What is Driving Entrepreneurs to Win?

We can thank entrepreneurs for much of the success of the global economy over the past half century. And if we're going to emerge from the worldwide economic slump, entrepreneurs will lead the way.

These driven, creative individuals know plenty about battling adversity. They've overcome infrastructure and regulatory hurdles to start their businesses. Often, they've fulfilled an unsatisfied demand and, in many cases, actually built demand by introducing new products to the market.

But despite all that entrepreneurs have contributed to the global economy and to wellbeing and human development worldwide, most leaders and policymakers don't have a clue about what makes them successful or how to help them thrive. In the U.S., for example, nearly half of all jobs are in the small-business sector, and small businesses accounted for 65% of the net new jobs created between 1993 and 2009. Yet fewer than half of new American businesses survive their first five years.

To drive startups, the U.S. and other countries have created an infrastructure of incubators and coaching programs to support entrepreneurs and spur business growth. Though these programs are useful and necessary, they often overlook a key element in a new enterprise's success: the innate talents that successful entrepreneurs bring to the task of building a business.

The process of entrepreneurship

Because entrepreneurship is vital to the global economy, Gallup scientifically studied entrepreneurs and the role of human motivations, perceptions, and behaviors in explaining entrepreneurial decision making. We started by studying how successful entrepreneurs behave and the activities they engage in to drive new venture creation or business growth. Focusing on the task or the process of entrepreneurship helps identify the innate talents that are most relevant to success.

Most current models of the entrepreneurial process propose a standard sequence of events, starting with opportunity recognition, resource acquisition, venture creation, and finally business expansion and growth. This sequence of events covers two developmental phases in the life cycle of a venture.

The first phase is the early or new business stage (entrepreneurial startup or firm less than three years old), which is characterized by innovation and creativity, a high sense of mission, short-term orientation, minimal hierarchy, and an autocratic management style. Entrepreneurs must be able to perform multiple roles, live with ambiguity, and develop an idea very quickly.

"I look out and I see opportunity," says Shawn Macken, president and cofounder of Edge Technologies, LLC, which creates and sells a health and wellness dashboard system. "My first client was someone I knew through networking. He came to me and said, 'Do you think you can do something for me?' Sure. That's my answer! I don't know how we're going to do it, but we're going to do it."

The second or formalized/structured phase (entrepreneurial stability, firm three or more years old) is characterized by an emphasis on service, a slower rate of innovation, decentralized decision making, institutionalized procedures, functional specialization, and a team approach to problem solving. In this phase, the entrepreneur's focus shifts from high creativity, ideation, and basic planning to managing a more mature company with a larger workforce. The entrepreneur must be able to delegate power and take a team-based approach to running the company.

"If we want to go to a $15 [million] or a $150 million company, we have to expand our vision," says Tom Long, president of ISI Technologies, which creates sales messaging solutions for companies. "We aren't just a family company anymore, so we're bringing everybody along on those kinds of decisions. And [my business partner] Bob is a big part of that."

Each phase has its own demands, and the entrepreneur must perform a specific set of tasks to be successful in each phase. Many of the activities performed in the first phase continue to be important during the second phase. For instance, cultivating relationships is critical to access resources to start a venture, but successful entrepreneurs must keep building relationships in the later phase to further their business goals. The relative significance of each demand may vary from one phase to the other, but there often is a carry-over effect.

The demands of entrepreneurship

Though the activities that successful entrepreneurs must perform change over time, Gallup research shows that there are 10 functional demands that are enduring and universal. These demands encapsulate the tasks of entrepreneurship and are highly correlated with both business creation and business success. They also measure an individual's ability to perform in the role of entrepreneur.

A person's inherent talent and acquired ability (skills, knowledge, and experience) will influence how successfully and by what means he or she responds to the demands of the role. These demands require a behavioral response from the entrepreneur, which is framed by the individual's dispositions and traits. Usually, the more prevalent the trait, the higher the likelihood that the demand will be met, resulting in better performance in the role. (See sidebar "The 10 Demands of Successful Entrepreneurs.")

Different entrepreneurs bring different strengths to the role; some may be highly creative and competent but low on focus and relationship building. Others may be astute business thinkers but have problems delegating. Often, the gaps in ability to meet a certain demand can be filled by acquiring skills or knowledge or by establishing partnerships with others who have complementary talents, thus enabling the entrepreneur to meet the demands of the role.

"My partner and I saw things differently. He was looking more at building something for the future, while I was looking more at profitability," says Bob Harris, Tom Long's partner at ISI Technologies. This is precisely why Long brought him into the company, and it was a smart move. Each partner was focused on meeting a crucial demand of the business -- one on developing products and the other on ensuring profitability. Understanding how to meet the different demands of entrepreneurship by forming a complementary relationship has helped the business overcome hurdles and grow. "Bob is exactly the right person, and his talents are exactly what we need," Long says.

Success or failure

In his book The Coming Jobs War, Gallup Chairman and CEO Jim Clifton calls entrepreneurship the "scarcest, rarest, hardest energy and talent in the world to find." Not enough people, or countries, understand who entrepreneurs are or how to develop them. Most leaders tend to overlook the entrepreneur when they discuss the factors behind the success or failure of an enterprise.

This ignorance is unhealthy and unproductive, because ultimately, it takes people to drive entrepreneurial activity -- men and women who bring resources together to create new products and services. But personal characteristics and psychological factors play a crucial role in business success or failure. Those factors must be recognized, understood, and maximized if entrepreneurs are to succeed.

The 10 Demands of Successful Entrepreneurs

1. Know your personal brand. Entrepreneurs must interact effectively with others. Successful entrepreneurs know themselves well and can perceive others accurately.

Having strong talent in this domain enables entrepreneurs to connect and interact with employees, customers, suppliers, and investors in a way that results in positive business outcomes. This demand is relevant when the business is established and entrepreneurs are likely to conduct negotiations, influence others, and motivate employees.

2. Take on challenges. There is an inherent risk involved in venture creation. Entrepreneurs must constantly make decisions in complex situations and often operate without complete knowledge of the factors that could positively or negatively affect their ventures. Moreover, most businesses are created with scarce resources, high uncertainty, and ambiguity. These conditions would deter most people from taking on the task of starting or growing a venture.

Entrepreneurs with strong talent in this domain stretch themselves, raise the bar, face their fears, and are willing to experiment. They resist constraints and have an overly optimistic perception of the risk involved. They are willing to seek out challenges and take the risks associated with venture creation and growth. This demand is most relevant in the early stage of business creation.

3. Think through possibilities and practicalities. Entrepreneurs must be creative and think beyond the boundaries of what exists. High scores in this domain lead entrepreneurs to stretch their imagination while absorbing existing facts to blend the present with the future.

Successful entrepreneurs take an existing idea or product and turn it into something better by looking at it with fresh eyes. Their creative minds typically fire with many different ideas. This demand is more relevant in the early stage, but its relevance continues into the later phase of the business life cycle.

4. Promote the business. Successful entrepreneurs are their own best spokespeople. Strong talent in this domain makes it easy for them to persuade others. This enables them to convey a clear and compelling message that promotes their point of view and their business. This demand is relevant in the early and the established stages of business.

5. Focus on business outcomes. Running a business requires focus. Profit orientation is a spontaneous, moment-to-moment mental activity. Highly successful entrepreneurs judge decisions as good or bad based on their observed or anticipated effect on profit. Successful business-focused entrepreneurs set goals and live by their commitment to them.

Entrepreneurs with high business focus set goals that are important to their business and that they can objectively measure. This demand is relevant in the early and the established stages of business.

6. Be a perpetual student of the business. Successful entrepreneurs are ongoing and active students who are preoccupied with their business and constantly seeking knowledge to grow their venture. This obsession is crucial to ensure business survival. Continually gaining input and acquiring the knowledge and skills required to grow the business are essential to an entrepreneur's success. This demand is specifically relevant in the established stage of business.

7. Be self-reliant. In the early stage of business creation, entrepreneurs often fill multiple roles to address the needs of a startup. Successful entrepreneurs are prepared to do whatever must be done to see the business succeed. This demands high levels of self-reliance.

Though it takes many people to grow a successful venture, an entrepreneur's sense of responsibility and levels of competence play a critical role in the early stage of venture creation. A word of caution: Entrepreneurs need self-reliance in the early stage of business development. But entrepreneurs who cannot contemplate a shift in style from self-reliance to delegation may ultimately hamper the growth of their business.

8. Be a self-starter. Startups and businesses that are growing rapidly demand long hours of work and high levels of energy and stamina. Successful entrepreneurs are passionate doers who push to make things happen. They show initiative and possess an enduring sense of urgency because there is never enough time to do it all. They see opportunity where others see roadblocks. This demand is relevant in the early and the established stages of business development.

9. Multiply yourself through delegation. As businesses grow, the autocratic, unilateral decision-making style of early-stage entrepreneurs must change into one in which the entrepreneurs delegate authority and take on the role of a team manager. Norman R. Smith and John B. Miner (1983) suggest that the transition point is around 30 employees and $750,000 in assets.

Entrepreneurs who are successful in leading their enterprises to the established stage recognize that they cannot do everything themselves. They are willing and able to contemplate a shift in style and control, thus accelerating the growth of the firm. This demand is specifically relevant in the established stage.

10. Build relationships. Starting or growing a business involves interacting with many people. An entrepreneur may be the originator of the idea, but almost immediately, he or she must interact with others to secure resources, engage with potential customers and suppliers, or hire and manage employees. The ability to build strong relationships is crucial for survival and growth.

Successful entrepreneurs are adept at building relationships. They have strong social awareness and can attract and maintain a constituency. The enthusiasm and positivity of strong relationship builders make it easier for others to interact with them. These entrepreneurs also have high standards of personal conduct that enable others to trust them and form strong relationships with them. This demand is relevant in the early and established stages.