Why Entrepreneurial Behavior is the Key to Understanding Success – Kogod Now
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Kogod Now / Spring 2013  / Why Entrepreneurial Behavior is the Key to Understanding Success

Why Entrepreneurial Behavior is the Key to Understanding Success

“You are not in business until you make a dollar,” said Professor Barbara Bird.
Bird is an expert on entrepreneurship and leadership. “But there is not a lot researchers know about selling.”Somewhere between the image of the bootstrapping entrepreneur and the serious study of him, there is a missing link. Bird and others in her field know a bit about the way entrepreneurs think and the motivation they possess to work long hours, seek investor funding, and stay focused even after rejection.

But no one knows much about what those entrepreneurs actually do to make it happen.

While there is an extensive body of research surrounding entrepreneurial ventures, Bird noted that it tends to focus on everything except the specific actions that entrepreneurs take to get their business off the ground.

Bird points to research that explores what entrepreneurs think, research that tells us how they behave once they are in a more established business, and research that shows how investors approach entrepreneurs.

“I have come to realize that entrepreneur behavior is really underrepresented,” said Bird, who has been mining the topic for more than two decades, ever since she wrote her doctoral dissertation on entrepreneurs’ intentions. That’s why she is currently leading efforts to find common terms and measures for entrepreneurial behavior.

“What I want to know,” says Bird, “is how entrepreneurs got their first sale.”

The first dollar is the hardest

Much of Bird’s research surveys the state of knowledge about entrepreneurs and highlights what is missing from it—something she has referred to as the “inattention to the concept of behavioral repertoire.” She calls for greater research into what exactly early-stage entrepreneurs do to sell their product or service.

“If we can agree on some basic behaviors and find common, reliable, and valid measures, we could build a theory of entrepreneurs’ behavior—when are certain behaviors more useful and effective in key outcomes such as gaining funding, gaining sales, hiring talent, survival, and when do they matter less,” Bird argues in her forthcoming paper, which will be published as a chapter in the Handbook of Entrepreneurial Cognition.

“Professor Bird is, hands down, one of the most influential people driving attention to entrepreneur behavior,” said Leon Schjoedt, Associate Professor at Indiana University’s Judd Leighton School of Business and Economics.

Schjoedt, who worked with Bird to co-edit the Fall 2012 issue of the journal Entrepreneurship Theory and Practice, says that understanding more about the behavior and decision-making processes of entrepreneurs would serve students who hope to one day start a business, and would also drive economic benefits.
In a healthy economy, he noted, new businesses create more new jobs than are lost in established businesses, and also serve consumers by filling gaps in markets and driving innovation.

Beyond Jeff Bezos

But why—in a culture seemingly full of admiration for entrepreneurs—is there so little knowledge about the way they work to build a business? Bird and other academics who study the topic say it comes down to a couple of key, interrelated problems:

The difficulty in obtaining good data. Research is only as good as the underlying data, but researchers have historically struggled to locate a large enough pool of entrepreneurs to constitute a representative sample.

“In early research into entrepreneurship, we took what we could get,” said Kelly Shaver, professor at the College of Charleston, who, like Bird, served as chair of the entrepreneurship division of the Academy of Management.

Shaver said that researchers often would find entrepreneurs from tax records or member lists from groups such as the Better Business Bureau, but such an approach did not tend to produce a representative sample, nor did it provide a control group. As a result, even academic papers on the topic tend to include a lot of “conceptualization” in the absence of hard data.

And measuring behavior in particular is hard, Bird explained, noting that one common form of research based on surveying individuals often has issues with validity, and observation-based forms of research are time consuming.

The persistence of stereotypes. The romanticized stereotype of the startup that was built with an idea and a lot of sweat is so pervasive that it may influence students, researchers, and entrepreneurs themselves. The popularity of this not entirely accurate story may be due in part to the lack of good data on entrepreneur behavior.

But students who accept the stereotype may mistakenly see the process of building a business as simply creating a product when, in reality, it is a set of activities.

According to Bird, the persistence of such stereotypes poses a problem with surveying entrepreneurs. “They will tell you what sounds good, rather than what is true,” she explained.

Biases are also prevalent in the classroom, where many teachers have found that students, asked to name an entrepreneur, are more likely to name the late Steve Jobs—who at the time of his death oversaw one of the world’s largest companies—than someone who more recently had success starting a company.

Although the information technology sector has indeed produced many successful entrepreneurs, high-tech startups are only a small portion of new businesses. Each year about 600,000 new businesses are started in the United States, and most of them are not in the high-tech sector, said Schjoedt.

From Idea to Action

Bird and other researchers hope that if they can push past the stereotypes with sound data, they can help arm would-be entrepreneurs with better information. There may not be a single formula for success, but they say there is clearly room to bring down the high failure rate among entrepreneurs.

“There are a lot of entrepreneurs with good ideas but bad execution,” said Jeffrey Pollack, assistant professor at the University of Richmond’s Robins School of Management. “Entrepreneurs are often so focused on getting the resources for their venture that they fail to take a step back and think about what they are doing in a systematic way.”

Pollack said that Bird’s research has helped to “focus the field of entrepreneurship in a different direction” based on better data collection and concrete observation.

While every business student stands to benefit from better information about best practices, Bird maintains that this information is especially critical in the startup venture, where behavior probably plays a more crucial role than in larger businesses with established practices in place.

Some of the entrepreneur behaviors she believes warrant closer study include the time the entrepreneur spends developing contacts, the way entrepreneurs communicate with customers, the way they display emotion, whether and how they improvise, and how they approach investors.

A core question she keeps returning to relates to that first dollar and what she calls “the behavior of selling.”

In addition to identifying the right questions, Bird said that researchers have a few options in collecting accurate data. They can base their research on surveys of the entrepreneur, but take steps to control for biases and ensure that they have a representative sample.

No Easy Answer

One of the most reliable ways to extract a research sample of entrepreneurs from the general population is a process known as “random dialing,” in which the researcher contacts large numbers of households by phone (or some other means), in the same fashion that large national surveys such as the Labor Department’s monthly employment surveys are conducted. These researchers ask if they are in the process of starting a business, and then proceeds with a series of yes or no questions.

The researcher eventually collects a set of data that can compare entrepreneur behavior to that of the general population, but the process is time consuming and costly. Bird believes there is great merit in this sort of research, but that it tends to yield surface data rather than deeper insights.

Another option, she said, is observational research, which is, like it sounds, based on observing individual entrepreneurs rather than asking them questions. As with random dialing, the process is time consuming.

“The researcher pays a price for rich observation,” said Bird. “Two or three years of observation might produce enough data for a single article.”

One possible hybrid of these two methods, she suggested, would be a beeper or cell phone “ping”-type method, where nascent entrepreneurs agree to be interrupted at random times during the day to report on their action.

Although most of the methods that she thinks have merit take time and are expensive, Bird said that this sort of exhaustive research is the only way to advance the study of entrepreneurship and fill in the gaps.
“If you want to be an entrepreneur, it’s important to know yourself—your skills, your willingness to persist, fail and try again. You need to “know the territory” and your audience as you pitch your idea and build a team and gather resources. You need to know when to act and when to restrain action.”

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