Enhancing measures of ESE to incorporate aspects of place: Personal reputation and place-based social legitimacy

Abstract

We argue that existing measures of entrepreneurial self-efficacy (ESE) are underspecified in the context of tight-knit communities, where personal reputation plays a major role. We propose a new place-based ESE dimension that measures assessment by individuals of their ability to elicit respect from their community. This integral ESE component points to the very meaning of entrepreneurship in highly relational contexts. Although our enhanced ESE measure incorporates some influences of place, other aspects, such as geographical context, continue to moderate the relationship between ESE and entrepreneurial aptitude. We conclude with a discussion of the relevance and utility of this enhanced measure. Executive summaryScholars have invested considerable energy in understanding the motivations and practices of high-growth entrepreneurs and urban ecosystems, where business interactions tend to be impersonal and transactional. Most entrepreneurial measures assess either individual characteristics or place-based characteristics. Rural areas or developing regions, where entrepreneurs may be the best hope for revitalization (Sarasvathy, 2008), operate according to cultural principles that are different from those of “high-performance” entrepreneurial ecosystems, and they remain understudied. We argue that in such resource-constrained, tight-knit communities, some important factors in the creation of a venture will jointly depend on place and individual—measuring the fitness of individuals in their community. In such environments, the belief of individuals in their ability to gain a positive reputation within their local community to advance their new enterprise is among the decisive factors for the venture creation process. We develop a measure of such beliefs.We enhance measures of entrepreneurial self-efficacy (ESE) to account for the confidence of individuals in their ability to fit within their community. ESE is the belief of an individual about his or her ability to perform the various tasks and roles required of a venture creator, which has been shown to be the most robust predictor of entrepreneurial actions and success. Current measures of ESE are place-agnostic; they assess a person's self-efficacy relative to general business activities, such as marketing, innovation, and so forth. However, some features of place have integral effects on ESE beliefs and act as neither antecedents nor moderators. We argue that a perceived ability to navigate complex social networks within the relevant community is a core component of ESE. How people see themselves in relation to their local community—and how they believe others see them—is central to how they think about their entrepreneurial potential. We propose a new ESE dimension that evaluates the fit between an individual and a place by measuring the confidence of an individual in their ability to elicit respect from the community (ERC). We expected ERC to be most relevant in small, tight-knit, and indigenous communities defined by social hierarchies (e.g., rural), where reputable individuals are better positioned to employ resources embedded in that place to benefit their enterprise.We developed a new ESE dimension that quantifies ERC beliefs. In doing so, we followed the established protocol (Furr, 2011; Hinkin, 1995). We derived an initial pool of items from existing literature (Chen et al., 1998; De Noble et al., 1999; McGee et al., 2009), enhanced this pool based on semistructured interviews with 23 rural residents with a history of self-employment, finalized the item pool based on feedback from eight experts, administered a large-scale survey of 1481 Kentucky residents (established, nascent, and non-entrepreneurs; approximately half of whom were from rural areas), derived the scale structure using exploratory and confirmatory factor analyses, and examined its reliability and validity. Contrary to our expectations, we found that the enhanced ESE scale converged to the same structure in both rural and urban subsamples, which indicates that ERC is a unique dimension of ESE in both settings.Although our enhanced ESE measure incorporates some components of place, we show that other aspects, such urban or rural context, continue to moderate the relationship between ESE and entrepreneurial aptitudes. For instance, the urban/rural moderates ERC's impact on individual propensity toward business risk-taking (BRT). In urban areas, as expected, the relationship between ERC and BRT was positive and monotonic. In rural areas, however, the relationship had an inverse U-shape, which may reflect the problem of over-embedding: whereas those who are embedded in their communities may be more likely to pursue entrepreneurship, a high level of community embeddedness could discourage venture creation. Overall, our results suggest that some common measures of entrepreneurship may be underspecified for small-world, relational environments. Many of these environments have been left behind by uneven development and thus could benefit from a research-based understanding of how to foster entrepreneurial activity and innovation.