Should you be an entrepreneur?
What do successful entrepreneurs have in common? There’s a question that has been asked many times. It’s a complicated question because a successful entrepreneur is essentially defined as someone who builds a successful enterprise. Hence, understanding entrepreneurship necessarily means understanding at least three things: the person or entrepreneur, the enterprise, and the ecosystem within which the enterprise operates.
Studies that focus on individuals tend to ask two questions. What types of individuals are more likely to start a business and what types of individuals are more likely to be successful as entrepreneurs? Many researchers have studied this and there seems to be general agreement that certain personality dispositions are associated with both starting businesses and being successful at it.
The first question, of course, is how to define enterprise success. It is the first thing the would-be entrepreneur is interested in because no one starts a business intending to fail.
In the simplest of terms, a commercially successful enterprise is one that grows and is profitable. These are what we would call final outcome indicators and are less useful to would be entrepreneurs. This is like saying you know you are a good runner if you win the race. The question is: what can you do in order to prepare yourself to win the race? That is where the other indicators come in.
Here are some indicators that have been identified in recent research from Poland (Staniewski et al): ability to maintain liquidity, level of competitiveness, chances for future business development and level of innovation. These indicators are interesting because they were developed specifically to understand survival through the critical first four years, the so-called “death valley” for new businesses.
At this point, it is important to acknowledge that a successful enterprise sometimes requires more than one person in the leadership position. In the literature, three critical roles need to be filled in the early days of an enterprise: innovator, organizer, and connector. The innovator is caretaker of the invention, the product or service on which the business is founded. The organizer brings things together. The organizer is the person who finds ways to ensure that the scaled up enterprise operates efficiently on a daily basis. The connector is the relationship person, he is the one who finds distributors, clients, suppliers. Sometimes, he is also the one who liens up investors.
What this means is that the research on successful entrepreneurs can get extremely complex. In spite of this, however, certain factors are common across countries and across decades.
Personal attributes that have been commonly related to entrepreneurship are: locus of control (the extent to which the individual believes he can influence or control the events in his own life) with an internal locus being more related to entrepreneurship than an external locus, need for achievement, propensity for risk-taking, tolerance for ambiguity, and what is typically called Type- A behavior (competitive, high sense of urgency, aggressive, self-critical). These studies, however, did not necessarily differentiate between traits that predicted starting up versus business success.
A recent meta-analysis (that is, a study of studies) by Rauch and Ouderlan found, for example, that generalized self-efficacy, essentially self-confidence or the belief in one’s ability to succeed in specific situations, is related to business creation and the need for achievement is correlated with business success. Other traits identified as being related to entrepreneurial behavior are: innovativeness, proactive personality, stress tolerance, need for autonomy and internal locus of control. Interestingly, this particular study suggests that the trait of risk-taking, widely held to be an important trait of successful entrepreneurs, while important in the decision to begin a business is not necessarily a predictor of business success.
The Polish study suggested that a core personality profile was related to success in the four identified corporate predictors of business success. This core personality profile involves four traits: emotional stability, need for achievement, innovativeness, and self-efficacy. What this means is that all of these four traits are necessary in order to achieve success as an entrepreneur. Additionally, their study suggested that certain personality profiles are more specifically predictive of specific company indicators. The Polish study found that propensity for risk-taking is related to competitiveness and chances for future development, but not to level of innovation or maintenance of liquidity.
Interestingly, a Swiss-German Study of students (Backes-Gellner and Moog) suggested a key difference between would-be entrepreneurs and would-be employees. This study suggests that an employee is a specialist while an entrepreneur is a jack-of-all-trades. The authors write “Entrepreneurs differ from employees in that they must be sufficiently well versed in a whole set of entrepreneurial skills.” The study also suggested that individuals who had a broader set of life experiences are more likely to have a “disposition toward entrepreneurship.” A desire for job or income security predicted against entrepreneurship, and so did having an apprenticeship or internship, which perhaps indicated a preference for specialization. In an article for the Business Insider. Baer points out that the jack of all trades theory had first been proposed by Lazear based on a study of Stanford MBAs. The new Swiss-German study expanded on what is essentially a comment concerning breadth versus depth by pointing out that would-be entrepreneurs are not only those with a diverse set of experiences and skills, they also have a diverse network of relationships.
So there you have it. Here’s the checklist: emotional stability, need for achievement, belief in your ability to achieve goals (self-efficacy), innovativeness, a tolerance for ambiguity, a balanced propensity for risk-taking, a proactive disposition, a need for autonomy, a belief in your ability to make things happen (internal locus of control). Plus breadth. You can hire specialists, but you have to be able to take a look at the different parts of your enterprise, develop an understanding, and make a good decision.
In my mind, being an entrepreneur really boils down to a few things: drive, confidence, intense curiosity, discipline and energy. The rest of it is detail.
For more on how to survive the first few years of your start up, check out the piece titled Starting Up on integrations.tumblr.com.
Readers can email Maya at [email protected] Or visit her site at http://integrations.tumblr.com.