Prepared for The Handbook of Technology Management, Richard C. Dorf (Editor),
CRC Press LLC, Boca Raton, FL, 33431
The authors wish to thank the Kauffman Foundationís Center for Entrepreneurial Leadership Inc. for providing financial support to help us write this chapter.
More than a dozen founders of successful companies received awards at the 1997 "Northern California Entrepreneurs of the Year" banquet. The first was given to Margot Fraser, president and founder of Birkenstock Footprint Sandals, which is now in its third decade as the exclusive U.S. distributor of Birkenstock footwear. Fraser was lauded for her persistence and good business sense, which were portrayed as key causes of her firmís success. In an emotional acceptance speech, Fraser protested that she didnít deserve the award alone, rather it would be shared with her employees, and that her firmís success would have been impossible without so much support from her supplier in Germany and her family.
The last and most prestigious award for "Master Entrepreneur" was given to Dado Banatao, co-founder of several successful start-ups including Chips and Technologies and S3, and current chairman of five high technology companies. Like the other winners, Mr. Banatao was recognized for his personal qualities, including a competitive spirit, love of taking calculated risks, and technical knowledge. As in nearly all the other acceptance speeches, Mr. Banatao claimed that he was given too much individual credit, and that he was just one of many people who enabled these start-ups to succeed. He emphasized that this success stemmed not just from him, but from a group of close friends and associates who understood one anotherís strengths and how to combine them to launch a start-up.
This polite ritual, where the presenter focused on the entrepreneurís individual qualities, but the winner attributed success to others was evident in each of the dozen or so award presentations that night. We assert that this ritual reflects widely held, but inaccurate, beliefs about what it takes to be a successful entrepreneur and about the broader nature of the entrepreneurial process.
Numerous studies by psychologists suggest that when a person does something, those who are watching ("observers") will say it is caused by a characteristic of the person (like persistence or optimism), while the person being watched (the "actor") will say he or she is doing it because of something about the situation (e.g., "Mary told me to do it." or "I know this is what he expects me to do."). This pattern is called the "fundamental attribution error," because observers usually place too much credit or blame on personality characteristics, and not enough on factors outside the person that drove him or her to action (Fiske and Taylor, 1991). This attribution error occurs because observers notice the person who takes action, but donít notice the other, external forces that often cause the behavior. Such perceptions are fueled by our culture, which glorifies heroes and rugged individualists, but scapegoats the weak and incompetent. Similarly, leadership researcher James Meindl (1990) has shown that writings by business reporters and by scholars place too much emphasis on leadersí individual characteristics (especially personality) as causes of firm performance, and not enough emphasis on factors outside the leader, such as other people or structural opportunities and constraints.
Popular and academic writings on entrepreneurship have been especially prone to romanticizing individual founders and CEOs when new firms are successful, and vilifying them when such firms fail. Academic researchers, along with authors who write for broader audiences, like journalists, venture capitalists, and entrepreneurs, have expended much time and text in a quest to predict who will succeed as an entrepreneur and who will fail. These diverse writings emphasize that personality, along with other individual characteristics like demographic and cultural background, will predict who will become an entrepreneur, and which entrepreneurs will succeed. On the face of it, there are good reasons to give founders and CEOs the lionís share of credit and blame in young, small organizations. When the organization is small, the leader can devote more time to influencing each member, and when it is young, the force of a leaderís personality is dampened less by organizational history and accepted procedures. And some evidence implies that leader personality has a stronger impact on structure in small and young organizations than in old and big organizations (Miller and Dorge, 1986).
As early as the 1950s, researchers began looking for personality factors that determine who is Ė and who is not Ė likely to become an entrepreneur. McClelland (1961) found that entrepreneurs had a higher need for achievement than non-entrepreneurs and were, contrary to popular opinion, only moderate risk takers. A great deal of research on the personality characteristics and socio-cultural backgrounds of successful entrepreneurs was conducted in the 1980s and 1990s. Timmonsí (1994) analysis of more than 50 studies found a consensus around six general characteristics of entrepreneurs: (1) commitment and determination; (2) leadership; (3) opportunity obsession; (4) tolerance of risk, ambiguity and uncertainty; (5) creativity, self-reliance and ability to adapt; and (6) motivation to excel. A related stream of research examines how individual demographic and cultural backgrounds affect the chances that a person will become an entrepreneur and be successful at the task. For example, Bianchiís (1993) review indicates these characteristics include: (1) being an offspring of self-employed parents; (2) being fired from more than one job; (3) being an immigrant or a child of immigrants; (4) previous employment in a firm with more than 100 people; (5) being the oldest child in the family and (6) being a college graduate.
At the same time, the business press has devoted much attention to the backgrounds, personalities, and quirks of successful entrepreneurs, turning founders like Bill Gates and Steve Jobs into names that are probably more familiar to most Americans than those of their representative in the U.S. Congress. This media coverage has fueled the belief that successful entrepreneurs are a breed apart. These press reports, and much academic literature, has reinforced the myth that the success of a new venture depends largely on the words and deeds of a brilliant and inspiring superstar, or perhaps two superstars. Although other people are involved, people in our culture seem to believe that they play far less important roles and are easily replaced.
Although this myth is propagated and accepted in many corners of America and other western nations, it is supported by weak evidence. After three decades of scholarly research, many studies have found little if any effect of founder or leader personality, or the demographic and social background of the founder, on start-up success. Although the personality and socio-cultural variables proposed to distinguish successful from unsuccessful entrepreneurs seem logical and often are gleaned from legends about successful start-ups, at best, these variables explain only a small part of who will be a successful entrepreneur and which ventures will succeed.
We propose that a more accurate picture of entrepreneurship emerges when it is viewed as a social rather than an individual activity. Building a company entails hiring, organizing, and inspiring a collection of people who typically need to get start-up funds from others, to buy things from other people, and, ultimately, flourish or fail together as a result of the ability to sell things to yet another group of people. The emphasis on rugged individualism is so prevalent in western culture that many of the lists of "characteristics of successful entrepreneurs" barely reflect that launching a start-up entails constant interaction with others. For example, five of the six characteristics of entrepreneurs identified in Timmonsí (1994) review could just as easily be used for identifying which people are best suited for a solo activity that entails little or no interaction with others, such as racing a sailboat alone. Commitment, opportunity obsession, tolerance of risk, ambiguity and uncertainty, creativity, self-reliance, ability to adapt, and motivation to excel all seem to describe the kind of rugged individualist who struggles alone to win a contest under difficult circumstances. Only one of the categories identified by Timmons Ė leadership Ė refers to the social nature of entrepeneurship.
Recently, organizational sociologists including Howard Aldrich (1986) and John Freeman (1996) have been developing theory and doing research on the implications of viewing entrepeneurship as a social process. Aldrich (1986) proposes that entrepreneurship is embedded in a social context, channeled and facilitated (or inhibited) by a personís position in a social network. Not only can social networks facilitate the activities of potential entrepreneurs by introducing them to opportunities they would otherwise have missed or not have pursued, but social networks are also essential to providing resources to a new venture. This view suggests that success doesnít depend just on the initial structural position of the entrepreneur, but also on the personal contacts he or she establishes and maintains throughout the process.
Freeman (1996) emphasizes that, as a result, successful entrepreneurs are especially skilled at using their time to develop relationships with people who are crucial to the success of their new venture. A new venture may start as the brainchild of one or very few people, but it takes many more people to put together the pieces of the puzzle that constitute a successful firm. The first few pieces of the puzzle usually come from and through the existing network of the entrepreneur or "insiders": friends, family and co-founders. As the creation of the venture progresses, however, entrepreneurs need to reach beyond their individual social network and involve "outsiders" such as banks, venture capitalists, lawyers, accountants, strategic partners, customers, and industry analysts and influencers.
This view that entrepeneurship is a social process, and that entrepreneurs act largely as social rather than solo players, should not lead researchers and educators to conclude that entrepreneursí individual knowledge and skill is irrelevant to the success of a new venture. Rather, the essentially social nature of establishing connections and fruitful relationships with both insiders and outsiders means that the study Ė and teaching Ė of entrepreneurship should focus more heavily on social behavior. This includes how people identify which relationships will be crucial to the success of their venture, and how they develop and maintain the relationships that enable their firm to obtain the information, funds, legitimacy, and help needed for their firm to survive and flourish.
Our view that entrepreneurship is largely a social activity and that entrepreneurs are largely social creatures suggests not only that academics need to continue research on the social networks of new ventures, but that aspiring entrepreneurs would benefit from learning the rudimentary tools of social network analysis (Burt, 1992). These tools can be used to identify which key people and firms are connected to one another, and which central players are crucial to a start-upís success. For example, as Freeman (1996) points out, although the money that venture capitalists provide to a start-up is critical to its success, the network of contacts provided by the venture capital firm may actually be more important to the success of a new start-up. Freeman quotes a promotional brochure from the Mayfield Fund (one of the most well-known venture capital firms of Silicon Valley) that brags: "Mayfield has close working relationships with technology leaders, universities, other venture capital firms, financial institutions, consultants and corporations throughout the United States, as well an international networkÖ. Mayfieldís contacts provide a key resource for developing the relationships critical to a growing technology-based company, including potential corporate partners, both here and abroad." A network perspective suggests that an entrepreneur may be placing his or her firm at considerable risk by accepting start-up funds from a venture capital firm that provides favorable financial terms, but lacks access to the network of contacts the firm needs to succeed.
Once an entrepreneur has determined which relationships are crucial to the success of his or her new venture, most of his or her time is spent building, negotiating, and maintaining these relationships. This implies that successful entrepreneurs are able to persuade others to enter relationships and to take actions that will help the new venture. A key part of any leaderís role is persuading people to do things that they are unsure about or donít want to do at all. It is no accident that many of the most famous entrepreneurs are renowned for their interpersonal influence skills. Herb Kelleher is co-founder and CEO of Southwest Airlines, which provided shareholders with a yearly average return of 22% between 1972 and 1992, the single best performing stock during this 20-year period. Kelleher, who some consider unconventional and eccentric, has also been called the Americaís best CEO by Fortune Magazine (Labich, 1994). Our view of Kelleherís seemingly over-the-top style is that he is a master of persuasion. He charms, flatters, and jokes with employees and customers; he bullies competitors; and he battles with politicians, often all at once, to do what is best for Southwest.
Most people are not born with Kelleherís flair, but there are proven means of influence that people can learn to use. The fundamentals of interpersonal influence are studied and taught in many corners of academia, especially in psychology and management departments. Robert Cialdiniís (1992) book Influence is complete and readable, and is used in many courses on interpersonal persuasion.
In addition to influence, entrepreneurs often influence others through negotiations. They may negotiate with venture capitalists over the terms of an investment in the firm, with employees over their salary and stock options and with potential acquirers over a purchase price for the entire company. More research is needed on the prevalence and importance of negotiation skills as a characteristic of entrepreneurs. In addition to teaching interpersonal influence skills, perhaps entrepreneurship courses and programs should include the theory and practice of negotiation. Bazerman and Nealeís (1992) Negotiating Rationally would be a useful text for such courses.
Finally, the social nature of entrepreneurship means that entrepreneurs spend a great deal of their time in groups. There is already compelling evidence that the characteristics of top management teams are important to the success of a new venture (Eisenhardt and Schoonhoven, 1990). The myth that any given entrepreneur is a rugged individualist, who toils alone, can often be demolished by just asking to look at his or her calendar. Nearly always, the majority of his or her time will be spent as part of a group, at meetings with the management team, board meetings, project team meetings, and so on. As such, knowledge about leading a group, being a constructive group member, dynamics of healthy versus destructive groups, and designing Ė or repairing Ė groups so that they function well should be a central component of entrepreneurship research and education. Robert Reich (1987), former U.S. Secretary of Labor, echoes this view in his article "Entrepreneurship Reconsidered: The Team as Hero." There are useful materials available about teams and how to manage them, like the edited collections by Paul Goodman (1986) and Richard Hackman (1990). Materials of this kind can help aspiring (and perhaps struggling) entrepreneurs learn a great deal about groups: how roles emerge, how their members jockey for influence, the functions and dysfunctionís of group conflict, how to inspire creativity, and how to enhance group decision-making, all of which can help them become more effective.
We began by asserting that individual entrepreneurs get too much credit and blame for the fate of new ventures. We also emphasized that successful entrepreneurs are those who can develop the right kinds of relationships with others inside and outside their firm. Our perspective suggests that, in trying to predict which entrepreneurs will succeed or fail, instead of turning attention to the characteristics of individual founders and CEOs, researchers and teachers would be wiser to turn attention to the other people the entrepreneur spends time with and how they respond. Our perspective also implies that the format of the "Entrepreneurs of the Year" competition described at the outset of this chapter ought to be changed. Rather than using such events to recognize individual CEOs or founders from successful start-ups, awards could be presented to recognize the intertwined group of people who made each start-up a success.
Entrepreneurship: Although there is no official definition of entrepreneurship, the following one has evolved from work done at Harvard Business School and is now generally accepted by authors: "Entrepreneurship is the process of creating or seizing an opportunity and pursuing it regardless of the resources currently controlled" (Timmons, 1994: 7).
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