April 23, 2014

Study Finds Successful Entrepreneurs Share a Common History of Getting in Trouble as Teenagers

Prof. Ross Levine
Prof. Ross Levine

Watch Prof. Ross Levine discuss his research. 

Independence. Creativity. Money. Those are the benefits associated with successful entrepreneurs such as Steve Jobs and Mark Zuckerberg. But is being an entrepreneur really more lucrative than working for a salary? And who is best cut out to succeed? A new study by Professor Ross Levine of the Haas Economic Analysis and Policy Group answers both of these questions.

Levine and co-author Yona Rubinstein of the London School of Economics and Political Science found that entrepreneurs earn on average 50 percent more than their salaried counterparts who are working in the same industry and have the same education, contrary to a large body of research finding that entrepreneurship does not pay. Levine explains that many previous studies broadly define entrepreneurship, including people who are self-employed such as an accountant or a plumber. In this study, an entrepreneur is defined as a person who undertakes a novel, risk-taking activity. Levine says think Michael Bloomberg or Bill Gates.

Furthermore, they found that successful entrepreneurs possess distinct traits identifiable back when they were teenagers. These traits turn out to be accurate predictors of entrepreneurial success. Some of the not-so-surprising traits include having a high IQ, coming from a stable family, having parents who earn a higher than average income, and having exceptionally high self-esteem and confidence. However, some other common traits are often associated with juvenile delinquency.

“Our data revealed that many successful entrepreneurs exhibited aggressive behavior and got in trouble as teenagers. This is the person who wasn’t afraid to break the rules, take things by force, or even be involved in minor drugs,” says Levine, the Willis H. Booth Chair in Banking and Finance.

The researchers combed data from the National Longitudinal Survey of Youth (NLSY79), a representative sample of 12,686 young men and women who were 14 to 22 years old when they were first surveyed in 1979. The interviews have continued ever since.

“What we find is that a particular constellation of traits turns out to be a strong predictor of who is going to become an entrepreneur later in life and whether that person is going to be a high-earner when he or she launches a business,” says Levine.

In terms of earnings, the study found that successful entrepreneurs displaying these traits typically started their careers as top high earning salaried workers, and when they branched out on their own and successfully established their companies, they tended to enjoy a boost in earnings of 70 percent more than they received as salaried workers.

See full paper.

Topics:    Research News