Journal of Business Venturing 18 (2003) 41 – 60

Beyond social capital: the role of entrepreneurs’ social

competence in their financial success
Robert A. Baron, Gideon D. Markman*,1
Lally School of Management and Technology, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA
Received 1 September 1999; received in revised form 1 October 2000; accepted 1 November 2000

Abstract

Two studies investigated the hypothesis that the higher entrepreneurs’ social competence (their
ability to interact effectively with others as based on discrete social skills), the greater their financial
success. Entrepreneurs working in two different industries (cosmetics and high-tech) completed a
questionnaire designed to measure several aspects of their social competence (e.g., accuracy in
perceiving others, skill at impression management, persuasiveness). Results indicated that one aspect
of social competence (e.g., accuracy in perceiving others) was positively related to financial success
for both groups of entrepreneurs. In addition, social adaptability was related to financial success for
entrepreneurs in the cosmetics industry, and expressiveness was related to such success for the
entrepreneurs in the high-tech industry. The questionnaire employed to assess social competence was
cross-validated with a third group of entrepreneurs who completed this measure themselves, and
whose social competence was also rated by persons who knew them well. The two sets of ratings
agreed closely, thus providing evidence for the validity of this measure. Overall, findings are consistent
with the view that a high level of social capital (e.g., a favorable reputation, extensive social network,
etc.) assists entrepreneurs in gaining access to persons important for their success. Once such access is
attained, however, entrepreneurs’ social competence influences the outcomes they experience.
D 2003 Elsevier Science Inc. All rights reserved.

Keywords: Entrepreneurs’ social competence

* Corresponding author. Tel.: +1-518-276-6833.

E-mail addresses: [email protected] (R.A. Baron), [email protected] (G.D. Markman).
1
Tel.: + 1-518-276-2864.

0883-9026/03/$ – see front matter D 2003 Elsevier Science Inc. All rights reserved.
PII: S 0 8 8 3 - 9 0 2 6 ( 0 0 ) 0 0 0 6 9 - 0
42 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60

1. Executive summary

Venkataraman (1997) and Shane and Venkataraman (2000) have recently suggested that a
key focus for the field of entrepreneurship should be ‘‘Why, when, and how some people and
not others discover and exploit opportunities.’’ (Italics added.) In this research, we focus on a
question closely related to this suggestion: Why are some entrepreneurs more successful than
others in exploiting opportunities they have discovered?
Previous efforts to address this important issue have often considered the personal
characteristics of entrepreneurs or, more recently, their cognitive processes. Here, we suggest
that another aspect of entrepreneurs’ behavior — their effectiveness in interacting with other
persons (i.e., their social competence) — may also influence their success. Consistent with
suggestions offered by Baron and Markman (2000), we reason as follows: While entrepre-
neurs’ social capital (as based on their reputation, social networks, etc.) often helps them gain
access to persons important for their success (e.g., venture capitalists, potential customers),
their social competence then plays a key role in determining the outcomes they experience
(e.g., whether they obtain financing, attract key employees, etc.). Thus, we hypothesized that
other factors being equal, the higher the entrepreneurs’ social competence, the greater their
financial success.
To test this prediction, two groups of entrepreneurs working in distinctly different
industries (cosmetics and high-tech) completed a questionnaire designed to measure several
aspects of their social competence. In addition, information on their financial success was
obtained (personal yearly income from their businesses averaged across several years). The
measure of social competence was validated with a third group of entrepreneurs who
completed this measure themselves, and who were also rated for social competence on a
slightly modified version of the questionnaire by persons who knew them well (e.g., spouses,
close business associates). The two sets of ratings agreed closely, thus providing some
evidence for the validity of the self-report measure used in the present research.
Parallel analysis and confirmatory factor analysis indicated that this measure assessed
four distinct aspects of social competence: social perception (accuracy in perceiving
others), impression management (the ability to induce favorable reactions in others), social
adaptability (the ability to adapt to a wide range of social situations), and expressiveness
(the ability to express emotions and feelings in an appropriate manner). One of these
factors — social perception — was positively related to financial success for both groups
of entrepreneurs. Another aspect of social competence — social adaptability — was
related to financial success for entrepreneurs in the cosmetics industry, and a third aspect
— expressiveness — was related to such success for entrepreneurs in the high-tech
industry.
These results have both theoretical and practical implications. From a theoretical
perspective, they suggest that in order to fully answer the question ‘‘Why are some
entrepreneurs more successful than others?’’ it may be useful to consider certain aspects of
entrepreneurs’ behavior, (e.g., their social competence), as well as their personal character-
istics, cognitive processes, and the market and environmental conditions in which they
operate.
 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60 43

From a practical perspective, the present results point to additional means for assisting
entrepreneurs. In contrast to aspects of personality, the skills on which social competence is
based are readily open to modification and to enhancement. Providing entrepreneurs with
training in these skills might assist them in their efforts to exploit opportunities and establish
successful ventures.

2. Introduction

In a recent, influential article, Venkataraman (1997, p. 6) defined entrepreneurship as ‘‘A

scholarly field that seeks to understand how opportunities to bring into existence ‘future’
goods and services are discovered, created, and exploited, by whom, and with what
consequences.’’ Consistent with this definition, Shane and Venkataraman (2000) further
suggest that one important question for entrepreneurship researchers is ‘‘Why, when, and how
some people and not others discover and exploit opportunities.’’ (Italics added.) The research
reported here focused on one aspect of this question. Specifically, it sought to add to existing
knowledge concerning the following issue: ‘‘Why are some entrepreneurs more successful
than others in exploiting opportunities they discover?’’
Efforts to answer this question have a long history in the field of entrepreneurship. Initial
research focused on the personal traits of entrepreneurs and, disappointingly, reported only
modest success (e.g., Shaver and Scott, 1991). However, recent investigations derived from
more sophisticated theoretical frameworks suggest that some personal characteristics of
entrepreneurs, such as their self-efficacy (e.g., Chen et al., 1998; Markman et al., 2000) and
overall proclivity for entrepreneurship (e.g., Stewart et al., 1999), may indeed play a role in
their success.
Another approach to determining why some entrepreneurs are more successful than others
has focused on cognitive factors and processes — the ways in which entrepreneurs think,
reason, and reach decisions (e.g., Baron, 1998; Brush, 1992; Jenkins and Johnson, 1997;
Gatewood et al., 1995; McCarthy et al., 1993). Research within this perspective has identified
a number of cognitive factors that influence entrepreneurs’ success, including overconfidence
in their own judgments, greater use of the representativeness heuristic (e.g., Busenitz and
Barney, 1997), and a reduced tendency to engage in counterfactual thinking (e.g., Baron,
2000a).
Recently, Baron and Markman (2000) and Baron (2000b) have called attention to an
additional set of factors that may be relevant to this question. Specifically, they propose that
certain aspects of entrepreneurs’ behavior — especially their effectiveness in interacting with
other persons in face-to-face contexts — may play a role in their success. Consistent with
previous literature, Baron and Markman distinguish between social capital — the sum of the
actual and potential resources individuals obtain from their relationships with others (e.g.,
Nahapiet and Ghoshal, 1998) — and social competence — entrepreneurs’ overall effective-
ness in interacting with others (e.g., Spence et al., 1999). It is important to note that the term
social competence is employed here as in previous research (e.g., Spence et al., 1999),
primarily as a summary term for the combined effects of various social skills — such as the
44 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60

ability to perceive others accurately (social perception; e.g., Zebrowitz, 1997), make a good
first impression on them (e.g., Ferris et al., 2000; Wayne and Kacmar, 1991), or persuade
them to change their views or behavior (e.g., Shavitt and Brock, 1994).
We suggest that both social capital and social competence may play distinct, but perhaps
complementary roles, in entrepreneurs’ success. Turning first to social capital, a growing
body of evidence indicates that a high level of social capital may contribute to entrepreneurs’
success. Specifically, high social capital provides entrepreneurs with enhanced access to
information and increased cooperation and trust from others (e.g., Fukuyama, 1995).
Moreover, entrepreneurs who possess high social capital (as based on extensive social
networks, status, personal ties, and referrals) are more likely to receive funds from venture
capitalists than entrepreneurs who are lower on this dimension (Shane and Cable, 1998).
As noted by Baron and Markman (2000), however, social capital may be only part of the
total picture where entrepreneurs’ success is concerned. Specifically, these authors note that
while social capital helps entrepreneurs ‘‘get through the door’’ (i.e., gain access to venture
capitalists, potential customers and others), once such access is attained, entrepreneurs’ social
competence may play an important role in determining the outcomes they experience (e.g.,
whether they receive funding, obtain orders, attract key partners and employees, and so on).
Thus, social competence, too, may be important. The process through which many
organizations hire new employees for high-level positions provides a clear illustration of
the contrasting effects of social capital and social competence. Often, social capital plays a
key role in determining which applicants make it onto the ‘‘short list’’ and are invited for
interviews. In general, these are persons possessing high levels of social capital: favorable
reputations, an established record in the field, a degree from an excellent university, work
experience with ‘‘good’’ employers, and so on. But it is then the impressions these candidates
make on the individuals involved in the final selection that largely determines whether they
are actually hired. All readers have probably encountered candidates for employment who
appeared to ‘‘walk on water’’ prior to a visit but who, once actually present, managed only
weak gurgling sounds at best. Such persons possess high levels of social capital but are
lacking in skills that permit them to interact effectively with others, and this becomes
apparent during face-to-face meetings.
On the basis of these considerations, we suggest that entrepreneurs’ social competence may
well influence their success. Specifically, we hypothesize that all other factors being equal,
the higher entrepreneurs’ social competence, the greater their financial success.
Several lines of evidence provide support for our suggestion of a link between entrepre-
neurs’ social competence and their financial success. First, and most directly, an extensive
body of research on the impact of social skills indicates that these proficiencies strongly affect
the outcomes experienced by individuals in many business contexts (e.g., Segrin and Kenney,
1995; Weber and Harvey, 1994; Tsui, 1998). For instance, skills with respect to impression
management have been found to exert beneficial effects on the outcomes experienced by
individuals both in job interviews (e.g., Riggio and Throckmorton, 1988) and in yearly
performance reviews (e.g., Wayne et al., 1997). In one large-scale study involving more than
1400 employees, for example, Wayne et al. (1997) found that social skills were the single best
predictor of job performance ratings and assessments of potential for promotion for employ-
 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60 45

ees in a wide range of jobs. Comparable beneficial effects have been observed for other
aspects of social competence, such as skill in perceiving others accurately (this assists
individuals in determining whether others are being truthful in negotiations and other
business contexts; e.g., DePaulo, 1994), persuasiveness (skill in this respect assists individ-
uals in reaching their personal goals in a wide range of contexts; e.g., Cialdini, 1994), and the
ability to adapt to or be comfortable with a wide range of persons (individuals who show a
high level of social adaptability tend to gain more promotions, and sooner, than those who do
not; e.g., Kilduff and Day, 1994). In sum, an extensive body of evidence suggests that persons
possessing superior social skills (which provide the foundation for social competence)
experience more favorable outcomes than ones lacking in such skills in many business
contexts (e.g., Ferris et al., in press; Thomas et al., 1997). Extending these findings to the
realm of entrepreneurship, we suggest that high social competence may assist entrepreneurs
in their efforts to found new ventures.
Additional support for our hypothesis is provided by the fact that teams of entrepreneurs
rather than single individuals found a substantial proportion (perhaps an actual majority) of
new ventures (e.g., Cooper and Daily, 1997). For example, Teach et al. (1986) found that two
or more principals originate over two-thirds of the start-up software companies they studied.
Given that a large proportion of start-ups involve the efforts of two or more entrepreneurs, it
seems reasonable to suggest that high levels of social competence on the part of these
entrepreneurs will facilitate interactions between them, and may, in this manner, contribute to
the success of their new ventures.
Third, research findings provide support for the prediction that entrepreneurs’ social
competence can favorably affect their financial success. For example, in a study of the factors
influencing the success of new ventures, Duchesneau and Gartner (1990) found that
entrepreneurs whose companies are successful engage in more communication with others,
and are more effective in this activity, than entrepreneurs whose companies fail. Similarly, in
a discussion of cooperation between entrepreneurs and venture capitalists, Cable and Shane
(1997) note that such cooperation may increase when the entrepreneur and venture capitalist
share a positive social or business relationship. In a like manner, Vesper (1990) includes
effective personal relationships as one of the five key ingredients in new venture formation.
The suggestion that social competence plays some role in entrepreneurs’ success appears to
be consistent with Gartner et al.’s (1992) proposal that one of the key activities performed by
entrepreneurs is convincing others to share their beliefs about what the emerging organization
can, and will, become. It seems possible that entrepreneurs may be aided, in their efforts to
accomplish this task, by proficiency with respect to several social skills (e.g., persuasiveness).
Finally, social competence may also play a role in both the discovery and exploitation of
opportunities by entrepreneurs. Shane and Venkataraman (2000) note that information which
can lead to the recognition of opportunities is imperfectly distributed across individuals and
that this, in turn, may be one important reason why some persons, but not others, recognize
opportunities and choose to exploit them. Shane and Venkataraman (2000) further suggest
that asymmetries in opportunity-relevant information may derive from several sources,
including information corridors (the possession of prior information necessary to identify
an opportunity), and the cognitive properties of individual entrepreneurs — modes of thought
46 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60

or perception that enable them to recognize and adequately value opportunities. We suggest
here that social competence, too, may play a role in this regard. Specifically, entrepreneurs
high in such competence may be more successful in gaining the trust and confidence of
persons with whom they interact, with the result that these individuals more readily share
information with them (cf., Ferris et al., in press). Further, once in possession of such
information, socially competent entrepreneurs may be more effective in communicating it to
other persons with whom they work. As a result, entrepreneurs high in social competence,
relative to ones who are lower on this dimension, may gain greater access to valuable
information and be better able to utilize such knowledge. This, in turn, may provide them
with competitive advantage that contributes to their ultimate success (e.g., Hitt et al., 1999;
Reed and DeFillippi, 1995).
One additional point should be added. While social competence is useful in many different
contexts, it seems possible that it might be especially valuable to entrepreneurs. This may be
so because during the process of new venture creation, entrepreneurs must form social
relationships with many different persons (e.g., customers, suppliers, new employees) ‘‘from
scratch.’’ Moreover, they must do so in environments that are highly uncertain and
unstructured (see, e.g., Carter et al., 1996; Gartner, 1988; Holt, 1992). It is precisely in
such contexts — ones in which individuals cannot fall back upon the established relation-
ships or clearly prescribed norms and roles present in many existing organizations — that
social competence might prove most useful (see, e.g., Gartner et al., 1992). This possibility
has been suggested by Cable and Shane (1997), who note that it is during the early stages of
venture creation that effective communication between entrepreneurs and venture capitalists
is most crucial, because it is during this time that divergent expectations are most likely to
emerge.
In sum, several lines of evidence point to the possibility that entrepreneurs who are adept at
interacting with others may gain important benefits, and so achieve greater financial success.
But what aspects of social competence (i.e., which specific social skills) will be most useful
to entrepreneurs? Unfortunately, previous research offers little guidance in this respect. No
studies known to the authors have specifically examined the impact of specific social skills in
the context of entrepreneurship. Given the lack of directly pertinent evidence, we reasoned
that it would be best to cast a wide empirical net in the present study. Thus, we first surveyed
recent literature on the impact of various social skills in business contexts. On the basis of this
review, we identified several social skills for which strongest and most consistent evidence
existed (e.g., Wayne et al., 1997; Robbins and DeNisi, 1994; Thomas et al., 1997; Weber and
Harvey, 1994); these were the ones on which we focused in the present investigation. The
social skills identified in this manner included: (1) social perception — accuracy in
perceiving others (e.g., their traits, intentions, and motives); (2) impression management
— a wide range of techniques for inducing positive reactions in others; (3) persuasiveness —
the ability to change others’ views or behavior in face-to-face encounters; (4) social
adaptability — the ability to adapt to, or feel comfortable in a wide range of social situations;
and (5) expressiveness — the ability to express one’s emotions and feelings clearly to
generate enthusiasm in others. In addition, because another construct — emotional intel-
ligence — has been the subject of much recent attention both in management research and in
 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60 47

the mass media (e.g., Goleman, 1995, 1998), we included items to assess it, too. Emotional
intelligence refers to a cluster of skills relating to the emotional side of life, including the
ability to regulate one’s own emotions (e.g., hold one’s temper in check), influence the
emotions of others, motivate oneself, and develop satisfactory long-term relationships (see
Goleman, 1995, 1998).

3. Method

3.1. Participants

Two samples of entrepreneurs participated in the study — a total of 230 individuals. Those
in the first sample were 159 independent sales contractors who created their own cosmetics
distribution organizations, and also created or helped to ‘‘spin off’’ additional independent
distribution organizations. All were female and all ran their businesses from their homes in
one mid-western state.
The entrepreneurs in our second sample were 71 top executives in high-tech entrepren-
eurial firms recruited from a list of executives in such companies provided by a center for
entrepreneurship in a large mid-western university. A large majority was male (91.5%). The
executives in both samples were founders of their companies. Because data from the two
samples were obtained at different times (separated by approximately 2 months), they are
treated here as an initial study and a replication study.

3.2. Procedures

3.2.1. Measure of social competence

Both groups of entrepreneurs were asked to complete a questionnaire consisting of 30
items designed to assess proficiency with respect to the social skills described above. Each
item consisted of a statement (e.g., ‘‘I generally make a good first impression on others,’’
‘‘I can usually read others well — tell how they are feeling in a given situation’’), and
respondents rated the extent to which this statement was true of them on a five-point scale
(1 = definitely not like me; 5 = exactly like me). Because no single existing measure
assessed all of the skills we wished to investigate, we employed 18 items from a widely
used measure of social skills (e.g., Social Skills Inventory; Riggio, 1986) and also
developed additional items to assess aspects of social competence not covered by this
measure. Items from the Social Skills Inventory relevant to social perception, social
adaptability, expressiveness, and one aspect of emotional intelligence (the ability to regulate
one’s own emotions), were selected for inclusion. Additional items were added to assess
persuasiveness (four items), impression management (four items), and other aspects of
emotional intelligence (e.g., skills relating to effective long-term relationships, such as the
ability to criticize others effectively and resolve conflicts; four items). New items were
developed on the basis of a careful review of recent research on relevant topics, and were
tested in two pilot studies conducted with 182 undergraduate and graduate students at two
48 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60

different universities. Exploratory factor analyses of the data from these pilot studies
indicated that these items did indeed cluster together as recognizable factors. Thus, they
were adopted for use in the present research. We should note that several surveys designed
to measure impression management exist (e.g., Kumar and Beyerlein, 1991; Wayne and
Ferris, 1990). However, because items on these measures relate primarily to efforts by
subordinates to make good impressions on supervisors, they did not appear to be entirely
suitable for use in the present research.

3.2.2. Other measures

Additional items on the questionnaire requested information on the entrepreneurs’
financial success (average income, as based upon personal yearly income in US dollars for
each of 4 successive years in the initial sample, and each of 2 successive years in the
replication sample), business tenure (how long they had run their business), age, and
education. Another measure — company revenues from sales (again in US dollars) — was
also obtained for the second sample. (This measure was not applicable to the first sample, for
which company income and the entrepreneurs’ income were identical.)
A total of 248 surveys were mailed to the first sample of entrepreneurs; of these, 172 were
returned (a 69% response rate). Nineteen surveys were incomplete; thus, data analyses for this
sample are based on 159 usable questionnaires. A total of 110 surveys were mailed to
entrepreneurs in the second sample. Seventy-one were returned, for a response rate of 64.5%.
These high rates of return were obtained by means of a timed sequence, including a courtesy
presurvey phone call, the actual mailing of surveys, and finally, a series of three to five
follow-up postsurvey phone calls to nonrespondents.

4. Results

4.1. Preliminary analyses

In order to determine whether the items on the questionnaire assessed distinct aspects of
social competence, a principal component factor analysis with varimax rotation was
performed on the total sample (the initial and replication studies; n = 230). Parallel analysis
(Horn, 1965) was then applied to determine the appropriate number of factors to retain.
Parallel analysis generates an artificial data set with the same number of observations,
variables, means, and standard deviations as the variables in the actual data set. The artificial
data set is then factor analyzed, and eigenvalues are recorded for each factor extracted. This
procedure is repeated (10 times in the present study), and an average eigenvalue for each of
the factors (across replications) is calculated. These values are then plotted as in a scree plot,
and compared with eigenvalues for the factors extracted from the actual data set. Factors are
retained if the eigenvalues for the actual data set exceed those from the artificial data set.
Zwick and Velicer (1986) concluded, on the basis of a large Monte Carlo study, that parallel
analysis was more accurate than other methods such as Kaiser’s eigenvalue greater than 1.0
rule and Cattell’s scree test, for determining the number of factors to retain.
 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60 49

The parallel analysis conducted for the present data indicated that the appropriate
number of factors to extract was four (see below for description of these factors). The
four factors that emerged from the factor and parallel analyses and the items that loaded
highly on them (factor loadings greater than 0.40 on a single factor and no cross-loadings
higher than 0.25) are presented in Table 1. Examination of this table suggests that the four
factors are readily interpretable, and represent four of the factors selected for study in this
research. These factors, which were assessed by 16 of the 30 items on the scale, can be
readily labeled as follows:

1. social perception (four items; e.g., ‘‘I can usually read others well — tell how they are
feeling in a given situation.’’)
2. social adaptability (five items; e.g., ‘‘I can adjust to any social situation,’’ ‘‘I can talk to
anybody about anything.’’)
3. expressiveness (four items; e.g., ‘‘What I feel inside shows outside.’’)
4. impression management (two items; e.g., ‘‘I’m good at flattery and can use it to my
advantage,’’ ‘‘I can appear to like someone even when I don’t.’’)

Discrete factors did not appear for either persuasiveness or emotional intelligence.
Before proceeding to additional analyses, the four-factor structure suggested by the parallel
analysis was tested using confirmatory factor analysis. Although the overall chi-square test of
model fit was statistically significant, c2(183) = 284.76, P < .001,2 a variety of indices
suggested an adequate model fit. The Root Mean Square Error of Approximation (RMSEA)
was 0.05. The Root Mean Residual (RMR) was 0.06 and the Standardized RMR was 0.07.
The Comparative Fit Index (CFI) was 0.91 and the traditional Goodness of Fit Index (GFI)
was 0.89. The statistical significance of each estimated parameter was also assessed by
respective t-values, which were found to be significant ( P < .05). The completely stand-
ardized solution indicated that this solution is admissible. The commonalities of all the
variables were well above 0.50, and the construct reliabilities for the factors were also high.
Taken together, these results suggest that the hypothesized four-factor model fit the data
reasonably well. In view of these findings, subsequent analyses and data interpretation were
based on the four-factor model rather than the six-factor model we had initially proposed.
Descriptive statistics (means, standard deviations, correlations, and Cronbach’s a) for the
four factors are presented in Table 2 for each of the two samples of entrepreneurs. As Table 2
shows, reliability (as assessed by Cronbach’s a) was acceptable for three of the scales, but
was unacceptably low for one factor-impression management. Thus, this factor was

2
A nonsignificant chi-square indicates that the model implied covariance matrix and the observed covariance
matrix do not differ, and therefore provides evidence of acceptable fit. Unfortunately, the chi-square test is highly
sensitive to departures from multivariate normality, to sample size, and to model complexity (Anderson and
Gerbing, 1988). Consequently, such chi-square tests should be interpreted with caution. For this reason, many
experts view a model as acceptable if its chi-square value is less than twice the size of its degrees of freedom, as
was true here. At present, many researchers have recommended use of a number of heuristic statistics, termed
goodness-of-fit indices, to assess overall model fit. Several of these were employed here to assess the four-factor
model, and suggested that it did, indeed, provide an adequate fit to the data.
50 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60

Table 1
Results of initial factor analysis
Items Factors
Social Perception 1 2 3 4
V11. I’m a good judge of 0.75 0.01 0.09 0.03
other people
V29. I can usually recognize 0.75 0.16 0.01 0.13
others’ traits accurately by
observing their behavior
V9. I can usually read others 0.74 0.23 0.06 0.01
well — tell how they are
feeling in a given situation
V23. I can tell why people have 0.63 0.09 0.04 0.20
acted the way they have in
most situations
V21. I generally know when it 0.61 0.02 0.04 0.01
is the right time to ask someone
for a favor
Social adaptability
V8. I can easily adjust to being 0.27 0.69 0.13 0.04
in just about any social situation
V7. I can be comfortable with all 0.27 0.69 0.13 0.00
types of people — young or old,
people from the same or different
backgrounds as myself
V17. I can talk to anybody about 0.27 0.60 0.21 0.03
almost anything
V2. People tell me that I’m sensitive 0.02 0.44 0.11 0.14
and understanding
V15. I have no problems introducing 0.08 0.43 0.02 0.21
myself to strangers
Expressiveness
V18. People can always read my 0.03 0.20 0.71 0.05
emotions even if I try to cover
them up
V6. Whatever emotion I feel on the 0.01 0.21 0.71 0.17
inside tends to show on the outside
V4. Other people can usually tell pretty 0.04 0.36 0.66 0.04
much how I feel at a given time
V5. I am very sensitive to criticism 0.03 0.19 0.62 0.22
from others
V14. I am often concerned about 0.13 0.25 0.57 0.31
what others think of me
Impression management
V26. I’m good at flattery and can 0.20 0.10 0.14 0.63
use it to my own advantage when
I wish
V24. I can ready seem to like another 0.14 0.22 0.08 0.50
person even if this is not so
Eigenvalues 4.27 3.49 2.91 1.91
Percent of variance explained 14.22 11.16 9.71 6.37
 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60 51

Table 2
Descriptive statistics
Factor Mean S.D. Correlations Cronbach’s a
2 3
Sample 1: cosmetics (n = 159)
1. Skill at social perception 3.82 0.58 .31 * .10 0.83
2. Social adaptability 2.71 0.66 .05 0.67
3. Expressiveness 3.13 0.47 0.74

Sample 2: high-tech (n = 71)

1. Skill at social perception 3.70 0.65 .45 * .10 0.77
2. Social adaptability 2.56 0.54 .10 0.65
3. Expressiveness 3.63 0.49 0.66
* Correlation significant at .01 (two-tailed).

eliminated from further consideration and was not included in subsequent regression
analyses. Correlations between the remaining three factors were generally low, thus suggest-
ing that they reflect relatively distinct aspects of social competence.

4.2. Social competence and financial success: initial study

In order to determine whether various social skills are related to entrepreneurs’ success, a
multiple regression analysis was conducted. In this analysis, demographic variables (e.g.,
business tenure, education, and age) and the three aspects of social competence described
above (social perception, social adaptability, expressiveness) were regressed on entrepre-
neurs’ average yearly income (based on 4 successive years). As noted earlier, impression

Table 3
Standardized regression weights, t-values, adjusted R2, DR2, and significance levels for the initial sample
b t P< Adjusted DR2 DF P<
R2
Step 1: (demographic variables)
Tenure 0.15 1.51 .13
Education 0.34 .75
Age 0.10 1.00 .32
.02 .07 1.36 .26

Step 2: (demographic and social competence variables)

Tenure 0.14 1.52 .13
Education 0.03 0.32 .75
Age 0.08 0.82 .41
Social perception 0.19 2.08 .04
Expressiveness 0.03 0.31 .76
Social adaptability 0.15 1.91 .06
.19 .17 4.86 .005
Dependent variable = Average yearly income.
52 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60

management was not included in these analyses because of the low reliability of the scale that
assessed this item. Demographic variables were entered on Step 1, followed by the three
social competence factors on Step 2. Results (see Table 3) indicated that the demographic
variables were not significantly related to the entrepreneurs’ yearly income. However, one
aspect of social competence, skill at social perception, was significantly, and positively,
related to average yearly income (b = 0.19, t = 2.08, P < .04). Results for a second aspect of
social competence, social adaptability, closely approached but did not quite attain significance
(b = 0.15, t = 1.91, P < .06). In addition, as shown in Table 3, adding the three social
competence factors to the regression equation produced a significant increment in R2
(DR2=.17, F = 4.86, P < .005). These results indicate that for this sample of entrepreneurs,
the higher the entrepreneurs’ scores with respect to two aspects of social competence, the
greater their financial success.

4.3. Social competence and financial success: replication study

A corresponding regression analysis was performed on data for the second sample of
entrepreneurs (founders of high-tech companies). This analysis indicated that again, none of
the demographic variables were significantly related to the entrepreneurs’ financial success
(Table 4). However, two aspects of social competence — social perception (b = 0.29, t = 2.09,
P < .04) and expressiveness (b = 0.27, t = 2.07, P < .04) — were significantly related to
financial success. These results indicate that for this sample of entrepreneurs, the higher
the entrepreneurs’ scores with respect to these two aspects of social competence, the greater
their financial success. Once again, adding the social competence factors to the regression
equation produced a significant increment in R2 (DR2=.13, F = 3.67, P < .02).

Table 4
Standardized regression weights, t-values, adjusted R2, DR2, and significance levels for the replication sample
b t P< Adjusted DR2 DF P<
R2
Step 1: (demographic variables)
Tenure 0.25 1.82 0.07
Education 0.01 0.06 0.95
Age 0.03 0.25 0.80
.02 .07 1.46 .23

Step 2: (demographic and social competence variables)

Tenure 0.25 1.83 0.07
Education 0.07 0.59 0.56
Age 0.02 0.13 0.90
Social perception 0.29 2.09 0.04
Expressiveness 0.27 2.07 0.04
Social adaptability 0.17 1.13 0.26
.14 .13 3.67 .02
Dependent variable = Average yearly income.
 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60 53

For this second sample of entrepreneurs, data were also available concerning company
revenues from sales. A regression analysis indicates that one aspect of social competence —
expressiveness — was significantly related to this financial measure (b = 0.30, t = 1.98,
P=.05). This factor also produced a change in R2 that approached, but did not quite attain,
significance [DR2=.08, F(1,39) = 3.84, P=.056; R2=.20]. In sum, for both samples of
entrepreneurs, aspects of social competence were significantly related to measures of
financial success.

4.4. Cross-validation of measure of social competence

To obtain evidence on the accuracy of entrepreneurs’ ratings of their own social skills, a
third sample of entrepreneurs was asked to complete the survey employed here. These
entrepreneurs were also asked to have another person who knew them well (e.g., a spouse,
other family member, close business associate) complete a slightly modified version of this
survey on which this person rated the entrepreneur. A total of 51 entrepreneurs were
contacted, and for 15 of these individuals, questionnaires were received from both the
entrepreneur and another person who knew them well (a return rate of 28.4%). (Question-
naires were also received from an additional seven entrepreneurs, for an overall return rate of
43.1%. However, since surveys from people who knew these entrepreneurs well were not
obtained, these data were excluded from our cross-validation procedure.)
The two sets of ratings were then compared by correlating entrepreneurs’ self-ratings with
those provided by people who knew them well for each of the four factors. Results indicated
that the two sets of ratings were correlated, with ratings on social perception and social
adaptability (r=.54 and .45) significant at P < .05, whereas expressiveness and impression
management (r=.31 and .32) were significant at P < .10. In addition, mean ratings were
compared for each factor, and in no case did the self-ratings by entrepreneurs differ
significantly from those provided by people who knew them well. When combined with
the results of previous, related studies, (e.g., Moskowitz, 1990; Zebrowitz and Collins, 1997),
these findings suggest that entrepreneurs’ self-ratings on social competencies are indeed
related to their overt, observable social skills as perceived by persons who know them well.
This indicates that our self-report measure provided a reasonably valid proxy of entrepre-
neurs’ social skills.

5. Discussion

The results of the present research offer support for the hypothesis that the higher
entrepreneurs’ social competence, the greater their financial success. For both samples,
accuracy in perceiving others (social perception) was significantly related to a measure of
financial success. In addition, for entrepreneurs in the cosmetics industry, social adaptability
was related to such success (although not quite significantly so; P < .06). Finally, for
entrepreneurs in the high-tech industry, expressiveness was significantly related to financial
success.
54 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60

The fact that significant relationships between certain aspects of social competence and
financial outcomes were obtained for both samples suggests that entrepreneurs’ social
competence may influence their financial outcomes across a wide range of industries and
settings. The two samples of entrepreneurs created distinctly different types of companies and
worked in sharply contrasting business environments; moreover, entrepreneurs in the first
sample were all female, while a large majority of those in the second sample were male. Yet,
despite these differences, social competence was related to the financial success of both
groups of entrepreneurs (although, as noted in more detail below, the specific pattern of these
relationships differed somewhat for the two samples).
Overall, these findings appear to shed new light on the issue of why some entrepreneurs
are more successful than others. Previous research on this important question has often
focused on the characteristics of individual entrepreneurs — their personal traits or cognitive
processes (e.g., Baron, 1998) — or on their social capital — their reputation, experience,
and social networks (e.g., Greene et al., 1997). The present findings indicate that in
addition, certain aspects of entrepreneurs’ behavior — specifically, their effectiveness in
interacting with others on a face-to-face basis — may play a role. As we noted earlier, we
believe that social capital often assists entrepreneurs in gaining access to venture capitalists,
potential customers, and prospective employees. However, once such access is gained, the
outcomes they actually experience are influenced, to some degree, by their effectiveness in
interacting with these persons. Do entrepreneurs secure the funding they seek? Forge
favorable and trustworthy alliances? Obtain the support and services of partners and
employees they wish to recruit? Certain aspects of social competence may well influence
these outcomes.
The finding that entrepreneurs’ social competence may play a role in their success agrees
with a rapidly growing body of evidence suggesting that such competence is a strong
predictor of success in many other business contexts — for instance, with respect to
performance appraisals (Wayne et al., 1997), frequency and speed of promotions (Ferris et
al., in press), and even executive health (socially skilled executives appear to be better able to
resist the adverse effects of high levels of stress; Perrewe et al., in press). The present findings
add to this literature by suggesting that high social competence may prove beneficial for
entrepreneurs, too.
At this point, we should hasten to add that there is no intention here of suggesting that the
effects of social competence are stronger or more important in determining entrepreneurs’
success than those of other factors. On the contrary; we fully share the perspective, reflected
in current entrepreneurship research, that many factors, interacting in complex ways,
ultimately determine the success of individual entrepreneurs — their personal characteristics,
market forces and conditions, industry trends and dynamics, and so on (see, e.g., Shane and
Venkataraman, 2000). Here, we simply suggest that entrepreneurs’ effectiveness in interact-
ing with other persons may be one piece of this intricate puzzle, and should not be
overlooked.
An important question vis-à-vis the present findings, however, concerns the fact that a
somewhat different pattern of results was obtained for the two samples of entrepreneurs.
While accuracy with respect to social perception influenced financial success for both
 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60 55

samples, social adaptability exerted such effects only for the first (cosmetics industry) sample,
while expressiveness exerted significant effects only for the second (high-tech) sample. One
possible explanation for these contrasting patterns involves the fact that the business
environments in which these two groups of entrepreneurs operate call for different social
proficiencies. The first group of entrepreneurs (those in the cosmetics industry) was heavily
involved in face-to-face sales, either of products or, more importantly, the idea of joining their
distribution organizations. To succeed, these entrepreneurs had to approach and interact with
total strangers. Success in such activities would appear to require high levels of social
adaptability. Indeed, close examination of the items included in the social adaptability scale
suggests that several tap what might appropriately be termed ‘‘social boldness’’ — the ability
to approach and interact with total strangers (e.g., ‘‘I’m comfortable with all people — young
or old, people from the same or different backgrounds as myself,’’ ‘‘I can talk to anybody
about anything,’’ ‘‘I have no problem introducing myself to strangers.’’). It seems reasonable
to suggest that the ability to approach and interact with strangers might be very useful for
individuals in our first sample. In contrast, social adaptability or boldness might be less
relevant for, or, at the very least, less used by entrepreneurs in the second (high-tech) sample,
since in their daily activities, they did not find it necessary to approach, meet, and interact
with a large number of total strangers.
In contrast, skill with respect to social perception might well prove valuable to both groups
of entrepreneurs. As noted previously, those in the first (cosmetics industry) sample were
heavily involved in face-to-face sales. Previous research suggests that success in this role is
linked to skill at ‘‘reading’’ others accurately (e.g., Kring et al., 1994). Entrepreneurs in the
second (high-tech) sample often faced the task of negotiating with potential customers and
suppliers; previous findings suggest that skill in ‘‘reading’’ others accurately can contribute to
success in this context (e.g., Thompson, 1998).
Turning to expressiveness, which was positively related both to high-tech entrepreneurs’
business income and their companies’ sales revenues, it is important to note that the
companies included in the present sample were relatively small (median number of employ-
ees = 86). Thus, they were still at a stage in their development where founders had
considerable direct contact with employees. Previous research suggests that a high level of
expressiveness is often a ‘‘plus’’ from the point of view of generating enthusiasm in others
(e.g., Friedman et al., 1980). Thus, it is possible that the greater the expressiveness shown by
these entrepreneurs, the greater their success in generating enthusiasm and motivation among
their employees. This, in turn, could contribute to their companies’ success. While this
reasoning is consistent with the results of previous studies, further research is clearly required
to evaluate its accuracy.
Another result that might, at first glance, seem somewhat puzzling, is the fact that
emotional intelligence — an aspect of social competence that has received considerable
attention in recent years — did not emerge as a factor on our questionnaire, despite the fact
that items employed to measure it were based closely on descriptions of emotional
intelligence by Goleman (1995, 1998) and others (e.g., Mayer et al., 1998). Given these
results, emotional intelligence could not, of course, be employed as a predictor of
entrepreneurs’ financial success. While these findings contrast with widely publicized claims
56 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60

in the media concerning the importance of emotional intelligence, they actually agree quite
closely with the results of recent, careful efforts to determine whether the skills described by
Goleman (1995) cluster together as a single factor. These studies (e.g., Davies et al., 1998)
provide little support for this suggestion; indeed, the only component of emotional
intelligence that has emerged reliably in such systematic research is social perception, which
was significantly related to entrepreneurs’ financial success in the present research. Given
these findings, it appears that recent attention to emotional intelligence may not be justified
and may represent more ‘‘media appeal’’ than sound scientific findings. Nonetheless, this
issue remains somewhat open, and must be carefully addressed in further research before any
firm or definitive conclusions can be reached.
Before concluding, additional limitations of the present research should be addressed.
First, while the present findings indicate that several aspects of social competence are
significantly linked to entrepreneurs’ financial success, they provide no direct evidence on
how these links emerge. Four possible mechanisms appear to merit further attention. First, as
noted earlier, social competence may assist entrepreneurs in working with other members of
the founding team; this might contribute to their financial success. Second, social competence
may assist entrepreneurs in establishing positive, cooperative relationships with persons
outside their companies but who are important for their financial success — venture
capitalists, potential customers, prospective employees, to name just a few. Third, social
competence may contribute to entrepreneurs’ success by assisting them in forming business
alliances. Such alliances are a growing source of competitive advantage for emerging firms
(e.g., Deeds and Hill, 1999), and have been found to be positively associated with the rate of
new product development and the creation of shareholders wealth (e.g., Park and Kim, 1997).
Finally, as noted earlier, social competence may provide entrepreneurs with enhanced access
to opportunity-related information, and may also assist them in communicating such
information to other members of the new ventures. This, in turn, can be an important source
of competitive advantage (e.g., Hitt et al., 1999). While all these mechanisms are plausible,
no direct evidence on them is provided by the present research. Thus, future studies should be
conducted to determine whether, and to what extent, various social competencies do indeed
influence entrepreneurs’ performance through these mechanisms.
Another limitation of the present findings involves the fact that they are based, to a large
degree, on entrepreneurs’ self-reports of their own social competence and financial success.
This raises questions concerning the accuracy of both of these measures. To address the first
of these problems, we cross-validated the measure of social competence employed, in which a
group of entrepreneurs completed our measure of social competence, and, in addition, people
who knew them well (e.g., spouses, other family members, close business associates) rated
them on the same dimensions. As noted earlier, we found that entrepreneurs’ self-reports
agreed rather closely with ratings of their social skills by people who know them well. This
finding provides initial evidence for the validity of this measure, but due to the sample size,
these findings should be interpreted with considerable caution. We should add, however, that
the results of many other studies suggest that people are generally quite accurate in assessing
certain aspects of their own behavior, including their social skills (see, e.g., Gifford and
O’Connor, 1987; Moskowitz, 1990; Zebrowitz and Collins, 1997 for a review of such
 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60 57

research). It is clear, however, that additional research conducted with larger samples is
needed to further assess the extent to which entrepreneurs’ can accurately evaluate their own
social competence.
To address the second issue (the question of whether demographic and financial
information reported by participants was accurate), we obtained company printouts, which
reported entrepreneurs’ earnings, organizational size, and tenure, for a random sample of 43
(or 25%) of the 172 participants in the initial sample. A comparison between the self-reports
of entrepreneurs and these printouts indicated that the information provided by the
entrepreneurs in our sample was highly accurate; with the exception of rounding errors,
the figures were virtually identical. These findings suggest that the information reported by
entrepreneurs in our study was indeed accurate.
Finally, we should note that the present research does not address the following issue of
causality: Does a high level of social competence contribute to entrepreneurs’ success as we
have suggested here, or, alternatively, does success somehow improve entrepreneurs’ social
competence? The latter argument is certainly plausible, because success confers many
advantages that might conceivably assist individuals in improving their social skills (e.g., a
broader range of social contacts, increased educational opportunities). Only longitudinal
research in which entrepreneurs’ social competence is assessed at various points in time can
fully address this issue. However, we should note that research on social skills conducted by
psychologists suggests that in general, such skills do not improve markedly without specific
interventions directed toward producing such change (e.g., Nietzel et al., 1998). Further,
recent studies of successful entrepreneurs indicate that they tend to become increasingly busy
as their businesses prosper (e.g., Curtis, 2000). Such persons often work 12-, 15-, or even 18-
h days, and have little time for activities outside their new venture. As one recent high-tech
millionaire puts it: ‘‘Everybody talks about finding balance, but I’m inherently not a balanced
kind of guy. There’s work, there’s family, there’s personal life, and there’s just not enough
time in the day to do a great job on all three.’’ (Brad Silverberg, quoted in Curtis, 2000). Such
lifestyles seem to leave little time for improving social skills. On the basis of such
considerations, we believe it is more likely that social skills contribute to entrepreneurs’
success rather than the reverse. However, this is clearly an empirical issue, and should be
carefully addressed in future research.
To conclude: The findings of the present research appear to have both theoretical and
practical implications. From a theoretical perspective, they suggest that in order to fully
answer the question ‘‘Why are some entrepreneurs more successful than others in starting
new ventures and exploiting opportunities?’’ it may be useful to examine certain aspects of
entrepreneurs’ behavior (e.g., Gartner, 1988), their personal characteristics, cognitive pro-
cesses (cf., Baron, 1998; Busenitz and Barney, 1997), as well as the market conditions in
which they operate and industries in which they compete (e.g., Venkataraman and Van de
Ven, 1998). Doing so may offer additional insights into this complex question. For instance, it
seems possible that a lack of social competence may be one factor contributing to the
puzzling fact that some entrepreneurs who have sound ideas, possess considerable technical
competence, and demonstrate high motivation still fail. Perhaps it is their ineffectiveness in
interacting with others that is responsible, in part, for these negative outcomes.
58 R.A. Baron, G.D. Markman / Journal of Business Venturing 18 (2003) 41–60

From a practical perspective, the present results point to additional means for assisting
entrepreneurs. In contrast to aspects of personality, the social skills of which social
competence is composed are readily open to modification. Indeed, techniques for enhancing
such skills have been developed by psychologists, and used with considerable success in
many contexts (e.g., Nietzel et al., 1998). It seems possible that providing entrepreneurs with
appropriate training in social skills might assist them in their efforts to exploit opportunities
and launch new ventures. Given the crucial role played by entrepreneurs in creating wealth
not only for themselves and their companies, but for their societies as well (Venkataraman,
1997), this would appear to be a highly desirable outcome.

Acknowledgements

The authors wish to express their sincere appreciation to Rob McDonald for his
outstanding assistance with respect to data analysis and to Gerald R. Ferris for supplying
articles and references directly relevant to the present research.

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