day hotel-management affairs. Friedman said disputes
might result if the parents don’t want to cede control. He recommends setting up two classes
of stock, with parents retaining a majority of voting shares.
Friedman said that while some children in a given family might be interested in continuing in
the hotel business, others might not. In such cases, he suggested awarding ownership with a
ratio partially determined by each child’s degree of interest.
Michael Gulesarian is certainly an interested member of a second-generation hotel family.
His father, 68-year-old Ed Gulesarian, owns a 175-room Sheraton Commander hotel in
Cambridge, Mass. Trained as an engineer, Ed Gulesarian has been with the property since
1969. That year, his own father, who started in the residential suites business in 1946 and
acquired the Commander in 1960, brought him into the business.
Ed Gulesarian still owns the 75-year-old Sheraton Commander, but his son Michael is general
manager. At times, this can lead to generational disputes about how much authority the
offspring has.
‘He is basically running the place and really doing an excellent job,’
Ed Gulesarian said. ‘I have given the reins to him, but sometimes I
stick my nose in things. I find it difficult to let go.’
Gulesarian has yet to work out the financial aspects of generational transfer.
‘We have to do some more estate planning,’ he said. ‘Three weeks
ago, the sermon in church was, ’Do what you can do today, and don’t
leave it to tomorrow.’ That’s probably right.’
Cendant Corp. franchisee Rick Williams also grew up in the hospitality industry as one of
three brothers in an entrepreneurial family that first owned several motels in Georgia during
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 158
the 1960s. He recalled overhearing conversations about the business as a child, but his
education didn’t stop there.
‘Throughout the years, my exposure went beyond the dinner table,’
Williams said. ‘I bell-hopped, checked rooms and desk-clerked.’
Williams is responsible for the 10-property hotel armof Adel, Ga.-based Williams Investment
Co. Because Williams was more interested in the hospitality business than his siblings, he
said they have complemented each other. His father, John Williams, still drops by the office.
Source: Shaw(2002) Successful succession transfers take prudent financial planning, Hotel
& Motel Management,http://www.hotelmotel.com/hotelmotel/article/articleDetail.jsp?
id=37172, Retrieved February 2008.
Unfortunately succession planning in small family firms is an area which
is often haphazard and ‘organic’. Smyrnios et al. (2003) note that amongst
first generation family firms in Australia, only just over half survive into
second generation with around a quarter of this proportion following through
to the third generation. North American succession statistics are similar with
only 30 per cent of businesses surviving the first generation (Ward, 1988) with
a mere 15 per cent passing to the third generation (Morris, Williams, Jeffrey
and Avila, 1997). These authors consider a lack of planning as the major
reason for failure including family quarrels leading to poor decision-making
or no decision-making, irrational division of family assets, appointment of
incompetent managers and so on. The hypothetical case below illustrates
some of these challenges.
Growing Pains
David and Ruth Edwards were a successful entrepreneurial couple who owned a seventy-
bedroom seaside hotel. Originally some 25 years earlier, they bought into an equal
partnership arrangement with four existing partners. After a couple of years, they raised
enough capital to buy out all of them and became proud sole owners of their establishment.
In their late thirties at the time of purchase, they had a son Eric aged 16 who began to work in
various roles. Eric continued to gain operational hospitality skills and experience, even
working for short periods in other hotels, up until he left the region to attend university. During
this time Eric returned during vacations to work for his parents in the family business.
After graduation, he returned to work full-time in the hotel but now as a supervisor/junior
manager. Happy to be working in this new capacity, Eric was keen to be given more
responsibility for the strategic side of the business. He and his father also now broached the
idea of succession once David and Ruth neared retirement age. Eric greeted this with
enthusiasm but was disappointed with the outcome. Discussions simply consisted of ill-
focused exchanges about what might or might not happen in the future with his father
Succession Planning in the Family Business 159
constantly stating that ‘One day son, all of this will be yours’. This was rather frustrating for
Eric but he was unsure what he should do next, after all it was his parent’s business and they
could really do what they liked with it.
As the years went by Eric’s role as manager really amounted to nothing more than providing
emergency cover across most departments when staff failed to turn in for work. In fact, the
only time Eric was granted any managerial responsibility was on his parent’s one day off every
week. And on these days he would receive a constant stream of telephone calls from his
mother telling himwhat he should and should not be doing when dealing with issues that may
arise on that day.
On a more personal level, Eric was feeling discontented as recently he sought to move out of
the family home into a place of his own. Much to his disappointment he was unable to arrange
a mortgage for a nearby house because his salary was relatively low in comparison with other
paid employment for a man of his qualifications and experience. Begrudgingly he had to
approach his parents to raise extra capital for the purchase. They of course were more than
happy to do so but Eric was starting to feel beholden to them and began to question his
financial worth and as a member of the family business. After undertaking desk research on
salary levels for comparable occupations he became even more disgruntled.
A couple of years later Eric got married to Layla. She had extensive management experience
in hotels but left her most recent position to accompany Eric in the family business. All four
family members now worked together and Eric hoped that this new situation would tacitly
persuade his parents to give himand Layla more real managerial responsibilities in the hotel.
In more private moments, Eric and Layla sawthat the business was doing reasonably well but
there was much roomfor improvement, particularly in the area of banqueting and weddings.
Fortunately, they could cater for these events with virtually no disruption to the ongoing
business of the hotel as it had several kitchens and function rooms which could be easily
cordoned off whilst events were taking place. After much discussion, from their notes, they
drew up a comprehensive business plan and presented it to David and Ruth. It was received
rather coldly and unenthusiastically despite their being few costs apart from employing a
limited number of wait staff as and when the situation demanded. After the ensuing
discussions where the parents were non-committal, nothing more was said about the matter.
Six months later Eric once again tried to convince his parents about the worth of the idea. He
was informed that while the scheme seemed reasonable, both David and Ruth were quite
happy with the way things were and could not really see anything other than extra work being
created for everyone, if the new idea was pursued.
Eric and Layla felt that this response was not only typical of people entrenched in a particular
way of thinking and working but also short-sighted. After all, the family business would soon
be expected to support four people rather than David, Ruth and, to some extent, Eric. They
also considered his father’s attitude to be rather disrespectful of their feelings and abilities.
Later that year Eric and Layla found paid employment elsewhere and moved to a different
region.
Some ten years later, David and Ruth decided to sell the family business and retire. After a
lengthy five years on the real estate market, the hotel was purchased by a Chinese
consortium for a vastly reduced price.
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 160
1. Discuss the important succession planning and issues revealed in this case.
2. Identify the major problems from the perspectives of Eric; and his parents.
3. Suggest how things could have been managed more effectively.
Source: the authors
Unfortunately, this case reflects a common situation where there is unclear
communicationbetween the founders and their children. It also highlights the
common entrepreneurial challenge of an inability or unwillingness to delegate
responsibility. Finally, it exposes howunsatisfactory transferring (or not as the
case may be!) a business can be if succession plans are not seriously considered
well in advance of retirement. There is really no substitute for careful planning
when family businesses are passed from generation to generation. However,
even with a succession plan in place, transferring a family business is
challenging.
The following case similarly illustrates the often ‘unspoken’ and un-
planned process of succession.
Kingtree Lodge: Savouring Success
Website:http://www.kingtreelodge.com.au
David and Cheryl Rourke are the original start-up owners of Kingtree Lodge and Kingtree
Wines in the Ferguson Valley. This valley is a lush and verdant part of the Geographe Wine
Region, 38 kms east of the regional port city of Bunbury and some 200 kms south of the state
capital Perth, Western Australia. The decision to move to Ferguson Valley was in part a
‘tree-change’ for the couple since the valley is a certainly a wonderful place to live, work or
visit. In this context, their investment decision did have a lifestyle aspect to it which is
reflected in the way they have structured the business.
Built in 1991, the property consists of a federation style award winning two storey lodge built
frombeautiful local polished hardwood timbers. The main building is over 950 square metres
in size and is situated high up overlooking 100 acres of prime valley land. The property was
purpose-built to accommodate the family and up to eight guests in separate areas of the two
storey structure. The business mix includes a vineyard, cafe and the hosted accommodation,
all of which this couple run with some help from their eldest son Peter.
The wines from the vineyard have collected many awards including the Gold Medal at the
Qantas/Mount Barker Show, Silver and Bronze Medals at the Perth Royal Show and Silver
and Bronze Medals at the Geographe Wine Show. This entrepreneurial couple have built up
the property to nowbe worth in excess of AUD$2,500,000 with no debts to external parties. It
is all too easy for the casual observer to forget that they work long hours and have all the
market and seasonal risks attendant with running a hospitality and viticulture business.
Success has come through hard work, attention to detail and a positive ‘can do’ approach to
life and business.
Succession Planning in the Family Business 161
At the time of writing this case Cheryl was 52 years of age and David was 74, they have two
children aged 22 (Peter) and 11 (Olivia) from their marriage of 24 years. Considering their
age, it is apparent that the Rourkes have already given considerable thought to who will
inherit the property if something were to happen to them. Olivia is too young to consider her
future career and Peter is still undecided about the long termviability of working on the farm.
The vision that the Rourkes now articulate is one where son Peter and his new wife will work
the vineyard part-time, build a home on the property and perhaps continue to work off-farm.
At present Peter and his wife are trying life off the farm, working in higher paid opportunities
that are the result of the mining boom happening in the northern parts of Western Australia.
Until Peter returns home and makes a career decision the future of the winery remains in
limbo, to sell or to pass on to the children. With father David nowhaving turned 75 he wants to
retire in the near future, so some tough decisions are needed.
It seems unlikely that the hosted accommodation business will be viable once Cheryl decides
to retire because they need and want to continue living in the property. When discussions of
succession switch to the hosted accommodation Cheryl quips that her ‘retirement plan was
death’. The top floor of the lodge was designed as a retirement space for the Rourkes. Once
they retire, the downstairs hosted accommodation area will be used to vacation the family
they nowhave, and any newgrand children. So, even as they plan for the possible end of one
component of the business they look forward to enjoying new beginnings.
Source: Weber, 2007
Burns (2001) explains the succession process through a model based on
that of Churchill and Hatten (1987). Essentially there are four stages involved
in the transfer of power:
& Owner managed firm – early stage when founder has control and son/
daughter are introduced to the business permanently;
& Training and development – decisionis made to pass business onto heir
and process of training and development takes place;
& Partnership – heir shows enough acumen and knowledge and founder
relinquishes some control and engages in more delegation and power
sharing; and
& Power transfer – strategic planning, management control and
operational responsibility shifts to the incoming generation with
founder playing a less active role in business and ultimately retiring.
Adapted from: Burns (2001, p. 362)
Key point 7.4
Amongst first generation family firms in Australia, only just over half survive into second
generation with around a quarter of this proportion following through to the third generation.
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 162
In reality, handovers are not quite as prescriptive or systematic as the model
suggests and conflicts may be frequent taking a variety of forms with a number of
behavioural outcomes. These include the orientation of the founder which,
according to Lambing and Kuehl (2007), is linked with their strong locus of
control. This means they are loath to relinquish control of their business to
anyone including their children. This may manifest as jealousy as the
entrepreneur’s control ebbs away. The founder may also ensure boundaries
are unclear so that they can still exert significant power in the decision-making
process. Aless extreme versionis where the original owner expects their offspring
to manage the business in exactly the same manner as they have done. This can
create enormous problems where second generation family members have dif-
ferent ambitions and attitudes (Deakins and Freel, 2006). Managing a family
business with limited autonomy where major decisions are still being taken by
the founder is a recipe for disaster (as illustrated by the ‘Growing pains’ case).
There may also be the issue of sibling rivalry (O’Brien, 1998). What hap-
pens when there are many children, power-sharing? This sounds like a rea-
sonable solutionbut it does not always work especially if the founders make no
distinction between heirs active in the firm and those who are not. Perhaps
appointing the most qualified sibling as leader could help but what constitutes
‘most qualified’? Will the remaining siblings accept this decision as
fair? Martin, Martin, Martin, and Mabbert (2002) identify the following
‘succession risk factors’:
& firms where there is no distinct management team and employing
between 10 and 50 employees;
& where business success is attributable to owner’s personal goals;
& where founder is unable to delegate decision-making effectively;
& an absence of an internal successor; and
& when owner ignores the need for succession.
The key for successful transition is to begin planning early so that trans-
ference is a gradual process rather than one ‘transplanted’ onto the heir.
Moreover, the planning process should be intergenerational and involve both
active and non-active family members. It is often useful to develop something
in writing which sets out roles, responsibilities, objectives and a management
framework. It is also important to remember that transferring a small hospi-
tality firm will have financial and tax implications. Call in solicitors and
accountants to give expert legal and financial advice. For example, in many
countries, founders can ‘gift’ business assets up to a certain sumper annumto
the next generation without incurring financial penalties and minimize in-
heritance tax upon the death of the founder. Planning for retirement is also an
important but often overlooked element in the context of business
Succession Planning in the Family Business 163
transference. This will have positive financial and emotional outcomes so long
as the decision to retire is resolute (Burns, 2001).
Reflective practice
1. Through desk research, identify two successful intergenerational hospitality firms and
discuss the reasons for their accomplishments. Now repeat the exercise for two family
firms who have not enjoyed similar success.
Assuming heirs do not want to establish different careers, Deakins and
Freel (2006) advance the notion that for successful transition, founders must
have a full understanding of their situation and ensure that the successor
receives appropriate training. In order to ensure clarity of roles and responsi-
bilities it is a good idea to include such in the firm’s business plan to avoid
squabbles but also to inform potential investors should this be desired in the
future.
Harvey (2004) concurs and identifies several key factors in successful tran-
sitions including:
& Understanding the need for change and planning for it;
& Willingness of founder to foresee retirement;
& Recognising the importance of business education amongst heirs;
& Making sure individuals are trained;
& Ensuring heirs work elsewhere to broaden their business experience
and aspirations;
& Ensuring heirs have a comprehensive knowledge of the family business
where possible; and
& Engendering motivation amongst heirs to run the business.
Adapted from: Deakins and Freel (2006)
Manikutty (2004) proposes that for a family firm to be successful after
transferral it must focus on several independent variables grouped under three
headings of governance, business philosophy and culture and managerial
practices. Specifically, the variables are:
& Governance
T A greater number of external members serving on the board of
directors;
T Decisions being taken collectively rather than the Chief Executive
Officer; and
T Having a clear succession plan.
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 164
& Business philosophy and culture
T A continuation of the founder’s business philosophy by the
subsequent generation; and
T An adherence by subsequent family members to the cultural norms
of the founder.
& Management practices
T Delegation of important decisions to lower levels;
T Prioritization of team management as preferred practice;
T Focus on strategy; and
T Sophisticated and systematic financial, marketing and operational
planning; and a use of outside services of consultants and advisors.
Adapted from: Manikutty (2004).
SUMMARY
Notwithstanding the difficulties of defining and therefore establishing an
accurate quantumof family owned and operated hospitality firms, they would
appear to dominate the hospitality industry internationally. Many fail within
their first few years of operation but others succeed. This chapter has over-
viewed some of the probable causes for these outcomes.
There can be no doubt that many small family owned hospitality busi-
nesses become established due to the enthusiasm and sheer hard work of the
founders. However, the ability and willingness of these individuals to engage in
appropriate planning would appear less than forthcoming. Before start-up,
founders need to identify their own strengths and weaknesses to determine
who will actually be involved in the business. Many small hospitality enter-
prises are family run and for this reason have a number of potential advantages
of those operated by managers and employees. A few of these are:
& Commitment;
& Resilience;
& A cheap or even free labour force;
& Long-term stability; and
& ‘Flexible’ financing.
However, the above benefits will only occur provided account is taken of the
attributes each family member brings to the firm, that is, they must be com-
plimentary to avoid role conflict and duplication. Moreover, other challenges
arise including a potential for nepotism, sibling rivalry, exploitation and so on.
Summary 165
A common problem encountered in small hospitality firms especially in the
early stages is ‘business creep’ where work and family life become merged.
Newentrepreneurs have a tendency to devote all of their time and effort to the
new business and relegate or put family life on hold. This is understandable
during start up but if allowed to perpetuate can have a number of negative
outcomes including divorce or separation for couples, estranged family mem-
bers and ultimate failure of the small hospitality firm. There are some prac-
tical measures and coping strategies which if adopted may help mitigate
business creep including:
& limiting involvement in either work or family domain to cope with the
demands from either area;
& establishing separate times to discuss business and personal matters;
and
& delegation of family responsibility to another person and so on.
An overall strategy is to establish a family council where members meet
regularly and discuss major issues.
One could be forgiven for thinking handing over a family business to
successive generations is a fairly straightforward affair. However, this is not
the case and succession planning or transferring the family firm is an area
where careful planning is an absolute must. Aggregated evidence suggests
that between 30 and 50 per cent of all small businesses survive into second
generation, with significantly fewer following through into the successive
generation. There are a variety of challenges to the smooth handover of a
family business; some concern issues of financial planning but many more
surround the emotions of the founders and heir(s). For example, some
owners tend to resent losing power after transferring the firm and actively
seek to limit the decision making autonomy of the new family member.
Similarly, founders may have not considered the matter of retirement to
any great extent and are left making decisions for which they nor their
successors are prepared. Other challenges where founders have more than
one child include sibling rivalry, identifying criteria most effective when
delegating power and control and whether to include children who are not
already active in the business.
Proceeding on the basis that family members do not see employment
elsewhere and are internally motivated to take over the firm, there are some
key issues which founders need to consider to increase the likelihood of
successful transitions:
& An understanding of the need for change and planning for it (including
foreseeing retirement);
CHAPTER 7: The Family Business: Who’s to Bless and Who’s to Blame? 166
& Ensuring heirs receive appropriate prior business and skills training
including acquisition of experience outside the family firm; and
& Ensuring heirs have a comprehensive knowledge of the family business.
Case author
Dr Paull Weber
Curtin University of Technology
Australia
Summary 167
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Hospitality, Commercial
Homes and Entrepreneurship
After working through the chapter you should be able to:
& Critically discuss hospitality and hospitableness in the context of small firms
& Recognise the attractiveness of commercial hospitality to owner/managers
& Evaluate the linkages between commercial homes and hospitality businesses
& Recognise the tensions and dilemmas inherent in commercial homes
INTRODUCTION
The prevalence of small firms in the hospitality and tourism sector is a
dominant feature of the international industry. Even in advanced market
economies where a small number of firms dominate most markets, most
individual hotels restaurants and bars are owned and managed by small firms.
Whilst recognizing that a small number of hotel groups, restaurant groups and
some country pub groups, do control a disproportionately large share of these
markets, most premises are owned by small firms. Frequently, these are micro
firms, employing fewer than 10 staff, and in many cases they employ none,
other than family members who ‘help out’ as needed (Lashley and Rowson,
2003, 2005, 2007).
Whilst there are clearly economic and location factors which limit oppor-
tunities for economies of scale and require the location of hotels, restaurants
and bars to be close to their markets, the sector has attractions for the small
firm entrepreneurs. The nature of hospitality, its cultural meanings and links
to domestic experiences suggest for many would be entrepreneurs that they
have the skills needed to offer hospitality services commercially (Lashley and
Rowson, 2008). The ‘commercial home’ provides a setting for a number of
levels of commercial engagement. Also, and perhaps more importantly, it
allows different levels of engagements as host. This chapter suggests that
hospitality and opportunities for engagement with hospitality and acts of
CHAPTER 8
169
hospitableness is a significant attraction to those looking for business oppor-
tunities, for working closely with the family, or for undertaking work which
limits engagement with the labour market. The chapter explore some of the
emergent issues and debates surrounding hospitality and hospitableness be-
fore going on to discuss issues and dynamics flowing from studies of the
commercial home.
Reflective practice 8.1
Describe your most memorable experience of being a guest in a hospitality setting. This may
be in a private dwelling or in a commercial setting. What makes it memorable.
ON HOSPITALITY AND HOSPITABLENESS
The emergence of the hospitality to describe commercial service delivery in
bars, hotels, restaurants and other catering activities provides a chance to look
at these commercial operations with a more critical eye because of the implied
meaning that these businesses provide more than services for monetary ex-
change. Hospitality has deep cultural significances across the globe. Although
there may be some cultural variations, hospitality implies:
& altruistic giving,
& welcome for strangers, and
& feeling of safety and security.
Certainly, recent academic enquiry and debate amongst academics suggest
that hospitality and hospitableness are worthy avenues of study in their own
right (Lashley and Morrison, 2000; Lashley, Lynch, and Morrison, 2007;
Molz and Gibson, 2007). The study of hospitality fromsocial science perspec-
tives has enabled a better understanding of host–guest relationships in an
array of
& commercial,
& non-commercial, and
& domestic settings.
In some cases, social scientists have used hospitality as a metaphor for
understanding societal interactions between host communities and the guests
who come as tourists, asylum seekers, foreign workers, or migrants. In the
case of entrepreneurial firms, hospitality can be studied to the extent that
it persuades individuals that there are opportunities to generate income.
Many seem to think they have the necessary skills to provide commercial
hospitality. In some cases, the perceptions are that the provision of food, drink
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 170
and bed spaces requires no skill. It is something they do at home (Lashley and
Rowson, 2008).
Key point 8.1
Studying hospitality as a wider social phenomenon helps explain why so many would be
entrepreneurs consider that they have the skills necessary for business success providing
commercial hospitality services.
Lashley (2000) initially proposed that a three domain model helped to set
the context of hospitality using a Venn diagram to distinguish between cul-
tural/social; private/domestic and commercial domains but to also show how
the domains potentially overlap and influence each other Figure 8.1.
Whilst it was recognized that the Venn diagramwas unsophisticated, it did
allow a discussion of the three domains to take place and the following will
highlight some of the emerging issues that have implications for the manage-
ment of hospitality and tourism. The Venn diagram also suggested a way of
thinking about hospitality that looked beyond the immediate commercial
activities in hotels, restaurants, bars and cafes, etc.
& Hospitality was also likely to be practiced in private domestic settings,
and this was likely to be a site of learning about hospitality that might
ultimately inform hospitality practitioners in commercial settings.
Host
Physiological needs
Psychological needs
Extraction of surplus
Services for profit
Producer limitations
Market limitations
Private
Social
Commercial
Dealing with strangers
Mutuality
Status and prestige
Managing the
hospitality experience
FIGURE 8.1 The three domains of hospitality.
On hospitality and hospitableness 171
& Both would be set withina social and cultural setting that would inform
expectations of both guests and hosts about hospitality transactions.
& The social and cultural domain provides the setting in which both the
private expectations of hospitality and commercial delivery of
hospitality goods and service take place.
The French philosopher Jacques Derrida said,
‘Not only is there a culture of hospitality, but there is no culture that is
not also a culture of hospitality. All cultures compete in this regard and
present themselves as more hospitable than the others. Hospitality –
this is culture itself.’ (2002: 361).
The social/cultural domain
The quotation from Derrida (2002) suggests that these are claims made by all
cultures, and are indications of the human decency with which a society seeks
to define itself. Derrida tends to assume a timeless and unchanging aspect of
hospitality.
& It is clear that modern industrialized societies do not have the same
cultural and religious obligations to be hospitable to strangers.
& There is not now, as there would have been in medieval England
(Heal, 1990), or Austinia Rome (Lomaine, 2005), ancient Greece or
Judea (O’Gorman, 2007) a need to offer shelter, food and drink to
strangers.
& Nor is there a widely held social intention to ‘turn strangers into
friends’ (Selwyn, 2000).
That is not to say that these obligations do not exist in contemporary
societies across the globe, as will be discuss later, there are examples of soci-
eties where these obligations on both guests and hosts are taken very seriously,
and in some cases with deadly consequences when transgressions occur
(Lashley, 2008).
& A common theme in all these settings is that the obligation to offer
hospitality to strangers was both cultural and religious.
& Socially defined meanings of decency included requirements to offer
shelter to strangers, to provide food and drink and protection from
danger.
& These obligations extended to all, irrespective of status or origins.
& These social and cultural obligations were reinforced by religious
strictures and in both Greek and Roman, and later Christian parables
suggested that the Gods, or Jesus, often assumed a disguise as a poor
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 172
traveller, so as to test the hospitality offered to strangers by hosts, and
woe-betide any host who refused a request for hospitality.
& In all these Greek, Roman and Christian contexts, the parables suggest
that a failure to be hospitable would result in all worldly goods being
taken away from the inhospitable wrongdoer.
Writing about hospitality in the early medieval England, Heal (1990) sug-
gests that there were strong moral cultural obligations to offer hospitality to
travellers, strangers and the homeless. The host was to offer protection and
safety as well as nourishment and a place to sleep. She says these obligations
were founded on five underlying principles:
1. that the relationship between host and guest is a ‘natural’ one (i.e. that
it is grounded in the nature of social life);
2. that an intrinsic part of being a host is having regard for the sacred
nature of the guest (which refers, broadly, to the honour and status to
which a guest may bring to the host);
3. that hospitality is noble;
4. that altruistic giving is an established and expected part of English social
life;
5. that hospitality and the social relationships and exchanges it engenders
are at least as important as those formed in the market place (22).
Although the obligations to be hospitable no longer have the moral author-
ity they once had in advanced industrial societies, moralists continued to
make reference to them throughout the 20th Century. Selwyn (2000) traces
sermons by religious leaders stretching into the nineteenth and twentieth
centuries which were extolling the virtues of giving hospitality. Even in
1930s USA the Catholic Workers movement advocated re-engaging with
medieval ideas of hospitality as a way of providing support for unemployed
and poverty stricken people (Selwyn, 2000). Writing form a Christian
perspective, Nouwen (1975) argues that hospitality should consist of the
following facets:
& Free and friendly space – creating physical, emotional and spiritual
space for the stranger.
& Stranger becomes a guest – treated as a guest and potential ‘friend’.
& Guest protected – offer sanctuary to the guest
& Host give gifts – the host welcomes the guest by providing the best gifts
possible.
& Guest gives gifts – the guest reciprocates and gives gifts to host.
& All guests are important and gifted – the host values the guest and gains
value from them.
On hospitality and hospitableness 173
& Acceptance, not hostility – especially the kinds of subtle hostility,
which makes fun of strangers or puts them into embarrassing
situations.
& Compassion – hospitality is basically a sense of compassion.
Whilst these obligations to offer hospitality do not have the same social and
cultural force that they once had, many individuals are still concerned about
hospitality and being good hosts, and also we must not forget, good guests.
Sherringham and Daruwalla (2007) remind us of an old Italian saying, which
roughly translates as, ‘Guests are like fish, after three days they stink’.
These obligations to offer hospitality to strangers are of interest for a
number of reasons.
& First, the moral and ethical dimensions of hospitality provide an
interesting point of comparison with the current commercial delivery
of hospitality goods and service. ‘Treat the customers as though he/she
was guest in your own home’ (Lashley, 2000: 13) is howone restaurant
company attempted to instruct staff in the levels of service required.
Of course this instruction only applied if the customer was able to pay.
& Second, these moral, ethical and personal commitments to provide
hospitality, although not so widely held across the society promoted as
they were inthe past, may well be held by individuals who want to make
a living out their passion to entertain in a hospitable way. Hence the
sector may be attractive to entrepreneurs with a specific interest in
hospitality, learnt through the wider culture or through religious
teaching.
& Third, the models of hospitality from the past or through ethical
teaching may help entrepreneurs to be gain competitive advantage by
adapting the principals of hospitality to informservice deliver and build
customer relationships, ‘Turning customers into friends’ (Lashley and
Morrison, 2004).
Key point 8.2
Cultural obligations to offer hospitality and to be hospitable provide important ethical modes
which can guide contemporary entrepreneurial practice.
On hospitableness
Typically hospitality and hospitableness are expressions of altruistic generos-
ity driven by pure motives and a desire to serve others without immediate
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 174
promise of reward. Telfer (2000) considers the philosophy of hospitality, and
suggests that there is a distinction between hospitality and hospitableness.
Telfer’s work suggests that the motives of hospitality are what defines whether
hospitality is genuine or not. Providing hospitality because the host has an
ulterior motive or for personal gain, is not said to be true hospitality.
Interestingly this raises an issue of interesting debate about the meaning of
true hospitality and the role of reciprocity. Hospitality practiced by elite fam-
ilies in Augustinian Rome was founded on the principle of reciprocity as an
early form of tourism (Lomaine, 2005). Affluent Romans developed networks
of relationships with other families with whomthey stayed as guests and then
acted as hosts when their former hosts were intending to travel.
For Telfer (2000), these reciprocal arrangements do suggest ulterior
motives and question the nature of the hospitality. This does also raise
issues about the nature of commercial hospitality because one reading of
Telfer’s assessment is that commercial hospitality is not likely to be hospi-
table because of the provision of hospitality being linked to the ulterior
motive of profit generation.
Telfer (2000) suggests truly hospitable behaviour is motivated by genuine
needs to please and care for others, and should not be practiced to deliberately
impress the guest or for the expectation of repayment. She says hospitable
motives include the following:
& the desire to please others, stemming from general friendliness and
benevolence or from affection for particular people; concern or
compassion;
& the desire to meet another’s need;
& a desire to entertain one’s friends or to help those in trouble.
& a desire to have company or to make friends, and the desire for the
pleasures of entertaining – what we may call the wish to entertain as a
pastime.
Key point 8.3
Truly hospitable behaviour is different from offering hospitality because it is motivated by
genuine needs to meet the needs of others and hospitableness.
Consideration of hospitableness is valuable to hospitality operators be-
cause it can provide a model for staff training as well as service quality defini-
tion and management which can build a genuine competitive advantage for
On hospitality and hospitableness 175
hospitality entrepreneurs. If strangers/customers can be converted to friends
they are likely to be much more loyal customers.
The private/domestic domain
Whilst there are cultural and social expectations about hospitality which set
the broad rules about both the treatment of guests by hosts, and the behaviour
of guests when they are being hosted, the practice of practical hospitality is
experienced mostly in domestic private settings.
& Entertaining family and friends for dinner, offering drinks to visitors
and even accommodating them are activities that are widespread in
most societies.
& Typically individuals would therefore experience being guests in other
families’ homes, and being hosts when others come to their home.
The rituals associated with hosts and hosting behaviour is itself a topic
worthy of study. Rules about guests making contributions to the host in the
form of wine, gifts, or dishes to be consumed are worthy of study across
communities.
& Insome cases, the guest who turns up for dinner without a contribution
of a bottle of wine would be regarded as lacking generosity and taking
advantage of the host.
& In other cases, hosts might be offended by the guest who arrives with
wine, food, etc. because it suggests that the hosts cannot afford to
entertain the guest.
Certainly, these obligations and expectations will be largely shared through
the sharing of cultural and social norms of what is appropriate (Lashley et al.,
2007).
The key concern for hospitality and tourism operators is the extent that
these motives and desire can be captured, promoted and delivered in a com-
mercial context. In principle, Telfer suggests that where hosts are offering
hospitality for personal gain, or for vanity or solely out of a sense of duty the
actions are not genuinely hospitable. Warde and Martens (2000) research on
‘dining out’ suggested that dinners interviewabout their experiences of dining
in commercial and domestic setting stated that the experiences in domestic
setting was more authentic than those in commercial restaurants.
& The domestic/private domain of hospitality provides a bench mark
against which commercial hospitality is judged.
& Respondents often use the language of domestic hospitality to evaluate
their experiences in commercial settings (Lashley et al., 2005)
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 176
& It is also a source of learning about host and guest relations which can
be used during communications with guests and with staff in
commercial operations. For example, one UK based restaurant group
required service workers to ‘treat customers as though they are guests in
your own home’ (Lashley, 2001: 70).
The link between the private domestic domain and commercial activities
as a source of learning also extends to career choice as many subsequent chefs
initially take their inspiration from within the home (O’Mahony, 2003).
& Research on top award winning chefs by O’Mahony suggests that a
common theme with all the winners was that they had developed their
love of cooking and entertaining with a mother or grandmother.
& Lashley’s (1985) research into leading hotel and restaurant chef profiles
also revealed that they typically developed an enjoyment of food and
cooking in the home with a mother, grandmother, or other significant
female family member.
Furthermore, the link between the domestic domain of hospitality and
commercial activities has a major influence on hospitality entrepreneurial
activity. This occurs in two ways.
First, many commercial hospitality activities are set in domestic dwellings.
The ‘commercial home’ in the small hotel and bed and breakfast sector, or in
farm stay settings involve guests entering the private domestic dwelling.
& Often the decision has involved selling domestic home to buy the hotel.
Lashley and Rowson (2005, 2007) found that over 70 per cent of hotel
owners in Blackpool’s small hotel sector had sold a house in order to
purchase the hotel.
Lynch and MacWhannell (2000), Lynch (2005), and Sweeney and Lynch
(2006) have undertaken research exploring the relationship between commer-
cial hosts and their paying guests. There appear to be different levels of en-
gagement with between hosts and guest.
& In some cases, hosts accept and treat paying guest as they would family
and friends. In other words, there are few‘no go areas’; guests and hosts
dine together, use the same sitting room and sleep in bedrooms still
adorned with family bric-a-brac.
& At the other end of the scale, guests and hosts occupy different parts
of the property, eating in separate dining rooms, sitting different in
rooms and guest sleep in bedrooms which have been made to be
depersonalized. Lynch (2005) points to some important tensions in the
On hospitality and hospitableness 177
expectations of guest inthese small properties compared withhosts and
their advisors.
Overseas visitors often choose these smaller hotels and guest house
precisely because they want to live with a ‘real family’. However, the hotel
proprietor wants to establish some distance from their paying customers, and
tourism official frequently advise them to professionalize their relationship
with guests, making it less friendly and more anonymous like a traditional
larger hotel.
The second link to between domestic and commercial domains of hospi-
tality is in the nature of the assumed skill sets required to operate a commer-
cial hotel, bar or restaurants. Through the domestic nature of providing
sleeping accommodation, food and drink many new business start ups under-
estimate the skills needed for successful commercial hospitality operations
(Lashley and Rowson, 2007).
The domestic/private domain of hospitality provides valuable insights for
those interested in marketing commercial hospitality experiences. It estab-
lishes a context in which individuals perform acts of hospitality and display
their qualities of hospitableness. The domain also establishes the sense of
authenticity of the hospitality experience. The assumption being that those
who invite guests to stay or dine, in their home are motivated by the desire to
entertain, though as Telfer (2000) shows, these motives may not always be
genuine. Individuals may be offering hospitality out of a sense of vanity, for
ulterior motives or because they feel an obligation to do so. Certainly, the
domestic/private domain is an important setting for both learning the obliga-
tions to be a good host and guest, and the specific skills need to run accom-
modation, bar and restaurant operations.
Key point 8.4
The private/domestic domain of hospitality provides a key learning environment for learning
social and cultural expectations of hospitality and it can provide a basis for learning skills
relevant to commercial hospitality.
The commercial domain
One of the key issues relating to hospitality provision in the commercial sector
relates to the authenticity of the hospitality provided.
& Are commercial hospitality products and services merely another
service?
& Can commercial hospitality ever be genuinely hospitable?
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 178
& Are models of cultural and privates hospitality of any value?
Slattery (2002) and Jones (2004) argues that restaurant, bar and hotel
services are essentially economic and involve a management activity. The study
of hospitality from wider social science perspectives has limited utility. In this
view the guest-host transaction is essential monetary transaction whereby the
host supplies food, drink and/or accommodation for payment in money. This
chapter argues that the study of hospitality from these wider perspectives is a
worthy exercise in itself, but it can also inform the management of hospitality
commercial provision. By considering the nature and quality of the host–guest
transaction, commercial hospitality can develop long term relationships with
guests and build competitive advantage through the relationship.
Ritzer (2007) suggests that there are powerful drivers in commercial hos-
pitality organizations that will lead hospitality provision becoming
‘inhospitable’. Ritzer’s comments on McDonaldization suggests that there
are corporate drivers to increase
1. efficiency,
2. calculability,
3. predictability and
4. control.
These lead ultimately to the creation of systems which acts as a barrier to
frontline performance of hospitality. These McDonaldizing processes inhibit
performances which are hospitable and at the same time they generate cus-
tomer feelings of being undervalued as individuals. These standardizing and
systemising processes therefore are a fundamental aspect of the approach to
managing hospitality services inbars, restaurants and hotels and effect remove
the ‘hospitality’ fromthe transaction. In Telfer’s (2000) terms the commercial
transaction provides an ulterior motive for offering hospitality and therefore
prevents genuine hospitality.
Telfer (2000) does suggest that it is not inevitable that commercial hospi-
tality will invariably be a less than authentic version of hospitality in the
home. She suggests that it is possible that those who have an interest in,
and who value, hospitality will be drawnto work inthe commercial hospitality
sector. They may run their own hospitality businesses, or choose to work in
roles that enable them to be hospitable.
Key point 8.5
There are clearly some tendencies to McDonaldize commercial hospitality and tourism
services, however, it is possible that entrepreneurs with a strong personal need to be
On hospitality and hospitableness 179
hospitable may be drawn to opening business which offer guests accommodation, food and
drink in a hospitable context.
Work by Lashley et al. (2005) on ‘memorable meals’ suggests that the
emotional dimensions of the meal where much more significant than the
quality of the food in creating memorable meals. The research asked respon-
dents to provide a written account of their most memorable meal. The texts
were subjected to semiotic analysis and a multi-dimensional image of the meal
emerged:
& the nature of the occasion of the meal,
& fellow diners who made up the company with whom they dined,
& characteristics that contributed to the atmosphere, food eaten,
& overall setting, and
& the service provided.
The occasion was typically some significant event in which the social
dynamic of the meal reinforced the emotional significance of the event. Here
the event is made more significant by the hospitality setting. The occasion of
the meal or holiday is often a celebration of bonding and togetherness with
family and friends. The company of others comes across strongly in these
accounts, and although one account involved the company of just one other
person, most involved groups of people, and none involved an individual
diner on their own. The atmosphere created by the setting, other people and
their treatment by hosts provide emotional dimensions to meal occasions
which are vital to creating memorable occasions. Interestingly, few of the
respondents mentioned the food consumed or quality of dishes as part of their
descriptions.
The dominant impression is that these emotional dimensions of
hospitality are what make these meal occasions special, and it will be these
emotional dimensions of their visit that make for memorable hospitality and
tourism events. Interestingly, when asked to recount their most memorable
meal experiences about half the respondents quoted occasions which were in
domestic settings, whilst the other half occasions were incommercial settings.
Key point 8.6
Commercial hospitality activities provide would be entrepreneurs with business
opportunities in which they feel they already possess the key skills or a setting to exercise
their hospitality skills a personal need to be hospitable.
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 180
ATTRACTIVENESS OF HOSPITALITY ACTIVITIES
The study of hospitality froma wider set of social science perspectives is useful
in developing an understanding of entrepreneurship in the provision of ac-
commodation, food and drink products and services.
& The fact that entrepreneurs regard the provision of these products and
service as ones with which they have a developed expertise is directly
related to the domestic provision of hospitality.
Would be entrepreneurs, typically, have acted as hosts provided accommo-
dation, food and drink to guest who either visited or stayed in their home. In
turn, they themselves will typically have been guests in other people’s homes
and received these ‘hospitality services’ from other hosts as friends, relatives
or other acquaintances.
& So for many new entrants to the industry, there is no perceived skill
deficit which might hamper their decision to pursue an entrepreneurial
decision to buy a guest house, hotel, bed and breakfast, pub, inn,
restaurant of cafe.
Furthermore, individuals with domestic dwellings of the right size, loca-
tion or structure have been able to consider turning part of their domestic
space over to commercial activities.
& Accommodation services, in particular, lend themselves to this
commercialization of the home, or parts of it, to commercial activities.
But there are also examples of individuals using domestic premises to
provide food and beverage services through outside catering, banqueting and
contract catering in workplaces. Licensing restrictions over the sale of alcohol,
will in many countries, limit the conversion of the domestic space to com-
mercials bars and pubs, but many of these licensed premises were originally
domestic dwellings.
& Linkages between gender roles in the home and income generation
outside the home typically result in the commercial home providing
opportunities for women to become, or remain, economically active
without entering the labour market (Lynch and MacWhannell, 2000)
In fact the linkage between the commercial home and economic activity
which avoids the labour market is a powerful attraction for many would be
entrepreneurs. Research with ‘lifestyle style entrepreneurs’ (Lashley and
Attractiveness of hospitality activities 181
Rowson, 2001, 2005, 2007) suggests that there are a number of motives for
engaging in commercial activities from a home base.
In the pub sector in the UK, for example, it is possible to take over a pub
operation via a tenancy or leasehold arrangement where the ‘in-going’ is
literally a few thousand pounds. One respondent in a major pub company
suggested that the pubs with lower sales level would be let as tenancies,
typically ranging between £5000 and £7000; whilst pubs with higher sales
volumes might be let via leasehold arrangements costing between £40 000 and
£50 000 (Lashley and Rowson, 2001). In neither case, are the capital require-
ments prohibitive for many would be entrepreneurs. In addition, families
looking for accommodation and some form of economic income stream are
attracted to this sector.
& Many pub companies looking for tenants or leaseholders who are
former service personnel from the armed services or the police because
those with long service will come out with a ‘lump sum’ to pay for the
tenancy of lease.
In this latter case, people who have had a career in the service and are now
looking for work on ‘civvy street’ take on a pub because it provides themwith a
potential business opportunity and income stream as well as domestic dwell-
ing area above the pub. They are in effect avoiding the labour market and
gaining access to a ‘free house’ associated with the business.
& The fact that 30–40 per cent of these properties can change hands each
year is a by-product of the mismatch between the expectations of and
the realities of life as an entrepreneur in the pub business (Lashley and
Rowson, 2001)
The restaurant and take away meals market are attractive to members of
ethnic minorities (Collins, 2000). French, Italian, Greek, Indian sub-conti-
nent and Chinese migrants inparticular are found inmany European, US, and
Australian cities. O’Mahony (2007) highlights the important role that Irish
migrants played in the development of ‘hotels’ in Victoria. The Nineteen
Century British colonial powers excluded Irish migrants from positions of
power and prestige. The Irish migrants found commercial opportunities in
the brewing and pub/restaurant sector, often described as ‘hotels’ (Table 8.1).
Key point 8.7
Low barriers to entry into commercial hospitality businesses means that many potential
entrepreneurs running small firms face few restrictions on business start ups.
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 182
COMMERCIAL HOMES
The link between commercial hospitality business activities and the home is a
complex one, covering varying degrees of business intensity. Lynch (2005)
takes more accommodation service model. Table 8.2 replicates his list of
categories and types of commercial homes.
The commercial home title in the way Lynch employs the term has two
dimensions. The first recognises that in many of these establishments guest
and host share the same premises with a varying degree of proximity and
shared space. Lynch and MacWhannell (2000) suggest that there are several
potential levels of interaction between hosts and guests within the premises.
The second dimension is that the concept of the home, and homeliness are
often implied in the construction of the design of the property and the mar-
keting offer to guests. Often the size of the property is restricted to a small
TABLE 8.1 Hospitality venues as attractions for would be entrepreneurs
Hospitality establishment type Attracted groups of would be entrepreneurs
Bed and breakfasts Married women
Cultural homestays Married couples
Farmhouse stays Other relationships
Guest houses Redundant workers
Host families Semi-retirees
Small family run hotels Lifestyle changers
Those looking for more personal control
Those attracted to the area
------------------------------------------------------------------------------------------------------------------------
Pubs Ex service personnel
Inns Former police officers
Bars Lifestyle changers
Redundant workers
Families looking for a ‘free house’
------------------------------------------------------------------------------------------------------------------------
Restaurants Migrants
Cafes Married couples
Snack bars Lifestyle changers
Take-away restaurants Those who enjoy cooking
------------------------------------------------------------------------------------------------------------------------
Contract catering Married women
Dinner party catering Married couples
Office catering Collectives of men and women
Commercial homes 183
number of rooms more like a private home, or in a location which suggests
more historic (and more hospitable?) times. This second dimension brings us
back to anearlier point that the word hospitality allows the commercial offer of
hospitality to link psychologically to private hospitality.
Lynch and MacWhannell (2000) suggest three levels of interaction between
commercial hosts and commercial guest in the home setting. At its most
closely linked to notions of private hospitality, commercial guests and their
hosts share much of the space of the private dwelling. Bedrooms are similar
decor to those used by host family members. Sweeney’s work (2008) shows
that in this type of establishment many of the guest’s rooms are adorned with
personal ornaments and photographs fromthe host family. Indeed being made
to feel ‘one of the family’ is probably an important aspect of this business offer
to its clients. So much of the dining space, and living space is shared between
hosts and guests. That said, there will be some areas which are held as ‘no go
areas’ for guests. Kitchens and private bathrooms are two common features
(Lynch and MacWhannell, 2000).
Asecond model involves hosts sharing the same premises with commercial
guests though there is much more delineation of ‘private’ ‘no go’ areas.
Typically dining facilities and lounges, as well as bedrooms and bathroom
TABLE 8.2 Commercial hospitality and tourism home types
Categories of commercial homes Examples of types of commercial homes
Traditional commercial homes Bed and breakfasts
Cultural homestays
Farmhouse stays
Guest houses
Host families
‘Monarch of the Glen’ properties
Religious retreats
Self-catering properties
Small family run hotels
Writers retreats
Virtual reality commercial homes Boutique hotels
Country house hotels
Timeshares
Townhouse hotels
‘Backdrop’ hotels Houses used as visitor attractions
Houses used as film sets
Source: Lynch (2005: 39).
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 184
facilities are separated out for commercial guests. Frequently, commercial guest
areas are made more ‘professional’ by making them less personal to the hosts.
Often local tourismofficials encourage the more anonymous hotel like decor in
these premises. Sometimes working counter visitors and strangers to an area
who are motivated by the need to stay with a ‘real family’ (Lynch, 2005).
Self-catering where the owners live away from premises is the third
commercial home model identified by Lynch and MacWhannell (2000). Here,
the owner lives away form the premises occupied by the commercial guest.
They suggest two variants where the property is a ‘second home’ or an invest-
ment property bought specifically for letting. Again, the nature of home and
the artefacts with which the property is adorned communicate meaning here.
Whilst Lynch and MacWhannell’s (2000) model is related to the accom-
modation sector, it does have relevance to the pub and bar, restaurants and
contract catering sectors. In the pub sector for example, many properties
would fit into the second model where the owner/manager, tenant/leaseholder
live on the same premises as the commercial activity, but there are clearly
delineated areas which are private to the hosts and family. Commercial guest
rarely enter these parts of the property and then only be special invitation of
the commercial. Some restaurants, cafes, snack bars and takeaway premises
also have private areas which are personal to the hosts and not shared with
commercial guests.
Both the pub and bars, and restaurant, cafe, snack bar and takeaway pre-
mises also involve operations where the commercial guests consume hospi-
tality goods and services, but where the owner manager does not have a private
dwelling on the same premises. Here the arrangement is more a ‘lock up’ in
which the notion of the ‘commercial home’ still exists but with greater em-
phasis on the commercial than the home. That said, many owner managers
will regard the commercial aspect as part of their ‘home’. It is their property
and guests are entering their personal space, even though it is not shared with
private domestic hospitality space.
Small firms operating contract catering, workplace catering, business
lunches or dinner service out of their domestic dwelling are in yet another
relationship with their clients. The private dwelling’s kitchen and storage
facilities are used to produce hospitality products but the hospitality is con-
sumed in the guests’ premises or dwelling. The hospitality service provider
providing host products and services is at once host and guest (Table 8.3).
Hospitality services offered by small firms cover a wide range of different
forms of commercial home. Each represents a different level of interaction
between commercial hosts and commercial guests. In the majority of accom-
modation service operations commercial hosts and guests share the same
premises, though with varying degrees of levels of sharing common areas.
Commercial homes 185
There are some, small accommodation premises where hosts live away from
the property in which guests are staying. Typically, these might be self-catering
operations but there are some small hotels and guests houses where the owner
managers do live on the same premises as commercial guests. In other cases,
guests and host do not share the same premises, because the commercial
operation takes the form of a lock up which is closed to guests when the
business is not open for trading, and hosts have their own private dwelling
elsewhere. Finally some small hospitality businesses are run out of private
dwellings and the hospitality is consumed out of guest’s premises.
Key point 8.8
Commercial homes describes the situation in which many hospitality entrepreneurs operate.
To varying degrees the entrepreneur’s home is the site of commercial activity.
TABLE 8.3 Levels of interaction between commercial hosts and commercial guests
Levels of interaction Hospitality types
Hosts and guests share much of the private dwelling space Bed and breakfasts
Cultural homestays
Farmhouse stays
Guest houses
Host families
Small family run hotels
Host and guest share the same premises but much private
space is off limits to commercial guests
Bed and breakfasts
Guest houses
Small hotels
Inns, pubs and bars
Restaurants, cafes, snack bars and takeaways
Owners live away from the premises Self catering in second home
Self catering in an investment property
Owners live away from the premises which take the
form of a lock up
Pubs and bars
Restaurants, cafes, snack bars and takeaways
Some guest houses and small hotels
Hosts use guest premises to service
hospitality experiences
Small scale contract catering
Workplace catering
Business lunch services
Domestic dinner services
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 186
Sweeney’s work (2008) provides some interesting insights into the motives
and concerns of those running commercial homes as the venue for hospitality
operations. Table 8.4 shows that for most of her interviewees the need to offer
hospitality with a commercial context was most important to most of her
interviewees in guesthouses, bed and breakfast places and small hotels. Chap-
ter 3 suggested that most of her interviewees could be located on a continuing
starting with purely economic motives at one extreme and pure hospitality
motives at the other end. Table 8.4 shows the clustering against each of the
four positions.
As Table 8.4 confirms the majority of respondents suggest that motives to
enter into the accommodation sector have intertwined motives. The need for
economic activity but also associated with a need to be hospitable or at least to
offer hospitality to others. There are more respondents who see the sector as
chiefly about generating economic benefits though a significant majority of
these are claiming to do achieve these in the performance of hospitality ser-
vices.
TABLE 8.4 Typologies of commercial home owners
Economic motives Economic-hospitable motives Hospitable- economic motives Hospitable motives
2 respondents 13 respondents 8 respondents 2 respondents
Adapted from: Sweeney (2008: 231).
TABLE 8.5 Positive and negative discourses of hosting
Positive Negative
Own boss Tied to home
Better lifestyle On 24 h call
Working from home Long working hours
Extra income Family time interrupted
Generate money for children Very busy
Afford larger property Little time to themselves
Meeting new people Missed social occasions
Having time off Difficult to be spontaneous
Gives status Summer holidays limited with children
Learning new skills Not having their home to themselves
Cost effective for home Inferiority complex about work
Socially desirable
Increased confidence
Source: Sweeney (2008: 244).
Commercial homes 187
Sweeney (2008) goes on to provide some insights into the positive and
negative discourses in the hosts’ perceptions of hosting in a commercial
enterprise. Mostly these relate to comments which enable the continuation
of domestic roles and relationships but with economic benefits, though rec-
ognizing that the underside of the commercial home involves limitations on
the freedom to act and do as the family pleases (Table 8.5).
Key point 8.9
The hospitality commercial home offers considerable benefits to those entrepreneurs who
want an income stream whilst working from a home base. In addition the commercial home
brings with it some considerable disadvantages.
The nature of the commercial home and the nature of the business enter-
prise being pursued by the entrepreneur are likely to influence perceptions of
the benefits and limitations of the commercial home. Research on churn in
ownership in small hotels (Lashley and Rowson, 2007) and the tenanted and
leased pub sector (Lashley and Rowson, 2001) suggests that the change in
ownership within the stock of small hotels and tenanted/franchised pubs is in
the region of 20–30 per cent per annum.
Any local tourism officer or pub estate manager recognises a cluster of
problems of concern by the ease with which it is possible to open hospitality
business units. Most countries do have laws relating to the registration of
premises providing accommodation, food and/or drink. In many cases, would
be entrepreneurs have to be licensed to cover customer safety, in some cases,
even to practice hospitality. Mostly, however, the barriers to entry to hospital-
ity business opportunities are relatively low. Many bed and breakfast places,
family hotels, guest houses, restaurants, pubs and inns can be bought for the
price of medium sized domestic dwelling (Lashley and Rowson, 2001, 2007).
Even a McDonald’s restaurant franchise in the UK works out at about
£250 000 (Lashley, 2000), thoughthere are some considerable barriers to entry
for would be franchisees fromoutside of the company management structure.
Generally, however, the low barriers to entry in hospitality enterprise ac-
tivities present those concerned with service quality being offered by owner
managers of hospitality enterprises with major problems. Local authority
tourism officers in Blackpool, for example, are concerned that the low skill
levels of people buying small hotels, guest house and bed and breakfast units
make difficulties for driving up levels of service quality on the town’s accom-
modation sector (Lashley and Rowson, 2007). Similarly, the pub companies,
like the Punch Pub Company are aware that their tenant and leaseholder low
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 188
skill sets are major inhibitors to business growth and development (Lashley
and Lincoln, 2001). To this end the Punch Pub Company now require all new
tenants/leaseholders to take a compulsory 10-day training programme prior to
their taking over one of the company’s pubs (Lashley and Rowson, 2002).
The high levels of churn in business ownership or tenancy/lease arrange in
these small businesses also create problems for those concerned with improve-
ments in service quality, improving business productivity, or building com-
petitive advantage against other resorts or firms. In effect there is a
considerable portion of the entrepreneurs who are at lowlevels on the learning
curve at anyone time (Lashley and Rowson, 2008).
SUMMARY
This chapter has suggested that the study of hospitality as a human and social
phenomenon is helpful in understanding the attractiveness of the sector to
many would be entrepreneurs. The fact that hospitality is one of those cultural
signifiers by which people attempt to distinguish themselves from other com-
munities or groups suggest that many assume that their community is natu-
rally more hospitable. In addition, the fact that many have been hosts in their
own domestic/private setting, and have been guests in the private/domestic
settings of others, provides entrepreneurs with a confident evaluation of their
skills. Many assume that they have the skills needed to run their own hotel,
pub or restaurant (Lashley and Rowson, 2002, 2005, 2007).
The overlap between the commercial home and the hospitality service
provision intertwines amongst these entrepreneurs. The commercial home
enables entrepreneurs to be economically active whilst at the same time linked
to family roles and responsibilities, and maintain social links through hospi-
tality activities. Sweeney’s work (2008) shows that many small firm entrepre-
neurs have aspiration to meet both economic goals and hospitality related
social goals. The accommodation sector most clearly provides an exemplar of
hosts and guests sharing the same property and in some instances living
spaces overlap. That said, the chapter has argued that all small hospitality
enterprises involve some aspect of host and guest interactions in shared
spaces. In the restaurant, and bar and cafe/snack bar sectors, for example, it
is not unusual for these entrepreneurs to live on the same premises as the
business.
Low barriers to entry, in the form of relatively low capital investment
requirements and the perceived low skill sets required attract many would
entrepreneurs who have limited experience of the commercial hospitality
sector, or even of small business ownership for that matter (Lashley and
Commercial homes 189
Rowson, 2001, 2006, 2008). As a consequence, there can be problems of
service quality management, of limitations on productivity and business
growth. Relatively high levels of churn in business ownership increase these
problems for interested parties outside of the business, and cause some major
difficulties for the would be entrepreneurs themselves.
CHAPTER 8: Hospitality, Commercial Homes and Entrepreneurship 190
Preparing a Business Plan
After working through this chapter you should be able to:
& Understand the need to produce and work to a business plan
& Gather the information and background detail needed for the plan
& Write up and present an effective business plan
& Work to the plan making the necessary adjustments needed.
INTRODUCTION
It is useful to prepare a business plan for your business. For independent
business in freehold, tenanted, leased or franchised businesses, a business plan
is essential. Even managed units in chain organizations can benefit from
producing a business plan. Business plans assist managers to plan the direction
of the business, compare performance with the plan, and take corrective action.
& Preparing a business plan allows you to think about the mission and
key objectives of the business, and the actions needed to achieve the
objectives.
& Identify the information needed to understand the customers and
competition.
& Develop a competitive business strategy for the business.
& Plan all the activities needed to make the strategy work.
& Forecast the results of the plan to overcome difficulties.
& Keep track of the business and take corrective action where needed.
Preparing a business plan helps managers to understand the business and
the planning process. It is this process that is important to the manger’s role as
a manager and owner, because the hospitality sector is fast moving and dy-
namic and a plan provides a sense of direction and purpose. It enables mangers
to make changes and amendments as circumstances unfold. The business
plan shows how the business will contribute to overall goals and objectives of
the organization.
CHAPTER 9
191
DESCRIBING THE BUSINESS
The business planning process starts with a clear description of the business,
the management and team and core business activities.
Mission statement, objectives and actions
The mission statement and objectives are important because they help to give
everyone in the business focus and a sense of purpose. Also they help all to
consider problems and difficulties to be overcome Figure 9.1.
Mission statements
In large organizations, these will be provided by the organization, managers
need to understand the statement and encourage team members to under-
stand their contribution to achieving the mission. A good mission state-
ment provides an organization with focus, and helps to concentrate
managers and employees on the key activities, and to avoid trying to do
too many things. In particular the mission statement should cover the
following points:
FIGURE 9.1 The pyramid of goals.
CHAPTER 9: Preparing a Business Plan 192
& What business is this and what is its purpose?
& What needs to be achieved over the next 1–3 years?
& How will this be achieved – what are the core values and standards?
Mission statements should not be too bland, nor should it be so general
that is difficult to know what business the organization is in.
Objectives
Objectives are the specific objectives to be achieved over the next 3 years. They
have to be written in specific and measurable terms. For example,
1. Increase sales by 20 per cent over three years
2. Reduce employee turnover by 10 per cent each year
3. Increase customer satisfaction scores by 5 per cent within 1 year
By defining the key objectives the plan is providing a set of targets so that
are more likely to achieve the overall purpose of the business. They provide a
measurable set of pointers that guide actions over the forthcoming period.
Tasks
Tasks are the specific activities that you need to undertake to achieve the
objectives set. They are the ‘how’ statements that will make the objectives
happen. For example,
1. Identify complementary customer occasions, so as to attract new
customers to the business.
2. Target businesses who might undertake joint products with my
products and services.
3. Direct promotional material and special offers to customer who use the
business in quiet periods.
Actions
In this case the plan is showing what needs to be done and when, what will
happen on Monday morning, thinking ahead to the various actions needed
and when. For example,
1. Survey existing customers and potential customers.
2. Visit all competitor units in the area.
3. In August start recruitment and training of staff needed for the
Christmas season.
The identification of objectives, tasks and actions are the most important
because they are useful in helping to achieve the overall mission as set by the
organization.
Describing the business 193
Key point 9.1
Defining core aims and objectives, tasks to be completed and actions needed to complete
them is an essential tool of business planning.
DESCRIPTION OF THE PRODUCTS AND SERVICES
Even in situations where a person is managing a hospitality organization it is
worthwhile focusing on one of the key products and services that you are
supplying to customers. Hospitality and tourism operations often involve
the sale of a mixture of food and beverage items. These need to be analyzed:
& by meal types – say between set meals and snacks,
& between types of drinks – alcoholic and soft drinks,
& through other income streams – say from machines or
accommodation, and
& where accommodation is also offered for sale, the analysis should also
include room sales and types.
Table 9.1 provides a framework which can be used to note the range of
products and services being supplied. It may also be used to identify potential
gaps and opportunities that could be added as part of the business develop-
ment.
Increasingly, the analysis should also consider the primary customer
occasions the business is servicing, and identify potential complementary
occasions that might be tapped as a source of sales growth.
Customer occasion show that customers come to the business for one of a
number of reasons even the same customer may visit the business with
different occasions and service needs. Also flowing from this analysis of the
customer occasions at the core of the business, it is also necessary to list the
key critical success factors which customer regards as core to success. These
need to be a key focus of the business because they will impact upon the
TABLE 9.1 Product and service analysis
CHAPTER 9: Preparing a Business Plan 194
customers’ evaluation of the success. The business plan helps to focus on
these.
& Analysis of product sales mix variations through different parts of the
day can be helpful
& Analysis of customer occasions associated with different time periods
can also be helpful to identify opportunities
Key point 9.2
A thorough analysis of products and services supplied in total and in different time periods
helps focus the business plan on opportunities and potential actions.
THE MANAGER AND TEAM
Acareful consideration of the experience, training and development and skills
available within both the management team and the employees is a valuable
starting point to considering the skill needs of the unit. Clearly the plan can
help you:
& identify potential strengths in the team;
& highlight key skills and experiences that can be used for projects and
special initiatives;
& focus on skill shortages and development needs for the future;
& progression plan employees’ and mangers’ career development.
An organization chart showing both job roles and named job holders clari-
fies the relationships and identifies potential career progression, and develop-
mental needs. Increasingly, hospitality and tourism businesses are concerned
with availability of key staff at all levels. Clearly, the right management team
skills and experiences, capable of running and developing a multi-million
pound business are vital. In addition, the inability to attract, recruit, and train
employees is further compounded in many organizations by high levels of staff
turnover that often represents a key weakness and substantial additional cost
to the business. A clear commitment to build a strong team and increasing
staff retention needs to be a key part of the overall policies and objectives as
well as the analysis of the team.
1. Explain the thinking behind the company’s mission statement and
show how the team will work to achieve the mission.
2. List the objectives for the business:
(a) long term,
The manager and team 195
(b) short term
3. List the tasks and actions needed to take to achieve the objectives.
4. Describe products and service as if to a new employee.
5. How do these goods and services differ from competitors?
6. Are there possible complementary occasions through which it is
possible to attract new customers?
7. What relevant skills and talents are available with the team?
8. What are the shortages of skills and talents? Howwill the teamplan to
fill the gaps?
9. What are current levels of staff retention and staff turnover?
10. What are the current levels of financial performance – cost levels, sales
growth, profit levels, etc., and targets for the future?
Key point 9.3
The teamat both frontline and management levels is crucial to business success. Employing
the right people, developing their skills, and ensuring motivated performance are all
essential.
MARKET RESEARCH
Many branded hospitality and tourism operators commission research on the
brand, customers, competitors and markets on national and international
levels. Entrepreneurs in large and small firms need to understand these issues
as they relate to the particular business and community in which it is located.
An important element of the manager’s task, therefore,
& should involve thinking about the core customer needs the business is
servicing,
& the types of customer who are attracted to the business,
& the activities of competitors and,
& the general conduct of the market in which the business operates.
An ongoing analysis of these issues helps keep the plan in focus and to react
to any changes that come up. Thus the unforeseen opening of a competitor
unit or the closure of a major local employer may have adverse impacts to
which the business needs to react.
CHAPTER 9: Preparing a Business Plan 196
CUSTOMERS
The focus advanced in this text suggests that each business represents a series
of tangible and intangible benefits in products and services to customers.
These can be best understood through an analysis of the ‘occasions’ that
customers visit the establishment.
The key starting point of the plan is to consider the various customer needs
which are being serviced through the business, and the factors that are critical
for success. Furthermore this planning process needs to be further developed
by an analysis of the customers themselves Table 9.2.
Reflective practice
1. In a business known to you conduct some research on a sample of customers.
2. Identify the occasions being serviced by the organization at different times.
These matters need careful consideration because over recent decades
hospitality and tourism businesses have emerged round changes in the pop-
ulation and their spending power. Here are just a few examples.
& More women working and having careers interrupted by having
children, not stopped by them
& More two income households
TABLE 9.2 Customer segmentation through demographics
Socio-economic group How do customers comprise the key socio-economic groups? Issues to do with income,
status and employment can have important consequences, particularly when building up a
picture of key employers for whom the business’ customers work.
Life cycle position A description of the life cycle position(s) of key customer also helps you to analyse the number
of potential customers in your locality and their needs and concerns from businesses like yours.
Gender The mixture of male and female customers has a number of consequences for the product
and services you offer. Healthy eating options on the menu, the provision of non-smoking areas,
and security are issues that may be important issues where a substantial number of customers
are women.
Geographical What kinds of area do customers mostly live in? What hosing types and locations are there
other similar areas that might yield customers? What developments are there in these areas
that might impact on your business?
Life style Are there issues about environmental awareness, health consciousness, or appeals that can
be made to those concerned with material rewards? In some units, a series of healthy options
might attract customers to use the unit more frequently.
Personality What personality types mostly dominate the customer base? Are there additional opportunities
to attract similar customers or a different sort of customer at different times?
Customers 197
& More single households.
& More elderly people living longer and with higher incomes
& General increases in people eating out
& More people concerned about healthy eating
These changes have resulted in some additional opportunities, for
example, retired customers can be attracted to use restaurants and bars
during the late afternoon and early evening through price offers of special
offers. More women with independent income mean that more women
are looking to be able to eat and drink on their own, or with other women
like themselves. More health consciousness and growth in vegetarianism
mean that most menu offers have to include vegetarian and healthy eating
options.
Key customer occasions and critical success factors
The following briefly outlines the key customer occasions appropriate to
examples of hospitality and tourism operations in general. The list provided
was not exhaustive and specific businesses may well be meeting other cus-
tomer needs that result in themvisiting the restaurant, bar or hotel that is not
included here.
Employing the concept of customer occasions as a way of thinking about
customers and their needs allows a focus which recognises that the same
customer may use the same business for different reasons or occasions. Each
occasion represents a specific use with different customer expectations of a
successful service encounter. There are therefore, different critical success
factors which service deliverers need to understand, and deliver, if the customer
is to leave in a satisfied state of mind.
The business plan needs to list the core customer occasions and the
potential complementary occasions that might yield more customers.
Refuel
Can’t be bothered to cook
Family outing
Special Meal Out
Out on the Town
Staying Away
In addition, your business plan needs to list the critical success factors
that are at the heart of customer expectations of a successful visit to the
business.
CHAPTER 9: Preparing a Business Plan 198
Key point 9.4
A thorough understanding of customers through demographic analysis and occasionally
through different time periods enables the business plan to be focused on customer needs
though the identification of potential opportunities.
COMPETITORS
Research on local competitors is an important source of information on which
to plan the business activities. Many hospitality and tourism markets are
dominated by ‘me too brands and businesses’. That is, offers that are aiming
at similar market segments and offering to satisfy similar customer needs on
similar customer occasions. Business planners need to know their current
strengths and weakness so that they can
& learn from their strengths, and
& attack their weaknesses.
Remember, there are both immediate and second order competitors for the
customers’ spend. Initially, it is important to concentrate on the immediate,
first order competitors, but planners need also to think about the other com-
petitors who are also meeting similar customer needs to the same customer
base as the business is working with. The business may well have its own
features in relation to customers that will add to following list of key concerns.
TABLE 9.3 Competitor analysis
Factor Competitor Own unit
Visibility and access
Menu and range
Service style
Additional offers
Facilities
Seating
Opening hours
Pricing and special offers
General cleanliness
Promotional activities
Estimated sales revenue
Average check size or transaction value
Internal competitor audit
Competitors 199
The important point is that the issue under investigation needs to be relevant
to the business and the customer needs it is aiming to serve Table 9.3.
When drawing up the business plan planners need to have an honest
accurate picture of the strengths and weaknesses of competitors and this
should then inform development of the plan. Where is it possible to build
genuine competitive advantage? What actions and targets are required to gain
the competitive edge needed.
Flowing from the initial research, there is a need to be constantly tracking
competitors. Planners must explore issues beyond the immediate customers,
goods and services offered. Usually businesses are competing in the same
labour markets, and in the same local environment, so there may also be a
need to explore wage rates and incomes, and their links with local employers,
schools, local government, planning offices, etc.
THE LOCAL ENVIRONMENT
The business plan now must consider the local environment because these
provide a context of opportunities and threats that will impact onthe business.
Contacts with relevant government authorities can help to identify some
useful data about the economic, political, social and legal environment. Again
these items flowfroma thorough marketing analysis, but here are some issues
which might be considered:
& Local population demographic profile – trends and changes.
& General level of economic activity – employment – incomes – changes
and future trends.
& Local offices or factories – major employers that may impact on the
business – either closing or expanding.
& Any planned traffic changes or other planning decisions that might
impact.
& The general approach of the planning authorities about this type of
business.
The key is scanning the future for potential impacts on the business. Do
they potentially generate more customers or fewer? As Wellington once said,
‘The value of recognisance is knowing what is over the hill’. In fast moving
hospitality and tourismbusinesses you have to be aware of changes before they
occur. By this scanning planners will be in a better situation to benefit from
increased customer, or best suited to deal with problems.
1. What is the geographical area from which customers are likely to be
drawn? Consider numbers locations, housing stock, etc.
CHAPTER 9: Preparing a Business Plan 200
2. What are the customer needs expressed in customer occasions that
will be the businesses core customers? Identify potential customer
occasions.
3. Consider the critical success factors for each of these customer groups,
and differences between groups.
4. Are the markets from which business aims to draw increasing, or
declining?
5. Are there potential changes in customer tastes, or habits that might
either increase or reduce sales?
6. List the competitors with whom the business will directly compete.
7. List competitor opportunities to satisfy the same customer needs.
8. Highlight the strengths and weaknesses of their approach to serve
these customers.
9. Match these with the businesses strengths and weaknesses compare
these with customers.
10. Describe the local economic and social context in which the business
is located.
11. Identify local firms who might be used to form alliances with the
business.
12. Identify the key threats and opportunities posed by the local
environment.
Key point 9.5
Effective business plans take account of both competitor activity and environmental factors
on local, national and international levels. They shape the environment in which the
individual business operators.
COMPETITIVE BUSINESS STRATEGY
Planners are now in a position to formulate a competitive business strategy
that will help plan tactics and actions over the short, medium and long term.
Planners need to think about the short term as actions within the next year,
medium term as over one but under two years and long term as three years
plus. Insome contexts, the business strategy interms of the overall directionof
the business will be decided and shaped at senior levels. Broadly, there are three
types of strategy that organizations follow, these are briefly described below.
Overall cost leadership usually large firms who can take advantage of reduced
costs through economies of scale. The size of the business allows the firmto
work on reduced costs due to lower production and distribution costs,
Competitive business strategy 201
greater purchasing power with supplier, reduced advertising and selling
costs. In addition to provide a Uniformity Dominant service, McDonald’s
Restaurants also follow a policy that has much in common with price
leadership.
Differentiation, through quality, good design and image, that creates brand
loyalty and a willingness to pay a price premium. In some cases, the ‘label’
is the key benefit to the customer. TGI Friday Restaurants are in part
attempting to gain competitive advantage in this way.
Focus, here a company focuses a particular market segment on a narrow
market segment that is too specialized to attract competitors. By
specializing in such a way, the firm makes the market its own. In some
cases, being the only supplier of a particular service to a local market can
have elements of this, though in many cases the entry barriers for
hospitality and tourism firms are too low to make it a realistic national
strategy.
The overall business strategy brings together the various elements of the
mission and objectives, market research, and marketing strategies, the market
place, and the marketing mix leading to an overall plan shown. The service
marketing mix needs to be stated in the business plan, and where the appro-
priate plan needs to give local flavour that will help interpret the action required.
Pricing
As shown earlier in the chapter, pricing is one of the elements of the marketing
mix. Here are a few key pointers to pricing.
& The selling price shapes customer perceptions – higher prices can
communicate a perception of higher quality.
& Price is associated with concept of value, but customers use the
perceptions of the benefits to assess with the price paid represents good
value.
& Many competitive markets are price sensitive, and small changes in
price can result in large changes in customer demand.
& It is possible to adopt approaches where prices are held constant but
bonus offers and the promotional mix increase sales.
The business plan needs a clear statement about the pricing strategy of the
brand and how you will use this in local campaigns.
CHAPTER 9: Preparing a Business Plan 202
Advertising and promotion
Business planners need to communicate with local market, both customers
and would-be customers. Advertising is paid for messages in the form of say
local press advertising, whilst promotions are those activities that will help
generate sales.
The marketing plan needs to consider how sales will be promoted through
an array of different activities. Here are some examples that might be consid-
ered.
& Local newspapers and ‘free sheets’ are often effective that they reach
target markets and are increasingly able to tailor their messages to
specific localities. These are the most effective when tied to an
‘editorial’ piece say round a story about the business it is of local
interest.
& Leaflets dropped through door ways or sent by post to target post code
areas are also useful in that these can direct messages to the people
most likely to use the establishment.
& Links with complementary firms – cinemas, theatres and other leisure
venues can provide joint offers – say pre-theatre dinners, or price off
vouchers to attract them to the business.
The business plan needs to show how planners will promote the business
over the period.
& What are the aims and objectives?
& How much is it worth?
& Which methods will be used?
& What benefits are expected?
& How will check the results?
Place
The business plan needs to consider the nature of the premises, these provide
sources of tangible and intangible benefits to customers. Issues such as the
approach and appearance externally, the signage fromvarious approaches, the
cleanliness, visibility to the inside, external decor, the provision of smoking
areas, car parking facilities may all be issues that are benefits or limitations.
Internally, the overall atmosphere, cleanliness, decor, music, toilet provi-
sion, the availability of children’s play areas etc., are also issues that need to be
considered, because they may require capital expenditure to meet changed
customer expectations.
Competitive business strategy 203
Often it is said that location is the key to success in hospitality and tourism
businesses, but difficulties can be overcome with the right attention to service,
customer expectations and promotional activity.
The business plan should include an analysis of the facilities so that these
can be analyzed and actions taken relating to the strengths and weaknesses
they pose for meeting and exceeding customer expectations.
1. What are the key cost elements that the business has to incur to make
an operating profit?
2. What is the overall price strategy?
3. How do prices compare with competitors?
4. Are there differences amongst customers in their price sensitivity?
5. What are your key objectives for advertising and promotional
activities?
6. What methods are being used to achieve the objectives and why?
7. How will the results be monitored and evaluated?
8. Are premises adequate for future needs?
9. What development work is needed and why?
Operations
Operations are the name given to the activities required to make the strategy
happen. In hospitality and tourism operations, these activities cover the pro-
duction and service of food and drink, and in some cases accommodation. The
business plan needs to showin detail howproducts are service will be supplied
to customers.
1. It is useful to start with an indication of what it is the business is selling
in broad terms, though an appendix could include the full product
range.
2. From this it is necessary to indicate the opening hours of the business
and the sales mix at different times of day.
3. Provide an organizational plan that shows the organization of the
business and indicates the key job roles required to produce the
goods and services. This will indicate the management posts
involved and broad statements of responsibilities. Again, the
appendix can be used to provide job descriptions (showing duties
and responsibilities) and person specifications (showing skills and
qualities) needed for each job title, where these are important for the
plan.
4. The plan will also indicate how will the individuals be managed,
rewarded and motivated. Issues to do with group and team work in the
CHAPTER 9: Preparing a Business Plan 204
management of particular customer groups and customer occasions. In
other words, how will the critical success factors be managed?
5. Following fromthis the planshould indicate the businesses approach to
customer complaint handling and the responsibilities for dealing with
customer satisfaction.
6. The business plan needs to consider the management of materials and
cash involved in the operation.
7. In most hospitality and tourism operations there are strict legal
responsibilities associated with food hygiene, health and safety,
licensing, and other responsibilities to customers and staff. The plan
should show how these matters are handled and managed.
The operational plan lays down a blueprint of the key issues that are
priorities for the delivery of a successful business which is likely to deliver
satisfied customers and employees.
Key point 9.6
The business plan needs to clearly demonstrate the means by which it will operate and
deliver customer satisfaction and achieve the mission.
FORECASTING RESULTS
The business plan was described earlier in the chapter as a map, and the
ultimate aim of a business offering hospitality and tourism products is to
deliver a profitable operation which will make a positive contribution to the
owner’s financial performance.
Sales forecasts
The sales forecast is arguably the most important set of figures to arise from
the planning process. The sales forecasts help to establish the targets that you
will use through the year and establish a set of business profit and loss
accounts that will indicate profits or losses.
& Estimates of sales fromvarious income streams – meals – non-alcoholic
and alcoholic beverages – machines and accommodation, etc., will need
to be, above all else, based on sound reasoning. Previous trading
experience will be necessary to build a reasonable estimate of likely
sales patterns, even in a new business. In many cases, however, the
team will be managing a business that has been trading for some time.
Forecasting results 205
The following points provide a check list of issues to bear in mind when
calculating and justifying the sales forecasts.
& How big is the market, bearing in mind the customer profile the
business will be wanting to attract and the local population within the
catchment area. Is the overall market growing or shrinking and at what
rate? Avoid unsubstantiated statements - the team need to be
convinced that the targets are achievable.
& Howmany customers are there who are likely to buy fromthe business
and how much do they spend on average per visit? Are there seasonal
variations or variations between customer types? Hospitality and
tourism traders can get some information about the area, customer
types, traffic flows, footfalls, etc fromboth the local authority and from
research organizations.
& The desired income approach is appropriate for these operations and
the aim is to achieve the forecast. By a thorough analysis of potential
sales there is a chance to make adjustments if sales slip for some reason.
& Are the product life cycle issues to consider? Some hospitality and
tourism businesses, pubs for example, are working in markets where
customer visits are in decline, though there are growing opportunities
through the provision of restaurant services.
How long a period should your sales forecasts cover? In fast moving retail
markets it would be unusual to planmore thanthree years ahead and most will
operate a twelve months cycle.
Operating profit statement
The operating profits statement sets out to match income with expenditure
over the appropriate time period of the business plan. It is the way profit and
loss can be calculated for the period.
Sales income
This shows the total budget sales income for each month over the year. The
figure will include the total income from all the unit’s revenue earning activ-
ities – sales of meals, snacks, alcoholic and non alcoholic drinks, machines,
accommodation etc., by each month as they are likely to occur. That is, the
plan must consider potential variations month by month. Traditionally, hos-
pitality and tourismoperations in the UKexperience lowsales in January after
peaks in December.
CHAPTER 9: Preparing a Business Plan 206
Cost of sales
To show a trading profit is necessary to deduct the costs of the materials
purchased to produce the goods sold. Thus the cost of all the food, drinks,
and other materials directly used to produce the goods sold are deducted from
the sales revenue. The trading profit is the balance after costs of the materials
directly used to generate sales revenue have been deducted. Usually these costs
could represent an average and be calculated as a percentage, though there may
be major differences between the profitability of different income streams and
products.
Labour costs
Again these relate to the costs of producing the products and services associ-
ated with the sales revenue generated. Thus the total direct labour costs of
kitchen, bar, restaurant, and accommodation are calculated as a means of
arriving at a gross profits. That is the surplus after the costs directly associated
with generating the sales revenue has been taken into account. Again the costs
of labour can be calculated as a percentage, though there are differences be-
tween departments and section depending on the labour intensity and the use
of supplies that require different amounts of handling by staff.
Table 9.4 shows an example from an extract of accounts for hospitality
retail operation such as yours.
The gross profit shows how much income will be generated after the
immediate costs of producing the products and services sold. However, these
TABLE 9.4 Extract fromgross profit budget for Mr Bean Restaurant – Chelmsford
YEAR XXX Chelmsford
Sales (£)
Food 900 000
Beverages 50 000
950 000
Cost of sales (£)
Food 225 000
Beverages 20 000
Total 245 000
Trading profit (£) 705 000
Staff wages (hourly paid) (£) 175 000
Gross profit 530 000
Forecasting results 207
are not the only expenses. Managers’ salaries and other administration costs,
as well as rents, rates, lighting and electricity, unit based advertising, staff
uniforms, and other expenses will need to be taken into account to show the
profit contribution that your unit makes to the overall business.
Table 9.5 shows an example from the same organization, but shows how
the operation profit can be calculated.
Clearly, a branded hospitality and tourism business is different from an
independent business because it is unusual for these organizations to produce
unit specific balance sheets. However, each business will be considered as a
business investment and the return on capital employed might be an issue
that company’s accounts might want to consider.
Key point 9.6
Forecasts of business outputs and achievements need to be as sensible and realistic as
possible. It is important to avoid overly optimistic or overly pessimistic predictions.
TABLE 9.5 Extract fromgross profit budget for Mr Bean Restaurant – Chelmsford
Year Nottingham
Sales (£)
Food 900 000
Beverages 50 000
Cost of sales (£)
Food 225 000
Beverages 20 000
Total 245 000
Trading profit (£) 705 000
Staff wages (hourly paid) (£) 175 000
Gross profit 530 000
Lease and local tax 90 000
Electricity and gas 20 000
Management and admin 54 000
Promotional activity 48 000
Maintenance 36 000
Other consumable 36 000
Depreciation 30 000
Restaurant profit contribution 216 000
CHAPTER 9: Preparing a Business Plan 208
WRITING UP, PRESENTING AND WORKING WITH
THE BUSINESS PLAN
The business plan is both a document to be presented to colleagues – showing
how the team plan to mange the business; it is also a document that the team
will use through the year, to work from and to assess progress. The business
plan, therefore, needs to be presented in a professional manner, and be capable
of easy access.
Presentation of the written document
The business plan needs to conform to professional standards in the way it is
written and presented.
& A simple business folder with a spiral binding will be sufficient.
& It must be word processed (typed).
& The layout should be much closer to a report than a memo or essay.
& The page layout should use wide margins, and be pleasing on the eye,
and it should be printed on singles sides of A4 paper.
& It should paginated.
& Obviously tables, figures and graphs aid understanding and are a quick
way of communicating information, though these should also be
explained and discussed in the text.
Remember, the appendix should be used to provide useful background
information, all information that is essential to the plan must be included
in the main body of the text.
Layout and content
There is no formally accepted business plan format, and a business plan for a
unit that is part of a multi-unit organization has to be different from a plan of
an independent business. The balance sheet section and the justifications,
that an independent business is required to include, are not needed in a
document for these purposes.
The front cover of the document should clearly state the name of the
business and the date of the business plan. It is important that it is clear that
this is the latest version of the plan.
The second sheet behind the front cover should be an executive summary
and will include:
1. The current trading position of the restaurant, past successes and the
general appraisal of performance over recent years.
Writing up, presenting and working with the business plan 209
2. The products and services currently being sold and the units ranking
compared with competitors.
3. The customers and the potential customer base in the area, and the
reasons why they use the unit.
4. The unit’s aims and objectives, in the short term, and the strategies to
be employed in achieving them.
5. A summary of forecasts, sales and profits.
The table of contents
The table of contents are valuable because they help the reader work round the
document and focus on the issues of immediate concern. The team will be
using this document so they need to be able to turn to the sections that are of
interest at a specific time. It is helpful, for example, for the document to be
paginated and for the contents page to indicate page numbers where the
various headings can be found.
There are a number of ways of numbering pages and sections. It is the most
appropriate to use a system that gives every section a new number and sub-
sections are broken down to decimal points.
Though there are likely to be variations between different businesses, the
following is an example to work from and that might be useful as basis for
designing your own document.
Here’s an example
Sample table of contents
Section
Executive summary
The Business and Management
1.1 History and overview of progress to date
1.2 Current mission
1.3 Objectives and actions needed
1.4 The team
The Products and Services
2.1 Products and services
2.2 Current sales mix
Market and Competition
3.1 Description of customers
3.2 Customer occasions, needs and benefits
3.3 Market segments
3.4 Market size in the area
CHAPTER 9: Preparing a Business Plan 210
3.5 Location of customers and flows
3.6 Market projects over the period
3.7 Competition
Competitive Business Strategy
4.1 Pricing policy
4.2 Promotional plans
4.3 Premises
4.4 Competitor responses
Operations
5.1 Critical success factors
5.2 Quality management and control
5.3 Organization structure
5.4 Employee management and motivation
Forecasts and results
6.1 Sales forecasts
6.2 Operational budget
6.3 Business objectives and actions plans
The writing of the plan may have to go through several stages, at least a first
draft that the teamwill need to showand discuss with colleagues, and a second
draft that will be the final document. It is important that the final draft is clear
and well written, free from spelling and grammatical errors. The document
has to be both detailed enough to show that you have though through the
issues and records your thinking at the time, but the document must not be
overly long. So part of the editing process is to ensure that the information that
is needed is in the document and that you have not over written parts.
WORKING WITH THE BUSINESS PLAN
The business plan should be used throughout the year to monitor and keep
track of progress. The assumptions and calculations built into the plan should
make sense to the team of the time so they need to think critically about the
how they will use the plan to guide trading performance.
Sales analysis – hourly, daily, weekly and monthly sales audits can keep track
of issues such as the sales mix, sales of most profitable lines, average
transaction values, numbers of transactions, party sizes, irregular flows in
the times customer use the business, etc.
Promotional plans and activities – impacts of particular offers, bonuses,
national and local initiatives that were more, or less, successful.
Working with the business plan 211
Customers – who are regular users and what is the level of customer retention;
their location and reasons for coming to the business; demographic profiles;
complaints and comments of satisfaction, customer focus groups, mystery
customer reports.
Employees – staff retention and labour turnover, staff satisfaction surveys,
costs of training, benefits from training and developments, sales analysis
and up-selling opportunities, labour costs and investment in human
capital.
Competitor activities – making records of their initiatives that impact
negatively on sales, and how they respond to the team’s initiatives.
Cost control and profitability – ensuring that the teamkeep control of the costs
of the materials and labour need for the production of goods and services, is
essential in developing the basis for profitable performance.
CONCLUSION
The business plan provides the team with a detailed map of how the business
will develop and will undertake its activities. It is essentially a tactical account
of the business and the issues that need to be managed for it to meet the
business commitment to customer satisfaction, sales and profitability growth,
continued success in the community in which it is located.
Though there are no hard and fast rules about how this type of business
plan should be presented it is important that the team undertake the research
necessary and undertake the activities suggested in this chapter in as thorough
a manner as possible. The more the teaminvests in making rational decisions
based on a sound understanding of the most relevant information the more
likely that the planwill forma sound basis for arriving at the desired objectives.
The business plan, is above all else a working document designed to assist
the team to plan with sense and realism, and through which to monitor
performance against desired objectives. Regular use of the document and
comparing performance against predicted performance is an essential feature
of how the document should be used. In some cases, adjustments to the plan
need to be made to the plan in the light of events which have happened.
CHAPTER 9: Preparing a Business Plan 212
Leadership and the
Entrepreneur: ‘‘I’m right
Behind You Leading the Way’’
After working through this chapter you should be able to:
& Understand the role of entrepreneur as leader
& Identify the behavioural attributes of entrepreneurial leadership style
& Recognize the entrepreneurial role changes as hospitality firms develop
& Understand the role of teams in the growing hospitality firm
INTRODUCTION AND DEFINITIONS
Entrepreneurial success can be attributed to a number of factors including
expert knowledge of a technical field together with a sound understanding of
markets and the behaviour of competitors. Good fortune is also something
which differentiates mediocre enterprises from their successful counterparts
(see Chapter 11 for a discussion). However, capitalizing on this knowledge,
cognisance and luck requires a long-term entrepreneurial perspective and a
recognition that consistent high performance depends on a collective effort
rather than that of a single ‘heroic’ founder. In other words, successful small to
medium-sized hospitality enterprises must have effective leadership. Interest-
ingly despite the hyperbole surrounding such entrepreneurs as Richard Bran-
son, Anita Roddick, Donald Trump and others, the role of entrepreneur and
leader are not always synonymous. History attests to a number of failures
whichcould be attributed to poor leadership skills. Making the transitionfrom
an insular creator or innovator to an inspirational and consistent motivator of
people is a challenge which some fail to manage.
As small hospitality firms grow, the role of the founder needs to develop
accordingly. No longer can the entrepreneur rely on an intuitive or even
haphazard style of management that may well have been appropriate in the
CHAPTER 10
213
early stages when the organization was small and had few staff. Most growth
models (Greiner, 1972; Churchill and Lewis, 1983; Scott and Bruce, 198)
acknowledge that the role of the founder needs to change as the business
develops and grows. For example, Churchill and Lewis group these changes
into founder’s goals, management and strategic and operational ability. The
emphasis of each depends on the entrepreneur’s attributes and the develop-
mental stage or size of the firm. To lead a growing hospitality firm effectively
the founder must nowbeginto consider their role as one of facilitator and team
leader rather than an entrepreneurial ‘hero’.
According to Burns (2001) leaders should have the ability to establish a
vision and generate ideas so followers understand the firm’s challenges, its
values and where it needs to be within a certain time frame. They are respon-
sible for ensuring their firms work as a unified whole in pursuit of a common
goal by providing appropriate guidance to followers who are motivated in their
place of work (Yukl, 2006). Leaders must also be able to undertake long-term
strategic planning so that the firm can achieve its aims or satisfy its vision.
Strategies may be planned or emergent. If the latter, leaders must be able to
spot the successful ones and exploit them.
Several definitions of leadership exist but that cited by Daft (2005) serves
the purpose of this book adequately as it helps to clarify of what leadership is
comprised:
‘‘Leadership is an influence relationship amongst leaders
[entrepreneurs] and followers who intend real changes and outcomes
that reflect their shared purpose’’ (p. 5).
This contemporary idea of leadership is something quite different to earlier
versions which considered it to be a one-way power and control relationship
between superiors and subordinates. ‘New’ leadership actively seeks and
embraces change rather than one person maintaining a status quo in order
to keep their position of power. Moreover, change is viewed as something
constructive and a reflection of the shared purpose of all involved irrespective
of organizational position; with the purpose aimed at sharing a vision created
by the leader (and in some cases the followers). Ultimately we can see that
entrepreneurial leadership has a strong visionary dimension with a significant
people or ‘follower’ focus.
Key point 10.1
To lead a growing hospitality firm effectively the founder must consider their role as one of
facilitator and team leader rather than an individual entrepreneurial ‘hero’.
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 214
This chapter explores the concept of leadership by introducing some key
historical and contemporary developments in the field. It continues by out-
lining the transition from founder to leader whilst the firm is growing with a
focus on ‘people’ and team leadership skills. Here, we are less concerned with
how this happens, as this is discussed elsewhere in the book, but what the
founder needs to do in order to lead the growth effectively. Finally, organiza-
tional culture is discussed in an attempt to highlight its overarching influence
and importance to the area of leadership in small to medium-sized hospitality
organizations.
Making a racket
by Colin Morris
David Lloyd, as they say, knows his own mind. Indeed, he is on intimate terms with it. He
thinks The City is ‘‘full of crooks’’, Hull’s sports fans don’t know what’s good for them and
the All England Lawn Tennis and Croquet Club should tear up its hallowed turf in favour of a
more modern surface or risk becoming irrelevant on the world tennis stage and he’s not shy
about sharing such wisdom. So much so, that the Guardian recently quipped: ‘‘A legend in
his own change of ends, Lloyd should do British tennis a favour and keep it buttoned.’’
Having spent an afternoon with the man I can tell the Guardian, and anyone else who cares-
that this is as likely as unearthing a multi-grand slam winner who is British.
I met Lloyd in his uber-posh Wisley Golf and Country Club near Waking, where the suburbs of
south London give way to the green rolling hills of Surrey. It is impressive. Words like rarefied,
stunning and immaculate come to mind- and that’s just the gravel on the drive leading up to
the clubhouse.
Once inside, a front-office employee with cut-glass accent directs me to the lounge where I
may await Mr Lloyd’s arrival. In front of me lies the splendour of the club’s superb 18
th
green
– inside is the kind of drinking establishment you would expect to find in a middle England
inspired heaven. But the conversation in the room isn’t about birdies and bogeys but about
David Lloyd’s involvement in the troubled Clubhaus venture, a golf course chain that he
studiously backed away fromthat is nowfacing the scrutiny of the DTI – with Lloyd crying foul
from the sidelines.
My eavesdropping is interrupted by the man himself. All smiles, a quick handshake and then
a brisk walk to an empty conference room for a more ’private conversation’. Despite a
pronounced limp, Lloyd walks way too fast. The obvious starting point is David Lloyd Leisure –
the fitness chain he created 20 years ago, spread throughout England with great success and
sold on to brewer Whitbread. He continued to work in partnership with the brewer for a while,
but eventually the relationship turned sour. Indeed, it doesn’t take long for the legendary
Lloyd pugnatiousness to surface and, as if on cue, he delivers a scathing assessment of
corporate Britain: ‘‘Big companies are all the same – they make sure all the directors have a
chauffeur driven car – but that’s not in the shareholders’ interest.’’
The former British tennis number one rates Whitbread’s handling of David Lloyd Leisure as
sub-par. He wasn’t happy with the way Whitbread handled its staff, treating them as
Introduction and Definitions 215
‘‘numbers instead of people’’ and was even more displeased with what the brewer sawas an
acceptable bottom line. ‘‘They (Whitbread) were happy with an 11 per cent return on the
business (when I ran it) we wouldn’t get out of bed for less than 15. I told Whitbread ‘You’ve
got this great business – why don’t you step back and let me make you money’?’’.
Lloyd finally sold out to the brewer in 1995 to go his own way. ‘‘I used to enjoy going to work
but when I went to work (after Whitbread came in) I hated it. They were destroying a great
business and I couldn’t stand it.’’ So much for pulling your punches. Lloyd may have left his
leisure business behind, and his name with it a situation that he admits ‘‘bothers me
sometimes’’ – but he wasn’t about to sit around his country club hideaway and sulk. He hung
on to his tennis school along with a variety of interests managed under the umbrella of David
Lloyd Associates and remained a central figure in British tennis.
Tim Henman was an early protege and Lloyd led both him and Greg Rusedski when he was
captain of England’s Davis Cup team. It didn’t work out particularly well and Lloyd was
replaced with Roger Taylor last year. Outside tennis, Lloyd kept himself busy with a variety of
ventures, most notably his involvement in Clubhaus which has turned messy – and a dabble
in pro sports that doesn’t involve fuzzy balls when he strode into Hull and snapped up the
city’s professional sports trinity of Hull City Football Club along with Rugby Leaguers Hull
Kingston Rovers and Hull FC The Hull dreamwas typical of efforts to wring money fromlower
echelon football clubs in the late 90’s – but with some twists only David Lloyd could provide.
He scooped up Hull City Football Club and its Boothferry Park ground with the team on the
brink of financial ruin, along with the city’s two bitterly divided rugby clubs.
The plan was deceptively simple, instead of three clubs playing fromthree different run-down
grounds Lloyd would build one modern stadiumwhere the gate receipts fromall three teams
would keep the clubs and stadium humming, while the various real estate deals around the
grounds would line Lloyd pockets. The x-factor, the one thing Lloyd hadn’t figured into to his
equation, was the intractable nature of the average English sports fan. In Hull, Lloyd finally
bumped heads with a constituency as stubborn, headstrong and opinionated as himself. ‘‘It
seemed really simple and logical,’’ reflects Lloyd. ‘‘Trouble is, between the two different
sides (Hull RFC and Hull KR) there is war. Fans wouldn’t cross to the other side of the city to
watch their team. They would rather stay in a leaking stadiumwith asbestos in the roof and no
hot food than cross to the other side of town (and into enemy territory) to a nice new
stadium.’’
Unable to link the three teams under a rainbow of harmony, Lloyd was eventually forced to
sell his stake in 1998 – with Hull City on the brink of Football League elimination. Ironically,
Hull City Football Club and rugby leaguers Hull FC will share a stadium from 2003 after all.
Atypical to the end, Lloyd put in almost £1 million of his own cash to leave Hull City debt free.
But it hasn’t been all bad news for Lloyd – in fact even the bad news has been good. Lloyd was
involved with the golf and country club chain Clubhaus in its infancy and was excited about
the prospects of the business. But when it came time to stump up his own cash Lloyd
performed due diligence and didn’t like what he saw when the company opened up its
books.
‘‘An entrepreneur is not a gambler. He’ll put his cash and his head on the line but you have to
put controls in as well because, after all, it’s a dream. They (Clubhaus) had a good idea but
they tried to make everything too big, too fast with lots of paper and no cash.’’
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 216
Months after Lloyd backed away from the company, Clubhaus is labouring under debts of
£105 million and is facing an inquiry by the DTI into its bookkeeping. In a bid to stay afloat
Clubhaus, a publicly traded company, has swapped outstanding bonds for equity in the
company – effectively waylaying its shareholders. The move incensed many who owned
shares, including Lloyd and Eddie Shah, the former newspaper tycoon who is reported to be
writing a novel about the debacle.
While Lloyd holds no grudges with management at Clubhaus, ‘‘They were nice guys’’, he
was outraged by the equity-for-bonds swap and is even more furious that investigating bodies
don’t want to look at the due diligence he performed on the company long before its troubles
came to light. ‘‘The City is a rip-off in a lot of ways, which is sad. There’s punters out there
who don’t know what’s going on and auditors need to be taken to task. We are talking about
people’s life savings in some cases.’’ Perhaps- but not in the case of David Lloyd himself,
who’s exposure to Clubhaus was minimal.
Lloyd has kept his powder dry for another venture into, you guessed it, the leisure centre
business. Next Generation, which has seen Lloyd teaming up with his son Scott, was
launched three years ago but is currently in the throes of a significant rollout. The venture has
seen Lloyd move away from the mass market to concentrate on the more discerning
customer. Clubs are often built in the exclusive suburbs where land is more expensive, are
more spacious and contain unusual features such as children’s gyms, cinemas, homework
rooms and creches. Indeed, Lloyd is planning to spend £50 million on just four clubs this year
at London’s Maida Vale, Bristol, York and Dartford. With a further ten clubs planned for the
next three years, this is quite a hefty initial outlay, but he has managed to secure backing for
the venture from the Bank of Scotland, Royal Bank of Scotland and a number of private
investors. Understandably, he hasn’t sought to raise any funds through the City.
Questions
1. What leadership characteristics does this entrepreneur display?
2. What style (s) of leadership does this entrepreneur display?
3. Discuss what impact his early sporting career is likely to have had on his business
perspectives.
4. Identify and discuss issues of organizational culture amongst the companies mentioned in
this article.
5. Identify and comment on some of the business decisions made by this entrepreneur.
Reproduced with permission, Hospitality, July/August, 2002, pp. 38–40.
LEADERSHIP THINKING
The emergence of leadership theories could hardly be described as proactive. In
a business sense they have evolved due to shifts in the socio-economic climate
in which they were positioned originally. Daft (2005) summarises the major
Leadership Thinking 217
approaches as Great Man, Trait, Behavioural, Individualized, Contingency,
Influence and Relational. A discussion of each appears below.
Great man theories (early 1900s – 1950s)
Leaders are always male heros and born with universal natural leadership
qualities which inspire and influence others to obey unquestioningly. Many
hundreds of traits have been identified such as creativity, self-confidence, risk-
taking propensity, intelligence, drive and so on. Despite a consensus that traits
and leadership effectiveness are difficult to predict in all situations, traits
remainpopular with some being identified as powerful predictors of leadership
behaviour (Bass and Stogdill, 1990).
Trait theories (1940s to present)
Rooted in the above theory whereby early researchers sought to identify spe-
cific traits which would predispose individuals to become great leaders. Some
traits are now recognised as having a role in predicting whether someone is
likely to be an effective leader but a robust and reliable list of such traits is yet to
be identified.
Behaviour theories (1940s and 1950s to present)
Research here focuses on what an individual does rather than who they are by
dint of traits. Similar to trait theory effective and ineffective leadership is
defined by behavioural differences between these two extremes. This school
coined the terms ‘autocratic’ and ‘democratic’. Essentially, the autocrat pre-
fers centralized power being derived from position, controlling rewards and
coercion. The equal and opposite is the democrat who prefers to delegate
authority, encourages others to participate and relies on followers’ knowledge.
A significant contribution to the field was that of Tannenbaum and Schmidt
(1958) who recognised that leadership style is dynamic and exists at any point
along the autocratic (or ‘boss-centred’) and democratic (or ‘subordinate-cen-
tred’) leadership scale. The extreme points of the continuumare characterized
by managers making decisions and announcing them with no consultation to
one where managers encourage followers to work with a degree of autonomy
within defined limits.
Other seminal studies on leadership behaviour include the ‘Ohio State
Studies’ from where the exclusive terms ‘Consideration’ and ‘Initiating
Structure’ styles emerged. The former concerns the sensitivity with which
the leader treats followers, for example, are their ideas and feelings
respected? The initiating structure style focuses more on the work task
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 218
and the extent to which the leader directs followers toward a designated
objective. Other related studies were conducted at the University of Michi-
gan with similar outcomes. On this occasion, leadership behaviour was
classified as ‘Employee-centred’ or ‘Job-centred’. These studies differed
from the Ohio-based research in that both behaviours could be adopted by
leaders simultaneously.
Another behavioural contribution adding to that of the former two studies
was that of Blake and Mouton (1978). Their Leadership Grid shown in
Figure 10.1 summarizes the tenets of their leadership theory.
Like the Ohio and Michigan State studies, the grid features two continua
with concern for people and concern for results as their focus. Research
suggests that entrepreneurs may be both people and results oriented simulta-
neously. Five leadership styles are shown in the figure with the universal ‘high
high’ or ‘teammanagement’ being the preferred approach in most situations.
However, the assumption here is that leaders use the same leadership style
with all followers.
Reflective practice
1. In your opinion, is it possible for leaders to have high concern for results and for people?
2. Which of the above five styles of leadership would be most appropriate for:
&
A fast-food restaurant
&
A fine dining restaurant
&
A motel
&
A busy small city hotel
&
A busy small resort hotel
Individualized Leadership
Yammarinowand Danserau (2002) contend that an individualized leadership
style is more effective whereby the leader strikes a different relationship with
each individual in the firm. Daft (2005) considers this to be based on ‘Dyadic
theory’ or two-person exchanges where each party give and receives from the
other. Leaders are said to provide a sense of self-worth for the follower
(amongst other things) and the follower offers a commitment to the job and
the firm. Ultimately this individualized exchange can be extrapolated more
broadly to build cross company networks. However, this style of leadership
ultimately results in the creation of two overall groups of followers; an ‘in’ and
an ‘out’ group. Much like the existence of a two tier hospitality labour force
Leadership Thinking 219
(year-round and seasonal workers), the in groups enjoys preferential treatment
and quality exchanges with their leader whereas the out group do not. Instead
the pattern of exchanges is more likely to be based on coercion and formal
authority.
FIGURE 10.1 The leadership grid.
Adapted from: Blake and Mouton (1978).
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 220
Contingency theories (late 1950s to present)
Given the equivocal nature of results from the above constructs, situations
and contexts were then identified as variables most likely to impact on lead-
ership behaviour. Simply, researchers proposed that situations can be effec-
tively managed by analysis and a subsequent change inleadership behaviour to
match the requirements of the context. Contextual variables may be grouped
into categories of:
& The work environment;
& The external environment; and
& The characteristics and tasks of followers.
Contingency theories hold that effective leadership styles depend on their
fit with the context or the situation and the requirements of the followers. In
short, there is no universal optimum way to lead, it very much depends on
other issues. The basic assumption here is that leaders have the ability to
diagnose situations and behave accordingly. Based onthe trait theorists notion
of concern for task and concern for people, a leader who has a high concern for
tasks will focus on short-term planning, task clarification and monitoring.
Alternatively, a focus on people or relationship behaviours will optimise beha-
viours including support provision, recognition for work done well, empow-
erment and so on. Several contingency models exist with some differences
between them however, they all agree that appropriate leadership depends on
situational characteristics. The main contributors to this field are Fiedler,
Hersey and Blanchard, House (Path-goal theory) and Vroom-Jago.
According to Fiedler (1954) situations are characterized by three elements:
& Quality of leader – follower relations – working atmosphere (trust,
respect, confidence in leader);
& Task structure – extent of definition, clear goals and instructions; and
& Position power – over followers, planning, directing, rewarding,
punishing.
The possible configurations of situations using these three criteria vary from
‘favourable’ where leader–member relations are healthy, leader position power
is strong and task structure is high to ‘unfavourable’ situations where relations
are poor, position power is weak and task structure is low. For this approach to
be successful, the leader must first understand where they fit along the rela-
tionship/task scale and then see whether the situational elements (relations,
position power and task structure) are favourable or unfavourable. There are
various instruments available to diagnose leadership style. One example linked
to Fiedler’s theory is known as the Least Preferred Co-worker scale (LPC). The
Leadership Thinking 221
scale used is a form of semantic differential with adjectives including efficient
vs. inefficient; open vs. guarded; gloomy vs. cheerful and so on. If the entrepre-
neur uses positive words to describe the least preferred co-worker she is a
‘relationship-oriented’ leader. If negatives are used then the entrepreneur is
deemed ‘task-oriented’. Like most instruments, the LPC has its critics.
Hersey and Blanchard’s (1982) model focuses on the characteristics of
followers as the main situational elements. Essentially, an effective leadership
style must consider the nature and state or prior development of followers.
Follower development is divided into four overall characteristics shown in
Figure 10.2.
The model suggests that when workers are at a low state of readiness as
they have poor ability and skills (or may even be unwilling to take responsi-
bility), a telling style of leadership works best. This would be where the
hospitality entrepreneur has codified a set of instructions for a food server in
the delivery of say a Cappuccino coffee. At the other extreme, where followers
are well educated and are willing to accept responsibility for their own behav-
iour, a delegating style of leadership is most appropriate. This model is simpler
than Fiedler’s as one only has to consider followers rather than other situa-
tional variables.
Key point 10.2
Effective leadership depends on a diagnosis of followers’ state of readiness and instigation of
the appropriate style.
Other contingency constructs include Path-Goal Theory (PGT)
(House, 1971) where it is incumbent on the leader to increase follower
FIGURE 10.2 A situational theory of leadership.
Adapted from: Daft (2005, p. 91).
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 222
motivation by clarifying what they must do in order to receive rewards. She is
also responsible for increasing meaningful rewards for followers. The main
difference between this contingency theory and that of Fiedler is that PGT
suggests leaders change their behaviour to match the situation. These beha-
viours are classified as supportive, directive, achievement-oriented and par-
ticipative. Situational contingencies here are follower characteristics (similar
to those of Hersey and Blanchard) and the work environment which is classi-
fied according to the presence of task structure, nature of formal authority
system and the follower work-group characteristics (education and quality of
relationships) (Daft, 2005, pp. 93–100).
Essentially, all contingency theories consider howthe situation impacts on
leadership behaviour. Being able to identify and understand how tasks, fol-
lowers and other contextual variables interact, allows the hospitality entre-
preneur to adopt an appropriate leadership style.
Influence theories (1960s to present)
These constructs explore the two-way process of ‘influence’ between leaders
and followers. Charisma and visionary leadership fall into this category where-
by an individual emerges as a leader based on their behaviour (rooted in
personality). These inquiries attempt to identify charismatic behaviour and
the context giving rise to the phenomenon. This approach has much in com-
mon with the earlier ‘Great Man’ theories of leadership.
Relational theories (1960s to present)
These models look at how leaders and followers interact and influence each
other (not to be confused with Influence theories). This perspective regards
leadership as a shared process whereby followers become engaged meaning-
fully in the process, highlighting the key role played by interpersonal relation-
ships. These tenets are enshrined in both ‘Transformational’ and ‘Servant’
leadership theories. The former is alleged to develop followers in to leaders.
The second considers the leader as the servant of others rather than the
controller or directors of followers.
Adapted from: Daft (2005, pp. 23–25).
Reflective practice
1. Think of an entrepreneur known to you and consider how useful the above theories are in
explaining their behaviour.
2. 1 How would you measure the success of an entrepreneur in the hospitality industry?.
Leadership Thinking 223
FOUNDER TO LEADER
The following questions and answers were abstracted from three interviews
conducted with hospitality leaders in the UK.
Stan Counsell – Consultant to the hospitality industry and owner of an environmental
certification business –UK
What’s the best aspect of your work?
Helping others to achieve their objectives
What’s the biggest lesson you’ve learned in business?
Tenacity will usually overcome adversity
What do you think makes a good manager?
An ability to get the job done, while paying attention to the needs of the team as well as
individuals. Being able to plan for the expected and cope with the unexpected
Joanna Chugh – Cluster finance director Marriot Hotels – UK
Name three qualities that define a good manager?
Leadership, discipline and drive
What’s the best aspect of your job?
Watching people I’ve recruited and trained do well for themselves. I am delighted to see my
team move on to bigger and better positions
How would you describe your management style?
I enjoy training and coaching and always try to be non-prescriptive. I want to give the team
around me the opportunity to step up to the challenge and make decisions for themselves.
Decision-making is a skill that all future managers need to sharpen and practice. I try and
instil in my teamto bring me their solution, along with their problemand we can talk about it.
Andrew McKenzie – Managing Director – Donnington Valley Hotel and Spa.
Name three qualities that define a good manager?
Fairness, openness, clarity and humour.
What’s the best aspect of your job?
Being amazed by most of the great young people who work with me.
How would you describe your management style?
Open, fair, clear and happy.
Adapted from: Hospitality, February 2004, p. 25, Dec, 2007, p. 70, March, 2008, p. 70.
Whilst the thrust of questions is management focused, the answers from
the three leaders reveal their main approaches to leadership. All would appear
to be based ona modernstyle whichvalues empowerment, equity and a delight
in the success of followers.
The modern view of leadership results from ‘enlightened’ thinking, a
greater understanding of what motivates people and an acknowledgement
that one should do what is morally and ethically appropriate when dealing
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 224
with people; it is also rooted in plain good business sense. There is little doubt
that the world is now in a constant state of ever increasing change. Indeed,
Daft (2005) considers that predictability is a thing of the past. Instead it has
been replaced by random events much espoused by chaos theorists (for exam-
ple, see Gleick, 1987). It is therefore in the best interest of entrepreneurs to
take note that such significant events require a new leadership approach.
Table 10.1 shows a summary of responses to these circumstances.
In the current environment hospitality entrepreneurs must either use or
develop personal skills and qualities to establish a compelling and shared
vision or direction for the business. They must be able to motivate and inspire
all employees to embrace external or internally generated change and establish
a culture of integrity (Daft, 2005). This is different to the entrepreneur as a
manager where concern is targeted at administrative and procedural efficiency
and effectiveness through organizing, planning, directing, controlling and so
on. Obviously both are important roles and in small hospitality firms the
founder will be expected to occupy them both to a lesser or greater degree
depending on context. Indeed it is difficult to imagine a situation where they
do not coexist. However during later stages of growth, sound team leadership
is essential if the firm is to succeed.
Stages of growth have already been discussed elsewhere in this book and so
we will not be discussing them at length here. However, the transition of a
business founder to teamleader (and player) is an essential part of this process
and the entrepreneur must be able to behave in an appropriate manner accord-
ing to the stage of growth the firm is experiencing. For example, as an hospi-
tality firm matures the founder should begin to think as a team leader rather
than a lonely ‘crisis manager’ and seek to employ individuals with sound team
management skills despite the contextual difficulties inherent in the
TABLE 10.1 A new reality for entrepreneurs
Old reality New reality
Control and directing subordinates Empowerment of followers
Competition between individuals, departments and other
firms
Appropriate collaboration between all stakeholders
Uniformity of employees Diversity of followers – new ideas and innovations
Self-interest Higher purpose – accountability, integrity and responsibility
Hero – celebrity-type status, self-promoting Humble and hard-working behind scenes, promoting and
developing others
Adapted from: Daft (2005, p. 8).
Founder to Leader 225
industry.
1
Zimmerer and Scarborough (2002) offer some guidance by discuss-
ing management styles and matching them with organizational growth.
Table 10.2 suggests that teamleadership skills become increasingly important
through growth and especially during the ‘Entrepreneur-to-employee’s stage.
Similarly, Frederick, Kuratko, and Hodgetts (2007) discuss the changing
role of the founder during the firm’s growth stages through the decision-
making process. They explain that entrepreneurs typically face certain risks
depending on which stage of growth the firm has reached. These stages are
matched by a certain ‘type’ of entrepreneur:
I. Entrepreneurial genius – new company, enthusiastic founder with
little interest in anything other than the firm’s success;
II. Benevolent dictator – founders act as parents surrendering no
autonomy to followers;
III. Dissociated director – founders may feel alienated as they begin to
realize that followers do not want to depend on them to make all
TABLE 10.2 Guiding management styles for growing hospitality firms
Style Details
Craftsman &One person does everything
&Focus on quality
&Minimal operating expenses
&Limitations on growth unless others are employed
Classic &Other employees involved to exploit opportunities
&Delegation limited
&Tight control regime operated by founder
Entrepreneur-plus-employee &Shift from entrepreneur only to team working with significant delegation of
responsibilities to trusted others
&Team members must be ready for this change and to accept extra responsibilities
Partnership &Sharing responsibilities with new partners or shareholders
&Skills must be complimentary
&Increased potential for disagreements between main players
Adapted from: Zimmerer and Scarborough (2002, pp. 502–503).
1
In the SME sector of the hospitality industry this is easier said than done for a number of
reasons including the job insecurity seasonality bestows. Another key challenge is a lack of
career structure within independent hotels. A reasonable strategy would be to offer
incentives linked to the continuing success of the entrepreneurial hotel. What could be
offered really depends on the context, stage of growth of the firm, whether the individual
hotel is linked with others informally or in the form of a joint venture and so on.
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 226
decisions, however, many will still work at an operational hands on
level despite this. At this point, a key decision must be made whether
to growfurther or remain the same. Adecision to growwill necessarily
mean that founders must operate more strategically and delegate
responsibilities to others; and
IV. Visionary leader – leadership used to position hospitality firm
strategically for sustainable growth. Founders at this level tend to be
removed from day-to-day operations, communicate openly with
followers and adopt a more transformational style of leadership.
Adapted from: Frederick et al. (2007, p. 458).
Once again the founder as leader becomes important during a latter stage of
organizational development.
Key point 10.3
Leaders now operate in a ‘new reality’ characterized by empowerment, leaders and
followers rather than control and direction of subordinates.
ENTREPRENEURIAL LEADERS
According to Frederick et al. (2007), entrepreneurial leadership is the most
important factor in managing high growth ventures successfully. Drawing on
the work of Ireland and Hitt (1999) they also hold that ‘strategic leadership’ is
most effective for fast growing entrepreneurial organizations. Using
Ireland, Hitt and Hoskisson (2001) they choose to define entrepreneurial
leadership as:
‘‘. . . the entrepreneur’s ability to anticipate, envision, maintain
flexibility, think strategically and work with others to initiate changes
that will create a viable future for the organization’’ (p. 468).
Given the near celebrity status of often cited entrepreneurs such as
Conrad Hilton and Lord Forte and the mythology surrounding their suc-
cesses, it is often assumed that they are also effective leaders; this is not
necessarily the case. Whilst some evidence suggests that entrepreneurs and
leaders have many characteristics in common (see Dubrin and Dalglish,
2003) there are some differences. For example, Dalglish and Evans (2000)
consider a key difference to be the way leaders deal with interpersonal
relationships. A common reason for many individuals to opt for an en-
trepreneurial lifestyle is because of their dislike of working closely with and
taking orders from others. This is not an ideal characteristic on which to
Entrepreneurial Leaders 227
base effective leadership. On the other hand, the hospitality industry is
awash with small or lifestyle firms employing only one or two family
members. In this instance, dealing with others and delegating responsibil-
ity may not be an imperative. These small organizations tend to rely on the
entrepreneur replicating their family leadership role as partner or parent
which is often autocratic.
However, in a growing hospitality firm entrepreneurs must overcome
their communication shortfalls because the role of leader relies on the
ability to motivate and inspire followers toward a well-communicated
and shared vision. Moreover, if the small hospitality business is to grow
significantly, the entrepreneur’s ability to apply these skills externally
through networking, seeking alliances, partnerships and joint ventures is
also crucial.
Notwithstanding the various contributions made to the field of lead-
ership by competing theories, there exist several desirable behaviours
about which commentators agree. Zimmerer and Scarborough (2002) note
that today’s workforce is altogether more knowledgeable and sophisti-
cated than at any other time in history. their expectations are there-
fore similarly urbane. Figure 10.3 provides a summary of these desirable
behaviours.
Burns’ (2001) perspective of behaviours common to both leaders and
entrepreneurs is not dissimilar to the above and includes:
& Stamina;
& Commitment and dedication;
& Opportunism;
& Ability to bounce back;
& Motivation to excel; and
& Tolerance of risk, ambiguity and uncertainty.
Do these behavioural tendencies then give rise to an identifiable leadership
style amongst hospitality entrepreneurs? The question is difficult to answer.
Inpractice it is difficult to be overly prescriptive because small business owners
and contexts differ wildly. Leadership styles are wide and varied even outside
the entrepreneurial context. Instead, it would be fair to say that styles of
leadership are driven by a combination of contextual and personal factors (this
is the major tenet of the contingency theorists). Typically, the hospitality
entrepreneur is viewed as single-minded, driven, hard-working (and expects
the same of others) and, to some extent, charismatic (Dubrin and Dalglish,
2003). Whilst charisma is difficult to categorize exactly, it is rooted in an array
of variables including personality traits, culture, contextual variables and
situations.
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 228
Reflective practice
1 Consider three leaders that have been described as charismatic. To what extent were their
personal circumstances and/or world events responsible for their leadership style?
According to these authors entrepreneurial leadership style emerges from
various configurations of the characteristics shown in Figure 10.4.
Once again we see recognizable behavioural characteristics in common
between the perspectives of Zimmerer and Scarborough (2002),
Burns (2001) and the above authors. For example all contain characteris-
tics or equivalent of achievement, commitment, enthusiasm and so on.
FIGURE 10.3 Behaviours for effective leadership.
Adapted from: Zimmerer and Scarborough (2002, pp. 485–487).
Entrepreneurial Leaders 229
FIGURE 10.4 Behavioural attributes of entrepreneurial leadership style.
Adapted from: Bubrin and Dalglish (2003, pp. 316–318).
However, we can also see some typical behavioural weaknesses amongst
entrepreneurs.
Key point 10.4
Entrepreneurial leadership is the most important factor in managing high growth ventures
successfully.
If the founder is not skilled in such areas these abilities must be ac-
quired otherwise the firm may either become unsuccessful or enjoy only
limited growth. An area entrepreneurs typically have difficulty with is
developing interpersonal empathy and communication. It is also the case
that as firms grow management becomes difficult so the founder must also
consider delegating responsibility to other capable people. The adage that
to be successful means surrounding oneself with a talented team of people
could not be truer than when the lifestyle firm moves into rapid growth
phase. So what can the hospitality entrepreneur do to improve their ability
as leader? The obvious answer of ‘skills acquisition’ is rather glib but,
resources permitting, this is exactly what must be done. However, these
skills may be ‘borrowed or ‘purchased’ by recruiting individuals who
already possess the desired behavioural attributes. It is therefore vital that
the hospitality entrepreneur creates an appropriate framework for this to
take place. Second, an organizational culture should be established which
will reinforce and maintain these behaviours. As firms grow there is a
consensus that entrepreneurs should adopt a team leadership approach
and the following section introduces the idea of teams in the small hospi-
tality firm.
Reflective practice
1. Think of an entrepreneur known to you. How would you describe their behavioural
characteristics.
2. A successful entrepreneur may not necessarily be an effective leader. Why do you believe
this to be the case?
TEAMS
There is much discourse inthe literature concerning teams and groups, that is,
what are they; are they the same; if not, howare they different? In short, teams
and groups differ according to the degree of interdependence individual
Teams 231
members enjoy when engaged in work. Group members tend to work inde-
pendently of each other whereas teams rely heavily on members integrated
outputs in order to complete the overall task successfully. Jobs can be designed
with groups or teams in mind. For example traditionally, restaurant kitchens
used a team of chefs each having a part to play in the production of a menu
item. In the small hospitality firm these individual tasks are often combined
and undertaken by a single person for reasons of cost saving (amongst others).
In any event, whether the entrepreneur chooses to classify employees as a
team or a close working group makes little difference in terms of providing
effective leadership.
Clegg, Kornberger and Pitsis (2008) define a team as:
‘‘Two or more people psychologically contracted together to achieve a
common organizational goal in which all individuals involved share at
least some level of responsibility and accountability for the outcome’’
(p. 92).
Essentially, a team leader needs to achieve inter-member harmony and
cohesion whilst optimizing productivity. In service industries, productivity
is difficult to define but essentially concerns transferring inputs into outputs
at the lowest possible cost (Robbins, 2005, p. 27). This is no easy task and is
doomed to failure if the members are haphazardly assembled. All other things
being equal, members of the management team need to have complimentary
rather than competing skills. They also need to be heterogeneous to capitalize
on their differing perspectives but not so different that they have absolutely
nothing in common.
After reviewing the evidence, Robbins (2005) concludes that team effec-
tiveness depends on a number of factors. They are summarised below in
Figure 10.5.
To build an effective team, entrepreneurial leaders should consider:
& Communicating clear performance standards, setting the tone for such
early on such as at the first meeting;
& Creating a compelling context;
& Setting clear rules for team member behaviour and abide by them
yourself;
& Ensuring teamis supplied with appropriate information about the task
in hand;
& Giving feedback regularly both formal and informal;
& Making sure members have complimentary skills and abilities;
& Ensuring team’s activities resonate with the overall strategy of the
hospitality firm;
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 232
& Being able to identify conflict and the emergence of political behaviour
within the team and dealing with the situations promptly; and
& Encouraging creativity and risk-taking.
Adapted from Katzenbach and Smith (1993); and Hultman (1998).
Obviously the degree to which each of these actions is pursued depends on
the contextual specifics of each situation. Clearly structural issues of context
process and work design have a key role in the effectiveness of hospitality
FIGURE 10.5 A model of team effectiveness.
Adapted from: Robbins (2005, p. 278).
Teams 233
management teams (although work design variables seem more appropriate
for operational activities). Scant attention to any of them could result in
disaster but if a management team has an inappropriate composition, no
amount of content, structure or process will remedy the situation. There
has been much research attention on the composition of teams (for example,
see Margerison and McCann, 1990; Stevens and Campion, 199). All author-
ities agree that individuals should be selected carefully to obtain the optimum
mix of skills and abilities. In a practical sense, management team members
almost always occupy more than one role. This is especially the case in small
hospitality firms where the management teammay only number between two
to four individuals. These managers have the difficulty of occupying multiple
roles.
Reflective practice
1. Team working is often held as an effective way of operating an hospitality business. Can
you give some examples when this may not necessarily be the case?
The pioneering work of Belbin (1981) helps to identify and explain what
these roles are. There has been subsequent research but much still retains
the tenets of the earlier author’s work. Belbin identifies nine key roles
played by members of management teams. In no particular order they are
classified as:
& The plant – creative and solves challenging problems but tends to get
too absorbed in their role to communicate effectively;
& The shaper – thrives on pressure and has a strong drive but may be
tactless and provocative;
& The team-worker – cooperative and diplomatic but may be prone to
indecisiveness;
& The implementer – reliable, conservative and practical but may resist
change;
& The resource investigator – explores opportunities and develops
contacts but quick to lose interest in an idea;
& The co-ordinator – clarifies the teams goals and delegates effectively but
may be seen as offloading too much of their own work;
& The monitor evaluator – judges accurately and has a strategic focus but
may not inspire others;
& The specialist – self-motivated and provides rare skills but has ability to
focus too much on minutiae; and
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 234
& The completer finisher – conscientious and delivers on time but may
worry unnecessarily and be reluctant to delegate.
Adapted from Belbin (1981).
Reflective practice
1. Consider a small hospitality firmemploying only four people including the owner. Which of
Belbin’s team roles would you consider essential for such an operation?
As discussed previously in this chapter team working is the ideal approach
for hospitality firms when growing and developing. However, even with the
best intention, teams will have difficulty prevailing when they are not sup-
ported by an appropriate organizational culture. Culture has been described as
the ‘social glue’ which holds organizational practices together. The following
section discusses what it is, how it is established and applies to hospitality
firms.
CULTURE
Organisational culture may be viewed from two perspectives (Legge, 1995).
That is, organizations either ‘have’ it or organisations actually ’are’ it. The
former is a structural view and the second holds that culture is separate from
any framework imposed by management and is best described as a root system
of meanings (Gregory, 1983). One can see immediately that if culture is
‘objective’ or a summary of organisational values it is manageable. Conversely
if we adopt the second perspective, culture is now an outcome of social inter-
action. As such, it may only be possible to describe or interpret it. This is not to
say that management has no impact on organisational culture, just that all
members of the organisation have their own constructions of reality. In prac-
tice, both espoused and spontaneous cultures exist alongside each other so
managers should have an understanding of how the latter impacts on the
former.
Reflective practice
1. Think of two dissimilar small or medium-sized hospitality business known to you or that
you have identified through a literature/desk search. Describe the culture that each
appears to have and how you came to that decision.
2. What impact has the founder had on the organizational culture?
Culture 235
If the entrepreneurial leader fails to establish an appropriate culture, fol-
lowers will begin to form one of their own. Situations like these are all too
common in the hospitality industry, particularly in the unaffiliated sector
where some entrepreneurs fail to identify, create and reinforce a common
set of values for followers. This may not be so important where the firm is
small employing only a handful of people as its culture often tends to be an
extension of the founders beliefs and attitudes. Such a small group of followers
may not always need a formal and organized set of core values but employers
will nonetheless have expectations of behaviour. Moreover, communicating
these may not be overly difficult as the channels are likely to be short and
direct. Usually, they are encapsulated in items like job descriptions, recruit-
ment and selection protocols and by virtue of being in close proximity to the
founder for most of the time. However, as the organization grows, communi-
cation channels become more complex and there is an increased chance of
‘drop out’ and misunderstanding. In other words, the effective proliferation of
these values to others becomes more difficult. The hospitality entrepreneur
must not assume that all followers will share her values, beliefs and attitudes.
Indeed, the nature of the hospitality labour market and characteristics of
the industry present extra challenges for the entrepreneur. Any attempt to
create an organizational culture must account for the fact that much hospi-
tality work is unskilled, temporary, seasonal or part-time with reduced bene-
fits and working conditions. Levels of labour turnover are extremely high in
some sectors and ‘tipping’ is still an accepted way for some employers to
justify low pay. Traditionally, management is autocratic and despotic and
union membership is low. There is also a mindset shared by some employees
inthe seasonal tourist sector that hospitality employment is not a ‘serious’ job
only to be tolerated until something better turns up. Finally, some workers
viewhospitality jobs as little more than an opportunity to enjoy a paid holiday.
These are significant contextual factors which if ignored will seriously under-
mine any attempt to create a positive organizational culture.
ORGANIZATIONAL CULTURE: WHY BOTHER?
Why is the establishment of an organizational culture so important? Some
argue that a strong culture is a replacement for company policies and proce-
dures. Peters and Waterman (1982) claim that culture replaces the need for
formal protocol because everyone knows exactly what needs to be done.
Robbins (2001) defines organisational culture as:
‘‘A common perception held by the organisation’s members; a system
of shared meaning’’ (p. 510).
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 236
In an organizational sense, culture is tricky to define because it is com-
prised of so many things but is often described as a code of conduct which
governs the way people act and think in the work place. In service industries
and particularly in small hospitality firms, culture can have a significant
impact on success or failure. The most effective entrepreneurs recognize the
role played by workers in service delivery and the potential impact that they
have every time they interact with customers. A leader’s ability to create and
maintain (and change if necessary) an appropriate service-oriented culture for
their business is therefore important.
According to Robbins (2001) organizational cultures are based on several
characteristics shown in Figure 10.6.
The position of individual firms along the ‘low’/‘high’ scale for each char-
acteristic has driven others to create cultural typologies. For example,
Handy (1990) conceptualises four different, but not exclusive, types of ‘power’,
‘role’, ‘task’ and ‘person’. The power culture is often found in small firms
where much is based on trust, empathy and personal communication. The
role culture tends to be present in larger firms and where there are strict
controls, bureaucracy and a strong sense of positional power. Leaders, by
definition, have authority within hospitality organizations. Their authority
can be either conferred by dint of their official role and status or emergent from
the degree of respect they receive from followers. French and Raven (1960)
classify five sources of power into:
& Legitimate – authority granted by individual’s position within the firm
where followers simply accept the formal authority of that person;
& Reward – authority to bestow; and
& Coercive – authority to withhold or punish.
These are conferred by position power defined by the firm’s policies and
procedures. The remaining two sources of power are ‘Expert’ and
‘Referent’ power and are based on the entrepreneur’s special knowledge
and or their personal characteristics. Ideally, the leader’s sources should be
expert and referent as they stem from followers’ respect and admiration.
The positional sources of power tend to be less about effective leadership
but more about an individual’s role within the firm. Founders should bear
in mind that the accomplishment of the organization’s goals requires more
that leadership based on positional power. Handy’s task culture charac-
terises firms who are project or matrix oriented and the person culture has
a focus on the person where autonomy is enjoyed where control is agreed
by mutual consent.
Founders should be aware that if left unchecked their firms may begin with
a task culture but end up with a power culture especially if the entrepreneur
Organizational Culture: Why Bother? 237
has difficulty delegating. In turn, this culture may morph into a role culture
where job titles become more important that the job itself.
Other typologies also exist but all basically tell a similar story, for example,
Deal and Kennedy (1982) refer to cultures of:
& Macho;
& Work hard/play hard;
& Bet-your-company; and
& Process.
FIGURE 10.6 Primary characteristics of organisational culture.
Adapted from: Robbins (2001, pp. 510–511).
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 238
Armed with the knowledge that all organizational cultures are subject to
key influences and that all can be described along continua defined by
basic characteristics we can begin to think about what makes for a suc-
cessful culture. After reviewing the evidence, Zimmerer and Scarborough
(2002) argue that entrepreneurial firms need to focus on the following
principles:
& Respect for work life balance through flexible scheduling, job sharing,
part-time work, on site day care and so on;
& A sense of purpose through defining the hospitality firm’s vision and
communicating it clearly to everyone;
& Promoting a sense of fun in the workplace;
& Valuing and pursuing diversity in the work place to build strength
through use of different skills, talents and abilities of followers;
& Promoting a high sense of ethical and moral responsibility in the work
place;
& Use of participative management styles consistent with new
transformational leadership approaches; and
& Retain a life long learning environment inorder to attract, motivate and
retain followers.
Key point 10.5
The elements affecting the formation of organisational culture are philosophy of founders,
selection criteria and socialisation to founders’ mindset.
Similarly based on the earlier work of Timmons (1999), Burns (2001)
considers that a desirable entrepreneurial organizational culture is based on
six dimensions:
& Extent to which employee’s are committed to organizational goals;
& Extent to which they feel recognized and rewarded for good
performance;
& Degree to which org goals, policies and procedures and understood;
& Degree to which high standards are expected;
& Extent to which employees feel responsible for goal achievement
without excessive monitoring; and
& Extent to which a sense of team cohesion is present.
Organizational Culture: Why Bother? 239
How do we know what kind of culture an hospitality organization has?
Cultural artefacts are relatively easy to identify in a firm and may include
dress code, use of ‘company language’
2
and the physical appearance of a
building such as that used by various fast-food restaurants internationally.
Other facets of culture are more subtle and therefore less easily observed.
Schein (1985) explains the differences between the observable and non-
observable factors through levels of culture. For example, dress code exists
at level one (artefacts and creations) whereas values and basic assumptions
are ‘invisible’ or ‘taken for granted’. An example of Schein’s level two
(values) would be why work groups behave as they do, for example, is it
permissible to call the employer or managers by first name? The extent to
which members hold these behavioural values and norms as unquestionable
determines whether the organisational culture is ‘strong’ or ‘weak’. Level
three concerns basic and tacit assumptions that determine how members
perceive, think, and feel. This stage represents that which is taken for
granted by the group or that which is so deeply rooted it enters the uncon-
scious. If a strong team culture is to be established and sustained success-
fully by the founder, this is the level at which training and socialisation
procedures should focus.
So how does the hospitality entrepreneur establish and sustain an appro-
priate organizational culture? Robbins (2001) considers the following to be
important (Figure 10.7):
& Philosophy of founders – early culture formation when firm first
established; founder’s vision easily imparted to all members; for
example, original Forte and Marriott groups union-busting and
paternalistic culture is a philosophy of both Charles Forte and Bill
Marriott; founders able to influence ‘espoused’ or formal culture but
not actual/informal or ‘culture-in-practice’;
& Selection criteria – staff hired in founders’ image; other human
resource practices such as training and reward systems linked similarly;
& Top management – behave in a manner which supports original
philosophy; rituals and physical symbols which reinforce key values,
norms and goals; and
& Socialization – to founders’ mindset, success perceived as linked
directly with founding philosophy; self–perpetuating, sustained by
2
The Disney corporation is a prime example where staff are referred to as ‘cast members’
and jobs become ‘performances’ (Zimmerer and Scarborough, 2002).
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 240
legends of how firm began which justifies present behaviour or culture
in the past, for example Conrad Hilton, Richard Branson; use of
company ‘language’, for example in many hotels staff from different
departments are often referred to by use of acronyms or other terms
(KPs – kitchen porters or stewards; food service staff may be labelled,
rather disparagingly, as ‘plate carriers’ by chefs).
Adapted from Lashley and Lee-Ross (2003).
SUMMARY
There is a tendency to believe that successful entrepreneurs make good
leaders. Whilst there are individuals who excel in both roles there are also
others for whom leadership is something more of a challenge. Effective lead-
ership requires certain abilities and skills, for example, does the entrepreneur
have the capacity to analyse and diagnose work contexts and situations before
behaving in the capacity of leader?
Many theories exist all having their own perspective on the best way to lead
organizations. In the main they are complimentary with the possible excep-
tion of the newer postmodern constructs which regard leaders as stewards and
servants. In short the leadership role here becomes inverted to the extent that
followers become leaders and vice versa. Nonetheless, founders of small and
growing hospitality firms need to grasp and use this knowledge and that
afforded them by experience and good fortune if they are to be both notable
entrepreneurs and leaders.
Whilst firms stay small (and many do in the hospitality industry) the
requirement for the business founder to grow and develop into an effective
leader is of lesser importance than when firms move from the lifestyle type
into the entrepreneurial firm. During the transition, there are a number of
FIGURE 10.7 Key elements affecting the formation of organisational culture.
Adapted from: Robbins (2001, p. 523).
Summary 241
behavioural characteristics which are essential for robust leadership. These
include respecting and supporting employees, embracing change, leading by
example, creating an appropriate culture, communicating effectively and so
on. However, evidence suggests that entrepreneurs are not particularly adept at
interpersonal relations and communication. These are two key areas which
must be addressed as firms grow and employ more people otherwise the
hospitality business is likely to be compromised. Indeed, as the firm grows
most commentators agree that the entrepreneur must adopt a team approach
to running the company. To do this well requires the establishment of good
interpersonal relationships and effective communication amongst and be-
tween the team.
Thus, the founder must have a basic understanding of organizational
culture and the levels at which it manifests itself and how to affect and
maintain core values through:
& establishing and perpetuating through selection criteria;
& embodiment through the management team; and
& socialization.
She must also be aware of some important environmental and labour
market characteristics likely to influence organizational culture such as
‘tipping’, temporary, casual and part-time working, attitudes of some hospi-
tality workers and so on. Finally, the founder must be clear that if little attempt
is made to espouse an official culture another version will surely fill the void.
In many instances this ‘culture in practice’ will impact negatively on the
organization.
Case: Simon Says. . ..
By Michael Fahy
It wasn’t really surprising to learn that Simon Woodroffe had once been a stage designer for
Rod Stewart and The Moody Blues. After all with his cultivated sideburns and trademark
yellow suede boots, the 50 year old entrepreneur looks as if he has just walked in from the
latest Spinal Tap video. To describe Woodroffe as flamboyant would be an understatement,
but the founder and chairman of YO! Sushi argues that business needs a dash of colour. He
thinks we should all dreama little more too, so long as we have the courage of our convictions
and follow them.
I’ve yet to meet the person who, even at the risk of their own financial security, went out to do
what they dreamed of and regretted it, regardless of success or failure. It has certainly worked
for him. After leaving school with only three ‘O’ levels he became a roadie and eventually
found himself sitting in the same rooms as Stevie Wonder, the Rolling Stones and others.
Seizing the opportunity, he set about convincing them that their stage shows needed
fireworks, trapeze wires and other cunning stunts. He then established a company to deliver
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 242
his service. After playing his part in Live Aid, he went off to set up a TV company securing the
rights to live concerts and selling them to broadcasters around the world.
After turning 40 he decided his potential had not yet been realized and so decided to start a
retail business so he could be at the ‘sharp end’. He considered a number of ideas but none
really grabbed him. A Japanese friend suggested he should open a conveyor belt shushi bar
with food served by girls in black PVC. He immediately began researching the prospect and
was initially disappointed to find the idea was not totally original. ‘‘Then I opened another
magazine and at the top of the page it said ‘How to open your own conveyor belt sushi bar’. I
thought this is too good to be true. Three months later he had a business plan, knew a huge
amount about sushi and had outline sketches of the YO! logo. His problem, however, was a
lack of cash. He says he wasn’t interested in building a conventional restaurant and wanted
YO! Sushi to be a kind of Planet Hollywood for the 1990s – a chain that would grow
remarkably quickly. Yet apart from his own £150 000, the money was hardly flowing in. He
had dismissed the idea of venture capital as ‘‘too scary’’, but had managed to land £100 000
through the Government Loan Guarantee scheme. He also borrowed £50 000 from a
childhood friend and £50 000 ‘‘from a bloke I met off the street in Paris’’.
Moreover, the launch of his first restaurant was delayed by around a year as the property
company with whomhe was signing a deal sold its entire portfolio. With hindsight, he argues
this was the best thing that could have happened, as he ditched many parts of a blander
concept for something much more radical. For instance, he introduced huge plate glass
windows so people could see the food moving around on the conveyor from outside. He also
blagged some satellite equipment and TVs fromSony, so he could beamin Japanese TV. The
piece de resistance, though, was the robots. He had approached an industrial manufacturer
about building robots that could dispense drinks to diners but was quoted the rather
ridiculous price of £700 000 more than the combined budget for his first two restaurants.
Eventually, he was put in touch with a man who designed robotic systems for wheelchairs
through Edinburgh University’s robotics department who said he could build the first two for
less than £50 000. Each robot followed a wire circuit which was placed underneath
restaurant floors. They also had individual voices and characteristics. Four weeks before the
first YO! Sushi was due to open on London’s Poland Street, a prototype was brought onto the
site for a trial and everyone downed tools to watch it. ‘‘I remember thinking ‘‘That is the
making of this place people are going to come in at least to have a look at that. Especially
when it spoke!’’
He had also attracted two corporate ’sponsors’ – Sony had provided him with the TVs and
Nippon Air had given him a couple of flight upgrades. Then Honda provided him with a six
month loan of a ‘Girocycle.’ I wrote back to them saying that I was so pleased I’d decided to
make them an official sponsor, and if I didn’t hear from them within seven days I’d assume
they’d agreed. Of course, I knew big companies were incapable of responding quickly, so I
had my third sponsor.’’ This turned out to be more useful than he’d imagined. Once the
restaurant was open, the customers had started to flock in and he started thinking that he
could continue without any external funding. He’d contacted his biggest creditor (who he
owed £250 000), showed him around the booming restaurant and asked for a minimum of
six months’ grace on payment. ‘‘I heard later they’d had this big meeting at which one of the
Summary 243
senior guys said ’let’s give the guy a chance – it’s probably going to work but if it does all go
wrong those Japanese giants who are behind it will cough up the money’.’’
Woodroffe made sure that it didn’t and set about expanding YO! Sushi while thinking up ideas
for other ventures and becoming the newVirgin around the world. Unsurprisingly, he says he
is a big fan of Richard Branson and is a firmbeliever in building a series of businesses around
the one brand, saying that the instant recognition given to a new business far outweighs bad
publicity affecting another part ‘‘Why build a mountain twice?’’ he asks. ‘‘If you look around
the world, nobody does these brand extensions. I’ve heard people talking about Virgin,
Stelios and YO! in the same breath, but we’re a tiny, tiny company compared to the others.’’
He currently has 16 YO! Sushi restaurants, spread mainly across London but an Edinburgh
unit opened last August and one is planned for the food hall of Manchester Selfridges by
September. There has also been a number of spin-offs fromthe restaurants including events
Catering, food delivery and YO! Branded Sushi for Sainsbury’s. He has also opened three
basement bars underneath restaurants known as YO!-Below which have self-service beer
taps and smoke-extracting ashtrays on each table. Staff have also been trained in giving out
massages to stressed customers. He says the next business to be launched will be YO!tel,
which is described as a cross between a Japanese capsule hotel and British Airways First
Class. He admits that he has been talking about this for years, but feels it is important that he
gets it right. ‘‘If we are successful with YO!tel, then it will followvery quickly that we can go into
all sorts of different areas,’’ he says ‘‘I sometimes think we’re like a pop group,’’ he says,
‘‘We’ve had our first album, we’ve done lots of spin offs fromthe first album, but I don’t think
until we’ve had a second album that we can seriously call ourselves a big band.’’
Questions
1. What leadership characteristics does this entrepreneur display?
2. How would you describe his leadership style?
3. What impact would his early life as a roadie have had on his entrepreneurial style?
4. Has this entrepreneur made the transition from founder to leader?
5. If so, estimate the point at which the change was made.
6. What role has dedicated ‘business’ education played in this entrepreneur’s success?
Reproduced with permission, Hospitality, July/August, 2002, pp. 38–40.
CHAPTER 10: Leadership and the Entrepreneur: ‘‘I’m right Behind You Leading the Way’’ 244
Growth: the Harder I Work
the Luckier I Get
After working through this chapter you should be able to:
& Discuss the growth of small hospitality firms as it applies to entrepreneurial
and lifestyle firms;
& Understand the strengths and weaknesses of ‘growth’ models;
& Discuss the major components of growth strategies for small; hospitality
firms and the role good fortune plays in their success; and
& Outline the major challenges the entrepreneur faces during the growth
of firms.
INTRODUCTION
Take 10 budding entrepreneurs, furnish with a certain sum of money and
instructions to start, grow and sustain a successful small hospitality busi-
ness; some would succeed, some would fail and others simply ‘tread water’.
Obviously, exact amounts of financing, time frames and so on would need
to be established for everyone to compete equally but there would still be
different outcomes for these firms. The key questions would be ‘why’ and
‘what’ caused them?
To understand why firms grow (or not) requires knowledge and acquired
experience of economic conditions, markets, individual capabilities, strategic
competence, an awareness of company strengths/weaknesses and so on. Fur-
thermore, it is one thing simply ticking off these boxes but quite another to
understand how all of this knowledge works holistically to bring about firm
growth. Indeed, a single configuration of these factors would most certainly
not be appropriate for all business development. There is yet another conun-
drum; what role does good fortune play in the successful growth of the small
hospitality firm?
CHAPTER 11
245
Dictionary.com, defines the word ‘growth’ in several ways:
& to increase by natural development as any living organism;
& to form and increase in size by an inorganic process;
& to arise or issue as a natural development from an original happening,
circumstance, or source.
Reflective practice
1. How would you define the organic and inorganic growth of small hospitality firms?
In an entrepreneurship context, commentators often divide organisations
into growth or entrepreneurial and ‘lifestyle’ firms (see Chapter 5). The intent
of the former is to achieve sustained growth through market expansion and
increasing profitability, that is, through economic growth. These firms play a
major role in wealth creation and yet only represent a minority of small
hospitality firms. For example using aggregated data, Deakins and Freel
(2006) assert ‘‘. . .out of every 100 small firms, four will provide around
50 per cent of all employment over a given time period’’ (p. 159). On the other
hand, lifestyle firms are more concerned with survival by generating enough
income to sustain a given living standard for the owner(s). Here, economic
growth is part of a more holistic strategic aimbut remains consistent with the
above definitions. Thus, even though the hospitality industry is dominated by
small and micro lifestyle businesses we can still assert that they are concerned
with growing and developing albeit differently to truly entrepreneurial firms.
This perspective broadly concurs with that of Schaper and Volery (2004) who
make a similar case on the basis that all firms share at least one of three goals;
all of which pertain to growth. These are:
& Survival; and
& Consolidation and continued success; and/or
& To expand or grow.
The following case is a typical example of a small hospitality lifestyle firm
Changing the Harrogate Model: Alison’s ‘Spur of the Moment’ lifestyle
business.
Notes froma meeting with Alison Evans, co-owner and operator of Westlands House Bed and
Breakfast, Buxton, 22nd May 2007
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 246
Alison has recently resigned a teaching position with the University of Derby Buxton to work
full-time on a three room bed and breakfast business established in February 2005. Alison,
and her husband Alex, own the business, which was purchased in December 2004. Alison is
now in her forties, the couple have no children and were wondering what the future would
hold for them. They would often drive into the country at weekends just for something
different to do; they were easily bored. Alison is a Derbyshire lass and her husband was
brought up in Devon and Yorkshire. Now they run a thriving and attractive bed and breakfast
business from their own home. Alison has been recently inspected and given a four star and
silver award for her efforts.
The property is a well maintained late Victorian (circa 1901) stone house, semi-detached with
a front and back garden and on-site parking for cars. Alison said that she and Alex more or
less spontaneously bought the property with the intention of running a business. They have a
mortgage on the property but were able to extend themselves financially by selling a
previously owned freehold property elsewhere.
The house extends over four levels. There is a cellar which the couple eventually may convert
into further living space. The ground floor has an elegant living roomwith deeply upholstered
furniture, a sunny dining room, entrance lobby and kitchen–all used by guests. The first floor
has three well-appointed guest rooms–doubles or twins with en-suite bathrooms. One room
has a particularly large bathroomand a magnificent view fromthe bedroomto the rear of the
property over the spectacular and rugged Derbyshire moors. The road frontage is very neat
and well maintained and, at time of interview, leafy and verdant whilst being easily accessible
(5 minutes by car) to downtown Buxton with its Opera House and Georgian and Edwardian
terraces.
Buxton is a pretty elevated spa town, at 300 m, almost at the head of the River Wye in the High
Peak Borough of the Peak District. There are just over 20 000 residents in the town and
excellent rail and road links with Cheshire, Manchester and Sheffield. In any year in excess of
25 million visitors, predominantly from the domestic United Kingdom market, visit Buxton
and environs. Most visitors are keen to see the natural scenery and enjoy short and long walks
and hiking. A significant proportion of Alison’s guests come for two major events in the town
itself each season—the Gilbert and Sullivan Opera season and the Buxton Festival in July. In
addition there are a number of smaller venues dotted around the town that are used for
events such as Antique Fairs. One could assume that Alison made a wise choice in investing
in property for her business based largely on Buxton’s centrality in the United Kingdom and
proximity to the former grimy industrial metropolitan areas of the Midlands and North.
However, Alison is a Buxtonian by birth so in many ways she has made a commitment to her
town in this business.
In the first 2 years of operation Alison, and to a lesser degree Alex, worked exceedingly hard to
make Westlands a successful bed and breakfast business. Alison rose each morning by 7 am
to prepare for a day of cooked English breakfast (eggs, bacon, black pudding, oatcakes,
sausage and rounds of toast) and, having farewelled her guests, would make her way into the
University campus to work full-time as an early childhood lecturer. At night she would return
to Westlands, clear up after departed guests, make beds and wash and iron bed linen to the
point of exhaustion. Alex had, and still has, a full time job outside of the bed and breakfast.
His role has been accounts, finances and general support. Alex does not cook or clean or do
Introduction 247
maintenance; those roles are filled by Alison. The telephone is answered by whoever is
available. Alison and Alex have an answering machine and can access incoming calls away
fromthe business as required. Alison is the prime contact and host for the business and, for 2
years, managed the business whilst holding down a full-time job. To understand the
operating success of the business one must acknowledge the role of technology. Alison
claims to have received most reservations through her website. It cost her £800 to set-up but
this is money well spent. The second technological asset is the credit card processor. Nowall
bookings are taken with a deposit against a credit card, effectively minimising the risk of no-
shows. Alison understands that for major events bookings are made up to 6 months in
advance. Even late bookings are usually made a week prior. Alison is therefore seldom
dependent on cold callers and last minute clients. She receives referrals from the
neighbouring establishment which acts as a top-up. Alison estimates 20 per cent of her
business is derived from repeat customers and referrals and the balance is from the Buxton
Tourism Information Centre. Adding value by offering evening meals is considered
unnecessary. Alison knows that there are many restaurants with a variety of cuisine and at a
range of grades within easy walking distance. Shrewdly she worked out that clients expect
fine dining experiences but are not prepared to pay for that standard of service under her own
roof. Understanding the market needs and preferences and expectations is an important part
of this case study.
Alison is fortunate in having a local network of bed and breakfast owners. Her neighbour,
Hillary, runs a successful and slightly larger business (5 rooms and 5 stars) and has provided
Alison with a lot of information to help her understand the customers’ needs and, more
importantly referral business when her accommodation is full. The adjoining house, on the
other side of the property, has recently been sold and may revert to a bed and breakfast
business which will mean three sets of accommodation businesses in a row. Alison is not
anxious about this; she sees that there is sufficient demand for accommodation to make this
an asset to her own operation. She assumes that the standards required of a bed and
breakfast business would raise the tone of the street and she would welcome professional
neighbours rather than a noisy family with teenagers.
In future Alison may consider expanding her business by converting the cellar and using
existing second floor rooms that are currently occupied by Alison, for further guest
accommodation. Alison and Alex could use the cellar for their own quarters.
Alison is a person of neat and tidy appearance and by her own account, a people person. This
couple have a defined division of labour and responsibilities. Alison is the operational partner
and Alex is in charge of finances. Alex is somewhat risk-averse, what Alison calls cautious,
and an important check on Alison’s tendency to impulsiveness. Alison recognises that the
challenge to a successful, quality product delivered to the clients is her outgoing nature
coupled to her ability to operate with networks of useful people for both her business and for
herself. Alison and Alex have become shrewd judges of people and behaviour. Despite the
characteristics described, Alison admits to originally having fears about having guests in her
home. I suspect that after 2 years she has been able to overcome this trepidation and she
admits that she can get a good night’s rest now.
Many of the factors which impact this business depend on good judgement and prior
knowledge. Insurance as appropriate, redecoration as required and to an expected level of
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 248
quality, minimised risk, partnerships, networks, and understanding the impacts that running
a bed and breakfast has on one’s lifestyle are all considered relevant in this case study.
Alison and Alex can manage 2 weeks in each year to take a break from the business. This is
partially due to being able to judge the peak demand periods surrounding events in Buxton
(Opera, festivals and weddings) and partly to developing some skills in judging booking
patterns and trends. Although this is the first year that Alison has committed totally to the bed
and breakfast it is apparent that this decision was properly considered and relevant factors
weighed up. Alison admits to the learning curve having been steep but reflects on support
and advice from friends and being smart about decisions and the market.
It is apparent that a good understanding of the market and supply in Buxton was central to
Alison’s decision to focus on this lifestyle business.
Source: Wiltshier (2007).
Clearly, both lifestyle and entrepreneurial perspectives are important so a
discussion of growth must consider both. The main aim for this chapter is
therefore to identify key factors responsible for the sustainable growth of
hospitality organisations. It does this by first reviewing two important
‘growth’ models to clarify the stages through which firms progress when
developing together with a discussion of some challenges faced by the entre-
preneur at these times. Second, the chapter discusses several strategic growth
perspectives addressing whether growthshould be pursued inthe first instance
and then identifies key elements of each approach including the key enablers,
dimensions and interrelatedness. The role of Ansoff’s (1968) product/service/
market matrix in decision-making is also introduced. The chapter continues
by considering some important barriers to the growth of small hospitality
firms.
Key point 11.1
A comprehensive discussion of growth must include both entrepreneurial and lifestyle firms.
GROWTH MODELS
There have been several attempts to conceptualise the manner in which firms
grow and some of the challenges that will be encountered along the way. The
best known of these include Greiner (1972) and Churchill and Lewis (1983).
Scott and Bruce (1987) and Burns (1996) used the Churchill and Lewis con-
struct as a basis for their adaptations and additions.
Greiner’s model essentially maps five stages of growth each characterized
by a period of crisis which must be managed by shifting leadership style and
Growth Models 249
practices and procedures in order to progress to the next stage of the model.
The model is shown in Figure 11.1.
In short, each stage of the above model is defined by a particular entrepre-
neurial behaviour. For example, creativity characterizes stage 1, whereas col-
laboration defines stage 5. As the organisation grows within a stage it reaches a
crisis point, that is, the point at which behaviour becomes inappropriate if it is
to develop. In stage 1, ‘random’ creativity becomes difficult to harness pro-
ductively unless the business establishes clear leadership and vision for all
stakeholders. Stage 4 is characterised by a more managerial ‘coordination’
approach with clarity of goals and control procedures. The firm is now far
too complex for only one entrepreneur to manage and thus begins to lose its
original character. The standard policies and procedures are nowlikely to cause
excessive bureaucratic ‘red tape’. The model advocates a move toward collab-
oration between employees with a focus on ‘mission’ rather than slavishly
adhering to standard practice. This perennial problem for all growth firms is a
significant challenge. The entrepreneur must try and capture the original spirit
of the small firm by establishing an appropriate business culture.
FIGURE 11.1 Greiner’s growth model.
Source: Greiner (1972).
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 250
Greiner’s construct may also be expressed in a tabular format as shown
Table 11.1.
The Churchill and Lewis’ (1983) model similarly follows the five-stage life-
cycle pattern of Greiner (1972) but is more general and has no crises which
precipitate the movement from one stage to the next. The stages are:
& I Existence;
& II Survival;
& III Success;
& IV Take-off; and
& V Maturity.
Reflective practice
1. Through an internet search or through a small hospitality organization know to your
consider whether either of the growth models in this chapter accurately reflect its growth
and development?
Essentially, both constructs map the growth of firms from a relatively
simple beginning where most things are fuzzy or difficult to define through
to a highly formal bureaucratic structure which then has to be reconceptua-
lised. Flexibility and qualities of the early simple structure must be reintro-
duced and retained through advanced leadership and management
TABLE 11.1 Greiner’s model of firm growth
Attribute Stage 1
Creativity
Stage 2
Direction
Stage 3
Delegation
Stage 4
Co-ordination
Stage 5 Collaboration
Management Produce
and sell
Operational
efficiency
Market expansion Organizational
consolidation
Problem-solving
and innovation
Organization structure Informal Centralized and
functional
Decentralized and
geographical
Line staff and
product groups
Matrix
Top management style Individualistic Directive Delegation Watchdog Participative
Control system Market results Standards and
cost centres
Reports and
profit centres
Plans and
investment centres
Mutual goal setting
Management
reward emphasis
Ownership Salary and
performance-
based
Individual
bonuses
Profit sharing and
stock options
Team bonus
Crises Leadership Autonomy Control Red tape Unknown
Adapted from: Deakins and Freel (2006: p. 163).
Growth Models 251
techniques. Another difference between the two models is that Churchill and
Lewis differentiate between lifestyle and growth firms. During the third stage
(success) there are two options. The first is ‘disengagement’ whereby the
entrepreneur can choose to exploit an emerging niche and go no further.
The second is the growth option where the entrepreneur chooses to establish
a vision, strategy and clear objectives for continued expansion. However, like
most models, both are simple representations of reality and should only be
used heuristically. Burns (2001) and Deakins and Freel (2006) provide an
adequate critique shown in Table 11.2.
Key point11.2
Growth models help map the progress and development of firms but often do not reflect the
reality of all growth situations. As such they should be only used for guidance, orientation and
to aid decision-making for hospitality firms as much depends on context and situational
specifics.
The following case illustrates a lifestyle-type firm where the entrepreneurs
have managed to successfully integrate their business and way of life.
Lifestyle Tourism Entrepreneurship in a South Australia wine Region
Is it possible to combine your entrepreneurial pursuits with your lifestyle? Ben and Lisa
Thompson believe that it is not only possible, but essential to their full enjoyment of life to
conceive of their livelihood synonymously with their personal lifestyle. They are people who
have sought and found a happy balance between comfort and necessity. They are also
examples of what Richards and Wilson (2006), called ‘prosumers’, people engaged in a
mixture of skilled production and consumption. Richards and Wilson cited lifestyle
entrepreneurs as examples of this, such as the avid surfer who opens a surf-related business
as a means of supporting a lifestyle preference. The Thompsons, both in their 60s,
have realized this combination in a tourism context through the establishment and
TABLE 11.2 Critique of growth models—some factors
&Most firms do not grow and therefore fail to reach the second or third stages.
&Growth experienced may not follow the prescribed pattern.
&Firms will plateau at particular stages and not progress further.
&The sequence of factors inherent in the models is not supported, for example many firms lurch
from crisis to crisis in an unprescribed manner whilst other may have a relatively uniform unhindered progression.
Adapted from: Burns (2001) and Deakins and Freel (2006).
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 252
operation of a vineyard, accommodation and restaurant complex in McLaren Vale,
South Australia.
McLaren Vale is located in the Fleurieu Peninsula, one of the state of South Australia’s 12
tourismregions. The region attracts more domestic same day visits than any other SA region
(2.1 million) except the capital city of Adelaide (SATC, 2007). The Fleurieu Peninsula is
positioned as the Water, Wine and Wildlife Region, and McLaren Vale is the region’s
dominant wine destination with approximately 50 cellar doors, and is joining the select group
of areas that can claim to be part of the ‘cradle of the Australian wine industry’ (Faulkner,
Oppermann and Fredline, 1999). Recent developments in McLaren Vale’s marketing and
management have raised the destination’s profile, such as the construction of a gateway
Visitor Information Centre, the integration of neighbouring wine producers with the local
destination management organisation, and an active events agenda that emphasises the
combination of food and wine, such as the annual Sea and Vines Festival, and Meet your
Maker events when tourists spend a weekend with McLaren Vale winemakers.
Ben (a former government official) and Lisa (a former corporate executive) traded their city
life in Adelaide for a more rural existence in McLaren Vale. Long-time self-described ‘wine
romantics’ and lovers of country living, they saw the potential in a block of land with one
residential building on it to establish a vineyard and hospitality operation that would allow
them to pursue their love of wine. They began the project in 1998, and by 2007 had
established a viable restaurant, catering and accommodation business, and had harvested
and bottled a modest amount of their first grape crop. As Ben said, ‘We took this three
bedroom, three bathroom house which was entirely the wrong design and the wrong shape
and colour and wrong everything else but in the most wonderful location. We decided we
wanted to turn it into something that fitted the location on our terms. And we knew we were
going to end up with some money at the end of it.’
While they feel that the change has been overwhelmingly positive, in many ways they have
traded some constraints for others. As Lisa explains, ‘in the office you’re within the office
system discipline. Here it’s my own discipline, well not quite because it’s also the discipline
imposed by the vineyard, the guestrooms, and the food and beverage operations.’
Additionally, vineyard and hospitality work is physically demanding, and can take a heavy toll,
particularly on a body that is wearing out. The biggest trade-off has been financial, as the
returns generated in their new venture have fallen below their combined earning capacity in
their former careers. However, the Thompsons feel that this has been more than offset by the
psychic gains that they have realized in terms of greater happiness and satisfaction.
References
Faulkner, B., Oppermann, M., and Fredline, E. (1999) Destination competitiveness: an
exploratory examination of South Australia’s core attractions. Journal of Vacation Marketing
5(2):125–139.
Richards, G., and Wilson, J. (2006) Developing creativity in tourist experiences: a solution to
the serial reproduction of culture? Tourism Management 27(6):1209–1223.
South Australian Tourism Commission (SATC), (2007) Fleurieu Peninsula regional tourism
profile, June, Adelaide, pp 1–4 www.tourism.sa.gov.au/publications.
Growth Models 253
Source: Gross (2007).
CHALLENGES FOR THE ENTREPRENEUR
Burns’ (1996, pp. 241–242) notion of an entrepreneurial organization helps to
explain the shift of procedural and behavioural emphasis as firms grow. He
notes that on start up the entrepreneur sits at the centre of the firm with all
reporting to her and operations are characterized by:
& An informal management style with all business decisions being
similarly predisposed;
& Informal staff employer relationships;
& Hands-on training;
& Influencing structures rather than rigid control;
& Personal relationship-building; and
& Job flexibility.
It is also important to note that small entrepreneurial firms are by no
means problem-free, especially if the entrepreneur has little or no experience
of employing people. For example, where employees are not provided with
clear guidelines, roles and responsibilities, communication can often be-
come unclear between entrepreneur, employee and vice versa. In these situa-
tions employer/employee psychological contracts can become confused with
misunderstandings becoming common. Ultimately this leads to unrest,
dissatisfaction and can often lead to high levels of labour turnover. These
situations may be particularly acute in small businesses where the entre-
preneur employs family and friends. The negative fall-out is not only bad for
business but also compromises former friendships and family relationships.
The adage of actors never working with children or animals is appropriate
here, that is, never work with family or friends!
Notwithstanding the problems that may occur resulting from commu-
nication breakdown and misunderstandings, Burns’ idea of the small en-
trepreneurial firm structure can work well with only a few employees but
once staff numbers begin increasing a different and more formal approach
is warranted. Once the organization reaches this point a more formal
design and clear structure become key. The negative side of formal report-
ing structures and hierarchies are well documented elsewhere (e.g., see
Robbins, 2007, etc.) but, all things being equal, to operate efficiently and
effectively, firms must adopt a structure which is appropriate to their size.
Clearly, one cannot be too prescriptive here as even large and hierarchical
organizations often establish smaller more organic internal structures for
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 254
the purpose of intrapreneurship. However at a pinch, simple standardized
jobs are more suited to hierarchies and where the trading environment is
undynamic and predictable; complex/creative jobs and a dynamic environ-
ment require flatter and more flexible organization design.
Of course technically the above prescriptions seem reasonable, however,
people (including entrepreneurs) have a number of attitudes and behaviours
which may actually detract from this logic. The small entrepreneurial firm is
organic and some commentators note that it is simply an extension of the
entrepreneur’s personality and idiosyncracies. Du Toit (1980) takes this fur-
ther by arguing that entrepreneurs were formerly difficult employees. Whilst
this may be the case for some, there is general agreement that a key entrepre-
neurial trait is locus of control (Rotter, 1966; Cromie, 2000) where the indi-
vidual attributes success to their own input rather than the impact of other
variables. Indeed, an opportunity to gain control over one’s destiny is one of
the four most common reasons given by entrepreneurs for starting their own
business (Zimmerer and Scarborough, 1996). Some cruelly refer to individuals
with this characteristic as ‘control freaks’!
The potential problemwith an overly controlling and inexperienced found-
er is that they are likely to ‘meddle’ or micro-manage in the belief that only
they can achieve the optimum outcome for their business even after stage one
of Greiner’s (1972) model has been surpassed. Kirby (2003) refers to this as
‘founder’s disease’ (p. 287) which can cause an inordinate amount of pro-
blems in all areas of the business including role ambiguity for managers,
informal reporting structures, staff alienation through reduced job tasks and
autonomy and so on. To avoid these negative outcomes Kirby (2003, p. 287)
notes that entrepreneurs must appreciate that:
& As firms grow they become more complex;
& They cannot make all of the decisions;
& Science cannot clone the founder; and
& Their authority will never equal the degree of responsibility.
In short, as firms growso too must the entrepreneur by learning newskills.
They must avoid the hands on approach in favour of a more strategic, mon-
itoring and decision-making role. This can be difficult, at start-up founders
typically spend almost 90 per cent of their effort ‘doing’ and 10 per cent
‘thinking’. Clearly, delegation is important here so the firm will need to have
a more formal structure including new control systems and team-working
rather than relying on informal relationships and ill-defined operating proce-
dures of the past.
Challenges for the Entrepreneur 255
A firm deciding to grow rather than remaining in lifestyle mode faces a
number of challenges and choices. Growth models are reasonable in expres-
sing the various stages through which the firm passes (notwithstanding the
weaknesses identified earlier) but they do not make clear those issues respon-
sible for success. These matters are vital and entrepreneurs must reflect and
understand them if growth is to be sustainable.
Key point11.3
The successful growth of hospitality firms depends not only issues of context but also the
ability of the founder to become less ‘hands on’ and to develop a number of management
competencies.
Reflective practice
1. Interview an entrepreneur known to you. Investigate what major challenges they faced
during the growth of their hospitality firms and how they were dealt with.
A SECRET FORMULA FOR SUCCESSFUL GROWTH?
We have already established that a key trait of entrepreneurs is a strong sense
of locus of control. It is therefore unsurprising that many successful ones
attribute their success to personal efforts and competencies rather than
anything else. A few may acknowledge that luck or chance played a role
but many others do not. Research has identified a number of key enablers
but not necessarily a winning formula. Good fortune is difficult to rational-
ise and is downplayed in much the same way as some chief executive officers
overstate how their strategy, vision and insightfulness were responsible for
record windfall profits, turnover, reduced costs and so on. Similarly, when
national rates of interest and inflation are low governments are quick to
point out the sage-like nature of their fiscal and monetary policies in bring-
ing about such a state of affairs. In fact, many argue that these issues are
more to do with global booms and recessions. The question becomes, was a
particular government successful economically because it was riding an
international period of good fortune? The answer is probably yes, although
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 256
economic and societal issues can be exacerbated at a nation state level by
government policy.
Ultimately entrepreneurs are human beings (believe it or not!) and invest
significant amounts of time and effort into their projects. When asking them
the $64,000 ‘luck’ question many would probably answer, ‘The harder I work,
the luckier I get’ and in a sense this is understandable given the sacrifices they
have made and the amount of personal ego involved.
Obviously, arguing that all one needs to be a successful entrepreneur in the
hospitality industry is good fortune would be something of an oversimplifica-
tion. Whilst high early business failure rates might suggest that a reliance on
chance alone is a factor, one must have the certain skills and abilities in order
to capitalize on luck or chance if it is encountered. This is the essential
difference between highly successful firms and those which become compro-
mised and a number of researchers consider good fortune to be the differenti-
ating factor (e.g., Reid and Jacobsen, 1988; Nelson and Winter, 1978). Indeed,
the often quoted and perhaps mythological ‘location, location, location’ by
Conrad Hilton is a tacit acknowledgement of good fortune. It certainly would
be for budding entrepreneurs who happen to reside in a popular tourist desti-
nation prior to start-up and who want to convert their existing premises into a
Bed and Breakfast or something similar. The same could not be said of entre-
preneurs living elsewhere but relocating after identifying opportunities in
primary tourist areas. Burns agrees (2001) noting that the distinguishing
feature of successful entrepreneurs is recognising an opportunity and acting
on it.
So what actually is a growth strategy and of what is it comprised? There is
no shortage of available constructs and they are all quite similar. The only real
differences between them are the focus and perspectives adopted. However
first, Barringer and Ireland (2006) point out that developing a growth strategy
will depend on whether the small hospitality firm can realistically take
advantage of the following:
& Economies of scale–where increasing production lowers the average
cost of each unit (bed night, restaurant meal, etc.). In the hospitality
industry, economies of scale achieved through bulk purchase (in an
attempt to minimize variable costs) are insignificant compared to
other sectors but other economies may be realized through a sound
knowledge of the product. For example, hotels have a limited
amount of bedrooms to sell at a particular time. There is also the
linked matter of ‘perishability’ where sales failure results in a
missed revenue generating opportunity forever due to its
intangibility and dimensionless nature. This defining characteristic
A secret formula for successful growth? 257
is usually dealt with by careful manipulation of room rates and yield
management procedures. This is a common tactic used in other
service industries (transport, entertainment, etc.) where fixed costs
are similarly high.
& A scalable business model–where increased revenues will cost less to
deliver than current revenues. This is clearly the case in the hospitality
sector when all variable costs are covered and significant contributions
are made to fixed costs and also helps to explain why hotels can offer
such vast accommodation price reductions; profits increase as sales
escalate. Clearly their is a fixity of supply issue here which limits actual
growth unless the entrepreneur decides to acquire another property by
various means including outright purchase, lease, amalgamating with
another company, joint venture of partnership. However, before taking
such a step the entrepreneur must be convinced that demand will
increase.
& Influence and power–closely linked with market leadership through
setting industry standards, enhanced access to major customers and
suppliers and prestige. It also augments the firm’s resilience and ability
to recover from bad publicity. For example, neither of the above cases
had any lasting negative effect on either company. Additionally, risk
management becomes more effective with more expertise on which to
draw from an inflated pool of employees and managers. Thus, better
risk-management occurs through an ability to attract and retain
good workers.
Top 100 Hotel Companies:
Is Bigger Better?
Chart: Top 100 Hotel Companies
By M.A. Baumann H&MM Contributing Editor
Is bigger better? Do bulging portfolios, brand segmentation, globalization and unprecedented
growth give some companies a distinct advantage over others? Critics claim that size affects
quality and consistency. They believe midtier firms actually can outperform the
megacompanies by using a more-focused approach. Super-players say it isn’t so, arguing
that combined resources, brand identity and sheer magnitude give them stronger hands in
shaping the industry’s future and creating a healthier bottom line.
Mark Mutkoski, industry analyst for BT Alex.Brown in New York, explained the ‘bigger is
better’ argument.
‘There are a lot of advantages to being bigger’ he said. ‘It’s more efficient to have more assets
and brands. You also have a greater revenue base over which to spread costs. Particularly in
franchising, you have to have critical mass before you can generate invested returns on
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 258
capital. If you’re large, typically you have a greater asset base and have more opportunity to
go in and focus efforts internally and focus on return.’
Large companies also have better access to capital, more-liquid stocks, and can borrow
unsecured debt at attractive prices, which provides a huge advantage over smaller outfits,
Mutkoski said.
Source:http://www.hotel-online.com/News/PressReleases1998_4th/Oct98_
BiggerBetter.html, accessed January 2008.
& Firms may seek growth due to significant increased demand from
individual and other key customers. Failure to do so might risk loss of
business.
& Market leadership–where the firm is usually number one or two in a
particular niche. Being a market leader has particular advantages not
only for securing extra business but also in terms of becoming a
preferred employer and likely future business partner with former
competitors. However, along with certain benefits come a number of
disadvantages including increased public scrutiny through inflated
stakeholder expectations of fairness and justice. The case belowis some
years old, however, the issue raised is perennial.
Adapted from Barringer and Ireland (2006: pp. 311–312).
Reflective practice
ProfitNike Accused of ‘Slave’ Child Labor by Andreas Harsono
(AR) JAKARTA–An Indonesian labor advocate said that American shoe maker Nike Inc. is
employing Indonesian children under 16 years old to produce their athletic sneakers,
confirming an earlier report by an American lobbying group that the children work in
sweatshops like ‘slaves.’
Indera Nababan of the non-profit Yakoma PGI labor advocacy organization said on Monday
that the employees are paid the official minimum wage of 5 200 Indonesian rupiah (US
$2.17) per day, which is ‘just enough to survive to the following day to work again.’
‘How can you live with [$2.17] in an expensive metropolis like Jakarta’ asked Nababan,
adding that Nike Inc. has more than a dozen subcontractors in Indonesia, one of which, PT
Nikomas Gemilang, based about 100 km west of Jakarta in Serang, employs child workers,
he said.
‘We are subsidizing, encouraging and failing to criticize the enslavement of young people
in the Third World.’
Source: Albion Monitor June 30, 1996 (http://www.monitor.net/monitor).
A secret formula for successful growth? 259
Similarly, McDonald’s is open to constant scrutiny for its business
practices including employee working conditions, employment policies and
ethical use of food products as the case below attests.
Fat flap at McDonald’s
May 3, 2001: 4:01 p.m. ET
McDonald’s refutes class action suit alleging deceptive use of
beef flavouring
‘While we are not familiar with the details of the litigation filed in Seattle, we have never made
any vegetarian claims about our French fries or any other product’, McDonald’s said in a
statement.
The statement is in response to Seattle attorney Harish Bharti’s decision to sue Oak Brook,
Ill.-based McDonald’s after reading an e-mail from the company to a California man
acknowledging its suppliers use tiny amounts of beef flavouring to flavour its fries. Bharti, who
filed the suit on behalf of all vegetarians, said the e-mail contradicts previous claims
McDonald’s has made assuring customers it uses 100 per cent vegetable oil for its fries.
‘This is an outrage. This is the height of corporate greed’, Bharti told CNNfn.com. ‘How can
you be so insensitive? This is something that is ingested. You can’t take it back’.
In its statement, McDonald’s said beef flavouring is added during potato processing at the
plant, and is standard in making French fries. McDonald’s Corp. said it ‘has always used’
beef flavouring in its French fries, refuting allegations made in a class action lawsuit brought
against it by a vegetarian lawyer.
‘The natural flavouring consists of a minuscule amount of beef extract’, the company said.
‘These fries are then shipped to our restaurants. Our French fries are cooked in vegetable oil
at our restaurants’.
Source:http://money.cnn.com/2001/05/03/news/mcdonalds/accessed
January 2008.
Presuming that one or more of the above criteria can be realized by the
business a decision may then be made to proceed in developing the small
hospitality firm.
Storey (1994) divides the key enablers of small firm growth into three
overall areas, each having a number of components shown in Table 11.3.
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 260
Schaper and Volery (2004) agree but use a different perspective where
business growth is viewed from three perspectives of financial, strategic and
organizational. The first concerns performance and how well the firm serves
its markets through conversion of resources it is allocated into assets. Growth
here provides the means for acquisition of further resources which stimulates
strategic growth. Financial growth is also aided by sound strategy which con-
tributes to further asset growth within a broader and growing organisational
design or structure. These relationships are shown in Figure 11.2.
Not too dissimilarly, Burns (2001: p. 272–273) agrees and considers four
important elements for successful growth, these are entrepreneurial character
FIGURE 11.2 Dimensions and interrelatedness of growth dimensions.
Adapted from Schaper and Volery (2004: p. 342).
TABLE 11.3 Key enablers for small firm growth
Entrepreneur Organization Strategy
Education Location Market positioning – niche with focus
on quality (in short-term)
Management experience Size and age – bigger firms are more
likely to survive due to accumulated
resources although new firms tend
to grow faster than old ones
Innovation
Motivation Niche – some will be more attractive
than others
Effective management recruitment
as firms become increasing complex
to manage by founder
Ability to build teams Ownership – of other businesses External equity where possible
will contribute to growth
Age as a proxy for accumulated
experience and wealth
Adapted from: Deakins and Freel (2003).
A secret formula for successful growth? 261
(comprised of key characteristics including risk-taking, desire for achieve-
ment, locus of control etc.); business culture (including overall ambition to
grow); company strengths (including effective management team, financial
control and comprehensive understanding of the market); and making good
business decisions including:
& Using quality rather than price;
& Domination of a niche;
& Ongoing innovation; and
& Exploiting company areas of strength to compete.
In order to maximise the potency of each area, Burns (2001) recommends a
re-engagement with the original pre start-up SWOTanalyses to identify the
strengths and weaknesses of current performance; conditions and situations
will have undoubtedly changed since start-up. He then advocates developing a
market strategy for the service being offered in terms of what would be appro-
priate generically; the stage in its life cycle; and how it fits with other hospi-
tality services offered.
Key point11.4
Whilst we can be reasonably confident about the essential ingredients for small hospitality
firm growth, the ‘recipe’ or configuration of these inputs is less clear.
Additionally, Burns (2001) adopts Ansoff’s (1968) product/market matrix
model to help the conceptual phase of this planning process and is shown in
Figure 11.3. This permits a systematic appraisal so risks and opportunities can
be identified for each of the four quadrants.
When considering these, the entrepreneur needs to ask a series of questions
before making a final decision:
& Existing service/existing market
T Withdrawal
& Is industry consolidating?
& Have you achieved good growth so far?
& Can you adapt to changing conditions to grow business?
T Consolidation (same service different operating procedures)
& Is market growing or declining?
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 262
& Is market mature?
T Penetration (selling more of same to existing and new customers)
& Do you understand your customers fully and their buying
behaviour?
& Is market static, declining or growing?
& New service/existing market
T Service development
& Any market opportunities?
& Replacing old service or selling alongside?
FIGURE 11.3 The service/market matrix.
Adapted from Burns (2001).
A secret formula for successful growth? 263
& Small or large differences between old and new services?
& Can you copy a competitor or will you need to a better service?
& Growth or mature phase for service?
& Are your customers loyal and growing?
& Do you have a strong customer focus?
& Do they ‘trust’ you?
& Existing service/new market
T Market development
& Are economies of scale important to your firm?
& Is your service nearing decline?
& Barriers to entry and exit: high or low?
& New service/new market
T Diversification
& Both are location based and each has challenges. However,
international growth in the micro and small-firm sector of the
hospitality industry is insignificant (with some exceptions) and
so will not be discussed here. Small-scale geographical
expansion can be seen in many resort regions whereby the
successful entrepreneur may own a small hotel along the busy
coastal strip and another establishment in the hinterland. Such
examples are common and one advantage of this kind of growth
is the inherent risk-spreading throughcross-subsidization of one
organization by the other.
& Especially important where seasonality impacts on trade. For
example, Great Yarmouth in the UK is a typical sea-side ‘bucket
and spade’ resort attracting many lowto mediumspend tourists
from June to September. Only a few miles inland, the Norfolk
Broads attracts a somewhat different and more sophisticated
market with a higher disposable income and expectations.
TABLE 11.4 Related diversification
Horizontal integration Activities are complimentary with firm’s current ones (see above example)
Forward vertical integration Firm establishes a presence ‘nearer’ customer. Hotels may only integrate horizontally
or backward vertically as they are directly at the client interface.
Backward vertical integration Firm becomes own supplier. Hotels may diversify into travel agencies, transport,
raw materials, linen supply, etc. The rationale here, amongst other things, is to control
quality and reduce competition by establishing a direct chain from customer and
supplier to hotel.
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 264
Whilst this market is also seasonal, a reasonable year-round
trade is enjoyed by boat-hire companies, pubs and hotels alike.
Recognizing this opportunity, several local entrepreneurs have
grown geographically from the seaside location to the
hinterland.
& Clearly, one cannot expect the same style of hospitality
enterprise to thrive in both locations but provided market
expectations are satisfied in both and the service offered reflects
this, this type of growth can be successful.
This is an example of related diversification where the service remains in
the same industry but outside its present market and service style or complex-
ity. For example, accommodation and menu choice might be limited for the
seaside location but considerably more complicated or ‘customized’ for the
Broadland market having higher expectations. The three types of related
diversification are shown in Table 11.4.
In short a key question for the hospitality entrepreneur is how risky are
these options? According to Burns (2001) the lowest risk lies in market pen-
etration, followed by service development with diversification (particularly
into unrelated industries) as the least risk averse option. However, Ansoff’s
(1968) model is a simple guide and no more. Nonetheless it does allow a less
subjective assessment of entrepreneurial options and pathways for growth.
Most small hospitality firms, like others in different sectors, tend to grow
internally by increment offering their existing product to the same and new
markets or new services to existing customers (Burns, 1994). The following
case is an example of both locational good fortune and risk management in
terms of potential growth opportunities.
Marketing Wine and Wine Tourism in the ‘Fortunate Islands’.
Source: Alonso, Sherridan and Scherrer (2007).For many decades the Canary Islands have
been a synonym of sunshine, package holidays and mass tourism, and a very popular
destination for many travellers that mainly come from the U.K., Germany, Scandinavia and
mainland Spain. Because of their mild climate and natural beauty, these islands are dubbed
‘fortunate’. Not surprisingly, the number of tourists visiting the Spanish archipelago in recent
years has reached the 10 million mark, more than six times the total number of its local
residents.
Unknown to many tourists is the fact that the Canary Islands have produced wine for
centuries, and some of the varieties are only produced in selected areas of the islands, and
nowhere else in the world. However, for a long time the local wine industry went through a
phase of decline, and eventually wine became a product for local consumption, with little or
no impact outside the archipelago. This situation progressively changed in the early 1990s as
A secret formula for successful growth? 265
regional local wine denominations of origin were created, in part as a European Union (EU)
initiative to preserve traditional foods, local culture and local landscapes (Sainz, 2002).
Today, the Canary Islands not only continue to produce many unique varieties of wines, but
the quality of the local wines has also increased, earning theminternational recognition. The
vast majority of the islands’ wineries are small and medium in size and family owned, and
many are open to the public, for the most part offering tasting rooms, and cellar door sales.
However, the recent re-development of the Canary wine industry also includes a blend of
hospitality and wine with the opening of some restaurants, space for conferences on some
winery grounds, and promotion of wine trails to visitors (Tacoronte-Acentejo, 2006).
With sunshine, beaches, and landscape being among tourists’ top reasons to visit the
islands, other potential attractions, including the local wine industry, have been relegated to a
secondary role. In fact, while currently efforts to promote and market the islands’ wine
regions are being undertaken, still very little is known about the local wine, wine tourism and
wineries.
To investigate this relatively unknown industry, a study was conducted among wineries from
the islands of Tenerife and La Palma. A total of 61 businesses were approached in both
islands and their owners/managers invited for an interview; 23 wineries accepted the
invitation to participate in the study, a 37.6 per cent response rate.
The winery owners and managers felt that there was considerable potential for wine tourism
in the Canary Islands but this was often undermined by factors outside of their control.
Stricter drink-drive laws, for example, had reduced visits to wineries and less participation in
wine tasting, a crucial tool in the cellar door sales process. International terrorism sparked
new aviation laws limiting the quantity of liquids permitted in in-cabin luggage. This reduced
cellar door sales as tourists could not carry wine on board, as it exceeded the volume limits,
and they did not feel comfortable with placing wine in their checked luggage in case it spilled
or spoiled. Some winery owners even felt that the traditional tourismindustry was sabotaging
their local wine tourism efforts by importing cheap local wines rather than serving local
Canary Island wines at hotels and restaurants. Package deal tourism to the Canary Islands
encouraged tourism enclaves rather than the exploration of the Canary Islands which could
foster a rich culture of local wine production.
At the end of the day, winery owners wanted to build stronger associations with tourism but
only in scenarios where there would be a genuine, quality, wine tourism experience. Their
goal was to build relationships with the tourists and convert them into customers but also
achieve important long term goals such as building brand recognition and positive world of
mouth experiences of wine in the Canary Islands.
Questions
1 Using Ansoff’s product/service/market matrix identify the strategy chosen by winery own-
ers for future development of their industry and comment on the riskiness of this option?
2 Identify strategies that could help local wineries link their product to the tourism market?
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 266
3 Discuss potential difficulties wineries may face in the process of marketing their wines to
tourists.
Key point 11.5
Accepted wisdom concludes that an effective strategy for small business growth is to focus
on quality rather than price; dominate a particular niche; innovate continually; exploit
company areas of strength.
Reflective practice
1. Interview a successful entrepreneur known to you. Find out what role opportunity and
good fortune played in the development of their hospitality firm.
2. What other issues do they think are responsible for their success.
3. Were there any skills and competencies they had to acquire in order to become success-
ful business founders?
INTRINSIC AND EXTRINSIC GROWTH
Barringer and Ireland (2006) take a slightly different perspective of small firm
development using the lens of intrinsic or internal and extrinsic or external
growth. This focuses on matters intrinsic to firms such as whether to intro-
duce, improve or enhance existing products. This internal growth may also be
achieved by reconfiguring marketing strategies and expansion into other geo-
graphical areas including the international arena. In other words, develop-
ment is a function of in-house skills and competencies; Mcdonald’s is an
example of a firm that has expanded internally. The other means of growth
is through extrinsic or external means. Simply, this means using third parties
in the form of mergers, alliances, joint ventures and so on. The use of a third
party is not limited to physical ‘bricks and mortar’. Recent evidence suggests
that from almost 20,000 small UK businesses a key mode of external expan-
sion in the Hotels & Restaurants’ sector is through e-commerce, notably
through own web sites and those of third parties (Carter and Mason, 2006).
Another important mode of external expansion for hotels remains the
‘franchise’ and Ibis, Comfort Inn, Mercure and Courtyard are examples of
Intrinsic and extrinsic growth 267
this approach. Additionally, many smaller hotels use the affiliated network
model typified by Best Western.
Both types of growth have associated advantages and disadvantages. The
main advantages of growing internally are based on incremental advances. A
measured uniform growth strategy helps to ensure development is managed
effectively requiring few significant changes. Additionally, the firm can exer-
cise more control over quality standards and maintain its organisational
culture. Moreover, a strategy of internal growth is more likely to foster inno-
vation and intrapreneurship as long as appropriate rewards are bestowed on
employees such as bonuses and accelerated promotion. Conversely, internal
growth may be too slow-paced to achieve significant economies, market pen-
etration and competitive advantage in particular geographical areas. This is
typical in the hospitality industry where acquisitions and mergers are com-
monplace. Innovative service package ideas will almost certainly require input
from organizations elsewhere in the service chain. Such new ideas would be
difficult to offer by only one firm. Additionally, a basic issue is that of capacity
and the effect of over supply. Too many new organizations providing the same
product in a particular tourist location, be it accommodation or food and
beverage provision, will ultimately force prices down and thus reduce overall
profitability.
External growth may also be an option for expansion as acquisition of other
firms effectively reduces competition, allows access to older establish brands
and may lead to increased economies of scale. Additionally, expansion permits
sharing of expertise and helps to diversify risk. On the other hand, external
growth has some challenges which are similar to those experienced by firms
growing internally although more extreme innature. Essentially these fall into
categories of organizational culture and operating procedure differences. For
example, styles of service delivery and quality management philosophy and
practice may differ between firms. These may be exacerbated if a firmchooses
to expand internationally. Indeed, legal differences in employment law and
antitrust regulations may prove significant for example.
However a small hospitality firmchooses to growit is necessary to consider
whether to develop new products (if entrepreneurs can identify a need to
satisfy), to provide products that add value, to strike an appropriate balance
between quality and price, to identify and exploit a niche, and to make sure the
feasibility analysis is iterative. Firms will also increase their chances of sus-
tainable growth (to a point) if they consider issues of service improvement,
extension and differentiation. For example, the notorious Club 18–30 club
was an ingenious marketing ruse by the Horizon Travel to fill unused seats on
night flights to tourist destinations in continental Europe. Whilst the brand
has been bought and sold by a number of companies the concept is still popular
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 268
despite (or perhaps because of) some negative publicity about the antics of
customers and the occasional risque slogan such as ‘One Swallow Doesn’t
Make a Summer’!
Club 18–30’s controversial past
By Clare Matheson
BBC News Online business reporter
The antics of Club 18–30 reps in Greece have earned the company another bout of negative
publicity. BBC News Online goes behind the headlines to look at a company that has
dominated the youth holiday market for years.
Despite being for 18–30 year olds the brand is now 38 years old
Club 18–30 began life in 1965 when it took 580 yuppies to the Costa Brava, an event that the
tour operator claims ‘made history’. But Club 18–30 really came into its own in the 1970s
and 1980s under the wing of ILGgroup, entering into common parlance as the generic name
for youth holidays.
All change
Even though ILG later collapsed in 1991, Club 18–30 survived, and was rescued by a
management buy-out and re-launched as ‘The Club.’
In 1994 it reverted to its old name, but by 1999 it was all change again after Thomas Cook
Group bought the brand. The group says it now owns 65 per cent of the youth holiday market
and takes more than 110,000 guests away each year–most expecting a break filled with sun,
sea, sex and sangria. And the formula seems to work. In the financial year of 2001–2002,
Club 18–30 racked up sales worth £48 million, and ‘still managed to achieve a good profit’
despite only partly achieving its targets.
Sun, sea and sex
Club 18–30 prides itself on the belief: ‘Nothing is sacred, if it’s going to be a good laugh then
we’re in’.
That marketing has pulled in millions of holidaymakers, keen to align themselves with the
party-loving attitude it promotes.
But that ‘in your face’ label has attracted plenty of controversy.
In 1995, its tongue-in-cheek adverts earned it a place in the Advertising Standards
Authority’s Hall of Shame–it was the second most complained about firm that year.
‘Irresponsible’
The Saatchi & Saatchi ads generated 490 complaints centred on posters featuring the
taglines ‘Beaver Espana’ and ‘It’s not all sex, sex, sex. There’s a bit of sun and sea as well.’
Even today, Club 18–30 cannot steer clear of controversy. Three of its reps have just been
acquitted of organising bar crawls in Faliriki, despite a ban brought in last week after a man
Intrinsic and extrinsic growth 269
killed a tourist. And last month, five of the firm’s reps quit after allegedly taking part in ‘live sex
acts’ on a beach in the Greek resort of Kavos.
Future controversy
But will the latest upsets affect the firm? Spokesman David Smithson said that ‘from past
experience’ the current controversy was unlikely to affect business.
‘It’s a product that’s aimed at a very specific target audience who are not discouraged by
publicity’, he added A case in point, he described the raunchy 1990s advertising campaign
as ‘successful’ and achieving ‘its objective.’
‘It’s a younger audience that tends to recognise these incidents are blown out of proportion
by the media’, Mr Smithson added. ‘But that’s not to say we like or seek negative publicity’.
Questions
1 Discuss whether Club 18–30 is an example of internal, external or a combination of both
kinds of growth.
2 Identify the extent to which Club 18–30 is an example of service improvement, extension or
differentiation.
Source:http://news.bbc.co.uk/1/hi/business/3163077.stm, accessed
January 2007.
BARRIERS TO GROWTH
It is one thing to advance notions of growth enabling factors and another to
identify those whichact as barriers to growth. Data aggregated by the Cranfield
School of Management holds six primary culprits:
& A lack of planning–over two-thirds of owner-managed firms studied
with a turnover of £10 million did not have any;
& A lack of market focus–many small firms diversify too early and lack
market focus;
& Alack of effective leadership during times of change–most founders run
their growing businesses as they did in start-up;
& Inappropriate objectives–sales growth is the sole and primary target, set
without regard to others including gross margin, profit and cash
generation;
& Failure to work ‘smartly’ and inability to delegate – too many owner-
managers spend time interfering and overseeing work which others are
employed to undertake. The most key activity for the owner-manager is
focusing on future business strategy for the business; and
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 270
& Lacking a financial strategy and poor accountability–a majority of
entrepreneurial firms in the UK use overdrafts as a long-termmeans of
finance. This is due to ignorance of alternative sources, the ease with
which overdrafts may be obtained and a result of having no business
plans.
Adapted from CUSM (2007).
Key point 11.6
Barriers to enter the hospitality industry are relatively low. Despite this, the rate of business
failure is high. However, it is possible to mitigate the effect of each above barrier by careful
research and planning. Therefore, the success or failure of the small hospitality firmdepends
on the extent to which the founder works ‘smarter’ rather than harder.
An earlier 1997 study by the ESRCCentre for Business Research found that
increased competition, availability and cost of finance for expansion and
marketing and sales skills were the most important barriers to small firm
growth (Burns, 2001).
Based on the earlier work of Penrose (1959), Barringer and Ireland (2006)
note that in addition to entrepreneurship, ‘managerial capacity’ is essential to
administer opportunities as they are spotted. They consider this to be high on
the list of those factors which challenge the growth of firms and use the terms
‘Adverse selection. . .’ (p. 315) and ‘Moral hazard. . .’ (p. 315) to explain the
dilemma. Essentially, the former describes a situation where increased
demand for labour creates a situation where the firm may not be able to
achieve good ‘job fit’. Moral hazard is similarly unfortunate situation where
newworkers fail to share the aims and objectives of the founder. In short, there
is no consistent organizational culture. The entrepreneur may hire managers
to ensure this does not happen but this often results in a hierarchical structure
with a pool of isolated and sometimes estranged managers. Clearly, growth
becomes a challenge in itself and managers must be selected carefully with the
knowledge that they will need to be trained, socialized and motivated in
order to minimise problems as the firm grows.
Reflective practice
1. Interview a successful hospitality entrepreneur known to you. Ask if there were any
significant obstacles to overcome prior to start-up. If so, how were they overcome?
Barriers to Growth 271
SUMMARY
The term ‘growth’ is often only applied to the truly entrepreneurial firm as
opposed to the ‘lifestyle’ organisation. This chapter contends that the process
of growth needs to be understood in a more holistic way and as such is a
pertinent topic for discussion irrespective of firm type. For example, all firms
grow in one way or another as they are concerned with survival and/or con-
solidation and continued success and/or expansion. Moreover, they both make
significant societal and economic contributions.
A firm’s development may be conceptualised in a number of ways, this
chapter discussed the ‘growth’ model approach as, for the sake of simplicity,
divides progress into five stages. Each of these stages is characterized by a
particular set of activities and leadership/management styles. For the sake of
efficiency and effectiveness, with growth comes a need to make management
and operational changes to cope with the new working environment. Some
firms choose deliberate growth and will continue through all stages explicit in
growth models but most hospitality firms rarely progress beyond the second or
third stages. These constructs are useful for ‘journey’ mapping and insight but
they do not address the inherent challenges of the growing firm in any detail.
Along with entrepreneurial success through growthcomes the requirement
for skill development and new competencies. This includes an acute need for
delegation as once firms reach a certain size it becomes impossible for the
founder to do everything. This problem is sometimes known as ‘founders
disease’ where the entrepreneur ‘meddles’ in the work of her employees.
Ultimately this can cause a number of problems if left unchecked including
high labour turnover, role conflict and poor morale.
It is difficult to be prescriptive about enablers of successful growth but
number of approaches are relevant here. They are similar in nature and con-
tent but often frame essential inputs differently for example Deakins and Freel
(2003) divide them into three generic areas of entrepreneur, organization and
strategy, Shaper and Volery (2004) focus on dimensions of finance, strategy
and organization and their interrelationships. Burns (2001) prefers to use a
frame which assess growth options in terms of the market and how risky they
might be. However, before adopting any of them, the entrepreneur must
answer an number of key questions, for example would growth allow the firm
to take advantage of economies of scale. The hospitality industry differs from
other industries including retail and manufacturing as the product is intan-
gible and economies from suppliers of raw materials are not significant rela-
tively speaking nor are they significantly different between competitors
irrespective of firm size (within reason). Once this and other questions have
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 272
been answered to the satisfaction of the founder, a decision may be made to
grow and develop the hospitality firm.
Accepted wisdom concludes that an effective strategy for small business
growth is to focus on quality rather than price; dominate a particular niche;
innovate continually; exploit company areas of strength. The strategic frame-
work to achieve this differs between commentators but all agree that the basic
elements must include:
& An entrepreneur of appropriate character having traits including risk-
taking, locus of control, desire for achievement, etc;
& A positive business culture including and overall ambition to grow;
& A company possessing certain strengths including an effective
management team, good financial control and a comprehensive
understanding of its market; and
& An ability to make good business decisions.
However, there are a number of barriers to growth of which founders must
be aware including a lack of planning, market focus and effective leadership.
Others include having inappropriate objectives, impoverished knowledge of
sources of finance and an inability to delegate. Clearly, these obstacles are not
inherent or systemic in the hospitality industry. Indeed, the sector has low
barriers to entry which in some ways may prove disadvantageous to some
operators due to the sheer volume of competition. However, these challenges
can be overcome by the entrepreneur so long as they are prepared to focus more
attention on strategic matters rather than continuing to operate technically.
In short, the fate of small businesses is less to do with working harder but
rather, working smarter.
CASE
Riu Hotels: From a Small Family Business to an International Company
September 25, 2001–Riu Hotels: from a small family business to an international company
came into being in 1953 with a small hotel in Majorca, and now has 96 establishments with
12,000 employees and is present in 10 countries.
A total of 96 holiday hotels with categories ranging from three to five stars in Spain, Portugal,
the Caribbean, the United States, North Africa and the eastern Mediterranean, offering
globally 25,960 rooms and just over 50,000 beds,with 1.5 million customers and 12,000
employees, united by one motto: give the guest service with heart. These figures sum up the
RIUGroup’s (www.riu.com) current situation. This small family business was created in1953
in Playa de Palma (Majorca), with the purchase of the small 80-bed hotel San Francisco, and
has now become the 31st biggest hotel chain in the world, specialising in sun and beach
Case 273
holidays, with guests mainly of central European origin but also an incipient American
clientele (from the United States, Canada and Argentina) as well as Spanish guests.
The chain had a turnover of 105,000 million Pesetas (567 million dollars) in the year 2000
and foresees 120,000 million (14.3 per cent more) for the year 2001. This data consolidates
RIU as the second largest chain in Spain in terms of turnover.
RIU’s establishments are located in the Balearic Islands (16), the Canary Islands (36),
Portugal (2), Baleares España Andalusia (7), Gerona (1), the Dominican Republic (7) Cuba
(2), Florida (2), Mexico (4), Jamaica (1), Tunisia (11), Bulgaria (5), Cyprus (1) and
Madeira (1).
RIU Hotels head office has been in the Riu Centre, in Playa de Palma, since 1982. One
hundred fifty metres from the Riu Centre, on the beach front, is the Riu San Francisco, the
chain’s very first establishment, where the family business was started up in 1953 by
Mr. Juan Riu and his son, Mr. Luis Riu Bertran, both natives of the La Garrocha region of
Gerona in Catalonia.
Luis Riu Bertran was chief executive of the chain until his death, at the age of 65, on 7th April
1998. Since then the company has been directed by the second generation, in the form of
Mr. Riu Beltran’s two children: Carmen Riu G€ uell (a specialist in administration and finance)
and Luis Riu G€ uell (in charge of expansion). Both born in Palma, they share the post of chief
executive.
All the hotels in the chain are managed by Riusa-II, a company created in 1993 for the
running of hotels, 50 per cent of which belongs to the Riu family, with the other 50 per cent
being held by the German tour operator TUI, RIU’s traditional partner and number one tour
operator in Europe.
Riusa-II and some shareholder-type companies together make up the RIU Hotels & Resorts
Group.
For its part, TUI (www.tui.com), a member of the HTU (Hapag Turistik Union) tourism
consortium, renamed the TUI Group on January 1st 200, constitutes the tourism division of
the industrial group PREUSSAG (www.preussag.de), the 21st biggest company in Germany
in 1999. PREUSSAG purchased TUI in 1998 as part of its strategy to transfer investments to
the tourism sector.
As from August 23rd 2001 the tourism consortium adopted the new name of ‘World of TUI.’
(www.the-world-of-tui.com)
Since its creation RIU Hotels has never shared out profits. They are reinvested in full in the
creation of new hotels, the renovation of those already in existence or the purchase of other
establishments. Like the 11 Iberotel hotels acquired in 1993 and the nine hotels bought from
the British Belhaven chain. In this way the company has basically self-financed its growth
and its current level of debt is low.
After the creation of the family business in the 1950s, the company grew in the ’60s due to
the opening up of Spain to Europe and the consequent in rush of European holiday tourists to
Spanish beaches. After increasing its number of hotels in Majorca and consolidating itself as
a company, in the ’80s RIUexpanded its activity in the Canary Islands, an archipelago which,
added to the attraction of its beaches, is also a non-seasonal destination due to its mild
climate, allowing hotels to remain open all year round.
CHAPTER 11: Growth: the Harder I Work the Luckier I Get 274
Due to the importance of the turnover contributed to the chain by the Canaries
(approximately half), RIU established part of its head offices in Playa del Ingles in Gran
Canaria, amongst them the Human Resources Department and the Staff Training Centre,
devoted to the retraining of the chain’s professionals. After its solid expansion in the Canary
Islands (where it is now the leader in the supply of accommodation), Riu Hotels began its
internationalisation in the ’90s, with the inauguration of the hotel Riu Ta?no in Punta Cana
(Dominican Republic). From this island, the beaches of which are amongst the most
beautiful in the world, the chain has expanded to Cuba, Florida, Mexico, Jamaica and the
Portuguese island of Madeira.
In November of 1997 RIU acquired the emblematic hotel Maspalomas Oasis in Gran
Canaria, one of the best holiday establishments in Europe, and since then the chain’s
flagship in Spain.
At the beginning of 1998 the chain opened a Contracting and Sales Office in Madrid with the
aim of opening up to the Spanish outward bound market, and struck up agreements with
Spain’s most important wholesalers. In mid-1999 RIU took over the management of
12 hotels in the Iberotel chain in Tunisia (8), Morocco (One hotel, later dissociated from the
chain), Bulgaria (2) and Cyprus (1). Thus, the chain began its expansion in North Africa and
the Eastern Mediterranean.
In the case of Morocco and Bulgaria this was RIU’s debut of the franchise formula, with
which the chain hopes to incorporate more new hotels over the coming years, preferably in
Andalusia, the Algarve (Portugal) and the Canary Islands.
In October of 1999, 31 RIU hotels ranked amongst the 100 best hotels in the world in the
holiday sector, according to the votes of TUI customers, for which the TUI-Holly prizes are
awarded. And furthermore four RIU hotels were amongst the top 10, with the Riu Palace
Maspalomas in first place for the second time in just 10 years of its existence. On 15th
November 1999 the Riu Palace Mexico, a luxury five-star hotel, was opened. This
establishment is buried deep in the Mayan Riviera and is the chain’s new flagship outside
of Spain.
High quality of service and personalised treatment of guests constitute the cornerstone of
RIU’s philosophy, a philosophy which has allowed a modest family business with 80 beds to
be turned into an international hotel chain with over 50,000 in four decades. A chain which is
still expanding, exclusively in sun and beach holiday destinations, without abandoning the
values on which its success is founded, and which foresees an increase in its
accommodation capacity in the first years of the 21st century with new hotels in the Canary
Islands, Andalusia, Tunisia, Bulgaria, the Caribbean, the United States and Africa.
Questions
1. Map the development of Riu Hotels using the growth theories in this chapter. Discuss the
strategy followed, the challenges faced and how they were managed as the firm grew?
Case 275
Source:http://www.hotel-online.com/News/PR2001_3rd/Sept01_RIU.
html, accessed January 2008.
Case authors
Dr Abel D Alonso
Edith Cowan University
School of Marketing, Tourism and Leisure
Australia
Dr Michael J. Gross
School of Management
University of South Australia
Australia
Dr Lynnaire Sheridan
Edith Cowan University
School of Marketing, Tourism and Leisure
Australia
Dr Pascal Scherrer
Edith Cowan University
School of Marketing, Tourism and Leisure
Australia
Peter Wiltshier
School of Culture and Lifestyle
University of Derby
UK
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Index
A
aboriginals, 24
accommodation service model, 182
types of, 182, 183
Accor’s concept, 83
achievement, 32
actions, 193
advertising and promotion, 202
advisory boards, 155
alcoholism, 153
altruistic generosity, 174
expressions of, 174
anxieties, 153
artificial community-based land
tenure, 23
Asian community, 44
atmosphere, 115
audit proforma, 116
Australian government sites, 147
Australian wine drinker, 135
autocratic, 218
average customer, 139
B
balance sheet section, 209
Balti curry houses, 136
Bannatyne Concept Hotel Launch,
93
barriers to growth, 270
BBC’s (UK) From Hell to Hotel tele-
vision broadcast, 124
behaviour theories, 218
benevolent dictator, 226
Blackpool study, 59, 64
Blackpool’s hotel sector, 58
Blackpool’s tourism sector, 63
boat-hire companies, 264
year-round trade, 264
Bolton Committee Report, 9
UK-based definition, 9
boundary examination, 87
brainstorming, 86, 132
Britain’s working population, 41
Burn’s entrepreneurial
characteristics, 126
business, 192
describing, 192
business angel, 6
business communication
sense, 21
business creep, 153
impact of, 154
business culture, 261
business cycle, 94
importance of innovation in, 94
business failure, 5
business founders, 152
business objectives, 124
business ownership, 58
economic motives for, 58
business philosophy and culture,
164, 165
business plan, 5, 191, 203, 208
presenting, 208
working with, 208, 211
writing up, 208
business planners, 199, 202
business world, 101
buying behaviour, 140
C
capital funding, 137
emotional side of, 137
Catholic workers movement, 173
cavalier approach, 122
changing entrepreneurial
environment, 23
chill-freeze food service, 105
Chinese cafes, 52
civvy street, 182
classic growth orientated
entrepreneur, 52
classical economic theory, 51
clustering, 127
coercive, 237
cognitive difference, 73
colonization process, 23
impact of, 23
commercial domain, 178
commercial guest, 184, 185
commercial home, 50, 57, 169, 177,
182, 185, 188
nature of, 188
commercial hospitality, 170,
177–179
commercial hosts and guest, 183
interaction between, 183
commercial operations, 170
commercial service delivery, 170
community communication, 34
company culture, 109
company entrepreneurs, 110
company management structure,
188
company strengths, 261
competition, 129
competitive business strategy, 201
competitor activities, 210
competitors, 198
consensual decision-making, 32
consideration, 218
consolidation, 262
contingency approach, 25, 26
contingency models, 221
contingency theories, 221, 223
controllable aspects, 115
conveyor belt, 83
copyright, 114
cost control and profitability, 210
cost leadership, 201
cost of sales, 206
couples divorcing, 153
creative destruction, 7, 70
creative idea generation, 69
creative thinking, 74
creativity, 70, 73, 74, 83, 95, 98
definition, 70
strategies, 81
crisis manager, 225
289
critical success factors, 198
cultural artifacts, 239
culture, 21, 22, 235
definitions of, 22
customer occasion, 194
customers, 196, 210
D
data-gathering research techniques,
134
understanding of, 134
decision-making idiosyncrasies, 10
decision-making process, 7, 163
decision-making role, 255
Delphi technique, 86, 90
democratic, 218
demographic data, 139
differentiation, 201
dining out, 176
research on, 176
disengagement, 252
dissociated director, 226
diversification, 263
domestic dwellings, 181
domestic markets, 7
domestic/private domain, 178
Dyadic theory, 219
E
ebb and flow relationship, 13
e-commerce, 113
economic conditions, 245
economic development, 13, 25
models of, 25
economic growth, 246
economic growth model, 51
economic income stream, 182
economic rational man, 25
economic returns, 114
economies of scale, 257
education, 45
effective entrepreneurship, 126
basic requirement of, 126
effective leadership style, 222
employee-centred, 219
employees, 210
entrepreneur’s disposal, 5
entrepreneurial behaviour, 4
entrepreneurial activity, 8, 13, 21
early stage of, 8
engagement in, 21
entrepreneurial attitude, 32
entrepreneurial challenge, 160
entrepreneurial confidenc, 150
entrepreneurial creativity, 67
entrepreneurial cues, 52
entrepreneurial environment, 2
entrepreneurial firms, 170, 239
principles, 239
entrepreneurial genius, 226
entrepreneurial leader, 227, 236
entrepreneurial leadership, 214, 229
entrepreneurial organizational cul-
ture, 239
six dimensions, 239
entrepreneurial sense, 137
moral in, 137
entrepreneurial success, 213
entrepreneurial traits, 126
entrepreneurs, 1, 3, 4, 11, 14, 45, 49,
50, 51, 82, 95, 99, 115, 116, 132,
226, 252, 254
challenges for, 254
classical view of, 51
different meaning, 49
key ability, 99
key consideration for, 115
their business, 252
type of, 226
way of life, 252
entrepreneurship, 1, 3, 4, 6, 13, 31,
38, 50, 52, 94, 95, 98, 103, 108,
124
common route to, 124
creativity and, 95
deadly sins of, 103
definition, 2, 3
economy and, 13
government, 7
history, 6
non-indigenous interpretations
of, 38
resource-based perspective of,
108
ethnic minority entrepreneurship
research, 45
ethnic entrepreneurship, 41, 43, 136
economic importance of, 41
ethnic minority enterprise, 55
ethnic restaurateur, 44
e-tourism, 113
rise of, 113
European Small Business Advice,
148
expert, 237
external environment, 221
extrinsic growth, 267
extrovert, 1
F
family, 143, 153
relationships, 153
traditional hierarchical structure
of, 153
family business, 50, 143, 148, 151,
153, 156, 160, 163
advantages of, 151
consultants, 154
leader of, 153
managing, 163
succession planning in, 156
transferring, 160
family conflict, 152, 156
four-step approach, 155
family control, 144
family council, 155
use of, 155
family enterprise, 55
family firm, 57, 152, 164
family relationships counselor, 154
fashion-oriented drinkers, 135
fast food industry, 83
fast food restaurants, 115
fast-paced trading environment, 109
feasibility analysis, 122, 136, 138,
139
concept of, 122
role of, 122
feasible, 121
entrepreneurial sense, 121
finances, 136
financial burden, 153, 154
financial feasibility, 138
financial growth, 260
financial sphere, 71
firm’s growth stages, 226
first wave interventions, 24
five leadership styles, 219
five-stage life-cycle pattern, 251
focus, 202
Foley’s interviewees, 33
followers, 221
characteristics of, 221
tasks of, 221
work-group characteristic, 223
food services sector, 16
food-related tastes, 140
forecasting results, 205
INDEX 290
formula’ standardized production,
106
founder’s disease, 255
founders, 240
philosophy of, 240
founder to leader, 224
four Ms, 109
free house, 55, 182
G
Global Entrepreneurship Monitor
2005 Executive Report, 8
Global Entrepreneurship Monitor,
27
global poverty, 11
global poverty, ways of fighting, 11
globalized business
environment, 7
Good fortune, 213
good fortune, 245
Good fortune, 256
good guests, 174
governance, 164
government authorities, 200
government authorities, Contacts
with, 200
Great man theories, 218
Greiner’s model, 249
gross domestic product (GDP), 27
gross profit, 207
Growing Pains, 159
Growing Pains, hypothetical case,
159
growth firms, 124
GROWTH MODELS, 249
Growth models, 255
growth orientated
entrepreneurs, 51
Gueridon service, 135
guest’s rooms, 184
guest–host transaction, 179
guests, 176
guests, 184
guests, behaviour of, 176
guests, no go areas, 184
guests, treatment of, 176
H
Handy’s task culture, 237
Harrogate model, 246
heritage orientation, 31
hi-tec services industries, 16
Hofstede’s cultural dimensions, 29,
34
holistic strategic aim, 246
hospitable behaviour, 175
hospitable motives, 175
hospitableness, 170, 174, 175, 178
consideration of, 175
qualities of, 178
hospitality, 125, 169–175, 178–180,
203
commercial domains of, 178
cultural meanings, 169
cultural obligations to, 173
cultural variations, 170
domestic domains of, 177, 178
domestic experiences, 169
domestic/private domain of, 178
emergence of, 170
emotional dimensions of, 180
engagement with, 169
key to success in, 203
medieval ideas of, 173
motives of, 175
nature of, 169
philosophy of, 174
sense of authenticity of, 178
social science perspectives, 178
unchanging aspect of, 172
way of thinking, 171
writing about, 173
hospitality activities, 180
attractiveness of, 180
hospitality and tourism operators,
176
concern for, 176
hospitality and tourism sector, 145,
169
small firms in, 169
hospitality customers, 135
hospitality entrepreneur, 77, 85,
115, 122, 124, 131, 225, 230,
236
as leader, 231
current environment, 225
hospitality entrepreneurial activity,
177
major influence on, 177
hospitality firm, 115
steps for protecting, 115
hospitality founders, 148
option for, 148
hospitality industry, 1, 5, 11, 21, 74,
83, 114, 116, 123, 135, 140
innovations in, 114
micro seasonal sector of, 123
hospitality micro-firms, 103
hospitality organizations, 105
hospitality sector, 51
business operators in, 51
hospitality services, 135, 181, 185
host–guest relationship, 170
understanding of, 170
hosting behaviour, 176
hosting, 187
negative discourses, 187
positive discourses, 187
hosts and guest, 177
engagement with between, 177
human decency, 172
indications of, 172
I
idea generation, 74
identifiable leadership style, 228
imaginative skill, 73
immigrant entrepreneurship
theory, 43
incremental innovation, 105, 108
characteristics of, 108
indigenous Andean countries, 34
research, 34
indigenous entrepreneurship, 24,
30, 31–34, 40
attitudes and, 31
culture-specific characteristics
of, 33
definition of, 32
negative impacts of, 40
indigenous society, 33
individualism/collectivism (IDV),
29
individualized leadership, 219
industry-relevant acumen, 148
industry-specific skills, 124
influence and power, 258
influence theories, 223
information, 133
complimentary sources of, 133
information communication tech-
nology, 113, 132
information requirements, 132
initiating structure, 218
innovation, 83, 94, 98, 105
innovative small hospitality
business, 108
intellectual property, 113, 114, 115
INDEX 291
audit, 116
protecting, 113
types of, 113
International Year of Microcredit, 11
intrapreneurs, 50, 51
intrinsic growth, 267
introspection and diagnosing, 126
process of, 126
introspection, 102
J
job-centred, 219
K
Key customer occasions, 198
concept of, 198
Kirby’s notion of preparation, 78
kitchen porters (KPs), 241
knowledge bleeds, 128
L
labour costs, 206
labour market problems, 58
lack of finance, 11
large-scale catering sectors, 105
launching new business, 131
best time for, 131
laundry service, 106
layout and content, 209
leader’s sources, 237
leader–member relations, 221
leadership behaviour, 218
seminal studies on, 218
leadership, 214, 224
contemporary idea of, 214
definitions of, 214
modern view of, 224
leadership styles, 228
leadership thinking, 217
leasehold agreements, 54
least preferred co-worker scale
(LPC), 221
Leeds Metropolitan University, 54
legitimate, 237
life style economics, 55
life style entrepreneurs, 49, 51, 53
lifestyle business objectives, 56
lifestyle proprietor, 55
lifestyle proprietorship, 124
lifestyle style entrepreneurs, 181
research with, 181
lifestyle tourism entrepreneurship,
252
lifestyle-type firm, 252
local environment, 200
local tourism and hospitality asso-
ciations, 147
lumbering organizations, 109
M
McDonald’s, 259
concept, 83
employee working conditions,
259
employment policies, 259
ethical use of food products, 259
story, 106
McDonaldization processes, 179
management practices, 165
management sphere, 71
management team, 195, 234
members of, 234
nine key roles, 234
manager and team, 195
manager’s task, 196
element of, 196
managerial capacity, 270
managerial coordination approach,
250
managers’ salaries, 207
market development, 263
market leadership, 259
market research, 196
market segment, 135
marketing plan, 5, 202
Marlowe’s play, 137
masculinity/femininity (MAS), 29
medium-sized companies, 9
medium-sized entrepreneurial
firms, 15
medium-sized firms sector, 8
memorable meals, 179, 180
emotional dimensions of, 179
Michael Porter’s five forces model,
132
Michelin-rated restaurants, 104
micro firms, 54, 169
micro lifestyle businesses, 246
micro-business hotel operators, 58
micro-business manner, 56
micro-business operators, 51
microfinancing, 11
micro-firm, 57, 58
minor innovations, 105
advantage of, 105
mission statements, 192
modernization process, 25
dependency’ model of, 25
monetary policies, 256
sage-like nature of, 256
monopolistic business environ-
ment, 67
monopolistic competition, 129
moral hazard, 271
multinational companies, 116
takeovers by, 116
multi-sited empire, 51
‘must’ list, 132
N
national companies, 116
takeovers by, 116
national culture, 22, 26
Native American communities, 23
negative fall-out, 254
neo-conservative commentators, 51
nepotism, 153
networking, 127, 148
new business entrepreneurs, 129
new hospitality business, 145
starting, 145
new intranet system, 101
concept model for, 101
New Zealand’s hospitality industry,
129
niche, 135
Nineteen Century British colonial
powers, 182
non-aboriginal partners, 34
non-active family members, 163
non-ethnic entrepreneurs, 45
non-family business, 144
non-indigenous approach, 33
non-indigenous entrepreneurial
culture, 33
non-indigenous entrepreneurial val-
ue system, 38
non-indigenous entrepreneurship,
26
non-profit organizations, 8
non-trading period, 11
North American succession statis-
tics, 159
notion of intuition, 72
novel concepts, 105
nursing, 106
INDEX 292
O
Only Fools and Horses (UK televi-
sion program), 2, 7
excerpt from, 2, 7
operating profit statement, 206
operations, 204
opportunity spotting, 95
opportunity-driven entrepreneur-
ship, 103
organizational creativity, 77
organizational culture, 215, 231,
236
importance, 236
owner managed firm, 162
owner-managers, 11
P
Pakistani entrepreneurs, 136
partner’s behaviour, 154
partnership, 162
patent, 113
path-goal theory (PGT), 222
penetration, 262
performance management, 152
personal characteristics, 125, 126
PESTanalysis, 99
pilot study, 58
planning process, 163, 191
poor business planning, 147
poor marketing, 147
power, 237
five sources of, 237
power distance (PDI), 29
power transfer, 162
power-sharing, 163
practical hospitality, 176
practice of, 176
premium inconspicuous drinker,
135
pricing, 202
prior generic business onus, 148
private domestic domain, 177
and commercial activities, 177
private domestic dwelling, 177
guests entering, 177
private home, 183
private/domestic domain, 176
products and services, 134, 194
description of, 194
planning to introduce, 134
projections, 137
promotional plans and activities,
210
psychological coping responses, 154
pub sector, 181, 185
pull environment, 5
push factors, 56
push environment, 5
Q
questionnaire surveys, 86
R
radical innovations, 106, 108
characteristics of, 108
real family, 177, 184
reciprocity, 175
role of, 175
red tape, 250
referent, 237
relational theories, 223
relationship-oriented leader, 222
research-oriented data collection
approaches, 85
reservation systems, 113
resource-based perspective, 109
restaurant entrepreneur, 103–104
restaurant industry, 83
restaurant’s geographic market, 139
size of, 139
retirement, 163
planning for, 163
reward, 237
risk-taking, 31
risk-tolerance, 29
ritual-oriented drinkers, 135
role elimination, 154, 155
role reduction, 154, 155
role sharing, 154, 155
S
sale of alcohol, 181
licensing restrictions over, 181
sales analysis, 210
sales forecasts, 205
sales income, 206
savouring success, 160
scalable business model, 257
Seaside Tourism Planning Officer,
112
second wave, 24
selection criteria, 240
self awareness tests, 76
self-catering operations, 184, 185
self-determination, 31
self-development exercises, 85
self-esteem, 32
self-identification method, 144
servant leadership theories, 223
service development, 262
service quality management, 58
services and hospitality, 15
sibling rivalry, 153
skills acquisition, 230
sleeping accommodation, 178
small accommodation premises,
185
small and medium-sized enterprises
(SMEs), 8, 9, 137
UK-based definition, 9
small and medium-sized hospitality
sector, 145
Small Business Act, 9
small entrepreneurial firm struc-
ture, 254
Burns’ idea of, 254
small entrepreneurial firm, 255
small family firms, 159
planning in, 159
small firm model, 110
small firms sector, 116
small hospitality business, 136
small hospitality family firms, 144
advantages, 144
small hospitality lifestyle firm, 246
example of, 246
small to medium-sized hospitality
firms, 153
small-scale geographical expansion,
264
social beer drinkers, 135
social glue, 235
social innovators, 11
social/cultural domain, 172
socialisation, 240
societal interactions, 170
societal poverty, 32
socio-economic lifestyles, 139
sole trader, 11
South Asian entrepreneurs, 41
spill over, 128
staff training, 175
model for, 175
standardizing processes, 179
start-up business phase, 32
start-up capital, 137
sources of, 137
stone grill concept, 135
INDEX 293
strategic leadership, 227
strategic resources, 107
success story, 157
success, 32, 33
Successful Australian Ethnic
entrepreneurs, 42
successful entrepreneurs, 33, 83, 95,
122
successful growth, 256
secret formula for, 256
succession process, 160
unplanned process of, 160
Sweeney’s interviews, 64
SWOTanalyses, 262
systemising processes, 179
T
table d’hôte system, 105
table of contents, 209–210
take away meals market, 182
talking pictures, 87
tangible manufactured products,
114
task, 193
team leadership approach,
231
team management, 219
teams, 231
technological landscape, 4
tenancies, 54
the big picture, 27
three domain model, 171
tipping, 236
top management, 240
Torres Strait community, 35
Torres Strait islanders, 24, 36,
37, 38
Torres Strait Islands, 27
TEA index for, 27
Torres Strait native language, 37
total entrepreneurial activity (TEA)
index, 27
tourism industry, 114
innovations in, 114
trade secret, 114
trademark, 114
training and development, 162
trait theories, 218
transfer of power, 162
four stages in, 162
transformational leadership
theories, 223
tread water, 245
U
UK Companies Act of 1985, 9
UK Government, 148
UK hospitality industry, 102
resort sector of, 102
UK pub sector, 53
UK seaside resorts, 102
UK-based small hospitality firms,
124
study of, 124
Uncertainty avoidance (UAI), 29
unclear communication, 160
US Small Business Administration,
148
V
Venn diagram, 171
virtuous cycle, 13
visionary leader, 226
W
website designs, 113
white fellas committees and
panels, 34
‘Why Why?’ technique, 100
Windsor Hotel, 18
withdrawal, 262
work environment, 221
work–family conflict, 152, 154
work-family management
strategies, 154
work-related stress, 153
World Wide Web, 132
world’s oldest industries, 122
would be entrepreneurs, 181
would-be customers, 202
written document, 208
presentation of, 208
Y
YO!Shushi chain, 84
INDEX 294
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