By Cherian George
STANFORD GRADUATE SCHOOL OF BUSINESS—The x-factor that divides entrepreneurs from the rest of the pack is their well-rounded experience, a survey of Stanford MBAs suggests. According to the data, the more roles individuals had already performed, the more likely they were to establish a new company.
“Entrepreneurs are jacks-of-all-trades, not specialists,” said Professor Edward Lazear in a lecture at the Stanford Business School on April 11. He based his comments on selected findings from a major survey of the School’s MBA alums. Almost 12,000 questionnaires were sent out, of which more than 43 percent were filled out and returned.
Although the survey was conducted in 1997, researchers are still mining the rich lode of data obtained from the detailed questionnaire.
Lazear’s analysis finds that the overall probability of playing an entrepreneurial role—defined as founding a business—was under 7 percent. But, what factors affected whether someone was more likely or less likely than average to become an entrepreneur?
The data allowed Lazear to test such factors as gender, ethnicity, age and experience. None of these, on its own, seemed to make a big difference. However, one factor stood out: the number of different positions the individual occupied previously.
Every additional role played added 2.26 percentage points to the probability that the person’s next job would be as an entrepreneur. Those with under three roles had only a 1 percent chance of turning to entrepreneurship. Those with more than 16 roles had a 30 percent chance.
“If you perform different roles, you pick up different skills and that makes you multidimensional,” Lazear said.
To establish a business, he pointed out, a person needs to do everything from talking to venture capitalists to hiring a chief executive, on top of knowing one’s product and market. “You’re only as strong as your weakest link,” he said.
He noted that even when entrepreneurs go into business as a team, with team members specializing in different aspects of the business, each of them would still need enough breadth of knowledge to make the correct decisions about whom the other partners should be.
He added that while many Silicon Valley founders are highly skilled engineers, it was probably not just their engineering ability that made them turn to entrepreneurship. “Entrepreneurs are people who don’t want to get stuck in a particular role,” he said.
He stressed that the data did not suggest that would-be entrepreneurs should hop from firm to firm. The survey found that length of job tenure was positively related to entrepreneurship. “Bouncing around companies, on its own, is not a good thing.”
Lazear, who was speaking to MBA students as part of a series of weekly lectures by senior faculty members, is the Jack Steele Parker Professor of Human Resources Management and Economics, and a senior fellow at the Hoover Institution. He was also the founding editor of the Journal of Labor Economics. His research centers on employee incentives, promotions, compensation and productivity in firms.
He told the students that the experience of earlier MBAs showed that there were clear material benefits in becoming entrepreneurs. According to the survey, entrepreneurs earned about 15 percent more than specialists. Their earnings grew at about 3.3 percent per year more rapidly.
The survey also suggested to students how they should prepare themselves for such a career, he said: “The optimal trajectory for entrepreneurs is to go out and get lots and lots of general skills.”
Gender and the Organization-Building Process in Young, High-Tech Firms, James N. Baron, Michael T. Hannan, Greta Hsu, and Ozgecan Kocak, In Mauro F. Guillén, Randall Collins, Paula England, and Marshall Meyer (eds.), The New Economic Sociology: Developments in an Emerging Field, Russell Sage Foundation Press, 2002
James Baron, Michael Hannan, Greta Hsu. Ozgecan Kocak, Founders’ Values Help Shape Gender Mix in High-Tech
Manju Puri, Price supports for IPOs Justified
Stanford Project on Emerging Companies
Center for Entrepreneurial Studies
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