General intelligence is not enough. Practical intelligence can mean the difference between entrepreneurial success or failure.
Psychologists have identified multiple kinds of intelligence, but a University of Maryland researcher’s study has found one—practical intelligence—to be an indicator of likely entrepreneurial success.
J. Robert Baum, director of Entrepreneurship Research at the University of Maryland, defines practical intelligence as “an experience-based accumulation of skills and explicit knowledge as well as the ability to apply that knowledge to solve every day problems,” he said. In other words, practical intelligence can be referred to as “know-how” or common sense.
Learning orientation has an impact on entrepreneurship success. Some people learn little from their experiences and therefore don’t acquire the practical intelligence necessary to begin a successful business venture, said Baum. Practical intelligence is the result of an experimental hands-on operating style that leads to specific learning. “Those with high practical intelligence tend to develop useful knowledge by doing and learning, not by watching or reading,” he said.
People with strong general intelligence sometimes fail at business. Conversely, there are plenty of examples of those with comparatively lower IQs who are successful in business. Practical intelligence helps explain this surprising phenomenon, says Baum.
To determine how practical intelligence impacted entrepreneurs’ success, Baum and his fellow researchers, Barbara Jean Bird of American University and Sheetal Singh of the University of Maryland, sought evidence that the interaction of entrepreneurs’ practical intelligence and growth goals led to increased venture success.
In other words, can practical intelligence explain why some are successful and others are not? Yes, to some degree, it can, he said.
In fact, the model of practical intelligence interacting with growth goals successfully predicted venture increase in sales and employment 27% of the time.
Comparing responses to a set of business scenarios from founders of newly started businesses and founders/CEOs of successful and established printing companies, they were able to identify those founders with different levels of practical intelligence.
“If there was little difference in the comparative answers, the newcomer was considered to have high practical intelligence. A wide variance of answers indicated low practical intelligence,” Baum said.
There are many kinds of intelligence, including emotional, social, and creative. Practical intelligence is just one, but a critical one for entrepreneurial success, said Baum.
The study will be published in an upcoming issue of Personnel Psychology.
Other factors needed for entrepreneurial success include a demand for the product from customers that will result in a profit, having financial resources, industry experience, and a strategic plan that includes specific goals.
Baum also said personal characteristics are important as well in venture creation and growth.
For example, entrepreneurs typically have confidence in what they are undertaking and have the ability to make quick decisions and take action. They are also willing to use their knowledge or what they have learned to experiment and try new approaches to improve the process or product.
Practical intelligence is gained by learning from past experiences and using that knowledge to enhance the enterprise, said Baum.
“A person with high practical intelligence who starts and grows a company in a specific industry, who has specific experience and has learned specific things from that experience, and who has specific venture growth goals will grow their company faster and more successfully that someone who does not have the same level of practical intelligence,” said Baum.