Troubled Teens Make More Successful Entrepreneurs

August 14, 2013, 2:19 PM

Troubled Teens Make More Successful Entrepreneurs

By Khadeeja Safdar

Smart, rule-abiding teenagers are less likely to become successful entrepreneurs than equally intelligent teens who engage in illicit activities, according to new research. In a working paper published by theNational Bureau of Economic Research, economists Ross Levineand Yona Rubinstein examine what it takes to become an entrepreneur and whether entrepreneurship pays off in terms of wages. Using data from the March Supplements of the U.S. Census Bureau‘s Current Population Survey and the National Longitudinal Survey of Youth, they look at the cognitive, noncognitive and family traits of self-employed individuals who have incorporated businesses and compare it to the characteristics of salaried workers and the self-employed who don’t have incorporated businesses.Previous research on entrepreneurs has looked at the entire population of self-employed workers, which, Messrs. Levine and Rubinstein say, doesn’t distinguish between a hot dog vendor and Michael Bloomberg. The process of incorporating a business — making it a separate entity under the law — can be lengthy and expensive. The economists argue that self-employed workers who incorporate their businesses show the intent and agency to start a new, profitable venture and are therefore more representative of entrepreneurship than those who haven’t incorporated their businesses. Furthermore, not many self-employed workers switch from unincorporated to incorporated and vice versa, the economists say, providing more support for the idea that incorporation coincides with an entrepreneurial venture. ”The nature of the business tells you about the nature of the person,” says Mr. Rubinstein.

The economists find that self-employed workers with incorporated businesses were almost three times more likely to engage in illicit and risky activities as youth than were salaried workers. These behaviors include but aren’t limited to shoplifting, marijuana use, playing hooky at school, drug dealing and assault. In addition, the self-employed with incorporated businesses exhibited greater self-esteem, scored higher on learning aptitude tests, were more educated and were more likely to come from high-earning, two-parent families than other employment types. “Of course, you have to be smart,” says Mr. Levine. “But it’s a unique combination of breaking rules and being smart that helps you become an entrepreneur.”

These qualities also have a downside. Risk-taking tendencies in combination with high self-esteem make successful entrepreneurs prone to dangerous lapses in judgement, the Wall Street Journal reported in June, finding that many financial advisers have to keep their entrepreneur clients in check.

But on the whole, entrepreneurship does pay off. The economists find that individuals who left their salaried jobs to start incorporated businesses work more hours but also earn more per hour than other employment types, and those who start successful incorporated enterprises enjoy substantially larger boosts in earnings relative to their own wages as salaried workers. The results show “that entrepreneurship, at the median, pays — and it offers the possibility of comparably enormous returns,” the researchers write.

Self-employed workers who don’t incorporate their businesses earn less than salaried workers, the economists find. Prior research, which uses all self-employed workers as a proxy for entrepreneurship, has found that salaried workers make more than entrepreneurs, but have similar levels of educational attainment. Messrs. Levine and Rubinstein say that separating self-employed workers into incorporated and unincorporated categories resolves this discrepancy.

The economists note that entrepreneurs come from wealthier families, which may give them an advantage with raising capital. The Journal recently reported that growing student loan burdens have been killing startup dreams for many young people.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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