The entrepreneurial mindset: motivational structures and personality traits among self‐employed Ingemar Johansson Sevä & Daniel Larsson Sociologiska institutionen, Umeå universitet [Early draft, please do not quote] Introduction In public debate as well as in academia it is common to use the terms “self‐employed” and “entrepreneur” synonymously, or to use the former as a proxy for the latter (see e.g. Caliendo et al., 2011; Zhao & Seibert, 2006). We argue that this generalization is too broad and obscures interesting variation among self‐employed in terms of their entrepreneurial “spirit”. In this paper we will study variations among the self‐employed in Sweden regarding their motives and personality traits, and investigate whether motives and personality traits are consistent with the traditional definition of an entrepreneur put forward by Schumpeter and still dominant in the literature. Of course, it can be argued that merely by running (and often also having started) their own businesses self‐employed can be defined as entrepreneurs in a basic sense. However, in the literature on entrepreneurship it is argued that certain motives and personality characteristics are the very definition of being an entrepreneur. These factors have also been studied quite extensively but separately. Many scholars focus on the work related motives of entrepreneurs and claim that these tend to be different from those of regular employees. Other scholars emphasize the personality of entrepreneurs and suggest that certain personality characteristics are more common among entrepreneurs compared to among regular employees. Very few studies have investigated how motives and personality traits interact and vary within the group of self‐employed. 1 We argue that by integrating motives as well as personality traits in the analysis it is possible to advance our understanding of the entrepreneurial “mindset”, and to what extent self‐
employed in general tend to share common motives and personality traits. Since previous research on self‐employed indicates that this group is far from homogenous in several other respects (Arum & Mueller, 2004) there is reason to believe that the motives and personality traits might be far from uniform among all self‐employed. We begin the paper by discussing the characteristics of an entrepreneurial mindset, based on the work by Schumpeter as well as current research on personality traits. Thereafter we describe the data, measures and methods we use in order to study the motivational structure and personality traits constituting the entrepreneurial mindset. Then follows an empirical section where we study: (1) work related motives among self‐employed and (2) the personality traits associated with different motivational structures. In the final part of the empirical section we investigate (3) the socio‐demographic profile associated with the entrepreneurial mindset. We also contrast the group of self‐employed having an entrepreneurial mindset with other segments of self‐employed. Finally, we discuss our findings in a concluding discussion. The entrepreneurial mindset according to Schumpeter According to Schumpeter (Schumpeter, Becker, Knudsen, & Swedberg, 2011), perhaps the most distinguished scholar when it comes to entrepreneurship, the entrepreneur is an actor that has the ability and drive to carry out innovations, characterized as a new source of raw material, a new method of production, a new product, a new market and/or a new 2 organizational principle. To be able to carry out innovations the entrepreneur is a dynamic actor with the will to change, which Schumpeter contrasts with passive adaptive behavior. In order to carry out and implement ideas the entrepreneur also need collaborators and workers, hence she/he is in need of an organization. However, Schumpeter puts emphasis on organizations as institutions that tend to suffocate implementation of new ideas, as new ideas may threaten the inner structure of the organizations (Schumpeter 1962)1. For the possibility to succeed in realizing the idea the entrepreneur must be an autonomous leader in relation to the organization. Autonomy is thus an important motivational factor for the entrepreneur. According to Schumpeter, profit is not the prime motivation for entrepreneurs. It is instead the creative phase between having an idea and realizing the idea that is the main motive. However, making money is not entirely unimportant, since capital is a prerequisite in order to build an organization and to pay collaborators and employees. Hence, making money is one potential motivational factor among entrepreneurs. However, profit making should be of less importance compared to the realization of an idea. Based on Schumpeter’s description of an entrepreneur the main motivational factor for the entrepreneur should be the realization of an idea. Inherent in this main motivation is the creative phase of implementing ideas, in which a certain degree of autonomy is of importance – perhaps even a prerequisite. When it comes to profit maximization, this should 1
Schumpeter argues that the inevitable growth of enterprises in a capitalistic systems threatens the possibility for entrepreneurs to realize ideas and as such threatens the capitalistic economy (Schumpeter 1962) 3 not be in the forefront as a motivational factor – however making profit is nevertheless a necessity in order to successfully implement an idea. The personality traits of the entrepreneurial mindset For Schumpeter the realization of ideas is not only imperative for entrepreneurs, but also a rare capability. Schumpeter once wrote that “ideas are cheap” suggesting that anyone can have an idea but only certain persons have the capacity to realize an idea. Schumpeter describes the character of such a person (with Schumpeter’s gender biased language) as “a man of action [that] does not feel the restrictions that block the action of the other economic actors” (1911: 132). The notion that there is something “special” with the personality of an entrepreneur becomes clear in the writings of Schumpeter. From a psychological perspective this description resembles the discussions about personality traits. In the example of the entrepreneur certain personality traits are assumed to be closely related to the motives of entrepreneurs described above. It may be hypothesized that certain personality traits correlate with the motives of the entrepreneur. Therefore, both motivational structures as well as personality traits are of importance in order to understand the mindset of the entrepreneur. The literature on personality is extensive and has developed substantially from the 1980’s and onwards. Most researchers today agree that personality can be defined through five general traits (Gosling, Rentfrow, Swann, & others, 2003; Nettle, 2009). In this paper we will 4 use one of the most reliable models – the Big Five – to investigate personality traits among the self‐employed. In the Big Five Model personality are defined through five different traits: Extraversion or Surgency (talkative, assertive, energetic) is related to aspects such as being energetic, sociable (ability to develop social networks), and seeking a leadership role. Agreeableness (good‐natured, cooperative, trustful), describes on the one end of the scale a person who is cooperative, while the other end describes of the scale describes a self‐
centered and hard bargain person. Conscientiousness (orderly, responsible, dependable), describes a person that is achievement oriented, efficient and dutiful. Emotional Stability versus Neuroticism (calm, not neurotic, not easily upset), describes a person who have self‐confidence, is stress tolerance and being positive. Openness to experience (intellectual, imaginative, independent‐minded), describes a person who is characterized by seeking new experience, exploring ideas, being creative and innovative. Previous research on the personality traits among self‐employed and entrepreneurs are quite extensive. For example Caliendo et al. (2011) found that entrepreneurs/self‐employed have higher scores on openness, extraversion and conscientiousness while they found no differences regarding emotional stability. Zhao and Seibert (2006) found, in a meta‐analysis 5 containing 23 non‐overlapping studies, that entrepreneurs differs from managers regarding conscientiousness (higher scores), openness (higher scores), and agreeableness (lower scores), while there were no differences regarding extraversion. Furthermore, they found no difference between entrepreneurs and managers regarding emotional stability. However, Zhao and Seibert also point out some of the personality traits as complicated and paradoxical in relation to entrepreneurship. The significance of agreeableness is hard to determine since entrepreneurs have proven to score both high as well as low on this trait. On the one end of the scale this trait captures individuals who are cooperative, which is of importance in relations to clients and customers, while the other end of the scale captures individuals who are self‐centered and hard bargain which are traits that should be of importance in order to realize ideas and survive in the long run as a self‐employed. Another complicated trait is conscientiousness, which on the one hand describes a person who is achievement oriented, which entrepreneurs should be to a great extent and hence have higher scores on this traits. On the other hand, high scores on conscientiousness also describes a person who is dutiful, which is a trait generally related to employees and not to self‐employed and entrepreneurs (Rauch & Frese, 2007). Even though the research on personality traits described above is extensive we believe that the incorporation of motivational factors is a prerequisite in order to fully capture the entrepreneurial mindset. According to Schumpeter, underlying motives are the core of the entrepreneurial mindset. Although personality may be a vital part of such a mindset it is nonetheless insufficient to use motivational structures or personality traits alone in order to define an entrepreneurial mindset. 6 Data and measurements The data we use come from a postal survey named EMRAPP conducted in 2011. The sample is representative of self‐employed Swedes aged 25‐64 years. The sample size is 2626 and the response rate is 50%. The survey contains a battery of questions measuring how important various factors have been for the working life of the self‐employed. We use three of these motivational factors in order to capture entrepreneurial motives according to Schumpeter. These indicators measure how significant the following motives have been for the working life of the self‐employed: “realizing an idea”, “earning a lot of money”, and “autonomy in work”. We also include a fourth item measuring how important “just being able to get a job” has been in the working life of the self‐employed. The wording of the question is as follows: “Looking back on your working life in general, how important has each of the following been for your occupational choice?” While the first three motivational factors are directly related to the typical motives of the entrepreneur as described by Schumpeter the last factor is rather an anti‐thesis of entrepreneurship and suggests that the motivation to be a self‐
employed is based on having few or no other employment opportunities. Personality traits are measured by way of the Big Five model (Gosling, Rentfrow, Swann, & others, 2003; Nettle, 2009) as described above. The following five traits are included in the Big Five: “extraversion”, “agreeableness”, “conscientiousness”, “emotional stability” and “openness to experience”. In order to capture the socio‐demographic characteristics associated with different motivational structures and personality traits among self‐employed we include the following 7 variables in our analysis: gender, age, educational attainment and region of birth. Education distinguishes between four categories: “primary”; “secondary”; “tertiary, less than 3 years” and “tertiary, 3 years or longer”. For the variable “Region of birth” three categories are included: “born in Sweden”; “born in Europe (not Sweden)” and “born outside Europe”. Method In order to identify those self‐employed having typical entrepreneurial motives we use Latent Class Analysis (LCA) (Vermunt & Magidson 2005) to distinguish response patterns across our four indicators. LCA is particularly well‐suited for analyzing non‐linear relationships between categorical variables in order to detect latent constructs. LCA distinguishes common constellations across a number of indicators, and all respondents sharing similar motivational structures will be allocated to a specific cluster (Hagenaars & Halman 1989). If two dominant motivational structures exist among the respondents (e.g., those expressing typical entrepreneurial motives vs. those lacking such motives) a 2‐cluster model will fit the data. If the self‐employed can be divided into three different types of motivational structures, a 3‐cluster model will fit the data, and so on. By applying different model‐fit statistics the number of dominant motivational structures (clusters) can be determined. LCA, furthermore, calculates the probability for each individual to belong to each cluster, making it possible to estimate the influence of personality traits on cluster membership probabilities using multivariate regression techniques. We also use multivariate regression techniques in order to study the socio‐demographic characteristics associated with different motivational structures and personality traits. 8 Empirical findings Motivational structures We begin our analysis by studying the motives related to the working life of the self‐
employed. In order to explore the motivational structures and identify those self‐employed having entrepreneurial motives we first run a number of LCA‐models. The model fit for these models are reported in Table 1. The L2 value of Model 1, the baseline model, indicates the maximum association between indicators that can be explained by any latent class model and thus represents the baseline for model‐comparisons. The 3‐cluster model, reducing the L2‐value by 99.1%, is selected as representing the data satisfactorily. [Table 1] The characteristics and size of each of the three clusters are shown in Table 2. The cell entries in the table represent the probability (0‐100) to answer “important” when asked how significant each motivational factor is (by cluster membership). For example, there is a 79 % probability that the respondents allocated to Cluster 1 express that “realizing an idea” is an important motivational factor whereas the corresponding figures for Cluster 2 and 3 are 90 % versus 13 %. The respondents of Cluster 1 and 2 clearly express what might be labeled as entrepreneurial motives. They score very high on two indicators representative of an entrepreneurial “spirit”, namely indicator 1 (“realizing an idea”) and indicator 3 (“having work autonomy”). Earning a lot of money (indicator 2) is more important to the respondents of cluster 2 whereas cluster 1 respondents put less emphasis on this aspect. The largest difference between cluster 1 and 2 respondents is that cluster 1 respondents are 9 significantly less likely to say that “just to get a job” is an important factor. Cluster 1 respondents put strong emphasis on the realization of an idea and having work autonomy and less emphasis on earning money and just being able to get a job. [Table 2] Whereas both Cluster 1 and 2 respondents have motivational structures indicative of an entrepreneurial mindset the respondents of the third cluster clearly lack such characteristics. For these respondents the prospect of “realizing an idea” or “earning a lot of money” is clearly of very little importance while the issue of “work autonomy” is somewhat more important (although significantly less important compared to Cluster 1 and 2). There is only a 13 % chance that the respondents of Cluster 3 view “realizing an idea” as an important factor compared to the corresponding figures for cluster 1 and 2: 79 % and 90 %. The single most important motivational factor for the respondents of Cluster 3 seems to be the prospect of just getting a job. Our findings provide an interesting picture of motivational structures among self‐employed. Cluster 1 and 2, representing 47 % and 36 % respectively of our sample seem to have what might be labeled as entrepreneurial motives. There is, however, one significant difference between them. The factor “just getting a job” is of very little importance for the working life of Cluster 1 respondents while the respondents of Cluster 2 see this as a very important motivational factor. It can therefore be argued that the respondents of Cluster 1 have motives more in line with an entrepreneurial mindset than the respondents of Cluster 2 since they put less emphasis on earning a lot of money and job security. In contrast to both 10 of these groups of self‐employed we are also able to identify a group, Cluster 3, which clearly lacks entrepreneurial motives. This cluster of “non‐entrepreneurs” (in terms of their motives) is significantly smaller than Cluster 1 and 2 but nevertheless represents 17 % of our sample. Motivational structures and personality traits In the next step of our analysis we study how the different motivational structures found among self‐employed are linked to different personality traits. The association between five personality traits (Big Five) and cluster membership probability is reported in Table 3. [Table 3] We can, initially, conclude that the different motivational structures found among self‐
employed are to some extent associated with different personality traits. This finding suggests that not only do motivational structures vary within the group of self‐employed but also that different personality traits tend to go along with different motives. As expected, there is a significant difference between the personality traits of the respondents lacking entrepreneurial motives (Cluster 3) and the respondents expressing an entrepreneurial mindset (Cluster 1 and 2). Lower scores on “extraversion” and “openness to experience” are associated with an increase in Cluster 3 membership probability. However, there are also interesting differences between the respondents of Cluster 1 and 2. These self‐employed share similar motivational structures but nevertheless differ in terms of their personality traits. 11 The entrepreneurial motives of the Cluster 1 respondents are positively correlated with “emotional stability” and “openness to experience” and negatively correlated with “conscientiousness”. Cluster 1 respondents thus tend to be more emotionally stable and open to new experiences but at the same time high scores on “conscientiousness” tend to decrease cluster membership probability. For Cluster 2, sharing a similar motivational structure as Cluster 1, “emotional stability” is instead negatively correlated with cluster membership probability while “extraversion” is positively correlated with cluster membership probability. The differences between Cluster 1 and 2 respondents in terms of their scores on “openness to experience” are interesting. This personality trait is perhaps the one that is most similar to the character of an entrepreneur as described by Schumpeter. Scoring high on “openness to experience” increases the likelihood of belonging to Cluster 1 but there is no such effect on Cluster 2 membership probability. The group of self‐employed lacking entrepreneurial motives (Cluster 3) is primarily characterized by having lower scores on “extraversion” and “openness to experience”. This finding is certainly not at odds with the motivational structure of these respondents. The entrepreneurial mindset and socio‐demographic characteristics In order to provide a more detailed picture of our three clusters of self‐employed we now examine the socio‐demographic characteristics of each cluster. In Table 4 we investigate how socio‐demographic variables influence the probability to belong to each cluster. The dependent variable is thus cluster membership probability (0‐100) and the independent variables included in the models are: gender, age, education and region of birth. A variable is also included that distinguishes between those preferring to be self‐employed and those 12 preferring to be regular employees by using the question: “If you could choose, would you prefer to work as a self‐employed or as a regular employee?” [Table 4] The results presented in Table 4 points at substantial differences between the socio‐
demographic composition of Cluster 1 and 2. Although having similar motivational structures indicative of an entrepreneurial mindset the respondents of the Cluster 1 and 2 have little in common when it comes to their personality traits as well as their typical age, educational attainment and region of birth. The entrepreneurs of Cluster 1 are generally young, well‐educated and born in Sweden whereas the entrepreneurs of Cluster 2 tend to be immigrants of somewhat older age having lower levels of educational attainment. The likelihood of belonging to Cluster 1 is 24 % higher if respondents have completed tertiary level of education (3 years or more) compared to primary level. For Cluster 2 membership probability this relationship is reversed: the probability to belong to Cluster 2 is about 20 % higher for those having the lowest level of education compared to those having the highest. The relationship between the variable “region of birth” and cluster membership probability display similar characteristics as the relationship between education and cluster membership probability. Being born outside of Sweden significantly reduces the probability to belong to Cluster 1 by 14 % while increasing Cluster 2 membership probability by 19 %. For those self‐employed lacking entrepreneurial motives (Cluster 3) the socio‐demographic differences are less pronounced. However, the 13 likelihood of belonging to this group of self‐employed increases somewhat for respondents of older age having a low educational level. Finally, the variable distinguishing between self‐employed actually preferring to be self‐
employed and those who are expressing a desire to be regular employees if they had the possibility to choose, show that the respondents of Cluster 1 and 2 do prefer to be self‐
employed in contrast to the Cluster 3 respondents. A preference for regular employment instead of self‐employment increases the likelihood of belonging to Cluster 3 by 19 %. It thus seems that the self‐employed respondents of Cluster 3 lack the motives and personality traits associated with an entrepreneurial mindset as well as the desire to actually work as self‐employed. Discussion In the present paper we have attempted to challenge the quite common use of self‐
employed as synonymous to entrepreneur. We have investigated variations in motivation and personality traits among the self‐employed in Sweden using classical arguments from Schumpeter in order to define the entrepreneurial mindset. We do not argue that self‐
employed are not entrepreneurs in a basic sense, since the mere fact that starting up and/or running a business is in itself an indication of entrepreneurship. However, the extent to which self‐employed share similar motives and personality traits indicative of an entrepreneurial mindset do vary. The results identify three different groups of self‐employed in terms of their motivational structures. Two of these clusters contain respondents who can be defined as having 14 entrepreneurial motives, while the third cluster comprises individuals clearly lacking motivation to realize ideas, as well as making a lot of money, and who put less emphasis on work autonomy. The respondents of Cluster 3, furthermore, score low on one personality characteristic associated with having an entrepreneurial mindset, namely “openness to experience” and additionally state explicitly that they would prefer to be employed rather than self‐employed. However, the main contribution of the paper in our opinion is the interesting variation found among self‐employed sharing similar entrepreneurial motives. For one group of self‐employed (Cluster 1) entrepreneurial motives are linked to higher scores on the personality traits “openness to experience” and “emotional stability” while for another group (Cluster 2) similar motives are associated with less “emotional stability” and higher scores on “extraversion”. While the personality traits of the former group seem to be more in line with the traditional definition of an entrepreneur the personality traits of the latter group suggest that the relationship between entrepreneurial motives and personality traits is not entirely clear‐cut. The socio‐demographic characteristics associated with different motivational structures and personality traits also emphasize the diversity within the group of self‐employed having an entrepreneurial mindset. While Cluster 1 membership probability is primarily associated with being young, highly educated and born in Sweden the probability to belong to Cluster 2 increase if respondents are of older age, have a lower level of educational attainment and are born outside of Sweden. This might explain why Cluster 2 respondents in contrast to Cluster 1 respondents emphasize that “just to get a job” has been an important factor. 15 The fact that Cluster 1 and 2 constitute about 83 % of the sample suggests that as far as motivational structures are concerned the majority of self‐employed seem to emphasize similar work related motives. However, when it comes to the personality traits associated with such motives it becomes clear that there is no straightforward link between motives and personality traits. The motives of Cluster 1 respondents tend to be associated with higher scores on a typical entrepreneurial personality trait such as “openness to experience” while for Cluster 2 respondents similar motives are not associated with the trait. This diversity becomes even more pronounced as the socio‐demographic profile differs substantially between Cluster 1 and 2. The entrepreneurial mindset is clearly more complex than previous studies have shown and also not limited to socio‐demographic groups traditionally assumed to be associated with entrepreneurship. The results presented here suggest that a number of new issues might be brought to future research. Are the variations in terms of entrepreneurial mindset related to entrepreneurial success, work satisfaction, industry, and contextual dimensions? 16 References (incomplete) Arum, R. and Mueller, W. (2004) The Reemergence of Self‐employment: a Comparative Study of Self‐employment Dynamics and Social Inequality, Princeton, N.J.:, Princeton University Press. Caliendo, M., Fossen, F. M. and Kritikos, A. (2011) ‘Personality Characteristics and the Decision to Become and Stay Self‐Employed’, SSRN eLibrary. Gosling, S. D., Rentfrow, P. J., Swann, W. B. and others (2003) ‘A Very Brief Measure of the Big‐Five Personality Domains’, Journal of Research in personality, 37, 504–528. Hagenaars, J. A. and Halman, L. C. (1989) ‘Searching for Ideal Types: The Potentialities of Latent Class Analysis’, European Sociological Review, 5, 81–96. Hagenaars, J. A. and McCutcheon, A. L. (2002) Applied Latent Class Analysis, Cambridge University Press Cambridge United Kingdom: Nettle, D. (2009) Personality: What Makes You the Way You Are, OUP Oxford. Rauch, A. and Frese, M. (2007) ‘Let’s Put the Person Back into Entrepreneurship Research: A Meta‐analysis on the Relationship Between Business Owners’ Personality Traits, Business Creation, and Success’, European Journal of Work and Organizational Psychology, 16, 353–385. Schumpeter, J. A. (1962) Capitalism, Socialism, and Democracy, Harper Perennial. Schumpeter, J. A. Becker, M. C., Knudsen, T. and Swedberg, R. (2011) The Entrepreneur : Classic Texts by Joseph A. Schumpeter, Stanford, Calif., Stanford University Press. Vermunt, J. K. and Magidson, J. (2005) ‘Technical Guide for Latent GOLD 4.0: Basic and Advanced’, Belmont Massachusetts: Statistical Innovations Inc. Zhao, H. and Seibert, S. E. (2006) ‘The Big Five Personality Dimensions and Entrepreneurial Status: A Meta‐analytical Review’, Journal of Applied Psychology, 91, 259–271. 17 Table 1. Motivational structure among self‐employed (n = 2626). Model fit for four latent class models. Model L²
BIC(L²) L2‐reduction % Model 1 1‐Cluster 337,11
251,11
0,0 Model 2 2‐Cluster 84,11
37,20
75,0 Model 3 3‐Cluster 3,00
– 4,82
99,1 Table 2. Motivational structure among self‐employed (n = 2626). Probability of indicator response “important factor” by cluster membership (%). Indicator C1 C2
C3
1 Idea 79 90
13
2 Money 42 69
27
3 Autonomy 98 100
65
4 Just to get a job 21 96
72
Cluster size % 47 36
17
Table 3. Cluster membership probability (0–100) by personality traits. Cell entries are unstandardized regression coefficients without (I) and with (II) socio‐demographic controls. C1 C2 C3 I II I II I II Extraversion 0,8 0,4 1,8 1,9 –2,6 –2,2 Agreeableness –0,5 –0,5 0,6 0,8 –0,2 –0,4 Conscientiousness –1,9 –1,6 1,0 0,7 0,9 0,9 Emotional stability 2,5 1,8 –1,9 –1,8 –0,6 0,0 Openness to experience 3,9 2,7 –0,9 –0,3 –2,9 –2,4 Intercept 32,7 10,1 57,3 Estimates in boldface: p < 0.05. 18 Table 4. Cluster membership probability (0–100) by various background characteristics and personality traits. Cell entries are unstandardized regression coefficients. C1
C2
C3
Woman 0,1
1,0
–1,2
Man 0,0
0,0
0,0
25–39 years 12,0
–6,8
–5,2
40–55 years 5,2
–2,1
–3,1
56–64 years 0,0
0,0
0,0
Primary –23,8
19,6
4,3
Secondary –15,9
15,8
0,1
Tertiary < 3 years –9,2
9,2
0,0
Tertiary 3 years or more 0,0
0,0
0,0
Born outside Europe –13,9
18,7
–4,8
Born Europe (not Sweden) –6,9
10,7
–3,8
Born Sweden 0,0
0,0
0,0
Prefer: self–employment 11,8
6,9
–18,6
Prefer: regular employment 0,0
0,0
0,0
Extraversion 0,4
1,9
–2,2
Agreeableness –0,5
0,8
–0,4
Conscientiousness –1,6
0,7
0,9
Emotional stability 1,8
–1,8
0,0
Openness to experience 2,7
–0,3
–2,4
Intercept 32,7
10,1
57,3
Estimates in boldface: p < 0.05. 19