Do you know a shoplifting, pot-smoking student with high test scores who isn't living up to their potential? They may go on to become a more successful entrepreneur than an equally smart but law-abiding classmate.
Using data from the March Supplements of the U.S. Census Bureau‘s Current Population Survey and the National Longitudinal Survey of Youth, economists Ross Levine and Yona Rubinstein have written a working paper published by the National Bureau of Economic Research which looks for what it takes to be a successful entrepreneur in the U.S.
The economists found that self-employed workers with incorporated businesses were nearly three times more likely to engage in risky and illegal activities as teens than were salaried workers, who were more likely to follow the rules.
Levine and Rubinstein separated self-employed workers who had incorporated their businesses -- a lengthy and expensive process -- from those who had not. They say that going through the process of incorporation is a better indicator of a committed entrepreneurial venture.
"The nature of the business tells you about the nature of the person," Rubinstein said.
The risky behaviors exhibited by those workers in their youth included but wasn't limited to shoplifting, marijuana use and skipping school all the way up to drug dealing and assault.
Self-employed workers with incorporated businesses also scored higher on learning aptitude tests, were more educated, exhibited greater self esteem and were more likely to come from high-earning two-parent families.
"Of course, you have to be smart," Levine said. "But it’s a unique combination of breaking rules and being smart that helps you become an entrepreneur." It's worth noting that risky and illicit behavior overall does not indicate a high probability of successful entrepreneurship.
The authors also say that the tendency for successful entrepreneurs to come from wealthier families may indicate the relative ease with which they can raise capital.
The downside to possessing both risk-taking tendencies and high self-esteem, the authors say, is that successful entrepreneurs are vulnerable to severe lapses in judgment.
Still, overall, the authors conclude that entrepreneurship still pays in America. Separating self-employed workers into incorporated and unincorporated categories, they say, dramatically changes the comparison with wage and salaried workers. The unincorporated self-employed, they say, earn much less than their salaried counterparts.