Wonks R Us

Where Public Policy and Small Business Meet

Who are these entrepreneurs anyway?

I had forgotten how much I enjoyed the conversations my blog posts sparked. I find the opportunity to engage in discussion with others very energizing.  So much so, that one response inspired this post.

Jeff Schwaber, instigator extraordinaire, asked me the following:

“Have you seen the book The Illusions of Entrepreneurship or Malcolm Gladwell’s article about it? I’d like to read your thoughts on them. Here’s the abstract of the Gladwell article: http://www.facebook.com/l/1a4ce;www.newyorker.com/reporting/2010/01/18/100118fa_fact_gladwell

I read the article, and it reminded me of the number of times I’ve been told to only take risks with other people’s money.  Is this really the secret to success? I decided to dig a little further.  I found some interesting answers from 2 recent studies by the Kaufman FoundationThe Anatomy of an Entrepreneur: Family Background and Education and The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur.

But first, a caveat.  British Prime Minister Benjamin Disraeli is most often credited for coining the phrase: “Lies, damn lies and statistics.” I am painfully aware how open datasets are to interpretation.  This is the bugaboo that sends me down rabbit holes in search of primary data.  I came to somewhat different conclusions than the authors after reviewing their summarized data.  All of the following commentary is based on my own analysis.

Ninety-eight percent of respondents ranked risk as the biggest barrier to entrepreneurship. When asked the reasons for starting a business, 74.8% responded that they wanted to build wealth and 68.1% wanted to capitalize on a business idea.  The greatest risks generally produce the greatest returns.  One can extrapolate that entrepreneurs take calculated risks in pursuit of high returns.

Serial entrepreneurs are an interesting population because they repeatedly choose to take risks.  A closer look at the data reveals that a serial entrepreneur’s personal risk decreases as he/she starts additional businesses.  First companies are overwhelmingly funded through personal savings followed by loans from friends and family.  As a serial entrepreneur’s experience grows, so does the ability to secure angel and venture capital.

Even if someone else’s money is on the line, most of us prefer success to failure.  Entrepreneurs highly value the lessons learned through both failures and successes. Willy Wonka once said: “Invention, my dear friends, is 93% perspiration, 6% electricity, 4% evaporation, and 2% butterscotch ripple.”  Entrepreneurs work incredibly hard, sacrificing free time, friends and family to succeed.  But 73% of entrepreneurs understand that luck can make or break a business.  A lesson we’ve all learned in this economy.

I have so much more to say on these 2 studies, and with any luck, I will have the opportunity to share them with you all.

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3 responses to “Who are these entrepreneurs anyway?

  1. Paul Novakl February 1, 2010 at 9:04 pm

    Serial Entrepreneurs? Thats me! Never heard that term before, but I like it. All it takes is starting one business that makes money and your’e hooked.

  2. Heather February 2, 2010 at 2:21 pm

    Likely for a completely different reason, I find this quite an interesting topic. Gladwell’s article is based (at least the entrepreneur part) on Scott Shane’s The Illusions of Entrepreneurship. Shane takes a fairly cynical view – noting the dissonance between the hopes and fantasies of many Americans of an entrepreneurial life and self-employment and the reality. His critique of this myth of entrepreneurship (think Tony Robbins) is largely based on a statistical examination of who actually becomes an entrepreneur and how they do in their business versus what the public impression is. (For a snarkier look at a similar topic – see Thomas Frank’s work either in the Baffler or in One Market Under God.) I find much in Shane’s criticism but I don’t think he goes far enough. Statistically, it is interesting – but I’m skeptical about his measurements – it appears that a diverse set of tasks are lumped into this category. (Just because I fill out a Schedule C doesn’t mean necessarily I am an entrepreneur). And that is my point – a concern about what is lumped into the category. I see many former employees being sold on “entrepreneurship” as a means of independence, when what is happening is largely the hollowing out of business in favor our outsourcing and subcontracting. “Entrepreneur” seems to be the catch all phrase for everyone from the hotel maid who is now a self-employed, independent contractor (often for less pay, no benefits and no job security) to the multimillionaire inventor that every participant on Dragon’s Den seems to expect to be. Entrepreneurship can be merely a way to defer responsibility and outsource risk to the individual. Perhaps sound economic/business sense, but I am worried about it becoming ennobled by a label such as entrepreneur.

  3. Eva Schweber February 2, 2010 at 3:01 pm

    Heather-I completely agree with your comment, which is why I postponed it for a later post. I found a bunch of hidden gems in the graphs that were telling about who was and was not captured in this sample. The summaries gloss over so much. I wanted to make sure that these issues are highlighted. So,stay tuned.

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