How 'Job Creators' Think

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Executive Summary:

Much has been said about the importance of “job creators,” mainly small and medium-sized businesses, as engines of economic growth. Far less has been said about the thinking styles of the entrepreneurs who start and run these businesses, and about whether those styles actually help to grow jobs. Who are more successful: the intuitive, go-with-the-gut types or the coolheaded analysts who don’t make a move until they have studied the data and made a full-blown plan?

A five-year study by researchers at Texas Tech and Midwestern State University looked at the link between entrepreneurs’ thinking styles and job growth. One surprising discovery was that intuitive owner/managers, who trust their instincts and eschew bean counting and bureaucracies, may come up with some great ideas but are not necessarily better at generating jobs.

“We set out to find out how the owner/manager’s way of thinking and solving problems affected the success of the venture,” said Texas Tech Associate Professor Keith Brigham, who conducted the study with fellow Texas Tech Professor Ron Mitchell and with Jeff Stambaugh, Associate Professor at Midwestern State. “What we found was that being intuitive or analytical affected growth indirectly rather than directly, because it influenced other behaviors that did have an impact on growth.”

Intuitive entrepreneurs had higher growth intentions for their firms, which did translate to greater growth in the number of employees. However, opposite of predictions, the study found that while intuitive entrepreneurs had more experience running companies, prior experience was actually detrimental to the creation of more jobs. How could that be? Often, these impassioned dreamers bite off more than they can chew; many have run several companies in succession, and some even juggle several at the same time. They also may become more resistant to change after enjoying past success, and less able to do the day-to-day planning and strategizing necessary to take their fledgling businesses to the next stage.

The study also found that being too analytical was a drawback. The predominantly analytical entrepreneurs -- who tend to value solid numbers, careful planning and reporting relationships -- didn't do much better at adding jobs. Analytical entrepreneurs reported more formal structure in their firms, and this was detrimental to growing more jobs. It appears that entrenched bureaucracy made them less nimble.

Small and medium-sized companies run by owner/managers account for about 12 million U.S. businesses. The researchers studied 150 of them between 2000 and 2005: all Colorado technology companies, founded and run by entrepreneurs. The median company was in business for 15 years and had 36 fulltime employees.

When the study began in 2000, researchers asked many questions to figure out each respondent’s cognitive style – analytical, intuitive, or something in between. Respondents were also asked how many businesses they had run before; how many more employees they thought they might add in the next few years; how much they expected sales to grow; and the degree of formal structure and planning in their current business. Researchers then tracked the businesses’ performance and job growth from 2000 to 2005.

Most of these owner/managers, researchers found, tended to be more intuitive than analytical. Among those intuitive thinkers, 56% had owned more than one business before they were surveyed, and more than half of those were juggling at least two businesses at the survey’s onset. Some respondents whose traits were extremely intuitive had owned as many as 15 or 20 businesses, far more than the typical analytical thinker owned.

Brigham said that most “serial entrepreneurs” tend to be intuitive, and this can work against them because people who’ve managed many businesses tend to lose steam and focus over time or become set in their ways. Indeed, this group didn’t perform any better, even though they had set high growth goals for themselves in 2000.

Respondents who were very analytical tended to have more extensive bureaucracies in place at the start of the study, and also showed a relatively flat growth in jobs. On the other hand, they tended to be more conservative in their business predictions and expected less.

The best place to be: in the middle, either by one’s own cognitive style or by adding staffers who think differently. “Intuitive entrepreneurs may be great at launching new ventures, but over time they need analytical skills to help the business grow and mature,” Brigham said.

Brigham became intrigued with studying intuitives and analyticals while working during college at a tee-shirt company, run by two brothers with opposing cognitive styles. “The analytical brother wanted everything to be planned out, and the other brother wanted to do everything off the cuff,” Brigham recalled. “When a problem had to be solved they would come at it from two different directions. Needless to say there was a lot of conflict when making big decisions.”

But in the end, the two brothers were able to work through their differences, and the combined styles may have led to the eventual success of the business, which grew rapidly and was sold for a seven-figure sum.

 

The Takeaway:

Being too intuitive can be limiting – Intuitives are great at “thinking big,” about growth, which can actually help a company thrive, but they tend to take on too much, which can limit their ability to concentrate on one venture.

Analyticals should lighten up – Planning was shown to have a somewhat positive impact on growth and hiring, but bureaucracy held companies back.

Strive for cognitive diversity -- Entrepreneurs should know how they think and hire others who think differently to cover their weaknesses.

Past performance is no guarantee of future success -- Investors should consider betting on the horse as well as the jockey. Yesterday’s visionary may encounter growth difficulties tomorrow.

Growth is not the Holy Grail – “We all assume that every business wants to grow,” said Brigham. “But we found that a lot of them were happy just staying where they are. They didn’t want the headaches and the structures needed to manage more than 15 or 20 people.”

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Keith Brigham

Keith Brigham

Associate Professor and Kent R. Hance Professor in / Management / Texas Tech University
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Ron Mitchell

Ron Mitchell

Professor of Entrepreneurship / Area of Management / Texas Tech University
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Jeff Stambaugh

Jeff Stambaugh

Associate Professor; Director of Lalani Center for / Midwestern State University
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Cite this Article

DOI: 10.17919/X9VC7P
Brigham, K., Mitchell, R., & Stambaugh, J. (2014, July 11). How 'job creators' think. Entrepreneurship & Innovation Exchange. Retrieved July 22, 2018, from https://family-business-org.appspot.com/content/how-job-creators-think


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