October 18, 2011

Psychological Factors in Entrepreneurship

Like most people, entrepreneurs are complex, and no one theory can explain all of their behavior. Perhaps the first and certainly the most important theory of'entre­preneurship's psychological roots was put forward in the early 1960s by David McClelland, who found that people who pursued entrepreneur-like careers (such as sales) were high in need-achievement, the psychological need to achieve. People with high need-achievement like to take risks, but only reasonable ones, and such risks stimulate them to greater effort. Moreover, McClelland found that certain so­cieties tended to produce a larger percentage of people with high need-achievement. Other researchers have studied the entrepreneur's motives and goals, which seem to include wealth, power, prestige, security, self-esteem, and service to society??
In the mid-1980s, Thomas Begley and David P. Boyd studied the psychological literature on entrepreneurship in an effort to distinguish between entrepreneurs and people who manage existing small businesses. They ultimately identified five dimensions:
Need-achievement. Entrepreneurs are high in McClelland's concept of need­achievement.
Locus of control. This is the idea that individuals-not luck or fate-control their own lives. Entrepreneurs and managers both like to think they are pulling their own strings.
Tolerance for risk. Entrepreneurs who are willing to take moderate risks seem to earn higher return on assets than entrepreneurs who either take no risks or take extravagant risks.
Tolerance for ambiguity. To some extent, every manager needs this, because many decisions must be made with incomplete or unclear information. But entrepreneurs face more ambiguity, since they may be doing certain things for the first time-ever-and because they are risking their livelihood.
Type A behavior. This refers to the drive to get more done in less time and-if necessary-despite the objections of others. Both founders and managers of small businesses tend to have much higher rates of Type A behavior than do other business executives.28
Ellen Fagenson provides a different angle on the psychological differences be­tween entrepreneurs and managers.29 Entrepreneurs, she has learned, tend to value self-respect, freedom, a sense of accomplishment, and an exciting lifestyle. Managers, on the other hand, tend to value true friendship, wisdom, salvation, and pleasure. She concludes, "Entrepreneurs want something different out of life than managers."30
Clearly, the entrepreneur needs self-confidence, drive, optimism, and courage to taunch and operate a business, without the safety of a steady paycheck. Sometimes, entrepreneurs decide to launch a new venture because they cannot ignore their dream, their vision, and they are willing to risk security for financial gain. In other cases, they are pushed by circumstances beyond their control such as a corporate cutback (an increasingly common phenomenon today), or frustrated by limited opportunities for advancement, or driven by the need to coordinate per­sonal and professional goals. Faced with these circumstances, many individuals find the courage and confidence to take control of their professional fate.



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