Factors that Determine New Venture Outcomes
In today’s post-industrial innovation-driven economies, entrepreneurship has become a significant driver of job creation, economic development, technological growth, and innovation. New ventures or entrepreneurship refers to the process of starting and managing one’s own business to enter the social and economic mainstream in a community. However, the outcome of new business establishments relies on many contextual and psychological factors. Contextual factors comprise the societal, group, communal, and individual elements that reflect a given context. Contrarily, psychological factors include personal characteristics like motivation, learning, perception, attitudes, and beliefs that influence personal actions. However, psychological factors like proactive temperament, inspiration, the five personality characters, and self-efficacy are more critical in determining and influencing new venture outcomes than contextual factors
Psychological Factors and New Venture Outcomes
The success or failure of a new business venture depends on the entrepreneur’s personality. Individual personality traits have a more significant influence on the overall entrepreneurial behavior and the overall business performance. According to Obschonka et al. (2013), the Big Five qualities that entail agreeableness, openness to knowledge, agreeableness, perseverance, and extraversion influence the new venture performance differently. Dai et al. (2019) note that personality characters like openness to experience, conscientiousness, extraversion, and agreeableness positively impact the performance of the new ventures. New ventures established by friendly people with a more fabulous experience of positive emotions, patient, responsible, diligent, meticulous, organized, creative, and thoughtful people are more likely to achieve positive outcomes. Contrarily, entrepreneurs with a higher tendency to experience psychological distress in behavioral and cognitive patterns stand an increased chance of attaining adverse business outcomes. According to Franco and Prata (2019), these entrepreneurs show more significant anxiety, instability, worries, sensitivity, tension, and self-pity, unfavorable for new ventures. Neuroticism also reduces the tendency for the entrepreneurs to take risks, hence lessening their willingness to prolong in new businesses (Omar et al., 2017). Consequently, the entrepreneur’s personality traits influence the overall business performance and play a substantial role in determining the nature of new venture outcomes.
Additionally, proactive personality is a crucial predictor of business performance and achievements. Entrepreneurs with visionary personalities are less likely to be constrained by situational forces that cause environmental change. According to Mann et al. (2020), people with aggressive personality constructs seek new opportunities to improve things, undertake actions, and persevere to achieve the desired change. These people are action takers, problem solvers, adopt consistent self-improvement measures, and take responsibility for their actions. Typically, people with proactive personalities have an enhanced ability to create positive change within their businesses irrespective of the emerging hurdles and constraints. Their behavior also influenced meaningful changes within the business environment that strive towards achieving the set business outcomes. Altogether, proactive personality affects the results of new business establishments since it helps the entrepreneurs understand the circumstances beyond their control and actively take measures to influence and create a favorable business environment.
Moreover, entrepreneurial motivation is one of the most influential factors that greatly determine the new venture outcomes. Motivation refers to different factors stimulating desires and activating entrepreneurial enthusiasm to achieve a specific goal. Intrinsically motivated employees tend to have a more excellent task orientation and are more likely to gain desirable business outcomes (Arenius et al., 2021). This group of entrepreneurs has a strong sense of personal improvement and strives to learn new and complex things that instill success and competence. Indeed, intrinsic motivation gives the entrepreneurs the enthusiasm, energy, efficiency, and creativity to fulfill the desired business goals. According to the achievement motivation theory, people with more incredible competitive drive like determination, willingness, and punctuality influence their commitment to achieve the set goals and drive more fantastic performance (Wigfield et al., 2021). These entrepreneurs have different motives ranging from high-tech business people, open-source, and ethnic entrepreneurship, which help them realize greater personal independence (Estrin et al., 2016). Differently, extrinsically motivated entrepreneurs stand a greater chance of attaining adverse new venture outcome since their performance and commitment depends on external rewards. Ultimately, intrinsic motivation instead of reliance on external rewards enhances the likelihood of achieving possible new venture outcomes since the entrepreneur strives to fulfill their higher needs, such as self-actualization, esteem, and recognition.
Individual self-efficacy also influences the probability of establishing a new venture and the overall performance. Although there is a strong correlation between self-efficacy and business creation, its affiliation with business performance is minimal. However, according to Arenius et al. (2020), a person’s belief about achieving the desired new venture outcomes enhances their ability to explore opportunities and take risks. The feature is pivotal to self-employment intents and a significant element in venture creation. Arenius et al. (2020) conclude that the recent studies found a positive relationship between new firm start-up and strong persistence and adversely linked to disengagement from the start-up process. Self-efficacy mainly influences entrepreneurs’ behaviors through four mediating operations: cognition, affect, environmental selection, goal-setting, and persistence (Cetinkaya & Karayel, 2021). Hence, the self-efficacy philosophies help regulate how much power the entrepreneurs spend on a given activity, their perseverance to the emerging challenges, and their resilience in the face of hostile situations. The advanced the level of self-efficacy, the better the stability, persistence, and effort.
Overall, psychological factors such as individual motivation, personality traits, and the level of self-efficacy serve as the main determinants of the new venture outcomes. Indeed, positive unknown business outcomes directly correlate with personality traits, such as openness to experience, conscientiousness, extraversion, and agreeableness. Similarly, people with greater self-efficacy, proactive personality, and intrinsic motivation are more likely to achieve different establishments’ desired goals and outcomes. However, people with neurotic personality traits tend to have poor performance and achieve adverse business outcomes. The people with favorable individual factors have more extraordinary problem-solving skills, risk-taking abilities, creativity, openness to change, creation of the desired environment, and commitment to achieve the set goals. Nevertheless, these individual factors interact with the surrounding contextual factors to influence new venture outcomes. Therefore, it is vital to understand how psychological aspects interact with the contextual factors to influence the nature of the achieved results.
Challenges Facing the Financing of New Ventures
Annually, millions of aspiring entrepreneurs globally make the crucial decision to start their business ventures. Entrepreneurial venturing refers to creating new business entities, where the entrepreneur serves the central role. These new businesses require enough financing to fund growth and promote sustainability. Indeed, entrepreneurial funding refers to the diverse funding sources available for early-stage companies. The firms have access to different forms of financing, including private sources like bootstrapping, family, and friends funding. These businesses can also achieve funding from public sources and private equity investment. Although the newly-established enterprises play a significant role in modern-based economies in terms of radical innovations, creation of new job opportunities, and productivity growth, these businesses suffer from various financing constraints. Despite financing being the prime resource to encourage entrepreneurship, it is also the scarcest resource. Indeed, these financing constraints for innovative new businesses limit their growth and threaten survival. Unfavorable policies, high-interest rates, unavailability of equity financing for all companies, and information asymmetry remain the main financing challenges for start-ups.
New Venture Financing Challenges
New business financers set unfavorable policies and rules for the entrepreneurs, making it difficult for the start-ups to access credit. Indeed, many of these financing firms and banks limit the start-ups’ access to loans and other sources of finance due to the dearth of collateral, occasional lack of cognate experience, and non-existing past track records for business approval (Lawal et al., 2018). Many banks across the globe request collateral as a fundamental asset to support the loan application due to the high acknowledgment risk of micro-businesses and small enterprises (Amoako-Adu and Eshun, 2018). For instance, bank loans have many restrictive conditions that make it difficult for business start-ups to access loans. According to Lawal et al. (2018), the bank loan review makes the loan approval departments doubt the new entrepreneurs’ ability to repay the loans within the set timelines. Besides, many firms investing in risky projects with a tendency to generate low returns also face serious hurdles when assessing credit. Hence, the greatest challenge to new venture financing is the financing rules and demands that are unrealistic to new business ventures.
Many new business establishments face a severe challenge of information asymmetry, which makes the investors utterly unaware of the available financing sources. New investors possess limited information about different sources of capital, such as venture capitalists and angel investors. According to Block et al. (2017), the lack of collaterals, internal cash flows, agency issues, and, more importantly, asymmetric information remain the significant causes of challenges towards accessing external funding sources. Due to the lack of data on different sources of business financing, many businesses resort to the owner’s capital, which may not sustain the subsequent business operations and success. For example, although equity overcrowding was the second leading funding source for new ventures, informational asymmetry creates unique problems for start-ups (Farag and Jonah, 2021). Precisely, the high prevalence of overcrowding led to short-lived campaigns and extra fintech-related uncertainties, which caused a knowledge gap between potential funders and entrepreneurs. Even in social capital, the ties weaken when the relationships do not offer sufficient resources and information to guide the entrepreneurs (Buttice et al., 2017). Altogether, the lack of enough knowledge about the available sources of capital and the requirement creates a unique set of challenges for entrepreneurs establishing new businesses.
Although the emerging entrepreneurs might show an increased need to acquire loans and establish their businesses, high-interest rates remain a significant hurdle for new businesses. Specifically, the increasing interest rates have drastically increased the borrowing cost, reduced the available disposable income, and consequently limited the growth in purchaser spending and the emergence of new businesses. The interest rates of start-up business loans range from 10% to 28%, a rate that drops to 7% for qualified borrowers (Oranburg, 2020). Compared to other forms of business financing, these rates are slightly higher and more costly to new businesses. According to Oranburg (2020), the lending model is the most profitable strategy for new companies with reliable collateral and deals with tangible goods. However, loan interest rates may be significantly high and illegitimately usurious. Therefore, the high-interest rates linked to various loans and other sources of income serve as a significant issue for many businesses in different sectors.
The interdependent and close affiliations between investors and entrepreneurs that emerge from different financing platforms like equity financing do not favor every business person. The unavailability of some of the sources of finances during various stages of the start-ups influences the businesses’ access to financing programs. Equity financing contains some of the most favorable and appropriate types of start-up financing, namely venture capitalists, angels, and investors. However, these programs may be inaccessible to specific groups of business people. For instance, start-ups intending to raise more than $3,000,000 may face challenges attracting financiers since venture capitalists fund more than $5,000,000 while Angels fund businesses below $1,000,000 (Oranburg, 2020). Most equity investors also prefer business establishments that quickly scale up. Hence, these services may be unavailable for start-ups dealing with physical goods or requiring considerable human capital input. Therefore, the inability to access financing for all start-ups is a significant challenge that may inhibit the establishment and growth of different businesses.
Generally, start-ups face various challenges regarding access to different financing bodies. Although many entrepreneurs bootstrap their businesses through creative methods, they also rely on external funding to boost and support the business establishments. Many professional financiers fund new ventures through equity, debts, or conventional debts. However, the new businesses face various hurdles like the unreliability of equity financing, high-interest rates, demand for collaterals, and lack of knowledge about available funding sources. The researchers and investors should explore using Web 2.0 technology and social media platforms to create new forms of start-up financing. There is a need to improve the external funding for these businesses since it enhances visibility and attracts market attention, leading to growth.
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