The study of success among microenterprises is dominated by the focus on economic parameters such as growth in sales, income and profits (e.g. Rindova, Barry, and Ketchen
2009; Baron, Franklin, and Hmieleski
2016; Robb and Fairlie
2009; Alom et al.
2016; Qureshi, Aziz, and Mian
2017) as well as growth in number of employees in the company (Alom et al.,
2016; Baluku, Kikooma, & Kibanja,
2016a). However, following calls to study entrepreneurial success beyond economic measures, there is increased research on subjective success, and thus increased focus on psychological processes and factors that are associated with entrepreneurial success. The idea is that some psychological attributes and states are important resources for entrepreneurial success and persistence (Baluku et al.,
2016b; Duening,
2010; Patel & Thatcher,
2014; Rauch, Braennback, & Carsud,
2010).
Studies on entrepreneurial behavior and outcomes are increasingly applying psychological capital as an underlying mechanism that is associated with success (e.g. Baluku, Kikooma, & Kibanja,
2016b; Baron et al.,
2016; Jensen & Luthans,
2006; Sarwar, Nadeem, & Aftab,
2017). In the present study, we argue that psychological capital impacts on several objective and subjective outcomes of entrepreneurship. In addition, we argue that entrepreneurship as a career role is conducted in social settings, where amount and quality of social interactions are important to the execution of the job. Moreover, social relations contribute to motivation and persistence in activities, in line with the self-determination theory (Deci and Ryan
2015; Deci et al.
2001). Both self-determination and positive organizational behavior literature portray social relations and psychological capital as concepts that foster thriving, vitality, and psychological growth (Luthans et al.,
2008a,
b; Deci and Ryan
2000; Ryan
2009). This suggests that psychological capital and social competence have similar effects on entrepreneurs’ behavior and are important for predicting entrepreneurial outcomes. The paper, grounded on psychological capital and social competence literature, examines the direct and interactive effects of positive personal resources, relational capital, and social intelligence on entrepreneurial outcomes and commitment to remain in the entrepreneurship role.
The role of psychological Capital in Entrepreneurial Success
Psychological capital is described as a state of mind, consisting of positive psychological strengths (Avey et al.
2011; Luthans and Youssef-Morgan
2017); therefore, it could be considered a positive mindset. Positive cognition is essential to an entrepreneurial mindset enabling individuals to learn from experiences and adjust to the dynamics of the business environment in order to achieve success (Haynie, Shepherd, Mosakowski, & Earley,
2010). Facets of psychological capital, for example, optimism and self-efficacy, are essential for performance in cognitively related entrepreneurial tasks including innovation, and identification of opportunities (Arora, Haynie, & Laurence,
2013; Gudmundsson & Lechner,
2013; Hayek,
2012; Storey,
2011). Therefore, entrepreneurs apply psychological resources right from the start of the entrepreneurial process. This suggests that psychological capital is one of the cognitive investments that an entrepreneur will always be required to invest in sufficient amounts to achieve desired outcomes (Baluku et al.,
2016b; Baron et al.,
2016; Sarwar et al.,
2017).
The construct of psychological capital (Goldsmith, Veum, & Darity,
1997; Luthans et al.,
2004) represents the psychological resources that individuals bring to their work. Based on positive psychology literature, psychological capital comprises of four resources including self-efficacy (confidence), optimism, hope and resilience (Luthans, Avolio, & Avey,
2007a; Luthans et al.,
2004). Whereas other constructs from positive psychology, such as trust (Page & Donohue,
2004), have been suggested for inclusion as aspects of psychological capital; it is considered that only the four positive psychological resources are eligible for inclusion; based on the criteria that they are state-like and can be developed through specific interventions (Luthans & Youssef-Morgan,
2017). Moreover, it is posited that these resources tend to move together (Luthans & Youssef-Morgan,
2017) based on the assumptions of psychological resource caravans (Hobfoll,
2002,
2011). Consequently, an improvement in one of these resources may result in increase in the other(s). For example, evidence suggests that optimism and hope tend to lead to enhanced efficacy and resilience (Feldman & Kubota,
2015; Storey,
2011).
Each of these components of psychological capital is critical resource at different stages of the entrepreneurial, therefore important for success.
Self-Efficacy, or confidence, refers to an individual’s belief in personal capacities to achieve a goal or complete a task (Bandura,
1997). It is a positive psychological resource that increases with mastery and vicarious experiences (Luthans et al.,
2004). Applied to entrepreneurship, self-efficacy could be the force that drives individuals to undertake the risks of starting and managing a business venture (Boyd & Vozikis,
1994) since it relates to confidence in one’s own ability to mobilize the required resources and motivation to execute a given role or task in a given context (Stajkovic & Luthans,
1998). High self-efficacy is related to the setting of challenging goals and the persistence in pursuance of those goals, hence it is a useful resource for entrepreneurial growth and performance (Hmieleski and Corbett
2008; Hmieleski and Baron
2008). Self-efficacy is also related to the ability to undertake risks (Bandura,
1997), which is an important part of the entrepreneurial job. Particularly, high self-efficacy is needed in identifying and exploiting opportunities, harnessing resources, and maneuvering the difficulties of establishing a business (Tumasjan & Braun,
2012; Wilson, Kickul, & Marlino,
2007).
Optimism is another aspect of psychological capital that is reported to have a substantial impact on the ability to do business. It regards an individual’s expectations of positive outcomes or making positive attributions about the likelihood of success in the short or long term (Luthans, Youssef, and Avolio
2007c). People take the risk of investing money or other resources even when there are uncertainties because they expect positive returns on investment (Rigotti, Ryan, & Vaithianathan,
2011). Hence, optimism is necessary for individuals to accept the risks of starting or growing a business venture (De Meza & Southey,
1996; Storey,
2011; Trevelyan,
2008). The expectation of positive outcomes not only facilitates continuous investment in the growth of the business but also triggers resilience (Stagman-Tyrer,
2014), thus the ability to persist in the entrepreneurial role even at difficult business times. Optimism is also a cognitive resource that facilitates opportunity exploitation, creativity, and innovation (Storey
2011; Hmieleski and Baron
2009) resulting into superior entrepreneurial performance, as demonstrated by evidence from less developed and emerging countries (e.g. Chen, Joardar, and Wu
2017a; Chen et al.
2013).
Hope is the perception that one can achieve his/her goals, which facilitates the development of pathways and persistence towards achieving the set goals or desired outcome (Luthans et al.,
2007a,
b,
c; Luthans and Jensen
2002). This derives from Snyder (
2002) and Snyder et al. (
1996)‘s theorization of hope as consisting of three aspects: goals, agency, and pathways. The theory suggests that hope develops from way power (ability to develop plans and alternatives to achieve goals) and willpower/ agency (determination to act and maintain effort) and these complement each other in the pursuit of goals (Luthans
2012; Luthans, Avey, and Patera
2008a; Luthans and Jensen
2002). Setting goals and strategies to achieve them is one of the key tasks that entrepreneurs engage in during the lifetime of a business venture. Individuals higher on hope are able to adjust strategies when faced with difficulties; therefore, it is important for stimulating resiliency and persistence. Consequently, it is expected that entrepreneurs who are high in hope achieve superior outcomes. This ability is complemented by the resiliency resource.
Resiliency is a psychological capability to cope with both negative and positive events as well as the ability to bounce back from adversity (Brandt, Gomes, and Boyanova
2011; Luthans, Youssef, and Avolio
2007c). It is also a resource that is useful in learning and thriving in difficult situations (Masten,
2001). This is important for coping with business stress related to risks, losses, competition, and resource constraints (Baron et al.,
2016; Markman, Baron, & Balkin,
2005).
Overall, these four mental resources are theorized to combine to constitute a higher order construct of psychological capital (Luthans, Luthans, and Luthans
2004; Luthans and Youssef-Morgan
2017; Luthans
2012) that has increasingly been applied to explaining work attitudes and outcomes. In the field of entrepreneurship, existing research has indicated that psychological capital is an important predictor of performance and well-being of entrepreneurs; especially in dynamic and complex situations (Baron, Franklin, and Hmieleski
2016; Hmieleski and Carr
2008). The present study broadens the application of psychological capital to explain a wide range of entrepreneurial outcomes. Overall, the evidence presented in this review suggest that psychological resources are important for different entrepreneurial tasks and processes that including developing an interest in entrepreneurship, opportunity recognition, establishing the firm, creativity, innovation, developing and implementing business plans, as well as motivation for persistence. These consequently determine the level of objective and subjective success. We, therefore, hypothesize that:
-
H1. Psychological capital is positively related to entrepreneurial outcomes, including
(a)
firm performance (Study 1),
(b)
entrepreneur’s satisfaction (Study 2),
(d)
commitment to the entrepreneurial role (Study 2).
The role of social competences in entrepreneurial success
Several tasks of the entrepreneur are executed in the social space, where they interact with different stakeholders. Moreover, networking and cooperation, rather than competition, are emphasized for nascent and micro-enterprises to cope with the dynamic globalized business environment (Bøllingtoft,
2012). These tend to reduce costs of small enterprises (Agburu, Anza, & Iyortsuun,
2017); and are consequently an antecedent of success. However, all of these require the application of social competences. Towards this direction, Markman and Baron (
2003) propose that social competence plays an important role in entrepreneurial success.
Social competence, in the entrepreneurial field, concerns an entrepreneur’s ability to effectively interact with people who are important to the firm. These include employees, customers, suppliers, investors, the community, and other stakeholders in the business. Social competence includes the ability to understand others, making good first impressions, adapting to a range of social situations and persuasiveness (Baron and Markman
2000). These enable entrepreneurs to build social capital and relational capital. We particularly assume that building relational capital is foundational for micro enterprises in establishing strong networks and collaborations; which in turn serve as sources of social capital. In this paper, we measure social competence using two social resources: relational capital (in Study 1) and social intelligence (in Study 2). The subsequent review focuses on the association of these resources with entrepreneurial success.
Relational capital is a construct denoting intangible resources available in the social relationships of the firm itself or of the business owner. It is a form of capital that represents benefits accruing from creating and maintaining relations with the major stakeholders and is usually reflected in customer loyalty and satisfaction as well as the firm’s image with stakeholders such as financial entities and suppliers. This is summarized as the outward projection of the firm involving mutual relationships between the firm and the people or firms it interacts with (Bronzetti & Veltri,
2013). Literature tends to portray relational capital as mainly resulting from relationships with customers (e.g. Bontis
1998; Stewart and Ruckdeschel
1998). However, the relations of the firm or its owner with other stakeholders could be equally important. For example, high-quality relations with suppliers tend to increase shared benefits between supplying and buying firms (Blonska, Storey, Rozemeijer, Wetzels, & de Ruyter,
2013). Relational capital builds from social capital theory, and is,therefore, considered a facet of social capital (Blonska et al.,
2013).
A key ingredient of relational capital is trust (Blonska et al.,
2013; Liu, Ghauri, & Sinkovics,
2010). Trust indicates that parties to a relationship are dependable, open, honest, vulnerable and identify with each other; as well as satisfaction and commitment to the relationship (Paine, Katie, & Paine,
2003). This is essential to enabling the dedication of employees, hence leading to more effort put into their jobs and commitment to the firm. With regards to customers, relational capital implies customer loyalty (Bontis,
1998; Bronzetti & Veltri,
2013). This ensures a sustained customer base and sustained sales. The relations with suppliers also imply higher negotiation power, and increased ability to buy on credit. Moreover, a good image and trust between the firm or the entrepreneur with investors and financial institutions strengthen the ability to solicit financing, hence important for the financial health of the company (Paine et al.,
2003). This suggests that relational capital could be essential for the firm’s growth and performance. Given that micro and small firms usually experience financial constraints (Kim, Aldrich, and Keister
2006; Artinger and Powell
2015; Tushabomwe-Kazooba
2006), they can gain competitive advantage and achieve success by deploying their social competences (Baron and Markman
2000; Liu, Ghauri, and Sinkovics
2010). Particularly, the literature shows that relations with customers and suppliers are associated with the success of the firm, especially in the first years of operation (Hormiga et al.,
2011).
The above review indicates that relational capital is particularly important for achieving objective success as facilitated by customer loyalty and mutual relations with suppliers. The present study broadens the focus of relational capital by highlighting the impact of positive relations between entrepreneurs and their employees. Employees are the channel through which the company interacts with other stakeholders. Therefore the relationship between business owners and employees impacts on customer reactions to the company (Masterson,
2001). Moreover, it is reported that successful organizations are those that tend to treat employees as customers (Bowers & Martin,
2007). Based on these views, we propose that relational capital generated internally from the mutual relationship between entrepreneurs or firm managers and employees is associated with superior entrepreneurial performance.
Social intelligence is a social competence that concerns the ability to establish and maintain social contacts. It involves the ability to get along well with others and winning their cooperation; which consists of paying attention to other people’s needs and interests, generosity attitude, and successful interactions with others (Albrecht,
2006). This social capability enables individuals to think and behave effectively in social situations or adjust to social environments (Albrecht,
2006; Kaukiainen et al.,
1999; Riggio & Reichard,
2008; Williams,
2008). To function appropriately in social situations, individuals require the wide range of abilities that make up social intelligence including empathy, communication, relationship management, self-expression, understanding social situations, self and interpersonal awareness, interpersonal problem solving, knowledge of social norms and scripts (Albrecht,
2006; Boyatzis & Ratti,
2009; Kaukiainen et al.,
1999; Riggio & Reichard,
2008).
All these abilities are important in entrepreneurial situations. They are particularly essential for leadership and management (Boyatzis & Ratti,
2009; Williams,
2008) of the business. This, in turn, could enhance relations between entrepreneurs and their employees, suppliers, and customers. In addition, social intelligence is related to emotional and cultural intelligence (Boyatzis & Ratti,
2009; Crowne,
2009); yet the combination of these three bits of intelligence make individuals effective in interpersonal interactions. This consequently helps entrepreneurs in attracting and retaining customers as well as employees; and managing relations with partners (Williams,
2008). Therefore, social intelligence is an essential contributor to success in negotiating business deals, selling, motivating employees and customers which may improve firm performance and persistence.
This review indicates that social intelligence could enhance objective success. In the present study, we argue that social intelligence is also critical for achieving subjective entrepreneurial outcomes including the entrepreneur’s satisfaction, well-being and willingness to persist in the entrepreneurial role. Ability to relate with others positively is known to reduce stress among entrepreneurs (Pollack, Vanepps, & Hayes,
2012), thereby enhancing their well-being. Self-determination theory suggests that relatedness is one of the psychological needs that drive motivation and persistence (Deci & Ryan,
2000; Milyavskaya & Koestner,
2011). Specifically, the satisfaction of the need for relatedness, like other psychological needs, is antecedent for intrinsic motivation (Deci et al.,
2001) which in turn is a determinant of superior work performance and satisfaction (Vansteenkiste et al.,
2007). Therefore, the ability to maintain positive relations with stakeholders to the business could enhance the satisfaction and wellbeing of entrepreneurs, particularly for those who have a high need for relatedness. We, therefore, predict that;
-
H3. Entrepreneur’s social intelligence is positively associated with:
(a)
entrepreneur’s satisfaction (Study 2),
(b)
well-being (Study 2), and
(c)
commitment to the entrepreneurial role (Study 2).
Psychological capital is related to cognitive abilities such as emotional intelligence (Sarwar et al.,
2017) that enhances the quality of social interactions. Facets of psychological capital such as self-efficacy are important for individuals to enter and maintain social relations. This may be essential for attracting partners as well as maintaining positive relations with suppliers, investors, and customers, hence, improving chances of entrepreneurial success. Accordingly, in the present study, we predict that relational capital and social intelligence will moderate the positive effects of psychological capital on entrepreneurial outcomes. Previous research on moderators of the relationship between psychological capital and workplace behavior or outcomes show that the impact of psychological capital is affected by social relations concepts such as identity (Norman, Avey, Nimnicht, & Graber Pigeon,
2010). For owners of microenterprises, social relations provide an opportunity to perform a number of entrepreneurial functions such as networking, fundraising, obtaining labor, and marketing. These facilitate entrepreneurial performance and offer an avenue for the application of the entrepreneurs’ positive psychological resources. Therefore, the application of psychological capital to entrepreneurial activities and the impact it has on firm performance and entrepreneurs’ wellbeing may partly depend on the quality of relations within the firm’s social environment. We, therefore, propose that: