Sociologist Martin Ruef is interested in the little guy when it comes to entrepreneurship. He wants to answer a burning question: How come some small businesses thrive and some don't?
Turns out, there are two important variables that tip the odds of success for a small business: strong and active support from a spouse, and a low level of diversity among the people working in the business. The diversity could be ethnic, occupational, or socioeconomic -- that didn't matter -- what did matter was how easy it was to resolve conflict.
"There are many benefits to diversity in established firms -- different mindsets, different ideas," he says, "but in these small ventures of two to six people, there's a fair amount of conflict, especially when folks have very different backgrounds. That seems to fade over the first couple of years."
His fascination with "average" entrepreneurs in contemporary society -- realtors, direct sellers, people who start restaurants and laundromats -- is in part a personal heritage. One of his ancestors started a textile business 150 years ago that ultimately became the fourth-largest enterprise in Vorarlberg, Austria. It later failed when the operation was passed on to another of Ruef's ancestors.
Recently, Ruef has widened his focus to include entrepreneurship in historical times. "If you take the contemporary view only, you're likely to be driven by current fashion and fad cycles," he says. "The historical perspective, even in the short run, can help you gauge whether there are durable patterns of entrepreneurship, and how long-term patterns in terms of the business and social environment affect entrepreneurial prospects."
For one of his projects, he is looking at how businesses thrived -- or not -- in England during the Industrial Revolution. Telephone surveys aren't possible, so he uses other sources of data. "We've used the British census back to 1801, and baptism records [there] going back to 1700," he says. "Baptism records identify the occupation of the individual being baptized. It's the best source of data on occupation in early modern society and churches never get rid of the data."
He and his students are focusing on the time between 1700 and 1850 in northern England, the center of the Industrial Revolution.
They have documented that rates of entrepreneurship declined overall during the period, with artisans and owners of small factories declining the most and shopkeepers actually experiencing a small uptick. Historians have long assumed that the factory system displaced the small workshops because of its superior technology, but Ruef says his data -- particularly the timing of the decline -- seem to indicate that changes in labor practices may have played more of a role.
An engraving from a British rope factory in 1878.
He's finding something similar in his research on entrepreneurship in the northeastern United States in the years of the early Republic, and in the South after the Civil War. In all three locations, small entrepreneurships relied on dependent or coerced labor -- long apprenticeship in England (a form of child labor), indentured servants in the Northeast, and slavery in the South. Institutionally banning those types of labor may have been more of a death blow to small entrepreneurs than the new technology of larger factories.
"It's an interesting dynamic in terms of how eliminating one blatant form of inequality and coercion ultimately may create inequality within a field of entrepreneurship, where it's only the larger enterprises that have the access to cash-on-hand to pay wage workers that are able to survive," he says.
As a sociologist rather than a pro-business booster, Ruef sees both positives and negatives to entrepreneurship. "On the one hand, we recognize that entrepreneurship is often seen as path to upward mobility. Historically we see a lot of entrepreneurship in ethnic enclaves where individuals may have had few other opportunities for conventional employment, and we see a lot of entrepreneurship in other marginalized groups," he says. "On the other hand, the failure rates of entrepreneurship are extremely high. There are both personal and social costs."
Ruef first became interested in studying business through the lens of sociology when he was a fresh-out-of-college computer scientist, writing software to help manufacturers optimize their operations and supply chains. "I found that it involved a lot of behavioral assumptions made by folks who had engineering backgrounds, but not social science backgrounds," he says. This spurred him to get a PhD in sociology at Stanford. As an academic in the new world of "big data" where sociologists mine online historical records and use web crawling software to cull information from the internet, Ruef says, "The computer programming skills still help."
In a university with entrepreneurial initiatives woven into its fabric, Ruef sees his role as providing context and a bigger picture -- perspective on who pursues entrepreneurial dreams, why they do it, and to what extent they succeed.
"The problem with focusing on entrepreneurships that have been successful, which is what you get in the business press, is bias toward these success stories," he says. "One thing you get with a larger sample, both historical and contemporary, is a broader sense of who has failed as well as who has succeeded."