WHEN THE GOING GETS TOUGH . . . TOWARD A PSYCHOLOGY OF ENTREPRENEURIAL FAILURE AND RE-MOTIVATION
Melissa S.
Cardon, Columbia School of Business
Rita Gunther McGrath, Columbia
School of Business
ABSTRACT
INTRODUCTION
THE UPS AND DOWNS OF
ENTREPRENEURIAL FAILURE
METHODS
DISCUSSION AND IMPLICATIONS
CONCLUSION
TABLE 1
CONTACT
REFERENCES
This paper extends a carefully developed perspective in the psychological literature to the phenomenon of entrepreneurial failure and motivation, with particular implications for entrepreneurial behavior during the post-startup period. We develop a new instrument to assess psychological predispositions concerning three key constructs: attribution of the cause of failure; reactions to failure, and goals for the achievement of personal acclaim or personal development. Results from a sample of pre-entrepreneurial individuals suggest that these constructs from psychology, appropriately translated, may offer a richer understanding of how individuals are likely to react to inevitable setbacks during the entrepreneurial process. This has potentially important implications for the discovery, training and preparation of entrepreneurs, as well as for how they should be managed and monitored during the post-startup period.
“Failure isn’t fatal unless you let it be.”—Mike Ditka
Starting a business, growing a business and being in on the beginnings of a new industry are by their very nature uncertain undertakings. That some individuals voluntarily choose to make themselves vulnerable to the risks of uncertainty in these situations has long fascinated entrepreneurship researchers, leading to a substantial literature on the topic of entrepreneurial motivation (for instance, McClelland’s (1961) seminal work on need for achievement). In its focus on the motivation to start a business, however, this literature is relatively silent on two additional problems of equal importance to our understanding of the entrepreneurial process.
First is the question of what happens to entrepreneurial motivation after the startup phase. This is a non-trivial problem, as most businesses require what MacMillan and Subba Narasimha (1987) describe as long-term, sustained, effort on the part of the entrepreneur. Second, there is relatively little discussion of de-motivation, or those factors that might lead a formerly motivated entrepreneur to become discouraged, disaffected or disgruntled. We have little theory or evidence to guide us as to what qualities lead a founder to persist in the development of a business, even after start-up hurdles have been overcome. Both these issues are crucially important if we are to understand the process through which entrepreneurs engage in “fostering new combinations that improve our economic life” (Bull & Willard, 1995: 5). Indeed, as Bull and Willard point out, the intensity of the motivation of the entrepreneur will inevitably affect the way in which the entrepreneur carries out discontinuity-causing actions.
This suggests a fruitful intersection between the economic and psychological aspects of entrepreneurship. Of particular concern is how individuals respond to the inevitable setbacks and frustrations (and even outright flops) of the entrepreneurial process. Understanding the psychological aspects of entrepreneurial failure and motivation are thus our focus. We borrow extensively from psychological research, which suggests that how individuals attribute their experiences influences how they react and whether they persist (Weiner & Kukla, 1970).
On one hand, failure can be attributed to innate ability. Failure signals that this ability is inadequate, creating a ‘helpless’ reaction. This impairs performance, and often results in individuals seeking to end their involvement in future activities similar to the one that failed (Weiner & Kukla, 1970). An alternative attribution is to believe that failure is simply due to a lack of effort or planning, and that a similar situation could be mastered in the future with a renewed focus and drive. Such a ‘mastery’ reaction usually involves the individual increasing their effort level and remaining optimistic even in the face of repeated failure experiences (Weiner & Kukla, 1970). Attribution theory might thus provide a useful means to understand why some entrepreneurs simply give up when facing setbacks, while others persist.
The purpose of this study is to identify first, whether attribution theory might add value to our understanding of failure in the entrepreneurial process, and second whether the techniques used by psychologists on subjects in controlled, experimental environments might shed useful insight to the behavior of entrepreneurs. In the next section, we examine the first question, suggesting that attribution theory might better help us understand the entrepreneurial process. We then turn to the second question, and describe new scales developed for this study to measure constructs from psychological attribution theory and present results of our analysis of a sample of entrepreneurial aspirants from an elite business school in the United States. Implications for the further development of these ideas, and their applicability to a theory of entrepreneurship and entrepreneurial capital deployment are discussed.
THE UPS AND DOWNS OF ENTREPRENEURIAL FAILURE
It is impossible to talk intelligently about a theory of entrepreneurship without acknowledging the pivotal role of failure (McGrath, 1999; McGrath & Cardon, 1997). If it is uncertainty which creates entrepreneurial opportunity (Knight, 1921), then entrepreneurial success would be impossible without the possibility of failure, in the sense of performance that deviates in a markedly negative way from prior expectations. How individual entrepreneurs react to failure, however, remains one of the enduring puzzles of the process.
Many successful entrepreneurs credit learning from past failure as a crucial aspect of their experience base. For instance, the average number of prior start-ups for each founder of a company on the 1996 Inc. Magazine list of the 500 most rapidly-growing firms in America was 1.9 (Caggiano, 1996). The experience of taking calculated risks and persisting despite setbacks is seen to separate the successful from the unsuccessful entrepreneur over the long run (see Brockhaus, 1980).
Among the dark sides of entrepreneurship, however, are the genuine risks of high failure rates, and the attempt to avoid failure at all costs. Entrepreneurs may mislead their supporters in the attempt to appear more successful than they are (Cable & Shane, 1997). They may become entrapped in escalation situations (Staw & Ross, 1987). They may overestimate their own abilities and ironically run even rapidly growing companies into the ground (Schlit, 1994). They may be blind to risks that others perceive as quite real (Busenitz & Barney, 1997). And some may give up on businesses that in an objective sense may be seen as reasonably successful or which deliver adequate performance, or persist with businesses that are underperforming (Gimeno, Folta, Cooper, & Woo, 1997)
This suggests a quandary for the theory of entrepreneurship. If the supply of entrepreneurial talent in a society is relatively fixed, as Baumol (1993) has long argued, only some members of society are likely to have the inclination to engage in entrepreneurial behavior. Even within the population of those who are so inclined, however, we know relatively little about what catalyses them to begin to act in an entrepreneurial way, and more importantly for this study, what sustains them to the point at which they are presiding over a viable business? If persistence in the face of adversity is key to the productive deployment of entrepreneurial capacity, then the drivers of persistence, and of its absence, are important to understand from a human capital deployment perspective.
We know that many young firms and small firms disband (for instance, Statistics Canada, 1997). We also presume that of those that survive, some, at least, will become the high-growth “gazelles” (Reynolds, 1987) that are popularly associated with economic development, productivity enhancement and improvements in living standards. Far more linger on as economically productive, but “unglamorous” businesses that never enjoy the rapid growth or economic returns of the high-flying startups beloved in the popular imagination (Brush & Chaganti, 1999). Failure, or at least successes more modest than many a founder desired at the outset, is thus a dominant feature of the entrepreneurial landscape. If failure is indeed central to an entrepreneurial career, why is it that some individuals appear to make the most of it, while others try to avoid it? Even more importantly, why is it that some individuals appear to emerge from failing situations with enthusiasm and ambition intact, while others simply give up?
The psychological literature suggests that two critical components distinguish between these sub-populations of entrepreneurs: the attributions individuals make for failures or setbacks they experience, and the goals they have for themselves. Attributions help determine whether the entrepreneur blames failure on innate ability or on their level of effort, and whether they are driven by the desire to capture acclaim or to enhance their own personal development.
Attributional Psychology and the Experience of Failure
Attributional psychology offers one detailed view of how individuals react—cognitively, affectively, and behaviorally—to failure experiences. Early work suggests that individuals with different personality traits experience success similarly, however have very different reactions to failure (Weiner & Kukla, 1970). This has to do with their attribution of the cause of failure.
Some people attribute failure to a lack of innate ability. Since innate ability is hard to change, this attribution tends to lead the person to feel helpless, and to give up on the task (Dweck & Leggett, 1988). Other individuals attribute failure to a lack of effort on their part. Since effort level can be changed, a person making this attribute can react by working harder to master the situation, increasing their level of effort (Dweck & Leggett, 1988). The source of a person’s tendency to make one or the other attribution has been shown to vary with their goals, or with how they define success (Dweck & Leggett, 1988).
Some individuals define a successful outcome as one which generates acclaim from their efforts, or evidence that they have achieved something remarkable that is then visible to others. These people are likely to view failure (the opposite of an outcome that would generate acclaim) as an indication of their own lack of ability, and are more likely to experience the helpless reaction. Other people perceive success as an outcome that helps them develop, personally. For this group, failure on a performance dimension is taken as one component of a learning journey. They may even react with excitement and renewed effort to improve at the task at hand, components of the mastery reaction.
Helpless Reactions to Failure
Individuals who suffer the helpless reaction to failure may not actually be inferior in ability or effort to other like individuals. Rather, their attribution of personal inadequacy in the face of failure leads them to avoid challenging situations, and to restrict effort in the face of obstacles (Dweck & Leggett, 1988). The sources of personal inadequacy they cite may range from deficient intelligence, memory, or problem-solving skills (Deiner & Dweck, 1978; 1980; Dweck & Leggett, 1988). Such people also often believe that their personal ability level is fixed, and cannot be altered by their own actions. Interestingly, this phenomenon occurs even in situations in which the person has enjoyed recent success at the same or a similar task. Let such people experience a setback or failure just once, and they feel defeated. They experience negative self-cognitions and pronounced negative affect when faced with failure. This is accompanied by aversion to the task at hand. Because the situation is so painful, these people may try to direct attention away from the present problem and toward their more successful endeavors.
One of the more interesting aspects of this reaction to setbacks is that it rapidly assumes the quality of a self-fulfilling prophecy. Because effort is perceived as futile, the individual may actually reduce their effort level and the range of problem-solving strategies they use. The result is to make further performance declines more likely, not less likely. Consider an example: a student receiving a B on an exam. The student can either blame the grade on their own lack of intelligence (ability) or on the effort they expended studying for the exam. If the student believes the B grade was received because they did not study hard enough, and they desire an A, they will study harder for the next exam, increasing the likelihood that they will receive an A. However, a student convinced that “B” is the best he or she can do won’t bother to increase effort, and is thus unlikely to shape a more favorable outcome.
The attribution of success to raw ability is also associated with a drive to gain acclaim in the eyes of others. Experiencing failure thus poses a threat to a person’s self-esteem by causing them embarrassment and concern with how others regard them. This results in anxiety, depressed affect and a sense of shame. Common responses are to adopt a defensive, self-protective posture, devaluing the task and expressing boredom or disdain towards it, or avoiding similar situations. Thus a goal of achieving acclaim, in the face of failure, can generate avoidance behaviors, negative ability attributions, negative affects, and low persistence in the face of difficulty (Dweck & Leggett, 1988). This helpless response is maladaptive because it prevents people from functioning effectively in the face of difficulty and ultimately limits their attainments, regardless of their actual ability to overcome a challenge.
Why the Helpless Reaction Matters for Entrepreneurship Scholars
Understanding the helpless reaction and how it becomes manifest in entrepreneurship may be important for several reasons. First, helplessness reactions may lead potentially productive entrepreneurs to self-select out of the active population. Indeed, many more individuals have been identified as wanting to start businesses than ever actually do (Reynolds & Miller, 1992). This reduces the number of potential entrepreneurs a society has available, and presumably the variety and number of enterprises they might start.
Second, helplessness reactions may cause those who have started a firm to exit at the first serious signs of trouble. For an individual with the goal of gaining and documenting acclaim and avoiding poor results, initial difficulties experienced during startup would be viewed as public “proof” of their own inadequacy as an entrepreneur. Rather than going to potential investors to explain the problem and ask for help, the individual would prefer to quietly disband the firm. This involves the loss of valuable resources and time spent getting the business going in the first place.
A third way in which the helplessness reaction might matter to the entrepreneurial process is by discouraging former entrepreneurs from beginning new businesses. Many of the most successful entrepreneurs have experienced at least one firm-level failure before realizing their success (Caggiano, 1996). However, for other kinds of entrepreneurs, a single bad experience can lead them to drop out of the population of potential future entrepreneurs altogether. If the failure is attributed to ability, starting a second doomed venture is hardly going to be an appealing proposition.
Distaste for starting over is likely to be exacerbated by the public nature of a firm level failure, in that it is often observed by outsiders, especially respected others such as family and close friends. The public nature of this type of failure makes it especially unpalatable to those who seek acclaim, as firm failure is perceived as a clear evidence of their poor performance and lack of ability. Thus these individuals may verbally attribute a firm failure to other causes outside of their control. For example, an acclaim-oriented entrepreneur may blame a venture’s failure on market conditions, a co-founder’s inability, lack of financial resources, or inadequate human capital. In this way, they hope to divert attention for the failure away from themselves and their own self-perceived inadequacy.
Ironically, entrepreneurs may well blame themselves for the failure in private, but may well cite other reasons in public. This muddies the waters for understanding what actually happened when a firm failed, making it hard not only for the entrepreneur to learn but for others to benefit from observing the situation. Behavior which seeks to avoid blame for failure can include entrepreneurs providing incorrect or misleading information in order to make themselves look better (McGrath, 1999), especially in the context of an entrepreneur’s relationship with external resource providers, such as venture capitalists (Cable & Shane, 1997). In situations in which community-level understanding of cause and effect, such as in the formation of a new industry, the noise introduced by incorrect descriptions of what drove what in the business can inhibit the learning of an entire new arena (see Aldrich & Fiol, 1994).
Mastery Reactions to Failure
An alternative attribution entrepreneurs might make of failure is that they simply didn’t try hard enough, or put in enough effort to succeed. Such attributions are associated with a redoubling of effort in an attempt to master the situation, a ‘mastery’ reaction. Mastery-oriented responses incorporate seeking challenging tasks and maintaining effective striving under failure conditions (Dweck & Leggett, 1988). With this response, a person experiencing failure remains optimistic, uses effective strategies to solve problems, and maintains their performance even in the face of repeated failures or setbacks. A mastery reaction can lead to failure being regarded as a genuinely valuable experience.
Extensive laboratory and field research finds that those who are mastery-oriented do not think of themselves as failing, even when faced with difficult problems (Deiner & Dweck, 1978; 1980; Dweck & Leggett, 1988). They view unsolved problems as challenges, and engage in extensive solution-oriented self-instruction and self-monitoring. Such individuals plan specific hypothesis-testing strategies, instruct themselves to exert effort and to concentrate on the task at hand, and then monitor their own level of effort and attention. They are unflaggingly optimistic even when faced with repeated failures. Some individuals even seem to relish the opportunity to surmount obstacles—the more difficult, the better.
The mastery pattern in the psychological literature is associated with people who take a developmental perspective on experience, and are concerned with increasing their own competence. Developmental goals are associated with challenge seeking, an effort and strategy focus, positive affect, and high persistence under difficulty (Dweck & Leggett, 1988). As with the helplessness reaction, the actual performance ability does not determine the individuals attribution. Those with a mastery response feel the adequacy of their present ability level is unimportant, given the pursuit of the goal of development. In fact, success achieved at low effort may mean little, because not too much new is learned. One implication is that developmentally oriented people are much less sensitive to recent negative feedback than acclaim oriented people, since improvement is possible whatever the current situation suggests (Dweck & Leggett, 1988).
Why the Mastery Pattern Is Important to Entrepreneurship
Individuals with developmental goals and the associated mastery reaction to failure have an ability to sustain their resolve through periods of difficulty, to seek challenging learning opportunities, and to try to maximize their attainment in the long run. This is particularly interesting for entrepreneurship scholars, as we begin to see an increasing interest in serial or “habitual” entrepreneurs (MacMillan, 1986) in places like Silicon Valley who provide a sustained source of innovation in a number of industries.
Understanding the mastery pattern can also help us to begin to understand why some entrepreneurs disband or become disheartened, while others soldier on under seemingly very difficult circumstances. The psychological literature suggests that those who continue to attack problems while maintaining the business are more likely to attribute setbacks, or initial problems, to their own lack of effort or poor strategy, rather than to their ability. Rather than feeling helpless in the face of the problem, they are motivated to solve it. These individuals want to learn from the initial mistake, and to apply that learning to the avoidance of subsequent problems or setbacks they may encounter.
Further, and importantly for the stakeholders in an entrepreneurial business, entrepreneurs with a mastery pattern who do experience setbacks may be less reluctant to discuss their problem with others and to seek outside help or support, if needed, than one with a helplessness pattern. Instead of trying to avoid a problem or publicly blame it on some uncontrollable force, development-oriented entrepreneurs are concerned with learning from the problem, and may even attempt to help others learn from their own mistakes.
A similar reaction might explain why so many eventually-successful entrepreneurs were willing to start up a business subsequent to a bankruptcy or disbanding. People seeking acclaim from others are likely to have experienced such a failure as a devastating personal defeat, and feel they cannot risk the potential for further documentation of their inadequacy through another failed business. Entrepreneurs with a mastery reaction and a developmental perspective, in contrast, are likely to treat failed ventures as learning experiences. Indeed, many successful entrepreneurs credit their current success to lessons learned from past business failures (Caggiano, 1996). This corresponds with the evidence from behavioral learning theory, in which failure (or ‘small losses’) play a central role in promoting adaptive behaviors (Sitkin, 1992).
A final point on this might also account for why so many successful serial entrepreneurs end up selling their businesses once they have become well established growth companies. If entrepreneurs have a development orientation, the challenges presented by overcoming setbacks in the startup phase are actually exhilarating. Once the business is doing well, entrepreneurs with developmental goals will cease to find it challenging or interesting, since there is little to learn from them. So, they sell, seeking new challenges and opportunities for mastery in new arenas and businesses.
In Sum
The central arguments from the psychological theory of attribution may be applied with good effect, we believe, to understanding the differing reactions of entrepreneurs to the inevitable setbacks and failures of the process. This theory suggest that individuals who seek acclaim as evidence of their efficacy are likely to attribute failure to their own inadequacies, although asserting to observers that the failure was beyond their control. When faced with failure, such people are unlikely to increase their activity level, hence are more likely to give up or to experience continued poor performance. In contrast, individuals who take a more developmental perspective on failure don’t view business level outcomes as a reflection of their innate ability. Rather, failure signals an opportunity to improve things by making a more substantive effort or altering strategies.
In short, failure impairs performance for acclaim-goaled entrepreneurs and sustains or facilitates performance for development-goaled entrepreneurs. In entrepreneurship, we expect failure or setbacks experienced by those with acclaim goals to be attributed to lack of ability, and to lead to helpless reactions. We also expect failure or setbacks experienced by those with development goals to be attributed to lack of effort or inadequate strategies, and to lead to mastery-oriented reactions. (See Table 1 for a summary of our arguments.) The purpose of the empirical study which follows is to explore whether these ideas might help shed light on the underlying mechanisms through which these beliefs are enacted. The ultimate objective is to promote in entrepreneurship what Sitkin (1992) terms ‘intelligent failures’, meaning those whose initial objectives are not met, yet which generate learning useful for the future.
The objective of our empirical study was to determine whether instruments to measure the constructs from psychology could be developed in such a way that they could determine the likely attribution orientation of an entrepreneur (or potential entrepreneur) ex ante. We developed an instrument to assess whether prospective entrepreneurs would indeed demonstrate variance in the dimensions psychologists argue drive the reaction to failure.
Respondents and Measures
A population of students at an elite business school with a commitment to entrepreneurship were the sample for this study. This is a particularly useful sample for three reasons. First, the sample includes only students who have demonstrated interest in becoming entrepreneurs by enrolling in an elective course designed to prepare them for this career. Evidence of their commitment ranges from their having selected entrepreneurship as opposed to other elective opportunities, and foregoing the opportunity cost of roughly $2,500 to take the course. Second, the respondents in this sample have not yet experienced entrepreneurial failure, reducing concern that actual failure experiences would bias our results. This is particularly important for this study, because we propose that the predisposition to either mastery or helplessness is formed prior to starting the business. Third, unlike many studies, this sample does not suffer from missing observations due to sampling only those who actually started a business. Rather, this sample includes those who Baumol would characterize as having entrepreneurial proclivity, without introducing the noise of luck and good fortune shaping which respondents actually do become entrepreneurs.
We designed a pen-and-pencil survey to tap the constructs described in our theory section: 1) attributions, 2) reactions, and 3) goals. Items were based primarily on Dweck and Leggett (1988). Respondents answered on 7-point Likert scales. In addition, several free-response questions were asked concerning a recent failure experience of the respondents. We also captured several common control variables, including age, gender, country of origin, expected grade in the class, and whether the person had ever started a business.
The attribution scale contains six semantic differential items. Items include attributions for both positive and negative experiences. For example, one item asks “When you get a bad grade on an assignment, is it more likely due to the amount of time you spent on the assignment or the bad mood of the person grading it?” Higher scores on this scale reflect setbacks being attributed to effort, while low scores reflect setbacks being attributed to ability. The resulting scale variable for effort unfortunately had a Cronbach’s alpha coefficient of only .25. Due to this low internal reliability score, our effort to create a scale out of these items was not successful, and we treat the individual variables independently in subsequent analyses.
The reactions to setbacks scale was assessed with ten items, in a manner similar to the attribution scale. Items include “To what extent to you find difficult situations challenges to be overcome versus problems to be deal with?” and “Is it more rewarding to do something well the first time, or to struggle at first, but eventually learn how to do something well?”. From these responses, we created the scale variable ‘mastery’ which had a more acceptable Cronbach’s alpha coefficient of .60. Although this is below the recommended level of .7 (Nunnally, 1978) low alpha coefficients are not uncommon in exploratory work, suggesting that the mastery versus helplessness concept might well be tapped by a scale such as that we developed.
The third construct, individual goals, was tapped with 6 items focused on determining if a respondent is primarily concerned with learning new things or performing well in the eyes of others. Items here included “How important is it for others NOT to know when you are doing poorly?” and “Are you more likely to take a class where you think you can get a good grade or one where you believe you will learn something new?” High scores on this variable reflect a primary development goal, while low scores reflect a primary goal of acclaim documentation. As with attributions, the alpha coefficient was unacceptably low (.42), calling into question whether the two sets of goals are different points on a continuum, or whether they represent independent constructs to one another.
Results
This study sought to answer two core questions. First, would developing scales to tap psychological constructs potentially offer valuable insights to entrepreneurship research? Second, would there be adequate variance across these constructs for an entrepreneurial sample, as opposed to the population at large, given that entrepreneurs are widely believed to be an unusual sub-segment of the general population. Our results suggest that the answer to both questions is yes, signaling promise for this line of inquiry in future entrepreneurship research.
Our sample generally responded that failures were due more to lack of effort than to innate ability. Mid-range responses on a few items suggest that respondents may view these two factors not as points on a continuum (as the psychological literature suggests) but as two separate drivers of the eventual outcome. The pattern observed by Weiner and Kukla (1970) of attributing successes equally to ability and effort, despite attributing failures largely to effort alone, is also observed here. Individual attribution items indicate that people recognize that both ability and effort are important determinants of the negative outcomes they experience. In the aggregate, however, this population of pre-entrepreneurs feels somewhat more personally responsible for their negative outcomes than average. Despite low reliability for the attribution scale overall, individual items showed adequate variance, with scores ranging from a minimum of 2 to a maximum of 7, and standard deviations for all the items that suggest reasonable levels of variance. We have thus found that our sample of pre-entrepreneurs do vary in the ways in which they attribute failure experiences.
Responses concerning reactions to failure also exhibit considerable variance. Eight of the ten items elicited responses ranging from 1 to 7. However, when individual items are collapsed into an overall ‘mastery’ scale, the range is restricted to slightly helpless (3.75) to completely mastery-oriented (7). This indicates that despite variance on individual components of reactions, in general these respondents exhibit more of a mastery-oriented reaction to setbacks rather than a helpless one (mean = 5.22 on the mastery scale, s.d. = .62).
We also find variance in terms of the primary goals individuals have, whether for development or for acclaim. Goal items and the goal scale reflect a tendency for this sample to seek development as a primary goal—perhaps not surprisingly, since each of them are currently pursuing advanced education. Despite an overall tendency toward a learning preference, individuals in this sample exhibit large differences in the strength of this preference, as well as in how this preference is manifest in their daily lives.
After examining the results for each construct independently, we analyzed the correlations among the three scales, as well as among individual component items within each scale. Attributions and reactions associated with failure show a strong association as expected from the psychological literature. The effort and mastery scales have a correlation of .39, which is significant. This indicates that individuals who attribute failure experiences to the amount of effort they put into the task are likely to exhibit mastery-oriented reactions to that failure experience. Similarly, individuals who attribute failures to their own level of ability are likely to demonstrate a helpless reaction to that failure.
Contrary to the attribution research, however, is our finding of a lack of correlation between the primary goal and either mastery or effort. That is, whether a person has a primary goal of development or acclaim is not significantly related for this sample with the attributions they make for failure experiences or their subsequent reactions to those experiences. Interestingly, we find that the confidence a person has in their ability to be a successful entrepreneur is strongly associated with all three key constructs measured here. Confidence is most highly correlated with a mastery reaction to failure (r = .40), is associated with a preference for development rather than acclaim (r = .20), and also contributes to the individual attributing setbacks to effort rather than to ability (r = .18).
This sample of pre-entrepreneurs reflects a tendency toward attributing failures to effort rather than ability, toward demonstrating mastery-oriented rather than helpless reactions to failures, and toward primary goals of development rather than acclaim documentation. However, individual respondents report quite distinct perceptions from each other, and individual components of attributions, reactions, and goals also reveal considerable variability across individuals. These results suggest that it may well be fruitful to transplant ideas from attribution research in psychology to the entrepreneurial domain
The purpose of this study was to consider whether attribution theory might add value to the theory of entrepreneurial behavior. An initial issue was whether prospective entrepreneurs would indeed vary in their reactions to failure experiences, in their attributions of the causes of failure, and in their goals. Responses indicate substantial variance, even among a population of pre-entrepreneurs who might be expected to be quite similar on most relevant dimensions. This suggests that proceeding with further study could well be useful. We briefly explore three domains in which an informed perspective on failure might be fruitful for entrepreneurship theory and practice: bringing the entrepreneur squarely into the theory of entrepreneurially-driven economic change; manipulability of attributions, and attributions in a multi-cultural world.
Bringing the Entrepreneur Back In
An interesting dilemma for entrepreneurship researchers, and a source of some frustration for those who seek to benefit from their work, is that the aspects of the process that are studied are often not those of the greatest interest to providers of capital and those who seek to inform public policy. Cooper (1993: 249) for instance, observes that venture capitalists are intensely interested in behavioral and psychological characteristics of the entrepreneur, yet entrepreneurship research has often overlooked these characteristics when attempting to explain antecedents or outcomes of the entrepreneurial process. He observes, that some of the factors venture capitalists weight most heavily include whether or not the entrepreneur is “capable of sustained intense effort” and “is able to evaluate and react to risk well.” How individuals react to failure, based on well-developed theory from psychology is fundamental to both sustained effort and perceived risk. As venture capital becomes ever-more a higher-stakes game, in which the bets that are placed increase and the expectations for considerable returns are high, better tools for assessing responses to failure might well be key.
A more fine grained understanding of the influence of attributional psychology would also be valuable for those who seek to promote entrepreneurship, on the theory that it drives economic growth. One might, for instance, examine previous instances of how an entrepreneur reacted to failures in different contexts to determine whether or not they are likely to put public resources to good use, or to allow themselves to sink into defeat at the first sign of trouble. These attitudes might also help distinguish between those who really have the potential to make a significant contribution from those who are more interested in demonstrating their abilities to others.
A second arena in which attribution theory might play a significant role is developing a more fine-gained theory of entrepreneurial exit and selection. Gimeno, Folta, Cooper and Woo (1998) have demonstrated that the personal choices made by entrepreneurs shape the exit decision in a large sample of small businesses. In contrast with theories that posit relatively uniform selection pressures on organizational fields, and suggest that largely deterministic factors lead to business terminations (as in most studies drawing on population ecology) their work signals a far more individualistic approach than extant theory accommodates. If one entrepreneur’s debilitating failure is another’s invigorating challenge, then theories that attempt to explain selection pressure or exit as a function of objective external forces are incomplete in a very significant way. In addition, if the propensity of certain fields of endeavor, geographies or training tend to yield entrepreneurial populations with skewed attributional properties, attribution theory might explain exit and termination even better than an ecological framework does.
Another issue raised by bringing the entrepreneur back in is whether team influences moderate the effects of a single person’s attributions. For instance, research in psychology has shown that self-perceptions are significantly influenced by evaluations by significant others, who can either reinforce or diminish ones’ propensity to make attributions (Marsh et al., 1995). Most entrepreneurial organizations draw on many people, not just the entrepreneur as an individual. It may make sense to have people with different perspectives on failure and different attributional structures as part of the team. In this way, attribution theory could begin to bridge entrepreneurship theory and the more traditional preoccupations of the top management team literature (reviewed in Finkelstein & Hambrick, 1996) such as team composition or heterogeneity.
Finally, our theory has recently begun to recognize the existence of a very unusual group of entrepreneurs, the habitual or serial population. Understanding how this group, who are responsible for starting many new organizations, attribute failures and setbacks could be a fascinating way to get at some underlying principles of successful entrepreneurship. Is the ability to re-motivate somehow different for habitual entrepreneurs? For instance, do they spread the risk of failure across many businesses at one time (a portfolio approach) or do they tend to start one business, focus on it, then move on. Indeed, attribution theory might suggest why different habitual entrepreneurs would behave differently in terms of their investments.
Manipulability of Attributions
The finding of variance in attributions naturally raises the issue of whether attributions can be manipulated. That is, can we make entrepreneurs more likely to respond to failure with mastery-oriented reactance than with helpless giving up by teaching them to redirect their attributions? Dweck and Leggett (1988) argue that children that exhibit helpless reactions can be retrained so they attribute failure to effort rather than to ability, and that this retraining makes them more mastery-oriented in the future, and more likely to try harder when faced with a negative situation rather than giving up. This suggests that entrepreneurs who experience helpless reactions to setbacks or financial failures early in their entrepreneurial efforts can be retrained so they attribute this failure to effort rather than ability. These individuals may thus be made to try harder and persist in tasks or businesses that they otherwise might give up on. This type of retraining has implications not only for individuals who want to be entrepreneurs yet experience setbacks, but also for public policy seeking to encourage and foster successful entrepreneurial experiences.
Of course, this is not necessarily an entirely positive thing. As McGrath (1999) has argued, preserving poorly conceived businesses is not a positive thing to do. If individuals are trained to re-attribute “useful or desirable” failures to effort and incited to invest additional resources in endeavors that deserve to fail, then we merely encourage permanently failing organizations (Meyer & Zucker, 1989). That is, we may invest considerable money, time, and effort in businesses and individuals that deserve to fail, potentially diverting those resources from endeavors with better uses for them. McGrath (1999) argues that improper attributions can lead to difficulty in distinguishing between luck and causality, with overconfidence in one’s own efficacy as a consequence (Langer, 1975). When others assume that previous success implies superior ability, entrepreneurs achieve a “superstar” status and draw investment and attention that may not be merited. Success-seeking supporters are unlikely to impose discipline or offer constructive criticism, ironically rendering ultimate disappointment more likely (McGrath, 1999).
Alternatively, a potential risk of misattribution is when everything associated with failure is perceived negatively, whether causally related to the failure or not (McGrath, 1999). This can lead to firms disbanding everything associated with the failure and thus gaining nothing from their failed attempts, not even learning. McGrath (1999) argues that a systemic desire to avoid failure also leads to penalizing those judged to be responsible for the failure. This allows the uninvolved to benefit because they avoid the cost of failing while they can potentially benefit from the new knowledge and insight created by the attempt. More broadly, this asymmetric allocation of costs reduces the incentive to engage in entrepreneurship, and can deter future entrepreneurial efforts (McGrath, 1999). Thus when failures are painful and the true reasons for their occurrence become undiscussable, the potential for a firm to learn form its mistakes is compromised (McGrath, 1999). Similarly, the potential for an individual to learn from his own mistakes can be compromised when he ignores or misattributes the failure or its origin. Thus the ability to alter attributions for failure may not necessarily indicate the rightfulness of doing so.
Attributions in a Multi-Cultural World
Failure attributions in entrepreneurship may also vary significantly across different cultures in which that failure occurs. Attributions in general have been shown to rely in part on the culture of the attributer (cf. Birenbaum & Kraemer, 1995; Na & Loftus, 1998). Specifically, individuals living in oriental countries tend to make more external attributions for behavior than those in Western countries (Miller, 1984), focusing on the context of the situation rather than the personality of the individual behaving (Na & Loftus, 1998). In addition, we know that institutional and social influences are quite different across cultures. For example, business failures are ‘professionally forgiven’ (Petzinger, 1997) in individualistic cultures (Hofstede, 1980), while bankruptcy can have a devastating economic and social impact in collectivist cultures. Individual perceptions of the risks and penalties associated with failure may significantly influence failure attributions, both for the person who experienced the failure and for those who observe that failure. In addition, expectations concerning potential failures may inhibit undertaking entrepreneurial efforts before they have even begun (McGrath, 1999). McGrath (1999) goes further to argue that the lower the social cost to the entrepreneur of failure in taking entrepreneurial action (such as lenient bankruptcy laws and minimal social sanctions), the greater the aggregate level of entrepreneurial activity and the greater the cumulative value of the national portfolio of entrepreneurial potential will be. That is, the social and economic costs of potential failure may differ across cultures, as may the attributions in expectation of that failure and when actual failure occurs. All three of these components may significantly influence how failure is anticipated and experienced, and thus the level of entrepreneurial activity and learning that occurs within that culture.
We set out to explore whether psychological theory might help us better understand the consequences of entrepreneurial reaction to failure. Our findings suggest that further research might prove quite exciting. When failures are attributed to the level of effort put forth, the entrepreneur experiences reactance, and is motivated to exert additional effort towards the task. Often individuals are even excited by challenges, and seek these opportunities to learn. Alternatively, when failures and problems are attributed to the ability of the individual experiencing them, a helpless response occurs. The individual may believe that they do not possess the ability to overcome the problem, and therefore gives up on the task. Through an exploratory evaluation of the attributions, reactions, and goals of individuals with a high propensity for entrepreneurship, we discover that an attributional approach to failure and re-motivation can appropriately be applied to the entrepreneurial context.
While we have made an important first step in supporting the usefulness of applying current attribution research based in psychology to entrepreneurship, much work remains to be done. Field research needs to be done to determine the specific processes through which failure attributions are made and subsequent behaviors exhibited in new and growing firms. While we have established the existence of variability in perceptions of failure attributions and reactions, it remains to be seen if this variability also exists in actual entrepreneurial failures. Furthermore, the ability to predict reactions to setbacks based on attributions and goals remains elusive. Through the research stream begun here, we hope to explore in depth the nature of entrepreneurial motivation, and more specifically, re-motivation, in the face of failure. In addition, this psychological approach that considers attribution and goal research, in addition to the more typical trait-based research, may shed light on the experiences of both parallel and serial habitual entrepreneurs. It may add to our understanding of what motivates these individuals to pursue multiple entrepreneurial opportunities either concurrently or sequentially, despite potential and actual setbacks. In terms of both this research stream and entrepreneurial experiences with failure and challenges, we believe that “In life what sometimes appears to be the end is really a new beginning.”
CONTACT:Melissa Cardon, 112 Hartman Avenue, Garfield, New Jersey 07026; (T) 973-546-8003; (F) 212-854-3778; msc53@columbia.edu
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