Self‐competition theory of entrepreneurship
Self-Competition Theory: Why Entrepreneurs Compete Against Themselves
Why do successful entrepreneurs, who have already made their millions, continue to risk their capital again and again?
Elias Khalil (1997) at Monash University posed this question. Logic suggests that once an entrepreneur has achieved financial security, they should retire to protect their wealth. Yet, many do the opposite. They double down.
Beating the "Former Self"
Self-Competition Theory offers a psychological explanation. It posits that high-performing individuals are not necessarily trying to beat competitors in the market; they are trying to beat their former selves.
The theory's main assumption is that individuals keep a mental scorecard of their "personal bests." Entrepreneurship becomes a vehicle for self-improvement, where the goal is to exceed previous metrics. For example, an entrepreneur might try to:
- Obtain an ROI (Return on Investment) double that of their previous venture.
- Expand the scale of a new company to be larger than their last one.
- Enter new territories or industries they haven't conquered before.
The Link to Maslow and Self-Actualization
This drive to improve is not about money; it is about Self-Actualization. As described in Maslow's Hierarchy of Needs, once basic safety and esteem needs are met, the individual seeks to realize their full potential.
[Image of Maslow's hierarchy of needs]Rather than feeling a sense of loss after a failure, an entrepreneur driven by self-competition views it as data. They learn from the experience to improve their performance in the next round, much like an athlete training for the Olympics.
Related Frameworks
Self-Competition theory does not exist in a vacuum. It shares DNA with several other psychological frameworks in entrepreneurship:
- Prospect Theory: Analyzing how individuals value gains and losses.
- Regulatory Focus Theory: The balance between promotion (seeking gains) and prevention (avoiding losses).
- Self-Efficacy Theory: The belief in one's own ability to succeed.
- Hubris Theory: When self-confidence crosses the line into over-estimation.
1. Self-Competition and Achievement Motivation Theory
Self-Competition Theory can be viewed as the functional mechanism behind McClelland’s Achievement Motivation Theory. While McClelland identifies the "Need for Achievement" (n-Ach) as a stable personality trait driving individuals to excel, Self-Competition Theory explains how this trait manifests day-to-day: through a mental scorecard. The high n-Ach entrepreneur doesn't just vaguely want to do well; they specifically use their "former self" as the benchmark to beat. This internalizes the standard of excellence, explaining why achievers persist even when they have already outperformed all external market competitors.
2. Self-Competition and Uncertainty-Bearing Theory
Frank Knight’s Uncertainty-Bearing Theory argues that profit is the reward for bearing uninsurable risks. Self-Competition Theory complicates this by asking why wealthy entrepreneurs continue to bear risk when they no longer need the profit. The answer shifts the reward system from financial to psychological: the "risk" is the necessary friction required to test one's limits. For the self-competing founder, uncertain environments are not just markets to be exploited for money, but arenas essential for the self-actualization process that Knight’s economic model overlooks.
3. Self-Competition and Prospect Theory
Kahneman and Tversky’s Prospect Theory suggests individuals value gains and losses differently depending on a "reference point." Self-Competition Theory fundamentally alters this reference point. For most, the status quo is the baseline; for the self-competing entrepreneur, their last best performance is the baseline. This shifting reference point means that simply maintaining wealth feels like a "loss" (stagnation), driving the "risk-seeking in the domain of losses" behavior predicted by Prospect Theory, even when the entrepreneur is objectively successful.
4. Self-Competition and X-Efficiency Theory
Leibenstein’s X-Efficiency Theory focuses on the "slack" within a firm—the gap between actual and potential output due to a lack of motivation. Self-Competition Theory acts as the ultimate antidote to X-Inefficiency at the individual level. Because the entrepreneur is competing against their own potential rather than a lazy monopolist competitor, they theoretically reduce their internal "slack" to zero. They are driven to optimize their personal "production function" relentlessly, ensuring that the inertia and bloat described by Leibenstein never set in.
5. Self-Competition and Social Judgement Theory
There is a sharp contrast between the internal focus of Self-Competition Theory and the external focus of Social Judgement Theory. Social Judgement Theory posits that entrepreneurs succeed by conforming to the expectations and legitimacy norms of an audience. Conversely, the self-competing entrepreneur often ignores these external social signals, driven instead by an intrinsic metric of success. While Social Judgement requires an audience to validate the venture, Self-Competition requires only the founder’s own critical assessment, allowing them to pursue unpopular or misunderstood paths that external judges might initially reject.