Principal Topic

Research on the topic of entrepreneurial self-efficacy indicates that an entrepreneur’s beliefs about his/her ability may influence the choice to start a business and also the chances of succeeding. Self-efficacy is influenced by such factors as previous performance levels and the use of effective cognitive strategies. This paper examines the effect of each on performance of an entrepreneurship simulation.

Method

Harvard Business School’s Launching a High-Risk Business, a sophisticated interactive computer simulation, was used. LHRB asks users to make a series of complex decisions on five aspects of launching and running Radiophone, a high-tech start up. Subjects ran three trials, making decisions on R&D, manufacturing, human resources, financials, and marketing each month for as long as they could keep the company open. Performance was measured as the number of months a participant was able to keep the company from running out of cash.

Eighteen subjects participated in the experiment. Nine subjects were told to keep the company open as long as they could (the control condition). The other nine were given the same instructions, but were also directed to try to think of as many strategies for improving performance as they could between trials (the experimental condition).

Hypothesis 1: Subjects in the experimental condition will have higher self-efficacy than subjects in the control condition.

Hypothesis 2: Self-efficacy will be associated with performance in the previous trial.

Hypothesis 3: Subjects in the experimental condition will employ more effective strategies than those in the control condition.

Only hypothesis 2 was unequivocally supported. Condition appeared to have no effect on self-efficacy (H1). Results indicate that subjects in the experimental condition did tend to use more effective strategies (H3), but the differences were not significant.

Implications

Understanding more about how entrepreneurs react to successes and failures may lead to better ways of training and motivating entrepreneurs. This study confirms previous findings that success leads to higher self-efficacy. It also hints that prompting people to think about strategies for success may lead to the employment of more effective strategies. A future study with a larger sample size may help confirm this hypothesis.