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As long as they weren't in it only for the money, entrepreneurs proved resolute and resourceful in coping with the recession, study finds

October 17, 2014

For more information, contact: Ben Haimowitz, +1 (718) 398-7642 or +1 (917) 903-9287, press@aom.org

Given the tribulations of U.S. textile and apparel manufacturers over the past two decades, the Great Recession might have turned out be the final nail in the coffin of an industry that not long ago was widely perceived to be a doomed victim of foreign competition.

That this has not proved to be the case is largely due, it is widely agreed, to the domestic industry's adoption of new labor-saving technology  as well as the effects of high transportation costs and increasing labor expenses associated with manufacture in China and other developing nations. But that is not all: Some 150 hours of interviews conducted between 2010 and 2012 with 13 founder CEOs of small and mid-sized companies in this sector  reveal another factor of considerable importance -- a degree of resilience, resoluteness, and resourcefulness that are a striking contrast to what one founder sarcastically describes as the "caterwauling" that has come to envelop the industry.

For most of the entrepreneurs interviewed, making a living has involved a lot more than making money. In the words of the study in the current issue of the Academy of Management Journal , "founders use their firms as vehicles through which they affirm and defend their identities but also create new roles to express previously suppressed social identifies."

Explains study co-author E. Erin Powell, an assistant professor at Clemson University, who collaborated with Ted Baker, a professor of management at North Carolina State University, "Most of the entrepreneurs we interviewed were motivated by reasons closely tied to their sense of identity -- who they are and who they wanted to become. Although they all understood that they had to make a profit, only three of the 13 were primarily motivated by money. They kept going despite daunting economic and industry conditions because they believed in domestic manufacturing and trusted that consumers would come to understand the value of buying products made in the USA using environmentally sustainable manufacturing processes."

Baker adds: "Policy-makers need to better understand the power of identity-based motivations To a much greater extent than public companies, whose fiduciary obligations to shareholders often dictate decisions based on short-term financial considerations, these entrepreneurs will persevere through extended periods of hardship and with shrunken profits or losses as long as they can find ways to keep things together. The need here is not for big money infusions from government or bribes to locate in one place over another. The need is for smart money rather than big money, dollars targeted at entrepreneurs with real ties to their communities and a willingness to hang tough in adversity."

As an example of flaws in the current system, the professors cite the case of one entrepreneur who had his line of credit pulled not because of any change in his balance sheet but because of the banking crisis and commercial banking consolidation. Meetings with many banks were to no avail, as he struggled to keep his company out of bankruptcy. Finally, he was able to find a commercial banker who understood how her bank could work with him to get a small federal business-loan guarantee -- and in the process save a company and many jobs.

The lesson? The need for much better public-private coordination, Baker says. "Government puts pressure on banks to do all sorts of things, and certainly, at a time of concern over declining domestic manufactures, receptiveness to authentic entrepreneurship ought to have a higher priority than it has had. Banks should be strongly motivated to understand local industries and give level of commitment to the community the consideration it deserves."

The study represents the latest offshoot of a growing body of management research that focuses on entrepreneurship as an expression of individuals' identities. For example, an earlier study in the Academy of Management Journal  explored the identities of 49 company founders in the sports-equipment field and found them almost evenly split between those whose driving motivation was profits and those principally moved by their attachment to sportspeople or their commitment to a cause. The new study extends this scholarly approach in probing how identity considerations come into play in a troubled industry at a time of economic travail.

To find out, Profs. Powell and Baker conducted a preliminary screening of 42 textile and apparel firms with the idea of doing series of in-depth interviews with the founder CEOs of some portion of them. They selected 13 whose response to the recession varied widely and between 2010 and 2012 conducted a total of 101 interviews with the 13 founders that averaged 90 minutes and lasted anywhere from 45 minutes to six hours. All the founders were actively running their firms at the time of the interviews, although two of the companies disbanded before that period ended. Surviving firms ranged from 3 to 36 years old and had from three to 700 current employees.

The largest group of founders, seven in all, had multiple identities in which they took pride (for example, domestic manufacturer, caring boss, devout churchgoer, community patron) and which they had consistently been able to live up to. Baker and Powell classified them as "congruent." In Prof. Powell's words, "these individuals were what they wanted to be, and their response to the recession was to dig in their heels -- to regard adversity as a challenge that they could counter by working even harder and smarter than they already were doing."

Prominent among this group was the CEO of a company with 700 employees who described himself and his firm as follows: "My wife and I live in this town and we work every day, and I work more hours than anybody, and our employees feel like they know the ownership. They call the ownership by first name. They see the ownership...working hard, and they in turn work hard, and together we build a product that we try to compete worldwide with, knowing that our labor is more costly than labor coming from other countries..."

As for the recession, "it was slow [but] we're attracting new customers and retaining the ones we have and trying to grow our volume...We're fighting the good fight, trying to take what advantages we do have    -- closest to our customers, quick turns, sensitivity to the markets, new styling, real good communications with our customers, having our customers come and visit us, all, all the advantages that we have..."

A second group, which the professors label "incongruent," consisted of founder CEOs who, in pursuing multiple goals had previously fallen short in some ways. Prof. Powell cites the example of one founder who had attended the first Earth Day celebration but bemoaned the fact that his own business was not environmentally sustainable. In better times he had 100 employees but now he had 14, and for 18 months he went without pay. Yet, he regarded the recession as an opportunity to make his firm "dark green," --  a goal he pursued primarily through changing his production processes and product offerings but also through initiating an organic garden for his employees promoting stories in the local press, posting videos on the Internet, and organizing community events.

The third group, which the professors label "singular," were in business purely for financial reasons. "If you're in it only for the money, the sky really is falling," says Prof. Baker. "This group responded to the recession much as many big public companies do -- they attempted to shrink their way to profitability. And, as a matter of fact, two of the three shrunk themselves out of existence. Of the 13 companies we studied, the only two that went under were in this group. The others saw adversity as a challenge to counter or as an opportunity to transform and found innovative ways to do things better, including highly creative and resourceful use of available and emergent technologies."

The study, "It's What You Make of It: Founder Identity andEnacting Strategic Responses to Adversity," is in the October/November issue of the Academy of Management Journal. This peer-reviewed publication is published every other month by the Academy, which, with more than 18,000 members in 119 countries, is the largest organization in the world devoted to management research and teaching. The Academy's other publications are The Academy of Management Review, Academy of Management Perspectives, Academy of Management Learning and Education, and Academy of Management Annals. A sixth publication, Academy of Management Discoveries,  is currently accepting submissions and will begin publishing in January 2015.

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