What does it take to be a self-made success in America? Our national mythology points to gumption and gusto—the ability to think strategically, act aggressively, and possess an unfailing if not occasionally irrational self-confidence. It also still helps to come from relative affluence, and to be a guy.
So far, so obvious.
But if you’re trying to spot the next Mark Zuckerberg, you might also want to scope out the troublemakers sitting in the back of class. Turns out that entrepreneurs also are likelier to have been wild, rebellious youth—the ones who wantonly bend and break the rules when they think it necessary.
Those are among the conclusions of an August working paper authored by Berkeley’s Ross Levine and the London School of Economics’ Yona Rubinstein. Titled “Smart and Illicit: Who Becomes an Entrepreneur and Does It Pay?”, the study found that the “typical” American would-be mogul looks an awful lot like Bill Watterson’s Calvin, J.D. Salinger’s Holden Caulfield, or, naturally, Ayn Rand’s John Galt—singularly smart, but ultimately somewhat disdainful of the rules and conventions that temper the behavior of their less-inspired peers.
In fact, they were more likely, as young adults, to have been malcontents. Absent data on the prevalence of leather jackets and tattoos, Levine and Rubinstein used an “illicit activity index” constructed as part of a long-term Bureau of Labor Statistics survey that has followed the same 12,686 Americans since 1979. The index aggregates activities such as school suspensions, drug use, gambling, and run-ins with the police.
Taken as a broad indication of risk-taking behavior (or as Levine puts it, “as some sort of tendency to not feel comfortable adhering to particular rules”), suffice it to say the future captains of industry had it in spades.
The survey the two economists used collects data on financial status, occupation, family life and education as well as psychological well-being and self-esteem. It allowed them to construct fairly detailed profiles of various employment types, including self-employment. To distinguish between simply self-employed people and entrepreneurs who are industry-disrupting innovators of the Henry Ford/Steve Jobs variety, the researchers focused on self-employed people who had incorporated versus those who had not.
“The corporate form was invented and developed over several centuries to facilitate investment in risky, innovative, large, potentially transformative activities,” explains Levine. “There are costs to being incorporated, but if you’re going to engage in that kind of business, you’ll choose that form. If not, you’ll choose to be an unincorporated business.”
Taking the “incorporated self-employed” person as a proxy for the entrepreneur of the culture’s imagination, Levine says they found some fairly striking consistencies.Their entrepreneur—who typically makes more per hour, but also works more hours, than his or her salaried counterpart—is likely to be well-educated, to have come from affluent two-parented households, and to score very highly on both learning aptitude tests and self-esteem evaluations.
But the fact that they were more likely to indulge in risky behaviors was perhaps most surprising. Thus, the release of the paper triggered some headlines such as this one from the Wall Street Journal economics blog: “Troubled Teens Make More Successful Entrepreneurs.”
Not so fast. Before you advise any teens in your family to drop the textbook, pick up a joint, and wait for the venture capital to come rolling in, Levine wants to make one thing absolutely clear: “It’s very important to note that the willingness to take part in illicit behavior as a teen is not, in and of itself, associated with a higher likelihood of becoming an entrepreneur. It’s this mixture of being illicit and smart that has this very strong predictive power.”
In other words, the unique combination of being quite clever and not always doing exactly what you’re told to do seems to be a winning combination in the business world.
“It would be a gross misreading of the evidence to start training MBAs how to steal cars,” says Levine.
Someone call the Haas School and let them know.
But while Levine and Rubinstein’s study may provide some clarity for the social sciences, it might also provide an unwelcome challenge to the creed of American capitalism. Especially in the Bay Area in 2013, where the self-made titans of tech reign as civic leaders, what are we to make of the fact that the “typical” entrepreneur—too smart for his own good, uncommonly big-headed, behaviorally aggressive, and willing to break the rules when convenient—sounds an awful lot like a sociopath?
“In the U.S. we do tend to hold entrepreneurs in some esteem, so if this activity that we laud and that we want our kids to pursue is actually associated with illicit, egotistical, jerk behavior, that might make us a little uncomfortable,” admits Levine.
“What’s interesting for a boring economist like me is that, in economics, the literature tends to think of human ability along a single line: If a person has more ‘ability’ than others, then they earn more once they’re matched with a good job,” he says. “This paper pushes us away from the notion that we can rank people along a single spectrum or hierarchy that we call ‘skill,’ towards a more complicated understanding of humans as a complex bundle of characteristics.”
For example, Levine says that he himself would make a terrible entrepreneur. That isn’t for lack of uniform ability, one presumes. He just happens to be better suited for the slower paced, congenial environment of research and academia.
But if entrepreneurial ability is based on a “complex bundle of characteristics,” one characteristic in particular stood out as particularly helpful: maleness.
“Obviously being male is not a prerequisite to become an entrepreneur, but for reasons we don’t fully understand yet, gender is a very good predictor,” says Levine.
Much stronger even than race, despite one article on the study in The Atlantic, which asked if the extra leeway extended to upper-middle-class Caucasians—“that societal room to do a little law breaking, punishment free—isn’t part of the reason why so many of the successful entrepreneurs in this country are, yes, white guys.”
That may or may not be true, but it’s hard to find definitive proof of that in the data.
“Because of the high correlation between family income and education and the likelihood of becoming an entrepreneur, the correlation with race is a little harder to tease out,” Levine says.
In other words, if you take all the males out of the data set and select only those who come from wealthy families and graduated from college, and the ethnicity of any given male will not significantly affect the probability that he will or won’t become an entrepreneur.
“But with gender, there is a big difference,” says Levine.
Take a woman and endow her with the complete package of characteristics that statistically favor entrepreneurship—high intelligence, high family income, high education, a tendency towards youthful indiscretion, and obnoxiously high self-regard—and she is still 76 percent less likely than her equally fortunate and jerk-like male to make a Jane Galt go of things.
The image of the “bad-boy” entrepreneur, then, as made famous by notoriously difficult corporate personalities such as Steve Jobs, Larry Ellison, and Al Dunlap, seems likely to remain just that: a bad boy.
Posted on August 23, 2013 - 1:10pm