Entrepreneurship is the recognition and exploitation of market opportunities. Recognizing that an opportunity exists is not enough; to be entrepreneurial involves the pursuit of that opportunity. Therefore, being an entrepreneur involves both cognition and behavior. As a state of mind, entrepreneurship is valuable within existing organizations as well as in the establishment of new ventures. Sometimes referred to as creative destruction, entrepreneurship has been viewed as the engine of progress in capitalistic societies and is inseparably linked to innovation and competitive advantage. Evidence of the importance of entrepreneurship exists in public policy initiatives that encourage new business development and also within established organizations that actively encourage the development and pursuit of new opportunities.
Entrepreneurs possess the ability to identify and capitalize on opportunities to start new business ventures, whereas intrapreneurs apply these same skills to venture creation within an existing organization. Often when one speaks of entrepreneurs, images of individuals such as Bill Gates, Oprah Winfrey, and Donald Trump come to mind. Yet in reality, these cases are more the exception than the rule. In fact, research has shown that it is virtually impossible to “stereotype” the typical entrepreneur. What is common to entrepreneurs is their proclivity to recognize and capitalize on market opportunities. Not all entrepreneurs become successful, rich, and famous. What prompts some people but not others to become entrepreneurs and what makes some people but not all successful have intrigued businesspeople and academics alike.
Distinguishing characteristics that separate entrepreneurs from non-entrepreneurs is an important part of gaining an understanding of entrepreneurship as a career. Initially, these efforts included studies of demographic characteristics and personality traits. Demographic characteristics thought to distinguish entrepreneurs from others include socioeconomic indicators, educational background, and influences in an individual’s family of origin (e.g., parents/siblings owned businesses). In general, entrepreneurs tend to come from middle- to upper-class families with one or more parent considered an entrepreneur, self-employed, or owning his or her own business. Educational levels and backgrounds of entrepreneurs vary, and therefore the role that education plays in entrepreneurial career choice is inconclusive.
Other research focused on individual traits, such as need for achievement, need for autonomy, internal locus of control (individuals who believe they have control over their own lives), gender identity (masculinity versus femininity), proactive personality (individuals who take action to influence their environments), risk-taking propensity, and tolerance for ambiguity. While some entrepreneurs are likely to exhibit some of these personality traits, there is no conclusive evidence to suggest that only entrepreneurs exhibit these traits, and therefore personality traits alone do not seem to distinguish entrepreneurs from others.
More recent research suggests that some people become entrepreneurs not because they have distinct traits but because they perceive situations and opportunities differently than others perceive them. More specifically, cognitive factors for entrepreneurs differ from those of non-entrepreneurs. Although there are many cognitive factors that affect thinking, in particular the perception of risk, several specific cognitive biases have been suggested to influence risk perception as they relate to entrepreneurs: overconfidence, illusion of control, and belief in the law of small numbers.
Overconfidence is the belief that one knows all there is to know about a particular topic. Recent research has shown that entrepreneurs may be more susceptible to overconfidence than are other individuals and are more optimistic in their assessments of business situations. Overconfident individuals are less likely to perceive risk in business situations because they believe they know what they need to know. More specifically, entrepreneurs are more likely than non-entrepreneurs to overestimate the accuracy of their predictions of uncertain events. For example, new competitors surface even in the mature, uncertain environment of the airline industry because entrepreneurs believe they have an inside understanding of how the industry works.
Illusion of control refers to an overestimation of one’s skills in situations and a belief that one’s skills can control outcomes. Like overconfidence, an illusion of control also decreases risk perception. This suggests that individuals starting ventures might not acknowledge that certain factors important to a venture’s success are beyond their control. Individuals who believe that their skills are the primary determinant of the success of their businesses have strong illusions of control.
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