CAMDEN — Starting a new business can be a risky venture. Entrepreneurs hope their ideas become prosperous, but they first face a lot of uncertainty and may not see tangible results for years. Are they being irrational by banking on future success?
A Rutgers University–Camden scholar is researching what keeps entrepreneurs motivated despite a sometimes murky future.
“Starting a business is a lot of work with little immediate payoff,” says Shoko Kato, an assistant professor of management at the Rutgers School of Business–Camden. “Why is it that so many people start businesses and invest a lot of time and money if the probability of success is low? Are they being overly optimistic?”
According to Kato, recent research suggests 15 percent of new business ideas are abandoned after four years and another 15 percent are successfully launched four years after conception. That leaves 70 percent of entrepreneurs stuck in between, waiting for the pendulum to swing toward success, or failure.
To gauge how entrepreneurs persevere in the interim, Kato referred to thousands of blog entries authored by nine different North American entrepreneurs who detailed their experiences in starting a new business. The industries included start-ups in the nonprofit sector, consulting, and software development, among others. The common theme among all of these personal accounts is that the emotional aspect of entrepreneurship — a strong attachment to the business and a desire to see it succeed — plays a key role in a business owner’s willingness to weather early storms even if it means little to payoff in the early going.
“If it was all about making money, you might think that entrepreneurs who realize that they won’t get a return on their investment would bail out as soon as possible,” Kato says. “But I found that it isn’t always about making money. Something else is driving them. I think many entrepreneurs switch their focus to their personal growth and their own happiness, which is why they’re more likely to exercise patience in the beginning.”
"Why is it that so many people start businesses and invest a lot of time and money if the probability of success is low? Are they being overly optimistic?"
While the motivations for starting a business varied in terms of business goals in Kato’s sample, the Rutgers–Camden management scholar says each entrepreneur’s experiences were similar. For example, her research suggests they each express anxiety and excitement in the pre-launch stages of the business, while also emoting frustration over lack of progress and support.
In each case, focusing on short-term, tangible goals allowed each new business owner to remain committed to the bigger picture, which in turn encouraged them to stick with their long-term plan. Kato says that seems to be the key to staying motivated in the early stages of a new business, even if it underperforms.
Furthermore, Kato says entrepreneurs persevere through setbacks by seeking positive feedback and by thinking about new ideas for their business while reflecting on why they started the business in the first place.
Are entrepreneurs being irrational by staying the course? Kato doesn’t think so.
“There will be tough times in founding and managing a business,” she says. “If an entrepreneur is passionate enough about his or her idea to do anything, then the entrepreneur will succeed.”
Kato, a Philadelphia resident, teaches courses in business policy and entrepreneurship at the Rutgers School of Business–Camden. She earned her bachelor’s degree from Tsuda College in Japan, and her master’s and doctoral degrees from Syracuse University.