chapter 2.1

Need for achievement (1)

Concept first developed by Murray (1938) • McClellands' (1961) concept of n ach; "The Achieving Society" • People with high n ach - prefer own responsibility for solution of problems and setting targets/goals - want to achieve these targets by own efforts - want to know exactly how well they perform Hence (see McClelland 1966, Klandt 1990) - go for goals with medium level of difficulty - search for personal efforts - search for situations with direct feedback - look for personal control of success chances - look for partners with high qualification rather than personal closeness - money as an indicator of personal success • Dispute about appropriateness of different instruments to measure n ach; but support in a number of studies - entrepreneurs have higher n ach than average population - mixed evidence for differences between entrepreneurs and managers Intrapreneurs also have a higher n ach than average population and managers with lower degree of responsibility (M üller et al. 2002; Def.: top managers or managers at the level directly below the top whose occupation includes responsible acts and decisions) • People who think of becoming entrepreneur also exhibit higher n ach • n ach is positively correlated with business success • Recommendation: n ach should be included in studies that want to understand the process of how success develops

Locus of control (1)

Concept stems from social learning theory (Rotter 1966) • Definition and potential relationship with entrepreneurship - people either have tendency to understand consequences of events as within their own control and/or as understandable; one calls this type of humans "internals" - or they have the tendency to understand the consequences of events as luck, fate etc., so-called "externals" - externals may be more passive than internals - additionally Rotter sees a connection to the n ach concept: "internals" tend to have high n ach values - entrepreneurs should therefore rather be found among "internals ost studies support a higher internal locus of control with entrepreneurs rather than others • Again, an internal locus of control is also to be found with intrapreneurs and with young people interested in becoming an entrepreneur • Relationship slightly weaker than with n ach • Influence on success somewhat unclear - meta study of Rauch and Frese (2005) finds positive relationship - but analysis is probably erroneous since one of the studies analyzed by Rauch and Frese finds a negative relationship, but this is not reflected in their analysis

Innovativeness (3)

Empirical studies mostly employ - the Jackson Personality Inventory (JPI) and the - specifically designed Kirton Adaption-Innovation (KAI) tests that are - generally accepted as empirically valid • Important study of Utsch and Rauch 2000: tendency to be innovative as a mediator between n ach and economic development: "The most powerful factor in the mediation model is innovativeness"

Need for autonomy (1)

Entrepreneurs want to control their environment • Restrictive work conditions limit creativity and destroy incentives • Need for autonomy often major driving force • Entrepreneurs hence - hate large hierarchies - wish to make decisions on their own - prefer occupations with flexibility and potential to develop and pursue own ideas • Problems for the idea of so-called intrapreneurship! ndeed, empirical studies show a pronounced tendency of entrepreneurs to independence - and a strong desire to be selfcontrolled • Tendency not to be found with small-business entrepreneurs, but already with students as well as dependent employees considering becoming entrepreneurs • Positive relationship between autonomy and success (Rauch & Frese 2005)

Tolerance for ambiguity (1)

Ambiguity as „uncertainty about risk" or second-order distributions of probabilities • Ambiguity is important factor of real business lif e - decisions are made under incomplete information - even relevant probabilities are often not known • In fact, Knight argued that uncertainty rather than risk taking is essential to the economic role of the entrepreneur • People with a high ambiguity tolerance keep ready to act also in unclear situations, may even see them as a (positive) challenge Mixed evidence - Begley and Boyd (1987); Schere (1982): people who found an enterprise have significantly higher values than (non-owner) managers of small businesses - Sexton and Bowman (1985): students with an entrepreneurial orientation have a higher ambiguity tolerance - Müller et al. (2002): comparison of entrepreneurs, intrapreneurs, and employees in positions with less responsibility: no clear tendencies • No results on success, yet

Broad personality traits of entrepreneurs

Broad traits should be less strongly related to business creation and success than more specific traits • Big Five personality taxonomy (Costa and McCrae 1988): openness, conscientiousness, extraversion, agreeableness, neuroticism • Emotional stability (= low neuroticism) and independence are positively correlated with success (Brandstätter 1997) • Openness to experience are negatively related to business startup (Wooton and Timmerman 1999) • Negative relationship between openness to experience and survival (Ciaverella et al. 2004) • Positive relationship between conscientiousness and survival (Ciaverella et al. 2004)

Specific personality traits of entrepreneurs

Need for achievement • Risk taking propensity • Innovativeness • Need for autonomy • Locus of control • Tolerance for ambiguity • Creativity • Self-efficacy • Further personality variables (in dispersed studies)

Innovativeness (1)

One of Schumpeter's core approach to entrepreneurship • Innovativeness assumes a person's willingness and interest to look for novel ways of action (Patchen 1965) • It implies that a business owner tends to introduce new products, new services, new markets, new processes of production, new technologies, and new research into a firm • Innovativeness can be described as a person characteristic; however, the implementation of innovations cannot usually be done by one person alone and usually needs to be studied on firm-level (Klein and Sorra 1996) • Innovativeness and creativity are quite similar concepts, some authors discriminate by the fact that not all creative ideas might become innovations Entrepreneurs are more innovative than other people and • Innovativeness (as a personality variable) is positively correlated with success (Rauch and Frese 2005) • Innovativeness (on a firm-level) is positively correlated with success (Rauch et al. 2005) • Innovativeness is more important in new-technology firms than in firms working within traditional industries H u m b o l d t - U n i v e r s i t ä t

Requirements for the revival of the personality approach (1)

Personality dispositions need to be sampled across different situations and occasions; they cannot predict a single behavioral act • The predictive power of personality traits becomes higher, if one takes the interaction of personality and situational parameters into account. • The predictive power of personality traits becomes more transparent when differentiating between broad and specific traits - Specific traits (such as goal orientation and self-efficacy) are nearer to behavior and more powerful than - Broad traits (such as emotional stability) • It is necessary to develop a unitary approach integrating personality traits and more dynamic aspects of the individual such as expectancies, beliefs, affects, goals, values, competencies, and selfregulatory plans any personality advocates assume a linear relationship between a personality variable and success; It should be tested for nonlinear relationships - People may be too ambitious, too risk-oriented, too achievement-oriented .... • Personality dimensions may interact on behavior where only specific combinations lead to success, e.g., openness to experience with extraversion and internal locus of control • Use of meta-analyses (quantitative review of articles) • Differentiation in the dependent variables (performance) for more differentiated prediction models: ROI, growth, number of employees, job satisfaction (as a subjective measure of success)

Personality traits

Personality traits, individual differences, or dispositions are defined - by being consistent across various situations and - by being stable over time • However, there are quickly changing personality factors and slowly changing parts of personality • Common misunderstanding: all behavior is determined by personality traits • A person can chose to behave against her disposition, and it is a common experience of entrepreneurs that they manage their personality. • It makes little sense to expect a high relationship between any one personality trait and specific decisions by an entrepreneur

Risk taking propensity

Risk taking was included in early economic theorizing (Knight) and received much empirical attention • Two competing theoretical positions regarding the effects of risk taking propensity on entrepreneurship and success: 1. Direct linear relationship of risk taking and creation and success or 2. A curvilinear relationship The 1. position (linear relationship) hypothesizes that entrepreneurs have a higher risk-taking propensity than others since - Entrepreneurship often linked to willingness to accept risks or uncertainty by economists (e.g., Knight) - „(...) two of the major considerations in the decision to become an entrepreneur may be the perceived degree of risk and the perceived possibility of failure associated with the financially unsuccessful venture" (Brockhaus 1982, p 45) - „(...) the entrepreneurial function primarily involves risk measurement and risk taking" (Palmer 1971) - „(...) in becoming an entrepreneur an individual risks financial well-being, career opportunities, family relations, and psychic well-being" (Liles 1974) The 2. position (curvilinear relationship) can be based on McClelland's (1961) n ach theory - high n ach would rather lead to moderate risk taking • Other arguments/explanations: - entrepreneurs do take high risks, but perhaps this is only a matter of risk perception • a high risk could be acceptable to a risk averse decision maker if (s)he perceives the risk a smaller than it actually is (concept of perceived risk attitudes; Weber and Milliman 1997) - Certain instruments used to measure risk taking propensity may be erroneous Concentrating on the appropriate instrument, - the Jackson Personality Inventory and - leaving aside studies employing the Kogan-Wallach Choice Dilemma Questionnaire, - a positive relationship between risk-taking and entrepreneurship can be established • Clear differences between managers and entrepreneurs are also to be found If one concentrates on a comparison with „real" entrepreneurs (small business entrepreneurs excluded), the difference to managers becomes quite considerable • Hence intrapreneurs may be differentiated from entrepreneurs via risk taking propensities • The effect of risk taking propensity on entrepreneurship and business success is positive and significant, but small

Self-efficacy (1)

Self-efficacy: trust in the own ability to perform • Individuals have a tendency to select situations where they expect themselves to be able to cope with • Important variable for the explanation of human development (Baron and Markman 2002) • Close relationship with so-called adversity quotient • AQ: ability of individuals to cope with bad developments, risks, and mistakes • AQ hence could be a central indicator for entrepreneurial activity Very high positive correlation between self-efficacy and success (Rauch & Frese 2005) • Further studies that also find relationship between self-efficacy and entrepreneurship or entrepreneurial orientation (of young people) • Apparently relationship between self-efficacy and internal locus of control (but self-efficacy concept is measured situation-specific and may thus be better in predicting entrepreneurial tendencies) • Income situation better the higher the AQ value is: independent of the analyzed group (entrepreneurs or others): AQ "general" success driver

History of the trait approach

The trait approach was heavily criticized during the 1990s because: - A high diversity of traits were studied - No theoretical consensus about the basic "entrepreneurial" dispositions in the literature - Inconsistent and conflicting empirical evidence for the relationship between personality traits and entrepreneurship - Many studies were narrative reviews