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Is your smart, but totally independent-minded teenager driving you crazy? If you've rolled your eyes with a yes, I have good news: your child might just make a fabulous entrepreneur one day.
A National Bureau of Economic Research working paper, "Smart and Illicit: Who Becomes and Entrepreneur and Does it Pay?" by Ross Levine and Yona Rubinstein picked apart a variety of social, demographic, and personality traits to figure out who becomes an entrepreneur and how successful they are relative to everyone else.
The roots of entrepreneurship
As the authors note, a problem with much entrepreneurship research is that it lumps everyone who starts a business into one big group. This isn't entirely reasonable -- after all, there could be enormous differences in how serious, aggressive, or highly invested entrepreneurs are.
So, Levine and Rubinstein decided to separate entrepreneurs who incorporated their business and those who didn't, the idea being that incorporation in itself might signal that an investment in a long-term, riskier, stand-alone business is being made (as opposed to working on a self-employed basis without incorporation).
It turns out that the distinction is an important one. Incorporated entrepreneurs earn more money than everyone else -- a lot more. The median incorporated entrepreneur earns about 80% more than the unincorporated one, and 33% more than the salaried worker. They're also more likely to work harder on their business.
No distinction is perfect, of course (not all incorporated businesses are risky and not all unincorporated ones are not), and some of the effect could be driven by demographics (those who incorporate are also much more likely to be white males). So, to tease out the importance of personality characteristics and control for demographics, the researchers turned to a richer data source.
Personality and entrepreneurship
They found, as noted above, that the kinds of kids who drive their parents crazy are also the most likely to become successful entrepreneurs (please note that measures of parental frustration were not included in the study; this interpretation is based solely on anecdotal data).
After controlling for numerous demographic factors:
"Even as teenagers, people that incorporate later in life tend to score higher on learning aptitude tests, exhibit greater self-esteem, indicate that they aspire to be managers/leaders later in life, and engage in more aggressive, illicit, and risky activities than other people."
The propensity for incorporated entrepreneurship is particularly magnified by a particular duo of traits: high learning aptitude and a history of illicit behavior (anything from petty theft and skipping school to drug use and being stopped by police). It's those smart and rule-breaking types that seem to be most drawn toward the riskier, and more rewarding, type of entrepreneurship. These individuals have nearly 60% greater probability of becoming incorporated than their more middle-of-the-road peers.
As the authors put it, "The mixture of learning aptitude and 'break-the-rules' behavior is tightly linked with entrepreneurship."
Of course, nothing is as simple as it sounds in a study. Coming from a stable home with well-educated parents also had an effect on entrepreneurship, and could conceivably impact other important variables, like self-confidence and a sense of control over one's destiny (both were found to be important for the incorporation decision).
But it is deeply interesting that the link between aptitude, illicit behavior, and incorporated entrepreneurship is so strong. Perhaps once focused, those frustrating renegade qualities are really the secret sauce that great success is made of.
