International Journal of Entrepreneurship (Print ISSN: 1099-9264; Online ISSN: 1939-4675)

Research Article: 2019 Vol: 23 Issue: 2

From Key Characteristics of Owners and Business towards Sustainability Distro Business Life

Irma Nilasari, Universitas Widyatama

Abstract

Distro is a small business that produces and sells limited numbers of its unique products (mostly T-shirt and other merchandises) to its targeted market. The market of distro’s product is dominated by urban youth who love new, unique, and creative products. They buy distro’s product because it represents their identity as fans of a local brand. The study was aimed to assess the key characteristics of the owners/managers of the distro, his/her company, and the development of his/her business by comparing current conditions (today) with previous conditions (when the business is started) in order to predict sustainability of their business. The research uses descriptive approach, inference statistic, and cross-tabulation. The data was collected by distributing 500 questionnaires in 12 major cities of Indonesia. The results suggest that high annual sales tend to be achieved by distro that: have a large number of online stores, throw new products as often as possible, join distro associations, increase the frequency of participation in trade expo activities, and implicitly own and increase brand equity.

Keywords

Distro, Business Owner, SME, Sustainability.

Introduction

The Small and Medium-sized Enterprises (SMEs) have given much attention in the recent entrepreneurship researches due to their vital contributions in the economy of every country. In developing countries, the presence of SME is very important because they assist economic growth; improve income distribution, productivity, efficiency, and economic structure during the economic downturn (Abdullah et al., 2011; Tehseen & Ramayah, 2015). Entrepreneurial competencies are attributes (i.e.: skills and knowledge) that company has to achieve of high performance of business (Gerli et al., 2011; Falola et al., 2018). They also consist of qualities such as motives, traits, and special skills, general or specialized knowledge that lead to the birth of the company, survival, and growth (Adegbuyi et al., 2018; Dermol, 2010; Maria Victoria, 2015; Mohd Nizam et al., 2018; Muhammad & Darwina, 2018; Rajeev & Gupta, 2016). In entrepreneurial endeavors, competence reflects the extent to which entrepreneurs are willing to take risks to enable the company to succeed (Oyeku et al., 2014). With entrepreneurial competence, managers can set business objectives for the company, clearly state how goals will be achieved, take corrective steps and achieve goals (Solesvik, 2012).

Entrepreneurs tend to have increased confidence in their abilities, willingness to be responsible, high energy, preference for moderate risk, skill set, desire for immediate feedback and achievement value. The significance response of young entrepreneurs to economic growth has been the concern of young entrepreneurs to start their businesses. Compared to general entrepreneurship, young entrepreneurship is more useful because young people are more likely to employ youth, who are more receptive to new economic trends and opportunities (Schoof, 2006). In addition, it is also believed that young people with entrepreneurial skills have proved to be better employees.

The distro is a small business because it has average number of fixed employees of less than 20 people (Brata, 2010). Small businesses often have sustainability issues (Kelliher & Reinl, 2009). Hanrahan & Conaghan (2014) explained that continuing development of small business enterprises through the development of core competencies is often a problem caused by time constraints, financial capital, and expertise. Sustainable growth is something that rarely happens in small businesses and tends to be unique to each company (Dobbs & Hamilton, 2007). Therefore, small businesses need to develop a business strategy based on the resources (Runyan et al., 2007).

Literature Review

Success based on financial size alone often causes failure of focus because small business owners/managers have different perceptions of what success means (Reijonen, 2008; Walker & Brown, 2004). They interpret success based on their values, their motivation in business, their perceptions and their behaviour (Kelliher & Reinl, 2009; Perren, 1999; Reijonen, 2008). In addition, fluctuations in financial performance from year-to-year due to poor record keeping and lack of knowledge and discipline to financial statements led to unconvincing financial performance (such as growth, profit, turnover and return-on-investment/ROI) measuring. On the other hand, the managerial background traits or characteristics estimate organizational outcomes, planned choices and the performance levels (Hambrick & Mason, 1984). The more complex a decision, for example strategic measures, the more important the personal characteristics of the decisions makers, such as age, tenure and specialization (Ting et al., 2015). Nielsen (2010) recognizes that top managers’ different characteristics such as age or career experiences affect their decisions on strategy and structure and it will directly affect firm’s strategic choice and organizational performance. Furthermore, the leaders characterized by bounded rationality will make a decision based on their cognitive, social and physiological characteristics (Walker & Brown, 2004).

Reijonen (2008) found that for small business owners’ motive and purpose are quality of life, job satisfaction, and customer and client satisfaction rather than the orientation to growth. Thus, the success of small businesses must be measured by the extent to which customers respect and are satisfied with the company, job satisfaction for the owner/manager and the quality of the product. In the initial phase, the entrepreneurial candidate focuses on searching, reviewing, simulating, defining, and making business idea proposals up to the first embodiment of the business. Ideally, the business idea chosen and then developed a solution or an answer to the existence of a gap between the needs of unmet market (or not yet fully) fulfilled by an offer from existing companies. Some of the themes that usually appear in this phase are creativity in finding and testing business ideas (including research and experimentation), business proposal drafting, start-up capital, business location, business establishment. Second is the phase of business growth and business sustainability. This phase is characterized by a focus on market acquisition and refinement of business ideas. Success in this phase is crucial for the sustainability of the business that is characterized by whether the scale of the market achieved is sufficient or not at an immediate time. The greater the scale of the market successfully acquired the more successful small business. In time, the small company can transform into a larger company. Themes related to this second phase include marketing related to opening, recognition, word-of-mouth, up to viral; operational cost control, quality maintenance, brand management, etc.

Distro as Retailer Exclusive Products

Niche marketing strategy is a marketing strategy that focuses on satisfying the small market needs of special customers through the delivery of products and/or services that have high suitability (differentiation) to the needs of that particular segment (Hedaa & Ritter, 2005; Phillips & Peterson, 2001; Stanton et al., 1994). Shani & Chalasani (1992) distinguished these two things by looking at market segmentation as a top-down and bottom-up process. A top-down process is the process of breaking a wide market into several smaller markets that are easier to manage. As a bottom-up process, niche marketing will start with marketers identifying the needs of a few customers that gradually form a large customer base.

According to Parrish et al. (2004), there are four main characteristics of a company engaged in niche markets, namely, having a strong and loyal customer base, having a distinctive market segment, having a high price level, and having a product that unique. In the opinion of Toften & Hammervoll (2009) which states that companies that successfully carry out market niches usually have sustainable profits, have long-term relationships with customers, and have a good reputation. Successful market niches will understand better of their market needs and desires. By having this knowledge, they will offer products that can meet market needs, understanding of how much the market is willing to pay for the products they need, understanding of the value of all members of the value chain involved, better understanding of the market base and consumers of competitors, and equally important is the understanding of self-ability alone to be a good nicher.

Methodology

This current research is a descriptive research that aims to study the distro of owner/manager as well as their business that grows in the context of small business. The analytical tool used to collect the data is a questionnaire with closed questions that have been confirmed to other researchers as well as players who are members of the distro community (KICK). A total of 500 questionnaires distributed by mail to major cities in Indonesia such as Bandung, Jakarta, Yogyakarta, Malang, Surabaya, Denpasar, Medan, Palembang, Pontianak, Balikpapan, Banjar and Makassar that were identified as distro (data obtained from web searching and data members of the distro community available for three months of data retrieval from December 2013-February 2014). This study uses descriptive statistical analysis tools to analyze and draw research conclusions, namely: inference statistics, and cross-tabulation.

Research Results

Characteristics of Distro Owners/Managers

One of the main characteristics of a small business is the merging of the owner's role with the manager, so it is usual to mention the owner as the owner/manager. The study also conducted cross-tabulation analysis with some of the key characteristics of the owners/managers of the experience of failure. The results can be seen in Table 1, showing that gender and marital status are independent of experience of business failure while being a member of the community is not independent of the experience of failure in business. In other words, the experience of getting business failure has nothing to do with gender and marital status, but it has to do with being a member of the community or not. Being a member of a community can reduce the risk of failure in this distro business.

Table 1: Characteristics Of The Owner/Manager And Characteristics Of Distro
Individual Key Characteristics Have you ever experienced a business failure? (%) n Pearson χ2
Never Once or twice More than 3 times
Gender Man 12.8 60.1 27.1 133 1.232
Woman 25.0 55.0 20.0 20
Status Single 20.9 62.8 16.3 43 4.122
Married 11.8 58.2 30.0 110
Community Members? No 18.7 60.3 19.2 107 10.677*
Yes 4.3 54.3 41.3 46
Annual sales (in million rupiah) <300
301-600
601-2500
>2500
23.8
8.3
17.2
25.0
57.1
67.1
58.6
55.0
19.0
30.0
24.1
20.0
42
60
29
20
6.273
Number of permanent employees 1-4
5-19
20-99
>99
28.8
2.7
23.8
0.0
53.8
63.0
61.9
57.1
17.3
34.2
14.3
42.9
52
73
21
7
22.474***
Table 2: Cross-Tabulation Among Main Characteristics Of Distro With Sales
Key Characteristics of Distro Annual sales (in a million Rp.) n Pearson χ2
<300 301-600 601-2500 >2500
Number of stores owned No stores 0.0 50.0 33.3 16.7 6 23.732**
1 stores 39.8 34.9 16.9 8.4 83
2 stores 19.4 47.2 22.2 11.1 36
3 stores 12.5 75.0 12.5 0.0 8
4 stores/more 0.0 50.0 25.0 25.0 20
Number of brands/brands owned 1 35.2 38.5 19.8 6.6 91 20.413**
2 9.7 35.5 29.0 25.8 31
3 or more 19.4 61.3 9.7 9.7 31
The frequency of new products in a year 1 time 66.7 0.0 33.3 0.0 6 17.874**
2 times 22.2 33.3 38.9 5.6 18
3-4 times 22.7 54.5 22.7 0.0 22
More than 4 times 26.2 43.9 15.0 15.0 107
Celebrity endorsement? No 35.5 38.7 19.4 6.5 62 5.325
Yes 20.9 45.1 19.8 14.3 91
Have another business? No 29.4 42.2 17.4 11.0 109 1.854
Yes 20.5 43.2 25.0 11.4 44
The pricing strategy is executed Below competitors 9.5 61.9 19.0 9.5 17 7.189
Same with competitors 16.7 58.3 20.0 5.0 94
Premium Price 6.9 58.6 20.7 13.8 28
Mix 4.5 72.7 9.1 13.6 14
Join the association? No 95.2 68.3 48.3 40.9 104 29.916**
Yes 4.8 31.7 51.7 59.1 49
Participation in trade expo within a year Never 45.3 16.7 13.8 9.1 35 26.416*
Always 9.5 11.7 3.4 9.1 14
two times  4.8 20.0 10.3 9.1 19
3-5 times 31.0 28.3 37.9 40.9 50
>5 times 9.5 23.2 34.5 31.8 35

The results of the study show that the tendency to start a business is relatively more among the male population and it supports the results from previous researchers, for example Schoof (2006) & Bakheet (2018). Table 3 shows that distro’s owner/managers are mostly started their business when they were under 30 years old (87.6%). Compared to general entrepreneurship, young entrepreneurship is more useful because young people are more likely to employ youth, who are more receptive to new economic trends and opportunities. In addition, it is also believed that young people with entrepreneurial skills have been shown to be better employees.

Table 3: Comparison Of Key Characteristics At The Time When The Distro Is Established And Current Situation
Characteristic When the distro is established Current
Key Category Frequency % Frequency %
Owner’s age (year) below 20 20 13.1 1 0.7
20-30 114 74.5 64 41.8
31-40 19 12.4 82 53.6
41-50 - - 6 3.9
Above 50 - - - -
Owner status Single 103 67.3 43 28.1
Married 50 32.7 110 71.9
Level of Education Below High School 4 2.6 2 1.3
High School 62 40.6 32 20.9
Diploma 19 12.4 20 13.1
Bachelor 68 44.4 91 59.5
Master & above - - 8 5.2
Total employee of distro 1-4 109 71.2 52 34.0
5-19 40 26.1 73 47.7
20-99 3 2.0 21 13.7
More 99 1 0.7 7 4.6
Annual revenue below Rp. 300 million 125 81.7 42 27.5
Rp. 301-600 million 17 11.1 60 39.2
Rp. 601-2.5 billion 6 3.9 29 18.9
Above Rp.2.5 billion 5 3.3 22 14.4
Distro ownership Total ownership 89 58.2 93 60.8
Family business 20 13.1 23 15.0
Shared ownership 44 28.7 37 24.2
Company legal form Limited Company 8 5.3 17 11.1
Limited partnership (CV) 81 52.9 75 49.0
Other 64 41.8 61 39.9

Key Characteristics of Distro Companies

The cross-tabulation result between the main characteristics of the distro and the risk of failure can also be seen in Table 1. The analysis results show that failure in business is independent of annual sales but not the number of permanent employees. That is, smaller-scale distros have a smaller risk of failure than larger distros. Other cross-tabulation results are between the main characteristics of the distro with the annual sales can be seen in Table 2. The analysis results show, the annual sales distro can be affected by the number of stores owned, the number of brands owned, the frequency of throwing new products in a year, distro, and the amount of participation in trade expo activities, but not because the distros celebrity endorsement, own or no other business, and also not because of the pricing strategy. Another thing that affects annual sales amounts is the frequency of throwing new products into the market within a year. The study results show that the more innovative a distro (can be seen as number of new products in one year) the more they tend to have higher sales. In addition, distros that join the association have an annual sales trend also higher. So is the more frequent distro of trade expo activities, the higher annual sales.

Discussion

The results show that the distro owners/managers main characteristics are dominated by man, educated, under 40 years old, and married. This result is consistent with previous study by (Soedarsono, 2006; Brata 2010). According to Schoof (2006), this phenomenon is true in low income countries where 25-34 years old are among the most active young entrepreneur. The results also show that the success of the distro, in terms of annual sales, is depended upon: the number of stores that distro owned, number of brands, the frequency of new products introduction, membership in association, and participation in trade expo. Meaning that the more stores, the more new-products introduction in a year, and the more trade expo they follow every year, the more they will gain success in terms of sales. However, in case number of brands, the ideal number is 1 or 2 brands. In addition, joining (become a member) an association (i.e. KICK) also positive to sales. As a market nicher, it can be claimed that the number of stores, the ideal brands, the frequencies of new products introduction, network development, and the participation in trade expo are among the efforts to understand better of their market needs and desires (Toften & Hammerfold, 2010).

This study also makes a comparison between the main characteristics at the time when the distro is established with the today’s condition. There are two major groups of key characteristics in this comparison, namely individual key characteristics and distro key characteristics. In the context of individuals (owners/managers), when they established a distro, they have an average age of 20-30 years, with mostly single status, and more predominantly educated at diploma and below (Table 3). The young entrepreneurs started their distro business in average age of 20-30 years. They started the distro business with little or no experience but with high intention. This is the characteristics of Lewis and Massey (2003) called as “enterprise aware” group. However, in the current situation (after 5-15 years), they dominantly age of 30 years and above, with higher level of education (mostly S1 and above), and with married status (no longer single). Now they are moving into “enterprising” group (Lewis & Massey, 2003) because now they have higher readiness level as well as their intention. Another key characteristic is the existence of the established network among their group (in this case is KICK, the distro owner’s community club). Thus, the characteristics of individual owners/managers as distro entrepreneurs are: scholars, have a passion for business, and have the ability/entrepreneurial skills. According to Pasanen (2003), these kinds of entrepreneurs will have the opportunity to become successful SMEs.

Table 3 shows that at the time of establishment, most distro were micro businesses (number of employees 1-4 people), but currently many have 5-19 employees (small business) and even some have employees of 20 or more people (medium business). This is also supported by annual sales which at the beginning of its establishment was dominated by revenues below 300 million rupiahs (81.7%), now shifted to annual sales of Rp. 301-Rp. 600 million (39.2%), Rp. 601 million-Rp. 2.5 billion (18.9%) and above Rp. 2.5 billion (14.4%). In terms of ownership, the results show that it is not very different between at the time of establishment and now, with the most composition in private companies. Although there is an increase in the form of limited company but not too significant from 5.2% to 11.1%. In general, the legal form of the company is mostly limited partnership (49%). These results show that distro implements a bottom-up process to develop their business (Shani & Chalasani, 1992). They start small by identifying the small market and gradually try to approach a large customer base. This approach seems to be worked at the beginning when the owners/managers have the same aged with their customer-based. A little effort has been done by the distro’s owners/managers to understand what the need and desire of their target market. However, it will become a problem when the distro owners/managers are getting older. They have to have more efforts in order to understand their target markets (in term of age) needs and desires, or perhaps they can follow their original target market (those who have the same aged with the owners/managers) by thinking and doing differently.

Conclusion

There is indeed a little question about the long-missed long-term business orientation in this study. However, the fact that there are about 26% who have age above 10 years can answer that long-term oriented tendency is in the owner of the distro. When viewed from the characteristics of the company, there are several characteristics of the distro that meet the criteria of successful SMEs. The owner of more than one person, has a clear goal, growth-oriented, networking, high-innovation, customers and suppliers, and have good quality and personal knowledge. However, there are still some characteristics to succeed that have not yet emerged: whether the distro remains focused on the initial business (clothing and apparel), to what extent the distro wishes to grow, e.g. to become a global player, not yet seen strong specialization, and not yet indicated whether the distro has good planning.

This research succeeded in showing the distro business which is a niche retail business targeting the urban youth segment with unique clothing products. This business is a form of creative business in addition to the most famous culinary in urban areas. To get into this business is not difficult as long as the prospective businessman has some key points, namely: passion and fundamental knowledge of the product to be sold, have a good relationship and knowledge to the target market segment and all dynamics, have a good relationship to the supplier in this case the possibility is a Makloon company (because not all distro businesses have their production facilities), dare to invest in the establishment of a store along with the development of a "sell" brand (including through celebrity endorsement), and use of internet and social media to help manage and expand sales and customer service. As good as any SMEs enter into the business, but the real challenge comes just after the plunge in this business and wants to keep maintaining the business of this distro in a long time to increase sales figures to grow. This study shows that high annual sales tend to be achieved by distro that: have a large number of online stores, throw new products as often as possible, join distros associations, increase the frequency of participation in trade expo activities, and implicitly own and increase brand equity.

References