LOCUS OF CONTROL AND ENTREPRENEURS IN A SMALL TOWN

Morris Boydston, Rich Mountain Community College; Lisa Hopper, Rich Mountain Community College; and Alan Wright, Henderson State University INTRODUCTION Why are small businesses so fragile in their early years of operation? This is a question that has long plagued business men and women, economists, and anyone else with an interest in the world's financial and economic development. The success rate of small business start-ups in the first six years of operation is only 38 percent (Timmons 1994). A better understanding of the make-up of the small business owner in terms of personality, temperament, and character may help answer this question. Research indicates that the small business owner or entrepreneur is a person willing to take calculated risks, to be creative, to be independent, to be flexible, etc. In fact, the list of characteristics that is used to describe an entrepreneur is very lengthy (Kuratko and Hodgetts 1998). This study will determine if a sample of entrepreneurs demonstrates a higher internal locus of control than nonentrepreneurs. Locus of control has been found, in studies conducted in the United States, Australia, and Great Britain, to differentiate entrepreneurs from the general public and middle/ senior managers, as well as to distinguish successful from unsuccessful entrepreneurs (Brockhaus 1980, Cromie and Johns 1983, Gilad 1982). Several studies cited in this paper were performed nationally, regionally, or locally, but in each case in larger metropolitan areas. This study will identify small town rural respondents as entrepreneurial or nonentrepreneurial. While the task of measuring every characteristic attributed to an entrepreneur is beyond the scope of most research, a manageable number was selected for this study. After careful review, a few important characteristics were identified for testing: internal locus of control, confidence, independence, and tolerance to risk. Confidence, independence, and tolerance to risk were chosen because questionnaires and or surveys already existed which provided the opportunity for additional testing to determine if it is more prevalent in entrepreneurs and/or nonentrepreneurs. Considering the current rapid growth in the small business sector with the high failure ratio for these businesses, this study may provide practical benefits and insights for current or potential small business owners into what characteristics make up an entrepreneur. Currently, one out of every 25 adults is actively involved in trying to start a new business (Zimmer and Scarborough 1998). Between 1990 and 1994, small, growing firms with less than 100 employees generated 7 to 8 million new jobs in the United States economy; whereas, firms with more than 100 employees destroyed 3.6 million jobs (Bygrave 1997). Consequently, the Bureau of Labor Statistics expects the small business sector to grow by over 25 percent over the next 15 years, creating 13.5 million jobs. Larger companies, however, are expected to grow by only 10.5 percent over the same period (Zimmer and Scarborough 1998). Based on these facts, it is important that the business sector understand more about the personality of an entrepreneur. BACKGROUND In this section we will define an entrepreneur for this study and will develop hypotheses based upon findings of previous studies located in different areas of the country and by research performed on subjects with demographic differences than our sample.

Definition Bygrave (1993) defined an entrepreneurial event as the creation of a new organization to pursue an opportunity. An entrepreneur then would be anyone who starts a new business (Bygrave 1997). This definition includes the entrepreneur who buys a!, existing business with the understanding that this is the start of a new business for that individual. Selected Entrepreneurial Characteristics The four entrepreneurial characteristics selected for this study were chosen because previous research has found a correlation between the variables and entrepreneurs. Replication of the previous studies on a new sample will expand our understanding of the nature of the entrepreneur. The concept of locus of control refers to a generalized belief that a person can or cannot control his or her own destiny (Rotter 1966). Those who ascribe control of events to themselves are said to have an internal locus of control and are referred to as "internals.' People who attribute control to outside forces are said to have an external locus of control and are termed "externals" (Spector 1992, Nwachukwu 1995, and Carver 1997). An internal locus of control has been one of the psychological characteristics most often used as predictive of entrepreneurship (Perry 1990; and Kaufmann & Walsh 1995). An interpretation of research relevant to locus of control, entrepreneurs, and the environment comes from Gilad (1982). Gilad theorizes that the influence of locus of control on perceptual alertness (i.e. ability to see opportunities in the environment) explains the influence of locus of control on entrepreneurs. This premise is based on an extensive review of psychological research which found that persons who have internal locus of control have greater amounts of perceptual alertness. The research shows that this leads to spontaneous learning, defined as ". . . the discovery of the existence of an opportunity" (Gilad 1982, 134). Similar research concludes that internal locus of control persons are active seekers of information that is useful to them. In essence, Gilad notes that almost three decades of research consistently shows that internals are alert, discover opportunities, and scrutinize their environment to find information needed to formulate the optimal approach to developing those opportunities. Timmons, Smollen, and Dingee (1985, 79) support this theory that ' . . . the ability to recognize an opportunity ... is central to entrepreneurial success." Burch (1986, 32) writes, "Entrepreneurs are alert to unnoticed opportunities." This reasoning indicates that research encompassing locus of control is a fruitful area of study for those wishing to understand entrepreneurs (Bygrave 1993). Thus, locus of control may be viewed from a theoretical viewpoint as a potential determinant of whether or not a person involved with a small business is aware of and seeking opportunities overlooked by others within a given economic environment. Also, a person with an internal locus of control is more likely to believe environmental influences, such as the economy, can be influenced rather than passively accepted (Wheatly, Anthony, & Maddox 1991; and Ward 1993). Following review of the studies by Sapp and Harrod (1993) and the others mentioned previously in this study, a correlation is believed to exist between entrepreneurs and the possession of an internal locus of control. By determining which respondents possess the characteristics of internal locus of control, confidence, independence, tolerance for risk, and which respondents identify themselves as entrepreneurs, as defined, the following hypothetical relationship should exist: Entrepreneurs will demonstrate a higher internal locus of control and higher levels of confidence, independence, and tolerance for risk than nonentrepreneurs.

METHODOLOGY This section will discuss the development of the survey instrument, the selection of the sample and the methods used in analyzing the data. Survey Instrument Using the definition for an entrepreneur (Bygrave 1993), the data analysis began with identification of the respondents as either entrepreneurs or non- entrepreneurs. This was done by analyzing the answers to the demographic questions related to occupation. The respondents who answered that they currently or previously owned or operated a business were considered entrepreneurs for analytical purposes. Typically, studies of locus of control have used Rotter's (1966) Internal-External scale in a twodimensional, forcedchoice format and/or Levenson's (1974) Internal-External scale in three-dimensional, Likert format. For example, Shapero (1975) found that in general entrepreneurs tend to have an internal focus. Nelson (1991) found that specifically female entrepreneurs have significantly more internal locus of control than do females in the general population. Bonnett and Furnham (1991) used a threedimensional (internal, powerful other, and chance) scale and found that entrepreneurial social workers tend to exhibit a greater internal locus of control. In a study comparing entrepreneurs with employee/ managers, entrepreneurs were found to display significantly higher levels of internal locus of control than the non-entrepreneur with both measures (Kaufmann and Welsh 1995). The assumed two-dimensionality of the locus of control construct ( i.e., internal vs. external control has been questioned repeatedly, giving rise to other more complex theories (Lefcourt, 1981). While the internal factor of Rotter's I-E scale has remained relatively intact, the external factor has been split into two dimensions: chance and powerful others (Levenson 1974, and Kaufmann and Welsh 1995). The addition of powerful others as one external factor gave a third alternative for respondents who had the tendency to be external. This addition of a third external factor enhanced the credibility of the external factor concept and thus gave less credence to chance or luck as factors. This is perceived by researchers to allow more confidence in results derived from locus of control studies. Over the years, several others have duplicated the studies of both Rotter (1966) and Levenson (1974) by modifying one or both of the studies (Sapp and Harrod 1993). Sapp and Harrod (1993) published a study titled, "The Reliability and Validity of the Brief Version of Levenson's Locus of Control Scale". In Sapp and Harrod's study, a nine- item locus of control scale was constructed from Levenson's (1974) original 24-item locus of control scale. Principal components and second order factor analyses of responses from 129 under- graduates indicated satisfactory reliability and construct validity of the reduced scale. Additionally, structural equation analysis using a scaled measure of perceived risk supported the predictive validity of the reduced scale. Based on the proven reliability of these previous studies, Lumpkin's (1988) Brief Version of Levenson's (1974) Locus of Control Scale was used in this study. This questionnaire has three main sections: Internal Control, Chance, and Powerful Others. To help validate the analysis of the data collected from the three main sections of the survey instrument, an additional three questions were included. These questions, taken from recognized checklists concerning entrepreneurial characteristics, were designed to identify the personality traits of independence, risk tolerance, and confidence (Hisrich and Peters 1998).

Sample This study was conducted in Polk County, Arkansas, in February, 1998, and is based on the analysis of data collected from 101 business men and women, employers and employees, and students. The participants were selected as a sample of convenience from the following groups: work force training classes at the local community college, various large employers in the immediate area including banks, hospitals, and manufacturing facilities, and small business owners. To minimize any bias, the candidates for survey were selected from all ages, genders, and occupations. In addition, eight of the small business ownerslentrepreneurs were asked what they felt was the one personality characteristic that they possessed that was the motivation to become small business owners. No explanatory information was given to the participants prior to completion of the survey instrument. All respondents were assured that their responses were to be anonymous and therefore, confidential. Further, the respondents were assured that no individual answers would be revealed and that only aggregate scores would be used for comparison purposes. This assurance included the information provided in the answers to the demographic questions. Data Collection The respondents were asked to complete a twelve- question survey using a Likert scale with the end points ranging from 1- "strongly agree" to 7- "strongly disagree." Locus of Control Questions Data coding for the items on the locus of control scales was tabulated so that the lower the score the more the perceived internal control. The scoring for the chance and powerful others questions had an inverse relationship to the scoring of the internal control questions. Entrepreneurial Checklist Questions Data coding for the three entrepreneurial checklist questions was designed as follows: 1. The independence question was designed so the lower score equals less independence. 2. The risk tolerance question was designed so that the lower the score the more risktolerant. 3. The confidence question was designed so that the lower the score the more confidence shown. RESULTS 101 respondents, 8 of which had to be excluded from the final analysis due to incomplete data, completed the survey. Of the ninety-three respondents used in the report, 37 were males and 56 were females. The number of respondents classified as entrepreneurs, as previously defined, was 45 and non-entrepreneurs, 48. There were 59 respondents 40 years of age and over and 34 respondents under 40. The analysis performed on the surveys collected was an independent t-test with an alpha of .05. There was no statistical difference between the group designated as entrepreneurs and those labeled nonentrepreneurs The results of the survey in the area of internal control indicated that the entrepreneurs questioned had a very high internal locus of control. The entrepreneurs scored on average 2.2, 2.2, and 1.9 on questions 1,5, and 9 respectively. The lower the score on a scale of 1-7, the higher the internal locus of control characteristics. Unfortunately, the study did not prove that the non- entrepreneurs surveyed had a significantly lower score on the internal locus of control questions, scoring 2.3, 2.1, and 2.3 on the corresponding questions.

The group of 93 participants responded strongly that they did not believe that their life happenings were left to chance or luck. The group indicated that they believe they are in control of their own destiny. On the questions concerning powerful others being in control of their lives, the group surveyed answered on average 5 on this type of question, which indicates that they disagree that their lives are controlled by powerful others. Additional statistical analysis was performed on the information concerning correlation coefficients. The results determined the correlation between the groups of questions from Lumpkin's (1988) Brief Version of Levenson's (1974) Locus of Control Scale and the additional questions from the entrepreneurial checklist by Hisrich and Peters, 1998. The groups of questions are defined as follows: Internal Control: questions 1,5, & 9; Chance: questions: 2,6,& 10 Powerful Others: questions: 3,7, &11; (4) Entrepreneurial questions 4- (independence), 8-(Risk Tolerance), 12(Confidence). The correlation coefficients were the most interesting part of the results. Certain question sets showed very high correlation with the entrepreneurial question set (question 4,8, and 12). Questions 1,5, and 9 revealed very high correlation with question 12. The first question set (1,5, & 9) related to internal control and question 12 concerned confidence levels. These findings further strengthen studies that those individuals that have a high level of internal locus of internal control have very high confidence in themselves and their success in whatever they choose to accomplish in their lives. Another correlation factor computed that was revealed to be very significant was the correlation between question set number 3 questions (3, 7, and 11) and question 4. Question set 3 deals with how much powerful others control their lives and question 4 deals with independence levels. This makes sense logically because if the person feels highly independent, they are less likely to feel strongly controlled by others in positions of authority around them. DISCUSSION There are several possible explanations as to why this study failed to find a significant difference between entrepreneurs and non-entrepreneurs. We will approach two. First, the designation used for this study defined entrepreneurs as those who own or had owned a business. Many studies differentiate between the small business owner and the entrepreneur (Drucker, 1985; Timmons, 1994; Hisrich & Peters, 1998). As defined by Bygrave (1993 ) an entrepreneurial event is the creation of a new organization to pursue an opportunity. Our designation for this study may not have captured the true nature of an entrepreneur. Many believe that an entrepreneur does not have to own a business to be engaged in entrepreneurial activities. Second, internal locus of control is common in the United States, particularly in our sample. This sample, whether entrepreneur or not, appeared to be rather self- confident, self-reliant, independent, and with a strong internal locus of control. Reasons for these traits may be simply born out of necessity. The geographic area surveyed is a small, rural town of 5,000. This town is also very secluded from other towns of any sizable population. This type of setting would be conducive to a survivalist type attitude. Because not all of the conveniences found in larger cities are readily available, this group has probably learned how to make the best of any given situation, and to work with the assets available at the time. This would promote a sense of self-sufficiency and determination to succeed, possibly stronger than in a metropolitan area. Many famous entrepreneurs have come from similar backgrounds and specifically in Arkansas we claim Sam Walton, the Dilliards, Don Tyson and many more. In addition, several U.S. Presidents share a rural background, including Bill Clinton, who was "born and raised" in a similar environment.

When several of the small business owners were asked what was the personality characteristic that they possessed that was the motivating factor in becoming small business owners the answers were varied. Although varied, none of the respondents' answers alluded to an internal locus of control as being influential in the development of the opportunity leading to the opening of a small business. Even when internal locus of control was defined for these respondents it was not believed to be a factor in the start-up of their respective businesses. Each respondent did comment, however, that they felt they did possess an internal locus of control. This fact was evidenced in the surveys that each respective survey completed. Several other studies (Gilad 1982, Timmons, Smollen, and Dingee 1985, and Burch 1986) have alluded to the importance of the ability to recognize opportunity as paramount in an entrepreneur. In addition, Perry (11990), and Kaufmann and Welsh (1995), state that an internal locus of control has been one of the psychological characteristics most often used as predictive of entrepreneurship. Each of these studies has also linked the possession of an internal locus of control to being more cognizant of opportunities that may exist to the entrepreneur. Although this study has not and was not intended to disprove the fact that entrepreneurs are not internal with respect to locus of control, it has shown that in this small town, rural setting it may not be the best psychological characteristic predictive of entrepreneurs. The way entrepreneurs were defined, or the rural area the survey was performed in, could have impacted the outcomes of the study. The study did, however, reinforce the belief that entrepreneurs have a strong internal locus of control. REFERENCES Bonnett, C., & Furnham, A. (1991). Who wants to be an entrepreneur? A study of adolescents interested in a young enterprise scheme. Journal of Economic Psychology, 12, 465-478. Brokhaus, R. (11980). Risk taking propensity of entrepreneurs. Academy of Management Journal, 23, 509-520. Burch, J. (1986). Entrepreneurship. New York: John Wiley and Sons. Bygrave, W. (1993). Thoery building in the entrepreneurial paradigm. Journal of Business Venturing, 8(3), 255280. Bygrave, W. (1997). The portable MBA in entrepreneurship. New York: John Wiley and Sons. Carver, C. (1997). The internal-external scale confounds internal locus of control with expectancies of positive outcomes. Personality & Social Psychology Bulletin, 23(6), 580-585. Cromie, S. & Johns, S., (1983). Irish entrepreneurs: Some personal characteristics. Journal of Occupational Behavior, 4, 317-324. Drucker, P. (1985). Innovation and entrepreneurship. New York: Harper & Row. Gilad, B. (1982). On encouraging entrepreneurship: An interdisciplinary approach. Journal of Behavioral Economics, 11, 132-163. Ferguson, E. (1993). Rotter's locus of control scale: A ten- item two-factor model. Psychological Reports 73, 12671278.

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