Looking before Leaping: The Effect of Owner Decisiveness on Small Business Performance

INTRODUCTION The new venture founder's decisions determine the configuration of that venture. Different configurations will achieve different degrees of fit. Different degrees of fit result in differences in performance (Venkatraman & Prescott, 1990). The accuracy of decisions made to configure the venture depends in great measure on the effectiveness of information gathering, and the analytic procedures applied to that information prior to making those decisions. Therefore, ". gathering information for decision-making is a critical activity for the entrepreneur" (Cooper, Folta & Woo, 1995, p. 108). Many factors can influence the effectiveness of information search and analysis in the decision-making process. Much small business and entrepreneurial research is based on an implicit assumption that the small business owner utilizes logic-based reasoning when making important decisions. However, business decision-making under an assumption of bounded rationality (Simon, 1955; Cyert & March, 1963) has received less research attention (notable exceptions include Cooper et al., 1995, & Busenitz & Barney, 1997). It is important to better understand how small business owners actually gather and analyze information when making important decisions about their enterprise, rather than to continue to assume that they primarily follow logic-based decision reasoning processes. The quality and quantity of their information search processes and the way in which that information is analyzed likely affects the accuracy of the decision-making as they configure their businesses to exploit market opportunities. Therefore, their differences in decision-making processes may influence the degree their businesses achieve a satisfactory fit with the environment. This degree of fit will be an important factor in determining organizational performance and survival. The new venture creation process and initial period of operation can involve numerous decisions over a period of many months during which time the small business owner initially configures the venture, assesses performance and possibly reconfigures it in light of those assessments. Experimental decision-making research has provided evidence to suggest that certain individual decision-making characteristics are stable over time. If this is the case, these characteristics should affect these decisions during this period and have organizational performance consequences. This field study assesses the relationship between decisiveness, one of these individual-level characteristics, and organizational performance in a sample of small business owners who recently started new childcare ventures. THEORY AND HYPOTHESIS The conceptual model for this study and the findings are illustrated in Figure 1. The model is based on what Kahneman (2003), Sloman (2002), Stanovich and West (2000), Epstein (1994) and others have described as dual process theories of reasoning used in decision-making. The experiential (Epstein, 1994) or System 1 (Kahneman, 2003; Stanovich & West, 2002) method of reasoning describes a method of reasoning that is fast, automatic, effortless and affected by emotion. In contrast, the rational (Epstein, 1994) or System 2 (Kahneman, 2003; Stanovich & West, 2002) method of reasoning operates in a slow, controlled, effortful manner. Kahneman (2003) describes interaction between the two systems as a continual operation of System 1 with continual, but often lax monitoring and occasional intervention of System 2 to correct or override a System 1 decision. [FIGURE 1 OMITTED] Sloman (1996) characterizes the systems as having overlapping domains that vary as a function of the individual's knowledge, skill and experience. He describes each system working within a single individual as ". two experts who are working cooperatively to compute sensible answers" (p. …