Motivation Factors in Entrepreneurship

Abstract

The purpose of this paper is to examine the relationship between entrepreneurship and motivation. Based on research from academic journal reviews and leading business magazines (1) Entrepreneurs are natural leaders by definition of their profession who are driven by a variety of factors. (2) The motivation factors of an entrepreneur are similar yet separate from traditional types of motivation factors. (3) Young entrepreneurs and serial/seasoned entrepreneurs’ successes are closely tied to both intrinsic and extrinsic motivational factors.

Entrepreneurship Organizational Theory

            Entrepreneurship is an emerging academic field of study. Over the past sixty years numerous researchers and business professionals have put forth efforts to establish principles and practices for the field of entrepreneurship. The development of organizational theory surrounding entrepreneurship is important for four reasons: (1) Entrepreneurship drives innovation and change in addition to breeding economic growth; (2) Supply and demand reach an equilibrium through the processes of entrepreneurship; (3) Entrepreneurship translates new knowledge into tangible products and services; and (4) the field of entrepreneurship is becoming more important to all economies and requires a clear understanding of the processes involved in the development of human and intellectual capital (Shane, Locke & Collins, 2003, 259).”

For the purpose of this paper, entrepreneurship is defined as a “process that begins with the recognition of an entrepreneurial opportunity and if followed by the development of an idea for how to pursue that opportunity, the evaluation of the feasibility of the opportunity, the development of the product or service that will be provided to customers, assembly of human and financial resources, organizational design, and the pursuit of customers (Shane, Locke & Collins, 2003, 275).”

Entrepreneurs: Born vs. Made

Entrepreneurship is reliant on human agency and the process is ignited by individuals who act on opportunities (Shane, Locke & Collins, 2003, 259). Recently, the topic of nature versus nurture has risen as a launch point for debate within the entrepreneurial community. Some people argue that entrepreneurs are born with inherent traits that lead to success, while others argue that entrepreneurs can be taught.

Vivek Wadhwa argues that entrepreneurs are not born. Silicon Valley Venture Investors have been chastised for their lack of vision or complete avoidance of high potential entrepreneurs. “52% of successful entrepreneurs [are] the first in their immediate families to start a business (Wadhwa, 2010).” Mark Suster replies to the Wadhwa’s argument by stating that entrepreneurship is a combination of nature and nurture. According to Suster, a Venture Capitalist, “there are certain characteristics [displayed] as a child that makes you more pre-disposed to be a successful entrepreneur (Suster, 2010).” Although nurture has a role, Suster believes nature is stronger than nurture.

The nature versus nurture topic is most beneficial because it targets that heart of the entrepreneur. What motivates an entrepreneur? Business professionals and entrepreneurs agree that motivation, which is often called GRIT or stick-to-itiveness, is the driving force behind entrepreneurial success is the motivation; yet academic researchers believe motivations for entrepreneurship go beyond just GRIT.

Types of Motivations

            The success of an entrepreneur depends on an individual’s willingness to become an entrepreneur (Shane, Locke & Collins, 2003, 257). Motivation is a force that compels someone to act. It is often considered to be the engine behind behaviors like working hard and success. The six traditional types of motivation include: incentives, fear, achievement, personal growth, power, and social factors. Entrepreneurship has nine motivational concepts.

There are six types of quantitative motivational concepts connected to entrepreneurship: Need for Achievement, Risk Taking, Tolerance for Ambiguity, Locus of Control, Self-Efficacy, and Goal Setting (Shane, Locke & Collins, 2003, 263-267). Need for Achievement (nAch) is the engagement in activities with a high degree of individual responsibility to achieve specific goals/outcomes (Shane, Locke & Collins, 2003, 263-264). Risk taking is a higher achievement motivation because it requires individuals to participate in activities that provide challenges (Shane, Locke & Collins, 2003, 264). Tolerance for Ambiguity is a propensity to euphemize challenging situations as opportunities instead of threats (Shane, Locke & Collins, 2003, 265). Locus of Control refers to a belief that an individual’s actions affect outcomes (Shane, Locke & Collins, 2003, 266). Self-Efficacy is related to achievement- the individual has a belief in their own ability to implement different resources, skills, and competencies to achieve a desired result (Shane, Locke & Collins, 2003, 267). Finally, goal setting is tied to incentives specifically financial performance (Shane, Locke & Collins, 2003, 267).

These six motivational concepts were developed by approximately twenty-five different quantitative studies over the course of forty-four years. Another quantitative factor not mentioned in the study by Shane et. al is money (Ademyi, 2010). Contrarily  there are fewer types of qualitative motivational concepts connected to entrepreneurship: Independence; Drive; and Egoistic Passion (Shane, Locke & Collins, 2003, 268). Independence refers to freedoms in decision making and ability to be authoritative. Drive is closely related to the nAch, but is more broadly defined to include ambition, goals, energy, stamina, and persistence. Egoistic Passion is a deep commitment to the work with the ego being the central motive. Another qualitative factor found in a separate study by Humantelligence offers friendship as a motivational factor (Tracy, 2012).

The table below is not based on research but depicts a proposed relationship between the traditional types of motivation and entrepreneurship motivational factors.

	Internal Factors			External Factors
Traditional Motivation Factors	Achievement	Fear	Personal Growth	Power	Incentives	Social Factors
Entrepreneurship Motivation Factors	Need for Achievement	Risk-taking	Drive	Locus of Control	Goal Setting	Friendship
	Self-efficacy	Ambiguity Tolerance	Egoistic Passion	Independence	Money

Internal vs. External Motivation

             Humantelligence conducted a study to identify motivations factors of young entrepreneurs. The study reflects the attitudes and opinions of 250 business owners between the ages of 18 to 22 years old (Tracy, 2012). Based on the study, the majority of young entrepreneurs value the freedom presented by the field of entrepreneurship. The locus of control 64%  preferred work requiring creativity (thinking outside the box and breaking established rules) and 65% preferred work that required problem solving on a consistent basis (Tracy, 2012). Consistent with the nine types of quantitative and qualitative motivators identified by Shane, Locke, and Collins the report showed the group studies placed a high importance on “achievement, personal development, adventure, [and] creativity (Tracy, 2012).”

Another interesting case is the case of the serial entrepreneur. A serial entrepreneur is an individual who creates multiple businesses. Serial entrepreneurs tend to be more risk-averse than new entrepreneurs. One reason is because they have experienced more successes and failures than a younger entrepreneur. The secret to their “bullet-proof egos” lies within internal motivation – purpose (Berglass, 2010). While external motivation such as monetary gain continues to propel serial entrepreneurs to continue to create, it is the opportunity to make an imprint on the world that propels this unique group of individuals forward. “In psychiatry this attribute is known as generativity, a passion to improve the planet for successive generations (Berglass, 2010).” Comparing the results of the study on young entrepreneurs and the findings of a world-renowned psychiatrist and author on seasoned entrepreneurs, both groups seemed more inclined to accept internal motivators as the most influential. This is further supported by the study conducted by the Universiti of Putra Malaysia “which showed that personal initiative was one major key to success (Rose, Kumar & Yen, 2006, 14).”

Although internal motivators may be valued as the most influential motivator for entrepreneurs, it is important to recognize the role of external motivators. Dr. S.L. Adeyemi studied the motivations of Nigerian entrepreneurs. The study concluded that “internally motivated entrepreneurs are more likely to experience a high level of growth than externally motivated entrepreneurs [and] externally motivated entrepreneurs are more likely to achieve a high level of profitability than internally motivated entrepreneurs (Adeyemi, 2006, 11).” The study identifies two different types of success: Success is defined as profitability and/or growth (Adeyemi, 2006, 2).  “The most important external motivation factor in regard to explaining profitability is the factor ‘money’ [and] internal achievement was the most important factor in explaining growth (Adeyemi, 2006, 9-10).” Surprisingly, low internal motivation has a direct correlation to low-profitability and money had a negative effect on growth in this study.

Conclusion

Entrepreneurs are natural leaders by definition of their profession who are driven by a variety of factors.  The argument of nature versus nurture is irrelevant, except for the fact that it steers discussion toward motivation factors for entrepreneurs. Although GRIT is often cited as the primary motivational factor for entrepreneurs, there are nine identified motivational factors at work in the field of entrepreneurship. The motivation factors of an entrepreneur are similar yet separate from traditional types of motivation factors. Qualitative and quantitative motivation factors include: Need for Achievement; Risk Taking; Tolerance for Ambiguity; Locus of Control; Self-Efficacy; Goal Setting; Independence; Drive; and Egostic Passion. Young entrepreneurs and serial/seasoned entrepreneurs’ successes are closely tied to both intrinsic and extrinsic motivational factors. Extrinsic motivation factors have a high correlation to increased profitability while intrinsic factors result in both higher-profitability and growth.

Bibliography

Adeyemi, S. L. (2006). Motivation and business success the relationship between entrepreneurs motivation and new business ventures success. Journal of Arid Zone Economy, 7(1), 122-131.

Berglas, S. (2010, August 03). Why serial entrepreneurs can't stop Forbes Magazine, Retrieved from http://www.forbes.com/2010/08/02/serial-entrepreneurs-berglas-entrepreneurs-management-serial-startups-10-berglas.html?feed=rss_entrepreneurs

Rose, R. C., Kumar, N., & Yen, L. L. (2006). The dynamics of entrepreneurs’ success factors in influencing venture growth. Journal of Asia Entrepreneurship and Sustainability, II(3), Retrieved from http://www.asiaentrepreneurshipjournal.com/AJESII3Kumar.pdf

Shane, S., Locke, E. L., & Collins, C. J. (2003). Entrepreneurial motivation. Human Resource Management Review, 13, 257-279. Retrieved from http://numerons.in/files/documents/6Entrepreneurial-motivation.pdf

Suster, M. (2010, March 01). Entrepreneurship: Nature vs. nurture?. Business Insider. Retrieved from http://www.businessinsider.com/entrepreneurship-nature-vs-nurture-2010-3

Tracy, A. (2012, February 16). What motivates tomorrow's great entrepreneurs?. Inc. Magazine, Retrieved from http://www.inc.com/abigail-tracy/what-motivates-tomorrows-great-entrepreneurs.html

Wadwwa, V. (2010, February 27). Techcrunch. Retrieved from http://techcrunch.com/2010/02/27/can-entrepreneurs-be-made/

Financial Fuzziness of the Hybrid Models

Clouded by ambiguous legal structures and funding models, the world of social entrepreneurship is foggy at best. The relationship between business and social endeavors can be described numerous ways, but the “tension” or “conflict” surrounding them remain constant.

In 2007, Bill Gates delivered a commencement speech addressing the opportunities presented by the tension between business and social endeavors. Gates challenged the Harvard graduates to devise “a more creative capitalism[i]” to “stretch the reach of market forces so that more people can make a profit, or at least make a living, serving people who are suffering from the worst inequities[ii].” The state of Vermont was the first to enact legislation to bridge the world of business and social impact investing together[iii]. In 2009, Michigan built legal framework within the state for social enterprises by becoming one of nine states with L3C legislation.

L3C is an acronym for Low-profit Limited Liability Company. This type of business entity is appealing because it offers legal and tax flexibility traditionally found in the LLC structure while also engaging nonprofit foundation investment funds. The L3C is “designed to qualify as a recipient of Program-Related Investments[iv]” (PRIs) which is beneficially for traditional investors, but more so for foundations. The L3C removes the difficulties and overpriced IRS requirements foundations once faced when investing in for-profit businesses that aligned with their organization’s purpose. Foundations already receive tax benefits from PRIs to other nonprofits, but the L3C’s primarily appeal lies in the potential of the investment to result in a reliable flow of capital. The L3C is a solution to numerous problems faced by social entrepreneurs, but this legal structure is not without problems.

The L3C defaults in focusing primarily on the legal framework and investment potential without much regard to measuring social impact or the frameworks’ ambiguity. There are three major problems created by L3Cs. The first is an issue of redundancy; the cycle of investment for low profits may not produce the flow of capital desired by the nature of an L3C. The second is deception. Despite its socially-conscious mission, L3Cs are not tax-exempt. L3Cs operate like standard LLCs for federal tax purposes. Stuart Levine states “L3C’s don’t work unless there is a change in federal tax law.  In other words, L3C’s are a little like Oreo-Tycin-Myacin - the wonder drug for which there is no known disease[v].”  The third issue highlights the natural tension between charity and business. Levine states “L3C’s raise difficult issues of fiduciary duty and the inherent conflict between ‘charitable’ purposes and ‘business’ purposes.  At the least, these conflicts cannot be dealt with via a quick-fix state statute[vi].”

All of these problems stem back to the essence of low-profit or nonprofit organizations and their social focus. Measuring social impact and profits is similar to comparing apples to oranges, while both may be fruit they offer different opportunities for impact. While it may seem plausible to conclude the L3C is a broken model, it is important to remember that the L3C is not a business or funding model. The L3C legislation provides a seemingly intentional ambiguous legal framework that can lead to business and funding models for these hybrid entities.

The Stanford Social Innovation Review (SSIR) briefly chastised two hybrid funding models before excluding them from the list of the ten funding models for nonprofits and social organizations. The first model involves a nonprofit receiving support by a separate income generation venture. In this model, the profitable ventures are separate and distinct from the core-mission related activities. The second model, which correlates to the L3C model, is based on a B2B or consumer-direct fee-for-service model. This model is does not rely heavily on fundraising or government support. The SSIR supports these models as functioning, but withdraws its support for scalability within these models. Based on a 30 year study of 144 nonprofits that grew to $50 million a year or more in size during the course of the study, none of the nonprofit organizations represented functioned within these hybrid models[vii].

Inc. Magazine offers a third hybrid model the authors of the SSIR did not consider. The third hybrid model integrates the non-profit with the for-profit. The classic example is the relationship between Mozilla Foundation and Mozilla Corporation. Create in 2005, Mozilla Corporation became the for-profit subsidiary of the Mozilla Foundation. In 2011, Mozilla Corporation brought in $104 million. The Mozilla Foundation is the sole shareholder to the Mozilla Corporation and brings more than $200,000 in charitable donations to the table[viii]. Other companies like Story Pirate and Parent Earth have emerged as the newcomers to watch in the high-growth arena of social entrepreneurship. Lapwosky offers three factors to support scalability within this proven functioning hybrid model.

1.      The nonprofits unrelated business income threatens its nonprofit status

2.      The for-profit needs help managing its philanthropy

3.      Each entity needs something offered by the other

The for-profit world has developed a sophisticated language to communicate funding strategies, while the non-profit world has maintained a poverty of language. Combining the business (for-profit world) with social endeavors (non-profit) world relies on the ability to both establish a common language between the two worlds and develop a new language for those social entrepreneurs who exist in the gray area. In non-profit organizations and social causes, the end user is rarely the buyer which makes identifying the economic engine a separate step. The issue of customer versus beneficiary continues to block potential communication between the two.

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[i] Gates, B. (2007, June 7). www.news.harvard.edu. Retrieved October 3, 2012 from http://news.harvard.edu/gazette/story/2007/06/remarks-of-bill-gates-harvard-commencement-2007/

[ii] Ibid

[iii] Vermont Secretary of State: Corporations Division. Low-Profit Limited Liability Company. Low-Profit Limited Liability Company Retrieved October 3, 2009 from http://www.sec.state.vt.us/corps/dobiz/llc/llc_l3c.htm

[iv] Najarian, N. R. (2009). Michigan leads the way with a new corporate form – the l3c. Retrieved from http://www.detroitbusinesslaw.com/2009/07/20/michigan-leads-the-way-with-a-new-corporate-form-the-l3c/

[v] The Nonprofiteer. (2011, March 17). “L3C” spells “caveat emptor”. Retrieved from http://nonprofiteer.net/2011/03/17/l3c-spells-caveat-emptor/

[vi] Ibid

[vii] Stanford social innovation review (provide full info)

[viii] Lapowsky, I. (2011, May 2). The Social Entrepreneurship Spectrum: Hyrbids.Retriveid from www.inc.com/magazine/20110501/the-social-entrepreneurship-spectrum-hybrids