Motivation Mediators, Personal Characteristics, and New Venture Performance 1 Motivation Mediators of Entrepreneurs’ Personal Characteristics and New Venture Performance

This six-year study of new venture growth continues renewed research about the effects of entrepreneurs’ personal characteristics. I applied goal theory and social-cognitive theory to propose that entrepreneurs’ personal traits and general competencies cause new venture growth indirectly through situationally specific motivation mediators. Data about traits (passion and tenacity), competencies (opportunity recognition and organization skill), motivation (goals and self-efficacy), and new venture growth were collected in 1993. Performance data were also collected in 1998 enabling a longitudinal study of 242 respondents from a single industry. Structural equation modeling confirmed the mediation hypotheses. Motivation Mediators, Personal Characteristics, and New Venture Performance 3 Motivation Mediators of Entrepreneurs’ Personal Characteristics and New Venture Performance Some traits and motives of successful entrepreneurs were identified in past entrepreneurship research; however, the relationships with venture performance were weak (Aldrich & Wiedenmayer, 1993; Begley & Boyd, 1987; Johnson, 1990). Although research about entrepreneurs’ general competencies (general knowledge, skills, and ability) found significant performance relations (Chandler & Jansen, 1992; Hood and Young, 1993), organization and industry variables dominated the direct relationships with new venture performance (Sandberg and Hofer, 1987). These weak results for the effects of entrepreneurs’ personal characteristics are surprising given the importance placed upon new venture founders’ traits and competencies by venture capitalists (MacMillan, Siegel, & SubbaNarisimha, 1985). Indeed, reviewers of new venture business plans value founding team complementary competencies and founder passion and tenacity (Baum, forthcoming). Furthermore, personal theories about the importance of heroic personalities for business success abound, even among successful entrepreneurs themselves (Locke, 1997; Sexton, 2001). Goal theory (Locke & Latham, 1990) and social-cognitive theory (Bandura, 1997) offer an explanation of this anomaly. In part, these theories propose that personal characteristics are determinants of goal-setting and self-efficacy, which in turn, affect performance. I applied this viewpoint to the entrepreneurship case. As shown in Figure1, I proposed a theoretical model wherein situationally specific motivation (goals and self-efficacy) mediates the effects of entrepreneurs’ traits (passion and Motivation Mediators, Personal Characteristics, and New Venture Performance 4 tenacity) and general competencies (opportunity recognition and organization skill) upon new venture growth. New venture performance was indicated by six-year sales and employment growth. I chose growth as the dependent concept because entrepreneurship researchers point to growth as the most used and most crucial indicator of new venture survival and economic gain (Bygrave, 1995; Covin & Slevin, 1997; Lyon, Lumpkin, & Dess, 2000). __________________________ Insert Figure 1 about here __________________________ Thus, the overarching purpose of this study was to test whether motivation mediation theory can explain why past entrepreneurship research had not confirmed experienced practitioner and investor beliefs about the importance of entrepreneur’s personal characteristics for new venture success. In addition, I wanted to contribute to renewed research efforts about the effects of entrepreneurs' personal characteristics on their businesses (Baum, Locke, & Smith, 2001; Baron, 2001; Frese & Krauss, 2001; Rauch, 2001). A contribution of this research is that it draws attention to the importance of psychological concepts for understanding entrepreneurship. It also points to the usefulness of studying indirect causal paths among psychological concepts that may be distant in terms of causality from organization concepts. Furthermore, it may remind psychology researchers of the opportunities within the entrepreneurship setting for exploring fundamental individual to organizational relationships. Typically, new ventures are simple organizations that are reflections of the personal vision, mission, values, strategies, and goals of the founders or new venture teams (Baum, Locke, & Kirkpatrick, 1998.). Motivation Mediators, Personal Characteristics, and New Venture Performance 5 This longitudinal study is among the first to explore the relation of personal characteristics and new venture growth with motivation mediators. Entrepreneur / CEOs of the architectural woodwork industry were sampled; I only included active entrepreneur/CEOs who had growth aspirations for their young (up to 8 years old) firms (Galbraith & DeNoble, 1992; Shrader & Simon, 1997) The contribution of the study is that results should help academics develop more complete frameworks to explain entrepreneurship success. Furthermore, it offers guidance for those who must evaluate the prospects of founders or new venture teams. The usefulness and validity of the study is supported by (1) its six-year longitudinal design (1992 to 1998 data), (2) verification of CEO reporting of independent variables with subordinate reports, and (3) verification of CEO reports of financial accounting performance with Dun and Bradstreet reports. The paper begins with a discussion of goal theory and social-cognitive theory to support a direct effects hypothesis about situationally specific motivation and venture growth. Traits and competencies research is reviewed to explain the choice of concepts to represent these domains and to support hypotheses that traits and competencies affect growth directly. The hypotheses that traits and competencies affect motivation are derived from goal and social-cognitive theories. Taken together, these hypotheses enable a test for mediation. Thus, research questions for the test are: (1) Do traits and competencies affect motivation? (1) Does motivation affect new venture growth? (3) Are the direct effects of traits and competencies upon new venture growth reduced when the relation of traits and competencies with motivation is included in the test? If all three are true, mediation is confirmed. Motivation Mediators, Personal Characteristics, and New Venture Performance 6 Theory and Hypotheses Situationally Specific Motivation Affects New Venture Growth Goal theory, which posits that specific, challenging goals lead to higher performance than other types of goals, has demonstrated more scientific validity than any other motivation theory (Locke & Latham, 1990) and has the greatest scope (Landy & Becker, 1987). Task specific performance goals have been found to affect performance across a wide range of tasks and situations. Indeed, entrepreneurship researchers cite goals as an important factor in new venture growth (Covin & Slevin, 1997; Krueger & Dickson, 1994; Shaver & Scott, 1991) and new venture survival (Carsrud & Krueger, 1995; Greenberger & Sexton, 1988; Low & MacMillan, 1988; Scherer, Adams, Carley, & Wiebe, 1989). Social-cognitive theory views motivation as involving a triadic reciprocal causality among personal, environmental, and behavioral factors (Bandura, 1986). A core concept in social-cognitive theory is self-efficacy, defined as task specific self-confidence (Bandura, 1986; 1997). Self-efficacy reflects not just past experience and attainments, but, more importantly, the conclusions one has drawn about one’s capacity for performance attainment from these past experiences. Entrepreneurship theorists have found that self-efficacy is relevant for entrepreneurship research because it deals with conditions of uncertainty, risk, and challenge, which are typical of the entrepreneurship situation (Chandler & Jansen, 1992; Chen, Greene, & Crick, 1998; Krueger & Dickson, 1994; Scherer et al., 1989). Studies have found self-efficacy to be a critical determinant of performance (Bandura, 1997; Scherer, Adams, Carley, & Wiebe, 1989). Indeed, self-efficacy plays a causal role in future performance independent of its relation to past performance (Chen, Greene, & Crick, 1998). Thus, I propose: Motivation Mediators, Personal Characteristics, and New Venture Performance 7 Hypothesis 1: The greater the entrepreneur/CEO’s situationally specific motivation in terms of growth goals and self-efficacy, the greater the new venture growth. Traits Affect New Venture Growth Personality traits are dispositions that are relatively stable across time and setting. Motives move people to action. As noted, some traits and motives of successful entrepreneurs have been identified (e.g., need for achievement, locus of control, risk-taking propensity, and tolerance of ambiguity); however, these concepts have typically produced weak relationships (less than 7% of the variance) with venture performance (Aldrich & Wiedenmayer, 1993; Begley & Boyd, 1987; Brockhaus & Horwitz, 1986; Low & MacMillan, 1988). Even recent statistically sophisticated attempts to show the relevance of risk-taking and tolerance of ambiguity in direct entrepreneurship performance relations have produced weak results (Teoh & Foo, 1997). To minimize the possibility that the wrong traits have been studied (Carsrud & Krueger, 1995) we looked for traits/motives:(1) that are referenced and/or tested repeatedly by contemporary leadership researchers as important for success [(Entrepreneur – leader personality profiles have similarities (Timmons, 2000)], (2) that fit the entrepreneurship context according to entrepreneurship researchers, and (3) which have not been among the weak trait predictors in past entrepreneurship studies. With these guidelines in mind, we found that contemporary leadership researchers (Bass, 1990; House & Howell, 1992; Locke, 1997; Locke et al., 1991; Smith & Harrison, 1986, Yukl, 1989) have identified tenacity, passion, goal-striving, and self-confidence as characteristics of successful leaders. We decided to study tenacity and passion as potential trait predictors of venture growth because entrepreneurship researchers have pointed to their likely performance Motivation Mediators, Personal Characteristics, and New Venture Performance 8 implications and there were no discouraging empirical entrepreneurship studies. We decided to treat goal-striving (goals) and self-confidence (self-efficacy) as situationally specific motivation, a research domain that is distinct from the trait research domain (e.g., The concepts are measured with respect to specific conditions, such as, “I want to achieve growth of 15% per year for the next 3 years”, rather than as general predispositions, such as “I like to achieve goals”.). Tenacity involves sustaining goal-directed action and energy even when faced with obstacles; it is similar to persistence, and it involves endurance and determination. In addition to being associated with effective leadership (Bass, 1990; House & Howell, 1992; Locke, 1997; Smith & Harrison, 1986, Yukl, 1989), tenacity has been identified consistently as an archetypical entrepreneurship trait (Gartner, Gatewood, & Shaver, 1991; Ronstadt, 1984; Sexton & BowmanUpton, 1991; Timmons et al., 2000). Indeed, Cooper (1993) pointed to tenacity/determination as an understudied entrepreneurship trait that venture capitalists value highly when they make investment decisions. Passion for work, or love of one’s work (which is not necessarily independent of the previous trait), has been identified by Locke (1997) as a core characteristic of business heroes (i.e., great wealth creators) such as Walt Disney, Ken Iverson (Nucor), Sam Walton (Walmart) and Mary Kay Ash (Mary Kay). House and Howell (1992) cite passion as a trait of successful charismatic leaders. In addition, Smilor (1997, p 342) suggested that passion is “...perhaps the most observed phenomenon of the entrepreneurial process.”, and Bird (1989, p 7-8) noted that entrepreneurial behavior is “... passionate, full of emotional energy, drive, and spirit.” Passion can be seen over time, in the long hours worked during venture start-up and growth phases and in the tendency for entrepreneurs to experience their venture’s successes and difficulties as personal Motivation Mediators, Personal Characteristics, and New Venture Performance 9 events. To my knowledge, passion has not been measured in any quantitative studies of entrepreneurship. Thus, I predicted: Hypothesis 2: The greater the CEO’s traits, in terms of tenacity and passion for work, the greater the new venture growth. General Competencies Affect New Venture Growth “Competencies” refers to the underlying individual characteristics such as knowledge, skills, and/or abilities required to perform a job. I studied “general” competencies rather than “specific” (i.e., specific industry knowledge or specific task skill) competencies because, like general traits and motives, general competencies have exhibited weak and nonextant direct relationships with new venture growth (Baum, Locke, & Smith, 2001). In contrast, specific competencies such as task specific skill and industry skill have significant relations with entrepreneurship performance (Baum, Locke, & Smith, 2001; Chandler & Jansen, 1992; Herron & Robinson, 1990); however, other researchers have shown that even specific competencies are dominated in direct effects studies by organization level concepts (Sandberg, 1986). I surveyed the management/leadership literature, searching for general competencies that have consistent support in management/leadership research as causes of business performance. I also surveyed entrepreneurship theory and research to find competencies that have been While not used as such in this study, firm-level “competencies” is a parallel concept used by strategic management and economics researchers. In those fields, it represents tangible or intangible bundles of firm resources, including organizational knowledge, skills, and abilities, as well as financial and “real” resources. In addition, some researchers view traits and motives as general competencies, but we treat traits and motives separately. Motivation Mediators, Personal Characteristics, and New Venture Performance 10 referenced repeatedly as likely causes of successful venture establishment and subsequent growth, and which have been supported with empirical research in the entrepreneurship context. Both management/leadership and entrepreneurship researchers have found that general competencies predict business performance. Boyatzis (1982) performed a comprehensive study of over 2000 managers and identified and assessed over a hundred potential competencies; he found performance relationships for organization skills: oral presentation, decision-making, conceptualization, diagnostic use of concepts, and use of power. Other theorists have presented models of leadership and management that reveal general agreement with Boyatzis' (1982) array of important “general” organizational skills (Locke et al., 1991; Yukl, 1989): communication, network-building, conflict management, decision-making, and goal-setting. Entrepreneurship theory and studies of entrepreneurship competency have developed general skill/ability clusters that are similar to those found in management/leadership theory (Bird, 1995; Chandler & Jansen, 1992; Herron & Robinson, 1990; Hood & Young, 1993). However, opportunity recognition appears in these studies as an important additional skill. Thus, I predicted: Hypothesis 3: The greater the CEO’ competencies, with respect to organization skill and opportunity recognition skill, the greater the venture growth. Traits and Competencies Affect Motivation Motivation theorists (Locke & Latham, 1990) have suggested that personality traits affect goals. Indeed, Locke (in press) has shown that situationally specific goals mediate the effects of general traits on organization outcomes. Furthermore, Bandura’s thesis that behavior and Motivation Mediators, Personal Characteristics, and New Venture Performance 11 personality are codeterminants suggests that the second motivation concept studied here, selfefficacy, is determined, in part, by personality traits and skills (Bandura, 1997). Entrepreneurship theorists proposed that entrepreneur’s goals are reflections of their personality (Bird, 1993; Naffziger, 1995) and entrepreneurial knowledge, skills, and ability (Bird, 1989). Furthermore, they propose that self-efficacy is determined partly by personal competency (Naffziger, 1995). Thus, I propose: Hypothesis 4: The greater the CEO’s traits in terms of tenacity and passion for work, the greater the entrepreneur/CEO’s situationally specific motivation in terms of goals and self-efficacy. Hypothesis 5: The greater the entrepreneur/CEO’s general competency in terms of opportunity recognition and organization skill, the greater the entrepreneur/CEO’s situationally specific motivation in terms of goals and self-efficacy. Furthermore, I expect the direct effects of traits and competencies upon new venture growth as hypothesized in H2 and H3 will be diminished when their indirect effects upon motivation are also considered per H4 and H5. This condition will confirm that traits and competencies are mediated by motivation (Baron & Kenny, 1986). Hypothesis 6: The size of the direct effects of traits and competencies upon new venture growth will be less when the effects of traits and competencies upon motivation are tested