Common sense may be the key to entrepreneurial success

Tags: business management, talent management

Groupon founder Andrew Mason is now leading what Forbes magazine labeled “the fastest-growing company in Web history.” But as a teenage entrepreneur who sold bagels to neighbors, then candy when he found it sold better, he demonstrated a specific kind of intelligence that according to new research may be central to entrepreneurial success: practical intelligence.

The research, to be published in a forthcoming issue of the journal Personnel Psychology, was coauthored by Barbara J. Bird, an associate professor of management at American University’s Kogod School of Business, and J. Robert Baum, an associate professor of entrepreneurship at the University of Maryland’s Robert H. Smith School of Business.

Practical intelligence—better known as common sense, know-how or street sense—is perhaps best described in layman’s terms as “learning by doing.” You learn from your experiences.

Some people do not learn much from their experiences and so do not accumulate much practical intelligence. Such individuals may still be extremely intelligent, but have attained their knowledge through other means—such as reading or observing—which are less likely to produce ready-to-use, applicable, and situation specific responses to real-life situations.

“Entrepreneurs—especially during the early stages of their start-ups—have to think on their feet,” Bird said. “They have to make the best decisions possible in the least amount of time and usually with few resources. They don’t have time for in-depth analysis and usually do not have the luxury of consulting with others. They need to act. Practical intelligence empowers them to act quickly and confidently.”

Through questionnaire responses from 283 founders of early stage printing and graphics businesses, Bird and Baum found that the entrepreneurs who were most likely to run rapidly growing ventures possessed relevant experience in printing and graphics, learned through hands-on experiences and active experimentation, and honed their practical intelligence by pursuing specific growth goals.

Bird and Baum chose the printing and graphics industry because despite the fact that it is competitive, growing, and rapidly changing, trade association executives reported that several new companies were experiencing rapid growth.

The questionnaire was developed and tested through interviews with 22 successful, established printing industry CEOs who had originally founded their businesses. Four hundred and seventy-two members of the largest printer trade association were asked to complete the questionnaire, which sought to measure venture and industry experience, learning orientations, practical intelligence, employment and sales, and employment and sales growth rate goals for the next five years.

Those asked to complete the questionnaire had five full-time employees and had founded their companies during the past four years—the typical cut off for empirical studies of new ventures in venture capital, private equity, and entrepreneurship research.

Practical Implications
“Our research may better help entrepreneurs understand the value of hands-on experiences and experimentation or trouble shooting in the field,” Bird said, recommending that entrepreneurs who lack relevant experience in the field in which they want to start a business find partners who have such experience.

While clearly, practical intelligence is critical to entrepreneurial success as it offers the “know how” to launch and grow a new venture, growth goals are equally important as they provide the motivation by focusing the know how on specific outcomes.

The research may also have practical implications for entrepreneurship education, as teachers can look for ways to help students improve their practical intelligence, and for new venture funding as financiers may want to encourage learning orientations that improve entrepreneurs’ practical intelligence.