When people quit their jobs to launch their own companies, the reasons that motivated them to become entrepreneurs can be major predictors of success, according to West Virginia University management scholar Hyeonsuh Lee.
Lee’s research revealed when someone leaves employment because they disagree with their company’s organization and operation, like bureaucracy or ethics, they are overwhelmingly likely to thoughtfully organize their own business and succeed as an entrepreneur.
Lee, assistant professor at the WVU John Chambers College of Business and Economics, also discovered when someone’s first start-up does fail, taking personal ownership of that failure is key to success down the road.
The Strategic Management Journal published Lee and her coauthors’ analysis of interviews conducted with 21 male entrepreneurs who, between 1977 and 1997, started their own businesses after resigning jobs during the early stages of the rigid disk drive industry, which makes computer data storage devices.
“Start-up founders who left firms due to ‘organizational misalignment’ motives tended to launch successful initial ventures, but founders who left for other reasons rarely did,” Lee said. “Organizational misalignment motives include strategic disagreements, frustrations caused by bureaucracy, interpersonal and ethical frictions or concerns about fairness.”
When organizational misalignment was someone’s impetus for starting a business, the founder was almost certain to engage in “venture crafting” at his start-up — carefully considering and implementing organizational activities to prevent the issues that colored his experience at his launch firm from derailing his own venture.
“These kinds of founders wanted to build organizations, not just products,” Lee said. “They encouraged employees to take ownership of their work, established distributed decision-making processes and ensured employees held equity stakes in their companies. They were all acutely aware that venture-crafting activities were critical to their ventures’ successes, not merely supplementary, nice-to-have attributes.”
In addition to venture crafting, those with successful entrepreneurial careers focused on hiring skilled, collaborative employees. While investing in hiring contributed to the start-up’s success, venture crafting appeared to be the more effective strategy.
If a founder’s first attempt at entrepreneurship wasn’t successful, Lee’s research showed “attribution and behavioral change” determined whether a second attempt went better.
“Founders successful on their second try attributed the failures of their initial ventures to choices they believed were within their control — financing decisions, partner choices, hiring decisions, team management.
“Founders who made ‘external attributions,’ on the other hand, continued founding unsuccessful ventures, often repeating their mistakes. They blamed the failures of their businesses on factors they saw as outside their control — competition, changing customer preferences, technological challenges or their cofounders’ behavior.”
Over the course of their careers, the 21 founders Lee and her coauthors interviewed launched a total of 31 ventures, including 19 in the rigid disk drive industry and nine in closely related industries.
“Founders were very open with us,” Lee said. “They revealed mistakes, regrets, lessons learned. They were frank about the internal politics they faced, including arguments they had and the reasons they believed certain battles were worth fighting.”
The research offers takeaways not only for entrepreneurs but also for managers.
“Nearly all the founders we interviewed had attempted to resolve strategic and organizational issues at their launch firms, engaging in conversations and data-collection efforts to support their ideas,” Lee said. “Doing so required extra effort on their parts and often jeopardized their standing with managers. Ultimately, they concluded their efforts would not result in change and they ventured out or, in a few cases, were fired or asked to leave.
“Strikingly, their initial ventures were nearly all successful. The organizational deficiencies of launch firms that stymie committed employees from contributing value have been the genesis for many successful entrepreneurial careers.”
