Self-Efficacy and Goal Setting as Predictors of Performance: An Empirical Study of Founder-Managed Natural Food Stores

Article excerpt

ABSTRACT

With increasing numbers of entrepreneurial ventures, we recognized the need for more reliable predictors of firm performance. To augment existing explanations of small firm performance, we used entrepreneurial self-efficacy and goal setting as predictor variables. We tested Bandura's concept of self-efficacy and Locke and Latham's model of goal setting with small firms. Though these models have been tested and accepted as reliable in large organizations, we saw a need to establish their "fit" in the entrepreneurial context. We expected founders with high self-efficacy to set higher goals that resulted in better firm performance. A survey of founder-managed natural food stores validated our hypotheses.

INTRODUCTION

A small firm is a reflection of the founder's vision and value system (Chandler & Jansen, 1992; Eskew, 2004). Venture capitalists emphasize founders' quality and track records in their investment decisions (Goslin & Barge, 1986). However, previous research on demographic (e.g., education, experience) and psychological (e.g., locus of control, need for achievement) characteristics of entrepreneurs does not provide conclusive evidence of a meaningful relationship between the entrepreneur's demographic and psychological characteristics and small firm performance (Baum & Locke, 2004; Honjo, 2004; Krueger, Reilly, & Carsrud, 2000; Robb, 2002).

With calls to develop and apply theoretical constructs to the field of entrepreneurship (Bygrave & Hofer 1991; Clark & Sorensen, 2002, Jelinek & Litterer, 1994), we recognize the need to import and test theoretical constructs from other academic fields. This paper expands current knowledge by applying the concept of self-efficacy and goal setting with roots from sociology, psychology, and organizational behavior literature to explain entrepreneurmanaged firm performance.

LITERATURE REVIEW

Founder Self-Efficacy

Self-efficacy is the extent to which one believes he or she possesses the knowledge, skills, and ability to accomplish a goal in the face of difficulty. People's beliefs in their selfefficacy influence their choices, aspirations, exertions of effort, perseverance in the face of difficulty, cognitive abilities, and stress levels (Bandura & Locke, 2003; Gist & Mitchell, 1992). Sadri and Robertson (1993) examined the results of 21 studies and found a significant relationship between self-efficacy and work performance.

Bandura (2000) found that people with a strong sense of self-efficacy will persevere in the face of failure and setbacks and view obstacles as challenges rather than as reflections of personal deficiencies. Entrepreneurship research (Chandler & Jansen, 1992); Crane & Sohl, 2004) found the determination to succeed - drive - an important predictor of entrepreneurial performance. Entrepreneurs with strong self-efficacy should exhibit high levels of drive, resulting in better firm performance.

Lindsley, Brass and Thomas (1995) reviewed the effect of self-efficacy on performance. They proposed that the efficacy-performance relationship is a positive, cyclic one with reciprocal causation. Due to the reciprocal causation, these iterative loops often become "deviationamplifying." For example, in a deviation-amplifying loop, a deviation in one variable (decrease in self-efficacy) leads to a similar deviation in the other variable (lower performance), which, in turn, continues to amplify. Thus, the cyclic nature of the self-efficacy-performance relationship can result in a downward (decreasing) or upward (increasing) spiral.

Krueger and Dickson (1993) manipulated self-efficacy with positive or negative performance feedback, then assigned decision-making exercises involving dilemmas and gambles. Perceptions of self-efficacy directly correlated with perceptions of situational opportunity and inversely related to perceptions of situational threat. …