The Psychology of the Entrepreneur
A great deal of research has been done into the psychological characteristics commonly displayed by an entrepreneur. One of our Executives in Residence Paul Gregory shares these insights with us. So, do you have the typical entrepreneur personality?
A great deal of research has been done into the psychological characteristics commonly displayed by an entrepreneur. There is obviously no such thing as an “entrepreneurial personality” and there are great variances in the psychological makeup of successful entrepreneurs. There are however some reasonably clear characteristics typical of many entrepreneurs which I have described below. These are the basis for attributes such as a desire to be their own boss, and also the basis for attributes such as a reluctance, at times, to take professional advice from others which could be helpful.
Firstly what is meant by the word “entrepreneur” as differentiated from being “self-employed” and running your own business? In terms of this discussion an entrepreneur is often motivated by innovation, growing their own business and making a profit. Whereas in terms of this discussion self-employment is usually based on the owner achieving their own personal goals and their work being their primary source of income.
So what are some of the commonly identified characteristics of an entrepreneur?
Firstly they have a need for achievement. This refers to the need to strive hard for success in order to obtain a sense of personal achievement. Entrepreneurs have a tendency to select and work hard at business activities that hold a moderate chance of success, or a great opportunity for personal achievement and satisfaction, but without the excessive risk of failure. Entrepreneurs in my experience will seek challenges but usually will not get involved in businesses where there is very little chance of growth and success. There is little chance of them gaining a sense of personal achievement.
Entrepreneurs sometimes find it difficult to understand why others in their organisation aren’t driven by the same need for achievement that they have. In a successful entrepreneurial organisation it is extremely important that key individuals agree on values, vision and business objectives. It is however also possible that employees can make a valuable contribution to the business without the same need for success and a sense of personal achievement.
The second common characteristic is having what is known as an internal locus of control. Locus of control refers to an individual’s perception of the causes for events in their life. An internal locus of control means they believe their environment, in this case the performance of their business, is controlled by their own actions. That is, luck and fate don’t determine what happens and success or failure is a result of an entrepreneur’s abilities and experience. This can increase an entrepreneur’s comfort in making business decisions. It can however at times also lead to a sense of failure if things take longer, or cost more, than they had expected even if there are good reasons for this occurring.
The third common characteristic is a tolerance for ambiguity and uncertainty. This refers to an individual’s ability and comfort to make a decision with incomplete or ambiguous information. Incomplete information regarding markets, cash-flows, competitors and IP development is often typical for an entrepreneurial business. Decisions are required however and entrepreneurs are usually comfortable making them. Entrepreneurs may in fact find an ambiguous business situation desirable, even enjoyable and if things are just ticking over this may seem boring. At certain points in a business’s growth however a period of consolidation may be valuable to the business, if not particularly challenging to an entrepreneur.
A fourth common characteristic is what is called a risk taking propensity. That is the entrepreneur actively looks for risky ventures or assignments and has a greater tendency to take risks. An important concept here however is taking calculated risks, not making impulsive or spur of the moment decisions. There is a difference between making a risky but calculated decision and simply taking a risk. Entrepreneurs have a risk taking propensity but probably don’t see themselves as extremely high risk takers even if others do. They tend to see things more positively than others.
To conclude then this is a brief description of some of the common, but not absolutely mandatory or always exhibited, psychological characteristics of an entrepreneur. There are of course a multitude of other factors of great importance in growing an entrepreneurial business beyond the psychology of the entrepreneur.
About Paul Gregory
For the last 20 years, as one of the founders of Caltech Capital, a NZ VC firm, Paul has been involved as an advisor and investor with a number of innovative start-up and early stage businesses with strong IP in software, hardware, electronics, telecoms and biotech. His expertise covers planning the venture, raising capital, achieving financial stability and expanding off-shore. Paul has an MBA and an MA (Hons) in Psychology. He has been an Escalator Programme accredited broker, and a guest lecturer at Auckland and Otago Universities’ Schools of Business. He previously managed the strategy and operations arm of a multinational consultancy with clients including telcos, airlines, financial services and utilities. His specialisation involved corporate advisory, strategic, merger & acquisitions and turnaround work and he has consulted to clients in NZ, Australia, North America and Asia
Leadership and improving a company’s performance are two areas where his combination of business and psychological expertise has been very valuable to the businesses he has been involved with.