Leadership Style, Entrepreneurial Orientation, and Business Performance of U.S. Minority-Owned Enterprises

Leadership Style, Entrepreneurial Orientation, and Business Performance of U.S. Minority-Owned Enterprises

Written by: Karen B. Anderson & Agha Abid Raza

Minority-owned businesses potentially represent the most powerful wealth-building engines in the United States economy (U.S. Department of Commerce, Minority Business Agency, 2016).  Thus, the emergence, growth, and development of minority-owned business enterprises carry the potential for improving the economy of the nation and the economic self-sufficiency of minority populations.  The United States Small Business Administration (2016) classified minority-owned enterprises as subsets of U.S. businesses (regardless of size) in which African American, Asian, Latino, or Native American/Pacific Islander U.S. citizens (by birth or naturalization) have 51% ownership and controlling interest.

Despite the growth and expansion of minority business ownership in the U.S., no minority-business owner subgroups have yet performed at the level of entrepreneurial parity (Bradford & Mijid, 2016; Obuko & Planting, 2015; U.S. Department of Commerce, Minority Business Agency, 2003; U.S. Department of Commerce, Minority Business Agency, 2016).  Entrepreneurial parity exists when the total number of business enterprises, the number of paid individuals they employ, and the revenues they produce closely approximate the percentage of the working-aged U.S. population the business enterprises represent (Mijid, Bradford, & Reedy, 2016; Obuko & Planting, 2015). 

Of all classified minority-business owner subgroups, only Asian Americans are approaching entrepreneurial parity (Bradford & Mijid, 2016; Obuko & Planting, 2015).  The reality in the U.S. is that rather than achieving entrepreneurial parity, 80% of minority-owned businesses fail within the first 12 to 18 months after start-up (Jones, 2015; Lawal, 2015; Robinson, 2014).  Jones, a successful African-American financial consultant, serial entrepreneur, and podcast host of Black Entrepreneur Blueprint attributes this high failure rate to several factors including a dearth of information describing why minority-owned businesses fail or succeed.  Based on research and review of the literature, Ramsey et al. (2004) provided empirical evidence of the scant and sporadic research attention given to U.S. minority business enterprises.     Information located in one scholarly source and more popular literature outlets suggested several anecdotal reasons why minority businesses fail.  Included among these reasons were ineffective leadership (Bradford & Mijid, 2016; Jones, 2015, Lawal, 2015) and highly risk-averse behaviors of minority business owners (Robinson, 2015).  Omitting the term minority when combining keywords, however, led to ample theoretical and empirical data regarding the historical and ongoing evolution of scholarship regarding the relationships between leadership style, entrepreneurial orientation, and business performance, in general. 

Leadership theory and entrepreneurship theory proposition that launching, sustaining, and growing successful business enterprises require effective leadership style and entrepreneurial orientation to successfully influence business performance (Bass, 1999; Brazier, 2005; Burgelman, 2015; Covin & Slevin, 1989; Gupta, MacMillan, & Surie, 2004; Lumpkin & Dees, 1996; Miller, 1983).  A business owner’s failure to identify and apply an effective leadership style that supports a strategic entrepreneurial orientation diminishes any organization’s capacity for successful business performance (Burgelman, 1983, 2015, 2016; Cossin & Caballero, 2013; Gupta et al., 2004; Pawar, 2003; Schumpeter, 1934, Yang, 2008). 

Dating back several decades, Schumpeter (1911, 1934, 1961) argued that organizational entrepreneurial activity drives the business performance of the organization.  More recently, Burgelman (2015) argued that the freedom for entrepreneurial activity within an organization depends in large measure on the leadership style by which organizations manage stable strategic process systems while embracing the risk, innovativeness, and proactivity that define entrepreneurial activity (Burgelman, 1983, 2015; Covin & Slevin, 1986; Miller, 1983; Wiklund & Shepard, 2003, 2005).  Scholars agree that employees will refrain from behaving entrepreneurially without signals that top-level managers support such behavior (Brugelman, 1983, 2015, 2016; Wales, Monsen, & McKelvie, 2011).

How leadership style and entrepreneurial orientation perform relationally depend on internal and external organizational contingencies (Barney, 2015; Bass, 1999; Brazier, 2005; Burgelman, 2015, 2016; Miller, 1983; Pawar, 2003; Perrow, 1967; Ramsey et al., 2004; Stinchcombe, 2015).  Racio-ethnic diversity is a contingency of U.S. minority business subgroups (Ramsey et al., 2004), which may inconsistently influence the generally accepted relationships between leadership style, entrepreneurial orientation, and business performance.  The problem, however, is that there currently exists an absence of empirical evidence situating these propositions within the contextual realities facing minority-businesses owners such as, unequal access to education, training, access to funding, racial bias, or others realities currently not known.

Definition of Terms

For purposes of this article, entrepreneurship is defined as a process whereby individuals identify, evaluate, and execute opportunities to design and bring new products or services to market (Shane & Venkataraman, 2000).  Leadership is also defined as a process that enables and empowers cooperation between leaders and followers in pursuit of common ambitions that align with and satisfy performance goals of the organization (Northouse, 2016).

Entrepreneurial Orientation

Entrepreneurial orientation is the construct that describes decision-making strategies and practices, which lead a firm to innovate or refrain from innovating new products or services (Lumpkin & Dees, 1996).  Researchers largely agree that firm renewal through corporate entrepreneurialism requires discovering, exploring, and exploiting new business opportunities (Landström et al., 2012; Shane & Venkataraman, 2000).  Entrepreneurial orientation (the propensity and preparedness for new entry; (Lumpkin & Dess, 1996) requires autonomy, initiative, innovation, competitive aggressiveness, and willingness to take risks (Lumpkin & Dess, 1996).

Leadership Style

Inspired by early works of Lewin, Lippett and White (1939), Likert (1961), Blake and Mouton (1964, 1978, 1985, 1994), and Hersey and Blanchard (1969), leadership style describes numerous behavioral strategies leaders use to influence others within specific situational contexts (Amanchukwu et al, 2015; Bass, 1990; Mind Tools, 2016; Northouse, 2016). Contemporary researchers currently favor transformational leadership as the most effective leadership style for business (Mind Tools, 2016).  Further, many scholars agree that transformational leadership is the leader style most likely to interact compatibly with a firm’s entrepreneurial orientation creating a positive relationship between corporate entrepreneurism and business performance (Bass et al., 2003; Dvir, Eden, Avolio, & Shamir, 2002; Yang, 2008). 

Transformational Leadership

Transformational leadership theory supports the strategically interpretative and vision shaping roles of the leader, but also requires that leaders create a culture in which followers feel encouraged and empowered to behave entrepreneurially (Northouse, 2016).  Contemporary scholars describe transformational leadership as a behavioral process in which top-level leaders envision, develop, communicate, model, and execute change that increases an organization’s ability to perform competitively (Bass, 1990; Bass & Avolio, 1995/2004; Bass & Riggio, 2006; Northouse, 2016).  Even though transformational leaders envision the general direction for the organization, they are tolerant and supportive of opposing views of followers regarding how to successfully realize the vision (Northouse, 2016). 

Rather than setting a clearly defined approach to change, transformational leaders work cooperatively with the collective ideas, individual concerns, strengths, and weaknesses of followers in accomplishing organizational goals (Northouse, 2016).  Evidence provided by transformational leadership scholars supports the belief that genuine trust and cooperation between transformational leaders and their followers intrinsically motivate leaders and followers to perform at their fullest potential to meet higher expectations than previously assumed possible (Bass, 1990; Bass & Riggio, 2006; Cossin & Cabalero, 2013; Northouse, 2016). 

Summary

As the principal initiator of jobs and economic growth, entrepreneurship is indispensible in a psychologically, socially, and economically healthy society (Baum, Frese, & Baron, 2007).  Transformational leadership is currently regarded between entrepreneurship scholars as the most effective form of entrepreneurial leadership for its ability to transform organizations through the initiation, development, and implementation of change (Bennis & Nanus, 1985; Burgelman, 1983, 2015, 2016; Northouse, 2016; Yang, 2008).  Entrepreneurial orientation is the cultural embodiment of the organization’s willingness to take strategic risks.  Very little, research exists on how leadership style and entrepreneurial orientation interact with the contingencies of minority-owned businesses to affect the business performance of minority-owned organizations (Ramsey et al., 2004).

Future Research

In their report regarding the scant research available regarding the relationship between leadership style, entrepreneurial orientation, and business performance of minority-owned businesses, Ramsey et al., (2004) noticed several problems.  They reported problems with sampling, aggregation of the data across racioethnic subgroups and geographic regions, inappropriate data comparisons, and prescriptive recommendations directed towards assistance providers rather than towards the minority business owners, themselves.

Future research on this topic requires rigorously designed research on minority–owned businesses, to fill the gaps where very little is empirically known.  As an important first step, the recommendation is to individually assess and compare the internal and external contingencies of each classified minority-owner subgroup (Ramsey et al., 2004).  Specifically, researchers should seek to identify the characteristics of the minority business owners, (e.g., traits, education, skills, why and how they entered into business, how they accessed capital, ongoing operational practices, and factors contributing to successes and failures (Ramsey et al., 2004). 

Industrial-Organizational scholars and practitioners who address the future research recommendation may realize several benefits.  One benefit may be the opportunity to build theories specifically aimed at better explaining the relationship between leadership style, entrepreneurial orientation, and business performance of minority-owned businesses, in general.  A second benefit is the opportunity to separate aggregate data regarding minority business owners into classified minority owner subgroups, specifically (Ramsey et al., 2004).  An additional benefit is that future research may provide new opportunities to test and perhaps expand findings and theories regarding the relationships between the constructs (Baron, Frese, & Baum, 2007) previously and primarily tested within the context of non-minority-owned organizations (Burgelman, 1983; Verduijn, Dey, Tedmanson, & Essers, 2014). 

The goal of recommended future research is to provide empirical data that scholars may analyze and synthesize into relational models of successful leadership style, entrepreneurial orientation, and business performance within the contexts of minority-owned businesses. The end goal is to empower minority U.S. minority business owners to achieve and realize the benefits of entrepreneurial parity for themselves, their communities, and the nation.

Please share your comments and suggestions in the comments below.

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Comments

Kelley Conrad's picture Kelley Conrad | March 27, 2017 11:33 am MST

The photos above are of the two co-authors for the blog, Karen Anderson and Agha Abid Raza.

Kelley Conrad's picture Kelley Conrad | March 27, 2017 11:33 am MST

The photos above are of the two co-authors for the blog, Karen Anderson and Agha Abid Raza.