Stanford GSB: Stanford Business December 1998: Feature: The MBA Mosaic: What makes an Entrepreneur?

What makes an Entrepreneur?

INNOVATION CAN OCCUR inside established organizations as well as in new ventures, notes GSB professor William Barnett. Inside organizations, managers innovate by combining ideas and people in new ways. The more that such initiatives find support in established organizations, says Barnett, the more likely the organization is to grow. In contrast, entrepreneurs bring together new combinations among organizations to build a new organization. "They do deals. They bring together ideas, technology, and information in novel ways in the form of a new organization," he says. "Both the innovative manager and the entrepreneur foster new thinking and growth. The difference is that one does so while buying into an existing organization while the other does so by building a completely new one."
       With this distinction in mind, Barnett and researcher Stanislav Dobrev are investigating why people leave their jobs in order to start a new firm. They argue that the answer depends on whether the person is working in a large, established firm or in a small startup. "Larger, older firms provide opportunities for creative managers," says Barnett. "Such organizations typically have well-developed internal labor markets, complete with avenues for trying out new initiatives. We expect that managers within such organizations will be less likely to leave to start new firms than managers within smaller, newer organizations." Barnett and Dobrev's analysis of the GSB alumni/ae survey supports this thinking. Respondents were 60 percent less likely to break away and become founders if they were in large firms rather than in small ones. They were an additional 20 percent less likely to become entrepreneurs if they were in old firms rather than young ones.
       By contrast, Barnett and Dobrev found exactly the opposite pattern of effects for the founders of organizations. Founders become more likely to move on to found another firm as their organizations become larger and older. To explain this, Barnett and Dobrev point to the very different role played by an organization's founder. "Founders identify personally with their organizations. As the organization grows and ages, the identities of the founder and the organization separate. Routines and procedures replace direct, personal control, and the organization is less the founder's own creation. Growth may provide more opportunities to innovate for managers, but growth dilutes the founder's role as primary innovator."
       Barnett and Dobrev conclude that whether and when one becomes an entrepreneur depends in large part on the role one occupies within the organization. "Too much attention is paid to the individual characteristics of entrepreneurs," says Barnett. "How individuals will react to their situations depends on the role they occupy in an organization." Barnett and Dobrev conclude that others put too much emphasis on the situation surrounding a potential entrepreneur. Barnett observes, "The same forces that encourage entrepreneurship by one person will discourage another. Context matters, but the effect hinges on the role one occupies in the organization."

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