Optimism and Adversity in Entrepreneurship
4 mins read · 2021
Sibel Ozgen, Maria Lapeira, Seema Pissaris
This is a summary of “I Got This! Resource Bundles and Adversity: A Situated Entrepreneurial Optimism Perspective” by Ozgen, Lapeira, and Pissaris (2021). This study of US entrepreneurs looked at how levels of human, social, and financial capital affected entrepreneurs' optimism and found that these do not contribute equally to optimism levels - rather, sufficient human capital factors are critical to maintaining optimism, even when levels of social or financial capital may be lower.
“Although resource availability has been increasingly recognized as a driver of optimism, much of this research stream has been on the independent effects of resources. By explicitly incorporating a configurational perspective, our study sheds light on the interactive influences of human, social, and financial capital. We nudge the narrative from “whether resources are important” to “in which ways and in which combinations do resources matter” for optimism.” (p. 128)
Summary
Optimism is more than positive thinking and plays a vital role in the entrepreneurial process, which is fraught with adversities. Market fluctuations, financial losses, and business failure in entrepreneurship are key barriers faced by every entrepreneur. Prior studies show that adversity can manifest as financial losses, employee layoffs, new competition, and even new technology that can render an existing business model obsolete for a new venture, which all affect the level of optimism and resilience an entrepreneur will then have.
Recent entrepreneurship research has focused on optimism to understand what helps entrepreneurs persist through challenges. The study explores how entrepreneurs' levels of different resources affect their optimism namely:
Human capital consists of founder experience, senior management, and high-level education. It is an essential determinant of optimism as it provides entrepreneurs with skills, abilities, and knowledge that may assist them in adapting to new situations and challenges and achieving desirable outcomes.
Social capital consists of pulling out benefits from their social networks and memberships. Through their networks, founding team members can provide new or additional resources (i.e., knowledge, contacts, etc.) and support frameworks essential for succeeding in challenging entrepreneurial environments.
Financial capital consists of the total amount of financial capital, including debt and equity invested in the venture, which is a critical resource to ensure entrepreneurial ventures' performance and ongoing success.
Methodology
Fuzzy-set qualitative comparative analysis (if you are curious about this methodology, click here to learn more about it). The study analyzes the data collected from 315 ventures as part of their application for an accelerator program. In the sample, 83 percent of ventures were entrepreneurial teams, and the rest were solo founders focusing on USA-based ventures that experienced negative earnings in the prior calendar year. The average venture age observed in the data is 5.19 years, and the average number of founding team members is 2.24, with about 73.3 percent of the leading founders being male. The resource-based theory was used in this study as a theoretical framework to investigate the differences in the performance of firms based on their resources and other internal characteristics.
Key findings
Extended literature focuses on the importance of financial resources, the findings in this research complement the economic stance by showing that entrepreneurs may maintain their optimism during adversity in the absence of financial resources but the presence of human and social capital.
The present findings confirm that decision-makers do not need to possess all five resource components examined to have optimistic expectancies. For instance, entrepreneurial optimism can be achieved without social or financial capital, contingent on the presence of specific and general human capital components (i.e., founding experience, senior management experience, and high-level education).
Implications
The insights provided in this study are interesting as recent research emphasizes financial resources and their importance but does not address the importance of cognitive resilience. The research suggests that in the case of financial setbacks, the presence of additional financial capital may not be the only avenue to maintain optimism and face adversity. Thus, the findings add nuance to the literature by highlighting the importance of financial capital for survival and growth (i.e., Cooper et al., 1994). While financial resources can help lessen adverse events (Segerstrom, Carver, Scheier, 2017), it may be unrealistic to expect that problems will be solved by financial means alone. Nearly this discovery is essential for young ventures facing financial setbacks as it suggests that entrepreneurs may tap into multiple sources of optimism, and none may need to be financial. When conveyed to creditors, lenders, investors, and customers, such optimism can ultimately result in tangible ways to headway towards exiting the setback.
New Power Labs’ takeaways
Considering that financing alone does not suffice to help entrepreneurs keep their spirits up, organizations that flow capital should always accompany financing with other types of support: further training for founders, support, and networking, coaching and mentoring, etc. This will increase human and social capital as well, and contribute to the optimism of the entrepreneurs they support. While there is no specific mention of equity-deserving entrepreneurs, we have to keep in mind that money alone is not sufficient to mend the gap of inequities, and that accurate support must be provided for entrepreneurs to feel optimistic that they can tackle the challenge of entrepreneurship.
References
Ozgen, S., Lapeira, M., & Pissaris, S. (2021). I got this! Resource bundles and adversity: A situated entrepreneurial optimism perspective. Journal of Business Research, 136, 127–136. doi:10.1016/j.jbusres.2021.07.01.
