There's a passion that drives the creators of new businesses.
It's the dream that someday this new creation will blossom
into a thriving business, with eager, hard-working employees
and customers who are comfortable depending upon it. It will
grow in all the important ways, with new customers, rising
sales, new products and services, more employees, a wider
geographical area, and increasing earnings. The hard work,
tenacity, risk, and hardship that accompany new businesses
are fueled by such dreams, but unfortunately, reality rudely
stirs most new business creators from their dreams. Most new
businesses disappear within five years leaving behind
bewilderment and dismay.
New business owners are not alone in wanting an explanation.
Spouses are anxious about the fate of their life savings and
the time taken away from their families. Bankers and
landlords, suppliers, and even new employees have a stake in
the outcome of new ventures.
For researchers, the challenge is to discover the factors
that lead to success, and with the large number of new
business startups every year, one would imagine that this
problem would have been solved long ago.
Not so.
J. Robert Baum, from the University of Maryland, has devoted
much of his life to this question, and he has felt the
frustration of testing promising factors for new business
success only to find equivocal results when he analyzed the
data. Recently, he completed a new study which retested
many of the old factors, added a few more, and examined new
ways that the old factors might influence new business
growth. His results are promising.
Baum examined 442 new architectural woodwork firms over a
six-year period. At the beginning of the study, he asked
questions of both the CEOs and subordinates picked by the
CEOs. His questions measured motivational factors relating
to the CEOs starting their new businesses. During the
following six years, he monitored the growth and prosperity
of the firms. At the end of the study, he compared his
measurements of the CEOs' motivational factors to the growth
of the firms they led.
Baum made seven important discoveries, but one in particular
stands out that we should remember. It involves
self-efficacy.
Of all the motivational factors Baum examined, the strongest
tie with long term success was the CEO's attitude of
self-efficacy. It was an attitude that was noticed by
subordinates. Self-efficacy is a belief a person has about
himself/herself. It is the belief that you can be effective
in completing the task at hand. You can cope with problems
that will arise. You have the resources to weather tough
times. You know what to do and how to do it. Self-efficacy
is the attitude star quarterbacks exude when they approach
their offensive lines and begin calling the count.
A clear attitude of self-efficacy turned out to be the
strongest factor in leading to long term growth of the firm,
and the fact that this was true says much about the nature of
new firms and the problems they face.
Businesses exist in a web of trust relationships. Customers
give their money trusting that the goods and services they
purchase are fairly and accurately represented. Suppliers
ship necessary materials trusting that payment will be
forthcoming. Banks loan money and employees give up other
employment opportunities, all trusting the owner to provide
payments at the expected time.
New business owners must establish and nurture all these
trust relationships, and their own attitudes of self-efficacy
are very influential in prompting this trust. Tenacity, hard
work, deep pockets, and even honesty are less influential.
Self-efficacy does not come as an act of will. Baum says it
comes from enactive mastery.
Enactive mastery means that a person has had enough study and
practice in an area to demonstrate mastery of it. He
demonstrates it for others, but most importantly, he
demonstrates it to himself. This leads to an attitude of
self-efficacy.
Understanding the links between enactive mastery, an attitude
of self-efficacy, trust, and long term business success
provide an important lesson for managers at all levels and in
all settings.
Know what you're talking about. Be the expert, the world
authority in your area. Practice it and allow others to see
your performance. Study it and keep up with new developments
in your field. Know the market and the competition.
If you do all this, you will have enactive mastery and a
genuine attitude of self-efficacy. Trust follows next, and
success trails along behind.
Reference: Baum, J. Robert and Edwin Locke (2004) The
Relationship of Entrepreneurial Traits, Skill, and Motivation
to Subsequent Venture Growth. Journal of Applied Psychology,
89 (4), 587-598.
Business Practice Findings, by James Larsen, Ph.D.
Trust and Business Success
New research explores factors important in business success.