Personality Traits Driving Entry To Entrepreneurship May Not Necessarily Lead To Success
View(s):The personality traits that drive people to open their own businesses may not always match the qualities that make for entrepreneurial success, a recent study suggests.
Entrepreneurship may appeal to open-minded people who enjoy the autonomy, but they’re not necessarily likely to succeed, according to the research. Extroverts, on the other hand, appear more likely to run profitable ventures.
Researchers at Washington University in St. Louis, Johns Hopkins University and the University of Delhi sought to discover whether personality differences explain which individuals become entrepreneurs and, among that group, which ones succeed.
“Most small businesses fail, but it is unclear why some individuals are successful entrepreneurs while others are not,” the authors note in their National Bureau of Economic Research working paper, “The Right Stuff? Personality and Entrepreneurship.”
Previous research, they note, recognizes that workers may choose self-employment for the non-financial benefits associated with running a business, that is, because they enjoy it, “and not necessarily because they are good at it.”
Looking into the ways key personal qualities affect both the choice to become self-employed and entrepreneurial returns, or profits, the researchers developed a model showing that “the personality traits that make entrepreneurship profitable are not always the same traits driving people to open a business.”
This finding has important consequences for entrepreneurship policies, they write.
“For example, subsidies for small businesses do not attract talented-but-reluctant entrepreneurs, but instead attract individuals with personality traits associated with strong preferences for running a business and low-quality business ideas,” the authors say.
A “lifestyle entrepreneur” may open a business based on a low-quality idea because he enjoys the autonomy of being his own boss, they write. On the other hand, a “reluctant entrepreneur” may show an aversion to entrepreneurship despite possessing the qualities for productive self-employment.
“These types of misalignments can influence the impact of polices designed to promote entrepreneurship. Subsidies might be useful if they induce talented but reluctant entrepreneurs into self-employment, but could be wasteful if they simply attract lifestyle entrepreneurs to opening unprofitable businesses,” the researchers say.
The paper from Washington University’s Barton Hamilton, Johns Hopkins’ Nicholas Papageorge and the University of Delhi’s Nidhi Pande, based on 1995 and 2004 data from the National Survey of Midlife Development in the United States, notes, among other findings:
• Openness to new experience often leads people to entrepreneurship but doesn’t predict success. On the other hand, extroversion appears to attract people to self-employment and to contribute to high entrepreneurial earnings.
“We show that (extroverted) individuals are attracted to entrepreneurship because they earn more in self-employment than in paid employment. In contrast, open individuals perform poorly in self-employment, but exhibit a strong preference for starting a business which offsets their low expected earnings enough to induce entry.”
Extroverts, the researchers say, become attracted to entrepreneurship because they generate high-value ideas.
Previous studies suggest a link between openness and lack of commitment to an organization, they write.
“Openness may undermine business success if it means that individuals are less committed to a new business venture once it has been started. In such cases, a more rigid focus on the new business may lead to greater success compared to imaginative thinking.”
n Conscientiousness, while profitable for traditional employees, appears to be costly in self-employment. Conscientious people may earn less as business owners because of inflexibility or excessive concern with following rules, “even when doing so harms their business,” the researchers write.
n Agreeable people draw an earnings penalty both as paid employees and business owners, especially in self-employment. In short, the authors suggest, agreeableness may indicate a regard for others and aversion for profit-seeking at others’ expense.
The writers add that individual earnings may be only one factor to consider in supporting entrepreneurship through public subsidies, noting, for example, that “small businesses provide jobs and could thus help low-income communities where large corporations find it unprofitable to locate or provide value as an amenity if consumers enjoy enterprises that are independently owned.”