We can thank entrepreneurs for much of the success of the global economy over the past half century. And if we’re going to emerge from the worldwide economic slump, entrepreneurs will lead the way.
Most leaders and policymakers don’t have a clue about what makes entrepreneurs successful.
These driven, creative individuals know plenty about battling adversity. They’ve overcome infrastructure and regulatory hurdles to start their businesses. Often, they’ve fulfilled an unsatisfied demand and, in many cases, actually built demand by introducing new products to the market.
But despite all that entrepreneurs have contributed to the global economy and to wellbeing and human development worldwide, most leaders and policymakers don’t have a clue about what makes them successful or how to help them thrive. In the U.S., for example, nearly half of all jobs are in the small-business sector, and small businesses accounted for 65% of the net new jobs created between 1993 and 2009. Yet fewer than half of new American businesses survive their first five years.
To drive startups, the U.S. and other countries have created an infrastructure of incubators and coaching programs to support entrepreneurs and spur business growth. Though these programs are useful and necessary, they often overlook a key element in a new enterprise’s success: the innate talents that successful entrepreneurs bring to the task of building a business.
The process of entrepreneurship
Because entrepreneurship is vital to the global economy, Gallup scientifically studied entrepreneurs and the role of human motivations, perceptions, and behaviors in explaining entrepreneurial decision making. We started by studying how successful entrepreneurs behave and the activities they engage in to drive new venture creation or business growth. Focusing on the task or the process of entrepreneurship helps identify the innate talents that are most relevant to success.
Most current models of the entrepreneurial process propose a standard sequence of events, starting with opportunity recognition, resource acquisition, venture creation, and finally business expansion and growth. This sequence of events covers two developmental phases in the life cycle of a venture.
The first phase is the early or new business stage (entrepreneurial startup or firm less than three years old), which is characterized by innovation and creativity, a high sense of mission, short-term orientation, minimal hierarchy, and an autocratic management style. Entrepreneurs must be able to perform multiple roles, live with ambiguity, and develop an idea very quickly.
“I look out and I see opportunity,” says Shawn Macken, president and cofounder of Edge Technologies, LLC, which creates and sells a health and wellness dashboard system. “My first client was someone I knew through networking. He came to me and said, ‘Do you think you can do something for me?’ Sure. That’s my answer! I don’t know how we’re going to do it, but we’re going to do it.”
The second or formalized/structured phase (entrepreneurial stability, firm three or more years old) is characterized by an emphasis on service, a slower rate of innovation, decentralized decision making, institutionalized procedures, functional specialization, and a team approach to problem solving. In this phase, the entrepreneur’s focus shifts from high creativity, ideation, and basic planning to managing a more mature company with a larger workforce. The entrepreneur must be able to delegate power and take a team-based approach to running the company.
“If we want to go to a $15 [million] or a $150 million company, we have to expand our vision,” says Tom Long, president of ISI Technologies, which creates sales messaging solutions for companies. “We aren’t just a family company anymore, so we’re bringing everybody along on those kinds of decisions. And [my business partner] Bob is a big part of that.”
Each phase has its own demands, and the entrepreneur must perform a specific set of tasks to be successful in each phase. Many of the activities performed in the first phase continue to be important during the second phase. For instance, cultivating relationships is critical to access resources to start a venture, but successful entrepreneurs must keep building relationships in the later phase to further their business goals. The relative significance of each demand may vary from one phase to the other, but there often is a carry-over effect.
The demands of entrepreneurship
Though the activities that successful entrepreneurs must perform change over time, Gallup research shows that there are 10 functional demands that are enduring and universal. These demands encapsulate the tasks of entrepreneurship and are highly correlated with both business creation and business success. They also measure an individual’s ability to perform in the role of entrepreneur.
A person’s inherent talent and acquired ability (skills, knowledge, and experience) will influence how successfully and by what means he or she responds to the demands of the role. These demands require a behavioral response from the entrepreneur, which is framed by the individual’s dispositions and traits. Usually, the more prevalent the trait, the higher the likelihood that the demand will be met, resulting in better performance in the role. (See sidebar “The 10 Demands of Successful Entrepreneurs.”)
Different entrepreneurs bring different strengths to the role; some may be highly creative and competent but low on focus and relationship building. Others may be astute business thinkers but have problems delegating. Often, the gaps in ability to meet a certain demand can be filled by acquiring skills or knowledge or by establishing partnerships with others who have complementary talents, thus enabling the entrepreneur to meet the demands of the role.
“My partner and I saw things differently. He was looking more at building something for the future, while I was looking more at profitability,” says Bob Harris, Tom Long’s partner at ISI Technologies. This is precisely why Long brought him into the company, and it was a smart move. Each partner was focused on meeting a crucial demand of the business — one on developing products and the other on ensuring profitability. Understanding how to meet the different demands of entrepreneurship by forming a complementary relationship has helped the business overcome hurdles and grow. “Bob is exactly the right person, and his talents are exactly what we need,” Long says.