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Ch. 2 Outline

1. Introduction

2. The Entrepreneurial Personality

3. Entrepreneurial Cognitions

4. Entrepreneurial Attitudes

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The Individual Entrepreneur• “The entrepreneur is a person who shifts

economic resources out of an area of lower and into an area of higher productivity and yield.” - J. B. Say, French economist.– However Say’s definition does not tell us who this

entrepreneur is.

• The commonplace definition of the entrepreneur is a person who starts his or her own new and small business. – Entrepreneurs serve customers in new ways, enter

underserved markets, and exploit opportunities that others have missed—this is what entrepreneurship means.

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The Individual Entrepreneur (cont.)• Research into the personality of entrepreneurs

continues, but the focus now is on what traits are useful in which contexts.

• Research has become more refined, reflecting the belief that there is not a single entrepreneurial “type” but that different behaviors, thoughts, and attitudes are more or less effective depending on the entrepreneurial context. – Context is defined simply as the environment in which

entrepreneurs find themselves. – It includes such aspects as the economic climate, availability of

capital, support networks, and technological resources.

• Management research in general has followed a path similar to the one being traversed by scholarly research into entrepreneurship.

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Entrepreneurial Behaviors• Entrepreneurs exhibit many different

personality types:– Researcher David McClelland, a noted social

psychologist, determined that founders of high-growth companies appear to share a distinct cluster of personal characteristics:• High need for achievement• Low need to conform• Persistence• High energy level• Risk Takers

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Entrepreneurial Behaviors (cont.)• Risk-taking tendency: Five personal

characteristics identified by McClelland can be further condensed into four fundamental behaviors that all successful entrepreneurs exhibit:

• Belief

• Commitment

• Focus

• Drive– Another important factor to entrepreneurial success is the

ability to work with others to achieve goals.

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The Entrepreneur’s Social Network• Social network: The social environment in which

entrepreneurs build their ventures by gaining support, knowledge, and access to distribution channels.– Researchers have begun to assess the importance of the

entrepreneur’s social network as a means to gain support, knowledge, and access to distribution channels.

– Research has shown that an entrepreneur’s social network varies from time to time depending on the different phases of the venture’s life.

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The Entrepreneur’s Social Network• Phases of venture development from this

perspective: • Phase 1: The motivation phase

• Phase 2: The planning phase

• Phase 3: The establishment phase

• Entrepreneurs need capital, skills, knowledge, and labor to start new ventures.

• Social capital: The networks of contacts that help bring about success are the entrepreneur’s social capital.

• Entrepreneur’s social network has several characteristics. – Size

– Positioning

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The Entrepreneur’s Social Network• Some of the social relationships are single-

stranded • Other relationships known as multiplex ties play

multiple roles in the network– Research has demonstrated significant differences in

social network size between phases 1 and 2.

– Social networks play an important role in the success of entrepreneurial ventures.

– Entrepreneurs use their social capital differentially throughout the phases of venture development.

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Entrepreneurial Cognitions– A currently fruitful line of research into what

makes entrepreneurs successful examines them from a cognitive perspective.• Cognition and cognitive psychology are concerned

with the study of individual memory, perception, thinking, and information processing.

• Entrepreneurial cognitions have been defined as “the knowledge structures that people use to make assessments, judgments, or decisions involving opportunity, evaluation, venture creation and growth.”

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Entrepreneurial Cognitions• The study of entrepreneurial cognitions shows how

entrepreneurs use mental models to simplify and piece together previously unconnected information that helps them identify and invent new products and services and to assemble the necessary resources to launch new ventures.

• Cognitive biases: Perceptive tendencies among entrepreneurs that enable them to make complex decisions despite incomplete information. – Entrepreneurs display distinct cognitive biases in decision

environments characterized by uncertainty and complexity. – Yet, it is often these biases that enable entrepreneurs to

take action despite incomplete information.

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Entrepreneurial Cognitions• Entrepreneurial research has found a

variety of cognitive tendencies among entrepreneurs at the opportunity evaluation phase of a new venture. These tendencies include:

• Overconfidence• Belief in the law of small numbers• Planning fallacy• The illusion of control• Reasoning by analogy

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Entrepreneurial Cognitions• Minimizing Risks on Biased Cognitions

– The following are a few approaches entrepreneurs can use to minimize the risk that their business decisions are based on biased cognitions:• Active versus passive searching

• Personal versus impersonal information

• External versus internal sources

– Entrepreneurs develop a sense of self-efficacy by virtue of their market search, planning, and execution strategies. This sense of efficacy leads to actions that bring new products and services into the market.

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Five Dimensions of EI

1. Self-Awareness—being aware of what you are feeling

2. Self Managing—the ability to manage your own emotions and impulses

3. Self Motivation—the ability to persist in the face of setbacks and failures

4. Empathy—the ability to sense how others are feeling

5. Social Skills—the ability to handle the emotions of others