What makes certain places more entrepreneurial than others? Why do some regions and cities have relatively high startup rates, such as Atlanta and Los Angeles, whereas others, for example greater Philadelphia, have considerably lower rates? And, how can cities foster an entrepreneurial spirit, for example the way Boston has? These are fascinating questions, especially since entrepreneurship is often considered a regional event, and a region’s individual characteristics are deemed so crucial in today’s creative economy.
Traditionally, economists look at regional differences in business conditions, infrastructure, capital, knowledge transfer, or labor when trying to explain the regional variation in entrepreneurial activity. While this research has delivered important insights, one potential ingredient may be missing: psychology.
Psychology matters a lot in entrepreneurship. Joseph Schumpeter, one of the fathers of entrepreneurship research, pointed out that the entrepreneur is a special type, drawing attention to entrepreneurial traits and the makeup of an entrepreneur’s personality. If individual people differ in their psychological entrepreneurial spirit, as has been demonstrated in plenty of studies (and most recently in genetic research), do whole cities and regions have their own entrepreneurial spirits, too?
Indeed, a new approach to the scientific study of regional patterns in entrepreneurial activity focuses on the region’s psychological makeup. This line of research follows the basic assumption that personality and psychological characteristics, such as extraversion, creativity, or conscientiousness, apply to cities and regions, not just people like you and me. A new generation of psychological studies analyzing huge data sets already has demonstrated that personality is systematically distributed and clustered across the United States. For example, neuroticism is most prevalent in the American Northeast (which gives Woody Allen and his neurotic movies about New York(ers) a certain scientific underpinning)!
In a new study that I conducted with researchers from the Friedrich Schiller University of Jena in Germany and The University of Texas at Austin, we analyzed personality data from more than a half-million U.S. residents to create a psychological map of the entrepreneurial spirit. What are the Entrepreneurial States of America in terms of an entrepreneurial personality profile? And, how do those regional personalities stack up against cold, hard, economic facts?
We investigated the regional distribution of what we call an entrepreneurship-prone personality profile, which is a characteristic constellation of psychology’s Big Five personality traits:
- Extraversion: outgoing, energetic
- Conscientiousness: efficient, organized
- Openness: inventive, creative, open to new experiences
- Agreeableness: friendly, compassionate
- Neuroticism: sensitive, nervous
An entrepreneurial constellation of the Big Five is a profile that is high in extraversion, conscientiousness, and openness, but low in agreeableness and neuroticism.
The first fascinating result of this research was that we found entrepreneurial personalities regionally clustered across the U.S., with high values in Western states such as Colorado and Utah, and low values in the Rust Belt and in the South (see map). We speculate about the reasons for the emergence and persistence of these regional differences in personality, such as selective migration and socialization through regional norms and values.
The second fascinating finding was that the psychological map of an entrepreneurial spirit indeed matched the economic map of business startups. The state and regional relationships between an entrepreneurial personality structure and entrepreneurial activity was positive in direction, substantial in magnitude, and robust even when considering regional differences in economic prosperity. For example, the Atlanta and Los Angeles regions, which have relatively high startup rates, also scored high in entrepreneurial personality. Finally, we found a comparable pattern of results in two independent studies conducted in Germany and Great Britain.
In addition, and this was the third fascinating result, we found that the region’s psychological makeup and the region’s business conditions interact. Startup rates were highest in those regions in the U.S. that score, on average, higher in entrepreneurial personality, and, at the same time, have a more supportive business climate (indicated, for example, by the magnitude and effectiveness of investments in innovative activity, the availability of financial capital, and the general level of economic dynamism in the region). This suggests that the region’s psychological makeup can have an impact on the strength of its entrepreneurial climate.
This is an important implication for policymakers aiming to improve a region’s business conditions and stimulate entrepreneurial behavior. Policymakers would be wise to pay attention to existing regional differences in personality and local culture. Entrepreneurial vitality might not just depend on external factors such as supportive business conditions and infrastructure; it also might depend on the region’s prevalent personality.
Put simply, the regional character might be just as important as economic factors for a lively entrepreneurial spirit. Indeed, psychology matters a lot in (regional) entrepreneurship.
Martin Obschonka is a psychologist and researcher at the Friedrich Schiller University of Jena in Germany. He is the lead author of a study that maps entrepreneurial personalities of cities and regions in the United States, Great Britain, and Germany. The research will be published in the Journal of Personality and Social Psychology.