ARE ENTREPRENEURS BORN OR MADE?
VIEWS OF ENTREPRENEURS AND VENTURE CAPITALISTS
Ervin L. Black*
F. Greg Burton
Anne M. Traynor
David A. Wood
Brigham Young University
Provo, UT 84602
Telephone: (801) 422-1767
Fax: (801) 422-0621
Email: [email protected]
KEY WORDS: Entrepreneurial Success, Venture Capital Funding, Traits for Success TOPIC: Entrepreneurial and Small Business Education, New Venture Creation and Venture Capital
Dr. Ervin L. Black is associate professor of accounting at Brigham Young University. His research interests include entrepreneurship, financial accounting, and international business. Dr. F. Greg Burton is associate professor of accounting at Brigham Young University. His research interests include fraud and corruption, market behavior, and entrepreneurship. Anne M. Traynor is a student at Brigham Young University in the entrepreneurship program. Her research interests include gender issues in small business and new venture creation. David A. Wood is a doctoral student at Indiana University. His research interests include corporate governance, entrepreneurial success, and internal audit.
What characteristics do entrepreneurs believe make them successful? We interview
entrepreneurs and venture capitalists (VCs) to determine traits that each of these groups perceive as necessary for entrepreneurial success. We show that entrepreneurs cite traits inherent to their nature (for example, hard working, persistent, risk-taker) significantly more than VCs. We also test to see if entrepreneurs are able to identify factors that VCs consider most important for the funding decision. We find that entrepreneurs who do not have previous VC funding experience differ significantly from VCs in what factors are important for VC funding; whereas, entrepreneurs with previous VC funding experience did not differ from VCs in identifying important funding-decision factors. Overall, our results demonstrate that even though entrepreneurs believe factors they are born with are most important to achieve success, they still learn through experience.
The question, “What makes entrepreneurs successful?” is important to multiple constituencies. Despite the interest in this question, measuring success has proven problematic because there is no agreed upon definition of what constitutes a successful entrepreneur (Rogoff, Lee, and Suh 2004). In general, most research studies use company longevity as a proxy for entrepreneurial success without consideration of other qualitative or quantitative measures. While there could be many viable definitions of success, a fruitful first step would be to ask entrepreneurs and their capital providers what entrepreneurial traits lead to a successful business venture and whether these traits are an inherent part of an entrepreneur’s character or whether they can be acquired through experience or training. For instance, would an entrepreneur who sought venture capital in the past learn from this experience and change his/her approach and thinking?
A continually debated question in the popular press is whether people are “born” or “made” to be successful. Each year companies spend millions of dollars hiring consultants to train their staff to be successful—with some companies claiming that it worked and others believing it was a waste of time and money. Numerous books, articles, and internet sites argue about what aspects of success are inherent to a person’s nature versus what is learnable through study or experience.
Successful entrepreneurs also carry out this debate with varying opinions about how much of entrepreneurial success can be attributed to nature versus nurture. On one end of the spectrum, Bo Peabody—an internet entrepreneurial multi-millionaire—stated, “One does not decide to be an entrepreneur. One is an entrepreneur. Those who decide to be entrepreneurs are making the first in a long line of bad business decisions (Farrell 2005).” On the other end of the
spectrum Lloyd Shefsky—author, entrepreneur, and adjunct faculty—claims that through his research of more than 200 entrepreneurs that successful entrepreneurs are made and not born (Shefsky 1996). Finally, in the middle of the spectrum are voices like Herb Kelleher, co-founder and former CEO of Southwest airlines, who believes that successful entrepreneurs have a combination of innate character traits and training (Watkinson 2004). This study asks entrepreneurs and venture capitalist to identify characteristics of entrepreneurs that are important for their success.
First, we report which specific traits
entrepreneurs believe make them successful, thus addressing what entrepreneurs believe in the born versus made debate. Second, we compare the entrepreneurs’ responses to an important “gatekeeper” in small business success—venture capitalists (VCs). Third, we compare what the two groups consider to be the most important factors for venture capital funding decisions. Finally, we compare responses from entrepreneurs who have solicited funding from venture capitalists to entrepreneurs who have not solicited funding from venture capitalists to see if entrepreneurs learn from experience what venture capitalists seek when making their funding decisions.
The rest of this paper proceeds as follows; in the next section, we discuss relevant literature and our research questions. In section three, we present the methodology used to evaluate our research questions followed by a discussion of the results in section four. In section five, we discuss implications of our findings. We conclude in section six with limitations of our research and recommendations for future studies.
2. Literature Review and Research Questions
Many studies have attempted to catalog factors that contribute to entrepreneurial success (Sahlman 1990; Sapienza 1991; Timmons 1994; and Rogoff et al. 2004) and failure (see Zacharakis, Meyer, and DeCastro 1999 for a review of the relevant literature). Past research about entrepreneurship has attempted to define the personality of entrepreneurs, hoping to show that entrepreneurs are intrinsically different from other people (see Smith-Hunter, Kapp, and Yonkers 2003 for a review of the literature). The underlying theme of this type of trait-based research is that no amount of training will make an entrepreneur (Smith-Hunger, Kapp, and Yonkers 2003). However, the results of this stream of research have not produced a definitive personality of an entrepreneur. From these studies, the only consistent difference found between entrepreneurs and nonentrepreneurs is that entrepreneurs have higher achievement motivations (Shaver 1995).
The inability of this line of research to define a specific entrepreneurial personality has caused a debate about the efficacy of personality-based research as a way of finding significant differences between entrepreneurs and others (Aldrich 1999; Begley and Boyd 1987; Gartner 1988; Johnson 1990; Mueller and Thomas 2001; Shaver 1995; Shaver and Scott 1991; Shaver, Gatewood, and Gartner 2001; Spangler 1992). In contrast to the trait-based research, another line of research is looking for ways to better understand the factors that influence how entrepreneurs behave (Baron 1998; Douglas and Shepard 2000; Simon, Houghton, and Aquino 2000). We contribute to this line of research by examining what traits entrepreneur...