Entrepreneurial Cognition

by Dean A Shepherd

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  © The Author(s) 2018

  Dean A. Shepherd and Holger PatzeltEntrepreneurial Cognitionhttps://doi.org/10.1007/978-3-319-71782-1_3

  3. Motivation and Entrepreneurial Cognition

  Dean A. Shepherd1 and Holger Patzelt2

  (1)University of Notre Dame, South Bend, IN, USA

  (2)Technical University Munich, München, Bayern, Germany

  As discussed in Chap. 2, opportunity identification is one of the most essential skills of successful entrepreneurs (Ardichvili et al. 2003; Grégoire et al. 2010) and has thus gained considerable importance in the entrepreneurship literature. In addition to prior knowledge, researchers have identified motivation—the behavior-triggering force, which directs behavior and increases persistence with a course of action (Bartol and Martin 1998)—as an important antecedent of opportunity identification. How can opportunity recognition be stimulated by financial rewards? What is the motivational role of values and emotions in the entrepreneurial process? What motivations trigger entrepreneurs’ identification and pursuit of opportunities related to sustaining nature and society? Finally, in what follows, we also address questions regarding the potential positive and negative outcomes of entrepreneurial motivation.

  Motivation and Opportunity Identification

  Scholars studying creativity (e.g., Amabile 1993) and a select group of scholars studying entrepreneurship (e.g., Birley and Westhead 1994; Cardon et al. 2009; Douglas and Shepherd 2002) have concluded that individuals can be driven to entrepreneurship by non-financial/intrinsic motivators. However, most work from the economics and entrepreneurship literature contends that financial reward is the primary driver behind individuals’ entrepreneurial engagement (Baumol 1990; Kuratko et al. 1997; Langan-Fox and Roth 1995). As an example, studying entrepreneurs in the Midwest, Kuratko et al. (1997: 31) discovered that “extrinsic goals concentrating on wealth” play an important role in individuals’ decision to continue in entrepreneurship. Similarly, Baumol (1990: 894) argued that “how the entrepreneur acts at a given time and place depends heavily on … the reward structure in the economy … (or) the prevailing rules of the game that govern the payoff.” Further, Campbell (1992) developed an economic theory of entrepreneurship, arguing that people choose to engage in entrepreneurship if the anticipated current profit value from entrepreneurial action is greater than the profit value of salaried employment. Finally, Schumpeter (1961) proposed that empire building with the goal of gaining financial reward is a significant motivator for many entrepreneurs.

  To more fully understand how financial reward could initiate entrepreneurial action, we draw on motivation theorists Campbell and Pritchard (1976). These authors suggested that motivation is the choice of whether to begin putting forth effort on a particular task as well as the decision of how much effort to put forth and for how long. The first two parts of this motivational decision—namely, deciding to initiate action and determining how much effort to invest—are most important when high effort levels lead to valued end results, including high salary (Kanfer 1990; Vroom 1964).

  Financial Reward

  Motivation can be triggered or improved when potential financial rewards are a likely outcome. Scholars have revealed a positive association between financial income and success at particular tasks. Abbey and Dickson (1983), for example, showed that reward levels and achievement motivation are positively associated with the amount of innovations people initiate. Further, Paolillo and Brown (1978) demonstrated a positive association between innovation levels and rewards in a study of employees’ ratings of the overall innovative output of their research and development (R&D) laboratory. Additionally, research on the connection between creativity and the chance to gain financial reward has suggested a positive link between the two (e.g., Woodman et al. 1993), and most creativity scholars argue that there is a strong relationship between creativity and innovativeness (Cummings and O’Connell 1978). Taken together, this research shows that the promise of financial income can increase not only people’s ability to generate more opportunities but also those opportunities’ level of innovativeness. Indeed, my (Dean) colleague and I (Shepherd and DeTienne 2005) demonstrated in an experiment that higher potential financial income levels lead people to identify more potential opportunities. The positive relationship found between financial reward and the amount of opportunities recognized is in line with Gilad and Levine’s (1986: 46) argument that “the existence of attractive, potentially profitable business opportunities will attract and ‘pull’ alert individuals into entrepreneurial activities.” Several researchers have explored the role the promise of financial rewards plays in pulling individuals into entrepreneurship (e.g., Katz 1994; Shapiro and Sokol 1982; Gilad and Levine 1986).

  Shapiro and Sokol (1982) as well as other scholars (e.g., Douglas and Shepherd 2000; Schjoedt and Shaver 2007) contended that the degree to which individuals are attracted to an entrepreneurial career hinges on both pulls and pushes . In this context, “pushes” are negative characteristics of a person’s present situation that encourage him or her to pursue entrepreneurship, including a fixed salary, a reward that does not correspond to the effort expended, and negative displacements. Thus, not only do potentially high financial rewards pull individuals into an entrepreneurial career, the lack of adequate financial reward in a person’s present situation could push him or her into this career. In most studies about pushes, entrepreneurship represents self-employment. The motivation logic underlying this career-based argument for entry into self-employment is also likely applicable to individuals’ motivation to recognize potential opportunities.

  Financial Reward, Prior Knowledge, and Opportunity Identification

  Even when a person is motivated to recognize opportunities, he or she is unlikely to actually identify an opportunity without having prior knowledge (see Chap. 2). Amabile (1997: 42) argued that “expertise (factual knowledge and technical proficiency) is the foundation for all creative work.” Similarly, work by Fiet (2007) showed that people who use consideration sets in their opportunity-identification process uncover ideas that are more likely to result in new wealth creation. As such, my (Dean) colleagues and I (DeTienne et al. 2008) proposed that the association between financial reward, prior knowledge, and opportunity identification is more intricate than a clear-cut additive association.

  Researchers have mainly explored potential prior knowledge and financial income separately; however, a concomitant consideration of the two is likely to shed additional light on opportunity identification. While the associations among prior knowledge, financial reward, and opportunity recognition have not been studied in detail, some research has shown that prior knowledge impacts the association between potential financial reward and individuals’ task performance. In his work with exceptionally skilled individuals, for instance, Csikszentmihalyi (1975, 2000) found that participants with higher levels of prior knowledge gave undivided attention to a specific task at hand, which at least temporarily protected against other demands that were competing for their attention. The participants felt that they had control over the activity and that their attention was strongly task-focused. Moreover, Maheswaran and Sternthal (1990) revealed that experts (i.e., individuals with high knowledge in a particular domain) are more likely to process messages in a detailed manner in case they are provided with only content information, whereas those who are new to a task more likely process messages when provided with information related to rewards. Thus, it appears that prior knowledge can contribute some motivation in the context of a specific task regardless of whether there is financial reward associated with it.

  Take, for example, George de Mestral a Swiss engineer who invented Velcro and his eight-year
obsession to replicate the burr-clasping system after examining a cocklebur under a microscope. Ignoring warnings from friends and colleagues that this obsession would lead to financial devastation and personal despair, he left to work in a little mountain hut. He emerged from the hut after a long period with the underlying technology for Velcro. It took him 14 years after his initial idea to develop a commercializable product. This example clearly demonstrates how a person can be driven by the motivation to solve a problem related to one’s prior knowledge instead of by financial reward. Fortunately for de Mestral, he did receive a financial reward in the end.

  Applied to opportunity identification, developing a deeper understanding of potential financial reward’s motivating effect on opportunity identification likely requires researchers to also consider prior knowledge. With the motivation literature as a basis, we argue that when promised financial reward, people are likely to recognize more opportunities. In addition, these opportunities are more likely to be innovative. Yet, the literature also suggests that knowledge can be a motivator and can thus lessen the positive association between financial reward and both results of opportunity recognition (i.e., number and innovativeness of potential opportunities). More specifically, prior knowledge enables individuals to “see” important linkages between ideas more quickly (Busenitz and Barney 1997; Logan 1990), thus improving their ability to recognize a larger number of opportunities. In addition, prior knowledge provides individuals with higher creativity levels to develop opportunities that are more innovative (Cohen and Levinthal 1990; Johnson et al. 1991). Indeed, my (Dean) colleague and I (Shepherd and DeTienne 2005) showed that prior knowledge moderates the association between potential financial reward and the recognition of opportunities. Our study found that high financial reward can at least partially offset the influence of lower knowledge about customer problems on the amount of potential opportunities individuals identify and how innovative those opportunities are.

  Entrepreneurial Passion

  Researchers established long ago that passion is a strong motivator of action (see David Hume 1711–1778; Jean Jacques Rosseau 1712–1778) as well as of entrepreneurial decisions (Smilor 1997). We turn to self-determination theory (Deci and Ryan 2001; Gagne and Deci 2005; Ryan and Deci 2000) and its extension to passion (Vallerand et al. 2003) to gain a deeper understanding of entrepreneurial motivation. Self-determination theory proposes that individuals attempt to satisfy three basic psychological needs—need for competence, need for relatedness, and need for autonomy—and thus carefully bear these needs in mind when making decisions. When individuals are put in a decision-making situation, the intentionality of their efforts to meet these needs is either controlled or autonomous (Gagne and Deci 2005). Controlled motivation concerns a pressure to act, whereas autonomous motivation refers to individuals’ voluntary participation in an activity because they find it enjoyable and interesting. This difference between autonomous and controlled intentionality is reflected in the different types of passion. As a whole, passion is a “strong inclination toward an activity that one loves and finds important, that is, self-defining and in which significant time and energy are invested” (Houlfort et al. 2015: 85). Then, depending on whether passion stems from a controlled or autonomous source, it is labeled as obsessive passion or harmonious passion (Vallerand and Houlfort 2003; Vallerand et al. 2003), respectively.

  Fear Motivating Entrepreneurial (In)Action

  Pursuing a potential opportunity can be highly rewarding for the individuals involved in terms of generating financial rewards (Carter 2011), positive emotions (Baron 2008; Cardon et al. 2012), and a higher status/reputation (Parker and Van Praag 2010). However, since pursuing a potential opportunity is full of uncertainty (Knight 1921; McMullen and Shepherd 2006), numerous entrepreneurial undertakings fail (Burgelman and Valikangas 2005; McGrath 1999), which can result in negative financial (Lee et al. 2007, 2011), emotional (Shepherd 2003; Shepherd et al. 2011), and social (Efrat 2005; Semadeni et al. 2008; Shepherd and Patzelt 2015) consequences for those involved (for a summary, see Ucbasaran et al. 2013). Even with the pervasiveness of failure in entrepreneurship, McGrath (1999) contended that entrepreneurs and individuals who would have otherwise become entrepreneurs generally have an anti-failure bias.

  While some research has indicated that an anti-failure bias is manifest in a fear of failure and that a fear of failure usually leads to inaction (Alon and Lerner 2008; Wagner and Stenberg; for a review, see Cacciotti and Hayton 2015), some individuals appear to be able to overcome their fears and go after potential opportunities.1 These actions are vital in creating wealth for individuals, organizations, and national economies (McGrath 1999; McMullen and Shepherd 2006; Sarasvathy 2001).

  According to Conroy (Conroy 2001, 2004; Conroy et al. 2002), fear of failure can be divided into five categories: fear of feeling shame and embarrassment, fear of devaluing one’s self-estimate, fear of having an uncertain future, fear of losing social influence, and fear of upsetting important others.

  First, the fear of feeling shame and embarrassment refers to individuals’ concern that a real personal flaw will be uncovered to the self and to others through a failure event (adapted from Sabini et al. 2001). Quotes from research on entrepreneurs who went through business failure illustrate this shame and embarrassment: “You kind of have … an embarrassing grief about it that, you know, it’s not a very nice feeling really. And you have a lot of regret and a lot of guilt” (Byrne and Shepherd 2015: 380). Anticipating these types of feelings over a failure can lead to fear that influences how a person assesses the financial costs of failure in the entrepreneurial decision-making process. More specifically, when entrepreneurs have greater fear of feeling shame and embarrassment, they likely weigh financial costs more when deciding whether to exploit an entrepreneurial opportunity or not. Financial losses are often noticed by stakeholders and frequently become known by others in the community. Thus, for entrepreneurs who believe it is embarrassing to fail in front of others, negative performance feedback—which is rather easy to communicate publicly—may generate feelings of embarrassment (Ashford 1986; Smith and McElwee 2011). Anticipating this shame and embarrassment may cause individuals to protect themselves from exposure to such financial risks as they believe they have simply too much at stake.

  Second, fear of devaluing one’s self-estimate refers to unease about a drop in others’ appraisal of one’s capabilities in relation to a group whose performance is known (adapted from Gilinsky 1949). Indeed, failure can make individuals begin to doubt their knowledge and ability to successfully undertake certain tasks (Gatewood et al. 2002; Hoang and Gimeno 2010) as well as make them question their self-worth (Jenkins et al. 2014; Laguna 2013), have lower self-esteem (Shepherd and Cardon 2009), and start to doubt the control they have over important aspects of their lives (Folkman and Moskowitz 2004; Stanton et al. 2002). In turn, entrepreneurs are likely to weigh financial costs more when they fear that failure will negatively affect their self-estimation about their own capabilities and talent. Financial performance is either the objective of pursuing an entrepreneurial opportunity or the channel for accomplishing an even greater goal (Miller et al. 2012). As such, closing a business because of financial losses is a very clear indication that the entrepreneur has failed in his or her primary aim, and it seems that the more the failure costs financially, the larger the “potential hit” to the entrepreneur’s self-estimate will be—a position those who fear the devaluation of their self-estimate would not want to be in.

  Third, a fear of having an uncertain future entails individuals’ fear about not knowing where their life is heading. This fear is illustrated in work by my (Dean) colleague and me (Byrne and Shepherd 2015: 384), in which we described the situation of an entrepreneur whose business failed and his frustrations over not fully knowing what was going to unfold next: “‘Suddenly you get this bit of paper from the [officials] telling you, you can’t be a company director. So that, the whole vagueness and uncertainty ov
er that bit is, ahhh.’ He does not finish this sentence, he just makes an annoyed sound and shakes his head.” Similar to the above, entrepreneurs who feel uneasy about such uncertainty are likely to weigh financial costs more when deciding whether to pursue an opportunity or not. A failure that costs less financially will have a lower impact on the entrepreneur’s slack resources than a costlier failure. The greater the financial slack (even if it is still low), the bigger the cushion for tough times (Carroll et al. 1992; Fafchamps and Lund 2003), the greater the ability to develop future options and plans (Lentz and Tranaes 2005; Wanberg et al. 1999), and thus the more certainty about the future. Nevertheless, higher losses from a failure could make future plans unaffordable or inaccessible. That is, a substantial financially damaging failure (to the extent the entrepreneur views it as traumatic) can destroy one’s central beliefs about the self, others, and life in general, making everything appear less predictable (Janoff-Bulman 1985; Haynie and Shepherd 2011). Therefore, entrepreneurs who are afraid of changing plans and uncertainty may pay a great deal of attention to potential financial costs when making decisions about opportunities.

  Fourth, fear of losing social influence denotes people’s worry that they will be less able to use their opinions and attitudes to influence others’ opinions and attitudes (adapted from Martin and Hewstone 2003). The higher a failure’s financial costs, the higher the probability that others will notice the failure , often resulting in stigma for the individuals involved (Cardon et al. 2011; Semadeni et al. 2008; Sutton and Callahan 1987). For instance, our research (Shepherd and Patzelt 2015) showed that individuals with substantial financial losses as a result of failure are stigmatized more than those with lower losses. Stigma is a form of social stain as the individual being stigmatized experiences defamation that harms his or her reputation (see Cardon et al. 2011; Shepherd and Patzelt 2015). Ultimately, the social influence of stigmatized individuals diminishes significantly . Sutton and Callahan (1987), for instance, reported that managers of a firm that entered Chapter 11 bankruptcy found that former associates ceased contact with them due to the failure (Sutton and Callahan 1987). Unsurprisingly, individuals who are afraid of losing social influence will likely be significantly affected by the financial costs associated with failure when making entrepreneurial decisions.