Entrepreneurship Is Driven by Psychology Not Just Business

The Myth of the Spreadsheet Entrepreneur

The most dangerous idea in business school is that entrepreneurship is primarily about the business plan. We teach students to forecast cash flows, analyze market gaps, and build financial models. But if you look at who actually succeeds and who fails, the numbers don’t line up with the spreadsheets. Something else is driving the process.

Michael Fresé and Michael M. Gielnik, two of the leading researchers in entrepreneurial psychology, spent the last decade reviewing hundreds of studies on what makes entrepreneurs tick. Their 2022 paper in the Annual Review of Organizational Psychology and Organizational Behavior synthesizes this work into a single framework. Their conclusion is quietly radical: entrepreneurship is not a business problem. It is a psychological problem. The people who succeed are not the ones with the best spreadsheets. They are the ones who think, feel, and act differently.

This changes everything about how we teach entrepreneurship, how we fund it, and how we decide whether to start a company ourselves.

What the Paper Actually Says

Fresé and Gielnik (2022) don’t just argue that psychology matters. They build a model that puts psychology at the center. Their “action theory process model” treats entrepreneurship as a sequence of actions that unfold over time. But here is the twist: those actions are not driven by rational calculation. They are driven by cognition, motivation, and emotion. And those three things change as the entrepreneur moves through the process.

The authors reviewed decades of work on four major theories of action: effectuation (making do with what you have), causation (planning and executing), bricolage (improvising with available resources), and the theory of planned behavior (intentions predicting actions). What they found is that none of these theories works in isolation. Entrepreneurs do not just plan, or just improvise. They shift between modes depending on their psychological state.

This is not a feel-good argument about “following your passion.” It is a hard-nosed analysis of how the mind actually operates under uncertainty. Fresé and Gielnik (2022) show that cognition, motivation, and emotion are not background variables. They are the engine.

The Cognitive Trap That Kills Most Startups

Here is a finding that should terrify every aspiring founder: the more you know about your industry, the worse your decisions get.

Fresé and Gielnik (2022) reviewed research showing that prior knowledge can create cognitive biases. Experts see patterns that are not there. They overestimate their ability to predict outcomes. They become overconfident in their plans. This is not a flaw in the research. It is a direct finding from the studies the authors cite.

The problem is that entrepreneurship is fundamentally about uncertainty. You cannot plan your way through it because the variables keep changing. Fresé and Gielnik (2022) found that successful entrepreneurs use a mix of causal reasoning (planning) and effectual reasoning (adapting). But the balance shifts. Early on, effectuation matters more. Later, causation takes over. The entrepreneurs who fail are often the ones who get stuck in one mode.

This means the business plan you write in week one is not just useless. It is dangerous. It gives you a false sense of control. The cognitive research suggests you should spend less time forecasting and more time testing small actions to see what happens.

Motivation Is Not a Personality Trait

We talk about entrepreneurs as if they are born with some special drive. The research says otherwise. Fresé and Gielnik (2022) found that entrepreneurial motivation is not fixed. It changes over time. It is shaped by feedback loops.

Here is how it works: you take an action. You get a result. That result changes your motivation. If the result is positive, your motivation increases. You take more action. If the result is negative, your motivation drops. But here is the key finding: the relationship is recursive. Motivation does not just drive action. Action also drives motivation.

This is why the first few steps matter so much. Fresé and Gielnik (2022) reviewed studies showing that early small wins create a positive spiral. They increase self efficacy, which is the belief that you can succeed. Higher self efficacy leads to more ambitious goals. More ambitious goals lead to more effort. More effort leads to more wins.

But the reverse is also true. Early failures can create a negative spiral. They lower self efficacy. Goals shrink. Effort drops. The entrepreneur gives up.

The practical implication is brutal: if you are not getting small wins in the first few months, you probably never will. The research suggests that motivation is not something you can will into existence. It is something you build through action.

The Emotional Rollercoaster Is Real

Every founder knows that starting a company is an emotional mess. But the research shows it is worse than you think. Fresé and Gielnik (2022) reviewed studies on emotion and entrepreneurship. Their finding: emotions are not just side effects. They are causal.

Positive emotions broaden your thinking. They make you more creative. They help you see opportunities you would otherwise miss. Negative emotions narrow your focus. They make you risk averse. They shut down the cognitive flexibility you need to adapt.

The authors found that entrepreneurs experience more emotional volatility than the general population. This is not a bug. It is a feature of the process. But it becomes a problem when emotions are not regulated. Fresé and Gielnik (2022) cite research showing that entrepreneurs who cannot manage their emotions make worse decisions. They overreact to setbacks. They abandon strategies too quickly. They fail to learn from feedback.

The good news is that emotional regulation is a skill. It can be learned. The bad news is that most entrepreneurship education ignores it entirely.

How the Study Was Done

Fresé and Gielnik (2022) did not run a single experiment. They conducted a systematic review. They searched for every study published in the last decade that dealt with the psychology of entrepreneurship. They then grouped those studies by topic: cognition, motivation, emotion, action, process. They looked for patterns across studies. They tested whether the findings held up across different contexts.

This is a standard method in psychology. It is more reliable than any single study because it aggregates results. The authors cite 134 sources. They are not making claims based on one lab experiment. They are synthesizing an entire field.

The strength of this approach is that the findings are robust. The weakness is that the paper does not provide precise effect sizes. The authors do not say “entrepreneurs with high self efficacy are 40% more likely to succeed.” They say the relationship exists and is consistent across studies. This is honest. But it means the paper is better at telling you what matters than how much it matters.

What This Changes About How We Teach Entrepreneurship

If Fresé and Gielnik (2022) are right, then most entrepreneurship education is backward. We teach planning. We should be teaching action. We teach analysis. We should be teaching emotional regulation. We teach market sizing. We should be teaching how to handle failure.

The authors do not say this explicitly. But the implication is clear from their model. If cognition, motivation, and emotion are the drivers of entrepreneurial action, then those are what we should train. Business plans are downstream. Psychology is upstream.

There is some evidence that this works. Fresé and Gielnik (2022) cite studies showing that entrepreneurship training programs that focus on psychological factors do better than those that focus on business skills alone. Programs that teach effectuation, for example, produce entrepreneurs who adapt more quickly. Programs that build self efficacy produce entrepreneurs who persist longer.

But the research is still young. We do not know exactly which psychological interventions work best. We do not know how to train emotional regulation at scale. We do not know whether the effects last.

What the Research Does Not Prove

This is where honesty matters. Fresé and Gielnik (2022) do not prove that psychology is the only thing that matters. Market conditions matter. Access to capital matters. Luck matters. The authors are not saying that if you fix your psychology, you will automatically succeed.

They are saying that psychology is the mechanism through which everything else works. A good market does not help you if you cannot act. Capital does not help you if you cannot regulate your emotions. Luck does not help you if you do not recognize the opportunity.

The research also does not prove that you can train all psychological factors equally. Some things, like cognitive biases, are hard to change. Others, like self efficacy, respond well to training. The authors are clear that more research is needed on which interventions work and for whom.

Finally, the paper does not address the dark side of entrepreneurship. The same psychological factors that drive success can drive burnout. The same emotional volatility that helps you spot opportunities can destroy your relationships. The same motivation that keeps you going can keep you going long after you should quit.

The Action Theory Process Model in Practice

Fresé and Gielnik (2022) present their model as a cycle. It has four stages: goal setting, action, feedback, and adaptation. Each stage is driven by cognition, motivation, and emotion. The cycle repeats over time. The entrepreneur learns, adjusts, and acts again.

The authors found that successful entrepreneurs cycle through this loop faster. They set goals. They act. They get feedback. They adapt. They set new goals. The entrepreneurs who fail get stuck in one stage. They plan endlessly without acting. They act without reflecting. They reflect without adapting.

This is the practical heart of the paper. Entrepreneurship is not a one time event. It is a continuous psychological process. The people who succeed are the ones who learn to manage that process.

What This Actually Means

• ▸Stop writing business plans. Start running experiments. The research shows that action drives motivation, not the other way around. Your first move should be the smallest possible test of your idea. A business plan is a hypothesis. An experiment is evidence.

• ▸Track your emotional state as closely as your cash flow. Fresé and Gielnik (2022) show that emotions directly affect decision making. If you are anxious, you will miss opportunities. If you are excited, you will take too much risk. Build a system to check in with yourself before major decisions.

• ▸Look for small wins in the first 90 days. The recursive relationship between action and motivation means that early success creates a positive spiral. If you are not seeing any wins in the first three months, the psychological math is against you. This is not a reason to quit. It is a reason to change your approach.

• ▸Do not confuse knowledge with skill. The research shows that prior knowledge can create cognitive biases. Being an expert in your field does not make you a good entrepreneur. It might make you worse. Treat your expertise as a starting point, not a destination.

• ▸Build a feedback loop, not a plan. The action theory process model is a cycle. The faster you cycle, the faster you learn. Set a goal. Take an action. Get feedback. Adapt. Repeat. This is not a metaphor. This is the mechanism the research identifies as central to entrepreneurial success.

The next time someone tells you that entrepreneurship is about the business plan, show them this paper. The plan is not the point. The psychology is. And the psychology is something you can work on.