Entrepreneurship

Entrepreneurship is about starting an organization, organizing effort, and exploiting opportunities (with the phases of emergence, recognition, evaluation, and exploitation of opportunities). Small and medium-sized enterprises are the major agents of economic development and growth, adding new jobs, in contrast to most large companies. Entrepreneurial activity predicts wealth creation across nations. Entrepreneurs start new organizations and mold their organizational climate and culture. Entrepreneurial success (successful start-up, survival, firm growth) depends on the owners and may be a more useful (and a more objective) performance outcome variable than the supervisor ratings typically used in industrial/organizational psychology. Industrial/organizational psychology should, therefore, do more research on entrepreneurship.

A psychological model of entrepreneurship looks at distal variables of interpersonal variables, cognitive ability, school education, and experience and at proximal variables, such as cognitions (e.g., opportunity perception), motives (such as entrepreneurial visions and passions), and action strategies (e.g., proactive vs. reactive strategies). All of these factors should affect entrepreneurial success in interaction with situational and environmental conditions (such as industry, difficulty of doing business in an environment, and culture).

Meta-analyses and other reviews show that among the interpersonal variables, need for achievement, self-efficacy, cognitive ability, and expertise are clearly related to starting a business and business success. Similarly, entrepreneurial orientation, such as proactivity, innovativeness, competitive aggressiveness, risk taking, and autonomy, are related to starting a business and success. Only risk taking shows small correlations, and its importance is often overestimated.

The variables related to intelligence, education, and experience (often summarized as human capital) help small business owners to run their enterprises successfully. More recent resource-based theorizing argued for the importance of firm-specific knowledge and experiences for success that cannot be easily duplicated by competitors in the market.

The proximal variables relate to active exploration of business opportunities, which are strengthened by goals and action strategies, cognitive processes, and task-specific self-efficacy. High goals, visions, passion for work, and other motive patterns, as well as confidence in one’s ability, predict success. Proactively and systematically approaching the environment and shaping it to a certain extent, rather than reacting to events, leads to success, as well. Cognitive processes, such as helping to recognize present opportunities in the market and alerting entrepreneurs, as well as biases in cognition (such as a bias for optimism and illusion of control) seem to be important to distinguish entrepreneurs from nonentrepreneurs. One interesting issue is whether the proximal variables are mediators between distal variables and success. Recent evidence indicates that action planning and motivation mediate between personality and success.

Innovations and entrepreneurs are geographically clustered. Entrepreneurship has a social dimension— one function of entrepreneurs is to organize effort and, thus, to lead people. Entrepreneurs do better if they are well networked and if they possess social capital.

Entrepreneurs are nested in environments. There is some controversy about the function of the environment. Ecological approaches to entrepreneurship conceptualize the environment to determine start-ups and success. In contrast, psychological approaches emphasize the function of entrepreneurs’ activities on the environment and the interaction between psychological and environmental variables (e.g., personality-by-environment interactions). There is, as yet, little theory and research on the relevant context conditions. Promising moderators in entrepreneurship research are environmental variables (hostility, complexity, predictability, controllability), industry tasks (e.g., service vs. manufacturing), national culture, and stage at the life cycle of the firm (such as prelaunch, launch, and postlaunch phases).

Ever since David McClelland’s classic studies of entrepreneurs, psychologists have participated in training entrepreneurs to be more effective in the startup of organizations and in managing new firms, and these efforts seem to be effective (although there is still a dearth of efforts to integrate newer industrial/ organizational methods into this training and to evaluate the training, as pointed out by J. R. Baum, M. Frese, and R. A. Baron).

The field of entrepreneurship research is an interdisciplinary field to which industrial/organizational psychology can contribute substantially. Once industrial/organizational psychologists become more dominant in this field, this will also change industrial/ organizational psychology itself by enabling the creation of more interesting questions and the development of an important area of applying psychological principles.

References:

  1. Aldrich, H. E. (1999). Organizations evolving. London: Sage.
  2. Baum, J. R., Frese, M., & Baron, R. A. (Eds.). (in press). Lawrence Erlbaum.
  3. Shane, S. (2003). A general theory of entrepreneurship. Cheltenham, UK: Elgar.

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