What Makes Entrepreneurs Happy Determinants of Sa

Authors: Martin A Carree Ingrid Verheul

Publish Date: 2011/05/05

Volume: 13, Issue: 2, Pages: 371-387

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Abstract

This study empirically investigates factors influencing satisfaction levels of founders of new ventures using a representative sample of 1107 Dutch founders We relate entrepreneurial satisfaction with income psychological burden and leisure time to firm performance motivation and human capital Founders with high levels of specific human capital are more satisfied with income than those with high levels of general human capital Intrinsic motivation and that of combining responsibilities lowers stress and leads to more satisfaction with leisure time Women are more satisfied with their income than men even though they have a lower average monthly turnoverThe majority of entrepreneurs prefer to manage a venture that is successful and that provides them with sufficient financial means to live a comfortable life For many aspiring entrepreneurs the reality does not meet their initial expectations In fact failure rates among startups and new ventures can amount up to sixty percent within the first 5 years Cooper et al 1988 Phillips and Kirchoff 1989 and the average income of the selfemployed is often well below that of comparable employed individuals Hamilton 2000 Still each year there are many individuals who start new firms indicating that there are other intrinsic factors motivating people to pursue an entrepreneurial career Several studies show that selfemployed individuals are more satisfied with their jobs than employees Benz and Frey 2008a Blanchflower and Oswald 1998 Bradley and Roberts 2004 Hundley 2001 Katz 1993 Thompson et al 1992The present study examines the factors influencing satisfaction levels among founders Satisfaction can be seen as a key measure of individual entrepreneurial success The utility entrepreneurs derive from their startup venture is an important determinant of venture survival The degree of entrepreneurial satisfaction is influenced mainly by venture performance but may also be affected by personal characteristics motives for startup and venture characteristics Existing research on job satisfaction has primarily concentrated on explaining the satisfaction of employees rather than that of entrepreneurs Cooper and Artz 1995 We contribute to the literature in three waysFirst we do not use one measure of overall entrepreneurial satisfaction but discriminate between three different types of satisfaction This is relevant as there are many facets of work satisfaction Scarpello and Campbell 1983 argue that global measures of job satisfaction are not equivalent to the sum of the different facets VandenHeuvel and Wooden 1997 present descriptive evidence that the selfemployed are more satisfied than wage earners with their independence but are not with their income and job security In the present study we empirically examine the determinants of three types of satisfaction among founders ie with income with psychological wellbeing and with leisure time Satisfaction with income is particularly relevant for entrepreneurs who start a venture to earn a living or for financial success Furthermore an entrepreneurial career can be stressful in particular during the startup phase Psychological wellbeing has previously been studied as an important career outcome for the selfemployed Andersson 2008 Feldman and Bolino 2000 Jamal 1997 Finally individuals may differ in terms of their satisfaction regarding leisure time Income and leisure time are the two traditional main sources of utility in economics Bonke et al 2009 Some individuals start a business to combine household and work responsibilities and have more flexible working hours Others start a business with the aim of growing it into a multimillion enterprise devoting long working hours to the venture limiting the number of hours available for other leisure activities High time investments in the business may also come at the expense of the family situation as it often leads to higher levels of workfamily conflict Parasuraman and Simmers 2001Second we introduce new additional factors explaining entrepreneurial satisfaction including startup motivation the distinction between general and specific human capital and venturespecific controls Startup motives are likely to impact entrepreneurial satisfaction Existing research has proposed various motives for new venture creation eg Feldman and Bolino 2000 Individuals who start a business because of ‘negative’ push factors may be less satisfied than those who start because of ‘positive’ pull motives Jamal 1997 Block and Koellinger 2009 In our study we use two scale measures of motivation the relative importance of intrinsic motivation and that of combining work and household/family responsibilities Also previous studies have investigated the effect of education on entrepreneurial satisfaction VandenHeuvel and Wooden 1997 Bradley and Roberts 2004 Clark and Oswald 1996 but thus far have neglected the role of specific types of knowledge and experience Although education has often been found to negatively affect job satisfaction specific experience may enhance new venture performance and hence satisfaction with the newly founded firm Furthermore existing research explaining entrepreneurial motivation does not allow for variation between types of ventures in terms of for example firm size complexity of the business environment eg shop around the corner versus hightech companies and effort and involvement eg fulltime versus parttime commitment Indeed startup entrepreneurs tend to have different ambition levels which may lead to different expectations and subsequent levels of satisfactionA third contribution is that we examine a range of indirect effects of venture performance on satisfaction Although earlier studies control for venture performance and/or income in explaining satisfaction Cooper and Artz 1995 Bradley and Roberts 2004 we disentangle direct and indirect effects of performance on satisfaction For example level of education may have a negative direct effect on satisfaction because of high opportunity costs while indirectly enhancing satisfaction through increased firm performanceAlthough the literature on entrepreneurial satisfaction is relatively scarce various scholars have linked ‘overoptimism’ to entrepreneurship Kahneman and Lovallo 1993 Camerer and Lovallo 1999 Sarasvathy et al 1998 Arabsheibani et al 2000 Overoptimism occurs when the expectations of an individual regarding an outcome exceed the realized outcome Satisfaction may partly be determined by the extent of overoptimism with the disappointment of overoptimistic entrepreneurs limiting their satisfaction In this respect Ferrante 2009 directly connects people’s life satisfaction to a positive difference between expected and realized outcomes Several explanations have been proposed for the overoptimistic nature of entrepreneurs The heuristic of overoptimism may help entrepreneurs to cope with the information overload time pressure and uncertainty of entrepreneurship and to take timely actions eg developing the new venture before all relevant information is available and known Busenitz and Barney 1997 There is the possibility of selfselection with entrepreneurship attracting a certain type of overoptimistic people Forbes 2005 Åstebro et al 2007 Overoptimism does not necessarily preclude satisfaction Entrepreneurs may adjust their expectations expost and believe that the entrepreneurial experience is satisfactory despite initial unrealistic expectations1

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