

If You Are So Smart, Why Aren't You an Entrepreneur? (Study) - aristidb
http://ideas.repec.org/p/iza/izadps/dp3648.html

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strlen
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.

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wccrawford
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.

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aristidb
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).

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stretchwithme
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.

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Joakal
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..).

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kiba
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.

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tsotha
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.

~~~
stretchwithme
I think my point is that the cost of integrating the work of many into a small
business are going to drop.

I believe (and am probably alone in this belief :-)) that there is still an
inherent tax advantage to having everything in one entity that probably
outweighs the disadvantages of coordinating a large group.

A group of 100 members trades internally without paying taxes on these
transactions, but everything between independents has some tax effects for at
least one side.

If this advantage were removed by some kind of tax reform, I suspect
corporations would be smaller on average.

Getting back to the entrepreneur, even if there are many standard-izable
things in a process, there are costs to outsourcing those things. Automation
of physical logistics may greatly reduce these costs, making it possible to
focus on just the unique value one can add and be rewarded.

~~~
tsotha
Where I live you only pay sales taxes at the retail level - companies earlier
on in the supply chain don't pay anything. I think that's pretty standard,
actually, and for the reasons you discussed.

Or were you talking about some other kind of tax?

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stretchwithme
bingo. Companies that only trade with companies still pay income taxes on
their profits, at least here in the US.

Not sure how big an effect this is or it has been studied at all.

I guess the costs of doing business with another entity should also be
considered and maybe they are more significant. Just having to evaluate
vendors, do POs, trying to collect, etc, are also costs avoided inhouse.

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

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Joakal
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.

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

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Joakal
Critical thinking?

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

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teralaser
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)

~~~
jarek
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
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.

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jarek
Sorry - that should have read "10 smart people in finance and 10 smart
entrepreneurs". I was being careful to stay gender-impartial and left a
crucial word out as a result...

I must admit being a bit out of my depth regarding U.S. finance hiring. In
Canada, Ivy or equivalent is not required, though of course it's not going to
hurt. As far as I can see, it's one of the better fields when it comes to
recognizing and rewarding hard work and ability and motivation (provided a
baseline social/IQ ability). The luck component is still pretty important, but
nevertheless much less so than in entrepreneurship.

Unfortunately neither of us have data here. I can't go digging for mine right
now, which is a bit of a shame as I would like to continue this discussion.
Some other time?

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bhoung
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."

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buckwild
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?

~~~
al05
I've met dumb academically, but successful entrepreneur types to.

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elmindreda
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.

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

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wtimoney
Dear Einstein,

