Using founder status, age of firm, and company growth rate as the basis for distinguishing entrepreneurs from managers of smaller businesses

This article examined the empirical implications of definitions that distinguish entrepreneurs from managers of smaller businesses based on their founder-nonfounder status, and their firms' ages, and growth rates. The best distinctions were created using: (1) founders, (2) younger companies, and (3) the combination of founders and younger companies. Growth indicators did not discriminate well. The two founder-based distinctions shared a profile of entrepreneurs as running smaller companies with higher return on assets (ROA) than nonentrepreneurial managers, having shorter tenure in their positions, having previous work experience in the same industry, and having higher risk-taking propensity. The distinction based on age of firm also showed strong ability to discriminate among respondents. The field of entrepreneurship has few longer standing controversies than the one surrounding the question of what distinguishes entrepreneurs from nonentrepreneurial managers. In trying to separate entrepreneurs from managers of smaller businesses in particular, questions exist concerning the key defining differences. Definitions of entrepreneurship have utilized founder versus nonfounder status, company age, and company growth rates as distinguishing elements. Entrepreneurs have been defined by one or more of the following elements: being a company founder, running a young company, and running or desiring to run a high growth company. This article tests these elements to see if they provide a clearly differentiated profile of entrepreneurs. It uses the founder-nonfounder distinction, for example, to see if this distinction functions well in identifying a number of company, financial, and personal attributes that associate with founders rather than nonfounders. The approach advocated here borrows from configurational theory as it has emerged in the fields of strategic management and organizational theory (Meyer, Tsui, and Hinings 1993) to look for a constellation of variables that group together in depicting entrepreneurs. If founder status, company age, and growth rate are useful definitions of entrepreneurship, they should point to a configuration of factors that together comprise a profile of an entrepreneur. In predicting what configuration of factors will emerge, this article adopts a strategic adaptation perspective (Low and MacMillan 1988) to argue that differences between entrepreneurs and nonentrepreneurs spring from divergent thought processes and personal attributes of individuals who face the question of whether and how to enter business for themselves. Using the founder-nonfounder distinction, we view individuals who decide to start a new business rather than buy or manage an existing one as more likely to have previously founded a business, have experience in the same industry, be higher in risk-taking, show more Type A behavior, and be more growth-oriented. Findings from a sample of CEOs in the Smaller Business Association of New England indicated that neither of the two tests based on high growth as a definition of entrepreneurial firms proved adept at creating a distinct entrepreneurial profile. Distinctions based on founder status, younger firm status, and founder of a younger firm status, on the other hand, proved effective in creating such profiles. Dimensions shared by the two founder-based definitions of entrepreneurship included company attributes of smaller size and higher ROA, and CEO attributes of shorter tenure on the job, previous experience in the same industry, and higher risk-taking propensity. Additional attributes showed in the younger company founder group, including company attributes of lower liquidity and higher sales growth, and personal attributes of having previously founded a business, ranking ROA as a high priority, and external locus of control. The distinction based on younger firm status performed well in discriminating among respondents in this study. In addition to sharing several variables with the founder-based distinctions, it alone identified younger firms' CEOs as having lower education and Type A tendencies and higher expectations of children succeeding them in the business. As one implication of these findings, knowledge of the profiles may help people who deal with these groups to have a better sense of how to interact with and respond to them. The young company founder profile, for example, presents a picture of a relatively small company experiencing high rates of sales growth squeezing all it can from its assets in the face of high comparative liabilities. Because the company is young, its founder has relatively short tenure but may well have had previous experience in the industry and have previously founded a company. Personally, the founder is a risk-taker who is external in locus of control and places high priority on ROA. If this configuration holds firm in future research, those who deal frequently with entrepreneurs, such as bankers, venture capitalists, consultants, accountants, and lawyers, will be able to use a few identifying factors such as founder status and age of firm to draw reasonable inferences about a host of other characteristics of their clients. The attempt to profile the entrepreneur, in recent years thought to be futile, may yet prove viable.