THE ENTREPRENEURIAL

MIND-SET IN INDIVIDUALS

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Chapter Objectives
1. To identify and discuss the most commonly cited characteristics found in successful entrepreneurs through The Trait Approach 2. To describe the entrepreneurial mind-set by through OC theory whilst elaborating the crucial role of optimism and chance. 3. To present the major sources of information useful in profiling the entrepreneurial mind-set
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ENTREPRENEUR AS A SET OF TRAITS (THE TRAIT APPROACH)

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Entrepreneurship Theory
Entrepreneurs cause entrepreneurship.

Entrepreneurship is a function of the entrepreneur:

E f (e)

Entrepreneurship is the interaction of skills related to inner control, planning and goal setting, risk taking, innovation, reality perception, use of feedback, decision making, human relations, and independence.

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The Trait approach

As in the case of leadership research, initially

there was a quest to discover the trait or set of traits distinguishing entrepreneurs from nonentrepreneurs and/or managers (Brockhaus, 1980)

The Big Three (Chell, 2008):

Need for achievement (NAch); Locus of control (LOC); and Risk-taking propensity

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The Trait Approach

They should be strongly motivated to overcome

obstacles and to achieve, as originally described by McClelland (1961);

They should feel a great sense of personal control

over outcomes (Rotter, 1966); and,

Given the uncertain nature of the context in

which entrepreneurial activity is engaged, they appear to need to manage risk (Knight, 1921).
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From Big Three to Big Five

Empirical Studies showed mixed evidence There is some support for NAch and mixed

support for ILOC Thus researchers turned to consider other traits

The Big Five

(Lower) Neuroticism (More) Extraversion, (Higher) Openness, (Lower) Agreeableness and (Higher) Conscientiousness
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Neuroticism (sensitive/nervous vs.secure/confident)

Individuals high on this trait experience negative

emotions like anxiety, hostility, depression, impulsiveness and vulnerability. Those low on this trait are considered emotionally stable and are characterized as self-confident, calm, even tempered, and relaxed. Entrepreneurs have to be very self-confident and resilient in the face of stress.

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Extraversion (outgoing/energetic vs.solitary/reserved)

Extraversion is "the act, state, or habit of being

predominantly concerned with and obtaining gratification from what is outside the self".[3] Extraverts tend to enjoy human interactions and to be enthusiastic, talkative, assertive, and gregarious.

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Openness (inventive/curious vs.consistent/cautious)

Openness to Experience : Someone that is

intellectually curious, creative, imaginative, reflective, and untraditional. Openness has moderate positive relationships with creativity, intelligence and knowledge.

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Agreeableness (friendly/compassionate vs.cold/unkind)

Agreeableness

: individuals high on agreeableness are trusting, forgiving, caring, and cooperative, while those low on this trait are manipulative, self-centered, suspicious and ruthless. Its a jungle out there, and entrepreneurs have to be tough to survive.

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Conscientiousness (efficient/organized vs. easy -going/careless)

Conscientiousness :

indicates an individuals degree of organization, persistence, hard work, and motivation to accomplish goals. Conscientious individuals are achievement oriented and dependable. This personality type is the most consistent predictor of job performance across a wide variety of work and occupations.

For comprehensive comments search Wikipedia

for Big Five

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The Big Five and venture success: Is there a linkage (Ciavarella et al., 2004)
In

Examining the relationship of the entrepreneurs personality to long-term venture survival, we measure survival in two ways: (1) the likelihood the venture will survive for at least 8 years and (2) the overall life span of the venture. The Big Five personality attributesextraversion, emotional stability, agreeableness, conscientiousness, and openness to experience provide the measures of the entrepreneurs personality.

Ciavarella, M. A., Bucholtz, A. K., Riordan, C. M., Gatewood, R.

D., & Stokes, G. S. 2004. The Big Five and venture success: Is there a linkage? Journal of Business Venturing, 19: 465 483.
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The Big Five and venture success: Is there a linkage (Ciavarella et al., 2004)
As

hypothesized, the entrepreneurs conscientiousness was positively related to longterm venture survival.

Contrary to expectations, we found a negative

relationship between the entrepreneurs openness and long-term venture survival. emotional stability, and agreeableness were unrelated to long-term venture survival.
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Extraversion,

Common Characteristics of Entrepreneurs

Commitment,

determination, and perseverance

Calculated risk taking Tolerance for failure

Drive to achieve Opportunity orientation Initiative and

High energy level

Creativity and

Innovativeness

responsibility

Vision
Self-confidence and

Persistent problem solving Seeking feedback Internal locus of control Tolerance for ambiguity

optimism

Independence Team building

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Comment on The Trait Approach

We do not argue that personality theory

provides a complete theory of entrepreneurship or even exhausts the range of topics that can be explored at the level of the individual entrepreneur. Rather, our results show that personality must be considered as one important component of a multidimensional model of the variables, processes, and environmental factors affecting entrepreneurship and new venture creation (Zhao and Seibert, 2006, p. 268).

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Outline of the Entrepreneurial Organization

Imagination

Flexibility

Acceptance of Risks

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WHO IS AN ENTREPRENEUR : THE OC THEORY

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Who Are Entrepreneurs?

Independent

individuals, intensely committed and determined to persevere, who work very hard (Persistence). are confident optimists who strive for integrity (optimism) burn with the competitive desire to excel and use failure as a learning tool (Learning from failure- learners)
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They

They

Optimism and Chance: The Elephants in the Entrepreneurship Room

Storey, D. (2011) Optimism and Chance: The

Elephants in the Entrepreneurship Room, International Small Business Journal, 29, 4, 303321.

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Entrepreneurial Mindset: Optimism, Chance and Learning

How can persistence be achieved? How does

it relates to the element of chance?

How is chance a matter of individual choice

and an opportunity offered (or encouraged by the society)?

What is optimism and how does it relates to

the previous point?

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Optimism and Chance

Optimism
(1) A disposition or tendency to look on the more favorable side of events or conditions and to expect the most favorable outcome. (2) The principle that the existing world is the best of all possible worlds.

Chance
(1) The unknown and unpredictable element in happenings that seems to have no assignable cause. (2) An accidental or unpredictable event.
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Optimism and Chance (OC) Theory

1. Optimistic individuals are attracted to self employment 2. They enter self-employment if they have access to wealth 3. In self-employment they enter a game of chance 4. The lucky ones for a period of time have an alignment between their skill set and what the customer wants
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Optimism and Chance (OC) Theory

5. The unlucky ones encounter problems immediately 6. The extent to which the unlucky ones survive depends on access to wealth (+) and alternative employment options 7. If they have wealth they can ride out losses and hope to have a longer run at the table and they luck may turn
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OC Theory in Practice
1. Assume a collection of individuals with different levels of optimism and access to resources and alternative uses of their time. 2. They are faced by a roulette wheel where they know the odds are against them but where there is the possibility of a big win

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OC Theory in Practice
3. Who plays the game? Answer the optimists are more likely to play and those who have some resources and those without good alternatives. This is precisely what we observe. 4. Who stays in the game? The optimists, those with more resources and those with poor alternatives

5. Who drops out of the game? Those who run out of resources and those with better alternatives
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OC Theory in Practice
6. Performance of the survivors: Driven by external circumstances over which the player/business has no control, so good when you have a good run; but a bad run finishes you 7. If you have a good run you acquire resources, you gain the confidence of others leading to more resources what is referred to as a track record 8. You also become more confident- and plausible to others all of which generates more resources which enables you to make lots of mistakes whilst still surviving
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OC Theory and Learning

What sort of learning takes place? Are entrepreneurs really better learners than

non-entrepreneurs or is it only a matter of being optimistic, getting many chances (thus getting experience) and ultimately succeeding?

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OC Theory assumes Jovanovic learning

Only Jovanovic learning takes place. Jovanovic

(1982) assumes that the longer individuals are in business, the better informed they become about their own entrepreneurial talent. The value of this form of learning is that it enables individuals to make a more informed stay or quit business decision.

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Jovanovic Learning
Therefore, the crucial distinction is that by being

in business, the individual makes a more informed distinction between the option of staying in business and moving to an alternative state employment, unemployment, or exiting from the labour force but not that they become a more talented or more able entrepreneur.

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Jovanovic learning
It does not assume that entrepreneurial talent

increases with time. Time only enhances the ability of the individual to assess that talent. The value of that greater accuracy is that the individual is able to make a better informed judgement about whether or not to continue in business

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Conclusion of OC Theory
You can do the right things and fail You can do the wrong things and succeed Learning is really hard for new/small firms because of noise Forecasting performance is so much harder than backcasting Entrepreneurs are optimists

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Conclusion of OC Theory
A theory based on optimism and chance implies:
The wealthy survive in business Performance fluctuates wildly over time Many one-shot growers Those who re-start after failure do NOT (Necesarrily) perform better than novices
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SOURCES OF RESEARCH ON ENTREPRENEURS

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Sources of Research on Entrepreneurs

Research and Popular Publications

Direct Observation

Speeches, Seminars and Presentations

The Entrepreneurial Mindset

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Sources of Research on Entrepreneurs (contd)

Publications

Direct Observation of

Technical and professional journals Textbooks on entrepreneurship Books about entrepreneurship Biographies or autobiographies of entrepreneurs Compendiums about entrepreneurs News periodicals Venture periodicals Newsletters Proceedings of conferences The Internet

Practicing Entrepreneurs
Interviews Surveys Case studies

Speeches, Seminars, and

Presentations by Practicing Entrepreneurs

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The Dark Side of Entrepreneurship

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The Dark Side of Entrepreneurship

The Entrepreneurs Confrontation with Risk

Financial risk versus profit (return) motive varies in entrepreneurs desire for wealth. Career riskloss of employment security Family and social riskcompeting commitments of work and family Psychic riskpsychological impact of failure on the well-being of entrepreneurs

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Figure

2.1

Typology of Entrepreneurial Styles

Source: Thomas Monroy and Robert Folger, A Typology of Entrepreneurial Styles: Beyond Economic Rationality, Journal of Private Enterprise IX(2) (1993): 71. 239

Stress and the Entrepreneur

Entrepreneurial Stress

The extent to which entrepreneurs work demands and expectations exceed their abilities to perform as venture initiators, they are likely to experience stress.

Causes of Entrepreneurial Stress

Loneliness Immersion in business People problems Need to achieve

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Entrepreneurs: Type A Personalities

Chronic and severe sense of time urgency. Constant involvement in multiple projects subject

to deadlines.

Neglect of all aspects of life except work. A tendency to take on excessive responsibility,

combined with the feeling that Only I am capable of taking care of this matter. faster than most people.

Explosiveness of speech and a tendency to speak

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The Entrepreneurial Ego

Self-Destructive Characteristics

Overbearing need for control Sense of distrust Overriding desire for success Unrealistic optimism
Entrepreneurial Motivation

The quest for new-venture creation as well as the willingness to sustain that venture.
Personal characteristics, personal environment, business environment, personal goal set (expectations), and the existence of a viable business idea.

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The Entrepreneur as Manager and Co-worker

The traits and behaviors responsible for the

entrepreneurs success also lead to their undoing/ failure as managers and co-workers. Study of 38 entrepreneurs in USA and Canada shows a strong need for control and suspicion about authority. Thus they are unable to work in structured situation where authority is delegated (unless they have created the structured and work is done on their terms).
The Dark Side of Entrepreneurship Manfred (1985)

The Entrepreneur as Manager and Co-worker

They are unable to shows submission expected of

subordinate and shows great deal of concern with minute details that is stifling.

They are poor collaborator, they are ready for the

worst.

Entrepreneurs require more appreciation Together they can be problematic as employees

The Dark Side of Entrepreneurship Manfred (1985)

Entrepreneurs: The Need for Shifting Between Role

A small business practitioner may be asked to

enact any one of seven roles at any one time: (1) Entrepreneur; (2) Owner. (3) Manager; (4) Entrepreneur-owner. (5) Entrepreneur-manager; (6) Owner-manager. (7) Entrepreneur-owner-manager.
They can be considered to reflect seven different

stakeholders, each demanding the possession and application of specific skills and abilities.

Beaver and Jennings (2005)

The small firm management process

Entrepreneurs: The Need for Shifting Between Role

The demands of the seven roles are found within the

unconscious mind of the small business practitioner and compete for dominance that will be manifested at the conscious level. When faced with a specific business problem, practitioners will unconsciously adopt the stance of the role that most closely conforms to their personal perceptions of the situation and provides the best vehicle for satisfying their personal expectations. These personal expectations may manifest themselves as strong needs for instantaneous selfgratification and egocentric behavior.
Beaver and Jennings (2005)

Entrepreneurs: The Need for Shifting Between Role

Entrepreneurs

are found perceiving their organization as personal property to be used as a vehicle for satisfying personal ambitions Organizational objectives are ignored into subordinate positions and personal aims take precedence Thus they act in a misguided, mistaken and disappointing manner when faced with business difficulties The behavior is well-intentioned and not deliberate
Beaver and Jennings (2005)

Entrepreneurs: The Need for Shifting Between Role

In situations of organizational crisis there is a

natural tendency for the small business practitioner to centralize control. Drawing responsibility inwards increases power by allowing the practitioner to deny the accuracy of information provided and reject the abilities of others who may be in a position to offer constructive help and advice. Such actions of owner-managers may be interpreted as despotism preventing the successful marshaling of organization processes and people who must be trusted to implement leadership initiatives.
Beaver and Jennings (2005)

Entrepreneurial Traits as Barrier: The case of Transition Towards a Managerial Role

This study examines the case of a fast-growing

small business, whose owner sought the crucial transition from entrepreneurial operation to professionally managed business.

It concentrates on three important elements of the

company: people management, planning, and the customer.

McKenna (1996)

Entrepreneurial Traits as Barrier: The case of Transition Towards a Managerial Role

It considers each of these elements in the context

of the four concepts developed by De Vries (1989) in his description of some of the darker sides of entrepreneurship:

i) Need for control; ii) Sense of distrust; iii) Need for applause; iv) Defensive operations.
McKenna (1996)

Entrepreneurial Traits as Barrier: The case of Transition Towards a Managerial Role

Conclusion:

In extreme cases of distorted reasoning and action, the transition necessary for organizational growth is difficult, if not impossible, and the organization may be destined for perpetual smallness, or, more unfortunately, destruction.

While dark side of a personality can affect

others, self-awareness is the answer to problems in this area.

McKenna (1996)

Dealing with Stress

Networking Getting away from it all Communicating with employees Finding satisfaction outside the company Delegating Exercising Rigorously

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