Understanding Entrepreneurial Behavior: A Definition and Model

Carol F. Moore, University of Michigan-Flint

ABSTRACT

Two major problems with current research are dis- both too broad and too narrow. The entrepreneur Is
cussed, leading to the development of a contingency therefore defined in this paper as "an individual with
model of entrepreneurial behavior. The model details an innovative business Idea who takes the risks neces-
the effects of relevant individual, environmental, in- sary to establish the production and marketing of the
novation, and organization characteristics at each associated product or service, expecting the venture
stage of the entrepreneurial process. Implications to grow." This definition builds on Schumpeter's
of the model for further research are discussed. (1934) idea that the entrepreneur Is responsible for
carrying out innovation, but it expands the scope of
that definition to include both service- and product-
INTRODUCTION related technologies, as well as innovation within
established corporations and the founding of new cor-
porations.
Modern interest in the entrepreneur can be traced
back as far as the nineteenth century, but empirical Another problem with entrepreneurship involves the se-
studies of entrepreneurial behavior are comparatively quence of stages in the entrepreneurial process. Dif-
recent. Most current research on the psychology of ferent reviews of the literature (Gartner, 1985;
the entrepreneur builds on McClelland's work (McClel- Vesper, 1980) suggest multi-step processes, as shown
land & Winter, 1969), attempting to predict entrepren- in Table 1. Vesper tends to focus on the steps lead-
eurship from individual characteristics such as locus ing to the establishment of a new venture, while
of control, risk taking, personal values, job satis- Gartner emphasizes the growth and success of the pro-
faction, experience, role models, age, education and ject. A more parsimonious combination of the models
residency (Brockhaus, 1982). These variables have a is seen in the stages listed at the right of the table.
low positive correlation with entrepreneurship, but These stages match the definition of entrepreneurship
they do not predict entrepreneurial behavior in a con- developed earlier, and include innovation, implemen-
sistent fashion. The purpose of this paper is to sug- tation (risk-taking) and growth (success).
gest reasons for this, lack of prediction, proposing a
model which integrates past, and provides direction TABLE 1
for future, research. The model differs from other
models of entrepreneurship and risk taking (Baird 6. Overview of Process Models of Entrepreneurship
Thomas, 1985; Gartner, 1985) because it focuses pri-
marily on behavior, details a specific flow for the Vesper Gartner Summary
entrepreneurial process, and separates variables by 1. Acquisition of 1. Locating a busi-
the amount of impact they have on each stage of the technical knowledge ness opportunity
process. Innova-
tion
Problems with Current Research 2. Crystallization of
venture idea
One major problem with current studies of entrepren-
eurial psychology is the lack of a universally ac- 3. Development of 2. Accumulating
cepted definition of "entrepreneurial behavior." connections resources
Studies presented at the 1984 Babson College Confer- 4. Obtain manpower 3. Market products
ence on Entrepreneurship operationalized the term and physical resources and services Implemen-
"entrepreneur" as follows: founders of firms, presi- through connections tation
dents of venture capital firms, college faculty, self-
identified entrepreneurs, authors of NSF grant appli- 5. Obtain customer 4. Production of
cations, small business owners, and undergraduate orders product
entrepreneurship majors (Hornaday, Tarpley, Timmons 5. Building an
& Vesper, 198A). Carland, Hoy, Boulton & Carland organization
(1984) point out that the diversity of sample^ used in
empirical studies makes the definition of entrepren- 6. Responding to Growth
eurial characteristics difficult, if not impossible. government and
They suggest that growth orientation separates entre- society
preneurs from small business owners, and define an
entrepreneur as "...an individual who establishes and Each of the three stages is affected by the environ-
manages a business for the principal purpose of profit ment in which it occurs, as well as the unique char-
and growth. The entrepreneur is characterized prin- acteristics of individuals and ventures (Gartner,
cipally by innovative behavior, and will employ stra- 1985). These variables do not have the same effect on
tegic management practices in the business." (pg. each stage, however, nor is every variable relevant to
358) every stage of the process. (See Figure 1 ) .

The growing literature on entrepreneurial behavior

within large corporations (e.g. Ranter, 1985; Pinchotti
1985) suggests that the Carland et al. definition Is

66
 FIGURE 1
Personal Personal Innovat ion
Characteristics Characteristics Characteristics
Creativity Risk Taking Product Protection
Information Seeking Job Dissatisfaction Organizational Team
Behavior or Loss
Tolerance of Ambiguity Quality of Resources
\
INNOVATION - -^ IMPLEMENTATION.
Environment
f
Environment
Source of Opportunity Incubator Organization
Support for Creativity Organization Culture
Personal Environment
Innovation Phase
The innovation phase of the entrepreneurial process is
the time when entrepreneurs generate and select ideas
for new products or services. During the first part
of the stage the entrepreneur's goal is to maximize
the quantity of new ideas, while the second part of
the process involves selecting an idea for further
development.
Personality Characteristics Affecting Innovation
Creativity. One trait which is closely related
to invention is creativity. The more creat-ive some-
one is, the easier it is to develop the number of new
and innovative ideas needed for an entrepreneurial
endeavor. Fortunately for those people who are not
"naturally creative," several training programs have
been developed which appear to enhance creativity
(e.g. Basadur, Graen & Green, 1982).
Tolerance of Ambiguity. Tolerance of ambiguity
(Schere, 1982) is likely to influence innovation de-
pending on the number of inventions which are exam-
ined before deciding on a specific innovation. The
greater the number of potential innovations, the more
necessary it will be to be able to work in situations
in which there is no single, clear-cut answer.
Information Seeking Behavior. Selecting an idea
or environmental opportunity is dependent on an indi-
vidual's ability to search out and utilize environ-
mental information (Silver, 1983). While this char-
acteristic has not been examined with regard to entre-
preneurial behavior, studies in other areas of psy-
chology suggest that levels of information search
differ from person to person (see MacCrimmon h Taylor,
1976 for a review). Information search is moderated
by characteristics such as self-esteem (Weiss &
Knight, 1980). Weiss's findings indicate that people
with low self-esteem seek more information than people
with high self-esteem. This information provides an
explanation for the ability of entrepreneurs to focus
entirely on one task (Timmons, et al., 1985) — most
entrepreneurs have high self-esteem, and it may be
that once they settle on an idea, they stop seeking
information. Such connections should be explored
further.
Environment Affecting Innovation
Drucker (1985) discusses innovation as a response to
opportunities within the environment, and identifies
seven sources of such opportunity. Innovation can
67
Personal Organization
Characteristics Characteristics
Education & Experience Management Practices
Managerial Ability Other Organization
Characteristics
_ ^ GROWTH
t
Environment
Competition
Environmental Change
occur in response to: 1) unexpected success, failure
or outside events; 2) incongruity perceived between
the way the world is and the way an innovator thinks
it ought to be; 3) need for a better way to do a fami-
liar job; 4) unpredicted change in an industry or mar-
ket structure; 5) demographics or population changes;
6) changes in the perception, mood or meaning of the
environment; 7) development of new knowledge or tech-
nology (Drucker, 1985). Innovation has also been shown
to be affected by the social and personal environment
in which it occurs (Amabile, 1983). One of the bene-
fits of using biographical data to predict entrepren-
eurship (Brockhaus & Nord, 1979) is that such data
reflects the unique characteristics of the current and
past environments surrounding the entrepreneur.
Amabile (1983) suggests that while an individual's
creativity is strongly affected by his or her intrin-
sic motivation, which is in turn affected by environ-
mental variables such as rewards, social facilitation,
choice of work materials, surveillance, stress, ex-
ternal support, and the climate of an organization,
"...there is almost no empirical research on the ef-
fects of work environments on creativity" (pg. 166).
The level of support needed by corporate entre-.
preneurs needs to be examined. Although
stability of employment has been shown to be related
to creativity (Andrews, 1975), explicit rewards dampen
the creative process (McGraw & McCullers, 1979). Tra-
ditional corporate policies of rewarding desired per-
formance may not work in the case of creativity, and
other, non-traditional rewards such as expanded re-
sponsibilities and freedom may be more appropriate in-
centives.
Implementation Phase
Implementation has been described by Shapero as the
"entrepreneurial event." (Shapero, 1984) It is im-
portant to distinguish between an entrepreneurial
event and the development of the idea which precedes
the event. Many people have innovative ideas which
are never brought to fruition. The implementation
stage of entrepreneurial behavior is characterized by
any one of the following: 1) the introduction of new
goods; 2) the introduction of new methods of produc-
tion; 3) the opening of new markets; 4) the opening of
new sources of supply; or 5) industrial reorganization.
(Schumpeter, 1934) Each of these steps involves a
strong commitment from the entrepreneur. This com-
mitment, whether monetary or simply reputational, in-
volves risk to an extent that is not found in the other
stages of the entrepreneurship process. Whether or
not implementation actually takes place is frequently
a matter of the environment which surrounds the under-
taking and the characteristics of the innovation it -
self.
Personal Characteristics Affecting Implementation
Risk taking. The relationship between entrepren-
eurs and risk taking is extremely controversial. On
one hand, risk is a factor in a significant number of
definitions of entrepreneurial behavior (see Carland
et al., 1984 for a summary), but at least one empiri-
cal test shows that risk-taking propensity does not
distinguish between entrepreneurs and managers (Brock-
haus, 1982). One reason for these results may be that
perceptions of risk are typically measured after the
new business has begun, rather than during the imple-
mentation process, when they are likely to be most
salient.
Job dissatisfaction and/or loss. Many entrepren-
eurs are galvanized into action by increasing levels
of dissatisfaction with,or the loss of,an old job
(Shapero, 1984). Life cycle research (Levinson, 1978)
suggests that people are more likely to go through
dissatisfied periods during particular life stages.
The connection between such stages and entrepreneur-
ship should be explored further.
Characteristics of the Innovation Affecting Implemen-
tation
Frequently, the largest hurdle to cross before imple-
mentation is acquiring sufficient capital to run the
new business. Potential investors are concerned with
such characteristics as product protection. Another
important factor is the quality of the organizational
team associated with the project (Timmons, et al.,
1985). Entrepreneurs often work with accountants,
attorneys, bankers, investment brokers and insurance
agents. The probability of bringing a product to mar-
ket will be affected by both the quality of these re-
sources and their ability to function smoothly as a
group. Simple characteristics of the original idea or
plan also have an effect on implementation. For ex-
ample, it is easier to create a new software company
than it is to create a new center for garbage recla-
mation, due to the disparate needs for outlay in terms
of equipment and human resources, as well as the
level of complexity associated with each undertaking.
Environment Affecting Implementation
The environment for implementation is different from
the environment for innovation, if only as a function
of the time that passes between the various stages of
entrepreneurship. It is probable that economic condi-
tions play more of a part in the implementation than
the generation of new ideas, but thi.s theory has not
been tested. Cooper (1984) indicates that new ven-
ture starts (as opposed to ideation or ongoing ven-
tures) are most likely where there is rapid industry
growth, an opportunity to segment markets, low capi-
tal investment required, and large scale operations
are only slightly more economical than small scale
operations. In addition, certain types of firms may
encourage entrepreneurial spin-offs which evolve into
new corporations. These incubator organizations are
typically small, product-decentralized, located in a
high entrepreneurship area, afflicted with periodic
crises and recruit very capable, ambitious people.
A different phenomenon has been examined by Kanter
(1985), who looks at entrepreneurship which remains
within a corporation, or intrapreneurship. She sug-
gests that intrapreneurship is most likely to occur
and be successful when: change is a normal part of
68
organizational functioning; the organization has a
matrix or decentralized structure; there is a free
flow of organizational information with a horizontal
communication emphasis; the organizational culture is
clearly supportive of change; pride dominates the emo-
tional climate; and rewards for change are readily
available. These organizational characteristics are
important in the Implementation phase because they
provide support which lessens the risk associated with
starting a new project. Such support may be enough
to catapult the entrepreneur from the thinking (in-
novation) to the doing (implementation) stage, but
unless other environmental and organizational factors
are present, it is unlikely to affect new venture
growth or success.
In light of these findings, we need to look at how
entrepreneurial behavior is affected by environmental
variables including: the availability of resources
(both human and financial); the demand and accepta-
bility of an innovation; and potential Investors' per-
ceptions. Investors consider items such as market
growth and expected returns (Which are frequently a
function of the economic environment) before support-
ing a new venture (Lench, 1985).
Growth Phase
The last stage of the model involves the success of
the new venture. As mentioned before, there are many
ways of measuring the success of a new venture, but a
primary one is growth (Carland, et al., 1984). If an
entrepreneur stays with a project through this stage
he or she must acquire managerial skills or hire
managers with the requisite ability to guide the new
venture through the growth process.
Personal Characteristics Affecting Growth
Education and Experience. Vesper (1980) points
out that the more education and experience an entre- •
preneur has had in business (especially small business)
the more likely it is that the current venture will
be a success. Experience enables the entrepreneur to
spot potential problems and deal with them before they
can destroy the project.
Managerial Ability. To some extent managerial
ability will be a function of the entrepreneur's edu-
cation and experience, but it is also an inborn skill,
which some entrepreneurs are never able to acquire.
Steven Jobs of Apple Computers provides an excellent
example of the problems that can arise when entrepren-
eurs are unable to act as managers. After an initial
growth spurt during which company stock grew from 22
to 62 dollars per share. Jobs' unorthodox management
combined with environmental factors to send the com-
pany into a tailspin. Eventually, Jobs was dismissed
due to poor management skills (Pollack, 1985).
Organizational Characteristics Affecting Growth
Because so many crises can arise shortly after startup,
the success of a new venture is dependent on the re-
sources available for meeting and overcoming problems
(Vesper, 1980).
Starting capital. Vesper (1980) suggests that,
"A larger initial capitalization can in effect give
the company a longer period in which to work out its
problems and survive" (pg. 47), citing studies which
show that the more capital a new venture starts with,
the more likely it is to succeed.
Management practices. After reviewing the liter-
ature. Vesper (1980) offers the following conclusion
about the effects of management practices on entre-
preneurship. "Thus, although there tends to be a
generally positive correlation between 'good' manage-
ment practices and successfulness, the place where
their role is strongest tends to be more downstream
of startup than prior to or during startup " (pg
51).
Other organizational characteristics. The suc-
cess of an entrepreneurial venture is also dependent
on variables that are related to success in all firms,
including effectiveness, structure, climate, and re-
sponsiveness to the outside environment (Kanter
1985). During the growth phase the new venture is
most likely to be affected by organizational as op- '
posed to individual or entrepreneurial responses, es-
pecially if the environment in which the organization
must function is a dynamic one (Miller, 1983).
Environment Affecting Growth
Many of the same factors that are important in the
implementation environment, such as economic factors
and the availability of quality resources are also
part of the growth environment, but since the envir-
onment can change dramatically over time, variables
in each of the two stages must be considered separ-
ately.
Competition. As long as a new venture dominates
a market, it is likely to be successful. Once compe-
titors appear on the scene, however, the venture must
distinguish itself in other ways (e.g. management
practices, a new twist on the product or service it
offers) to stay in business (Vesper, 1980).
Environmental change. Responsiveness to the out-
side environment is especially crucial for success
when the business environment is rapidly changing.
Miller (1983) found that entrepreneurial control over
an organization is directly related to the extent of
change in its operating environment. Simple firms,
which operate in a reasonably homogeneous environment,
tend to be highly influenced by the personality of the
entrepreneur who founded them, who retains control as
the organization develops. Planning firms, which are
the result of an environment which requires smooth
operation, are controlled by a group of people, so
individual leader characteristics are less important.
Finally, organic firms, which operate in a rapidly
changing, dynamic environment must delegate the role
of the innovator to all members of the corporation,
reducing the founder's influence over corporate struc-
ture and activities. Given the rapidly changing na-
ture of today's business environment. Miller's re-
search suggests that the successful entrepreneur is
one who can start a new venture and then delegate
entrepreneurial responsibilities to every employee.
CONCLUSION
Current research on the psychology of the entrepren-
eur has been hampered by two major problems: lack of
an adequate definition of entrepreneurship, and lack,
of a model which relates individual, organizational
and environmental characteristics to specific stages
in the entrepreneurial process. This paper addressed
both of the above problems. The proposed model of-
fers many new areas for future research. Among the ,
most interesting are those which look at interactions
within the variables. For example, what type of
environmental support is most conducive to creative
behavior? How does the relation between changes in
the environment and information seeking behavior lead
69
to new venture starts? What changes in entrepreneurial
behavior are most useful during venture growth?
Finally, it should be pointed out that future resear-
chers must examine the stages of the entrepreneurial
process separately, and not try to aggregate findings
across stages. The model presented in this paper pro-
vides a theoretical basis which should aid in the ac-
complishment of this task.
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