Trait Approach to Entrepreneurship

What makes an entrepreneur, an entrepreneur? Could it be the environment they grew up in or simply, the personality that they were born with or developed as they grow? This essay would present on the traits one should have to perform in this career and how these personalities would benefit them as a businessperson. Apart from that, it would discuss the different approaches and analyze it against the trait approach. The essay would start by discussing the traits of an entrepreneur through theories by McClelland and Meredith, Nelson and Neck and the different approaches related to the topic.

These theories would then be supported by evidences and examples and then be compared to the social approach of entrepreneurship. It would then be criticized followed by a conclusion.

As said by David Karp, the founder of Tumblr and CEO, “An entrepreneur is someone who has a vision for something and a want to create” (BusinessInsider, 2013). At the age of 15, Karp dropped out of high school and started working on side projects to impress a good research university.

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He was in charge of a parenting forum at the age of 16, which was later sold to CNET. With that money, he went on to start his own company. He saw an opportunity in the blogging platform where most blog sites focused only on long texts instead of multimedia focused entries. With that, he created Tumblr, which is currently one of the famous social networking sites. The 108.6 million blogs and the recent acquisition with Yahoo, Karp is a successful entrepreneur with earnings of over $200 million yearly (International Business Times, 2013).

An entrepreneur is someone who organizes and manages any enterprise, especially a business with considerable risk and initiative (Forbes, 2012).

Entrepreneurship is a process of creating something different with value by developing the essential time and effort, assuming the many factors such as financial, physical, and social risks, for rewards of monetary and personal satisfaction (Hisrich and Brush, 1985). Based on past study, personality traits are one of the most common psychological theories used to explain and predict human behavior, which includes entrepreneurship (Kautonen, Tornikoski, Kibler, 2009). McClelland conducted a research based on this topic and proposed that an entrepreneur has a need for achievement, commitment to others and being proactive in terms of initiative and assertiveness (Deakins et al, 2005). In 1965, he did an analysis based on the needs of achievement of college freshmen which led to the conclusion that high need of achievement is a predictor of entrepreneurship (Okhomina, 2013). High achievers have the need to excel at what they do though it holds a moderate chance of success or maximum opportunity of personal satisfaction (Deakins and Freel, 2005). An example is Bill Gates who dropped out of Harvard to fully commit to Microsoft. He held onto the belief that computers would be essential in people’s lives and proceeded on with Microsoft despite knowing it could be a failure (Microsoft, 2011).

Another trait stated is being proactive through initiative and assertiveness. For example, the market is continuously changing. Proactive entrepreneurs would have to take control of the market and act accordingly before the market changes in an expected manner instead of waiting until it happens before applying such changes. This trait is very critical, as it has led to rise and downfall of various companies in the various industries. An example of such downfall would be Kodak. During the 1980’s the CEO of Kodak, Antonio M. Perez noticed the increased demand of digital cameras but has not acted upon it, hence they lost a very large portion of their market share. As such, the importance of proactiveness is clearly seen. In order to be proactive, they would have to be confident in noticing the market trend and acting before the competition does. Based on McClelland, they should also be committed to others, meaning, spending time helping out their employees or giving them the motivation to do well which would help benefit their confidence leading to an efficient productivity such as Steve Jobs with Apple.

An additional trait linked to entrepreneurship is locus of control. Locus of control is the professed control over the events in ones life (Rotter, 1996). There are two types, internal and external. People with external locus of control believe that their lives are outside of their control, determined by fate. Internal locus of control on the other hand is an individual who believes that they are in control of their own destiny (Ward, 19). If one succeeds, they take the credit but if they fail, they will blame themselves (Ethan, 2012). Based on a research done by Boone, Debrabander and Van Witteloostujin in 1996 which focused on furniture industries of small firms and family owned business to find out if chief executive officers or top management team internality have a positive effect on organizational outcome. Using previous tested hypotheses, they found internal locus of control to be linked to company performance, proving that this trait is an important entrepreneurial psychological trait (Okhomina, 2013).

Aside from McClelland, Meredith and others proposed five core traits related to entrepreneurs. Both researchers have need for achievement as a trait in common. Others are self-confidence, risk taking activity, flexibility and strong desire to be independent. Self-confidence has been advocated as an important concept for entrepreneurship. Having high self-confidence would allow entrepreneurs to mobilize resources, motivate others and produce change in the business more efficiently (Deakins et al., 2005). They are self-starters and feel confident making decisions. Successful entrepreneurs do not only believe that they are capable of success but that they are also worthy of it (Cefe, 2013).

Risk taking activity is also a mentioned factor. Entrepreneurs know that risk is a natural part of trying to achieve their goals (Cefe, 2013). A study proved that effective entrepreneur “can correctly interpret a risk situation and determine policies to minimize the risks involved (Palmer, 1971). As entrepreneurs scan their environment, they simultaneously seek to exploit opportunities and avoid risks threats (Welsch and Young, 1982). To put it simply, risk taking propensity is defined as “the perceived probability of receiving reward linked with the success of situation that is necessary by the individual before subjecting himself to the consequences associated with failure” (Brockhaus, 1980).

Flexibility, on the other hand, is the willingness of the entrepreneur to adapt to changes in the environment or business itself. For example, if a company produces only apple juice but their customer’s requests for orange juice, the entrepreneur would have to make the decision of being flexible enough to also produce that for the customers. It would cost his company a loss should they not as no one will be buying from them.

Lastly, Meredith claimed that entrepreneurs have a strong desire to be independent. They prefer working by themselves and setting their own direction. They like the freedom of choosing their own priorities and decisions and are confident when deciding what to focus on (Huspeni, 2013). For example, Vera Wang who has built her career in the fashion industry. After gaining two years of experience working for Ralph Lauren, she decided to make a name for herself by opening her own boutique called ‘Vera Wang’. Today, she is an international brand with high clientele of mostly well-known celebrities (LittleE, 2014). Her drive to be independent and confidence in making a name for herself helped her to be a successful entrepreneur. Meredith believes that these five traits help make an entrepreneur how they are.

However, the personality trait is not the only approach to entrepreneurship. Another well-known methodology is the social behavioral approach. It is the environment and culture influence on individuals which results in them pursuing entrepreneurship (Deakins et. Al., 2005). A factor would be dealing with failure. Timmons believed it to be an important attribute, depending mostly on culture. For example, in America, failure is common and viewed as a learning experience whereas in Europe, failure is considered unacceptable. Another could be family background and education. Having a family member in the same field could lead to an individual being influenced and interested. Learning about business would also have the same effect. From this, one can see how this approach encourages an individual to be an entrepreneur. Being able to accept failure would not discourage them to stop trying until they succeed whereas having a family in the same field or even learning about it helps build their interest in this career path.

The personality trait approach has been critiqued as inappropriate and questionable when explaining entrepreneurial behavior (Gartner, 1988). In 1990, Gartner published an article stating that further criticized this mentioning how there are many different definitions of an entrepreneur have been used with only few studies employing the same definition (Gartner, 1990). This concludes that there are no definite personality that can predict who can be an entrepreneur (Low & Macmillan, 1988). According to Vesper and Gartner, entrepreneurship should be analyzed from the viewpoint of what they do instead of what he is. These traits have been categorized as full of contradictions due to the various traits associated to one person, which would make it impossible to achieve (Gartner, 1990). Based on research, it is unmanageable to distinguish entrepreneurs from managers based on the traits that an entrepreneur is claimed to possess (Brockhaus & Nord, 1979; Sexton & Kent, 1981). Apart from that, there are also other approaches such as mentioned above, social behavioral approach. Most researchers are too engrossed with the entrepreneurial personality that it diverts their attention away from the fact that an individual would have to acquire the skills and abilities which they only learn at the process of their entrepreneurship (Deakins et. Al., 2005).

This paper investigated the personality approach explaining entrepreneurship. Concluding this essay, McClelland’s traits of need for achievement, proactive and being committed to others while Meredith’s traits have defined what personalities an individual should possess to be able to be an entrepreneur. Having a locus of control would also benefit the individual as a form of self-confidence. However, other social factors such as family background and education also plays a role in this discussion as an individual who grew up with the right education or a business minded family tend to end up in the same path. Therefore, an individual does not necessarily have to acquire the traits mentioned to decide to become an entrepreneur. From this paper, one is able to know what kind of traits fits the criteria of a CEO or entrepreneur and how they can benefit their own business. Like any other theory or methodology, there are certain limitations to it. An entrepreneur should possess the right traits and also the right skills and abilities with the proper background and education to succeed and do well in what they do.