What drives entrepreneurial motivation?
Money? Social impact? It depends whom we are talking about.
There are many stories about why people have become growth entrepreneurs and launched new innovative ventures. Many of these stories are very personal. More often than not, such stories are inspiring, captivating, compelling, and very fascinating.
But a problem with personal entrepreneurial stories is that it is hard to infer how representative they are. We learn about them precisely because they are special and unique.
If you want to understand entrepreneurial motivations more generally, the most fascinating stories are probably not the best source. They are not typical or characteristic examples. If you could draw innovative entrepreneurs randomly from the pool of all innovative entrepreneurs and hear their stories, they would be representative, but not as special or as unique.
Nor can we easily infer from individual, personal entrepreneurial stories what drives what. They do not reveal what was the cause and what was the effect.
For example, the person sharing her/his unique entrepreneurial journey may think that she/he knows what caused what. Unfortunately, there are many cognitive and behavioural biases that make it very difficult to understand the relevant causes and effects in one’s own life, and the underlying causal mechanisms that have been at work.
Most of us are not particularly good at counterfactual thinking, i.e., in seeing the alternative paths that could have happened or that one could have followed. And yet, understanding causal effects requires figuring out what those paths might have been.
Entrepreneurs are a heterogenous group of individuals. Classifying or characterizing their psychological profiles or motivations is therefore not easy.
Here is a non-exhaustive list of non-mutually exclusive entrepreneurial motivations (building on this seminal study, for a newer study, see this):
- Need for achievement: Willingness and grit to put forth effort (e.g., working hours, thinking) to bring a business idea into reality.
- Desire for risk-bearing: Appetit for activities that provide a challenge, are attainable in probabilistic sense and generate excitement.
- Tolerance for ambiguity: Tendency to view situations or problems that do not have a clear structure or obvious solutions as interesting and attractive.
- Internal locus of control: Propensity to believe that one’s own actions directly contribute to reaching a desired outcome and that they are perhaps more important than other factors.
- Self-efficacy: Belief in one’s capability to marshal the necessary personal resources and competencies to attain a desired outcome.
- Passion: Disposition to love one’s work, i.e., the process of launching a new firm, building it, and making it profitable.
The psychological profiles of innovative (e.g., technology savvy) entrepreneurs, as well as their motivations, likely differ from those of the other types of entrepreneurs. But how, is more difficult to say.
A standard assumption is nevertheless that the behaviour of this group of entrepreneurs is also driven — or perhaps largely driven — by a profit motive.
That is not quite so, as a recent study by Jorge Guzman, Jean Joohyun Oh, and Ananya Sen shows. Their study, “What Motivates Innovative Entrepreneurs? Evidence from a Global Field Experiment”, was published in Management Science in 2020.
The study reports results from three field experiments that were designed to study how innovative entrepreneurs respond to messages of money rewards and social impact. When properly designed and targeted, such messages allow inferring how important these two entrepreneurial motivations — money and social impact — are.
The experiments were run in collaboration with the Massachusetts Institute of Technology Inclusive Innovation Challenge. It is a premier event, calling attention to important societal challenges, and allowing start-ups and entrepreneurial organizations of any size, age, or type to participate in the competition for major monetary prizes.
The key idea of the study is that randomized messages were used to encourage individuals to learn more or apply to the competition. The messages emphasised either the potential monetary reward or the potential for social impact (or, were neutral).
The results are based on experiments and random allocation of the messages. This means that the study findings are informative of the cause and effect. Thus, in this carefully implemented study, correlation implies causation.
A particularly interesting feature of the study is that the authors wanted to learn how entrepreneurial motivations to participate in the premier competition vary across gender and culture:
- Do men react more than women to the message that is about the monetary prize, or do they react to it at all?
- Is there a gender difference in how entrepreneurs react to the social impact message?
- How do individuals located in more altruistic cultures react to the two messages, as compared to individuals located in less altruistic cultures?
The key findings of the study can be summarized as follows:
- Women are more motivated by social-impact messages than money.
- Men are more motivated by money than social impact.
- Individuals located in more altruistic cultures are more motivated by social-impact messages than money.
- Individuals located in less altruistic cultures are more motivated by money than social impact.
The authors of the study conclude that these results
“ … … are not driven by differences in the type of company, its size, or other observable characteristics, but, instead, appear to come from differences in the underlying motivations of innovative entrepreneurs themselves.”
Thus, what motivates innovative entrepreneurs is money, or social impact, depending on whom we talk about.
There are several reasons why these differences in entrepreneurial motivations matter, as the study authors discuss.
First, they may have an impact on the types of projects entrepreneurs pursue and how they indicate and communicate their commitment to their venture.
Second, the differences in entrepreneurial motivations may influence which young ventures get external funding. As the study authors put it:
“For example, innovative entrepreneurs often pitch to investors like venture capitalists for funding. Given that most venture capitalists operate on the profit motive, women entrepreneurs’ relative emphasis on prosocial motivations might hinder their likelihood of receiving funding.”
This is an important lesson for entrepreneurs who differ in their motivation, as well as for financiers, and policy-makers.
The finding provides one explanation for the gender gap in venture capital funding. It can be interpreted as a manifestation of the general human tendency to associate with others based on similar or shared characteristics (see, e.g., this study).
Jorge Guzman, Jean Joohyun Oh, and Ananya Sen base the findings in their Management Science study on a sample that includes more than 14,000 entrepreneurs. The sample is not entirely representative of all innovative entrepreneurs, but it represents well a very interesting sub-population of innovative entrepreneurs.
I am confident that the sample includes more than 14,000 fascinating and inspiring entrepreneurial stories.
However, neither hearing the most unique versions of them, nor learning about all of them one by one, would have uncovered the general causal effects at work — like a well designed quantitative research can.
Ari Hyytinen, PhD, is professor of economics, living in Helsinki, Finland. I hike when I do not write, teach, or do research. I am on Twitter @artahy and on Linked-in here. You can follow me at: Ari T. Hyytinen, PhD.
