Who Are the Entrepreneurs?

Who Are the Entrepreneurs?

It’s a game not everyone can play, but more people should be aware of this career alternative.

Most American businessmen have at some time in their careers thought about starting their own company. Some have envisioned their ~wn enterprise as an avenue to personal wealth through large capital gains. To them, there is a beautiful formula for financial success: (1) start a small company, preferably in a glamour industry; (2) generate rapid growth in sales and profits; (3) then sell out either to the public or to some large acquisitive conglomerate.

Others have seen their own company as an opportunity to do what they really wanted to do: to get close to a sport by developing a ski area, or to reduce a new technology to practical use. Still others have sought an escape from stultifying large-company constraints, politics, or career impasses. In their dreams, their own venture would be a means to gain the top position in a business.

Despite dreams, wishful thinking, and even plans, few people actually take the step of trying to start a company. Why is this? Is there a special breed of man which is particularly inclined to become an entrepreneur? Are there special characteristics or conditions which stimulate entrepreneurial activities? The basic questions we are asking here are classic ones- Are entrepreneurs born or are they made? If they can be made, what are the ingredients? I have reached the conclusions that, given a degree of ambition and ability not uncommon to many individuals, certain kinds of experiences and situational conditions—rather than personality or ego—are the major determinants of whether or not an individual becomes an entrepreneur.

If we examine some of the attitudes in the subculture of American businessmen we find that there are significant connotations to starting a company as a career alternative. Almost everyone gets a glow—a tingle—at the idea of being an entrepre

neur. To men in their thirties and forties the idea of starting a company means “free enterprise” and “Opportunity,” as reflected in Horatio Alger stories. In value terms of the younger generation, starting a company is a way to “do your own thing.” For such businessmen and for many business school students, starting a successful

Patrick R. tiles, “Who are the entrepreneurs?” pp. 5—14, MSU Bsiness Topics, Whiter 1974. Reprinted by permission of the publisher, Division of Research. Graduate School of Business Administration, Michigan State University. Patrick R. tiles is on the faculty of the Graduate School of Business Administration, Harvard University. company is a very attractive idea, yet only rarely do they seem to consider it a serious alternative. When a possible opportunity presents itself, there is somehow too little time to investigate it properly and too little time to determine whether or not the idea really makes sense. Thus, it appears that most would-be entrepreneurs stop before they get started. Unfortunately, there is very little information on people who have had ideas about starting companies but never seriously pursued them.

We might think that we already know a lot about the entrepreneurs themselves— those who actually go ahead and start companies. Yet, do we really? We find that there are people who think of entrepreneurs being formed by school systems and child raising,’ by rejecting fathers,2 or by the business environment.3 However, efforts to measure and predict entrepreneurial potential are, at best, still in the development stages.4

Perhaps one of the best broad-based studies on entrepreneurs was carried out by Orvis F. Collins and David G. Moore at Michigan State University in 1964. Using a series of personal interviews and psychological tests, they reached a number of rather unsettling conclusions regarding people who start their own company:

Throughout the preceding analysis, obviously we have been having difficulty deciding whether the entrepreneur is essentially a “reject” of our organizational society who, instead of becoming a hobo, criminal, or professor, makes his adjustment by starting his own business; or whether he is a man who is positively attracted to succeed in it. We have, perhaps without intention, regarded him as a reject.

Entrepreneurs are men who have failed in the traditional and highly structured roles available to them in the society. In this . ... entrepreneurs are not unique. What is unique about them is that they found an outlet for their creativity by making out of an undifferen

tiated mass of circumstances a creation uniquely their own: a business firm.

The men who travel the entrepreneurial way are, taken on balance, not remarkably like-able people. This, too, is understandable. As any one of them might say in thevernacular of the world of the entrepreneur, “Nice guys don’t win.”’

Several small-sample studies at Harvard and MIT have yielded results different from the Collins and Moore study.e Entrepreneurs were found not to be failures. Instead “most of the founders had experienced a generally higher than average level of success in their previous employment. Several had established outstanding records of achievement.”7 These entrepreneurs seemed more typical of the successful, hard-charging, young business executive Or engineer than a reject figure.’

One possible explanation, of course, is that people in Michigan are very different from those in New England. It might be more helpful, however, if we categorized in some detail: (1) the kinds of business which are used in studies of small business fatality rates and in the Collins and Moore study, and (2) the kinds of business which might be started as alternatives to pfofessional management or engineering careers. The survey-type studies are comprehensive in that they essentially look at all companies which are started withi.n a particular period of time. This includes a wide range of business ventures: dry cleaners, retail shops, electronics manufacturers, computer software firms, gas stations, and so forth. Each of these is used in the computation of a wide range of statistics about the rise and demise of new companies. There should he no reason to doubt the aggregate figures or the results of in-depth studies made of these situations. The Collins and Moore study looked at 10 manu facturing firms started between 1945 and 1958 in Michigan but made no further distinctions as to the nature of the business, size, or potential.

If we consider kinds of ventures which might be of interest to a professional manager or an engineer, the vast majority of the enterprises started each year (and, therefore, the bulk of those considered in large, broad-based studies) would not be included. A dry cleaning establishment or a small metal fabricating shop is not the basis for the dreams of these people. From their perspective (and. therefore the perspective of this article), we should label this subcategory of small business as marginal firms. That leaves us with the task of considering the kinds of venture situations which are potentially attractive career alternatives. The first, which I have labeled the high-potential venture, is the company which “is started with the intention that the venture grow rapidly in sales and profits and become a large corporation.’” In its planning stage the high-potential venture is the extreme of personal economic opportunity, the entrepreneur’s big dream: such as Polaroid, Digital Equipment, Scientific Data System, Cartridge Television, Viatron, and so on.

Another type of enterprise, less obvious than the high-potential venture, also holds a strong interest for many would-be entrepreneurs. This type of venture we might call the attractive small company. In contrast to the high-potential venture, the attractive small company is not intended to become a large corporation, probably will never have a public market for its stock, and will not be attractive to most venture capital investors. However, in contrast to the marginal firms, attractive small companies can provide salaries of $40,000 to $80,000 per year, perquisites (company car, country club memberships, travel, and so forth) to its owner/managers, and often flexibility in life-style such as working hours, kinds of projects and tasks pursued, or geographical location. In this subcategory we find such businesses as consulting and other service firms and some specialized manufacturers.

Both the high-potential venture and the attractive small company are interesting beyond the scope of the benefits they may provide to their founder/owners. In the high-potential venture we find the genesis of the major corporations of the future and, therefore, the source of a growing number of jobs and other contributions to the economy. The attractive small companies provide less spectacular but stable inputs of a similar nature. Both of these kinds of companies must gain and maintain their position by providing competitive discomfort to the existing corporate giants through innovation~ flexibility, and efficiency.

The marginal firms, on the other hand, provide support for their owners! employers but frequently at a tower level than might be obtained by employment if they could or would work elsewhere. However, these people are not likely to seek employment elsewhere because of their difficulties in functioning in larger and more structured organizations. “~

Without questio’t, some of the businessmen and engineers who start high-potential ventures or attractive small companies are compulsive entrepreneurs. They cannot function effectively in a large organization. They must be their own boss and they may have known this all their lives. It may seem as if they could have behaved in no other way. But what about the others who started companies? What about the entrepreneurs who ate bashally well-adjusted people ~nd who had given little previous thought, if any, to the idea of their own company? flow did these people happen to become entrepreneurs although most were already successful in the pursuit of a more conventional career? What factors play a leading role in determining who becomes an entrepreneur? Which factors might be largely fortuitous and which might be controlled by the individual?

A BASIC PREREQUISITE : ACHIEVEMENT MOTIVATION

Not all people are inclined to take on significantly more than they have to. A high-potential venture or an attractive small company is usually recognized as requiring a tremendous amount of determined effort and commitment. These kinds of activties are not attempted unless an individual is willing to expend more effort and energy than would be required in a more conventional career.

People high in achievement motivation are the people who strive to make things happen—in the laboratory, on the production floor, in the sales office, in the classroom.” Obviously this factor alone is insufficient to determine who starts companies and who does not. But it is a beginning. People without this kind of orientation are unresponsive to the other influences which might encourage starting a venture. However, people with achievement motivation together with other influencing factors may become entrepreneurs.

Achievement motivation can be developed. It would appear unlikely, however, that someone would try to develop achievement motivation in himself in order to start a high-potential venture or an attractive small company. One would expect that it would take a highly achievement-motivated person to want to start either of these kinds of enterprises in the first place.

A DiSQUALIFYING INFLUENCE:

SOCIAL SELF-IMAGE

The majority of people trying to do exceptionally well in their careers never seriously consider starting a company. Even among the professional managers or career businessmen the number is small. This is not to say that many of these people would not gladly be successful entrepreneurs in their own companies. They are unwilling, however, to take what they see as a backward or downward step necessary to achieve that success.

An acquaintance of the author’s, a Yale graduate, has described the effect of his college experience on his own thinking about his career: all came clear one night when I was arguing and describing how Charlie had not been able to go to college, but instead after working in a restaurant had bought a second-hand dump -truck. That’s when it dawned on me that because I went to college I could never buy a -second-hand dump truck, not even a brand new one with someone else to drive it. When I ran across an old friend, I could not afford to explain that I was the owner of a dump truck. No, I was “with” the ABC Corporation. Not necessary to explain that they are the largest producers of this and that in the world. I was “with” them, and my friend was ‘with” -someone just like them.

Because of recent increasing sentiments favoring personal independence and relevance, we might expect to find in the future a greater general public acceptance of entrepreneurial activities and, therefore, to discover less and less of a conflict between this kind of a carieer and a person’s social self-image. in this sense, it may be becoming easier for ~orneone to decide to strike out on his own than it has been in the past. Perhaps we shall come to the point where becoming an entrepreneur is ecognized as a socially legitimate, and even attractive, career alternative.

INFLUENCE ON ENTREPRENEURIAL CAREERS

For the person who has achievement motivation and whose social self-image is not in conflict with starting a company, there are two kinds of conditions which become critical: (1) how ready he sees himself for undertaking such a venture, and (2) how many distractions or obligations he sees holding him back. The reader will note that what an individual does depends upon how he perceives a situation rather than upon what the situation actually is. This is particularly critical in considering a person’s readiness or his restraints because there is no way for anyone to make direct, objective measurements of these characteristics. Instead, a personal assessment of readiness or restraints is going to be a combination of knowledge, insight, judgment, and personal values. Readiness in terms of his decision to initiate a company and to try to run it successfully, a person’s own assessment of how ready he is probably is a good approximation of how ready he really is. One would not likely find a runner expecting to run a four-minute mile without having some objectively valid reasons behind those expectations.

Similarly, an individual who believes that he is ready to start a company is probably reaching that decision from some background of experience, exposure, special skills. and industry knowledge. This is not to say that some people do not try to initiate businesses when they are totally unprepared. it would imply, however, that in most of such instances the individual himself knows very well that the odds are against his being able to make a go of it. It might be useful to think of an individual’s readiness in terms of levels of specific and general self-confidence. Specific self-confidence in this context represents an individual’s feeling of mastery over the kinds of tasks and problems he would expect to encounter in starting a company and making it successful. General self-confidence would be his feeling of well-being and his universal assurance that he can accomplish things.

What people learn through a variety of business and related experience accumulates over time. Most people learn relatively more and learn relatively more rapidly early in their careers when much of what they do and see is new to them. And although the relative rate of learning may diminish over time, the cumulative effect is an increasingly competent individual. The evolution of a person’s readiness as reflected in his specific self-confidence to master various elements of a venture is depicted graphically in Fig. 1. General self-confidence, which is necessary for someone to want to try something new, is an elusive idea. Most people can identify in their own lives those periods when they were confident and up for doing big, new things. They can also recall other times when they were anxious, and uncertain-—unwilling to get away from the sure and the known. Given the high degree of uncertainty for most people in starting a company, a high level of general self-confidence is necessary for them to be willing to try.

Restrains

Perhaps the most effective restraint on someone who otherwise might start a company is his continuing succes and satisfaction in puirsing his present job. Why should anyone want to change if thimgs are going well ?Especially with the passage of time, increasing seniority for such people means a larger salary, greater responsibility, and greater benefits. In addition, an individual develops a personal power base within an organization : key knowledge and skills, confidence and loyalty of associates, and so forth, which enable him to assert himself and to be effective. At some point, even in the face of a grave disappointment or disenchantment with the company, it becomes almost prohibitively “expensive” to resign and pursue another career direction. requirement upon the husband until the children go away to school. As small children begin to lose physical dependence upon their mothers, the role of the father increase in both depth and scope. In the wisdom of everyday life, “This is the time when the children need a father.”

Precipitating Events

For some people, the combination of circumstances is such that they never attain sufficient capacityt to start a company. They never reach a free choice period. Their other commitments become too large before they reach a point where they could strike

1. Dissatisfaction
2. Identifying a new venture opportunity
3. Encouragement and support
4. What about Risk ?
5. covers a multitude
6. Financial risk
7. Career risk
8. Family risk
9. The physic risk