A structural model of the effects of entrepreneurial characteristics on venture performance

Abstract Venture capitalists, “angel” investors, and experienced, successful entrepreneurs, when asked to identify the most important determinant of new venture performance, will undoubtedly answer “the entrepreneur.” Likewise, prominent academic scholars responsible for the accelerating development of entrepreneurship theory and research would almost always agree. Unfortunately, empirical and theoretical understanding of the influence of the entrepreneur on new venture performance (NVP) has long been stymied. Studies of entrepreneurial characteristics have failed to demonstrate convincing links with entrepreneurial states of being or with NVP, though studies of the former have shown more promise than have those of the latter. In an attempt to explain the failure to link entrepreneurial characteristics with performance and thus to stimulate and modify research agendas, this paper derives a structural, causal model of the relationships between entrepreneurial characteristics and performance. This derivation draws upon current psychological, management, economic, and entrepreneurship theory. Though there is considerable controversy in the field of psychology concerning the ability of personality traits to explain behavior, it is accepted by many that such traits do exist, that they are stable over time, and that they explain behaviors if the level of aggregation is wide enough. In 1988, Hollenbeck and Whitener noted that one of the problems in using personality traits to explain job performance was that such traits are mediated by motivation and moderated by abilities in their causal connection to performance. Thus personality traits are somewhat removed from performance in the causal chain of events. Applied to the study of the entrepreneur, this research suggests that an initial model of the “entrepreneurial characteristics → NVP” relationship must include the mediating role of motivation and the moderating role of entrepreneurial management abilities. This paper further redefines this emerging model of “entrepreneurial characteristics → NVP” by drawing upon other literature from the field of psychology. This literature suggests that “entrepreneurial behavior” and the context in which it is performed both intervene between motivation and ability in their relation to NVP. The paper concludes this section with a psychology-based model of the “characteristics → NVP” relationship that is more comprehensive and realistic than prior models in the entrepreneurship literature. The paper next draws from strategic management, entrepreneurship, and economics literature along with Sandberg's (1986) model of NVP [NVP = f(E,IS,S)] to show that any model of the connection between entrepreneurial characteristics and NVP must further recognize the relationship between strategy and NVP as well as industry structure and NVP. The resultant model suggests strategy and industry structure are “context” variables that interdependently interact with entrepreneurial behaviors to influence NVP. This adaptation of the model is reinforced and expanded by reviewing the management literature on matching managers to situations which in turn implies that the effects of entrepreneurial behaviors on NVP are contingent upon strategy and industry structure. Thus strategy and industry structure, though ultimately determined by entrepreneurial behavior, are themselves important inputs to the behavioral context of entrepreneurship. The last part of the paper examines decision-making, skills, aptitudes, and training as components helping to refine our understanding of the role of motivation as a mediator and ability as a moderator in a model of the “entrepreneurial characteristics → NVP” relationship. The intent here is to identify specific variables that can be studied or acted upon [in an applied sense] to improve the NVP impact of entrepreneurial behaviors. It is hoped that explication of this model will encourage future entrepreneurship research that seeks to examine causes of NVP to reintroduce “the entrepreneur” as the focus or a focus of the research. Hopefully a more fully developed model that includes motivations, abilities, skills, aptitudes, and training as elements in “modeling” entrepreneurial behavior along with the need for strategy and industry structure contexts provides a more compelling and risk-worthy starting point for such research. This should provide an impetus to put the entrepreneur back. into a central position in entrepreneurship research, where both theory and practitioners say he/she belongs.