Examining Business Turnover in theTexas Charter Boat Fishing Industry: 1975·80

ROBERT B. DinaN and DAVID K. LOOMIS

The Port Aransas, Tex., charter boat fleet.

Introduction

The Texas charter fishing boat in­dustry has received much previousresearch attention. The research hasaddressed the distribution andorganization of charter boatbusinesses, operator motivations, andsocio-demographic characteristics(Ditton et al., 1977a), business costsand returns (Ditton et aI., I977a;Woods and Ditton, 1980), theirfishing clientele (Ditton et aI., 1977b;Mertens l

), local and regionaleconomic impacts (Ditton et al. 2), andharvest (McEachron and Matlock,1983).

Each of these studies reports resultsof a cross-sectional study. A cross­sectional study utilizes data collectedat one point in time from a particularpopulation to explore relationships(Borg and Gall, 1983). Our nation­wide review of the literature on thecharter boat fishing industry revealedthat all were cross-sectional studies aswell. The cross-sectional study designprecludes any study of change, andconsequently the extent of stabilityand turnover among charter fishingbusinesses remains unexplored. Theevaluation of stability and turnoverrequires the use of time series dataand temporal analysis. Temporalanalysis is used by social scientists in­terested in change, process, and the

'Menens. T. J. 1977. The Texas Gulf coastcharter boat fisherman: A description of thepopulation, their charter fishing participation,and opinions about their fishing experience.Dep. Rec. Parks, Tex. A&M Univ., unpubl.Master's Prof. Pap., 28 p.'Ditton, R. B., R. N. Jarman, T. J. Mertens,M. P. Schwartz, and S. A. Woods. 1977.Charter fishing on the Texas coast. Unpubl.tech. rep. submitted to TAMU Sea Grant ColI.Program, 186 p.

dynamic aspects of social and culturalphenomena (Glenn and Frisbie, 1977).

This paper used data collected attwo points in time to address the ex­tent of turnover in the Texas charterboat industry between 1975 and 1980.If it is assumed that the best predictorof the future is the recent past, then aknowledge of trends can not only leadto a better understanding of thephenomena, but also providemanagerially useful information(Land, 1983).

A large percentage of businessfirms in the United States are, by anyclassification, small. Forty-six percenthave fewer than five employees (SmallBusiness Administration, 1983). In­dividually, these small firms are fre­quently described statistically in termsof annual sales, products offered,economic effect, or geographic loca­tion (Preston, 1977). However, these

statistics give little information aboutwhat small businesses are like asgroups or types. Also, these statisticsinfer little about the characteristicsthat distinguish the many differentgroups of small firms from oneanother.

Based upon his study of smallbusinesses in Buffalo, N.Y., Preston(1977) suggested a five-categoryclassification system to better portraysmall business firms. He identifiedfive business types: The rare success,small business industries, firms basedon successful specialization, satellitefirms, and turnover firms.

High turnover is a characteristicemphasized in every study of smallbusiness. It has been estimated that as

The authors are with the TexasAgricultural Experiment Station (Recrea­tion and Parks), Texas A&M University,College Station, TX 77843.

47(1), /985 43

Figure I. - Distribution of Texas Gulf Coast charter businesses operating in1975 and 1980, by region.

South Padre

(10,27)

3Matheusik, R. E. 1980. An exploratoryanalysis of the extent of stability and thecharacteristics of change in the charterboat in­dustry on the Texas Gulf coast. Dept. Rec.Parks. Tex. A&M Univ., unpubl. rep., 42 p.

Methods

An inventory of Texas charter boatfishing businesses was compiled in1975 by Ditton et al. (footnote 2). Acharter fishing boat business had tomeet the following criteria to be in­cluded in that inventory:

I) Operates a vessel that is U.S.Coast Guard certified if it is morethan 5 gross tons. If the vessel is lessthan 5 gross tons, the operator is onlyrequired to have a Coast Guardmotorboat operator's license.

2) Provides the services of a boatand/or services of a U.S. CoastGuard licensed captain to take six orless people fishing (either bay and/orGulf) for monetary remuneration.

3) Utilizes a formal advertisingmethod such as the classified sectionof telephone directories, radio, televi­sion, newspapers, magazines, bro­chures, or an established charteringservice.

Using these criteria, 88 charter boatbusinesses were identified andgrouped regionally on the Texascoast. This 1975 inventory of charterbusinesses served as a baseline for thispaper.

A second inventory of Texascharter boat fishing businesses wascompiled during 1980 using the samemethods and definitions used in the1975 inventory (Matheusik 3), with

factors other than financial rewardHouston motivate individuals to invest in a

charter fishing business. After all, thecharter boat business has been charac­terized by some operators as "fishingall day, everyday, from your own ful­ly tax deductible boat and getting paidfor it" (Groene, 1973). When Texascharter boat operators were asked in1975 why they became charteroperators, the majority said they hadnot entered the charter fishingbusiness for economic reasons. Thismakes charter boat businesses likelycandidates for classification as "turn­over firms."Freeport

(27,28)

(1975 Pop., 1980 Pop.)

~ Corpus Christi

Port O'Connor

(8,10)

entrepreneurs see an unsatisfied de­mand in the marketplace, and the cor­responding opportunity to fill thatunmet need. The belief that en­trepreneurs are profit-motivated iswidely accepted (Broom and Longe­necker, 1966; Dibble, 1974). Further,those entrepreneurs motivatedprimarily by potential financialrewards are usually the most suc­cessful (Baty, 1974).

Financial reward has not beendemonstrated as the primary moti­vator in the charter fishing industry.For example, the 1975 average netprofit for a Texas charter fishingvessel before any interest paymentsand income taxes was $5,804 per boat(Ditton et aI., 1977a). This suggests

•SanAntonio

o v"" L

many as one-third of all small busi­nesses vanish each year (exit), only tobe replaced by an equal number ofoften unpromising new arrivals (en­try) (Preston, 1977). He described the"turnover firm" as follows:

"Even when the optimum scale ofan economic activity is relativelylarge, and possibilities for successfuldifferentiation unavailable, if the poolof potential entrants is great enoughand no institutional barriers preventit, there may be a perpetual andnumerous small business populationcomposed of turnover firms, whoseactivities consist primarily of 'entry'followed by 'exit' ".

New businesses are created when

44 Marine Fisheries Review

Figure 2. - Subpopulation changes in charterboat fishing businesses between1975 and 1980, by region.

Table 1.-Turnover in the Texas charter boat fishingindustry by region.

Houston

Freeport

(17.10.18)

-+ Corpus Christi

(Dropout, Steadfast, New)

(1.7.3)

(65 percent). Only 42 businessesoperating in 1975 were still operatingin 1980 (35 percent) (Fig. 2) (Table I,2).

Differences between regions in thepercentage of steadfast, dropout, and

Table 2.-Turnover in the charter boat fishing industry1980 along the Texas Gulf coast.Pop.

Total Dropouts Steadfast28 Year businesses (1975-80) (1975-80)

10 1975 88 46 (52%) 42 (48%)16

40 NewTotal businesses Steadfast

27 Year businesses (1975-80) (1975-80)

121 t980 121 79 (65%) 42 (35%)

45

(21.9.311

79

20

31

South Padre

(3.7.20)

9

7 39 7

42

21

3

17 10 18

46

Drop- Stead-out fast New

•SanAntonio

populations reveals a different pic­ture. Of the 88 businesses operating in1975, 46 had dropped out of (exited)business by 1980 (52 percent), and 79of the 121 businesses operating in1980 were new (entered) since 1975

1975Region Pop.

Freeport 27Port

O'Connor 8Rockport 13Port

Aransas 30South

Padre 10

Total 88

121 businesses identified and alsogrouped by region to enable com­parison.

The descriptive data for 1975 and1980 provide one view of the Texascharter fishing boat industry. Takentogether, the two cross-sectional datasets showed an increase in the size ofthe Texas charter fishing industry.However, the extent of change duringthis period is unknown. By separatingthe 1975 population of charter boatbusinesses into three subpopulations(steadfast, dropout, and new charterbusinesses), we examined the extent ofstability in the industry between 1975and 1980.

The steadfast subpopulation in­cludes those businesses that wereoperating in 1975 and remained inbusiness during the 5-year studyperiod. The dropout subpopulationincludes those businesses thatdeparted from the industry sometimebetween 1975 (after the first inventorywas made) and 1980 for one reason oranother. They were operating in 1975but not 1980. The new business sub­population includes those businessesthat entered the industry after the1975 inventory was made. Changes inthese three subpopulations will in­dicate the rate of turnover, or therelative temporal stability, of theTexas charter boat fishing industry.

A high percentage of steadfastbusinesses indicates stability, while ahigh percentage of dropout and/ornew businesses indicates a high turn­over rate and temporal instability.The reader is cautioned to rememberthat the analysis reported here isbased on two temporal data points.

47(1), /985

Results

Figure I shows the growth in thenumber of operating charter fishingbusinesses between 1975 and 1980.Thirty-three more businesses wereoperating in 1980 than 1975, a 37.5percent increase. Net change in thenumber of operating charterbusinesses between 1975 and 1980varies by region (Table I). While itmight be assumed the industry is en­joying steady growth, looking atchanges in the three identified sub-

A 35-fool Hatleras for sale.

new subpopulations are shown inTable 3. The two regions with thehighest dropout rates were Freeportand Port Aransas which are adjacentto the Houston/Galveston and SanAntonio/Corpus Christi metropolitanareas. These two regions also hadhigh percentages of new businesses in1980. South Padre Island stands outas a major growth region with a lowdropout rate and high entry rate.Taken together, the high percentage(52 percent) of operators whodropped out and some of the regionalexit/entry patterns suggest the Texascharter boat industry is a turnovertype industry.

Discussion

Two explanations for the high turn­over can be offered. The first is en­trepreneurs have been entering thecharter business for all the wrongreasons. Charter boat operations areconducted in a business climatecharacterized by high levels of com­petition and low profit margins.Many businesses fail in this harshbusiness climate. Persons wishing toenter this business and be successfulshould be oriented to business and

46

Table 3.-Variation in net growth and percent changein subpopulatlons by regions.

Steadfast Dropout Newbusinesses busl- busi-

nesses nesses% of % of {% of (% of

Net' 1975 1980 1975 1980Region change pop. pop. pop.) pop.)

Freeport + 1 37 36 63 64Port O·Con. +2 88 70 12 30Rockport +3 69 56 31 44Port

Aransas +10 30 22 70 78South

Padre + 17 70 26 30 74

1 Net change = Businesses operating In 1980 minusbusinesses operating in 1975.

motivated by concerns for profit. Inan effort to rationalize the entry pro­cess, a detailed financial analysis wasconducted in Texas (Woods and Dit­ton, 1980) and distributed in an effortto inform potential operators on howmuch business must be generated tobreak even financially.

A second explanation for the rateof turnover observed is that thesebusinesses naturally turn over as thebusiness environment changes or asthe operator loses interest, has par-

ticular experiences, or chooses todevote his time, boat, and moneyelsewhere. The price of diesel fuelprovides an example of how theoperating environment can change. In1975, diesel fuel sold for approx­imately $0.40 per gallon. By 1980 thishad risen to $1. 10 per gallon.

Charter fishing boat businessesfollow the pattern for a turnoverbusiness as decribed by Prestonearlier. To put the rate of turnoveridentified for this business sector insome perspective, we compared ourfindings with the rate of smallbusiness failures in general. Thedropout rate for small businesses ingeneral (1-4 employees) between 1978and 1980 was 10.5 percent, or approx­imately 5.3 percent annually (SmallBusiness Administration, 1983). Thiswould result in a 1975-80 dropout rateof approximately 26.3 percent forsmall businesses with 1-4 employees,half the dropout rate experienced bythe Texas charter boat fishing in­dustry.

An additional consideration notreOected in the pattern of turnoveridentifed in each region has to do withthe charter boat fishing businesscriteria used in each inventory. Acharter business was required to meetseveral criteria before being con­sidered a legitimate operation. Thosenot meeting these criteria would nothave been classified as a charter boatoperation in 1975. This was done inresponse to previous studies of charterboat businesses on Lake Michigan(Ditton and Strang, 1976; Strang andDitton, 1976) where "bandit"operators were systematically ex­cluded from study. A "bandit" wasdefined as someone who instan­taneously responded to an opportuni­ty to take someone fishing for finan­cial reward. Generally, these boatswere operated without licensed cap­tains, Coast Guard certification,advertising, insurance, and requiredsafety equipment.

However, this determination canexclude businesses that over time haveaccumulated experience, established ahistory of assisting customers catchfish, and developed a clientele of

Marine Fisheries Review

satisfied customers that provide asource of repeat business andtherefore no longer need to advertisetheir services. Consequently, thesecharter businesses would not havebeen identified in 1975 and counted inthe 1980 inventory as steadfastoperators. Although these businessesmay in fact exist and satisfy the needsof their clientele, they would notgenerally be available to provide serv­ices for novice fisherman or tourists.Consequently, there may be a largersteadfast population of charterbusinesses, but they were not inven­toried initially because they could notbe located through public informationchannels. Fisherman interested incharter services would also be unableto locate those charter businesses thatno longer advertise their services. Itcan be argued that this group ofcharter operators serve an establishedand perhaps more experienced groupof fishermen, while only those charterbusinesses that advertise are availableto novice charter fishermen ortourists.

Implications

With 65 percent of the availablecharter businesses having less than 5years of operating history, a largedegree of inexperience exists. Thismay result in lower catch rates at theexpense of paying fishermen.

New and inexperienced charteroperations will either survive or fail.When they fail, a new and equally in­experienced business replaces it. Thisnew business will probably provideservices of comparable quality. Thissame turnover phenomena may beobserved with pier fishing businesses,

47(1), /985

party boats, bait businesses, andfishing tournaments.

If a region or community is todevelop its marine recreationalfisheries and derive the relatedeconomic benefits, efforts must bemade to allow fishermen access to therelatively small population of ex­perienced operators. Further, thosecommunities or regions able to main­tain a steadfast or continuing charterboat fleet will be in a stronger com­petitive position than other areas inattracting new fishermen and theirmonetary expenditures.

There are also implications forfuture research. Instead ofperpetuating the continuing trend ofcross-sectional studies of statewideand regional coastal charter fishingfleets, more attention to temporalanalyses and the dynamics of changeis needed. This requires the comple­tion of charter boat business inven­tories on a regular and timely basis,e.g., every 5 years, with carefulmonitoring of entries and exits.

Furthermore, there is need forgreater investigative depth in futurestudies. In addition to identifyingcharter operators who advertise theirservice generally, belong to associa­tions, and are listed as a part of the in­dustry (as is the current practice inmost charter fishing industry studies),effort needs to be invested in locatingthose operators who are successfulbut generally invisible to the in­vestigator's eye. Efforts need to bemade to differentiate these operatorsfrom the "bandits" who become in­stant charter operators when facedwith an opportunity for financialgain.

Acknowledgments

This research was supported withfunding from the Texas A&M SeaGrant College Program, NationalMarine Fisheries Service, and theTexas Agricultural Experiment Sta­tion. We thank Mick Matheusik forhis diligent field work efforts in 1980.

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47