It’s a game not everyone can play, but more people should be aware of this career alternative.
Most American businessmen have at some time in their careers thought about starting their own company. Some have envisioned their own enterprise as an avenue to personal wealth through large capital gains. To them, there is a beautiful formula for financial success:
Most American businessmen have at some time in their careers thought about starting their own company. Some have envisioned their own enterprise as an avenue to personal wealth through large capital gains. To them, there is a beautiful formula for financial success:
- start a small company, preferably in a glamour industry;
- generate rapid growth in sales and profits;
- then sell out either to the public or to some large acquisitive conglomerate.
Others have seen their own company as an opportunity to do what they really wanted to do: to get close to a sport by developing a ski area, or to reduce a new technology to practical use. Still others have sought an escape from stultifying large-company constraints, politics, or career impasses. In their dreams, their own venture would be a means to gain the top position in a business.
Despite dreams, wishful thinking, and even plans, few people actually take the step of trying to start a company. Why is this? Is there a special breed of man which is particularly inclined to become an entrepreneur? Are there special characteristics or conditions which stimulate entrepreneurial activities? The basic questions we are asking here are classic ones- Are entrepreneurs born or are they made? If they can be made, what are the ingredients? I have reached the conclusions that, given a degree of ambition and ability not uncommon to many individuals, certain kinds of experiences and situational conditions—rather than personality or ego—are the major determinants of whether or not an individual becomes an entrepreneur.
If we examine some of the attitudes in the subculture of American businessmen we find that there are significant connotations to starting a company as a career alternative. Almost everyone gets a glow—a tingle—at the idea of being an entrepreneur. To men in their thirties and forties the idea of starting a company means “free enterprise” and “Opportunity,” as reflected in Horatio Alger stories. In value terms of the younger generation, starting a company is a way to “do your own thing.” For such businessmen and for many business school students, starting a successful
Patrick R. tiles, “Who are the entrepreneurs?” pp. 5—14, MSU Bsiness Topics, Whiter 1974. Reprinted by permission of the publisher, Division of Research. Graduate School of Business Administration, Michigan State University. Patrick R. tiles is on the faculty of the Graduate School of Business Administration, Harvard University. company is a very attractive idea, yet only rarely do they seem to consider it a serious alternative. When a possible opportunity presents itself, there is somehow too little time to investigate it properly and too little time to determine whether or not the idea really makes sense. Thus, it appears that most would-be entrepreneurs stop before they get started. Unfortunately, there is very little information on people who have had ideas about starting companies but never seriously pursued them.
We might think that we already know a lot about the entrepreneurs themselves— those who actually go ahead and start companies. Yet, do we really? We find that there are people who think of entrepreneurs being formed by school systems and child raising,’ by rejecting fathers,2 or by the business environment.3 However, efforts to measure and predict entrepreneurial potential are, at best, still in the development stages.
Perhaps one of the best broad-based studies on entrepreneurs was carried out by Orvis F. Collins and David G. Moore at Michigan State University in 1964. Using a series of personal interviews and psychological tests, they reached a number of rather unsettling conclusions regarding people who start their own company:
Throughout the preceding analysis, obviously we have been having difficulty deciding whether the entrepreneur is essentially a “reject” of our organizational society who, instead of becoming a hobo, criminal, or professor, makes his adjustment by starting his own business; or whether he is a man who is positively attracted to succeed in it. We have, perhaps without intention, regarded him as a reject.
Entrepreneurs are men who have failed in the traditional and highly structured roles available to them in the society. In this . ... entrepreneurs are not unique. What is unique about them is that they found an outlet for their creativity by making out of an undifferentiated mass of circumstances a creation uniquely their own: a business firm.
The men who travel the entrepreneurial way are, taken on balance, not remarkably like-able people. This, too, is understandable. As any one of them might say in thevernacular of the world of the entrepreneur, “Nice guys don’t win.”’
Several small-sample studies at Harvard and MIT have yielded results different from the Collins and Moore study.e Entrepreneurs were found not to be failures. Instead “most of the founders had experienced a generally higher than average level of success in their previous employment. Several had established outstanding records of achievement.”7 These entrepreneurs seemed more typical of the successful, hard-charging, young business executive Or engineer than a reject figure.’
One possible explanation, of course, is that people in Michigan are very different from those in New England. It might be more helpful, however, if we categorized in some detail: (1) the kinds of business which are used in studies of small business fatality rates and in the Collins and Moore study, and (2) the kinds of business which might be started as alternatives to pfofessional management or engineering careers. The survey-type studies are comprehensive in that they essentially look at all companies which are started withi.n a particular period of time. This includes a wide range of business ventures: dry cleaners, retail shops, electronics manufacturers, computer software firms, gas stations, and so forth. Each of these is used in the computation of a wide range of statistics about the rise and demise of new companies. There should he no reason to doubt the aggregate figures or the results of in-depth studies made of these situations. The Collins and Moore study looked at 10 manu facturing firms started between 1945 and 1958 in Michigan but made no further distinctions as to the nature of the business, size, or potential.
If we consider kinds of ventures which might be of interest to a professional manager or an engineer, the vast majority of the enterprises started each year (and, therefore, the bulk of those considered in large, broad-based studies) would not be included. A dry cleaning establishment or a small metal fabricating shop is not the basis for the dreams of these people. From their perspective (and. therefore the perspective of this article), we should label this subcategory of small business as marginal firms. That leaves us with the task of considering the kinds of venture situations which are potentially attractive career alternatives. The first, which I have labeled the high-potential venture, is the company which “is started with the intention that the venture grow rapidly in sales and profits and become a large corporation.’” In its planning stage the high-potential venture is the extreme of personal economic opportunity, the entrepreneur’s big dream: such as Polaroid, Digital Equipment, Scientific Data System, Cartridge Television, Viatron, and so on.
Another type of enterprise, less obvious than the high-potential venture, also holds a strong interest for many would-be entrepreneurs. This type of venture we might call the attractive small company. In contrast to the high-potential venture, the attractive small company is not intended to become a large corporation, probably will never have a public market for its stock, and will not be attractive to most venture capital investors. However, in contrast to the marginal firms, attractive small companies can provide salaries of $40,000 to $80,000 per year, perquisites (company car, country club memberships, travel, and so forth) to its owner/managers, and often flexibility in life-style such as working hours, kinds of projects and tasks pursued, or geographical location. In this subcategory we find such businesses as consulting and other service firms and some specialized manufacturers.
Both the high-potential venture and the attractive small company are interesting beyond the scope of the benefits they may provide to their founder/owners. In the high-potential venture we find the genesis of the major corporations of the future and, therefore, the source of a growing number of jobs and other contributions to the economy. The attractive small companies provide less spectacular but stable inputs of a similar nature. Both of these kinds of companies must gain and maintain their position by providing competitive discomfort to the existing corporate giants through innovation~ flexibility, and efficiency.
The marginal firms, on the other hand, provide support for their owners! employers but frequently at a tower level than might be obtained by employment if they could or would work elsewhere. However, these people are not likely to seek employment elsewhere because of their difficulties in functioning in larger and more structured organizations.
Without questio’t, some of the businessmen and engineers who start high-potential ventures or attractive small companies are compulsive entrepreneurs. They cannot function effectively in a large organization. They must be their own boss and they may have known this all their lives. It may seem as if they could have behaved in no other way. But what about the others who started companies? What about the entrepreneurs who ate bashally well-adjusted people ~nd who had given little previous thought, if any, to the idea of their own company? flow did these people happen to become entrepreneurs although most were already successful in the pursuit of a more conventional career? What factors play a leading role in determining who becomes an entrepreneur? Which factors might be largely fortuitous and which might be controlled by the individual?
Despite dreams, wishful thinking, and even plans, few people actually take the step of trying to start a company. Why is this? Is there a special breed of man which is particularly inclined to become an entrepreneur? Are there special characteristics or conditions which stimulate entrepreneurial activities? The basic questions we are asking here are classic ones- Are entrepreneurs born or are they made? If they can be made, what are the ingredients? I have reached the conclusions that, given a degree of ambition and ability not uncommon to many individuals, certain kinds of experiences and situational conditions—rather than personality or ego—are the major determinants of whether or not an individual becomes an entrepreneur.
If we examine some of the attitudes in the subculture of American businessmen we find that there are significant connotations to starting a company as a career alternative. Almost everyone gets a glow—a tingle—at the idea of being an entrepreneur. To men in their thirties and forties the idea of starting a company means “free enterprise” and “Opportunity,” as reflected in Horatio Alger stories. In value terms of the younger generation, starting a company is a way to “do your own thing.” For such businessmen and for many business school students, starting a successful
Patrick R. tiles, “Who are the entrepreneurs?” pp. 5—14, MSU Bsiness Topics, Whiter 1974. Reprinted by permission of the publisher, Division of Research. Graduate School of Business Administration, Michigan State University. Patrick R. tiles is on the faculty of the Graduate School of Business Administration, Harvard University. company is a very attractive idea, yet only rarely do they seem to consider it a serious alternative. When a possible opportunity presents itself, there is somehow too little time to investigate it properly and too little time to determine whether or not the idea really makes sense. Thus, it appears that most would-be entrepreneurs stop before they get started. Unfortunately, there is very little information on people who have had ideas about starting companies but never seriously pursued them.
We might think that we already know a lot about the entrepreneurs themselves— those who actually go ahead and start companies. Yet, do we really? We find that there are people who think of entrepreneurs being formed by school systems and child raising,’ by rejecting fathers,2 or by the business environment.3 However, efforts to measure and predict entrepreneurial potential are, at best, still in the development stages.
Perhaps one of the best broad-based studies on entrepreneurs was carried out by Orvis F. Collins and David G. Moore at Michigan State University in 1964. Using a series of personal interviews and psychological tests, they reached a number of rather unsettling conclusions regarding people who start their own company:
Throughout the preceding analysis, obviously we have been having difficulty deciding whether the entrepreneur is essentially a “reject” of our organizational society who, instead of becoming a hobo, criminal, or professor, makes his adjustment by starting his own business; or whether he is a man who is positively attracted to succeed in it. We have, perhaps without intention, regarded him as a reject.
Entrepreneurs are men who have failed in the traditional and highly structured roles available to them in the society. In this . ... entrepreneurs are not unique. What is unique about them is that they found an outlet for their creativity by making out of an undifferentiated mass of circumstances a creation uniquely their own: a business firm.
The men who travel the entrepreneurial way are, taken on balance, not remarkably like-able people. This, too, is understandable. As any one of them might say in thevernacular of the world of the entrepreneur, “Nice guys don’t win.”’
Several small-sample studies at Harvard and MIT have yielded results different from the Collins and Moore study.e Entrepreneurs were found not to be failures. Instead “most of the founders had experienced a generally higher than average level of success in their previous employment. Several had established outstanding records of achievement.”7 These entrepreneurs seemed more typical of the successful, hard-charging, young business executive Or engineer than a reject figure.’
One possible explanation, of course, is that people in Michigan are very different from those in New England. It might be more helpful, however, if we categorized in some detail: (1) the kinds of business which are used in studies of small business fatality rates and in the Collins and Moore study, and (2) the kinds of business which might be started as alternatives to pfofessional management or engineering careers. The survey-type studies are comprehensive in that they essentially look at all companies which are started withi.n a particular period of time. This includes a wide range of business ventures: dry cleaners, retail shops, electronics manufacturers, computer software firms, gas stations, and so forth. Each of these is used in the computation of a wide range of statistics about the rise and demise of new companies. There should he no reason to doubt the aggregate figures or the results of in-depth studies made of these situations. The Collins and Moore study looked at 10 manu facturing firms started between 1945 and 1958 in Michigan but made no further distinctions as to the nature of the business, size, or potential.
If we consider kinds of ventures which might be of interest to a professional manager or an engineer, the vast majority of the enterprises started each year (and, therefore, the bulk of those considered in large, broad-based studies) would not be included. A dry cleaning establishment or a small metal fabricating shop is not the basis for the dreams of these people. From their perspective (and. therefore the perspective of this article), we should label this subcategory of small business as marginal firms. That leaves us with the task of considering the kinds of venture situations which are potentially attractive career alternatives. The first, which I have labeled the high-potential venture, is the company which “is started with the intention that the venture grow rapidly in sales and profits and become a large corporation.’” In its planning stage the high-potential venture is the extreme of personal economic opportunity, the entrepreneur’s big dream: such as Polaroid, Digital Equipment, Scientific Data System, Cartridge Television, Viatron, and so on.
Another type of enterprise, less obvious than the high-potential venture, also holds a strong interest for many would-be entrepreneurs. This type of venture we might call the attractive small company. In contrast to the high-potential venture, the attractive small company is not intended to become a large corporation, probably will never have a public market for its stock, and will not be attractive to most venture capital investors. However, in contrast to the marginal firms, attractive small companies can provide salaries of $40,000 to $80,000 per year, perquisites (company car, country club memberships, travel, and so forth) to its owner/managers, and often flexibility in life-style such as working hours, kinds of projects and tasks pursued, or geographical location. In this subcategory we find such businesses as consulting and other service firms and some specialized manufacturers.
Both the high-potential venture and the attractive small company are interesting beyond the scope of the benefits they may provide to their founder/owners. In the high-potential venture we find the genesis of the major corporations of the future and, therefore, the source of a growing number of jobs and other contributions to the economy. The attractive small companies provide less spectacular but stable inputs of a similar nature. Both of these kinds of companies must gain and maintain their position by providing competitive discomfort to the existing corporate giants through innovation~ flexibility, and efficiency.
The marginal firms, on the other hand, provide support for their owners! employers but frequently at a tower level than might be obtained by employment if they could or would work elsewhere. However, these people are not likely to seek employment elsewhere because of their difficulties in functioning in larger and more structured organizations.
Without questio’t, some of the businessmen and engineers who start high-potential ventures or attractive small companies are compulsive entrepreneurs. They cannot function effectively in a large organization. They must be their own boss and they may have known this all their lives. It may seem as if they could have behaved in no other way. But what about the others who started companies? What about the entrepreneurs who ate bashally well-adjusted people ~nd who had given little previous thought, if any, to the idea of their own company? flow did these people happen to become entrepreneurs although most were already successful in the pursuit of a more conventional career? What factors play a leading role in determining who becomes an entrepreneur? Which factors might be largely fortuitous and which might be controlled by the individual?
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