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What Drives The Best Entrepreneurs? Hint: It's Not Money

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The following guest post is by Jason Steiner, an Associate with T2 Venture Capital.

The EXIT…that elusive pot of gold at the end of the entrepreneurial rainbow.  Whether by acquisition or IPO, the exit ranks as priority number one for investors and, with the increasing trendiness of running a  “startup”, many aspiring entrepreneurs.  The phenomenal success and celebritization of Silicon Valley tech entrepreneurs like Zuckerberg, Dorsey, Page, Brin, and others has created a wave of would-be startup billionaires dreaming of Gulfstreams and Maybachs.  The allure of fame and fortune has attracted many to the world of entrepreneurship, but as attractive as the siren of fortune may be, its sole pursuit can sow the seeds of destruction for any new venture.

It is said that the love of money is the root of all evil.  While this point is certainly debatable, current academic research is becoming increasingly clear that such a love, if not evil, is certainly isolating—a fate equivalent to death for ambitious entrepreneurs.

In his book Thinking Fast and Slow, Nobel Prize winning economist Daniel Kahneman cites compelling research done in the lab of Dr. Kathleen Vohs at the University of Minnesota on the psychological effects of money on human behavior.  In her work, Dr. Vohs focuses on the effects of psychological “priming”—the near subconscious influence of environmental cues—on human interactions.  Her work on the effects of monetary priming prods subjects with subtle cues like words and images associated with money.   She then measures various metrics such as persistence at difficult tasks, self-reliance, and selfish inclinations.

The results are compelling.

Test subjects that received monetary “priming” cues were statistically differentiated from those receiving neutral cues on a number of metrics.  Major differences were seen in specific characteristics of individualism and included:

  • A two-fold increase in the persistence time to solve a difficult task
  • A significantly reduced willingness to help a fellow student with a task
  • A significantly reduced willingness to volunteer assistance to a stranger
  • A significantly greater physical separation when seated across from a person during an introductory conversation.

For sure, a strong sense of individualism and persistence are essential attributes of successful entrepreneurs.  Yet other characteristics identified by Dr. Vohs as associated with a monetary focus such as a reluctance to be involved with or dependent on others, or to accept direction from outside parties are almost certainly detrimental.  The myth of the solo entrepreneur has been debunked in a number of forums and it has become a point of general agreement that great ventures require successful teams to execute.

Given this research, if great ventures result from great teams, it can be concluded that financial gain is not the primary driver of great entrepreneurs.  Unless we assume that entrepreneurs are crazy, the fact that the probability of windfall profits is vanishingly small for the vast majority of ventures only adds to this argument.

But then we must ask ourselves: why do entrepreneurs do what they do and take such great risks?  It seems clear that financial gain is not a sufficient explanation.  It is both too rare and, according to the research, actually impedes an entrepreneur’s ability to build a team that would produce great returns.  From a classical risk-reward perspective, it is simply not worth it.  But the fact that entrepreneurs continue to take extraordinary risks for a small expected return (from a probabilistic standpoint) indicates that something else is balancing the scales.

The answer lies in what are becoming known as extra-rational motivations.  Such motivations lie mainly in the psychological rewards of being an entrepreneur and include benefits derived from:

  • the thrill of competition
  • the desire for adventure
  • the joy of creation
  • the satisfaction of team building
  • the desire to achieve meaning in life

and a host of others that have not been traditionally considered as drivers of economic growth.  For entrepreneurs that, admittedly, take great risks for the slim chance of substantial financial success, these extra-rational motivations help to tip the balance.

The recognition that behavioral psychology plays a central role in economic development is profound and flies directly in the face of traditional theories of prosperity that focus solely on optimal resource allocation.  So the next time you see an entrepreneur and think they must be crazy for taking such risks, or dream of quitting your job to pursue a startup and become fabulously rich, make sure you check your assumptions, ponder your motivations, and reflect on the true drivers of great entrepreneurship (hint: it’s not the money).

Jason Steiner is an Associate with T2 Venture Capital, researching and developing tools for the design of innovation ecosystems.  He has a PhD from the University of California, San Diego, studying applications of nanotechnology to oncology.  He served as the CEO of the Entrepreneur Challenge, a non-profit organization for the training and funding of student entrepreneurs at UCSD.  

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