This paper focuses on how entrepreneurial goals affect the resource allocation of new firm owners. It connects research in psychology and management that examines the core motivations of entrepreneurs with research in economics that models the behavior of owner-managers as utility-maximizing rather than profit-maximizing. We hypothesize that new owners with nonmonetary goals allocate their resources differently than owners with monetary goals and that the differences are meaningful in size.
Data/Methods
To test these hypotheses, we estimate firm level equations based on economic theories of factor demand that show how input quantities depend on owner goals. The data come from a National Federation of Independent Business (NFIB) survey containing information on almost 3000 new firms and their owners from all U.S. regions and major industry groups.
Results
The principal contribution of the paper is to demonstrate that the link between entrepreneur goals and the management of new firms is empirically important. Our results reject the null hypothesis that monetary-goal and nonmonetary-goal entrepreneurs allocate their resources in the same way during the first 17 months of firm operation. More specific findings indicate that owners whose primary goal is nonmonetary use relatively more of their own and family labor and relatively less employee labor compared to owners whose primary goal is monetary. Finally, effect size computations indicate that the differences between monetary-goal and nonmonetary goal entrepreneurs are nontrivial and reasonable in magnitude. In sum, our results show that goals exert a statistically and substantively significant influence on the quantities of the inputs used by new firms across regions and industries in the U.S. economy. To the best of our knowledge, there are no papers in either the psychology and management literature or the economics literature that present comparable findings.
Discussion
For the entrepreneurship research community, these results suggest greater use of goal variables in theoretical and empirical models. For policy makers and educators, they suggest attaching more significance to the nonmonetary goals of nascent and established entrepreneurs.