The role of fear for entrepreneurial venture creation : causes of failure before and after foundation

Abstract

If a potential entrepreneur refrains from founding a company, from the perspective of venture creation he/she already failed even before starting. Based on an empirical survey, this study identifies fear of failure as the major cause hindering potential entrepreneurs from founding companies. It explores the reasons, why they think they would fail and shows that many of those reasons do not match actual observations why startups fail in reality. Further, the study measures the amount of fear and its components and their development along time for different groups of entrepreneurs. Here, the impact of a potential failure is more important than its perceived probability throughout the process, except immediately before foundation, when due to a cold feet effect (Epstein&Kopylov 2007) the probability suddently gets more important. The study reveals the association between the personal attributes of individual entrepreneurs and the fear they experience. The attributes intrinsic motivation and leadership experience can explain most of the perceived fear of founding a venture. A comparison of the personal attributes with the attributes associated with higher probabilities of actually founding a company and making it successful mostly shows a match. That means certain attributes are as well favorable for coping with fear, taking the foundation decision and making a venture successful. However, there are certain exceptions. Overconfidence for example supports the foundation decision but has a negative effect on making the venture successful. The study concludes with concrete recommendations to improve the entrepreneurial activity in a country.