Academic journal article Entrepreneurial Executive

Beyond Human and Social Capital: The Importance of Positive Psychological Capital for Entrepreneurial Success

Academic journal article Entrepreneurial Executive

Beyond Human and Social Capital: The Importance of Positive Psychological Capital for Entrepreneurial Success

Article excerpt

ABSTRACT

Financial, human, and social types of capital are widely discussed in the literature as they relate to entrepreneurial success. To date, however, positive psychological capital has not received adequate attention by academics or practitioners. Psychological capital refers to psychological states such as hope, confidence, resilience, and optimism, which are discussed in this paper as being crucial for entrepreneurs to genuinely demonstrate. The four states are discussed and the Expanding Capital Model for Entrepreneurial Success is introduced.

INTRODUCTION

The word capital refers to the value of assets and resources available for a specific need. Many times financial capital comes to mind when thinking about an entrepreneurial venture, whether it is fixed, working, or growth capital. However, other types of capital are just as important to consider. These include human, social, and most recently psychological capital, which all incorporate the intangible assets and resources supplied by people involved in an entrepreneurial venture, most importantly the top management team. The more widely discussed human and social types of capital are reviewed, however, the primary focus of this paper is on psychological capital.

The author contends that positive psychological capital demonstrated by an entrepreneur or top management team of an entrepreneurial venture is crucial for short and long-term success. Further, while financial, human, and social capital can vary in degrees among top management, all members must demonstrate high levels of positive psychological capital to ensure entrepreneurial success.

HUMAN CAPITAL

Human capital, often referred to as intellectual capital, is the value of the skills, abilities, knowledge, and experience a person brings to an organization. Stewert (1999) defines intellectual capital as 'organized knowledge that can be used to produce wealth,' and contends that it is the most important resource in today's organizations, which must operate in the Information Age where knowledge is the preeminent resource.

When considering who to bring to the top management team of an entrepreneurial venture, potential candidates are often evaluated on things such as previous entrepreneurial experience, knowledge of the industry and market, years of education, past work experience, and technical knowledge directly related to a product, service, or process. These factors are important in today's volatile business environment, especially in small, entrepreneurial companies that must continually be flexible, innovative, and quick to react to market demands. Dakhli and De Clercq (2004) empirically tested the relationship between human capital and innovation across 59 different countries. Their findings reveal that there is a positive relationship. Likewise, Hayton (2004) studied 99 small to medium sized enterprises and found a positive relationship between human capital and entrepreneurial performance. It also appears that venture capitalists may even overemphasize human capital when making their investment decisions (Baum & Silverman, 2004).

Laferrere (2001) separated formal versus informal human capital within entrepreneurial businesses, with formal human capital referring to educational qualifications while informal human capital was knowledge and skills acquired by having parents who were entrepreneurs. It was discovered that individuals who grew up in families where one or both parents owned a business were able to attain "inside" knowledge of enterprise. Likewise, Anderson and Miller (2003) explored how entrepreneurial family background impacts the development of human capital. Those with high socioeconomic groupings were highly endowed with human capital, which ultimately led to greater profitability and growth potential. Therefore, evaluating the level of human capital one brings to the top management team of an organization is very important to consider. …

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