Great universities, venture capital, and talented people are necessary, but insufficient.
Mayors, economic developers, and business leaders alike all say they want one thing: more entrepreneurship. Across the country and the world, there’s been no shortage of efforts to clone the “next Silicon Valley.”
In their attempts to do just that, city leaders fixate on two things that they believe are necessary to the entrepreneurial potential of a particular place: copious amounts of venture capital, and research universities that transfer skills and technology as they spawn new companies. I see this argument time and again, and each time I’m reminded of an old insider’s joke: If you want to create another Silicon Valley, ”take one great research university. Add venture capital. Shake vigorously.”
But as Silicon Valley’s own Paul Graham has pointed out, the actual formula is far more complicated. Truly entrepreneurial places like Silicon Valley have a distinct personality—Graham likes to refer to it as “a place that tolerates oddness”—that is central to their economic success.
A new study by the personality psychologists Sam Gosling and Jason Rentfrow (with whom I have collaborated before), the economist David Audretsch, and others seeks to understand how this notion of an entrepreneurial personality affects a city’s ability to innovate and create new companies.
Entrepreneurial Culture and Personality
The study advances the basic idea that resources such as great universities, venture capital, and talented people are necessary, though insufficient conditions to power high levels of regional innovation by themselves. The missing factor is the entrepreneurial culture (an environment that fosters entrepreneurship) or entrepreneurial personality of a place, a combination of specific traits made up of the Five-Factor Theory of Personality: high levels of openness combined with extraversion and conscientiousness. In other words, entrepreneurs have the drive and resilience to overcome obstacles, are more open to new ideas, and are able to connect with people, build and lead teams, and get things done.
Higher rates of entrepreneurship, they argue, occur in places where this kind of entrepreneurial culture interacts with and connects to local knowledge and talent. As they put it, “new knowledge will have a greater propensity to generate entrepreneurship in regions with a pronounced entrepreneurial culture where the predominant attitudes and norms reinforce [sic] individual’s decisions to act upon entrepreneurial opportunities.” Or, as Rentfrow puts it in an email: “It's about a culture of openness and curiosity where there is sufficient human capital and resources to fuel innovation.”
To get at this “culture of openness and curiosity,” the researchers combine data from their own large-scale, internet-based studies of personality in the United States and Great Britain with data on regional entrepreneurship and a wide variety of control variables for these two countries. This includes detailed personality surveys, collected in collaboration with the BBC, of nearly 940,000 subjects in the U.S. and more than 400,000 in Britain. The researchers aggregated the data on individual personality traits to score regions on their entrepreneurial personality or entrepreneurial culture.
Tracking Global Startups
They examine the effect of this entrepreneurial personality on regional rates of overall startups per capita, as well as high-growth startups, for both countries. They also control for factors like unemployment, absolute level of income, change of income over time, migration, and residents age 25-44 who are more likely to be involved in entrepreneurial pursuits.
The researchers then chart their findings (on the maps below) for both entrepreneurial personality and startup rates for regions in the U.S. (Figure A charts the entrepreneurship rate, Figure B looks at human capital and entrepreneurial culture, and Figure C maps industry diversity and entrepreneurial culture.) For Figures B and C, regions in white are below the median values, regions in dark blue are above the median values, and regions in light blue are above the median values for just one variable.
As the maps show, the places with high values across the board are located on the West Coast of the U.S., parts of the Rocky Mountains, and Florida. Regions in the South and Midwest tend to exhibit low knowledge rates and a low entrepreneurial culture, as well as low entrepreneurship rates.
Their maps for Great Britain (below) are a bit more complicated, but still display high levels of knowledge, entrepreneurial culture, and high entrepreneurship rates in London and regions in the South East. In contrast, many regions in Wales, Scotland, and the East of England have low values across the board.
Ultimately, the study finds that regions in the United States with high levels of entrepreneurial culture and knowledge have entrepreneurship rates that are 18 percent greater than regions with high levels of knowledge but a low entrepreneurial culture. These differences are even more pronounced for Great Britain, where regions with high levels of knowledge and high entrepreneurial culture have entrepreneurship rates that are 35 percent higher. The study’s statistical models find that the combination of entrepreneurial culture, local knowledge, and talent account for more than 60 percent of the total variation in entrepreneurship rates across regions in the two countries.
While the study cannot prove causation (What comes first, entrepreneurial personality or more startups?), it shows that talent and knowledge alone, while important, are not enough to generate high levels of entrepreneurship. It is the distinct “entrepreneurial culture” of a region, the combination of culture and knowledge, which facilitates entrepreneurial success.
So take heed, mayors and business leaders: It will take a lot more than establishing tech transfer programs at research universities, upping the amount of local venture capital, or creating new incubators to encourage entrepreneurship. Deep down, it’s also about attracting the right kinds of people and boosting a location’s entrepreneurial mindset.