The Psychology of the Entrepreneur

A trait related to n-ach is locus of control beliefs. People who do not believe that their efforts in a business venture will be related to its success or failure are unlikely to become entrepreneurs. These people are known as “externals” since they believe that outcomes are determined by forces external to their own behavior. Internals on the other hand, believe that they have the ability to influence the outcome of an event. These people are potential entrepreneurs.

Another important trait is tolerance of ambiguity. Ambiguous situations are defined as novel, complex, or unsolvable. These conditions parallel entrepreneurial activity and, therefore, becoming an entrepreneur requires the ability to tolerate these factors. Entrepreneurs view ambiguity as an opportunity to solve a problem, achieve a goal, or impose their own will on the situation. People who are intolerant of ambiguous situations are threatened and uncomfortable in this context.

While the trait approach is useful for understanding the psychological make up of potential entrepreneurs, it doesn’t offer a model of the person who actually goes into business for himself or herself. For this we turn to a sociological explanation.

While personality characteristics may provide evidence of entrepreneurial tendencies, the actual activity of starting an enterprise is a process. The entrepreneurial event formation process has been described as the process which begins with a life plan change. The potential entrepreneur may have just experienced a displacement, be between things, or have a positive force encouraging entrepreneurial activity. For example, the negative displacement of being a refugee helps explain overseas Chinese entrepreneurship and Jewish entrepreneurship world wide.

However, perceptions of desirability must also be positive if the process is to continue. Some cultures have a disdain for entrepreneurship, and generally speaking find alternatives to venture creation. Although there are always exceptions, most Irish immigrants found assimilation in the United States through civil service, as policemen and teachers. In addition, family tradition sometimes makes commercial activity seem undesirable. Many families have traditions of professional work (medicine or law)., the family firms, or strong labor and union ties. These tend to decrease the desirability of entrepreneurship.

Perceptions of feasibility must also be present. Entrepreneurial activity must appear do-able. This means there must be models of successful venturing and resources available for venturing. Only when all the conditions of the entrepreneurship event process are set, new company formation can be predicted.
Are there any other differences between the characteristics of entrepreneurs and non-entrepreneurs? A recent survey by the Gallup Organization conducted for The Wall Street Journal provides us with insight and information. The groups surveyed consisted of 258 small business executives (company sales less than $50 million), 153 entrepreneurs (chief executives of Inc. Magazine’s 500 fastest growing firms), and 207 CEOs and other executives from Fortune Magazine’s list of the 500 largest American corporations.

The survey tends to confirm some of the psychological and sociological theories. Entrepreneurs are younger on an average than executives and less likely to be a white Anglo-Saxon protestant. These two findings, coupled with the findings on changing jobs, indicates that entrepreneurs are more likely to be displaced, unsettled, or between things. The need for achievement is evident in that entrepreneurs tend to begin their business activity while still in school, and most (76%) finish college. Overall from both theoretical and empirical perspective, entrepreneurs are a different breed of executive.

It is the goal of almost every entrepreneur to start a new business someday. For the entrepreneur this challenge can lead to personal development and satisfaction as well as wealth, power, and status Furthermore, in democratic capitalism the primary role of the entrepreneurs is new venture creation. A healthy, thriving capitalists system needs new ventures for jobs, productive capacity, innovation, and creativity. It is fact that while larger, older firms in steel autos and chemicals are slowing down and becoming smaller, new ventures in computers, services, robotics, and genetic engineering are creating jobs and growing.