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What are the key personality factors and to what extent can they influence the successfulness of an entrepreneur?

Bachelor Thesis

Organization & Strategy

Year 2009-2010

Amar de Winter 312 103

Supervisor Dr. ir. J.S. Small

Word Count: 6028

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Table of Contents

1. Introduction p. 3

1.1 Problem Indication p. 3 1.2 Problem Statement p. 3 1.3 Research Questions p. 4 1.4 Relevance p. 4 1.5 Research Design and Data Collection p. 4 1.6 Structure of the Thesis p. 5

2. Entrepreneurship p. 6

2.1 Entrepreneurial Characteristics p. 6 2.2 Defining and Measuring Entrepreneurship p. 7 2.3 Different Perspectives on Entrepreneurship p. 8 2.4 Conclusion p. 10

3. Defining success at two stages p. 12

3.1 Stage one: The intention to become entrepreneur p. 12 3.2 Stage two: Entrepreneurial firm performance p. 13 3.3 Conclusion p. 13 4. Big Five personality model p. 15

4.1 Personality traits in-depth p. 15 4.2 Risk propensity: the sixth dimension p. 18 4.3 The extent of the influence of personality p. 19. 4.4 Conclusion p. 20 5. Conclusion and recommendations p. 21

5.1 Conclusion p. 21 5.2 Limitation p. 22 5.3 Recommendation p. 22 References p. 23 Appendix p. 29

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Chapter 1: Introduction

1.1 Problem Indication

The success of the entrepreneur is determined by both predispositional and situational factors.

Zhao, Seibert and Lumpkin (2009) examined the relationship of personality to outcomes

associated with entrepreneurial intentions and entrepreneurial performance. From their research

we can conclude that personality is the primary factor to investigate when attempting to predict

the success of the entrepreneur.

Rauch and Frese, (2007) investigated the personality traits of the high-growth intention of

entrepreneurs and argue that the relationship between them is significant. This is in contrast with

previous research in which it is said that there is no such relationship. The recent meta-analysis

of Rauch and Frese on entrepreneurial personality traits among others ‘need for achievement’,

‘tenacity’ and ‘self-efficacy’ shows that personality can play quite a large role in the high-growth

intention of entrepreneurs. Personality traits can affect behavior only if situations are relevant

and not constrained to allow the expression of individual differences (Mischel, 1968). Thus,

potential moderators are environmental constraints (Dess & Beard, 1984; Herron & Robinson

1993), such as the recent economic situation, the demands of the specific industry, or the stage in

the business life cycle (Baron, 2007).

Another key success factor is success experience, which is the entrepreneur’s ability to have an

indication that growth is feasible and as a result perform a given behaviour (Davidsson, 1991).

The theory of Reasoned Action suggests that a person’s behavior is determined by his/her

intention to perform the behavior.

This thesis will investigate the relevance of the key personality factors and their influence on the

successfulness of the entrepreneur.

1.2 Problem Statement

The preceding section leads us to the following problem statement:

What are the key personality traits and to what extent can they influence the successfulness of an

entrepreneur?

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1.3 Research Questions

So entrepreneurship is influenced by personality, success experience and the intention to perform a specific behavior, leading to the following research questions:

i. What is entrepreneurship?

ii. How has entrepreneurial success been defined?

iii. What are the key personality traits for an entrepreneur?

iv. To what extent can personality influence the successfulness of the entrepreneur?

1.4 Relevance

From an academic perspective, the thesis has specified the different factors that contribute to

successful entrepreneurship. Entrepreneurship plays an important role in a dynamic modern

economy. Failure as an entrepreneur can be costly to society in terms of missed opportunities and

lost resources. Therefore, providing clear insights of entrepreneurial processes and clarifying the

variables that are responsible for the successfulness of the entrepreneur is an important

undertaking.

From a managers perspective, we can in a way compare managers and entrepreneurs in their way

of doing business, as a manager performs entrepreneurial behavior within the organization. On

the other hand there are still many differences between managers and entrepreneurs, so this

Thesis has focused on entrepreneurs. Still there are many similarities between them that can be

interesting from the manager’s perspective.

1.5 Research Design and Data Collection

The goal of this thesis is to clarify the relation between the entrepreneur and the successfulness

of his/her entrepreneurship. This study is primarily a literature review and has used secondary

sources.

Publications are used from the Web of Science and other recommended databases such as for

example ABI/Inform. Keywords in relation with entrepreneurship like ‘success’, ‘personality’,

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‘entrepreneurial intentions’, ‘high growth intention’ and ‘performance’ have been used, to find

all relevant articles from these sources.

1.6 Structure of the Thesis

The structure of the thesis is as follows: in the next chapter some entrepreneurial characteristics

are described. Chapter 2 is also used to elaborate the theoretical framework of entrepreneurship,

which is used to situate the domain of interest in the broader picture. In chapter 3, a distinction is

made between entrepreneurial intention and performance to explain the concept of success. As

chapter 2 and 3 are dedicated to explain entrepreneurship and success in detail, chapter 4 will

discuss the personality traits by using the Big Five model. This chapter will also indicate to what

extent the personality dimensions influence the successfulness of an entrepreneur. In the final

chapter, the problem statement is answered to explain the effect of the personality traits on

entrepreneurial success. Chapter 5 will also discuss the limitations of this thesis and

recommendations for future research.

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Chapter 2: Entrepreneurship

2.1 Entrepreneurial characteristics

To explain the key personality factors that distinguish entrepreneurs from non-entrepreneur

groups, this first section of chapter 2 will discuss characteristics of a successful entrepreneur.

Empirical studies on the characteristics of entrepreneurs are numerous and both practitioners and

academic scholars agree that venture success is closely related to the individual characteristics.

Various important characteristics have been identified, with as three important: need for

achievement, locus of control and risk taking (Smith-Hunter, Kapp & Yonkers, 2003).

The need to achieve refers to the motive behind the individual to accomplish a certain goal and

to continuously improve their target. There is empirical support that entrepreneurs have a higher

‘need to achievement’ than non-entrepreneurs (Begley, 1995). Closely connected to this is the

internal locus of control, which can be defined as perceived control over the events in one’s life

(Mueller & Thomas, 2001). Since individuals who are confident to believe that they can manage

their environment in a positive sense, will have better future prospects as entrepreneurs. There

are also several studies that indicate that having a high locus of control improves the sense of

self-efficacy, improving the following up of intentions (Smith-Hunter et al., 2003). The

implementation of plans and strategies to improve the successfulness of the entrepreneur clearly

illustrates an individual’s attempt to control and manage the environment. Besides the literature

indicating that the locus of control positively affects entrepreneurship, Bouchikhi (1993) writes

about a negative influence: “The more the locus of control is high, the more the venture is likely

to be a failure” (Bouchikhi, 1993, p. 551). There are no arguments used in his research to prove

this.

The third dimension, risk taking, is a process that entrepreneurs face daily. This risk taking can

be financial, social or psychic and it is an important characteristic that distinguishes

entrepreneurs from non-entrepreneurs. The risk taking propensity is the perceived probability of

rewards associated with success in a situation and taking the consequences associated with

failure into consideration (Brockhaus, 1980). In section 4.4 risk propensity is described in more

detail by using the Big Five personality model.

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2.2 Defining and measuring entrepreneurship

According to Gartner (1989), entrepreneurs are not a well-defined occupational class of persons,

he claims that the behavior of entrepreneurs is more relevant. Also Schumpeter states, as

discussed by Wennekers and Thurik (1999), that being an entrepreneur is not a profession and as

a rule not a lasting condition. Entrepreneurs do not form a social class like for example

landowners or workmen do. By conceptualizing this behavior, a better understanding of the

influence of entrepreneurs on economic growth can be investigated. The behavior of

entrepreneurship has an input and an output side: where on the one hand entrepreneurial behavior

requires entrepreneurial skills and qualities which are discussed in detail in chapter 4,

entrepreneurship also implies the participation in the competitive process of the market.

Basically, entrepreneurship has to do with activities of individual persons and by linking

entrepreneurship to economic growth; it means linking the individual level to the aggregate

levels (Wennekers & Thurik, 1999).

Schumpeterian entrepreneurs, intrapreneurs and managerial business owners make the core of

entrepreneurship. Schumpeterian entrepreneurs or self-employed entrepreneurs are to be found

mostly in small firms that are innovative and that creatively destroy the existing market

structures. After realizing their goals Schumpeterian entrepreneurs often develop into managerial

business owners, but some may again start new ventures or new firms (Wennekers & Thurik,

1999). Intrapreneurs or entrepreneurial managers carry out commercial activities on behalf of

their employer and they are the embodiment of leadership resulting in entrepreneurial ventures in

larger firms. Sometimes these intrapreneurs spin-off and start their own enterprises and become

Schumpeterian entrepreneurs. Managerial business owners are the entrepreneurs in the formal

setting; they are to be found in the large majority of small firms. They belong to the economic

core and entrepreneurial ventures can grow out of them (Kirchoff, 1994). Wennekers and Thurik

argue that “While the managerial business owners fulfill many useful functions in the economy

like organization and coordination of the production and distribution, they cannot be viewed as

the engine of innovation and creative destruction. This is the major function of the

Schumpeterian entrepreneurs and intrapreneurs” (Wennekers & Thurik, 1999, p. 123).

However all three groups make their contribution to economic growth as is explained in the

following section.

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2.3 Different perspectives on entrepreneurship

To explain the different stages, we can distinguish entrepreneurship at three different levels; the

level of the individual entrepreneurs operating on their own or in teams and partnerships, the

firm level and the aggregate levels of industries, regions and national economies. These different

levels are called micro, meso and macro. Entrepreneurship is distinguished thus at one of the

three perspectives according to which factors of organizational growth are more emphasized;

external and internal factors or their interaction process.

Macro level perspective

The macro level perspective is based on external factors which can be translated among others to

environmentalism, which is characterized by studies based on viewpoints of organizational

lifecycle or organizational ecology. Quinn and Cameron (1983) studied the determinants of

organizational growth for the long term and their effects. Like Schumpeter and Kirzner the

general point of view taken by economists is the focus of what entrepreneurs can achieve in

terms of wealth creation. On the one hand there are several studies that attempt to identify

environmental factors that give rise to the large number of entrepreneurs and to identify various

cultural traits of specific locations or ethnic groups that encourage economic success. On the

other hand there are numerous studies that emphasize institutional factors such as labor markets.

Pennings (1982) statistically identified the direct relationship between the economic growth rate

of an urban area, the number of universities and the clustering phenomenon of start-up SME’s in

a specific field. Pennings noted that growing industrial agglomeration promotes entrepreneurial

activities and facilitates flows of technology and human resources. This macro perspective, based

on environmentalism, provides a better insight into the role of the entrepreneur in the economic

society.

Micro level perspective

This perspective is investigated extensively in the following chapters; with the focus on the

internal key factors of an entrepreneur that influence the successfulness of his/her

entrepreneurship. When we emphasize the internal factors, we consider the concept of the

entrepreneur from the psychological or sociological points of view at the micro level. The

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predispositional variable underlying a starting entrepreneur’s high-growth intention is

personality; since the expected positive relationship of personality to outcomes associated with

entrepreneurial performance. Kunkel (2001) claims that personality traits enable people to deal

with typical entrepreneurial environments and tasks like recognizing entrepreneurial

opportunities such that personality and firm growth were assumed to be positively related. Also

Rauch and Frese (2007) investigated the personality traits of the high-growth intention of

entrepreneurs and argue that the relationship between them is significant. They also state that

besides intention, another important variable is the need for achievement to determine the

successfulness of the entrepreneur. The psychological endowments influence the crucial

elements of entrepreneurship, like skills and attitudes that are important for performing the right

actions and the resulted firm performance. It is already clear that psychological abilities have a

large influence on the high-growth intention of the entrepreneur, which will be investigated

further in the upcoming chapters.

Meso level perspective

The focus on the organizational approach is here especially on the acquisition, accumulation and

the utilization of resources. Entrepreneurship within the company is determined by the resources

by which the firm can distinguish itself from competitors. If each firm possesses core

management resources as advantageous organizational assets, the resources enable the firm to

achieve great operational success if effectively used (Yamada, 2004). The presence of resources

in a certain domain also greatly influences the number of establishments of new firms which has

its effects at the macro level perspective (Chrisman, 1999). Firm-specific management resources

not only tend to determine the start-ups of a business, they also predict the early performance,

since scarce resources are more likely to obtain profits. Therefore, each new venture focuses on

accumulating specific management resources through unique business development, which can

be an important advantage over existing large firms (Yamada, 2004). Internal factors that drive

the long-term growth of a firm are assumed to be unutilized resources. Such resources originally

have various potential uses and can be turned into utilizable resources by directing them

according to the entrepreneur’s knowledge. (Penrose, 1959) By only focusing on the resource-

based growth theory, it devalues the human being behind a firm’s resources, since the resources

are depending on the interpretation and utilization of the entrepreneur. The high-growth

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intentions of an entrepreneurship are the combination of the available resources and the creator’s

knowledge in sorting out the available resources and reinterpreting them from new perspectives

to create value (Yamada, 2004).

Linking entrepreneurship to economic growth also means linking the individual level to the firm

and the macro level. As defined earlier, entrepreneurship is operational at the individual level

which has essentially to do with behavior. To be able to transform this behavior into the right

action, entrepreneurs need to operate from the firm level where their actions and ambitions can

be executed. Small firms provide such a vehicle to perform entrepreneurial actions whereas

larger firms often have a prescribed business culture where this entrepreneurial creativity is

minimized. Important feedback mechanisms are competition and selection which enables

individuals or firms to learn from their own and other’s successes and failures. These learning

processes increase the entrepreneurial skills and adapt their attitudes. As a consequence new

entrepreneurial actions will be executed which will continuously renew the organization of the

market. Also at the macro level there is a continuous competition of new ideas and initiatives,

leading to the selection of the most viable firms and industries (Wennekers & Thurik, 1999).

2.4 Conclusion

The need to achieve refers to the motive behind the individual to accomplish a certain goal and

to continuously improve their target. The locus of control is closely connected to this need to

achievement and is defined as the perceived control over the events in one’s life. A third

entrepreneurial characteristic, risk propensity, is the amount of risk an entrepreneur permits to

reach target. In chapter 4 these characteristics will be included in the Big Fiver personality model.

When defining entrepreneurship, it is important to understand that it differs and changes over

time, since it is a behavior that is continuously adapting to the context entrepreneurs are

operating in. Schumpeter divides entrepreneurs into three categories: the managerial business

owners are the entrepreneurs in the formal setting, they fulfill functions like organization and

coordination of the production and distribution. The Schumpeterian entrepreneurs and

intrapreneurs are responsible for the application of innovation and creative destruction to the

need and opportunities of the market. To investigate entrepreneurship in the economy as a whole,

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it is distinguished in three different perspectives according to which factors of organizational

growth are more emphasized. In the macro level perspective, environmental and institutional

factors are the main indicators for entrepreneurial activity in a certain region. Therefore, the

focus at the macroeconomic level is on these external factors. Entrepreneurs within the firm are

discussed in the meso level perspective; their utilization of the firm specific (management)

resources differentiates them from competitors. It is the combination of the available resources in

a certain domain and the personal strengths of the entrepreneur in how to use them to create

maximum value for the firm (Yamada, 2004). This thesis will investigate the internal key factors

of an entrepreneur in the micro level perspective and from several researches it can be concluded

that the influence of personality on the successfulness of entrepreneurs is significant. To be able

to investigate this, the following chapter will define first the concept of entrepreneurial success.

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Chapter 3: Defining success at two stages

In the literature success is sometimes defined by only measuring the performance. According to

Zhao, Seibert and Lumpkin (2009), success is divided into two stages: the entrepreneurial

intention and performance. To define success a complete overview is given, with the distinction

between these two stages.

3.1 Stage one: The intention to become entrepreneur

This first critical step in the process of becoming a successful entrepreneur is the ability to start

and manage one’s own business. Bird (1988) describes this entrepreneurial intention as the

expressed behavioral intention to become an entrepreneur. A distinction is made between the

intentions of small business owners and entrepreneurs, where small business owners are more

focused on low-growth intentions, entrepreneurs will focus on high-growth and innovation (De

Baets, 2006). Davidsson (1989) is explaining this intention by growth motivation; which is

determined by the perceived ability, need and opportunity for growth. According to Davidsson,

the entrepreneur’s perceptions for these determinants of growth intentions are of major

importance for explaining the influence of personality on the high-growth intention of

entrepreneurship.

An important consideration is that the statistical relationship between growth intention and the

subsequent realization tends to be rather weak. This can be caused by situational factors

influencing the high growth intention of the entrepreneur, like access to resources and

availability of opportunities (Zhao, Seibert & Lumpkin, 2009). Despite a possibly large influence

of situational factors, this thesis investigates only the predispostional factors that determine the

success of entrepreneurship. Grundy and Welsch (2001), as mentioned in the research from Zhao

and Seibert (2009), did extensive research from which can be concluded that entrepreneurs are

depicted as having a high-growth intention when they intent strategic growth and expansion

intentions, willing to offer the opportunity cost at the short term for the foreseeing opportunity

costs, perceive strategic success factors to be of greater importance to their organization, and

utilize a greater variety of financing resources at start-up and growth (Zhao et al., 2009). An

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entrepreneur is supposed to posses at least several of these characteristics in order to have high-

growth intention.

3.2 Stage two: Entrepreneurial firm performance

After having the entrepreneurial intention to become an entrepreneur, the second stage is about

the elaboration of this intention to a healthy entrepreneurship. Available explanations of the

entrepreneurial process outcome can be distinguished into 4 different stream. The first two are

the entrepreneur’s personality or strategy and the other 2 streams are the entrepreneur’s

performance related to the environment (either sociological or economical). Bouchikhi (1993)

named the first two, the endogenous explanation and the latter two the exogenous explanation.

Entrepreneurial performance is typically measured in economic or financial terms; in this view

performance is seen as a quantitative subject (Brush & VanderWerf, 1991). Within literature

there are also other views on entrepreneurial performance found that are more towards a

qualitative approach such as growth in relation to knowledge and sustainability. To explain the

factors that describe entrepreneurial performance as a quantitative subject, there are different

views on which variables should be calculated to measure firm performance. Smith (1999)

measures performance according to growth in employees, return on equity and productivity.

Other variables used to measure performance are survival, revenues/sales, income and

profitability (Srinivasan, Woo & Cooper, 1994; Lerner et al., 1997). Entrepreneurial firm

performance underlies the individual’s ability to continue as an entrepreneur, even though some

successful entrepreneurs may choose to no longer continue as the manager of their own business

(Zhao et al., 2009).

3.3 Conclusion

In the literature the emphasis is on performance, but Zhao et al. (2009), include the high-growth

intention as the first critical step in becoming a successful entrepreneur. As a result,

entrepreneurial success is defined by both the intention to become an entrepreneur and the

development of this intention to a sustainable firm (entrepreneurial performance). The statistical

relationship between growth intention and the subsequent realization of a successful

entrepreneurship tends to be rather weak due to situational and predispositional factors, where

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this thesis investigates the influence of predispositional factors on entrepreneurial success. In the

next chapter, the personality dimensions and their influence on entrepreneurship, is discussed.

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Chapter 4: Big five personality model

4.1 Personality traits in-depth

Several recent meta-analyses show that entrepreneurs do differ from other groups in terms of a

broad range of personality traits. Personality theorists agree that an individual’s personality

predicts his or her behavior (Funder, 1994; Ciavarella, Buchholtz, Riordan, Gatewood, & Stokes,

2004). As a consequence, personality traits may have important implications on performance as

the entrepreneur’s behavior is likely to influence success (Hunt & Adams, 1998). Entrepreneurs

with personalities that enhance their ability to perform should have a greater probability of

sustaining the operations for the long-term (Ciavarella et., 2004). To investigate the influence of

personality on success more in-depth, this thesis uses the Big Five personality model. Since the

mid-1980s, the Big Five factors has been found to be a robust indicator that captures the basic

structure of an individual’s personality (Ciavarella et., 2004). With the big five personality model

this thesis will investigate which personality factors (and to what extent) have an effect on the

successfulness of the entrepreneur.

Figure 2: Big Five Personality Model related to the high-growth intention of the entrepreneur.

Extraversion

Emotional Stability

Agreeableness à High-growth intention

Openness

Consciousness

(Risk propensity)

Extraversion is associated with people’s perception of the leadership role (Lord, De Vader &

Alliger, 1986). The match between traits of extraversion, such as energy, assertiveness,

gregarious and being sociable, and the attributes associated with leading a new venture lead us to

expect extraverts to be more attracted to entrepreneurship. This also supported by research in

which is shown that extraverted people are more likely to take on leadership roles (Judge,

Higgins, Thoresen & Barrick, 1999). The personal ‘leadership’ traits are characterized by the

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entrepreneur is his communication of vision and enthusiasm, building networks establishing

relationships among employees and partners, and negotiating deals with suppliers and customers

(Markman & Baron, 2003; Zhao et al., 2009). Researchers have taken an unanimous stand on the

explanation of this first dimension, but still there are some slight differences in understanding.

According to Hogan (1986) extraversion is interpreted as consisting of two components, namely

ambition and sociability.

Research by Holland (1984) shows that extraverts are more appealing to entrepreneurship, since

this career is expected to be more challenging and exciting than many traditional business

occupations. McCelland (1987) found in his study that assertiveness is the differentiator between

successful and average entrepreneurs. Meta-analytical results show that extraversion is positively

related to job performers that involve high levels of social interaction (Barrick, Mount & Judge,

2001). As a result, extraversion is to be the strongest personality predictor of leadership and as a

consequence entrepreneurship (Judge, Bono, Ilies & Gerhardt, 2002).

The second dimension is called emotional stability and together with extraversion they

represent the “Big Two” described by Psychologist Eysenck over 40 years ago. Common traits

associated with people low on emotional stability are being anxious, depressed, angry,

embarrassed, emotional worried and insecure (Barrick & Mount, 1991). These individuals are

prone to stress and obstacles as emotional volatility and worrying will negatively affect their

entrepreneurial behavior. In both the popular imagination and the academic literature,

entrepreneurs are typically described as hardy, optimistic, and steady in the face of social

pressure, stress, and uncertainty (Baron, 1999). Entrepreneurs take on physical and emotional

burdens and they press ahead where others might be discouraged by obstacles or self-doubt

(Zhao et al., 2009). Other individuals are not willing to take these personal responsibilities and

strains associated with new ventures and will choose for safer, traditional types of employment.

Therefore it’s necessary for an entrepreneur to dispose of a high level of emotional stability and

to take personal responsibility for the success or failure of their entrepreneurship. Entrepreneurs,

who are emotional stable, are more likely to cope with problems through positive thinking and

direct action (Costa & McCrae, 1992). They are able to stay calm and behave in a confident

manner in order to be able to focus on the necessary tasks and as a result they will increase their

potential in becoming a successful entrepreneur.

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Agreeableness is the dimension that assesses how much people concern for the needs of others.

People high on agreeableness are more likely to be courteous, forgiving and flexible in dealing

with others. This interpersonal factor focuses on the quality of relationships through cooperation

and trust (DeNeve & Cooper, 1998; Judge et al., 1999). There is some disagreement on this

dimension since there is the view that people high on agreeableness are more likely to be

occupied in social work, where they can work for the benefit of others, rather than business, that

is build around the entrepreneur’s own needs and interests (Singh & DeNoble, 2003). The

limited leeway for altruistic behavior and the self-focused relationships make that entrepreneurs

are not characterized as agreeable people. As a logical conclusion we expect less agreeable

individuals to be more successful entrepreneurs (Zhao et al., 2009).

On the other hand, there are researchers who conclude the opposite; a high level of agreeableness

is necessary to receive the required support e.g. to get a new venture started. Entrepreneurs who

establish trusting, flexible and courteous relationships with their customers should expect to reap

the profits of repeat business (Ciavarella et al., 2004). Besides, entrepreneurs who are trusting

and cooperative in their business relationships are more likely to develop alliances with larger

companies, resulting in new product development, shareholder wealth and venture survival

(Baron & Markman, 2000). Here agreeableness is explained as quality relationships with

suppliers and investors so there is a greater likelihood of receiving essential future support and

resources, which can support the performance over the long-term (Ciavarella et al., 2004).

Openness to experience, also known as intellect, describes someone who is intellectually

curious, imaginative and creative, related to opportunity recognition (Ciavarella et al., 2004).

The attributes of intelligence, broad-mindedness and originality are salient for starting and

maintaining a new venture. Creativity and proclivity bring about innovative change and

entrepreneurs are likely to rely on creativity to be able to maintain their business and protect the

firm from competitors (Bird, 1989). In the modern business environment, it is imperative that

entrepreneurs are ready to adapt quickly to changes in the market. The constancy of change

requires intelligence and curiosity to acquire new knowledge (e.g. of technological advances)

and innovative thinking to develop new strategies (Ciavarella, 2004). As a result, high levels of

openness will decrease the probability of failure of the entrepreneurship

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Conscientiousness is a personality dimension that describes an individual’s level of achievement,

work motivation, organization and planning, perseverance, and responsibility toward others

(Ciavarella et al., 2004; Roberts, Chernyshenko, Stark, & Goldberg, 2005; Zhao et al., 2009).

There is some disagreement in the literature regarding the essence of this dimension. According

to some writers, conscientiousness reflects dependability; that is, being careful, thorough,

responsible, organized and planful. Others have suggested that in addition to these traits, it

incorporates volitional variables, such as hardworking, achievement-oriented and persevering. In

1990, Digman’s study provides evidence that the volitional aspects should be included in

defining conscientiousness (Barrick & Mount, 1991).

The first two entrepreneurial characteristics, as described in chapter 2, can also be assigned to

conscientiousness: need to achieve, since individuals with high need for achievement will be

more attracted towards entrepreneurship as this achievement-oriented focus is not found in this

extent in other forms of employment (Zhao et al., 2009). Moreover, this dimension has also been

associated with both goal directed behavior (such as efficacy) and control related traits, like

internal locus of control (DeNeve & Cooper, 1998). Other traits in this dimension that are

expected to be positively related with entrepreneurial success are work goal orientation and

perseverance. Being persevering should result in higher sales productivity, while being well-

organized signifies increased efficiency and effectiveness (Ciavarella et al., 2004).

4.2 Risk propensity: the sixth dimension

There is a discussion in the literature on which of the five dimensions ‘risk propensity’ can be

assigned. Some scholars suggest that risk propensity is a compound personality trait reflecting a

specific combination of scores on all five dimensions of personality, namely high extraversion,

openness to experience, emotional stability, low agreeableness and low conscientiousness

(Nicholson, Fenton-O’Creevy, Soane, & Willman, 2005; Zhao et al., 2009). Others argue that

risk propensity forms a separate sixth dimension of personality (Paunonen & Jackson, 1996). In

table 2, risk propensity is given a separate place outside the model to explain this dimension

separately.

Risk propensity is the willingness to pursue decisions or courses of action where there is an

uncertainty regarding the success or failure of the outcomes (Jackson, 1994). Individual

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predispositions do influence behavior in situations involved with risk. An entrepreneur has

always been a person who is willing to bear more risk and people with a high risk propensity are

more attracted to entrepreneurship. Stewart and Roth (2001, 2007) found entrepreneurs to be

significantly higher in risk propensity than managers. Although, risk propensity may not be

beneficial for subsequent entrepreneurial firm performance, since persistent exploitation of the

known competitive advantage will be more beneficial than gambling the firm’s resources on new

strategies (Zhao et al., 2009). As a result, an entrepreneur should manage his risk propensity very

carefully.

4.3 The extent of the influence of personality

Now the influence of the personality dimensions on entrepreneurship is discussed, the following

step is to link this to entrepreneurial success (see chapter 5). This section is used to explain to

what extent the personality traits are contributing to success (entrepreneurial intention and

performance). In the meta-analysis by Zhao et al. (2009), they included 60 studies with 66

independent samples and a total sample size of 15,423 individuals. In table 1, a summary is

provided of their findings (see also appendix).

Trait Intentions Performance

Conscientiousness 0.18 0.19

Openness 0.22 0.21

Emotional Stability 0.14 0.09

Extraversion 0.11 0.05

Agreeableness (-)0.09 (-)0.06

The Big Five estimates are standardized regression coefficients with p<0.01.

Table 1 presents the multiple regression results from the meta-analysis (Zhao et al., 2009, p. 394).

Openness to experience and consciousness appear to be the personality dimensions that have the

strongest effect on entrepreneurial success. As discussed earlier, according to Zhao et al. (2009),

agreeableness appears to be negatively related to success and unless its small results on the

entrepreneurial intention and performance, both results are statistically significant. The multiple

R between the five personality variables and entrepreneurial intentions was 0.36, whereas the

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multiple R with entrepreneurial performance was 0.31. This suggest that a relationship between

personality and entrepreneurial success holds, since such effect sizes can be viewed as

sufficient/large for psychologists (Meyer, Finn, Eyde, Kay, Moreland & Dies, 2001). This study

by Zhao et al. (2009), provides evidence to explain to positive relationship of personality on

entrepreneurial success which is elaborated in chapter 5.

4.4 Conclusion

To conclude, the influence of personality on entrepreneurship was rejected until the late 80s, but

nowadays there is enough evidence of a visible influence of personality traits on the

successfulness of the entrepreneur. The research published over the past 30 years helps us to

explain the influence of these personality traits and how each of them affects the success of a

new venture. In the meta-analytic study of Zhao et al. (2009) and Ciavarella et al. (2004), the

three entrepreneurial characteristics (from section 2.1) are also included; need to achievement

and locus of control are classified under consciousness. Risk propensity is a rather different

characteristic which can be spread over the five dimensions or taking separate. An entrepreneur

should be able to take the risks involved with setting up a new business (intention), but reduce

risk taking to a certain extent such that it will not negatively influence the firm’s performance.

From the Big Five personality model can also be concluded that entrepreneurs score higher on

openness to experience, conscientiousness, extraversion and emotional stability, and are lower on

agreeableness than non-entrepreneurial groups (Zhao & Seibert, 2009). This differs from the

research from Ciavarella et al. (2004) where the effect on the long-term survival is measured;

here entrepreneurs should also score high on agreeableness to increase entrepreneurial success.

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Chapter 5: Conclusion and recommendations

The previous chapters were constructed to discuss the different research questions; this chapter

will provide an answer to the problem statement: “What are the key personality factors and to

what extent can they influence the successfulness of an entrepreneur?” Besides, this chapter will

also indicate the limitations encountered during the literature review and recommendations for

future research.

5.1 Conclusion

Zhao et al. (2009) and Ciavarella et al. (2004), studied the influence of personality to outcomes

associated with entrepreneurial activity, from which can be concluded that not the environmental

factors (alone) determine the successfulness of an entrepreneur. To illustrate this with an

example: even with limited resources an entrepreneur can be very successful, since their creative

use of external networks they are still able to attain the resources needed. Unless the expected

positive influence of predispositional variables on success, the contribution of personality to the

successfulness of the entrepreneur has been rejected until the mid-1980s, since the lack of

evidence.

In the previous chapter, personality has been distinguished into Big Five factors: openness to

experience, conscientiousness, extraversion, emotional stability and agreeableness. To

investigate the influence of each personality trait separately on entrepreneurial success, their

effect on the entrepreneurial intention and performance needs to be discussed. Zhao et al. (2009),

formed the following conclusion: entrepreneurs score higher on openness to experience,

conscientiousness, extraversion and emotional stability, and are lower on agreeableness (on both

intention and performance) than non-entrepreneurial groups. They also took into account the

research from Ciavarella et al. (2004), which only differs on the interpretation of agreeableness,

which here increases entrepreneurial success.

When discussing risk propensity separately, as a ‘sixth dimension’, risk propensity is positively

related to the entrepreneurial intention, but negatively related to firm performance (Baron, 2007).

Because an entrepreneur should be able to take the risks involved with setting up a new business,

but reduce risk taking to a certain extent such that it will not negatively influence the

entrepreneurial performance. The extent of the influence of the Big Five factors on the

22 | P a g e

successfulness of the entrepreneur was already given in the previous chapter (Table 1, p. 19),

which is based on the most recent study on this topic (Zhao et al., 2009). As a result, personality

has a large effect on the successfulness of the entrepreneur and is one of the main indicators of

entrepreneurial intention and performance.

5.2 Limitation

There were a number of limitations to this study. Firstly, the influence of only the

predispositional factors on entrepreneurial success are studied and not the contribution of

situational factors. As a consequence, the focus was more on the personality dimensions than

entrepreneurial success in general. Another limitation is that only secondary literature is used to

investigate the problem statement; there is no empirical evidence found with own research.

Another limitation is that not all the available research on this topic is used and as a result there

will be views from researchers that are not discussed, which decreases the overall validity.

5.3 Recommendation

Managerial Recommendations

There is a large influence of personality on successful entrepreneurship and now these

dimensions are identified, individuals, who want to become entrepreneur, should work on their

personality traits to maximize their abilities. Besides, active entrepreneurs can also be instructed

where they can improve their abilities to become even more successful. This has to be put into

perspective, since entrepreneurs conduct a specific behavior and ‘being entrepreneur’ is not a

lasting condition. As a result, potential entrepreneurs should focus on personality traits which

enables them to improve their entrepreneurial behavior.

Academic Recommendations

It would be also interesting to investigate how somebody’s personality changes due to

entrepreneurial behavior; e.g. entrepreneurs are expected to become more open to experience and

less agreeable over time. Another interesting topic is a complete study of all the factors that

influence the successfulness of the entrepreneur, since when the environmental factors are also

included, the mutual relationship between situational outcomes (exogenous dimension) and

predispositional factors (endogenous dimension) can be identified.

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Appendix

Table 1 in thesis presents the multiple regression results from the meta-analysis (Zhao et al., 2009, p. 394).