How to measure success in rural small business?

Abstract

Despite of increasing urbanisation, rural areas play a very important role in Western economies. The field of rural small businesses has been under reorganisation during the latest decades in many European countries. The new situation can be traced, sub-stantially, to the change within farm businesses. As a result of the ongoing changes, the clear-cut distinction between farms and other small businesses is not obvious anymore. Success is one of the key issues addressed in one form or another in many - if not the most - studies concerning small businesses. However, the firm success can be under-stood and approached from various ways, for instance from firm survival, financial of subjective success perspectives. If a study is made from the point view of entrepre-neurial venture the financial success variables such as turnover, sales growth, profit-ability or return on investment are appropriate. Financial measures are used for two different purposes. They are often used directly as indicators of firm size or as growth measures. In addition, they are used to measure of the "relative success', such as for profitability or efficient use of critical resources relative to other firms. Growth and success are frequently linked, although growing firms might not be successful when analysed with other measures, and successful small firms do not necessarily grow. When success of the firms is explored, it is essential to understand the multidimen-sional nature of the performance constructs, i.e. a firm might be successful in on one performance dimension and unsuccessful in another. Due to the change on in the farming sector and increasing diversification enterprises on farms, there is a clear need for evaluating different sectors from the firm success perspective. This kind of evaluation requests measures that are valid and reliable in different kind of firm groups. In this paper we approach the success from the entre-preneurial venture perspective and use mainly financial success measures. The subjec-tive of this study is to find appropriate common measures for success that can be used in comparative studies on rural small businesses. We agree that success should be measured in multiple ways. In this paper key research questions asked are: 1) can one identify the main dimensions of success; and if yes, what are they? 2) How these main dimensions and individual success indicators that are common in small business research function when different types of rural firms are compared? Two data sets are utilised in this study: 1) data collected in a postal survey in 2001 (N= 1093) and 2) data collected in a follow up survey in 2006 (N = 871). The 2006 data consists of two data sets: panel data from the 2001 survey and an additional sam-ple. In both cases, the data consisted of three main groups: 1) non-agricultural small-scale businesses (`non-farm enterprisesŽ), 2) farmers who also had non-agricultural business (`diversified farmsŽ), 3) conventional farmers concentrating only on agricul-ture (`conventional farmsŽ). The data was analysed by using factor analysis and other qualitative methods. Firm success was measured by 9 different common success measures. Three main dimensions of financial success were identified from the data. These dimensions were size, profitability and growth. These same dimensions were found from both separate data sets, which gives good evidence that these kinds of dimensions really exists and the dimensional structure is not a coincidence. The fact that the structure of dimen-sions is lasting shows high reliability. Used measures and found success dimensions separate different groups, and thus are functioning criteria. The results indicate that non-farm rural enterprises perform better that conventional farms and diversified farms are in most cases in-between, when financial success measures are applied. The found differences between groups (conventional farms, diversified farms and non-farm businesses) are plausible as farm incomes and profitability have been declining for years. These findings show good validity of dimensions and measures. The results of this study clearly indicate that firm success truly is multidimensional phenomenon. Even though the focus of this paper was on the financial indicators of success, differ-ent dimensions were identified. Thus, the results support earlier arguments using mul-tiple success criteria instead just one.