6 ms·

If You Are So Smart, Why Aren't You an Entrepreneur? (Study)

55 points by aristidb 16y ago

bhoung 16y ago
Jumping straight to the conclusion... "The same individual has a 30% higher return to general ability when active as an entrepreneur than when working as an employee. Nevertheless, the resulting earnings are higher as an entrepreneur than as an employee only for the upper echelon of the general ability distribution. This suggests that, if the choice for entrepreneurship hinges on expected earnings, only the smartest people become entrepreneurs. However, as indicated by the results in Table A2 of the Appendix, general ability is not a factor that affects people’s occupational choice. In fact, there is some negative effect of general ability but it is not significant." "These results suggest that, again if occupational choices are based on expected earnings differentials, people with high levels of math, technical and social abilities become entrepreneurs, whereas people with relatively high levels of clerical and language abilities become wage employees."
noelchurchill 16y ago
The abstract didn't mention risk tolerance but I imagine that probably ranks high for entrepreneurial traits.
- Joakal 16y ago
  Critical thinking? Can you build me the next facebook? I can't say what it is unless you sign this heavily-one-sided NDA.
wccrawford 16y ago
Maybe I'm not an entrepreneur -because- I am so smart. See, I know what I want. And I really, really like my free time. Money doesn't matter nearly so much to me as it seems to for most people. So the answer to that question is: Because you don't know me.
- aristidb 16y ago
  See, this study does not claim to know you. It claims statistical properties, correlations. By definition, this paints an incomplete, simplified picture. The title is admittedly rather attention-grabby, but I did not make it up, I copied it from the study (and truncated it to fit in 80 characters).
- gregschlom 16y ago
  >And I really, really like my free time. Money doesn't matter nearly so much to me as it seems to for most people. That's funny because this is precisely the perfect reason to be an entrepreneur. If you don't mind not making any money for a year or two, and if you want to be in total control of your time, instead of selling 1/3 of it to some company, then being an entrepreneur may be the right opportunity. (Not saying that this is what you should do of course, I don't know you, either. Just saying that the reason you gave is much more in favor of entrepreuneurship than not.)
sadiq 16y ago
The Lazear Jack Of All Trades paper cited is available at http://faculty-gsb.stanford.edu/lazear/Personal/PDFs/Balanced%20Skills%20and%20Entrepreneurship%20(12-15-03).pdf http://faculty-gsb.stanford.edu/lazear/Personal/PDFs/Balance... for those following up references
stretchwithme 16y ago
I think eventually most people will be entrepreneurs. More and more things will be automated, decreasing the need for labor and making it easier to build value by combining the results. For example, once robotic transportation becomes a reality, virtual assembly lines will be possible, giving entrepreneurs new tools and lower costs. Something people previously moving things from point A to B could take advantage of to create products and services at suddenly lower costs. In the same way the Internet made it possible to distribute digital products world wide, low cost robotic transportation will make it cheap to combine physical things in interesting new ways. All of this will make being an employee less rewarding and entrepreneurship even more appealing. Instead of being a cog, more people will be buying cogs and building machines that satisfy even more human needs.
- Joakal 16y ago
  It seems great until you understand what economies of scale mean. A big group is likely to ultimately win over several groups collectively of same size. However, people with knowledge that computers can't yet automate; will be pretty valuable (Try online self-diagnosis..).
  - kiba 16y ago
    Large organizations can suffer from diseconomy of scale. Office politics, slow response time, and duplication of effort are some of the problems that decrease the efficency of large corporations. Which is to say, big doesn't alway win either.
    - tsotha 16y ago
      Not always, but the rise of information technology allows big groups to cut the large company overhead in a way they never could in the past. Recent technologies favor large (sometimes stupendously large) groups over small ones, so if large corporations were viable at all in the '70s, they're much more viable now.
      - 16y ago
teralaser 16y ago
Really, the highest earning "occupations" (or most prestigious) change as time goes: - in the 1800s many smart people became authors or poets. - in the 1950 many became physicists - around 2000, many became entrepreneurs (or even venture capitalists) Purely macro-economic reasons can dictate, that sometimes it is best to be an entrepreneur (say, in times of "under-investment"), sometimes a consultant and yet again, sometimes an employee (in times of "over-investment" in a sector)
- anateus 16y ago
  I'm not certain that's an apples to apples comparison. Entrepreneurship is more about how you do something rather than what you do. Your second paragraph makes more sense: to use one of your examples one can be a Physics consultant, employee, OR an entrepreneur (while still being a Physicist).
- jarek 16y ago
  Around 2000, highest earning occupations are by far in finance. Some entrepreneurs will make more, but when comparing 10 smart people in finance and 10 entrepreneurs, the average earnings aren't even close. Prestigious depends very heavily on who you ask. I don't think you can come up with one answer even 50% of a population would agree on today.
  - nostrademons 16y ago
    Controlling for ability? Entrepreneurship has no barrier to entry the way finance does; there's no job application to say "You didn't go to an Ivy League college, so no job for you". So if you take ten random entrepreneurs and compare them to 10 smart people in finance, of course the average earnings won't be close. I suspect that if you limited your applicant pool - say, "10 people who could get into YC" or "10 people who scored perfects on the SATs", the returns for entrepreneurship vs. finance would be much more even. I'm not sure entrepreneurs would come out ahead, but you're far more likely to catch the Herokus and Reddits and less likely to catch the folks who start a restaurant or a RoR CRUDscreen with no plan for monetization.
Joakal 16y ago
I've told other wannabe entrepreneurs that there's an awful lot of confirmation bias even in entrepreneur networks. I point out "Facebook makes billions of dollars! You could do it too"- articles but show "Small businesses are very likely to fail" for an counter example. One should do critical thinking and always get relevant feedback because hey, what you're doing is for others. Not for yourself.
toephu 16y ago
this website looks like it's stuck in the 90's
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strlen 16y ago
One sentence: I love programming. If as an entrepreneur (i.e., a company founder; being an employee at a startup -- which, by the way, is great -- is not the same) I spend the same percentage of my time programming as I do when working as a software engineer, I'm almost guaranteed to fail. Software needs to not only be built and tested: it needs to solve a problem actual users have, be marketed, sold and be supported. A polished commercial product can't always be built by a one man team, so I'll likely need to spend my time recruiting others and raising money to pay them. That said, I'm not against entrepreneurship: it's a means to an end. If the best way to bring a particular product to the market is through going on my own (and I've felt that way at multiple points in my career), I'll do what it takes. However, I have no interest in entrepreneurship for money's, status' or its own sake.
buckwild 16y ago
what law states entrepreneurs are smart? Not to be a downer, but you've probably only heard of the successful ones. I'm sure there are plenty more who aren't successful. Smart is a consequential call, isn't it?
- ryanpetrich 16y ago
  Survivorship bias
- al05 16y ago
  I've met dumb academically, but successful entrepreneur types to.
mmphosis 16y ago
If You Are So Smart, Why Aren't You an Engineer?
elmindreda 16y ago
So there's only one kind of smart now? One of the reasons I'm not an entrepeneur is that it involves dealing with people and money. I prefer dealing with code.
wtimoney 16y ago
Dear Einstein,

55 points by aristidb 16y ago

Jumping straight to the conclusion... "The same individual has a 30% higher return to general ability when active as an entrepreneur than when working as an employee. Nevertheless, the resulting earnings are higher as an entrepreneur than as an employee only for the upper echelon of the general ability distribution. This suggests that, if the choice for entrepreneurship hinges on expected earnings, only the smartest people become entrepreneurs. However, as indicated by the results in Table A2 of the Appendix, general ability is not a factor that affects people’s occupational choice. In fact, there is some negative effect of general ability but it is not significant." "These results suggest that, again if occupational choices are based on expected earnings differentials, people with high levels of math, technical and social abilities become entrepreneurs, whereas people with relatively high levels of clerical and language abilities become wage employees."

noelchurchill 16y ago

The abstract didn't mention risk tolerance but I imagine that probably ranks high for entrepreneurial traits.

Joakal 16y ago
Critical thinking? Can you build me the next facebook? I can't say what it is unless you sign this heavily-one-sided NDA.

wccrawford 16y ago

Maybe I'm not an entrepreneur -because- I am so smart. See, I know what I want. And I really, really like my free time. Money doesn't matter nearly so much to me as it seems to for most people. So the answer to that question is: Because you don't know me.

aristidb 16y ago
See, this study does not claim to know you. It claims statistical properties, correlations. By definition, this paints an incomplete, simplified picture. The title is admittedly rather attention-grabby, but I did not make it up, I copied it from the study (and truncated it to fit in 80 characters).
gregschlom 16y ago
>And I really, really like my free time. Money doesn't matter nearly so much to me as it seems to for most people. That's funny because this is precisely the perfect reason to be an entrepreneur. If you don't mind not making any money for a year or two, and if you want to be in total control of your time, instead of selling 1/3 of it to some company, then being an entrepreneur may be the right opportunity. (Not saying that this is what you should do of course, I don't know you, either. Just saying that the reason you gave is much more in favor of entrepreuneurship than not.)

sadiq 16y ago

The Lazear Jack Of All Trades paper cited is available at http://faculty-gsb.stanford.edu/lazear/Personal/PDFs/Balanced%20Skills%20and%20Entrepreneurship%20(12-15-03).pdf http://faculty-gsb.stanford.edu/lazear/Personal/PDFs/Balance... for those following up references

stretchwithme 16y ago

I think eventually most people will be entrepreneurs. More and more things will be automated, decreasing the need for labor and making it easier to build value by combining the results. For example, once robotic transportation becomes a reality, virtual assembly lines will be possible, giving entrepreneurs new tools and lower costs. Something people previously moving things from point A to B could take advantage of to create products and services at suddenly lower costs. In the same way the Internet made it possible to distribute digital products world wide, low cost robotic transportation will make it cheap to combine physical things in interesting new ways. All of this will make being an employee less rewarding and entrepreneurship even more appealing. Instead of being a cog, more people will be buying cogs and building machines that satisfy even more human needs.

Joakal 16y ago
It seems great until you understand what economies of scale mean. A big group is likely to ultimately win over several groups collectively of same size. However, people with knowledge that computers can't yet automate; will be pretty valuable (Try online self-diagnosis..).
- kiba 16y ago
  Large organizations can suffer from diseconomy of scale. Office politics, slow response time, and duplication of effort are some of the problems that decrease the efficency of large corporations. Which is to say, big doesn't alway win either.
  - tsotha 16y ago
    Not always, but the rise of information technology allows big groups to cut the large company overhead in a way they never could in the past. Recent technologies favor large (sometimes stupendously large) groups over small ones, so if large corporations were viable at all in the '70s, they're much more viable now.
    - 16y ago

teralaser 16y ago

Really, the highest earning "occupations" (or most prestigious) change as time goes: - in the 1800s many smart people became authors or poets. - in the 1950 many became physicists - around 2000, many became entrepreneurs (or even venture capitalists) Purely macro-economic reasons can dictate, that sometimes it is best to be an entrepreneur (say, in times of "under-investment"), sometimes a consultant and yet again, sometimes an employee (in times of "over-investment" in a sector)

anateus 16y ago
I'm not certain that's an apples to apples comparison. Entrepreneurship is more about how you do something rather than what you do. Your second paragraph makes more sense: to use one of your examples one can be a Physics consultant, employee, OR an entrepreneur (while still being a Physicist).
jarek 16y ago
Around 2000, highest earning occupations are by far in finance. Some entrepreneurs will make more, but when comparing 10 smart people in finance and 10 entrepreneurs, the average earnings aren't even close. Prestigious depends very heavily on who you ask. I don't think you can come up with one answer even 50% of a population would agree on today.
- nostrademons 16y ago
  Controlling for ability? Entrepreneurship has no barrier to entry the way finance does; there's no job application to say "You didn't go to an Ivy League college, so no job for you". So if you take ten random entrepreneurs and compare them to 10 smart people in finance, of course the average earnings won't be close. I suspect that if you limited your applicant pool - say, "10 people who could get into YC" or "10 people who scored perfects on the SATs", the returns for entrepreneurship vs. finance would be much more even. I'm not sure entrepreneurs would come out ahead, but you're far more likely to catch the Herokus and Reddits and less likely to catch the folks who start a restaurant or a RoR CRUDscreen with no plan for monetization.

Joakal 16y ago

I've told other wannabe entrepreneurs that there's an awful lot of confirmation bias even in entrepreneur networks. I point out "Facebook makes billions of dollars! You could do it too"- articles but show "Small businesses are very likely to fail" for an counter example. One should do critical thinking and always get relevant feedback because hey, what you're doing is for others. Not for yourself.

toephu 16y ago

this website looks like it's stuck in the 90's

dhjtkyukyu 16y ago

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strlen 16y ago

One sentence: I love programming. If as an entrepreneur (i.e., a company founder; being an employee at a startup -- which, by the way, is great -- is not the same) I spend the same percentage of my time programming as I do when working as a software engineer, I'm almost guaranteed to fail. Software needs to not only be built and tested: it needs to solve a problem actual users have, be marketed, sold and be supported. A polished commercial product can't always be built by a one man team, so I'll likely need to spend my time recruiting others and raising money to pay them. That said, I'm not against entrepreneurship: it's a means to an end. If the best way to bring a particular product to the market is through going on my own (and I've felt that way at multiple points in my career), I'll do what it takes. However, I have no interest in entrepreneurship for money's, status' or its own sake.

buckwild 16y ago

what law states entrepreneurs are smart? Not to be a downer, but you've probably only heard of the successful ones. I'm sure there are plenty more who aren't successful. Smart is a consequential call, isn't it?

ryanpetrich 16y ago
Survivorship bias
al05 16y ago
I've met dumb academically, but successful entrepreneur types to.

mmphosis 16y ago

If You Are So Smart, Why Aren't You an Engineer?

elmindreda 16y ago

So there's only one kind of smart now? One of the reasons I'm not an entrepeneur is that it involves dealing with people and money. I prefer dealing with code.

wtimoney 16y ago

Dear Einstein,