the personality of entrepreneurs

8/7/2019 The Personality of Entrepreneurs

1/43

2007 John Wiley & Sons Australia, Ltd


2/43

Chapter 2

The personality of entrepreneurs


3/43

Chapter outline

Individuals and opportunities

Understanding the profile of an

entrepreneur

The risks of a career in entrepreneurship

Relevant performance measures

Entrepreneurs in a social context


4/43

Learning objectives

Explain the relation between the

entrepreneur and new value creation

Explain why and how entrepreneursdiscover and exploit opportunities

List the roles and characteristics of

entrepreneurs


5/43

Learning objectives

Identify the relevant performance

measures for an entrepreneur

Define the risks of a career inentrepreneurship

Explain entrepreneurial behaviour in a

social context


6/43


The entrepreneur is the central actor in

the creation of a new venture.

Initially, an opportunity is generallyrecognised by a single individual, who

may decide to pursue it alone or with

others.


7/43


The opportunity becomes an

entrepreneurial project and a process of

new value creation is initiated.


8/43

The relationship between the

individual and the opportunity

The relationship between the individual

new value creation is a dialogic, or a

system with a circular causality process.

This dialogic means that the individual can

be called an entrepreneuronlybecause

s/he is pursuing a project to commercialise

a new product or service.


9/43

The relationship between the

individual and the opportunity

In turn, this entrepreneurial project exists

onlybecause there is an individual who

has identified this opportunity and ispursuing it.


10/43

Typology of entrepreneurial

outcomes

Source: Adapted from

C. Bruyat & P.A. Julien,

Defining the field of research

in entrepreneurship,

Journal of Business Venturing,

no. 16, 2000, p. 174.


11/43

The discovery and evaluation of

entrepreneurial opportunities

Opportunities rarely present themselves

in neat packages; they have to be

discovered and shaped. Differences between people matter

regarding the discovery and exploitation

of opportunities.


12/43

The discovery and evaluation of


4 main differences have to be considered:

psychological characteristics

information and knowledge availability

creative processing

cognitive heuristics


13/43

The decision to exploit


The exploitation of an opportunity

depends on the joint characteristics of

the individual and the nature of theopportunity:

Individuals are influenced by opportunity

costs, individual risk perception,

optimism, tolerance for ambiguity andneed for achievement.


14/43

The decision to exploit


Exploitation is more common when

expected demand is large, industry

margins are high, the technology life cycleis young and the level of competition in

the industry is low.


15/43

Triggers and barriers to start-ups

Triggers

Material rewards:make more money; keep the proceeds of the

business; reward according to effort

Creativity:use my own talents; a desire to create

something; control from begin to end;

passion about what I am doing

Desire for autonomy:be my own boss; work my own hours; work

with people I like, at a location of my choice


16/43

Triggers and barriers to start-ups

Barriers

Lack of resources:weak management and marketing skills; lack

of information on start-ups; lack of finance

Compliance costs:high taxes and costs associated with

compliance to government legislation

Hard reality:setting up a venture is harder than initially

expected; uncertainty; fear of failure


17/43

Modes of exploitation

2 major institutional arrangements exist:

the creation of new firms (hierarchies)

the sale of opportunities to existing firms(markets)


18/43

Modes of exploitation

Other exploitation modes are

nevertheless possible:

joint-ventures

licensing

buying a franchise ...


19/43

Understanding the profile of an

entrepreneur

Two basic schools of thought shape the

profile of the entrepreneur:

economists who consider theentrepreneur as an agent who specialises

in certain roles

behaviourists who concentrate on the

creative and intuitive character


20/43

The roles of the entrepreneur:

an economic perspective

From the economist point of view,

entrepreneurship is considered as a

function. The status of the entrepreneur can be

analysed in terms of labour division which

explains this function based on certain

roles:


21/43

The roles of the entrepreneur:

an economic perspective

risk bearer

arbitrageur

innovator

co-ordinator of scarce resources


22/43

Early studies in entrepreneurship typically

focused on the psychologicalcharacteristics and the personality of the

individual as determinants of behaviour.

The characteristics of an

entrepreneur: a behaviourist

approach


23/43

Only 3 of the endless list of

entrepreneurial traits have shown a high

level of validity:

the need for achievement

the internal locus of control

the risk-taking propensity

The characteristics of an

entrepreneur: a behaviourist

approach


24/43

The risks of a career in

entrepreneurship

There are 4 types of risks to consider

before embracing a career in

entrepreneurship: financial risks

career risks

social risks health risks


25/43

Financial risks

Large amounts of own money have to be

invested.

After start-up most of the profits areusually reinvested.


26/43

Financial risks

Borrowing funds from bankers, venture

capitalists, or partners can reduce

financial risks. Legal structures can help to minimise

financial risks.


27/43

Career risks

Questions about (re-)employment after an

eventual failure must be considered.

This risk is particularly acute for well-paidspecialists and people close to retirement.

Risks can be minimised by launching a

business on a part-time basis.


28/43

Social risks

Starting a business venture requires

much of the entrepreneurs energy and

time. The decision to set up a venture should

therefore involve the family to reduce

conflict potential.


29/43

Social risks

Another risk is linked to the (negative)

image of failed entrepreneurs like in

Singapore hence the kia siu attitude afraid to lose.


30/43

Health risks

There is evidence that entrepreneurs

experience higher job stress and

psychosomatic health problems thanother people.

Would-be entrepreneurs should make

sure that their health can cope with the

demands and challenges of starting andrunning a business.


31/43


There are many motives for starting a

business, such as achieving social status

or having a new lifestyle However, a business must generate a

profit to stay in the market place.


32/43


Just to break even, profits must cover

compensation for bypassed

alternatives (opportunity cost) the cash, effort and time invested in

the venture (liquidity premium)

a premium for risk

a premium for uncertainty


33/43

Relevant performance measures for

entrepreneurs

Source: Adapted from S. Venkataraman, The distinctive domain of entrepreneurship research, in J. Katz (ed.),Advances in Entrepreneurship, Firm EmergenceandGrowth, vol. 3, Jai Press, Greenwich, Conn., 1997, p. 134.

Figure 2.3


34/43

Entrepreneurs in a social context

3 features of a persons social context are

important to the perception of

entrepreneurial opportunities and thedecision to seize them:

the stage of life

position in social networks

ethnicity


35/43

Stage of life and entrepreneurial

behaviour

There is no general theory indicating the

stage of life that is best for launching a

business venture, but empirical researchhas shown that most of the entrepreneurs

start business with post-secondary

education, between the ages of25 and

44,andwith an establishedcareer record.


36/43

Stage of life and entrepreneurial

behaviour

Recent studies show that a strong team is

critical for new venture growth.


37/43

Social networks and

entrepreneurial behaviour

The networks that entrepreneurs build for

themselves stand out in a number of

respects:

Networks are genuinely personal

Spatial dimension is relevant

Active content of an entrepreneurs

network must vary over time to bedynamic


38/43

Social networks and

entrepreneurial behaviour

Networks are important in both Western

and Eastern cultures. However, they are

central to Eastern cultures andparticularly to the Chinese.


39/43

Ethnicity and entrepreneurship

Ethnic entrepreneurship can be a

response to the lack of opportunities in the

dominant culture In this case, entrepreneurship is very often

triggered by a variety of push factors


40/43

Ethnicity and entrepreneurship

But pull factors can also be important,

such as the presence of entrepreneurs in

the family as role models.


41/43

Summary

Entrepreneurs and opportunities form a

dialogic a system with a circular

causality process.

The existence of an opportunity does not

necessarily lead to its discovery and

exploitation, and is related to personal

differences of the entrepreneurs.


42/43

Summary

2 schools of thought exist on the

entrepreneurial perspective in individuals:

economists and behaviourists. People considering a career in

entrepreneurship should be aware of the

risks and develop strategies to avoid

them, and also have the correctperformance measures in mind.


43/43

the personality of entrepreneurs

Documents