What makes an Entrepreneur an Entrepreneur?
Updated: Oct 29, 2021
In a survey conducted on college students about their interest towards entrepreneurship in Sichuan, China, it was found that,
· 35% of the students had clear vision about entrepreneurship
· 90% of the students felt that they had inadequate ability to become an entrepreneur
· 80% of the students felt that they did not have the necessary professional knowledge
Only a small fraction of all students were confident enough to at least venture into entrepreneurship.
But then, were the rest of the students wrong to be worried about lacking certain skills? No.
As much as confidence is required to undertake an endeavor such as entrepreneurship, it is not wise to do so without the necessary skills.
Anita Roddick of "Bodyshop" says,
“To succeed you have to believe in something with such passion that it becomes reality.”
Entrepreneurship can be thought of as a “tale of passion” (Cardon et al. 2005).
Entrepreneurship is crucial not only for individuals but also organizations and countries because it aids in economic development and job creation.
A lot of old literature on entrepreneurs suggests that entrepreneurs are completely rational beings who act according to the “Homo economicus” model. But recent studies have shown differently. The rejection of the ‘Homo economicus model” is the core of new studies on Entrepreneurial Psychology.
It is now measured according to a new model called the “Behavioural Entrepreneurship Theory”. This theory proposes that entrepreneurs are not free of psychological, cognitive, and emotional biases.
Entrepreneurial decision-making, venture performance, and venture development are all influenced by entrepreneurs’ psychology. “Behavioural Finance” is a relatively new branch of “Behavioural Corporate Finance” which states that the CEO’s psychology and psychological biases affect the firm’s financial decisions. In entrepreneurial decisions, there is a systematic divergence from rationality.
The method to examine the impact of both conventional and well-documented behavioural variables is called the “Cognitive Mapping Approach”. There are two determinants,
1. Traditional Determinants-
a. Human Capital-
Human Capital refers to the workforce under an entrepreneur.
In the early days of an entrepreneurial endeavor, the kind of people one chooses to work for the company is crucial. Quality human capital is worth investing in. people who understand how much wok goes into setting up a business and making it work in the long run are the kind of people one needs to surround oneself with.
b. Financial Capital-
It is one of the most crucial elements that might explain whether a new company succeeds or fails. According to a study by Davilla et al. (2003), venture capital financing implies a high likelihood of success.
The necessity of financial capital is supported by the fact that entrepreneurs require initial cash when starting a firm.
Financial capital is tough to come by for the majority of new businesses.
Small businesses are particularly vulnerable to financial resource shortages since they have a limited ability to weather economic downturns.
c. Social Capital-
A new company may fail if it lacks stable connections to consumers, clients, and supporters when it first begins operations.
Small business success, especially in emerging nations, is dependent on financial assistance.
Resource availability is a significant component in new venture success since these resources provide a competitive advantage- “Entrepreneurship Theory”.
This theory confirms that social capital is more important in commercial operations than financial capital.
The number of connections and their intensities with consumers, suppliers, and banks are referred to as social capital.
Social capital, as defined by Coleman (1988), is the total of actual or virtual resources accruing to a person or team through the existence of enduring networks of more or less formalized acquaintance and recognition connections.
d. Entrepreneurial Education-
Education is important for intellectual performance because it assists people in integrating and accumulating new information, which enhances their capacity to adapt to new conditions.
Entrepreneurial Education may be utilized as a signal to potential capital providers, facilitating access to funds.
Customers and qualified personnel might be attracted using the same signaling method. Education may also be useful in guiding entrepreneurial conduct and behaviour.
Education may function as a governance structure that regulates the conduct and dispositions of entrepreneurs and leads to company success.
It gives a knowledge basis as well as analytical and problem solving abilities, influencing entrepreneurial tactics positively.
e. Entrepreneurial Experience-
It appears to have a beneficial impact on the success of new ventures.
The beneficial benefits of experience on company performance, opportunity spotting, and its negative influence on what is widely known as the “Over-Optimism Effect” are among the causes for this positive effect on venture success.
It has a favorable impact on business performance.
According to a research, entrepreneurs with prior experience as top managers in the same industry outperform novice entrepreneurs, owing to the fact that they have easier access to information.
2. Behavioural variable that influences venture success
A. Optimism Bias
It is defined as the propensity to overestimate the likelihood of good future outcomes while understanding the likelihood of bad ones.
People have optimism bias when it comes to personal danger because they believe they are invulnerable.
B. Fear and Hope
Hope encourages entrepreneurs to pick risky assets, whilst fear will lead them to seek non-risky assets, such as bonds.
Hope is the belief that things will turn out well. It has an explanatory power in the formation of new businesses since it encourages entrepreneurs to accomplish a certain objective, because entrepreneurs will behave in a sequence of goals that simplifies achieving their goal during the venture process, this impact can improve the likelihood of business success.
Hope improves the appeal and perceived success of the new business since entrepreneurs with a low rate of failure and even less unexpected success will typically see the new initiative as an opportunity.
Entrepreneurs are not different people, they just do things differently. They have certain attitudes that are either innate, or acquired, but no entrepreneur out there with a successful business made it without competition.
The bulk of issues that entrepreneurs confront stems from a lack of knowledge in formation, funding, and insufficient social networks.
Sure, there are a lot of examples where individuals have made it big in entrepreneurship without one or more factors from above, and plenty of examples where one had not made it despite availability of all the above factors. But one has to remember that these events are isolated. For example, it is not uncommon for one to see Zuckerberg being used as an example of a successful entrepreneur who was a college dropout (i.e., lack of entrepreneurship education). But the fact that he dropped out from an Ivy League College often goes unnoticed. His idea of starting Facebook blossomed when he was just 19. He had started coding way before that. Entrepreneurial education does not always mean going to college and getting a degree, it also point towards a certain temperament that is achieved through observation and experimentation (starting at an early age).
Entrepreneurship is science. Sometimes a random experiment works, but a calculated, measured experiment hardly ever fails.