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What motivates 'us' self-employed people (entrepreneurs)?

At Independent Contractors Australia we've pulled together research that profiles 'us' self-employed people and gives some understanding of our motivations.

Here are extracts from three interesting papers on the psychology of self-employed entrepreneurs delivered at the 2012 peak international conference on small business held this week in Wellington, New Zealand.

To be entrepreneurial you have to be good at learning from failure and have a high level of belief in your personal competence. Cross cultural differences matter. For example, the self-employed in Canada/USA are highly motivated by independence. Mexicans face the more practical needs of securing income and looking after families.

Below are extracts from the three papers.

Paper 1
Topic: Comparing entrepreneurs motivations in Canada, USA and Mexico

ICA summary

There are strong motivational similarities among self-employed entrepreneurs across the three countries. However:
  • Canadian and USA self-employed entrepreneurs are heavily motivated by the desire to be independent (ie) to be their own boss.
  • Mexican self-employed entrepreneurs are more focused on increasing their income, creating a job, ensure job security and provide jobs for one's family.
The full PowerPoint presentation is here.

Extracts from the study

Title: "Entrepreneurial Motives: Evidence from Various Contexts in Six North American Regions"
  • Jean-Charles Cachon, Laurentian University, Matt Marvel, University of Western Kentucky,
  • Jose Barragan Codina, Universidad Autonoma de Nuevo Leon, Cristina Eccius de Amezcua, Universidad Panamericana (Guadalajara),
  • John J. Gruidl, Western Illinois University, and Egbert McGraw, Universite de Moncton.
This study is built upon previous international research on entrepreneurial motivation, by attempting to examine intrinsic and extrinsic motives in different contexts of cultures (Canada, Mexico, U.S). Dominant motives were expected to be:
  1. Independence;
  2. Job security
  3. Monetary gain, and
  4. Intrinsic rewards.
Mexican respondents rated their success lower than their Canadian and U.S. counterparts, and were also less satisfied. Particularly important for them were Motivation variables such as increasing one's income, creating one's job, ensure job security and provide jobs for one's family. Responses from Mexico were more centered on extrinsic motives, while Canadian and U.S. respondents had more of a tendency to be primarily driven by intrinsic motives, particularly the desire to be independent. While economic survival for them and their family appeared as an overarching motive among Mexican business people, intrinsic rewards came out pervasively behind the perceptions of success among Canadian and U.S. respondents. entrepreneurs identified with particular minority situations, such as women.

Motives Specific to Entrepreneurs
Interactions leading to entrepreneurship are social ones, generally revolving around family and work, both often being intertwined: this is the case when the workplace is also a family dwelling or family-owned business... Strictly work-related social interactions lead to outcomes such as job satisfaction which, not differently from family workplaces, yield both personal and economic outcomes. Personal outcomes have been labeled as self-oriented goals, humane (Freytag and Thurik, 2007), or intrinsic goals. They include the desire to achieve autonomy by taking control of one's life, an increased sentiment of making personal choices for oneself, and a mix of psychological rewards related to personal satisfaction, personal improvement and growth, doing something you enjoy, or proving yourself to others. Working along with siblings and family members also are expressions of desires driven by the entrepreneur's work and family environment.

As observed earlier, entrepreneurial motives are the result of individual psychological processes.

While there is an absence of literature on the specific topic of comparing entrepreneurial motives across the three NAFTA (Canada, USA, Mexico) countries, there is evidence of the presence of two dominant cultures among these countries. In the case of Canada and the United States, the dominant culture is what can be labeled as the North American culture, while, for Mexico, the dominant culture is the Latino-American one, which is common to all continental countries situated south of the Rio Grande.

Mitchell et al. (2000) observed that, while the context of entrepreneurship varies from one country to another, researchers keep finding similarities in the decision making process leading to business creation. In terms of context, Eversole (2003) observes that poverty is a strong motive for people to become self-employed in Latin America.

Four motivational variables showed no significant mean difference across the three North American countries: "To meet the challenge", "To increase sales and profits", "For my own satisfaction", and "To maintain my personal freedom". It is notable that three of these variables represent intrinsic motives, while increasing sales and profits is an extrinsic one.

Similarities and Differences Between Canada, Mexico, and the U.S.
The above results lead to a number of observations about the motives and the attitudes of business respondents in the three countries considered. Mexican respondents rated their success lower than their Canadian and U.S. counterparts, and were also satisfied at a significantly lesser level. Not surprisingly, their performance expectations were not as strictly primarily extrinsic but were a mix of personal or intrinsic as well as extrinsic expectations. This is consistent with the fact that 34.6% of them had started their business due to economic necessity, and that Mexican respondents had significantly stronger motives than their Canadian and/or U.S. counterparts in areas directly or indirectly contributing to secure an income and maintain it. Particularly important for them were Motivation variables such as increasing one's income, creating one's job, always have job security and provide jobs for one's family. Other strong motives of increasing sales and profits and maximizing business growth were consistent with these personal and family-oriented extrinsic motives among Mexican respondents. The burden related to economic survival in an environment devoid of job assistance has the effect of setting aside motives factors such as Independence and Intrinsic, which is also very consistent with the Maslowian hierarchy of needs (basic needs must be satisfied in the long term before one can contemplate satisfying higher-level ones). In terms of performance as it is related to motives.

Mexican business people with intrinsic motives did not see themselves as successful as compared to those who were pursuing other motives, whatever they were.

Not surprisingly, Canadian and U.S. respondents rated the Independence Motive as highest and the Extrinsic Motive as second, followed by the Intrinsic and Family Motives.

Findings suggest that entrepreneurial motivation is indeed complex although the motivational constructs of extrinsic, independence, intrinsic and family security were consistently displayed by small business owners across Mexico, Canada, and the United States. Perhaps more interesting is that the degree of motivation exhibited as well as the linkages to business performance appears to systematically vary across country contexts.

Paper 2
Topic: Learning from failure is an essential part of being an entrepreneur

ICA summary

Failure is important to self-employed entrepreneurs because they use it as a learning experience. In fact is it the ability to use failure as a positive that is a key feature of entrepreneurs. People who cannot use failure as a learning process have difficulty being entrepreneurial. This ability to learn is dependent upon emotional intelligence.

Extracts from the study

Why do some entrepreneurs fail forward (while others do not?) A moderated mediation model of learning from failure and transformational leadership
  • Fang He, The George Washington University, Washington DC
  • Charlotta Siren, University of Vaasa, Finland
  • Sheetal Singh, The George Washington University, Washington DC
  • George Solomon, The George Washington University, Washington DC
Due to the amount of uncertainty and risk involved in entrepreneurial endeavors, failure is a built-in component of entrepreneurship. We argue that entrepreneurs' prior failure experience can contribute to their transformational leadership. The contribution of failure is mediated by entrepreneurial learning, which involves both internalization and transformation of failure experience. Further, entrepreneurs' learning from failure is moderated by their emotional intelligence (EI) and goal orientation as well as the way in which failure is viewed in their society. We expect entrepreneurs with higher EI and stronger learning goal orientation to more effectively seize the learning opportunities presented by failure, whereas those with lower EI and stronger performance goal orientation to be less efficacious in learning from failure. We also expect a more normalized view of failure to better facilitate entrepreneurial learning from failure.

Due to the amount of uncertainty and risk involved in entrepreneurial endeavors, failure is a built-in component of entrepreneurship (Lubatkin & Chatterjee, 1994). Entrepreneurs usually encounter numerous failures and mistakes before they succeed (Timmons, 1999). Even the greatest entrepreneurs of our era were not spared the agony of failure.

For example, the early Macintosh computer was slow, bulky, and lacked color graphics, and its initial lackluster performance pushed Steve Jobs out of the management of Apple, Inc., the company he cofounded with Steve Wozniak in his own garage. When reflecting upon his experience of being ousted from Apple's top management, Steve Jobs called it an "awful-tasting" but "much needed" medicine (Jobs, 2005). He even considered getting fired from Apple to be the most valuable experience in his entrepreneurial journey. "The heaviness of being successful was replaced by the lightness of being a beginner again," as Jobs described it. "I was less sure about everything. It freed me to enter one of the most creative periods of my life" (Jobs, 2005).

The story of Steve Jobs and many other successful entrepreneurs has presented intriguing questions for entrepreneurship researchers: What lessons does failure provide? How do entrepreneurs develop leadership skills in the process of making mistakes, failing, and learning from their mistakes and failure? Why do some entrepreneurs learn from this experience and become better leaders, while others do not? However, perhaps because of the bitter nature of failure, the quest for such a transformational process has been scarce (Edmondson, 2011).

It is almost incontrovertible wisdom that failure is the fire that tempers the steel of an entrepreneur's learning and street savvy (Timmons, 1999).

In order to become effective leaders, entrepreneurs need to continuously build their competency through learning.

Given the impact of emotions, it is important to understand why some entrepreneurs are able to conquer negative emotions associated with failure and seize learning opportunities where others find only despair. In addition, entrepreneurs possess different personal goals and varied emotional abilities.

H1. The entrepreneur's failure experience is positively associated with his or her transformational leadership.
Entrepreneurs are constantly immersed in streams of immediate experiences. The entrepreneurial environment is so turbulent that entrepreneurs rarely have time to theorize (Busenitz & Barney, 1997). Hence, we argue that the dominant mode for entrepreneurs to acquire experience is apprehension.

The foundation for the entrepreneur's deep reflection and active experimentation comes from the entrepreneur's concrete and observational experience of failure. The entrepreneur actively gathers information related to failure from various stakeholders, including followers.

Consequently, the entrepreneur customizes his or her leadership behaviors to reflect an individualized consideration. This interactive communication allows the entrepreneurial leader to encourage followers to think about reasons for and solutions to the problems and therefore provides a form of intellectual stimulation for followers. Taken together, these learning behaviors of entrepreneurs can be translated into dimensions of transformational leadership, namely, charisma, inspiration, individualized consideration, and intellectual stimulation. Consequently, we expect a positive relationship between entrepreneurial learning and transformational leadership.

Failure motivates deep reflection. When individuals fail, they usually ask themselves "Why did I fail?". In addition to probing into the causes of failure, individuals also reflect upon questions like "What I could have done differently?"

The result of these deep reflections is an enriched metal map. Individuals carry with them mental models to interpret the world (Kelley & Michela, 1980). The concept of mental models covers a range of similar ideas of individual knowledge structures, including belief structures.

In the conscious mode, people invest time and effort in deepening their understanding of the problems they are facing. As a result, the number of constructs representing objects or phenomena increases and the potential connections among constructs expand. To the extent that the complexity and extensiveness of one's mental model reflects the depth and breadth of knowledge (Evans, 1988), failure helps individuals learn by discovering new variables and recognizing causal relationships between old and new constructs.

Entrepreneurs' learning from failure is complicated by negative emotions (Shepherd, 2003). Because of the substantial financial and personal resources devoted to found, nurture, and develop a venture, entrepreneurs are personally identified with their business. Their business is of such personal significance that it could be compared to a child (Cardon, Zietsma, Saparito, Matherne, & Davis, 2005). Therefore, business failure represents a form of personal loss that could generate negative emotional responses (Shepherd, 2003). Shepherd (2003) argued that the failure of a business has the emotional intensity of the death of a loved one, and entrepreneurs who experience failure are subject to a specific form of negative emotion---grief.

Emotional intelligence
Since emotions can take learning in two directions, either discouraging learning or promoting it, an entrepreneur's ability to master emotions will determine the effectiveness of his or her learning from failure. Hence, an important individual difference, emotional intelligence (EI), is likely to moderate the relationship between failure experience and entrepreneurial learning. Mayer and colleagues (Mayer, Salovey, & Caruso, 2004; Peter Salovey & Mayer, 1990) defined EI as the capability to accurately perceive emotions and access and generate emotions so as to assist thought, to understand emotions, and to reflectively regulate emotions so as to promote personal growth.

Goal Orientation
Another reason why learning from failure is not universal is that emotional responses to failure vary across individuals with different goal orientations.

When individuals are learning goal oriented, they strive to increase their ability. They tend to view failure as an event that is diagnostic and provides valuable feedback for developing.

As a result, when presented with failure and obstacles, individuals with higher LGO are able to maintain higher levels of self-efficacy and develop more effective learning strategies.

In contrast, individuals who are performance goal oriented seek to maintain positive judgments of their ability and avoid negative judgments by seeking to prove, validate, or document their ability (Elliott & Dweck, 1988). These individuals view failure as a contradiction to their personal goals or disproval of their abilities and therefore respond with negative emotions and even "learned helplessness".

Failure normalization
The attitudes toward entrepreneurial failures are culturally based. Negative attitudes towards failures may cause barriers for entrepreneurial activities primarily because fears of stigmatization.

For example, Cave, Eccles, and Rundle (2001) found that entrepreneurs in the United Kingdom perceive a more acute social stigma to failure than do entrepreneurs in the United States. The attitudes toward failures do not only vary between countries and cultures but also between regions and subcultures. For instance, Cardon, Stevens, and Potter (2009) found that in certain regions of the United States, failure is perceived as mistakes of entrepreneurs and results in stigmatization, whereas in other regions the reason of failure is more often seen as misfortune. These findings indicate that entrepreneurs' perception of their societal attitudes and cultural norms regarding failure are likely to influence entrepreneurs emotional response to failure and in turn the extent to which they learn from it.

An emerging evidence is that entrepreneurs learn most from their failure experience (McGrath, 1999; Politis, 2005) led us to examine the role of learning from failure in an entrepreneur's leadership.

While this study wholeheartedly champions the idea that entrepreneurship is an emotional journey due to an extreme level of personal risks and identification between the entrepreneur and the organization...

From an educational perspective, failure could be more powerful than success because "it's often easier to pinpoint why a failure has occurred than to explain a success".

Our study also raises important political implications with regard to legislations and cultural attitude towards failures. Cave and colleagues (2001) argue that policy makers' attitudes toward failures are reflected in their countries bankruptcy laws.

Traditionally, US has been a forth runner in the positive approach towards bankruptcy legislation. After declaring a bankruptcy, entrepreneurs may open their next venture and with the money they earn in it, pay their debts for the bankrupt venture (Landier, 2006). On the contrary, in Finland as well as other EU countries in general, a fair and quick second chance is not adequately recognized by national legislations. Due to this pitfall, European Commission (2011) recently launched a "Bankruptcy and Second Chance" policy program, aiming to find ways to minimize the lost entrepreneurship potential associated with bankruptcy and give entrepreneurs a "second chance".

Failure represents one of the most difficult but at the same time valuable learning experiences that individuals face. The question of how and when entrepreneurs learn from these experiences and translate that learning into transformational leadership is fundamental to our understanding of SMEs' adaptation. The present research suggests that entrepreneurs are able to learn from their failure experience and translate that learning into transformational leadership behaviors. The extent to which one is able to employ the unique learning opportunity presented by failure, however, is influenced by one's emotional intelligence, goal orientation, and the attitude towards failure in one's society.

Paper 3
Topic: Entrepreneurs have a high belief in their own competency

ICA summary

The decision to be and remain an entrepreneur is heavily related to self-efficacy, that is, the belief in one's competency. That is, entrepreneurs have a high belief in their ability to make change happen and to effect outcomes.

Extracts from the study

Towards A Conceptual Model On The Interrelationships Between Entrepreneurial Experience, Entrepreneurial Self-Efficacy And Effectuation
  • Chickery J. Kasouf School of Business Worcester, MA 01609 Worcester Polytechnic Institute
  • Sussie C. Morrish College of Business and Economics University of Canterbury Christchurch 8140, New Zealand
  • Morgan P. Miles School of Management University of Tasmania Launceston, TAS
The present study develops a conceptual framework that describes the interplay among cognitive factors at the fuzzy front end of entrepreneurial actions. The model developed, assumes that experience is a critical driver of one's perception of capabilities and intention, but that experience is interpreted through a lens of cognitive bias and explanatory style impacting perceptions of self-efficacy, and the consequent effectual planning and decision-making.

Effectuation offers a powerful explanation of entrepreneurial planning and action, focusing on available resources rather than end goals. Effectuation logic is dynamic, opportunity driven and entrepreneur-centric. This paper contributes to the entrepreneurship cognition literature by explicitly framing the interrelationship between entrepreneurial experience-creating of human/social capital, effectuation and entrepreneurial self-efficacy.

The process of entrepreneurship involves choices, and the actual choice to start a business is only made by a sub-set of people interested in entrepreneurship - those who positively assess opportunities, accept risk, and ultimately initiate entrepreneurial action, while so many others simply choose not to act.

Business creation involves not only the discovery and assessment of the match between capabilities and opportunities, but also the willingness and confidence to risk the resources needed to create the venture and thereby potentially exploit entrepreneurial opportunities (Kreuger, 2000). Moreover, many new ventures are started despite high failure rates, implying that some people perceive attractive opportunities in circumstances where others do not.

The thrust of this stream of scholarship is to understand how entrepreneurs interpret information, construct the perception of their environment, and develop a sense of who they are.

While traits such as need for achievement or tolerance for ambiguity may not differentiate those who pursue an opportunity, differences in the perceptions of resources relative to opportunity may impact entrepreneurial intention. This perception may be affected by an individual's self-efficacy.

The present study develops a conceptual framework that describes the interplay among cognitive factors at the fuzzy front end of entrepreneurial actions. The model developed, assumes that experience is a critical driver of one's perception of capabilities and intention, but that experience is interpreted through a lens of cognitive bias and explanatory style (Seligman (1991) impacting perceptions of self-efficacy, and the consequent effectual planning and decision-making.

Effectuation logic is dynamic, opportunity driven and entrepreneur-centric. Understanding the interrelationship between experience, explanatory style, ESE and effectuation adds a significant dimension to advance our understanding of entrepreneurial decisions.

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