This study considers the extent to which entrepreneurs are satisfied with their businesses in their third year of business ownership. Entrepreneurial satisfaction might be viewed as a basic measure of performance. It may bear upon decisions by individual entrepreneurs about whether to invest more time and money, whether to cut back, or whether to close down. It may also influence whether entrepreneurs work effectively with their customers and employees. For researchers, the investigation of why, in particular settings, some entrepreneurs may be more satisfied than others may aid in the interpretation of past research, which has used this as a performance measure. This research draws upon a theoretical framework used in investigations of employee satisfaction. Called discrepancy theory, it suggests that individual satisfaction is determined, in part, by whether there is a “gap” between actual rewards or performance and the individual's goals or expectations. In this research, it was hypothesized that entrepreneurs emphasizing primarily noneconomic goals (such as doing the work they wanted to do) would have higher satisfaction when the business was experiencing lower levels of performance. For higher levels of performance, there would be no difference. In essence, the satisfaction of those emphasizing economic goals would vary more with economic performance. A related hypothesis was that, for this sample of start-up firms (many of which would be experiencing low levels of performance), those emphasizing noneconomic goals would have higher average levels of satisfaction. This was based upon the expectation that many start-up firms would be experiencing marginal performance, so that the “gap” between goals and performance would be greater for economically oriented entrepreneurs. The research also focused upon expectations, because one aspect of discrepancy theory suggests that satisfaction decreases if there is a gap between expectations and performance. Accordingly, it was hypothesized that, controlling for performance, entrepreneurs with higher initial expectations would subsequently have lower levels of satisfaction. Previous research suggests that membership in particular demographic groups may influence expectations. This led to hypotheses that older entrepreneurs, female entrepreneurs, and minority entrepreneurs would have lower levels of initial expectations. This, in turn, may influence later satisfaction. Thus, it was hypothesized that, controlling for performance, entrepreneurs in each of these groups would have higher satisfaction because their initial expectations would be lower. The study utilized a sample of 287 entrepreneurs who were followed over a 3-year period. The data on predictors of satisfaction were gathered in year 1, when the average owner had been in business for 11 months. The satisfaction measures were gathered 2 years later. By that time there should have been some stabilization in the routines of the business, and the entrepreneur could reflect upon historic performance and experiences in judging the extent to which business ownership had been satisfying. The data were analyzed primarily using path analysis, in which it was hypothesized that certain variables would have both direct and indirect effects upon satisfaction. It was found that the satisfaction of entrepreneurs emphasizing economic goals was not more sensitive to economic performance, at least within the range of performance considered in this sample. For this group of firms, many of which appeared to be experiencing marginal performance, those emphasizing noneconomic goals did express higher levels of satisfaction. It had been expected that those with higher initial expectations would later be less satisfied because they would have a greater expectation-performance gap. However, the opposite was found; those who were more optimistic initially were more satisfied later, even when controlling for performance. Demographic influences on initial expectations were examined. Contrary to expectations, none of the demographic traits was significantly related to initial assessment of likelihood of success. Older entrepreneurs, women entrepreneurs, and minority entrepreneurs were just as optimistic as those in other groups. The relationship between membership in these demographic groups and later satisfaction was also examined. No significant relationships were found for older entrepreneurs and minority entrepreneurs. However, there was some evidence (p = .07) that women entrepreneurs were more satisfied with business ownership. Two of the most interesting findings were those related to initial expectations and to women entrepreneurs. Contrary to discrepancy theory, those who had higher initial expectations were later more satisfied, not less. This may suggest, as Staw and Ross (1985) found in a longitudinal study of employee satisfaction, that attitudes are, in part, a function of stable individual traits. Those who had a positive view of their initial prospects later viewed the experience of business ownership more favorably, regardless of subsequent performance. For women entrepreneurs, the higher levels of satisfaction may reflect a view that they have fewer attractive alternatives; it may also be that they discover greater relative satisfaction from the day-to-day aspects of business ownership. For entrepreneurs and their advisors, the findings suggest that particular goals, attitudes, and backgrounds are likely to be associated with greater satisfaction. This may influence whether entrepreneurs stay with marginal businesses. For researchers, the study provides insight into discrepancy theory by considering its application to entrepreneurs rather than the hired employees normally studied. In addition, subjective measures of performance, such as satisfaction, have often been used in previous research on entrepreneurial performance. This study casts light on why, in particular settings, some entrepreneurs may be more satisfied than others.

Small firms are usually in constant need of funds. In addition, when they are in decline, it puts them in a weak and dependent relationship with a commercial bank. The strategy followed by the bank toward these firms is a powerful influence on their success in turnaround and their very existence. In order to identify generic strategies followed by banks, this exploratory study analyzed data on bank responses to 192 client firms. These firms have been classified as problem loans, i.e., there is an actual default or the bank perceives a potential default on their loans. As this problem in the firm arises largely out of weakness in its primary sources of payment, which is operations, problem loans are firms in the early stages of decline. Using factor analysis, four distinct strategies toward these firms were identified: (1) managerial, involving efforts to influence strategy and operations of the firm through suggestions and recommendations; (2) financial, involving efforts to safeguard the security interests of the bank by seeking additional collateral and guarantees; (3) legal, involving recovery of funds through courts; and (4) restructuring, including efforts to improve capitalization. The firms were clustered into six groups using factor scores. Thumbnail profiles of each cluster showed the groups to be distinct. Finally, three sets of contextual variables representing firm/loan characteristics, event triggers, and the bank/client relationship were used to discriminate among the clusters of firms. The variables found to be significant in discriminating among the groups and thus impacting the strategies followed toward them included: firm size, the secured status of the loan, the bank's perception of whether the decline was due to internal or external reasons, severity of the problems facing the firm, and cooperation of the client. Significantly, the extent of loss incurred by the firm and years as a client did not make a difference to the strategy used. Where reasons for decline were largely external to the firm, financial and merger strategies were preferred. When the causes were internal, managerial and legal strategies were important. Firm size was significant; banks were less inclined to adopt managerial and financial strategies toward small as against medium-sized firms. These findings point to important lessons for managers in their dealings with banks. Banks, generally, prefer to work with clients toward a turnaround rather than resorting to legal means of recovery. To take advantage of this attitude, firms need to demonstrate cooperation to secure favorable terms, as long as the bank's funds are fully secured. Moreover, because bank strategies are dependent on their perceptions of the causes of the problems, managers need to recognize the importance of providing appropriate information to create the right perception.

Information is a key resource for the new venture. Despite the importance of information search practices, little research has examined whether entrepreneurs show a tendency to search for more or less information under particular conditions. This article considers whether information search might be explained by concepts of bounded rationality. Such theories lead to the counterintuitive expectation that entrepreneurs with less experience or those entering unfamiliar fields would search less because of their more limited understanding of what is needed. In addition, entrepreneurs with higher levels of initial confidence would search less because their “entrepreneurial euphoria” may limit their ability to assess their own needs for additional information. This study examined the information search practices of 1176 entrepreneurs. It considered six sources of information that were widely used: accountants, friends or relatives, other business owners, bankers, lawyers, and generally available books and manuals. Three measures of search intensity were developed, with the first reflecting the relative importance of all six sources and the remaining two focusing upon the subcategories of professional and personal sources. It was found that those who had no entrepreneurial experience, on the average, sought more, not less, information. However, as expected, those who ventured into fields which were different and those who had higher levels of initial confidence sought less information. An interaction effect provides insight into these findings and reveals that inexperienced entrepreneurs varied their search depending upon whether they were in familiar or unfamiliar domains. In particular, novice entrepreneurs searched less extensively in unfamiliar domains, a behavior consistent with bounded rationality. By contrast, experienced entrepreneurs did not vary their search pattern. It was also found that entrepreneurs having high levels of confidence sought less information, as expected. The behavioral tendencies observed here appear to have clear implications for entrepreneurs and their advisors. We might expect that those venturing into fields they do not know would have more to learn and thus would search more aggressively. However, neither inexperienced nor experienced entrepreneurs acted in this way. In fact, inexperienced entrepreneurs lessened their search as they entered fields they did not know, consistent with the bounded-rationality model. Many prior studies have found that entrepreneurs entering unfamiliar fields are, on the average, less successful (Cooper and Gimeno-Gascon 1992). This certainly raises questions about whether entrepreneurs, both experienced and inexperienced, might benefit from greater emphasis upon gathering and utilizing external information as they enter fields that are new to them. Outside advisors (if the entrepreneur will utilize them) may be helpful in urging and assisting entrepreneurs who enter unfamiliar fields to engage in more extensive information search, even though they may have less developed networks of contacts and less of a feeling for what is needed in such fields. With respect to initial confidence, entrepreneurs and their advisors should recognize that high levels of confidence may lead to lower levels of information search. Recognizing this tendency, they should use care to ensure that entrepreneurial euphoria does not lead to blinders in the search for information.