CHAPTER 2 ‘1 i LEARNING OBJE 1 1. To describe the entrepreneurial mind-set “A : comet i To identify and discuss commonly cited characteristics successful entrepreneurs discuss the “dark side” of be entrepreneurship oe < To identify and describe the different types of risk entrepreneurs face as well as the major causes of stress for these individuals and the ways they can handle stress To discuss the ethical dilemmas est confronting entrepreneurs To study ethics in a conceptual framework The Entrepreneu rial for a dynamic environment To present strategies for establishing Mind-Set in Individuals: ethical responsibly and leadership (overnite and Ethics ‘To examine entrepreneurial motivation Entrepreneurial Thought For all we know about balance sheets, income statements, and cash flow accounting; for all of our understanding about marketing strategies, tactics, and techniques; and for everything we have learned about management principle and practices, there remains something essential, yet mysterious, at the core of entrepreneurship. It is so mysterious that we cannot see it or touch it; yet we fee! it and know it exists. It cannot be ‘manufactured, or bought; yet it c discovered. Its source is invisible; yet its results are tangible and measurable. This mysterious core is so powerful that it can make the remarkable appear ordinary, so contagious that it can spread like wildfire one to another and so persuasive that it can transform doubt and uncertainty into conviction. This mysterious core is PASSION! — Ray Smilor, PH.D. Daring Visionaves Scanned with CamScanner* 28 rinse CHAPTER 2 The Entrepreneurial Mind-Set in Individuals: Cognition and Ethics 2-1 THE ENTREPRENEURIAL MIND-SET Tapescite ne ‘entrepreneurial and ‘entrepreneurial cxantien If past generations dreamed of the prestige and perks that come with the executive suite of ‘2 major corporation, the dream of the millennial generation (also. known as Generation Y) appears quite different. They believe that carcer success will require them to be more nimble, independent, and entrepreneurial than past generations. In a recent study only 13 percent of millennials said their career goal involves climbing the corporate ladder to become a CEO or president. By contrast, almost two-thirds (67%) said their goal involves starting their own business. Millions of individuals younger than 35 are actively trying to start businesses, one- third of new entrepreneurs aré younger than 30, and large numbers of 18- to 30-year-olds study entrepreneurship in business schools. Major universities are devoting more resources to entrepreneurship, and the success stories of young entrepreneurs are increasing,’ Every person has the potential and free choice to pursue a career as an entrepreneur, but exactly what motivates people to make this choice is not fully understood. As we dem- onstrated in Chapter 1, researchers are attempting better to understand the driving forces within entrepreneurs, but have not yet identified one single event, characteristic, or trait that pushes an individual into the domain? The chapters in this book focus on learning the discipline of entrepreneurship. This chapter, however, is devoted to a more psychological look at entrepreneurs: It describes entrepreneurial cognition, the most common characteristics associated with successful entre- preneurs, the elements associated with the * dark side” of entrepreneurship, as well as the ethical challenges that entrepreneurs confront, In this mannes, we can gain a more complete perspective on the entrepreneurial behavior that a person with an entrepreneurial mind- set exhibits. Although it certainly is not an exact science, examining this mind-set provides interesting insights into the entrepreneurial potential within every individual.? Let's examine the cognition of entrepreneurs as a doorway to understanding the entrepreneurial mind-set. SN Sat 2-2a In science, cognition refers to mental processes. These processes include attention, remem- bering, producing and understanding language, solving problems, and making decisions. ‘The term comes from the Latin cognoscere, which means * to know, *to conceptualize? of * to recognize, and refers to a faculty for the processing of information, applying know!- edge, and changing preferences. Cognition is used to refer to the mental functions, mental processes (thoughts), and mental states of intelligent humans. Social cognition theory intro- {duces the idea of knowledge structuresm ental models (cognitions) that are ordered in such fa way as to optimize personal effectiveness within given situationsD to the study of entre- preneurship. Concepts from cognitive psychology are increasingly being found 1» be useful tools to help probe entrepreneurial-related phenomena, and, increasingly, the applicability ofthe cognitive sciences to the entreprencurial experience are cited in the research literature, Researchers Ronald K. Mitchell, Lowell Busenitz, Theresa Lant, Patricia P. McDougall, Eric A. Morse, and J. Brock Smith define entrepreneurial cognition as the knowledge sttucy tures that people use to make assessments, judgments, or decisions involving opportunity evaluation, venture creation, and growth.* In other words, entrepreneurial cognition is about understanding how entrepreneurs use simplifying mental models to piece together previously unconnected information that helps them to identify and invent new psoaect or services, and to assemble the necessary resources to start and grow businesses, then, the entrepreneurial cognitions view offers an understandiny think and *why® they do some of the things they do. Specifically, #8 88 to how entrepreneurs Metacognitive Perspective While the research has focused on entreprencutial cognitions, a new stream o links the foundation of the entrepreneurial mind-set to cognitive Rueebiy Suse defined asthe ability to be dynamic, flexible, and self-regulating in one's cowninigns ty dynamic and uncertain task environments, Adaptable cognitions are i desirable outtomes from entrepreneurial actions. Scanned with CamScanner aEntrepreneurial Cognition 29 In this light, a team of researchers developed a situated, metacognitive model of the entre- preneurial mind-set that integrates the combined effects of entrepreneurial motivation and context, toward the development of metacognitive strategies applied to information process- ing within an entrepreneurial environment.) Consider an entrepreneur faced with the entrepreneurial task of developing a sound explanation for a new venture in preparation for an important meeting with a venture capi- talist. Before the entrepreneur is prepared to evaluate alternative strategies, the entrepreneur ‘must first formulate a strategy to frame how he or she will” think® about this task. This Process is metacognitive. The process responsible for ultimately selecting a response (i. particular venture strategy) is cognitiveD the process responsible for ultimately selecting, how the entrepreneur will frame the entrepreneurial task is metacognitive. Thus, metacogni- tion is not to study why the entrepreneur selected a particular strategy for a set of alternative strategies (cognition), but instead to study the higher-order cognitive process that resulted in the entrepreneur framing the task effectually, and thus why and how the particular strategy was included in a set of alternative responses to the decision task (metacognition). Although it has become a significant area of study, entrepreneurial cognitive research Presents future conceptual challenges that will have to be examined in order to be an effec- tive contribution to the entrepreneurial world. For instance, many works are built on the premise that founders and entrepiencurs” think® differently than other individuals or busi- ness executives. But it is far less clear whether this * cognitive difference® originates from idiosyncratic factors and events that predate entrepreneurs’ efforts and actions, or from the very experience of entrepreneurship by these individuals. Similarly, itis nor clear whether the* cognitive difference” of entrepreneurs results from tasks and environmental conditions that *r eward? individuals with particular *t hinking,° or from conditions that encourage the expression and/or development of such thinking. Those questions introduce the notion of the entrepreneurial experience, which we examine next.6 fae Who Are Entrepreneurs? Frank Carney, one of the founders of Pizza ‘comerstone of the American enterpris ¢ than just an idea; it requires judgment and planning with risk ent and oceee perseverance, work very If full rather than half empty. They strive for to excel, They use failure as a tool for learn- ves to believe thar they personally can make a ventures.” te of new ventures attests to the difficulty of entrepreneurship. nt management are the main reasons for failure. But what are ss? Do they apply to all components of entrepreneurship? These are » shall explore in this chapter. "A review of the literature related to entrepreneurial characteristics reveals the existence _ ofa large number of factors that can be consolidated into a much smaller set of profile dimensions. Howard H. Stevenson and David E. Gumpert have presented an outline of the entrepre- neurial organization that reveals such characteristics as imagination, flexibility, and will ness to accept risks.* William B, Gartner examined the literature and found a diversity of reported characteristics” John Hornaday examined various research sources and formulated a list of 42 characteristics often attributed to entrepreneurs (see Table 2.1). late i sine s Scanned with CamScanner30 CHAPTER 2. The Entrepreneurial Mind-Set in Individuals: Cognition and Ethics 1. Confidence 22, Responsibility 2, Perseverance, determination 23, Foresight 3. Energy, dlligence 24, Accuracy, thoroughness 4, Resourcefulness 25. Cooperativeness 5. Ability to take calculated risks 26. Profit orientation 6, Dynamism, leadership 27. Ability to learn from mistakes 7. Optimism 28. Sense of power 8, Need toachieve 29, Pleasant personality 9. Versatility; knowledge of product, 30. Egotism market, machinery, technology 31, Courage 10. Creativity 32. Imagination 11. Ability toinfluence others ene | 12, Abily to get along well with people 34: Tolration for embigulty. Inlative 35, Aggressiveness Fletbilty 36. Capacity for enjoyment 5. Intligence sae “16, Orientation to clear goals Eesti 17, Positive response to challenges Pogue nat aben ] "18, Independence 40, ‘Sensitivity to others, 19. Responsiveness to suggestions ands 41, Honesty, Integrity | 20. Time competence efficiency sae |. Ability to make decisions quickly , + ‘Soure: Joh A. Hornaday “R esearch about Living Entrepreneurs in Encjlopea of Entrepreneurship Calvin Kent, Dural Sexton; and Karl Vesper (Englewood Cliffs, NI: Prentice Hal, 1982), 26327. Adapted by permission of Prentice | Hall, Englewood Cliff, NJ. fe AEE RT In the simplest of theoretical forms for studying entrepreneurship, entrepreneurs cause entrepreneurship. E = f(e); that is, entrepreneurship is a function of the entrepreneur. Thus, the continuous examination of entrepreneurial characteristics aids the evolving understand- ing of the entrepreneurial mind-set. One author provides the following description: ‘Would-be entrepreneurs live in a sea of dreams. Their destinations are private islands places to build, create, and transform their particular dreams into realty, Being an entre- preneur entails envisioning your island, and even more important, it means getting in the boat and rowing to your island. All dreamers may one day be entrepreneurs if they can marshal the resourcesDe xternal and internalDne eded to transform their deeams into reality." Entrepreneurs also have been characterized as the interaction of the following skills: inner control, planning and goal set i risk taking, innovation, reality perception, use of feed- pack, decision-making, human relations, and independence. In addition, many people bel cee fl careprencue es tod peluslgwhn are noc afmid'ta fala) ate ae ‘As we showed earlier in the chapter, research continues to expand our understanding of the cognitions of entrepreneurs." New characteristics are continually being added to ave ever-growing lis. At this point, however, let us examine some of the most often cied came, preneurial characteristics. Although this list admittedly is incomplete, beet {ant insights into the entrepreneurial mind-set. itdoes provide impor-Entrepreneurial Cognition 31 DETERMINATION AND PERSEVERANCE More than any other factor, total dedication to success as an entrepreneur can overcome obstacles and setbacks. Sheer determination and an unwavering commitment to succeed often win out against odds that many people would consider insurmountable. They also can compensate for personal shortcomings. Often, entrepreneurs with a high-potential venture and a plan that includes venture capital financing can expect investors to measure their com- ‘mitment in several ways. Examples include a willingness to mortgage a home, take a cut in pay, sacrifice family time, and reduce standards of living. DRIVE TO ACHIEVE Entrepreneurs are self-starters who appear to others to be internally driven by a strong desire to compete, to excel against self-imposed standards, and to pursue and attain chal- lenging goals. This drive to achieve is well documented in the entrepreneurial literature, beginning with David McClelland’'s pioneering work on motivation in the 1950s and 1960s." High achievers tend to be moderate risk takers. They examine a situation, detee- mine how to increase the odds of winning, and then push ahead. Asa result, high-risk decisions for the average businessperson often are moderate risks for the well-prepared high achiever. OPPORTUNITY ORIENTATION ‘ ‘ One clear pattern among successful, growth-minded entrepreneurs is their focus on opportu- nity rather than on resources, structure, or strategy. Opportunity orientation is the constant awareness of opportunities that exist in everyday life. Successft rs start wi the opportunity and let their understanding goal oriented in their pursuit of opportunities to focus their energies, to selectively sort Their goal orientation also helps them to d cof how well they are performing. gh entrepreneurs and cannot do and Mee : . Unlike many people, however, are doing and how they might improve make these determinations, they actively seek out and al to their learning from mistakes and setbacks. in themselves. They do not believe that the success or fail- “il governed by fate, luck, or similar forces. They believe that their setbacks are within their own control and influence, and that they itcome of their actions. This attribute is consistent with a high-achievement rive, the desire to take personal responsibility, and self-confidence. 2ANCE FOR AMBIGUITY : -up entrepreneurs face uncertainty compounded by constant changes that introduce ibiguity and stress into every aspect of the enterprise. Setbacks and surprises are inevi- ble; lack of organization, structure, and order is a way of life. A tolerance for ambiguity serine Scanned with CamScanner~ confront him or her. Successful entrepreneurs thrive on the fluidity and excitement of such fan ambiguous existence, Job security and retirement generally are of no concern to them. CALCULATED RISK TAKING Successful entrepreneurs are not gamblersD they are calculated risk takers. When they “Gecide to participate in a venture, they do so in a very calculated, carefully thought-out manner. They do everything possible to get the odds in their favor, and they often avoid taking unnecessary risks, These strategies include getting others to share inherent financial ‘and business risks with themD for example, by persuading partners and investors to put Up money, creditors to offer special terms, and suppliers to advance merchandise. HIGH ENERGY LEVEL Fisica disary workloads aad sresaful demands placed on catreptenours put « peccieeal on their energy. Many entrepreneurs Fine-tune their energy levels by carefully me eeing Scanned with CamScannerEntrepreneurial Cognition 33 what they eat and drink, establishing exercise routines, and knowing when to get away for relaxation. CREATIVITY AND INNOVATIVENESS, Creativity was once regarded as an exclusively inherited trait. Judging by the level of cre- ativity and innovation in the United States compared with that of equally sophisticated but less creative and innovative cultures, it appears unlikely that this trait is solely genetic. An expanding school of thought believes that creativity can be learned (Chapter 5 provides a comprehensive examination of this critical characteristic). New ventures often possess a collective creativity that emerges from the joint efforts of the founders and personnel and produces unique goods and services. VISION Entrepreneurs know where they want to go. They have a vision or concept of what their firms can be. For example, Steve Jobs of Apple Computer fame wanted his firm to provide microcomputers that could be used by everyone, from schoolchildren to businesspeople. The ‘computer would be more than a machine. It would be an integral part of the person's life in terms of learning and communicating. This vision helped make Apple a major competitor in the microcomputer industry. Not all entrepreneurs have predetermined visions for their firms, however. In many cases, this vision develops over time as the individual begins to real- ize what the firm is and what it can become. > sa for Enti Scanned with CamScanner#34 CHAPTER 2 The Entrepreneurial Mind-Set in Individuals: Cognition and Ethics PASSION Entrepreneurial passion is a fundamental em Researcher Melissa $. Cardon has devoted much of her ef of the entrepreneurial mind-set. She has found that entreprencurial passion is 27 expres sion constructed by the entrepreneur to provide a coherent understanding (0 #0 emotional experience of intense arousal and energy mobilization involving an entreprene™ and his or er vena! MCGPCar es eatepeeial paosion| icharactetacd by 2 disci Goo that is quite intense being described as an underlying force that fuels out strongest m0 or the intensity felt when engaging in activities that are of deep interest, OF the energy that enables entrepreneurs to achieve peak performance. Thus, entrepreneurial passion 1S recognized as a fundamental component of the entrepreneurial mind-set. rotional experience for entrepreneurs. forts on examining this clement TEAM BUILDING ‘The detire for independence and autonomy does not preclude the entrepreneur's desire to build a strong entrepreneurial team, Most successful entrepreneurs have highly quali- fied, well-motivated teams that help handle the venture’ growth and developmet In fact, although the entrepreneur may have the clearest vision of where the firm is (of should be) heucd, the personnel often are more qualified to handle the day-to-day implemenration challenges." DEALING WITH FAILURE Entrepreneurs use failure as a learning experi ‘The erative, tria-and-error nature of becoming a successful entrepreneur makes serious ‘rabacks and disappointments an integral part of the learning process. Keep in mind that serrepreneurial ventures that are created to pursue new and unique opportunities often fai She tp the uncertain environment within which they develop. Although failure can be an {important source of information for learning, ths learning is not automatic or instanta- aeee The emotions generated by failure (ie. grief) can interfere with the learning process. ‘While we espouse the importance of failure and the learning that must take place once fail- we has occurred, seldom do we recognize the importance of grief in the failure experience. Grief is 2 negative emotional response to the 1oss of something important triggering behav- ioral, psychological, and physiological symptoms, ce; hence, they have a tolerance for failure. 2-3a The Grief Recovery Process “The traditional process of recovering from grief involves focusing on the particular loss to aoe trvet an account that explains why the loss occurred. As a plausible account for the folare is constructed, the individual is able to begin to break the emotional bonds to the project lost. However, empirical research has found that this loss orientation toward grict veavery ean sometimes exacerbate the negative emotional reaction.'s By focusing on the failure, the entrepreneur's thoughts can shift from the events leading up to the failure to the emotions surrounding, the failure event. That is, by continually focusing on the failure, hogative thoughts and memories become more salient and can lead to ruminations that escalate grief." ‘A restoration orientation is an alternate approach and is based on distracti from thinking about the failure event and being proactive toward eae ae. Distraction takes the individuals thoughts away from the source of his or her negati 4 airs aldrtsng secondary} causes of sires (bought on by the failure) can diminish the primary stressorD the entrepreneurial failure. However, avoiding negative emoti = unlikely to be successful in the long-run suppressing emotions leads to Rae Thologial problems and these suppressed emotions are likely to reemerge and do so at an inopportune time.” area es) so atan ‘Researcher Dean A. Shepherd! proposed a dual process model of recovering from t arief over entrepreneurial failure, Based on this dual Beat ag from the —— Fhore quickly from a failure if he or she oscillates between a loss a : tion, This oscillation means that the entrepreneur can g ay Scanned with CamScannerWD diseiss oye or Brba ER eit ‘and describe the nN a typology of entrepreneurial styles.» Figure 2.1 illustrates these classifications in terms of _the financial risk endured when a new venture is undertaken. In this model, the financial risk The Dark Side of Entrepreneurship 35 While minimizing the costs of maintaining either for an extended period. By oscillating (switching back and forth) between these orientations, entrepreneurs can learn mare from their failure experiences. _The most effective entrepreneurs are realistic enough to expect difficulties and failures, If they can deal effectively with any grief that emanates from the failure, then they will not become disappointed, discouraged, or depressed by a setback or failure. In adverse and diff. cult times, they will continue to look for opportunity. In this way, entrepreneurs will believe that they learn more from their early failures to form the foundation of later successes. es ENTREPRENEURIAL. EXPERIENCE As we discussed in Chapter 1, the prevalent view in the literature is that entrepreneurs create ventures. Although that isa true statement, its narrow framing neglects the complete process of entrepreneurship and much of the realty regarding how ventures and entrepreneurs come into being. Researchers Michael H. Morris, Donald F. Kuratko, and Minet Schindehutte point out thatD similar to a painting that emerges based on the individual interacting with, feeling, and agonizing over his or her creationD a venture is not simply produced by an entrepreneur, Entrepreneurs do not preexist; théy emerge as a function of the novel, idiosyncratic, and expe- ntial nature of the venture creation process. Venture creation is a lived experience that, as it unfolds, forms the entrepreneur. Infact, the creation of a sustainable enterprise involves three Parallel, interactive phenomena: emergence of the opportunity, emergence of the venture, and. «emergence of the entrepreneue. None are predetermined or fixedD they define and are defined by one another.!? Thus, this perspective on the entrepreneur has gained new momentum in the entrepreneurship research of the twenty-first century, This experiential view of the entrepreneur captures the emergent and temporal nature of entrepreneurship. It moves us past a more static“ snapshot® approach and encourages con- sideration of a dynamic, socially situated process that involves numerous actors and events, It allows for the fact that the many activities addressed as a venture unfolds are experi. enced by different actors in different ways.” Moreover, it acknowledges that venture cre. ation transcends rational thought processes to include emotions, impulses, and physiological Fesponses as individuals react to a diverse, multifaceted, and imposing array of activstics, events, and developments. This perspective is consistent with recent research interest in situated view of entreprencurial action.” However, we must be aware that this psychology. cal aspect of entrepreneurship presents a dark side as well, A great deal of literature is devoted to extolling the rewards, successes, and achievements of entrepreneurs. However, a dark side of entrepreneurship also exists, and its destructive source can be found within the energetic drive of successful entrepreneurs. In examining this dual-edged approach to the entrepreneurial personality, researcher Manfred FR, Kets de ‘ries has acknowledged the existence of certain negative factors that may cnvclop entrepre- neurs and dominate their behavior Although each of these factors has a positive aspect, it is important for entrepreneurs to understand their potential destructive side as well. ear eeodne Confrontation with Risk Starting or buying a new business involves risk. The higher the rewards, the greater the risks entrepreneurs usually face/This is why entrepreneurs tend to evaluate risk very carefully. In an attempt to describe the risk-taking activity of entrepreneurs, researchers developed Scanned with CamScanner %ind Ethics. 36 CHAPTER 2 The Entrepreneurial Mind-Set in Individuals: Cognition a Scanned with CamScannerThe Dark Side of Entrepreneurship 37 FAMILY AND SOCIAL RISK Starting a new venture requires much of the entrepreneur's energy and time, which can in turn create a family and social risk. Consequently, his or her other commitments may suf- fer. Entrepreneurs who are married, and especially those with children, expose their families to the risks of an incomplete family experience and the possibility of permanent emotional scars. In addition, old friends may vanish eventually because of missed get-togethers. PSYCHIC RISK ‘The psychic risk may be the greatest risk to the well-being of the entrepreneur. Money can be replaced; a new house can be built; spouses, children, and friends usually can adapt. But some entrepreneurs who have suffered financial catastrophes have been unable to bounce back, atleast not immediately. The psychological impact has proven to be too severe for em. 2-5b Stress and the Entrepreneur Some of the most common entrepreneurial goals are independence, wealth, and work sat- isfaction. Research studies of entrepreneurs show that those who achieve these goals often ay a high price2” A majority of entrepreneurs surveyed had back problems, indigestion, insomnia, or headaches. To achieve their goals, however, these entrepreneurs were willing to tolerate these effects of stress. The rewards justified the costs. WHAT IS ENTREPRENEURIAL STRESS? In general, stress can be viewed as a function of discrepancies between a person's expecta- * tions and ability to meet demands, as well as discrepancies between the individual's expec- tations and personality. If a person is unable to fulfill role demands, stress occurs, When ‘entrepreneurs’ work demands and expectations exceed their abilities to perform as venture tors, they are likely to experience stress. One researcher has pointed out how entrepre- neurial roles and operating environments can lead to stress. Initiating and managing a busi- ness requires taking significant risk. As previously mentioned, these risks may be described as financial, career, family, social, or psychic. Entreprencurs also must engage in constant communication activitiesDinte racting with relevant external constituencies such as custom- ers, suppliers, regulators, lawyers, and accountantsDwhic h can be stressful. Lacking the depth of resources, entrepreneurs must bear the cost of their mistakes while playing a multitude of roles, such as salesperson, recruiter, spokesperson, and negotiator. These simultaneous demands can lead to role overload. Owning and operating a business requires a large commitment of time and energy, as noted previously, often at the expense of family and social activities. Finally, entrepreneurs often work alone or with a small number cof employees and therefore lack the support from colleagues that may be available to mai = agers in a large corporation.2* In addition to the roles and environment experienced by entrepreneurs, stress can result from a basic personality structure. Referred to as type A behavior, this personality structure cecies people who are impatient, demanding, and overstrung. These individuals gra ney and find themselves completely immersed in their business characteristics asociated with type A personalities are wd ster sens of tne ager. or inace, ype A le become particu- my * lary frasrated in afiejams. a ashes fe Soa (Se Scanned with CamScanner@e° 38 CHAPTER 2 The Entrepreneurial Mind-Set in Individuals: Cognition and Ethics A widespread belief in the stress literature is that type A behavior is related to coronary heart disease and that stress is a contributor to heart disease.”” A Thus, to better understand stress, entrepreneurs need to be aware of their particular per- sonality as well as the roles and operating environments that differentiate their business pursuits.” SOURCES OF STRESS Researchers David P. Boyd and David E. Gumpert have identified four causes of entrepre- neurial stress: (1) loneliness, (2) immersion in business, (3) people problems, and (4) the need to achieve." Loneliness Although entrepreneurs usually are surrounded by ‘others employees, cus- tomers, accountants, and lawyersD they often are isolated from people in whom they can confide. Long hours at work prevent them from seeking the comfort and counsel of friends ‘and family members. Moreover, they tend not to participate in social activities unless they provide a business benefit. A’sense of loneliness can set in because of the inner feelings of isolation. a Immersion in Business One of the ironies of entrepreneurship is that successful ‘entrepreneurs make enough money to partake of a variety of leisure activities, but they ‘cannot take that exotic cruise, fishing trip, or skiing vacation because their business will not allow their absence. Most entrepreneurs are marri ic business can mean they work long hours and have ation, or further education. : Paolo ProbierisEaueprew mutt ners, bankers, and profession a ;periences with t Scanned with CamScannerThe Dark Side of Entrepreneurship 39 Following are six specific ways entrepreneurs can cope with stress. Networking. One way to relieve the loneliness of running a business is to share experi- ‘ences by netivorking with other business owners. The objectivity gained from hearing about the triumphs and errors of others js itself therapeutic. Getting Away from It Al) The best antidote to immersion in business, report many r ¥y. If vacation days or weeks are limited by valid business con straints, short breaks still may be possible. Such interludes allow a measure of self-renevral Communicating with Employees Entrepreneurs are in close contact with employ- ces and can readily assess the concerns of their staffs. The personal touches often unavailable in large corporationsDs uch as company-wide outings, flexible hours, and small loans to tide workers over until paydayB are possible here. In such settings, employees often are more Productive than their counterparts in large organizations and may experience less stress due to the personal touches that are applied. Finding Satisfaction Outside the Company Countering the obsessive need to achieve can be difficul, because the entrepreneur's personality is inextricably woven into the company fabric. Entrepreneurs need to get away from the business occasionally and become ‘more passionate about life itself, they need to gain some new perspectives. 5a sancti es eR mee hg. Delegating’ Implementation of coping mechanisms requires implement gain this time, Neareeee has to delegate tasks. Entreprencurs find delegatio because they think they have to be at the business all of the time and be involved in every aspect of the operation. But if time is to be used for alleviation of stress, fees must be found and trained. RIS si gh Scanned with CamScanner &@ 40 CHAPTER 2 The Entrepreneurial Mind-Set in Individuals: Cognition and Ethics SENSE OF DISTRUST To remain alert to competition, customers, and government regulations, entrepreneurs must continually scan the environment. They try to anticipate and act on developments that others might recognize too late. This distrustful state can result in their focusing on trivial chings and cause them to lose sight of realty, distort reasoning and logic, and take destrac- tive actions. Again, distrust is a dual-edged characteristic OVERRIDING DESIRE FOR SUCCESS The entrepreneur's ego is involved in the desire for success. Although many of today's entrepreneurs believe they are living on the edge of existence, constantly stirring within them is a strong desire to succeed in spite of the odds. Thus, the entrepreneur rises uP at a defiant person who creatively acts to deny any feelings of insignificance. The individual is driven to succeed and takes pride in demonstrating that success. Thercin lie the seeds of possible destructiveness. Ifthe entrepreneur seeks to demonstrate achievement through the erection of a monumentD such as a huge office building, an imposing factory, or a plush officeD the danger exists that the individual will become more important than the venture itself. A loss of perspective like this can, of course, be the destructive side of the desire to succeed. OCESS ‘The fear an entrepreneur experiences has ts own taste, ‘nn smell and its own gut wrenching pain--and it does ‘ot go away as long as the person remains an entiepre- © peut It becomes an education: Entrepreneurial Fear 101, Although the course is very exclusive, admission i auto- Scanned with CamScannerEthical Dilemmas 41 UNREALISTIC OPTIMISM The ceaseless optimism that emanates from entrepreneurs (even through the bleak times) is a key factor in the drive toward success. Entrepreneurs maintain a high enthusiasm level that becomes an external optimism which allows others to believe in them during rough periods. However, when taken to its extreme, this optimistic attitude can lead to a fantasy approach to the business. A self-deceptive state may arise in which entrepreneurs ignore trends, facts, and reports and delude themselves into thinking everything will turn out fine. ‘This type of behavior can lead to an inability to handle the reality of the business world. These examples do not imply that all entrepreneurs fall prey to these scenarios, nor that each of the characteristics presented always gives way to the * destructive” side. Neverthe- less, all potential entrepreneurs need to know that the dark side of entrepreneurship exists. 2-6 ENTR BEB study etnies: sma conceptal tramework fora dynamic Ethical issues in business are of great importance today, and with good reason. The preva- lence of scandals, fraud, and various forms of executive misconduct in corporations has spurred the watchful eye of the public. Ethics is not a new topic, however. It has figured prominently in philosophical thought since the time of Socrates, Plato, and Aristotle. Derived from the Greek word ethos, meaning custom or mode of conduct, ethics has challenged philosophers for centuries to determine what exactly represents right or wrong conduct, For example, business executive Vernon. R. Loucks, J, notes that* it was about 560 B.C. ... when the Greek thinker Chilon regis- tered the opinion that a merchant does better to take a loss than to make a dishonest profit. His reasoning was that a loss may be painful for a while, but dishonesty hurts foreverDand it's still timely: Today's entrepreneurs are faced with many ethical decisions, especially during the early stages of their new ventures. And, as Sir Adrian Cadbury observed, “There is no simple universal formula for solving ethical problems, We have to choose from our own codes of conduct whichever rules are appropriate to the case in hand; the outcome of these choices makes us who we are?” In the following sections, we examine some of the ethical dilemmas confronting entrepre- nurs. It is our hope that aspiring entrepreneurs will realize the powerful impact that integ- rity and ethical conduct have on creating a successful venture. In the broadest sense, ethics provides the rules or parameters for conducting any in an* acceptable? manner. More specifically, ethics represents a set of princi prescribing a behavioral code that explains what is good and right or bad and wrong; ethi ‘may, i scion: ols eae emcee tr problen with the term is not the description itself but its implications fori i a static description implying that society agrees on iis Ninaiiseitee Scanned with CamScanner ojon and Ethics # 42 CHAPTER 2 The Entrepreneurial Mind-Set in Individuals: Cogniti Scanned with CamScannerEthical Dilemmas 43 #e Ce Examples ‘Against thefirm Expense account cheating E Embezzlement E Stealing supplies ‘Against thefirm Superficial performance appraisal ‘Not confronting expense account cheating Role failure Fees Ses eae one us For the firm Bribery a Price ting F Manipulating suppliers £ Forthe firm Investing in unethically governed countries Using nuclear technology for energy generation ‘Not withdrawing product line in face of initial allegations of inadequate safety 4 Source: James A, Waters and Frederick Bied,* Attending to Ethics in Management Journal of Business Ethics 5 (1999): 494. ‘ole, including superficial performance appraisals (not otlly honest) and ft confronting someone who is cheating on expense aécounts. Role distortion acts and role assertion acts are rationalized as being * for the firm: These acts involve managers/entrepreneurs who lize that the long-run interests head ia toed ost. Examples include bribery, Scanned with CamScannerIm addition, even if the argument were made that laws are supposed to be the collective moral judgment of society, inherent problems arise when people believe that laws represent ‘morality, Whether it is because of a lack of information on issues, misrepresentatio ues or laws, or an imprecise judicial system, the legal environment ing all ethical and moral expectations. Thus, the issue of law and ¢ dilernma for entrepreneurs. ae “y But it is clear that unethical behavior does take place in bu explanations include (1) greed, (2) distinctions between home, (3) a lack of a foundation in ethics, (4) 8 ance on other social institutions to conv ‘cal decision-making is a challenge that cc rs i Scanned with CamScannerEstablishing a Strategy for an Ethical Venture 45. tendenciesDthe special tracks it leavesDt o anticipate points of crisis, and of special concern to us, to increase the possibility of intelligent moral actions: 2-7d Online Ethical Dilemmas in E-Commerce It is clear that e-commerce and online purchases have grown in popularity possibly redefin- ing the social norms inherent in commerce. With the slow demise of face-to-face interactions, the question of how entrepreneurs can establish trust becomes a priority. Contributing to r consumers concerns is the fact that unethical behavior is more likely to take place through online transactions than through offline ones due to the ease in which businesses can deceive consumers online. So, we see consumers now relying on the opinions of fellow consumers Posted through online consumer reviews to inform their own purchasing decisions.” These online consumer reviews are posted to reputation management systems which now play an integral role in e-commerce as they are commonly used on popular sites such as Amazon and Yelp.‘ However, a new ethical concern has arisen in regard to the use and sometimes abuse of these new systems. Even though researchers have documented the importance of consumer trust in ¢-commerce,*! the pressures faced by’ businesses to protect their online reputation has resulted in some businesses resorting to tactics that betray that trust, specifically posting online consumer reviews in order to strategically manipulate the reputation management systems.*? One study revealed how young professionals have been conditioned by the ano- nymity of web-based interactions and the degree to which they rationalize the misrepresen- tation of information by business professionals for the purpose of manipulating consumers’ purchasing decisions in order to drive sales. ‘These questions concerning the ethical challenges that now confront entrepreneurs in the social media age strike at the potential venture success which is at stake in the hands of the social media reputation management sites. How should entrepreneurs proceed? Rather than using the rationalizations already discussed to justify questionable conduct, it would be far greater in the long run to exhibit strong ethical responsibility in their actions. In the next section we examine how to establish an ethical strategy. ~ Because the free enterprise system in which the entrepreneur flourishes is fraught with myr- iad conflicts, entrepreneurs need to commit to an established strategy for an ethical venture. eo) 2-8a Ethical Codes of Conduct A code of conduct is a statement of ethical practi adheres. Many such codes exists ome rela okies eclaced dieccly, to corporate conduct. These codes cover a bjects, ranging from misuse of corporate assets, conflict of interest, | Scanned with CamScanner#% 46 CHAPTER 2 The Entrepreneurial Mind-Set in Individuals: Cognition and Ethics subvert the laws of supply and demand, and they short-ircuit competition based on clas, cal ideas of product quaicy, service, and price. Free markets become replaced by constived markets. The need for constant improvement in products or services is thus remove’ ‘A second, related reason is that by improving the moral climate of the enterprise, the corporation can eventually win back the public's confidence. This would mark s rarn: around, because many people today question the moral and ethical integrity of company and belicve that businesspeople try to get away with everything they can. Only time will tell whether codes of conduct will improve business practices. Current trends indicate, howeves, that the business community is working hard to achieve this objective."* Mark Twain once said," Always do the right thing. Ths will suprise some people and astonish the rest? Te-wil also motivate them to do the right thing, Indeed, without a good example from the top, ethical problems (and all the costs that go with them) are probably inevitable within your organization, 2-8b Ethical Responsibility Waa reer Establishing a strategy for ethical responsibility is not an easy task for entrepreneurs. No ee single, ideal appeoach to organizatidnal ethics exists. Entrepreneurs need to analyze the ethi- oa cal consciousness of their organization, the process and structure devised to enhance ethical atic suyand__ activity, and, finally, their own commitment to institutionalize ethical objectives within the teadership ‘Company.*” Keeping these points in mind, entrepreneurs eventually can begin to establish a strategy for ethical responsibility. This strategy should encompass three major elements: | ethical consciousness, ethical process and structure, and institutionalization: «Ethical Consciousness The development of ethical consciousness is the responsibility of the entrepreneut, because his or her vision created the venture. The key figure to set che tone for ethical decision-making and behavior is the entrepreneur. An open exchange of issues and processes within the venture, established codes of ethics for the company, and the setting of examples by the entrepreneur are all illustrations of how this is done. Foc example, when the CEO of a large corporation discovered bookkeeping discrepancies in THE ENTREPRE Scanned with CamScannerEthical Considerations of Corporate Entrepreneurs 47 one of the departments, he directed the 20 implicated employees to make retribution by donating $8,500 to charity.‘* This action commanded positive ethical action and set the tone for ethical expectations. Ethical Process and Structure Ethical process and structure refer to the procedures, posi- tion statements (codes), and announced ethical goals designed to av Having all key personnel read the venture’s specific ethical goals and sign affidavits affirming their willingness to follow those policies is a good practice for ventures, Institutionalization Insticutionalization is a deliberate step to incorporate the entrepre- neur's ethical objectives with the economic objectives of the venture. At times, an entre- Preneur may have to modify policies or operations that become oo intense and infringe oon the ethics of the situation. This is where the entrepreneur's commitment to ethics and Values is tested. Constant review of procedures and feedback in operations are vital to institutionalizing ethical responsibility.” 2-9 ETHICAL CONSIDERATIONS OF CORPORATE SNM Satan Oats) Corporate entrepreneursD described in the academic literature as those managers or employees who do not follow the status quo of their coworkersD are depicted as visionar- ies who dream of taking the company in new directions. As a result, in overcoming internal obstacles ro reaching their professional goals, they often walk between clever resourcefulness and outright rule-breaking. Researchers Donald F. Goldsby developed a framework as a guideline for managers and organizations to impede unethical behaviors in the pursuit of entrepreneurial activity (see Figure 2.4). Scanned with CamScanner#48 CHAPTER 2 The Entrepreneurial Mind-Set in Individuals: Cognition and Ethics ‘They examined the barriers that middle managers face in trying to be entrepreneurial in less supportive environments, the unethical consequences that can result, and a suggested assess- ‘ment and training program to avert such dilemmas. | The barriers include organizational obstacles in two major categories: internal network issues and leadership issues. The specific barriers to innovative actions include systems, structures, policies and procedures, culture, strategic direction, and people. Based on these barriers and the managerial dilemmas that can be caused, the researchers advise compa- nies that embrace corporate entrepreneurship to: (1) establish the needed flexibility, inno vation, and support of employee initiative and risk taking; (2) remove the barriers that the entrepreneurial middle manager may face to more closely align personal and organi zational initiatives and reduce the need to behave unethically; and (3) include an ethical component to corporate training that will provide guidelines for instituting compliance and values components into state-of-the-art corporate entrepreneurship programs. How- ever, even if corporate entrepreneurship is supported, some managers still may pose ethi- cal risks to the company. Rarely will everyone in an organization do the right thing. For this reason, it would be wise to include an ethical component in corporate training pro- ‘grams to ensure that everyone is aware of the expectations and vision of senior manage- ment, A more complete training program and approach to corporate entrepreneurship should make for a berter furureD for both the organization and its members and prevent future ethical crises. een ‘Alchough ethics present complex challenges for entrepreneurs, the value system of an owner/ entrepreneur is the key to establishing an ethical organization.*" An owner has the unique ‘opportunity to display honesty, integrity, and ethics in all key decisions. The owner's actions serve as a model for all other employees to follow. In smaller ventures, the ethical influence of the owner is more pox corporations because his or her leadership is nor diffused through 1 observe them on a Scanned with CamScannerEntrepreneurial Motivation 49 It is clear that entrepreneurial ethics will always be extremely difficult to define, codify, \pl implement because of the personal values and morality issues it surfaces. Yer the impor- ance of ethics when initiating new enterprises must be stressed. \s one writer has noted, “The singular importance of enterprises to our daily lives and our collective future demands ‘our careful attention and finest efforts.” Overall, entrepreneurs must realize that their personal integrity and ethical example will be the key to their employees' ethical performance. Their values can permeate and charac- terize the organization, This unique advantage creates a position of ethical leadership for entrepreneurs.** 1 ENDREPRENEURIAL MOTIVATION bs vette Examining why people start businesses and how they differ from those who do not (or from those who start unsuccessful businesses) may help explain how the motivarion that entre- preneurs exhibit during start-up is linked to thewsustaining behavior exhibited later. Lanny Herron and Harry J. Sapienza have stated, * Because motivation plays an important part in the creation of new organizations, theories of organization creation that fail to address this notion are incomplete."“” One researcherDin his review of achievement motivation and. “the entrepreneurD said, It remains worthwhile to carefully study the role of the individual, including his or her psychological profile. Individuals are, after all, the energizers of the entrepreneurial process."® ‘ Thus, alchough research on the psychological characteristics of entrepreneurs has not provided an ageeed-on * profile” of an entrepreneur, it is still important to recognize the contribution of psychological factors to the entrepreneurial process.®? In fact, the quest for new-venture creation as well as the willingness to sustain that venture is directly related to. an entrepreneur's motivation.” ea ness to remain with the venture, Particular goals, attitudes, and tane determinants of an entrepreneur's eventual satis i ‘motivational Scanned with CamScanner ooScanned with CamScanner