Habitual entrepreneurs
Deniz Ucbasaran, Paul Westhead, and Mike Wright
Entrepreneurial behavior is increasingly recognized as heterogeneous. One notable source of heterogeneity is based on variations in the level of experience among entrepreneurs. This has led to the distinction between experienced (‘‘habit ual’’) entrepreneurs and first time (‘‘novice’’) entrepreneurs, and among habitual entrepreneurs, ‘‘serial’’ and ‘‘portfolio’’ entrepreneurs.
Defining Novice, Habitual, Serial, and Portfolio Entrepreneurs
Ownership rights are crucial for undertaking entrepreneurship, as they allow the entrepreneur to make decisions about the coordination of resources that will generate entrepreneurial profits. Entrepreneurship does not only involve the creation of an enterprise. Thus, we can distinguish novice and habitual entrepreneurs as follows. Novice entrepreneurs represent individuals who have no prior experience of owning a business, but currently have a majority equity stake in a single independent business, or a minority stake among a team, which they have either established, purchased, or inherited.
Defining habitual entrepreneurs is a conceptually difficult task and there is no generally accepted definition. Building on earlier work, Westhead et al. (2003) define habitual entrepreneurs to include individuals who have or have had a minority and/or majority equity stake in two or more businesses which were established, purchased, and/or inherited.
Among habitual entrepreneurs, two subtypes have been distinguished which depend on whether business ownership experience was acquired sequentially or concurrently. Serial entrepreneurs are individuals who have sold/ closed at least one business in which they had a minority or majority ownership stake and currently have a minority or majority ownership stake in a single independent business that has been either established, purchased, or inherited. In contrast, portfolio entrepreneurs are individuals who currently have minority and/or majority ownership stakes in two or more independent businesses that have either been established, purchased, and/or inherited.
Amount of Habitual Entrepreneurship
Studies conducted in the UK suggest that 12–44 percent of respondents in private firms are habitual entrepreneurs. This wide spread in the UK may be attributed to differences in definitions and samples used. Some studies report figures relating to specific regions within the UK, while others report figures relating to representative samples in Great Britain. Where representative samples are used, the figures tend to oscillate around 37 percent, but tend to focus on habitual founders of firms alone. A survey in Great Britain found that serial and portfolio entrepreneurs respectively owned 25 percent and 12 percent of independent firms (Westhead and Wright, 1998). Evidence from the USA, Australia, and Malaysia suggests that 51 percent, 49 percent, and 38 percent of respondents, respectively, are habitual entrepreneurs. Detected differences may in part be due to definitional and sample variations. They may also be due to infrastructural and cultural variations, such as how active the capital market in each country is, government policies (e.g., to wards failed businesses and entrepreneurs), and attitudes towards entrepreneurship and risk.
Concepts
Human capital theory offers a fertile ground for understanding the differences between entrepreneurs in terms of their business ownership experience. Entrepreneurial experience may be viewed as a contributor to an entrepreneur’s human capital (Gimeno et al., 1997; Ucbasaran et al., 2003). In particular, business ownership experience is a component of entrepreneurship specific human capital (i.e., largely applicable to the entrepreneurship domain). Business ownership experience may provide entrepreneurs with access to a variety of resources that can be utilized in identifying and exploiting subsequent opportunities, such as first hand knowledge of how to start or purchase a business; additional managerial experience; an enhanced reputation (if successful); better access to financial capital (and potentially on better terms); and broader social capital (i.e., networks). The development of subsequent businesses owned by habitual entrepreneurs can therefore be enhanced by overcoming the liabilities of newness and attaining developmental milestones quicker, relative to novice entrepreneurs (Starr and Bygrave, 1991). As a result of their experience, habitual entrepreneurs can develop broader and more diverse human capital than their novice counterparts.
Human capital includes cognitive characteristics. The interrelationship between cognition and experience provides a basis for understand ing how business ownership experience can shape an entrepreneur’s human capital (Ucba saran et al., 2003). Expert information processing theory suggests that differences in the cognition of ‘‘experts’’ and ‘‘novices’’ can be partly attributed to their levels of experience. ‘‘Experts’’ are viewed as having more extensive and elaborate knowledge structures than ‘‘novices.’’ Further, ‘‘experts’’ are able to manipulate incoming information into recognizable patterns (i.e., unify disparate information), and then match the information to appropriate actions. This ability reduces the burden of cognitive processing, which can allow the ‘‘expert’’ to concentrate on novel or unique material. Habitual entrepreneurs may be more reliant on information processing resembling that of an ‘‘expert.’’ Also, they may display a stronger reliance on entrepreneurial cognition, which is the result of a combination of schematic factors (i.e., perception of greater chances of success, more behavioural control, and greater reliance on decision making shortcuts) and often based on the use of heuristics in decision making. While business ownership is associated with several assets, it can also be associated with a number of liabilities, such as hubris and denial of mistakes made. Denial involves attributing mistakes to external reasons when they should be attributed to the entrepreneur. Habitual entrepreneurs who have learned from previous failures and successes generally avoid decision making biases (e.g., hubris and insufficient adjustments resulting in the repetition of past errors).
The distinction between serial and portfolio entrepreneurs can be analyzed in terms of two career anchors; that is, the pattern of self perceived talents, motives, and values which serve to guide, constrain, stabilize, and integrate the person’s career. The first anchor is that of autonomy/independence, which represents a desire for freedom from rules and the control of others. The second is the entrepreneurship anchor, which focuses on the creation of something new, involving the motivation to overcome obstacles, the willingness to run risks, and the desire for personal prominence in whatever is accomplished (Schein, 1985). Individuals associated with the autonomy anchor tend to be involved in ventures one at a time (like serial entrepreneurs), whereas those associated with an entrepreneurship anchor tend to be involved in multiple ventures simultaneously (like portfolio entrepreneurs) (Katz, 1994). Consequently, their respective career anchors may explain differences between serial and portfolio entrepreneurs.
Rosa (1998) explored the process of business cluster formation by portfolio entrepreneurs and suggested that there may be a blurring between the boundaries of serial and portfolio entrepreneurs, as the latter may exit from some of their businesses, introducing a ‘‘serial’’ dimension to their behavior. Furthermore, Wright, Robbie, and Ennew (1997) identified heterogeneity among serial entrepreneurs in terms of their motivations and the methods used to develop habitual entrepreneurs 139 their ventures. Among novice entrepreneurs there may be a need to distinguish between one time entrepreneurs and those that will move on to becoming habitual entrepreneurs. Considering an entrepreneur who has been in volved in a venture for 20 years as a novice just because they have only owned a single business may be inappropriate.
Evidence
Several studies have found differences between novice and habitual entrepreneurs in terms of their demographic and background characteristics (e.g., age, education, gender, parental back ground) (Birley and Westhead, 1993; Kolvereid and Bullva°g, 1993). Serial and portfolio entrepreneurs have been found to differ in terms of their motivations and background characteristics (Westhead and Wright, 1998) and business gestation practices (Alsos and Kolvereid, 1998).
Central findings from the most recent and comprehensive study by Westhead et al. (2003) are that portfolio entrepreneurs are more likely than serial or novice entrepreneurs to seek personal wealth from business ownership, to perceive themselves as having higher organizing ability and the ability to identify good opportunities, to use a wide range of information sources in searching for opportunities, to have more equity partners (i.e., team members), to recruit the most talented people, and to use more external finance. Serial entrepreneurs were more likely than portfolio entrepreneurs to rely more on previous contacts in searching for opportunities, to see themselves as having technical or functional expertise, and to have failed to spot any opportunities within the last five years.
Few studies have found that the businesses owned by habitual entrepreneurs outperform their novice counterparts. This may be because business ownership has both liabilities, such as hubris and denial (Starr and Bygrave, 1991), as well as assets. This suggests that among habitual entrepreneurs there is a need to distinguish be tween expert habitual entrepreneurs and experienced habitual entrepreneurs. The former may be viewed as having the ability to reflect on and learn from their experiences, while this is not the case for the latter. Based on a sample of Scottish firms, Westhead et al. (2003) found that port folio entrepreneurs outperformed both novice and serial entrepreneurs in terms of sales and employment growth.
Implications
Public policy has generally focused on supporting the supply of novice entrepreneurs. Recognition of the contributions made by habitual entrepreneurs suggests that rather than provision of blanket support to all types of entrepreneurs, regardless of need and ability, policy makers and practitioners should support the specific needs of habitual entrepreneurs, as well as novice entrepreneurs. To broaden the entrepreneurial pool and increase the future stocks of serial and portfolio entrepreneurs, novice entrepreneurs could be encouraged to acquire some of the skills accumulated by successful habitual entrepreneurs, particularly portfolio entrepreneurs.
Bibliography
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