Frontiers of Entrepreneurship Research 1994

Frontiers of Entrepreneurship Research

Abstracts from the 1994 Edition

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    Raphael Amit

    Faculty of Commerce & Business
    University of British Columbia
    Vancouver, B.C., Canada V6T IZ2

    (604) 822-8481

    (604) 822-8477

    Eitan Muller

    Recanati School of Business Administration
    Tel Aviv University
    Tel Aviv, Israel 69978

    (972-3) 640-9557

    (972-3) 641-4215

    Principal Topics
    The adverse selection problem that is created because of asymmetry of information about entrepreneurs' attributes, abilities and skills in turning venture ideas into viable businesses, makes it difficult for venture capitalists or corporate executives, to distinguish between entrepreneurs who will eventually be successful and those who may not perform well. To mitigate this, and the related moral-hazard problem, we distinguish between two types of entrepreneurs based on their motivation to engage in entrepreneurial activity, rather than on the basis of their personal attributes and risk attitudes: 'Push' entrepreneurs are those whose dissatisfaction with their current position for reasons unrelated to their entrepreneurial characteristics, pushes them to start a venture. 'Pull" entrepreneurs are those who are lured by their new venture idea and initiate venture activity because of the attractiveness of the business idea and its personal implications. The idea that underlies the above classification, is that it reduces the severity of the adverse selection problem. In addition, the relationship between entrepreneurs and venture capitalists (or between intrapreneurs and corporate executives) is characterized by the moral hazard problem. The entrepreneurs (agents) are likely to optimize their own objectives which may be different from those of the venture capitalists' (principals). The moral hazard problem arises because of the principals' inability to observe the agents' efforts. Our classification, which is based on the entrepreneurs' motivation to engage in entrepreneurial activity, diminishes the magnitude of the moral hazard problem. Therefore, one can expect 'pull' entrepreneurs to perform better than 'push' entrepreneurs. Those entrepreneurs who are classified as both "push' and 'pull' are expected to be most motivated and thus outperform other types of entrepreneurs.

    A survey was conducted by mailing a questionnaire to 3,803 individuals drawn from the following two sources: The Science Council of B.C. provided its mailing list of individuals who had applied for grants from the Council; Bachelor of Commerce and MEBA Graduates of the Faculty of Commerce at the University of British Columbia in the years 1974, 1979, 1984, and 1989.

    While the majority of the 822 respondents (which represents a 24% response rate) reside in western Canada, a sizable minority live in Pacific Rim countries, the US, and Europe. 'Me questionnaire was devised to extract information about the business/entrepreneurial experience of respondents, their educational background, demographics, personal attributes, and attitude towards risk taking. Specifically, the questionnaire included sections dealing with formal education, extracurricular activities during different education periods, number of siblings and their involvement in entrepreneurial activity, family business, and the financial status of their family during childhood. The questionnaire also included questions about parents' and spouse's education, occupation, and involvement in entrepreneurial activity, the respondent's past career and current position. In addition, respondents were asked to rank 5 of 13 given attributes that they consider most important in creating and managing an entrepreneurial business, as well as the 5 attributes that are most characteristic of themselves. All respondents who had ever contributed to the formation of a new business were asked, in more detail about their reasons for becoming entrepreneurs; their career prior to the decision to become entrepreneurs; their financing sources; and their performance as entrepreneurs. Lastly, all respondents were asked to answer a set of questions which was designed to measure their attitude towards risk taking and thereby facilitate the formal evaluation of the respondent's extent of risk aversion. Statistical analyses were performed using the most recent SPSS/PC+ software, including the SPSS Tables Discriminant Analysis, Regression Analysis, and Chaid (Chi-sq Automatic Interaction Detection) packages.

    Major Findings
    In this paper, we established that when comparing the attributes of entrepreneurs with those of non- ntrepreneurs, no single attribute is a good predictor of who is more likely to become an entrepreneur. further, we showed that no unique bundle of attributes appears to be "required" for entrepreneurial activity and that entrepreneurs and non-entrepreneurs are, in general, similar in their attributes. Both entrepreneurs and non-entrepreneurs have been shown to be risk averse, but entrepreneurs are slightly less risk averse than non- entrepreneurs. In attempting to predict an individual's inclination to become an entrepreneur, we found a combination of self-reported attributes, a measure of risk aversion, and a range of demographic variables, to be an effective discriminator, in about 70% of the cases, between entrepreneurs and non-entrepreneurs. We found that 'pull" entrepreneurs and non-entrepreneurs are relatively similar in their attributes and risk aversion, while "push" entrepreneurs are significantly different from non-entrepreneurs. Further, "pull" entrepreneurs were found to be more successful than "push" entrepreneurs in both personal income and the sales per employee in their ventures.

    Combining all the observations made in this study suggests that the search for the unique attributes of entrepreneurs may be fruitless. Rather, by focusing on the motives to become an entrepreneur, we were able to identify a type of entrepreneur who is significantly different from a non-entrepreneur and whose performance is superior. These findings reinforce the suggestion (see for example, Gartner, 1985) that contrasting entrepreneurs with non-entrepreneurs is too broad, and that a search for types of entrepreneurs may be a more fruitful avenue for further research.

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