Who Becomes an Entrepreneur?
Seven research studies reveal the traits and experiences that influence the decision to start a business.
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Actionable insights
If you only have a few minutes to spare, here’s what investors, operators, and founders should know about who becomes an entrepreneur.
The market misjudges you. Entrepreneurs may not be born but made. When employers underestimate (and undercompensate) a worker’s value, the rational decision for that person is to start a business of their own.
You’re well-rounded. Though venture capitalists often talk about finding a founder that “spikes” on a certain dimension, those most likely to become entrepreneurs are well-rounded. A 2005 study from Edward Lazear suggests that the self-employed tend to be generalists, not specialists.
Mental health issues run in the family. According to one study, entrepreneurs are much more likely to face mental health problems – both directly and in their broader family. Sufferers of bipolar disorder, ADHD, and OCD are all more likely to go solo.
You survived a difficult childhood. Running a business is not for the faint of heart. It is perhaps not surprising then that childhood adversity may increase entrepreneurship rates. One 2021 paper analyzes this connection by observing a group that suffered extreme hardship: China’s Great Famine survivors.
One of The Generalist’s primary obsessions is understanding how great organizations are made. In pursuit of that subject, we’ve studied companies from around the world, across industries, and at different stages of maturation, hopping from Starbucks to Stripe, Y Combinator to Flexport, Rappi to Kaspi, and DST to TSMC.
We spent significant time on the organization’s origin story in each of these cases. How did a trip to Italy influence Howard Schultz’s entrepreneurial vision? What did the Collison brothers build before they tackled payments? Why was Morris Chang perfectly positioned to build the largest semiconductor fabricator in the world?
Beneath the obsession with epic organizations is, perhaps, an even greater interest in the people and stories behind them. Despite that curiosity, we have yet to focus on the phenomenon of entrepreneurship itself. What factors influence the estimated 582 million entrepreneurs to build businesses? What characteristics and experiences drive someone to leave the safety of employment for the volatility of pioneerdom?
To try and answer these questions, I’ve reviewed dozens of academic studies on entrepreneurship and the factors that lead to it. It goes without saying, hopefully, that there are perhaps hundreds of intriguing, interesting papers on this subject. Today’s piece summarizes the seven results that I found most compelling. In some instances, they confirm the lessons gleaned from studying the companies mentioned earlier; at other points, they challenge them.
These findings are not presented as definitive truths. Indeed, academia’s replication crisis means that most studies should be viewed with some skepticism, perhaps especially those focused on Western, Educated, Industrialized, Rich, and Democratic (WEIRD) subject groups. Rather, I view them as intriguing frames of reference, heuristics through which part of the picture may be understood. Hopefully, they contribute to improved understanding for founders themselves and those who work with them.
With that, let’s explore the fundamental question: who becomes an entrepreneur?
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Teenage vandals
In “Smart and Illicit,” academics Ross Levine and Yona Rubinstein investigate if early aptitude and rule-breaking behavior impact the likelihood of becoming an entrepreneur.
In the years before they enter the workforce, future entrepreneurs show higher intellectual aptitude, stronger self-esteem, and a greater belief in their ability to decide their future. They are also more likely to engage in illicit activities. Compared to employees, entrepreneurs are 2x more likely to have “taken something by force as youths” and nearly 40% more likely to have been stopped by the police. On an overall “illicit activity index” score – which incorporates behaviors like truancy, gambling, drug dealing, shoplifting, and vandalism – entrepreneurs score 21% higher than employees.
The 2013 study finds that this cocktail of traits is most potent when combined – that is, youths that are both “smart” and “illicit” are most likely to become entrepreneurs. They are also most likely to see the largest increase in their earnings when they transition from employee to entrepreneur. It’s perhaps not surprising that four of PayPal’s six co-founders built bombs in high school.