THE ENTREPRENEURIAL THE ENTREPRENEURIAL

MIND-SET IN MIND-SET IN

INDIVIDUALSINDIVIDUALS

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Chapter ObjectivesChapter Objectives

1.1. To identify and discuss the most commonly To identify and discuss the most commonly cited characteristics found in successful cited characteristics found in successful entrepreneurs through “The Trait Approach”entrepreneurs through “The Trait Approach”

2.2. To describe the entrepreneurial mind-set by To describe the entrepreneurial mind-set by through “OC theory” whilst elaborating the through “OC theory” whilst elaborating the crucial role of “optimism and chance”.crucial role of “optimism and chance”.

3.3. To present the major sources of information To present the major sources of information useful in profiling the entrepreneurial mind-useful in profiling the entrepreneurial mind-setset

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ENTREPRENEUR AS A SET OF TRAITS ENTREPRENEUR AS A SET OF TRAITS (THE TRAIT APPROACH)(THE TRAIT APPROACH)

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Entrepreneurship TheoryEntrepreneurship Theory• Entrepreneurs cause entrepreneurship.Entrepreneurs cause entrepreneurship.

Entrepreneurship is a function of the entrepreneur:Entrepreneurship is a function of the entrepreneur:

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. 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.

( )E f e

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The Trait approachThe Trait approach

• As in the case of leadership research, initially there was a quest to dis cover the trait or set of traits distinguishing entrepreneurs from non-entrepreneurs 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 ApproachThe 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”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.  It’s 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

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

• In Examining the relationship of the entrepreneur’s In Examining the relationship of the entrepreneur’s personality to long-term venture survival, we measure personality to long-term venture survival, we measure survival in two ways: (1) the likelihood the venture will survival in two ways: (1) the likelihood the venture will survive for at least 8 years and (2) the overall life span survive for at least 8 years and (2) the overall life span of the venture. The ‘‘Big Five’’ personality attributes—of the venture. The ‘‘Big Five’’ personality attributes—extraversion, emotional stability, agreeableness, extraversion, emotional stability, agreeableness, conscientiousness, and openness to experience provide conscientiousness, and openness to experience provide the measures of the entrepreneur’s personality. the measures of the entrepreneur’s 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 The Big Five and venture success: Is there a linkage (a linkage (Ciavarella et al., 2004))• As hypothesized, the entrepreneur’s As hypothesized, the entrepreneur’s

conscientiousness was positively related to conscientiousness was positively related to long-term venture survival.long-term venture survival.

• Contrary to expectations, we found a Contrary to expectations, we found a negative relationship between the negative relationship between the entrepreneur’s openness and long-term entrepreneur’s openness and long-term venture survivalventure survival..

• Extraversion, emotional stability, and Extraversion, emotional stability, and agreeableness were unrelated to long-term agreeableness were unrelated to long-term venture survival.venture survival.

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Common Characteristics of Common Characteristics of EntrepreneursEntrepreneurs

• Commitment, Commitment, determination, and determination, and perseveranceperseverance

• Drive to achieveDrive to achieve

• Opportunity orientationOpportunity orientation

• Initiative and Initiative and responsibilityresponsibility

• Persistent problem Persistent problem solvingsolving

• Seeking feedbackSeeking feedback

• Internal locus of controlInternal locus of control

• Tolerance for ambiguityTolerance for ambiguity

• Calculated risk takingCalculated risk taking

• Tolerance for failureTolerance for failure

• High energy levelHigh energy level

• Creativity and Creativity and InnovativenessInnovativeness

• VisionVision

• Self-confidence and Self-confidence and optimismoptimism

• IndependenceIndependence

• Team buildingTeam building

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Comment on The Trait ApproachComment 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 Outline of the Entrepreneurial OrganizationOrganization

ImaginationImagination

FlexibilityFlexibility Acceptance of Risks

Acceptance of Risks

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WHO IS AN WHO IS AN ENTREPRENEUR : THE ENTREPRENEUR : THE

“OC THEORY”“OC THEORY”

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Who Are Entrepreneurs?Who Are Entrepreneurs?

Independent individuals, intensely committed Independent individuals, intensely committed and determined to persevere, who work very and determined to persevere, who work very hard (Persistence).hard (Persistence).

They are confident optimists who strive for They are confident optimists who strive for integrity (optimism)integrity (optimism)

They burn with the competitive desire to excel They burn with the competitive desire to excel and use failure as a learning tool (Learning and use failure as a learning tool (Learning from failure- learners)from failure- learners)

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Optimism and Chance: The Elephants in Optimism and Chance: The Elephants in the Entrepreneurship Roomthe Entrepreneurship Room• Storey, D. (2011) ‘Optimism and Chance: Storey, D. (2011) ‘Optimism and Chance:

The Elephants in the Entrepreneurship The Elephants in the Entrepreneurship Room’, International Small Business Room’, International Small Business Journal, 29, 4, 303-321.Journal, 29, 4, 303-321.

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Entrepreneurial Mindset: Optimism, Chance and Entrepreneurial Mindset: Optimism, Chance and LearningLearning

•How can persistence be achieved? How How can persistence be achieved? How does it relates to the element of chance? does it relates to the element of chance?

•How is chance a matter of individual How is chance a matter of individual choice and an opportunity offered (or choice and an opportunity offered (or encouraged by the society)?encouraged by the society)?

•What is optimism and how does it What is optimism and how does it relates to the previous point?relates to the previous point?

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Optimism and ChanceOptimism and Chance

• OptimismOptimism(1) A disposition or tendency to look on the more (1) A disposition or tendency to look on the more

favorable side of events or conditions and to expect favorable side of events or conditions and to expect the most favorable outcome. the most favorable outcome.

(2) The (2) The principleprinciple that the existing world is the best of that the existing world is the best of all possible worlds.all possible worlds.

• ChanceChance(1) The unknown and unpredictable element in (1) The unknown and unpredictable element in

happenings that seems to have no assignable cause.happenings that seems to have no assignable cause.(2) An accidental or unpredictable event.(2) An accidental or unpredictable event.

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Optimism and Chance (OC) TheoryOptimism and Chance (OC) Theory

1. Optimistic individuals are attracted to self 1. Optimistic individuals are attracted to self employmentemployment

2. They enter self-employment if they have access 2. They enter self-employment if they have access to wealthto wealth

3. In self-employment they enter a game of chance3. In self-employment they enter a game of chance

4. The lucky ones for a period of time have an 4. The lucky ones for a period of time have an alignment between their skill set and what the alignment between their skill set and what the customer wantscustomer wants

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Optimism and Chance (OC) TheoryOptimism and Chance (OC) Theory

5. The unlucky ones encounter problems 5. The unlucky ones encounter problems immediatelyimmediately

6. The extent to which the unlucky ones survive 6. The extent to which the unlucky ones survive depends on access to wealth (+) and alternative depends on access to wealth (+) and alternative employment optionsemployment options

7. If they have wealth they can ride out losses and 7. If they have wealth they can ride out losses and hope to have a longer run at the table and they hope to have a longer run at the table and they luck may turnluck may turn

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OC Theory in Practice OC Theory in Practice

1. Assume a collection of individuals with different 1. Assume a collection of individuals with different levels of optimism and access to resources and levels of optimism and access to resources and alternative uses of their time.alternative uses of their time.

2. They are faced by a roulette wheel where they 2. They are faced by a roulette wheel where they know the odds are against them but where there is know the odds are against them but where there is the possibility of a big winthe possibility of a big win

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OC Theory in PracticeOC Theory in Practice

3. Who plays the game? Answer – the optimists 3. Who plays the game? Answer – the optimists are more likely to play and those who have some are more likely to play and those who have some resources and those without good alternatives. resources and those without good alternatives. This is precisely what we observe.This is precisely what we observe.

4. Who stays in the game? The optimists, those 4. Who stays in the game? The optimists, those with more resources and those with poor with more resources and those with poor alternativesalternatives

5. Who drops out of the game? Those who run out 5. Who drops out of the game? Those who run out of resources and those with better alternativesof resources and those with better alternatives

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OC Theory in PracticeOC Theory in Practice

6. Performance of the survivors: Driven by 6. Performance of the survivors: Driven by external circumstances over which the external circumstances over which the player/business has no control, so good when you player/business has no control, so good when you have a good run; but a bad run finishes youhave a good run; but a bad run finishes you

7. If you have a good run you acquire resources, 7. If you have a good run you acquire resources, you gain the confidence of others – leading to you gain the confidence of others – leading to more resources – what is referred to as a track more resources – what is referred to as a track recordrecord

8. You also become more confident- and plausible 8. You also become more confident- and plausible to others all of which generates more resources to others all of which generates more resources which enables you to make lots of mistakes whilst which enables you to make lots of mistakes whilst still survivingstill surviving

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OC Theory and LearningOC Theory and Learning

• What sort of learning takes place?What sort of learning takes place?

• Are entrepreneurs really better “learners” Are entrepreneurs really better “learners” than non-entrepreneurs or is it only a than non-entrepreneurs or is it only a matter of being optimistic, getting many matter of being optimistic, getting many chances (thus getting experience) and chances (thus getting experience) and ultimately succeeding?ultimately succeeding?

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OC Theory assumes Jovanovic learningOC Theory assumes Jovanovic learning

• Only Jovanovic learning takes place. Only Jovanovic learning takes place.

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

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Jovanovic Learning Jovanovic Learning

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

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Jovanovic learningJovanovic learning

• It does not assume that entrepreneurial talent θ 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 TheoryConclusion of OC Theory

•You can do the “right” things and failYou can do the “right” things and fail

•You can do the wrong things and succeedYou can do the wrong things and succeed

•Learning is really hard for new/small firms because of noiseLearning is really hard for new/small firms because of noise

•Forecasting performance is so much harder than Forecasting performance is so much harder than “backcasting”“backcasting”

•Entrepreneurs are optimistsEntrepreneurs are optimists

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Conclusion of OC TheoryConclusion of OC Theory

A theory based on optimism and chance implies:A theory based on optimism and chance implies:

• The wealthy survive in businessThe wealthy survive in business

•Performance fluctuates wildly over timePerformance fluctuates wildly over time

•Many one-shot growersMany one-shot growers

•Those who re-start after failure do NOT Those who re-start after failure do NOT (Necesarrily) perform better than novices(Necesarrily) perform better than novices

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SOURCES OF RESEARCH SOURCES OF RESEARCH ON ENTREPRENEURSON ENTREPRENEURS

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Sources of Research on EntrepreneursSources of Research on Entrepreneurs

The Entrepreneurial

Mindset

The Entrepreneurial

Mindset

Speeches, Seminars and Presentations

Speeches, Seminars and Presentations

Direct Observation

Direct Observation

Research and Popular

Publications

Research and Popular

Publications

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Sources of Research on Entrepreneurs Sources of Research on Entrepreneurs (cont’d)(cont’d)

• PublicationsPublications Technical and professional Technical and professional

journalsjournals

Textbooks on entrepreneurshipTextbooks on entrepreneurship

Books about entrepreneurshipBooks about entrepreneurship

Biographies or autobiographies Biographies or autobiographies of entrepreneursof entrepreneurs

Compendiums about Compendiums about entrepreneursentrepreneurs

News periodicalsNews periodicals

Venture periodicalsVenture periodicals

NewslettersNewsletters

Proceedings of conferencesProceedings of conferences

The InternetThe Internet

• Direct Observation of Direct Observation of Practicing Practicing EntrepreneursEntrepreneurs

InterviewsInterviews SurveysSurveys Case studiesCase studies

• Speeches, Seminars, Speeches, Seminars, and Presentations by and Presentations by Practicing Practicing EntrepreneursEntrepreneurs

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The Dark Side The Dark Side

of of EntrepreneurshEntrepreneursh

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The Dark Side of EntrepreneurshipThe Dark Side of Entrepreneurship

• The Entrepreneur’s Confrontation with RiskThe Entrepreneur’s Confrontation with Risk Financial risk versus profit (return) motive varies in Financial risk versus profit (return) motive varies in

entrepreneurs’ desire for wealth.entrepreneurs’ desire for wealth.

Career riskCareer risk——loss of employment securityloss of employment security

Family and social riskFamily and social risk—competing commitments of —competing commitments of work and familywork and family

Psychic riskPsychic risk—psychological impact of failure on the —psychological impact of failure on the well-being of entrepreneurswell-being of entrepreneurs

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Figure2.1Typology 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.

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Stress and the EntrepreneurStress and the Entrepreneur

• Entrepreneurial StressEntrepreneurial Stress The extent to which entrepreneurs’ work demands and The extent to which entrepreneurs’ work demands and

expectations exceed their abilities to perform as expectations exceed their abilities to perform as venture initiators, they are likely to experience stress.venture initiators, they are likely to experience stress.

• Causes of Entrepreneurial StressCauses of Entrepreneurial Stress LonelinessLoneliness

Immersion in businessImmersion in business

People problemsPeople problems

Need to achieveNeed to achieve

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Entrepreneurs: Type A Personalities Entrepreneurs: Type A Personalities

• Chronic and severe sense of time urgency.Chronic and severe sense of time urgency.

• Constant involvement in multiple projects Constant involvement in multiple projects subject to deadlines. subject to deadlines.

• Neglect of all aspects of life except work.Neglect of all aspects of life except work.

• A tendency to take on excessive A tendency to take on excessive responsibility, combined with the feeling responsibility, combined with the feeling that “Only I am capable of taking care of that “Only I am capable of taking care of this matter.”this matter.”

• Explosiveness of speech and a tendency to Explosiveness of speech and a tendency to speak faster than most people. speak faster than most people.

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The Entrepreneurial EgoThe Entrepreneurial Ego

• Self-Destructive CharacteristicsSelf-Destructive Characteristics Overbearing need for controlOverbearing need for control Sense of distrustSense of distrust Overriding desire for successOverriding desire for success Unrealistic optimismUnrealistic optimism

• Entrepreneurial MotivationEntrepreneurial Motivation The quest for new-venture creation as well as the The quest for new-venture creation as well as the

willingness to willingness to sustainsustain that venture. that venture.• Personal characteristics, personal environment, business Personal characteristics, personal environment, business

environment, personal goal set (expectations), and the environment, personal goal set (expectations), and the existence of a viable business idea.existence of a viable business idea.

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The Entrepreneur as Manager and Co-The Entrepreneur as Manager and Co-workerworker• The traits and behaviors responsible for the The traits and behaviors responsible for the

entrepreneur’s success also lead to their entrepreneur’s success also lead to their undoing/ failure as managers and co-workers.undoing/ failure as managers and co-workers.

• Study of 38 entrepreneurs in USA and Study of 38 entrepreneurs in USA and Canada shows a strong need for control and Canada shows a strong need for control and suspicion about authority.suspicion about authority.

• Thus they are unable to work in structured Thus they are unable to work in structured situation where authority is delegated (unless situation where authority is delegated (unless they have created the structured and work is they have created the structured and work is done on their terms). done on their terms).

The Dark Side of Entrepreneurship Manfred (1985)

The Entrepreneur as Manager and Co-The Entrepreneur as Manager and Co-workerworker

• They are unable to shows submission expected of They are unable to shows submission expected of subordinate and shows great deal of concern with subordinate and shows great deal of concern with minute details that is stifling.minute details that is stifling.

• They are poor collaborator, they are ready for the They are poor collaborator, they are ready for the worst.worst.

• Entrepreneurs require more appreciationEntrepreneurs require more appreciation

• Together they can be problematic as employeesTogether they can be problematic as employees

The Dark Side of Entrepreneurship Manfred (1985)

•

Entrepreneurs: The Need for Shifting Entrepreneurs: The Need for Shifting Between RoleBetween Role

The small firm management processThe small firm management process

Entrepreneurs: The Need for Shifting Entrepreneurs: The Need for Shifting Between RoleBetween Role

Entrepreneurs: The Need for Shifting Entrepreneurs: The Need for Shifting Between RoleBetween Role

Entrepreneurs: The Need for Shifting Entrepreneurs: The Need for Shifting Between RoleBetween Role

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

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

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

Dealing with StressDealing with Stress

• NetworkingNetworking

• Getting away from it allGetting away from it all

• Communicating with employeesCommunicating with employees

• Finding satisfaction outside the companyFinding satisfaction outside the company

• DelegatingDelegating

• Exercising RigorouslyExercising Rigorously

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