The Psychology of Entrepreneurship and Innovation

The Psychology of Entrepreneurship and Innovation

Entrepreneurship is defined as the planning, establishing, and organizing of a new business or start-up. It aims to provide goods or services for sale or hire and the individuals who engage in these are called ‘entrepreneurs’ (Ngoc Khuong and Huu An, 2016). With the speedy development of technology and communication techniques, entrepreneurship has emerged as a widely held means of subsistence in the current difficult economic times. However, the zeal for being an entrepreneur is not the same in all people. Some may not be willing to take up the challenges that come with entrepreneurship, while there are others who think they are meant for such roles. Many scholars would claim that there is no particular formula that determines the inclination of an entrepreneur (Peng, Lu and Kang, 2012). They argue that there is no specific path to success. However, several prosperous entrepreneurs possess certain common attributes which have been instrumental in making them successful in their enterprises. This paper intends to explore the factors that distinguish an entrepreneur from non-entrepreneurs. In other words, this paper intends to find out the factors which determine that an individual will become an entrepreneur. In the process, the paper discusses the key personality characteristics of a successful entrepreneur, that distinguish entrepreneurs from non-entrepreneurs. Additionally, the external environment factors are also discussed which facilitate the entrepreneurial ambitions of an individual.

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The factors that nudge a person to turn into an entrepreneur are associated with the person’s internal traits, certain mannerisms as well as human capital factors. Moreover, the effects of external aspects like the overall environment, values, political scenario as well as financial prospects also lure an individual into becoming an entrepreneur. Entrepreneurial undertakings are done during periods of uncertainty; hence entrepreneurs usually have to face bouts of ambiguity as well as tolerate risks. Certain psychological traits like acceptance of uncertain situations as well as risk appetite are essential for successful entrepreneurship. However, there is no evidence in various research studies conducted, which can prove this argument. (Shane and Venkataraman, 2000) Analysts have adopted other methods such as demographic, intellectual, as well as environmental, but no single approach explains the exact reasons for the entrepreneurial inclination. The correlation between the entrepreneur, internal traits, culture, as well as other external factors does help explain the reasons why some turn into entrepreneurs and others do not.

Personal traits

Personal traits are said to have a strong influence on the inclination of an individual to become an entrepreneur. There exists a direct link between personality aspects and entrepreneurial action that distinguishes an individual with entrepreneurial inclination from those that are not so inclined. This attitude indicates that entrepreneurship has a direct correlation with steady psychological attributes present in a few people. It is the survival capabilities that drive such people to commence their own businesses.

Innovativeness – Many scholars indicate innovation as the main contributor to entrepreneurial behavior. Innovation is defined as the process of bringing changes to an already established business idea, particularly by presenting new procedures, thoughts, or goods. Innovation in business is bringing a new concept or idea to the market (Business.gov.au, 2017). Entrepreneurs counter numerous bottlenecks in trying to execute innovative ideas and resolve issues. Schumpeter mentioned in his book that innovation was one of the key attributes of entrepreneurial efforts (Sexton and Smilor, 1986). It is evident historically that entrepreneurial movements are usually at their peak mainly during times of disruption, whether it be financial, public, or political scenarios. This comes into play when traditional means and business practices have become redundant (Morrison, 2000). Those that would endure as well as ride the changes would be businesses that function like entrepreneurs, by being different and innovative.

Need to achieve – The need to achieve is the purpose with which a person is able to achieve a specific goal and work persistently to enhance their aim. The need to achieve motivates an individual to do their best and attain their goals against set standards. An individual having such a need should be contemplating how best to do a job or achieve an important milestone. McClelland differentiated such people from the rest by categorizing them as go-getters. (McClelland, 2016) This personality trait is proven to be higher among entrepreneurs as compared to those who do not venture out into entrepreneurship and is a key factor for entrepreneurial actions. It encourages entrepreneurs to do vague tasks. Research shows that successful entrepreneurs possess this trait.

Internal locus of control – The internal locus of control is closely linked to the need to achieve a trait and is referred to as the apparent hold over a person’s happenings in life. People having a better sense of control and confidence that they can manage their circumstances in life well are said to have a successful stint as an entrepreneur. Numerous types of research have proved that possessing a high locus of control enhances the sense of self-efficacy, increasing the intent to excel in life. The execution of plans and approaches to advance the achievements of an entrepreneur are testimony to the individual’s endeavour in trying to dominate and supervise the surroundings (Mueller and Thomas, 2001). If individuals lack confidence in their capability to manipulate the outcome, they are not going to gamble their money on new ventures (Mueller & Thomas, 2001). Thus, entrepreneurial behaviour is very much dependent on the individual’s internal locus of control.

Risk-taking – Any entrepreneurial activity is sure to involve a calculated risk. The crux of any business is based upon uncertain market conditions and volatile financial profitability. No economist in this world can guarantee that a particular business move will yield a specific amount of profits.  Thus, risk-taking is said to be a major factor that distinguishes an entrepreneur from others. In contrast, scholars have not accepted that risk-taking is a key attribute of enterprising instinct. Though scholars believe that entrepreneurs to a certain extent do possess risk-taking tendencies, the rationale behind this is that they are not into mindless gambling but taking calculated risks in pursuing agendas that are both manageable as well as achievable (McMullen and Shepherd, 2006).

Tolerance for ambiguity is the readiness to perform in ambiguous situations. It is being said that entrepreneurs tolerate uncertainty largely due to their activities being unpredictable in nature. They keenly take on the unknown and readily seek and handle uncertainty. There are numerous instances where people are not willing to follow a prospective venture because of their distinctive or psychological reluctance to perform in the face of ambiguity. Hian Chye Koh found in his research that entrepreneurs displayed more tolerance for uncertainty than non-entrepreneurs (Chye Koh, 1996). Although tolerance for ambiguity was a key factor for successful entrepreneurship, there were other factors such as talents and family background that helped individuals to endeavour into unchartered territories. Further, a successful entrepreneur is one who readily alters his initial strategy in light of new developments (Entrepreneur’s Toolkit: Tools and Techniques to Launch and Grow Your New Business, 2004). Being rigid and stubborn to change from the initial plan will only doom an entrepreneur venture.

External Factors

The factors that motivate a person to turn entrepreneur vary between different individuals but generally fall into two categories: internal and external. Entrepreneurial decisions are taken by people who recognise and seize the opportunities from their external environment (Xie, 2014). Though among the factors influencing an entrepreneurship venture, the main emphasis is placed upon the contribution of an individual’s role but the role of the external environment cannot be ignored. The external factors could aid the entrepreneurship process by providing support resources.

Family Background Influence – Certain studies have mentioned the influence of family and upbringing influences on a person’s entrepreneurial inclinations. The research and analysis have shown families’ influences on an individual’s entrepreneurial instinct primarily from the perspective of the way a child is raised and suggest that parents have a crucial contribution towards their child’s entrepreneurial calling. The exposure an individual gets in the initial years of his life goes on to determine the choices he makes in the later stages (Entrepreneur’s Toolkit: Tools and Techniques to Launch and Grow Your New Business, 2004). Thus, a person belonging to a business-class family has the seeds of entrepreneurship inculcated within him from childhood. These factors go on to determine the entrepreneurship instinct in the individual.

Social-Environment factors – Social factors such as work experience, the laws of the country prevailing at the time as well as government support are key factors that motivate an individual to towards taking the challenge of entrepreneurship. Further, the level of education also contributes to steering a young aspirant toward achieving his aims of venturing into entrepreneurial activities (Dioneo-Adetayo, 2006). Researchers point out that external environmental conditions are flexible factors that influence an individual’s entrepreneurial instinct through exchanges of the person’s internal attitude (Hisrich, 2011). However, it is crucial to note that there exists both supportive as well as obstructing aspects within the social environment factors. While there are positive factors in the form of favourable legal rules and regulations and government policies which supports the augment of a business venture, there can also be instances when these factors are not conducive to starting an entrepreneurship venture.

To conclude, the factors that influence a person’s choice to venture into entrepreneurship activity are mainly personal traits such as innovativeness, risk-taking ability, and tolerance towards ambiguous circumstances. Additionally, the need to achieve and internal locus of control also substitutes the motivating factor which is instrumental in turning an individual goals towards entrepreneurship. It has been observed that some people have the ability to recognize opportunities and seize them to create profitable ventures. The personal attributes of an entrepreneur are said to be the main deciding factor for him to turn into venture creations. Typically, such a person is both theoretically and emotionally equipped to become an entrepreneur (Xie, 2014). No two individuals will have the same internal characteristics to influence them to become entrepreneurs. Similarly, the external environment also is not the same for two individuals. It usually has different circumstances. Thus, entrepreneurship is said to be an amalgamation of both the personal traits as well the external situations prevalent.


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