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What makes an entrepreneur?

by Dr Chris Coleridge, Director of the Postgraduate Diploma in Entrepreneurship

Two economists walk down a street. They see a £20 note on the pavement but ignore it. One asks the other why, and receives the reply, “if that was a real £20 note, someone would have already picked it up!” This joke captures how the role entrepreneurs play in society is hard to understand: how do they go beyond rational analysis to find opportunities, why can they discern £20 notes that others don’t seem to be able to see?

Would you pick up a £20 note you spotted on the ground?

Dr Chris Coleridge

Dr Chris Coleridge

Are entrepreneurs actually different?

Scholars have long debated this question, ever since Joseph Schumpeter saw entrepreneurs as those who broke rules and sought to make progress in leaps. He described entrepreneurs as “bold warriors” who try to demonstrate their distinctiveness by proving themselves “superior to others”. Those seeking to understand entrepreneurs explored the traits that underlie such a “warrior” and what separates them from the rest.

Research has suggested that entrepreneurs often arise from difficult backgrounds, seeking as adults to control their environment by creating an organisation, in a bid to ‘heal’ the wounds of a powerless childhood. The importance of ‘social marginality’ in driving entrepreneurs to success extends further, with the idea that people who are disadvantaged in some way (by minority status or conditions such as dyslexia) endeavour to ‘make up’ for self-perceived mismatches between their status in life and their ambitions.

Entrepreneurs are seen as naturally more drawn to risk, taking opportunities others would shy away from. Some say that entrepreneurs also have an “internal locus of control”, believing what happens to them is a result of their own actions, as opposed to chance or the actions of others. It’s suggested entrepreneurs are not necessarily driven by financial gain, rather their desire for independence.

Anyone who knows an entrepreneur may recognise some of these innate personality traits, but for every entrepreneur which fits these models, there are many who don’t. When applied to a larger population, none of these ideas work universally. For this reason, many analysts have moved away from studying individual entrepreneurs to examining entrepreneurship more broadly. Management guru Peter Drucker once said of entrepreneurship: “It’s not magic; it’s not mysterious; and it has nothing to do with genes. It’s a discipline and, like any discipline, it can be learned.”

Or do entrepreneurs just “do different things”?

The “skill of the entrepreneur” perspective is attractive to policy-makers and other organisations that want to encourage more entrepreneurship. If we want to make entrepreneurship a mass-participation “sport”, perhaps it’s better to focus on how to learn entrepreneurial skills (and how such behaviour can be taught), rather than search for the ‘right people’ who are naturally more likely to be driven to become entrepreneurs.

So what are these skills and behaviours?

Entrepreneurs are firstly alert to opportunities. Their prior knowledge of their industry allows them to spot where other businesses or solutions are failing to fully meet customer expectations, as well as identify opportunities that might not be noticed by others. They consider carefully the implications of technological change and consider how existing industries and markets will be affected by these changes.

A second skill is resilience. Projects are embarked upon with the expectation that at some point the absorption of cash and other resources will generate a surplus of resources –  it is very often the case that this will take longer than first expected. The view of precisely what the opportunity is and what resources are needed to succeed will change while the idea is being developed, adding to the complexity and time needed to take the opportunity. Entrepreneurs need to be willing to persist beyond the unforeseen or unforeseeable problems that crop up during the journey.

A third skill is assembling resources. Entrepreneurs require a range of (often unfamiliar) resources and skills to achieve their goals. To do this, they need to be able to communicate and ‘sell’ their vision to others, who will quite often come from different backgrounds, mindsets and perspectives to their own. Networking skills and the ability to attract ‘followers’ is a critical component of entrepreneurial success, with many studies showing a clear link between the size of the founding team and the eventual venture’s growth.

Social skills underlie networking skills, of course. Entrepreneurs’ ability to accurately perceive others and take their perspectives, to persuade, and to present a positive impression are all linked with success. And, perhaps underlying the development of strong social skills is the entrepreneur’s “self-efficacy”  –  their belief in their ability to achieve their goals through their own talents.

Or do entrepreneurs follow a different logic?

A more recent idea is that successful entrepreneurs have “effectual logic” –  an approach to problem-solving that starts not with the desired end, but with the available means. Large businesses will often follow “causal” logic: identifying the end they wish to reach and constructing a plan to reach it. By contrast, entrepreneurs start with what is to hand (their network, skills and resources) and consider how to use these to succeed. On that journey, they collect new network connections, skills and resources, opening up unforeseen possibilities.

One surprising finding relating to effectual logic is that doing business plans is a waste of time. They rely on causal logic, depending on the idea that one knows both the nature of the resources needed and the pathway to achieving success in advance of beginning the journey.

This understanding of how entrepreneurs operate helps us see that the reason people usually ignore the metaphorical £20 notes lying in the street  –  the business opportunities thrown up by the changing times we live in –  is because the key principle for taking opportunity is not discovering it, but creating it.

So, is there an “entrepreneurship gene?” Research that links personality to entrepreneurship is fascinating, yet fails to offer a concrete answer. What’s more promising for the prospective entrepreneur is the understanding that opportunities do not lie “out there” waiting to be taken –  they are created through action. Often, these actions are small at first, side businesses or little projects  –  but they lay a foundation which the entrepreneur can build upon.