Bad teenagers make good entrepreneurs, study says

Wondering how to spot a future entrepreneur? Look for the smart teenager who keeps getting into trouble with the law. A new study of successful self-employed people finds that “a mixture of learning aptitude and‘break-the-rules’ behavior is tightly linked with entrepreneurship.” 

Ross Levine of the Haas School of Business at the University of California, Berkeley, and Yona Rubinstein of the London School of Economics looked at self-employed individuals who had incorporated (as opposed to the unincorporated self-employed). Their working paper, “Smart and Illicit: Who becomes an entrepreneur and does it pay?” published by the National Bureau of Economic Research, concludes that:

class="MsoNormal">“The incorporated self-employed have a distinct combination of cognitive, noncognitive, and family traits. …The combination of ‘smarts’ and ‘aggressive/illicit/risk-taking’ tendencies as a youth accounts for both entry into entrepreneurship and the comparative earnings of entrepreneurs.”

Risk taking activities included skipping school, use of alcohol and marijuana, vandalism, shoplifting, drug dealing, robbery, assault, and gambling.

Brushes with the law alone do not predict success as an entrepreneur, however. Incorporated self-employed people, the authors say, are also more likely to come from higher-income, two-parent families with better educated mothers, and to have scored higher on learning aptitude tests as teenagers, and had greater self-esteem than most.

How breaking the rules pays off

“It is the high-ability person who tends to‘break-the-rules’ (as measured by the degree to which the person engaged in illicit activities before the age of 22) who is especially likely to become a successful entrepreneur,” they write.

Unlike previous studies that look at all self-employed people as one group, Levine and Rubinstein disregarded self-employed people who had not incorporated as a way to restrict the study to the highest-earning self-employed. “The incorporated self-employed earn much more per hour and work many more hours than the salaried and unincorporated,” they write. 

Their study also looked at people who left salaried employment to become self-employed. Possessing both “the skills to succeed as a salaried employee” as well as the inclination to break the rules in adolescence is a predictor for a much larger increase in income when becoming an incorporated self-employed business owner, according to the research.

The researchers relied on data from an ongoing study known as the National Longitudinal Survey of Youth that in 1979 began surveying more than 12,000 people starting when they were age 15-22. Over the years, the NLSY79, as it is known, measured individuals for cognitive skills and learning aptitude, and included an “illicit activity index.”

Pointing to a quote from Apple co-founder and former hacker Steve Wozniak--

"misbehavior is very strongly correlated with and responsible for creative thought” — the authors say the incorporated self-employed are twice as likely as salaried workers to report having taken something by force as youths, and are 44 percent more likely to have been stopped by the police.

People who demonstrate both above-average aptitude and experience with illicit activities have an almost 60 percent greater probability of becoming incorporated than other people after controlling for many characteristics, according to the research. “This mixture of learning aptitude and ‘break-the-rules’ behavior is tightly linked with entrepreneurship,” the authors conclude.

For more, see “Who Becomes an Entrepreneur?” at the National Bureau of Economic Research website.

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