What is an entrepreneur? Why are certain people successful starting and growing a business and others are not? Is it just luck or being in the right place at the right time? Certainly Bill Gates, with his technical talents, needed the computer revolution in order to make Microsoft the successful company it is. But is it just timing and luck or are other factors involved?
Recent research in the field of psychology suggests that personality has a great deal to do with being a successful entrepreneur. In a recent study published in the highly regarded Journal of Applied Psychology (2006, Vol. 91, No. 2, 259-271), Hao Zao of the University of Illinois at Chicago and Scott E. Seibert of the Melbourne Business School analyzed and combined the results of twenty-three independent research studies. A statistical method known as meta-analysis was used which allows research studies to be combined in a way that yields overall trends within a field of research.
When using meta-analytic techniques, a few basic rules must be followed. First, all of the studies being combined must use consistent definitions and methods. Therefore, an entrepreneur was defined as “…someone who is the founder, owner, and manager of a small business and whose principal purpose is growth.” Second, in order to pinpoint exactly what makes an entrepreneur different from other business people rather than people in general, only studies which compared entrepreneurs to managers were used. Finally, the studies chosen used only personality traits which fit the widely accepted Five Factor Model (FFM) of personality.
Extraversion – This determines how naturally outgoing we are. Some people need a great deal of social interaction and are comfortable in social environments. Others need very little people contact and may even be timid or a bit fearful of social encounters.
Emotional Well Being (Neuroticism) – Some of us are more self-confident than others. In addition, some people show emotions readily and others are “stone faced” and rarely change their expression.
Agreeableness – This trait involves how easygoing and tolerant versus how intense and potentially irritable a person behaves. Are you someone who goes through life in a fairly calm fashion or do you get frustrated frequently? Easygoing people may be easy to get along with but may also lack drive and determination. Intense and irritable people may be highly driven and goal oriented but may also ruffle feathers or worse.
Openness to Experience – This trait determines whether we are likely to seek out new ideas and think creatively or whether we are more practical-minded, efficient, and conservative in our outlook.
Conscientiousness – This trait determines our core “modus operandi.” At the one extreme, people are focused, organized, detail-oriented, perfectionistic, achievement-oriented, dependable, and compulsive. On the opposite end, people tend to be flexible, spontaneous, tolerant of ambiguity, disorganized, and less achievement-oriented.
The FFM organizes personality around five general personality traits. Personality traits are largely determined by our genetic makeup but also solidified by early environmental influences such as learning, family relationships, and our experiences to name a few. These core traits make us who we are and cause us to behave in certain ways. Thus, personality traits predict with pretty good accuracy how we perceive situations, solve problems, interact with people, and carry out our job responsibilities. The FFM consists of the following personality traits.
Each of the twenty-three studies included in the meta-analysis compared entrepreneurs to a group of managers on the FFM personality traits. The authors found significant differences between entrepreneurs and managers on four out of the five traits. For those of you with minimal familiarity with statistics and research, these are impressive results. The entrepreneurs scored significantly higher than managers on the traits Openness to Experience and Conscientiousness. Therefore, entrepreneurs are characterized as more creative, more innovative, and more likely to embrace new ideas than their manager counterparts. Second, the results indicated that entrepreneurs were higher than managers on Conscientiousness. Further analysis indicated that the differences here were primarily due to the entrepreneurs having a higher achievement orientation as compared to managers. Entrepreneurs and managers did not differ on other aspects of Conscientiousness such as dependability and organizational skills.
The second key set of results showed entrepreneurs to be significantly lower than managers on Neuroticism and Agreeableness. Consequently, entrepreneurs are more self-confident, resilient, and stress-tolerant than non-entrepreneurial managers. These results make sense considering the highly stressful, demanding, and chaotic work environments which entrepreneurs usually find themselves. With regard to lower scores on Agreeableness, entrepreneurs are likely to be tougher, more demanding, and more prone to drive a hard bargain than managers. This may explain how the successful entrepreneur is able to accomplish a great deal with relatively few resources. In addition, the negative aspects of low Agreeableness, which can be significant, are no doubt less detrimental in a small entrepreneurial enterprise versus a larger and more structured organization. Finally, no significant differences were found between the two groups on Extraversion. Therefore, entrepreneurs were no more or less outgoing than the managers.
So what is the relevance of these research findings? First, as an organizational psychologist working with business people, I’m frequently asked the question, “Do you think I would be successful starting my own company?” The ability to compare oneself to successful entrepreneurs can help an individual make an important career decision even if they have no previous experience working in an entrepreneurial environment. Avoiding bad career decisions is something all of us desire. Second, these data can help people who support and work with entrepreneurs to make sound decisions. For example, Venture Capitalists are faced frequently with the decision to fund or not fund a start-up company. With tremendous amounts of money at risk, this research allows the VC to make sound decisions about the people involved in addition to market analysis and evaluating the merits of the product/service. As the field of psychology continues to move forward scientifically and further away from the old days of theory and conjecture, the information which results from psychological research can and should be used to support the making of good business decisions.
Douglas L. Griest, Ph.D. is a founding partner of Management Psychology Group and eTest, Inc.