Attribution Theory and Entrepreneurship
If you ask a founder why their startup didn’t make it, they’ll usually point to the weather. "The timing was off," "The economy caught a cold," or "The competitors had bigger umbrellas."
But if you ask their investor? They’ll point to the captain. "The CEO lost their map," "The crew stopped rowing," or "They just didn't have the grit to weather the storm."
This isn’t just a classic case of he-said, she-said. It’s a psychological tug-of-war known as Attribution Theory—where the "why" depends entirely on who’s telling the story!
Developed by Austrian psychologist Heider in the 1950s and further developed by Weiner in the 1970s and 1980s, the fundamental assumption of this theory is that humans are driven to find causes for success and failure. However, we rarely do this objectively. We use cognitive shortcuts that lead to specific biases.
Attribution theory is simply how we explain the "why" behind what happens. When you succeed or fail, your brain instantly categorizes the cause into three specific buckets.
The Three Dimensions of Attribution
Locus (Internal vs. External): Was this caused by me (my skills, my effort) or by the world (luck, the economy)?
Stability (Stable vs. Unstable): Is this cause permanent? Thinking "I’m bad at sales" is stable and hard to fix. Thinking "I didn't prepare for this specific meeting" is unstable and easy to change.
Controllability (Controllable vs. Uncontrollable): Can I change it? You can't control government regulations, but you can control your product design.
The Impact on Entrepreneurs and Investors
This psychological framework creates a high-stakes trap for entrepreneurs because of how outsiders judge them. While a founder might use "self-serving bias" to protect their own ego, stakeholders—like investors, customers, and the media—often fall victim to the Fundamental Attribution Error (FAE).
The FAE is the tendency for observers to overemphasize a person's internal character while ignoring the external situation.
The Success Trap: When a startup grows 10x, investors often think, "This founder is a genius" (Internal).
The Failure Trap: When that same startup crashes, they think, "This founder is incompetent" (Internal).
In both cases, stakeholders rarely account for the "tailwind" of a bull market or the "headwind" of sudden regulatory changes. While your own bias might save your self-esteem, the FAE among investors is what ultimately endangers your funding.
The "Winner-Takes-All" Cycle
This theory also explains the "Virtuous Circle" of success. When an entrepreneur wins once, observers attribute it to "genius" (Internal/Stable) rather than luck (External/Unstable). This attribution leads to more funding and support, acting as a self-fulfilling prophecy that helps them keep winning.
Research in Entrepreneurship
Gartner et al. suggest that entrepreneurs don't just "find" opportunities; they attribute meaning to environmental changes. Where a casual observer sees a "problem" (External/Unstable), an entrepreneur attributes it to a "strategic gap" they can fill (Internal/Controllable).
Shaver et al. explain that not all "whys" are created equal. People who start businesses for "internal" reasons (e.g., "I want to lead") tend to have different persistence levels than those starting for "external" reasons (e.g., "I lost my job").
Video: Attribution Theory Explained
Related Theories
Success is rarely objective. These frameworks explore how our brains distort reality to find meaning in the chaos of failure and achievement:
1. The Mind's Shortcuts
- Locus of Control: The central dimension of whether you believe you are the master of your fate.
- Self-Efficacy Theory: How internal attributions build the confidence to persist.
2. The World's Audit
- Social Judgement Theory: How external "Legitimacy" is granted based on perceived causes of success.
- Actualization Theory: Balancing the external "potential" with the internal "skill" of a founder.
Comments