As the number of start-ups rise and the fascination with celebrity entrepreneurs grows, many are curious as to what makes individuals like Steve Jobs and Elon Musk different when compared to the average employee or company founder. In fact, there have been many research studies that investigate specific individual traits that prompt people to become entrepreneurs.
A group from Harvard Business School and Wellesley conducted a comprehensive literature review of studies conducted since 2000 on personality traits amongst entrepreneurs. They specifically focused on this new wave of research that utilized cutting edge questions and methodologies. Additionally, given that merely taking part in entrepreneurial activities can change personality, this group focused on studies that measured the personality of entrepreneurs prior to starting a venture. This decision allowed for comparison of data to non-entrepreneur groups.
How to Measure Personality: The Big 5 Model
A common approach used to describe personality is the Big 5 Model which combines the following aspects:
- openness to experience,
- agreeableness, and
Entrepreneurs are more open to experience.
When comparing entrepreneurs to managers, several differences emerge. Entrepreneurs tend to be more open to experience. These individuals, who are attracted to new challenges, could also be those that enjoy developing new ideas. Conversely, managers are typically selected for their ability to execute. Although both entrepreneurs and managers score the same in dependability, entrepreneurs had a higher conscientiousness score. They are more motivated by achievement.
In regards to extraversion there is a lack of consensus as differences emerged between two groups within entrepreneurs: the self-employed person and growth-oriented founder. Importantly, growth-oriented founders displayed assertive traits similar to a salesman, constantly pitching ideas and selling themselves. For the two remaining traits, entrepreneurs score lower in agreeableness and neuroticism. As CEOs, founders are less worried about pleasing others and typically more confident, less anxious or nervous.
Expanding the Big 5 Model: self-efficacy, innovativeness, locus of control, and need for achievement.
Since the popularity of the Big 5 Model, many have tried to address the critiques of the method being overly general and unable to predict behavior in specific situations. As a result, there has been a shift towards a more inclusive framework that incorporates self-efficacy, innovativeness, locus of control, and need for achievement.
Firstly, entrepreneurial self-efficacy (ESE) is described as the belief that one can perform tasks and fulfill roles; this trait influences one’s expectations, goals and motivation. In the context of entrepreneurship, it is applied towards five tasks: innovation, risk taking, marketing, management, and financial control. However, often times these metrics are self-reported and therefore more confident individuals in the entrepreneurial group would score themselves higher. Despite this, the results confirm that those with high ESE are more likely to become entrepreneurs and successful founders.
Innovativeness tries to assess how one responds to new things and studies show it to be a mediator of achievement orientation. Innovativeness correlates positively and significantly with ESE. The proactive personalities amongst entrepreneurs lead them to innovate in their work. But the authors note their surprise in how little attention has been paid on innovativeness as it relates to personalities. They acknowledge the difficulties in measuring innovation as no agreed upon set of questions exists. Yet the authors encourage this as an area for future investigation.
Entrepreneurs are more likely to believe their decisions have control over their lives.
Amongst entrepreneurs, internal locus of control (LOC) is more common than non-entrepreneurs. These entrepreneurs believe their own decisions control their lives, while others with an external LOC believe fate, chance or other environmental factors are in control and they themselves cannot influence. Researchers believe LOC method is better at extrapolating results to decision making in actual situations. Some have found that LOC can predict entry into entrepreneurship for men but not for women.
This belief in control over one’s life is linked to venture size and growth rates.
A group in China found that internal LOC positively correlates with venture size and growth rates. Overall, those who become self-employed or run an incorporated business, display strong internal LOC prior to founding the firm. However LOC seems to be very culturally dependent. It was shown that LOC is higher in British tech entrepreneurs populations than their counterparts in Switzerland. Thus the individualistic or collective nature of society can influence one’s LOC.
The last expansion to the Big 5 Model, is including one’s need for achievement (nAch). There is strong support in literature for this dimension and many researchers how found it is the dominant need that affects an individual’s action in the workplace. Similar to LOC, many have found a high nAch predicts entry into entrepreneurship, but varies in specific context.
In summary so far, recent literature agrees that internal LOC and high nAch are predictors of entry into entrepreneurship. Additionally, there is a link between ESE and business founding and related functions in growing a business. Literature is more sparse when trying to predict venture growth and long-term survival. A higher ESE shows an increase in the amount of personal resources an entrepreneur invests into a venture, which could indicate future success. Innovativeness appears to predict employment growth and profit growth and high conscientiousness seems vital for long-term survival, eight years or more. But the biggest correlation to business success is a high nAch. Presently, there is little data on personality and exiting entrepreneurship. This is another study area the authors encourage for further investigation.
Entrepreneurs may not be that risk-seeking.
The most popular trait researchers have studied is the difference in risk attitudes and it’s a common belief that entrepreneurs are more risk tolerant. However, recently, there has been some who question this. Risk preferences are defined by the utility function over wealth, but many feel researchers need to determine how to separate risk, which should be quantifiable, and uncertainty, which is more unknown. Many of the methods used to measure risk attitudes rely on self-reported responses to scenario questions, therefore issues of overconfidence and incomplete knowledge of oneself influence the conclusions.
This literature review conducted by the Harvard and Wellesley group, has highlighted the recent improvements made to the field of study of personality traits amongst entrepreneurs. These studies have provided helpful findings on entrepreneurs and their behaviors. As more progress is made towards improvements in methodology, the data will be even more useful in the development of effective support programs, incubators, and policies aimed to help businesses grow.
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Contributed by Janet Lin.