PSYCHOLOGICAL FACTORS AND ENTREPRENEURIAL BEHAVIOUR
2.3 Optimism
2.3.3 Planning
Designing a business require meticulous effort to put various cogent aspects of the business together as business plan precedes business design. A business plan is a written document that shows how various segment of a proposed business (financial and operational) are infused to make a workable design. The plan describes in detail how the entrepreneur intends to run his business to achieve his target. It is important for prospective entrepreneurs to figure out a well-defined design in ensuring it serve as measuring tool of control, vision and self- evaluation; a process that established entrepreneur can modify to evaluate outcomes and effect changes of his business plan from time to time based on the reality on ground (Honig, 2004). Castrogiovanni (1996) listed three advantages of designing a business as (a) symbolism- by this he explained that having a pre-launch design shows the entrepreneur is committed to a certain business ideal, legitimising the idea of feasibility and validity of the proposed business. (b) Learning- has to do with continuous improvement on the design based on the prevailing circumstance, brought about by comparing the efficacy of the design result with what will accelerate business success. (c) Efficiency –by this castrogiovanni believes that efficiency is brought about by outcome of a suitable design that suits the business model, developed in relation to market realities. Also, it was suggested that such design enables quick decision making and competent administration of resources.
28
In contrast Gruber (2007) and Brinkmann et al. (2010) argued that having a business design is insignificant to business success. Their position was supported by meta-analytic findings that suggest that although having a business design has a positive correlation to business success, howbeit the influence of this is insignificant (Brinkmann et al., 2010). To further buttress this position, they argued that designing a business only to keep adjusting it to fit the prevailing reality caused by unpredictable future is both time consuming and largely inflexible, as such adjustments are done in line with the business design framework (Gruber, 2007). Instead organisation of activities was proposed (sourcing of funds and putting in place infrastructures) in line with the identified business opportunity. This is in part due to unpredictable future, which sometimes makes a brilliant business design look grossly inadequate (Carter et al., 1996).
Considering the pros and cons of developing a business design, the need to arrive at a consensus brought about the alternative strategy such as effectuation, bricolage and improvisation.
2.3.3.1 Effectuation - This is the process of thinking that helps entrepreneurs in the approaches of business prospect identification and creation. Sarasvathy (2009) explained it as
‘precedence of means over goals’, advocates of effectuation believe in ‘seizing the moment’
by being opportunistic erases the uncertainty dogging unpredictable future. Being effectual entails three major factors (a) Personality, (b) Knowledge, (c) Connection. Mastery of prying on opportunities helps entrepreneurs use limited resources to achieve huge return on investment. There are five principles of effectuation as described by Sarasvathy (2009), ‘The Bird in hand principle’- this principle possesses the three factors listed above as entrepreneurs consider who they are, what they know and who they know to make business decisions. 3Fs is also consider at this juncture, which are friends, family and fools, considering these factors helps entrepreneurs not to start with a goal but to employ their resources to achieve a goal.
‘The Reasonable loss principle’- here entrepreneurs base their investment decision on losses minimisation rather than profit maximisation. ‘The Irrational Comforter principle’- here connection play a paramount role as entrepreneurs source partnership of trusted allies, by this minimising possible losses that may arise from the business venture. ‘The Lemonade principle’- here entrepreneurs tries to turn negatives into positives by turning surprises into business opportunities and lastly ‘The Pilot-in-plane principle’ as the last principle, it combines the remaining four to assist entrepreneurs exercise some control over unpredictable future (Sarasvathy, 2009).
29
2.3.3.2 Bricolage - employment of available resources to achieve a purpose. Adoption of bricolage is necessitated by limited resources or where an entrepreneur operates under a hostile environment. In this case the urge to survive drives the business (Baker & Nelson, 2005).
2.3.3.3 Improvisation – This is a system that is largely proactive in the sense that entrepreneurs starts with a rough idea on what he intends to do, and as he deploy resources and executes his plans the business model keeps unfolding based on feedbacks until he achieves his target. This is regarded as the ‘Shape method’ (Baker et al., 2003). Discussing the concepts of business design mind-set, effectuation, bricolage and improvisation helps to take note of the merits and demerits of proper business planning in entrepreneurship. The relevance of this is that designing a business as a regulator of actions to promote successful entrepreneurial endeavour should be a subject of discussion in entrepreneurial psychology as psychological approach to business design allows the debate of relationships between business design-mind-set and effectuation, bricolage and improvisation.
2.3.3.4 Practical Intelligence/astuteness- is the aptitude to adjust to, shape and make choices on everyday challenges (Stenberg, 2009). Practical intelligence is best measured by the experiences garnered by the entrepreneur in a bid to survive; some refer to this as ‘street smartness’ Baum et al. (2011) posit that it is the ability of an entrepreneur to clearly define a challenge and know the practical ways of sorting out those challenges. They also believe that the timeliness associated with the practical astuteness application to challenges is a major asset and advantage to the entrepreneur which gives him a head-start among his peers. Baum
& Bird, (2010) explained that such intelligence leverage on continuous research, testing, and reviewing of the business ideals to constantly fine-tune it. Psychologically such entrepreneurs see opportunities where others don’t and sense dangers miles ahead of contemporaries in the industry, therefore practical intelligence is thus an important prognosticator of making fast, smart and flexible decisions and taking actions in response to changes in the market to propel resilient growth. Empirical studies supported the supposition that practical intelligence is a major psychological factor of entrepreneurship that has direct effects on new business venture growth and contributes to the improvement activities required to achieve a laudable business performance.
30 2.3.4 Process towards innovation
This is the portion of the cycle where series of events or result from other part of the cycle determines outcome. Understanding of psychology of entrepreneurship is mandated to pull- off successful business venture. Undeniably, abundant research advocates that optimistic expectations encourage exertion and doggedness (Kappes et al., 2012). Optimism defiles effect of drawbacks or failure as optimistic entrepreneur’s self-motivation will drive them to continue exerting efforts in the face of failure, Ucbasaran et al., (2010) posit that failure has little effect on serial entrepreneur, who see business opportunities even in the failure. In addition, Optimist entrepreneurs shield themselves from negativity, by believing that positive events are permanent because it will continue to generate positive outcomes while negative events are interpreted as a temporary set-back which is seen as opportunity for improvement, thereby improves innovation (Ucbasaran et al., 2013; Seligman, 2012). Another, effect of optimism is the social network opportunity it avails, moreover, the support that comes from such network boost positive expectation and opened business opportunities (Segerstrom, 2007; De Carolis et al., 2009).