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ARE ENTREPRENEURS BORN OR MADE?
CHARACTERISTICS V. COGNITIVE THEORIES OF
NEW VENTURE CREATION
Ronald K. Mitchell Texas Tech University EXECUTIVE SUMMARY The question of “born” vs. “made” entrepreneurs is now well established in the research litera- ture. This article briefly summarizes the two perspectives, contrasting research describing the en- trepreneurial “characteristics/born” view, with the research describing the “entrepreneurial cogni- tion/made” view. While characteristics-based explanations have received mixed results, cogni- tion-based explanations continue to build a practical view of how entrepreneurs can be created.
INTRODUCTION The question of whether entrepreneurs are born or made is age-old; and it strikes at the heart of economic development questions world-wide. In an increasingly global economy, entrepreneurs play a vital role in economic development, because they create organizations, and these organiza- tions produce jobs, increase trade, and accelerate the generation, application of innovative ideas, and their dissemination (Arzeni, 1998: 18; Bates & Dunham, 1993; McDougall & Oviatt, 1997: 293). On one side of the debate is “characteristics-based” (the born-view) research, which asserts that entrepreneurs posses different innate attributes than do non-entrepreneurs. On the other side of the debate is research that is grounded in social cognition (the made-view), which asserts that differences in entrepreneurs’ attributes can be explained by differences in their way of thinking or expertise. This article briefly summarizes research in both streams, with an emphasis upon an ex- planation of the relatively newer cognition-based approach.
THE CHARACTERISTICS RESEARCH STREAM
Jean-Baptiste Say (circa 1810), was one of the first scholars to note the “qualities” or charac- teristics of the entrepreneur; and his work has been prominent in the entrepreneurship literature. Say suggests: In the course of such complex operations there are an abundance of obstacles to be surmounted, of anxieties to be repressed, of misfortunes to be repaired, and of expedi- ents to be devised. Those who are not possessed of a combination of these necessary qualities, are unsuccessful in their under-takings; their concerns soon fall to the ground. (Say, 1964 (1847): 331). Note within the foregoing quotation the appealing notion that there might be a combination of personal characteristics that applies to entrepreneurial success. This idea has been so appealing that an entire literature stream has developed around it. Some of the first suggestions were theoretical speculations (Knight, 1921; Marshall, 1964). These were followed by descriptive studies (Berlew, 1975; Coulton & Udell, 1976; McClelland, 1965). Then, somewhat recently (in the past few decades) rigorous analysis was conducted (Brockhaus, 1980; Brockhaus & Nord, 1979; Hull, Bosley, & Udell, 1982). Advances in the research infrastructure then enabled characteristics-based theories of the entre- preneur to be more rigorously explored, primarily due to the inauguration of social science research in the nineteenth century, and particularly the beginnings of social psychology research methods in the twentieth century. These advances enabled researchers to explore the causal links between entre- preneurs’ characteristics (psychological and/or demographic) and a variety of outcomes (cf. Sexton & Bowman-Upton, 1991). However, empirical results in this explanation have lacked clarity (Brockhaus & Horowitz, 1986; Sexton & Bowman-Upton, 1991) despite the production within this literature stream of a substantial body of descriptive research. The characteristics-based literature stream consists of two primary branches. The first branch bases entrepreneurs’ distinctiveness based on their having unique psychological characteristics. The
search stream. Primarily, because the factors that describe entrepreneurs “... also tend to describe successful people in many areas, such as business, art, music, and education” (1991: 9), the “born en- trepreneur” explanations are falsifiable. Below I explain some of these unclear areas follows. Need for achievement. Scholars such as McClelland (1965) argue that a need for ach- ievement propels individuals to become entrepreneurs. Yet research continues to demonstrate that alt- hough entrepreneurs may be high achievers, the same need for achievement has been identified in suc- cessful executives (Brockhaus & Horowitz, 1986). Internal locus of control. Continuing Rotter’s (1966) work, Berlew (1975) has asserted that successful entrepreneurs are very willing to take personal responsibility for results, suggesting that en- trepreneurs tend toward internal vs. external control in explaining their actions (have an internal locus of control). Brockhaus and Nord (1979) then compared the locus of control beliefs in entrepreneurs and managers, and found that entrepreneurs’ level of internal locus of control does not differ signifi- cantly from that of managers. Hull, Bosley, and Udell (1982) intended to distinguish between the per- sonalities of entrepreneurs and non-entrepreneurs using a survey of over 300 University of Oregon alumni, and found that the one factor showing no significant difference is internal locus of control. Risk-taking propensity. Coulton & Udell (1976) also have reported that one of the psycho- logical characteristics most important personality-typing entrepreneurs is risk-taking propensity. How- ever when this report was tested using the patterns of risk preference of entrepreneurs vs. managers, Brockhaus (1980) found differences between the two groups to be non-significant. Additionally, Sex- ton and Bowman (1983) when testing the risk-taking distinction between entrepreneurs and others found no significant difference between the risk-taking propensity of entrepreneur students and the risk-taking propensity of the general student body (Sexton & Bowman-Upton, 1983).
Demographic characteristics Research exploring the possible association between individuals’ demographic characteristics and a decision to be an entrepreneur, has been termed demographic characteristics-based research; and in the following paragraphs I provide a few examples to suggest that credibility in this branch of char- acteristics-based research also is problematic. Demographics tested in past research include variables such as: age, being the oldest child or the child of an entrepreneur, evaluation of personal shortcom- ings, membership in professional and/or trade organizations, number of anticipated difficulties, number of previous attempts to start a business, number of previous jobs, outside encouragement, profit expec- tations, years in the labor force, years of formal education, years of marriage, (Brockhaus & Horowitz, 1986). However, empirical findings are mixed. Some of the examples of disconfirming research on two of the most commonly cited demo- graphic characteristics: the child of an owner-manager, and education level (Litvak & Maule, 1971; Vesper, 1982) demonstrate a lack of clear empirical evidence in demographics-based explanations for becoming an entrepreneur. Child of an owner-manager. In 1971, Litvak and Maule found that successful high-tech- nology entrepreneurs had fathers who are owner-manager/ entrepreneurs, suggesting a familial/ heredi- tary demographic explanation. However, when Brockhaus and Nord (1979) empirically examined a sample of managers and new entrepreneurs to ascertain the extent to which a relative or a close friend had in the past owned a business, no significant difference was found between the groups. Level of education. Vesper (1982) has asserted that entrepreneurs most likely to fail are indi- viduals who have experience but no education, suggesting another likely demographically-based expla- nation for entrepreneurial success. However, previously Brockhaus and Nord (1979) find that educa- tion level for successful entrepreneurs is significantly less than for managers, and thereby raise ques-
tivation; and the person-in-situation) as perceived by the individual, when information about these two factor pairs is processed (Fiske & Taylor, 1984: 5, 16). This requirement is reasonable, given that social cognition theory must account for the decision making behavior of individuals who might differentially perceive a given situation, especially due to differences in their information processing approaches. Hence, individual information processing thought to connect individual decision making to the elements to be found within a “total” situation. Salancik & Pfeffer (1978) have suggested the social information processing perspective to explain individual decision- making such as making a venture creation decision; and it is this extension which further suggests the use of information processing theory to explain new venture creation. In information processing theory there is a proffered explanation about how information is acquired, stored, and retrieved from individuals’ memory. Lord & Maher (1990) characterized at least five general models of information processing which each provide implicit frameworks for research. Of particular interest to me as I began entrepreneurship research was one of these mod- els—the expert model—because of its capability to separate entrepreneurial experts from entre- preneurial novices (Mitchell, 1994). The expert model helps the researcher to identify commonal- ities among individuals in the group with expertise: generally those who are able to perform at least two standard deviations above the mean in a population (Ericsson, Krampe, & Tesch- Romer, 1993); and based upon these commonalities, to identify the composition of new venture expertise (Mitchell, 1994), and in addition to empirically test these components for their explana- tory capability in the classification and creation of new venture formation expertise (Mitchell & Chesteen, 1995; Mitchell et al, 2000, 2002, 2008; Seawright et al, 2013; Smith et al, 2009). Using stable schema-based commonalities as one of the keys to unlock how entrepreneurs might be “made,” were earlier found among experts in a variety of fields such as physics (Chi,
Glaser, & Rees, 1982), computer programming (McKeithen, Reitman, Reuter, & Hirtle, 1981), chess playing (Chase & Simon, 1972), and even law enforcement (Lurigio & Carroll, 1985). Thus, because experts had been shown to possess knowledge structures or scripts about particular domains (Glaser, 1984; Leddo & Abelson, 1986; Lord & Maher, 1990; Read, 1987), it was highly appealing for me to construct research to ascertain the extent to which expert script might exist in entrepreneurship, and to identify their composition, and the resulting classification and entrepre- neurial-thinking-creation capabilities (cf. Mitchell, 1994). For example, I have been able to show how the possession of an entrepreneurial expert script can distinguish experts from novices, because experts can use their readily-accessible knowledge to make effective venture arrangements , to focus their motivation toward willingness to venture, and to apply their talents, or opportunity ability , to venturing (cf, Mitchell, 1994; Mitchell, et al, 2000, 2002). Interestingly, in intention-based, planned behavior models of entrepreneurship decisions, (Krueger & Carsrud, 1993; Shapero, 1975; Shapero, 1982) also suggest: (1) cognitions related to the feasibility of the venture (corresponding to arrangements), (2) cognitions related to the propensity to act (corresponding to willingness), and (3) cognitions related to venture desirabil- ity (corresponding to opportunity-ability-like cognitions) (Krueger, 1993: 5). Because infor- mation processing theorists Leddo & Abelson (1986: 121), have explained how expert infor- mation processing theory generalizes these three processes for any type of expertise, and have termed them: arrangements cognitions, willingness cognitions, and ability cognitions, it was this terminology that I adopted in developing my work using expert-script based theory. Of course, there are also problems that can arise for entrepreneur’s cognition. Fortunate- ly, the entrepreneurial cognition research literature has examined some of the consequences en- countered by entrepreneurs when mental-process short-cuts (e.g., scripts) are used to cope with
Table 1 Experiential Enhancement Methodology Glaser (1984)
1. Interrogation 2. Instantiation 3. Falsification
A. Participating
- Depth interviewwith entrepreneur mentor
- Hearing the re-sults of other depth interviews
- Comparing &contrasting within- group views aftermentor interview
Petranek Corey & (1992)^ Black^ B. Writing
- Written descrip-tion of entrepreneur mentor script: PartII of assigned report
- Written descrip-tion of student nov- ice script based uponindividual prior ex- periences, case stud-ies & lectures from classes: Part I ofassigned report
- Written co-mparison analyzing similarities anddifferences between student novice andentrepreneur men- tor scripts
C. Debriefing
- Responding toclass questions fol- lowing group reporton depth interviews
- Listening to othergroups debrief their depth interviews inclass
- Verbally evaluat-ing the information experienced in classdebriefing session
Source: Mitchell & Chesteen, 1995 Glaser (1984) argues for apprenticeship-like, one-on-one experiences of novices with ex- perts, that enable novice entrepreneurs to attain become more expert. Thus, in Row A, a learner first participates in an in-depth interview with an expert (e.g. a practicing entrepreneur), second instantiates (repeats) the learning of others’ interviews, and third, attempts to cross-check or fal- sify the information gleaned. Then in the next phase, Row B, the learner changes from “listening” to “writing”; and by changing the medium, gains expertise at a higher rate – once again in the three interrogation, instantiation, and falsification steps. In the final phase, Row C, debriefing, the three steps are repeated again. In a quasi-experiment, Mitchell and Chesteen (1995) showed how the elements of entrepreneurial expertise were better-acquired by learners using the foregoing en-
hancement method as compared to the more common business plan drafting approach. That is, the control group in this study—individuals whose assignment was to engage in the more tradi- tional enhancement activity: the writing of a business plan—showed no significant change in en- trepreneurial expertise. Summary Thus, the cognition-based approach focuses the study of entrepreneurs using entrepreneurial thinking as the key phenomenon under investigation. This approach has extended entrepreneur- ship research beyond the descriptive research of the characteristics-based approach; and the result- ing inferential research, instead of being in conclusive (cf., Brockhaus & Horowitz, 1986; Sexton & Bowman-Upton, 1991), has instead been much more conclusive (e.g. see Randolph-Seng, et al, 2015 for a complete review). In some respects at least, this research – in pushing the limits of more static views of cognition (i.e., the limits of input-process-output-based “boxologies”) – has laid the founda- tions for the socially situated (dynamic) view of cognition, and of entrepreneurial cognition specifically (Mitchell, Randolph Seng & Mitchell, 2011). Recent work, both theoretically and empirically, has fur- ther supported these assertions (see, for example, Mitchell, Mitchell, &Randolph-Seng, 2014 for a se- ries of articles that capture the movement toward the dynamic cognitive perspective.) What does the foregoing literature review therefore tell us about the born v. made question? DISCUSSION First, we are disappointed in the hope that a simple explanation of “the born entrepreneur” will be forthcoming from the characteristic research stream. Second, the cognition stream continues to of- fer hope for robust explanations for both the high achievement and some of the more unusual entrepre- neurial behaviors. Third, it is a likely hypothesis that the cognition-based explanation is not restricted to particular types of entrepreneurs (e.g. opportunity vs. necessity). That is, when one considers the
ship practice are “to practice” entrepreneurship, such that the necessary cognitive maps are formed. This applies to those who wish to be entrepreneurs; but also to those who make policy that can influ- ence the development of entrepreneurial cognitive maps within cities, counties, states, and nations. Conclusion Are entrepreneurs born or made? Like bird watching, the characteristics stream has succeeded in establishing within the popular mind a kind of descriptive elitism (Aren’t the birds great? I wish I could fly!). But more like flight training, the cognitive stream is in a step-by-step manner establishing the maps and practice methods that make venturing a possibility for the majority in society. (Besides, by definition, we can’t do much about “born”—but as leaders with new maps, we can surely make a difference in “made.”)
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APPENDIX 1
The University of Victoria Entrepreneurship Program is built upon a model of entrepreneurial ex- pertise that is based upon research (Mitchell, 1994) that demonstrates that that new venture for- mation is related to cognitive expert scripts. This model utilizes the relationships among the indi- vidual (entrepreneur), the work (the venture) and others (the venture stakeholders), to derive the three areas of pedagogic concern in teaching entrepreneurship: building Planning (Arrangements), Promise (Willingness), and Competition (Opportunity Ability) expert scripts (Mitchell, 1998; Mitchell et al., 2000). The relationship among these three pedagogic elements is shown in the fol- lowing diagram:
Bounded Rationality^ The Individual Bounded Rationality Competition (O-A.) Scripts^ C^ Promise (Will.) ScriptsB Affect Transaction Costsfrom "Work"-Specificity) (Affect Transaction Costsfrom Others' Opportunism) Opportunism "Work"-Specificity Other Persons Opportunism The Work "Work"-Specificity (Affect Transaction Costs from Individuals' Bounded Rationality)^ Planning (Arr.) Scripts A From Mitchell, 1998 Based on Gardner (1993); Williamson (1985)
Since the growth of a new firm is based on the success of the transactions of a company, then it logically follows that, if the transactions are successful, then the firm will have a sound foundation for success. The three sources of market imperfection (Rumelt, 1987; Williamson, 1985) that af- fect transaction success are:
- Bounded rationality: Since the individual’s information about the work and others is lim- ited, so also is the ability to make perfect rational decisions limited (or bounded) by this incomplete information. Planning utilizes bounded rationality to turn this market imper- fection into profits.
- Opportunism: Since it is the nature of stakeholders to attend to their own best interests with guile, relationships with others that create viable promises, again utilize market im- perfection to produce profit.
- Specificity: Since the work in a venture is specific, scripts are needed that make this work competitive in the eyes of the market (the others). The pedagogy of the University of Victoria Entrepreneurship Program is based on teaching the cognitive scripts (planning, promise, and competition) that permit individual entrepreneurs to or- ganize exchange relationships (among the individual, other persons, with respect to the work) that utilize market imperfections (bounded rationality, opportunism, specificity) to create value.
- Bounded Rationality: To best utilize market imperfections from bounded rationality we must improve the venturer’s knowledge—specifically through enhancing planning capa- bilities. In particular, the venturer’s knowledge of the venturing expert script must be in- creased. To increase this knowledge, we use the “script enhancement” method (Mitchell & Chesteen, 1995) consisting of these steps:
- Temporary script sequences provide the novice with a framework for this process, a starting point.
- Expert-novice communication of past experience helps the novice understand what norms have worked for experts and likely will work for the novice.
- Real experience enables the novice to develop his own norms and truly become an expert.
- Opportunism: The management of opportunism through the creation of promise-based scripts is embedded in a stakeholder management approach. The goal of this approach is to identify and serve the stakeholders of a company (Agle, Mitchell, & Sonnenfeld, 1999; Mitchell, Agle, & Wood, 1997) by utilizing three stakeholder attributes:
- Power
- Legitimacy
- Urgency The more characteristics a stakeholder has, the more salient it is to the company. Using this logic, the acquisition of promise scripts help of align the goals of the stakeholders (others) with that of the work and individual (based on their power, legitimacy and urgen- cy) to utilize the market imperfections created by opportunism to build value within the venture.
- Specificity: The effective use of the market imperfections that arise due to specificity comes about where entrepreneurs—through the use of effective competition scripts that, for example, affect the cost or differentiation the work (Porter, 1980)—produce sustaina- ble value. To do this we use a tool such as the New Venture TemplateTM^ (NVT), (Mitch- ell, 1995) an expert assistance computer program that helps the prospective venturer to assess “if the venture is indeed a business” and “if it is sustainable.” Using the NVT, we can determine how to increase the competitive stance of the venture work.
