Entrepreneurs don’t have a special gene for risk

[TechLady]

"... they come from families with money."

Fascinating article.

"...While it seems that entrepreneurs tend to have an admirable penchant for risk, it’s usually that access to money which allows them to take risks. And this is a key advantage: When basic needs are met, it’s easier to be creative; when you know you have a safety net, you are more willing to take risks. “Many other researchers have replicated the finding that entrepreneurship is more about cash than dash,” University of Warwick professor Andrew Oswald tells Quartz. “Genes probably matter, as in most things in life, but not much.”​

It should be said that the article is mostly speaking of Americans, and here's the original article in the Atlantic.

 

[SilverLeaf]

While I'm sure there are exceptions, I can testify as to the importance of adequate capital. In fact, my underestimation of required capital (both for business operation and living expenses during startup) was the primary cause of my business failure. I planned well and took the risk, but just as the business was starting to become profitable, the well ran dry.

Anecdotally, I've known an entrepreneur or two that became successful based solely on the fact that they already had money and resources, rather than talent or ideas. If you have a safety net, it's really not that much of a risk. To put it all on the line takes something else entirely. I really admire those who start from nothing.

 

[callthatgirl]

Should be renamed
Millenials don’t have a special gene for risk

 

[coffee]

Ah the premise of Socialism. We know it well. "You didnt build that business, Someone came along and helped you". They tell you that you cannot be successful on your own. Well, I wouldnt believe that for a NY minute. Quit listening to such dribble. If you want to run a business you can do it. You just have to want to do it bad enough. Having a well founded education and perhaps a mentor helps quite a bit. But if you really are going to sit there and say to yourself "Well, So I am poor therefore I cannot do it on my own" then you have lost already. History is filled with examples of poor and unaided people finding success.


I planned well and took the risk, but just as the business was starting to become profitable, the well ran dry.

Quite something. So, When you ran out of other peoples money your business went under. You might have been making money but by your own admission you were not making a profit.

 

[gadgetfixup]

My first business failed miserably, but I was 24 years old and opened with a bad partner. My second business I opened at 29 years old with nothing more than a $1200 income tax return. What I did have was a HUGE amount of determination. I continued working my job when I first opened for about 6 months. When my income from my part time computer business was 4x my paycheck and my employer (soon to be ex father-in-law) demanded more of my time for no more money (I was salary) I said it's time to be on my own. It hasn't been the smoothest road but I have no regrets. I've had years when I was making 5 figures a week and years I was making two figures a week.

My only advice is when business takes off and is good to never assume it will continue, tuck that money away. I jumped into national retail trade shows for about 10 years with crews in multiple cities every weekend selling computers. Quite often after expenses for a week we'd put more than $10k in our pockets. We thought it would last forever. All it took was one greedy promoter to bring it all to an end. We suffered great losses before laying off all the crews, selling the semi-trucks and liquidating the inventory. Of course with success comes problems. We let our taxes fall behind and the IRS showed up one day with badges and warrants. It got ugly and cost us over 6 figures to solve. Keep up with your taxes and don't trust employees to make deposits.

I said all this to say the most important trait a business owner must possess is persistence and determination. The road will get rocky, it won't always be an easy ride but what separates the successful business owners and unsuccessful business owners isn't typically education, skill, talent or rich relatives, it's persistence. Locally we've seen so many local Sons or Daughters inherit a parent's business and it's not long before a successful business is run into the ground. They haven't been tested by fire and don't have the dedication or determination for success their parent's had. They excuse it to changing times, big box stores or other economic issues. Nah, you don't have what your parents had.

I have a plaque that hangs on my office wall to remind me daily of a quote by Calvin Coolidge:

Nothing in this world can take the place of persistence. Talent will not: nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not: the world is full of educated derelicts. Persistence and determination alone are omnipotent.

Calvin Coolidge

 

[SilverLeaf]

Ah the premise of Socialism. We know it well. "You didnt build that business, Someone came along and helped you". They tell you that you cannot be successful on your own. Well, I wouldnt believe that for a NY minute. Quit listening to such dribble. If you want to run a business you can do it. You just have to want to do it bad enough. Having a well founded education and perhaps a mentor helps quite a bit. But if you really are going to sit there and say to yourself "Well, So I am poor therefore I cannot do it on my own" then you have lost already. History is filled with examples of poor and unaided people finding success.


I planned well and took the risk, but just as the business was starting to become profitable, the well ran dry.

Quite something. So, When you ran out of other peoples money your business went under. You might have been making money but by your own admission you were not making a profit.

Wow Coffee, troll much? You certainly stretched the limits of assumption this time in order climb onto your soapbox. Going forward, you may want to refrain from making such grossly inaccurate assumptions in an effort to shoehorn a discussion to meet your idealogical needs, it's not good for your credibility.

Businesses don't succeed just because "you want it bad enough" and many entrepreneurs fund their startup with savings and personal investment rather than OPM, myself included.

 

[TechLady]

Ah the premise of Socialism. We know it well. "You didnt build that business, Someone came along and helped you". They tell you that you cannot be successful on your own. Well, I wouldnt believe that for a NY minute. Quit listening to such dribble.

It's obvious you didn't actually read the article. Let me help you.

"Data from the Global Entrepreneurship Monitor show that more than 80% of funding for new businesses comes from personal savings and friends and family." That right there? That's called help.

From the study: "84 percent of the incorporated self-employed (people who, for the purposes of this piece, we'll just shorthand as "entrepreneurs") are white, compared to 71 percent of the whole prime working-age population. They're also 72 percent male. So, again, entrepreneurs are overwhelmingly and objectively white guys. What else do we know about them? To gather more info, Levine and Rubinstein turn to the NYLS79, a government survey that began tracking more than 12,000 14 to 22 year olds over the course of their lives starting in 1979. The young folks who eventually became entrepreneurs tended to be from wealthier families with more educated parents."

...you may want to refrain from making such grossly inaccurate assumptions in an effort to shoehorn a discussion to meet your ideological needs, it's not good for your credibility.

Could not agree more.

Businesses don't succeed just because "you want it bad enough" and many entrepreneurs fund their startup with savings and personal investment rather than OPM.

Correct. Just wanting something super bad isn't enough. Having a crazy drive for it isn't enough. Having a really good aptitude for something isn't always enough, either. You need a thing called resources. Very simple.

 

[gadgetfixup]

Most successful business owners failed at their first business venture. I did and I had a ton more resources the first time out then I had the second time. I was backed by real estate I purchased and made double and triple payments for years. I had enough to support me 18 months without an income. I had calculated so many variables and expenses it filled a notebook. I had no way to fail on paper. Well that's not how it worked out.

My first time I wanted a business to be a business owner. I had something to prove to everyone that I could have a business. I invested and opened a shop, joined the Chamber, handed out business cards to everyone I knew, ate breakfast with the Mayor. I just knew I could do it. I got squashed, not by one big mistake but a bunch of small ones mostly from my lack of experience.

The second time out, I didn't care who was watching or even who knew. There was no shop, no fanfare or grand opening. Even today, all the people I grew up with and friends on FB have no clue I own the business I have. They come in and never see me. They only see my wife who is a transplant to the area or an employee. I rarely tell anyone I'm a business owner in public. I tried a second time because I was sick of working for other people. I was tired of being the one of the best in my field, both on paper and in references but working for people that I considered losers (drunks, womanizers, jerks, etc). People with little ethics and even less morals. I told myself over and over, I'm smarter than they are, why am I working for them? I was done being an employee.

This time I didn't get a storefront, I worked from home. My startup was $1200 tax return check and hustle. I built my first computer and it worked after the 7th time rebuilding it. I ran private party newspaper ads and sold computers off the kitchen table. Back then I made $200-$300 a box. I would sell 3-5 a week from the house. Build them in the basement, set them up on the kitchen table. Soon the newspapers caught on and wanted their business rates. I was stubborn, didn't want to pay $100 for the same ad I was paying $20 for as a private party so I started asking some of my buyers if they wanted to make some money selling computers from their kitchen tables. Young housewives jumped at the idea. Unable to work, make enough to pay daycare and bring home any extra money, they were all for placing a newspaper ad, setting a computer up and selling it from their home. Soon I had a network of 20 housewives selling my computers all over Denver and suburbs. At any one time back in 1990-91 my computers comprised 80% of all private party computer ads running in both Denver newspapers. I'd give the Moms, $100 per sale and they'd come and pick up more after every sale. We were moving almost 100 units a week with most of the housewives making more money than their husbands. Life was good for a bit.....

I could go on and on but my point is this, yes you need some resources no doubt but without a hunger or drive you're not going to make it. A drive won't get you there without resources but neither will resources get you there without the passion. Maybe I got lucky, I can't say for sure but I do know the second time out, failure wasn't an option. I wasn't ever going back to work for someone again. I probably should have explained I made good money working for a boss. The issue was never about money when I was punching a clock. It was about me working for myself and never depending on anyone again for a job.

 

[SprinterTech-WI]

the article may be true but i started with 200 bucks my dad started with a grand.

i never got outside help till i went to the bank a few years in for a truck loan.

in this business start up costs are so low i can't imagine much outside investments.

i'm working on another company that needs about 5 to 7 million to start so thats a different story but it'll be vc backed or possibly private investor backed.

I also don't know the point of this study to be honest...

 

[Markverhyden]

I call complete BS on those articles. Just another example of creating a "statistical analysis" to fit a editorial agenda.

 

[Markverhyden]

I also don't know the point of this study to be honest...

Agreed. What do they think? That someone starting a business is going to emulate someone who is a failure rather than someone who is successful? Is it in the genes? That certainly has a huge impact. The probability of two smart parents having smart children is most certainly greater than having dumb children. Wealthy parents? Well, if they are successful, then they probably are wealthy as well. I know a lot of wealthy people and most of them very stingy, including to their own children. That's part of the reason they are wealthy.

 

[Krynn72]

I wonder what their criteria was for "entrepreneur"? I can't imagine all these small businesses, like package store owners, nail and hair salons, hobby shops, computer shops, restaurants, etc all came from people with wealth. Many of them that I've met still drive cars from the 90s, panic and worry just as much as we do when starting out about not making enough money to pay the bills, let alone earn profit. And they're certainly not overwhelmingly white.

Maybe they were just looking at Fortune 500s or close to it.

 

[mraikes]

The article isn't actually a study in itself, it's a blog/opinion piece with an agenda. Browse through all the fragmented linked references and see where you go - and the headlines on some of them. The point and goal of the piece is to justify . . . something. And make a certain category of folks feel better about themselves. It's not their fault, they aren't rich young white guys.

The basic premise is of course true - having resources makes it easier to try to start a business. And if those resources are counted in the millions, it's easier than if it's a $1,200 tax return. Everyone who wants to start a business would be foolish not to have resources - whether it's a few months of savings socked away, or a full time job (a resource of its own) while starting a business part time, or even very little money in the bank - but no bills/debts to speak of and no family to support (freedom is a resource).

I find it interesting that although the overall impression of the blog is that you have to be a silver spoon fed white guy with LOTS of daddy's money to back you up (or don't even bother to try), it also mentions that the average cost to "launch a startup" is $30,000. In our field and many others it's MUCH less obviously, but even if it were that much - that's not an unattainable amount to get the ball rolling on a dream. And certainly doesn't require Daddy Warbucks as a parent.

Another resource is a heritage of self employment. If your parents or grandparents were self employed you might consider such a life and the risks entailed to be more normal than someone who has never witnessed anything but steady safe lifetime employment working for someone else. Or the government dole.

Speaking for myself, my grandfather was such an example. He left a good steady job to open a small business on his own. When I was old enough, I helped him in the store as much as a kid could. I saw the long hours, all the responsibility on one set of shoulders, hands firmly in his own pockets instead of raised for a hand-out, and the pride that can come from being your own boss. He never got rich and never had more than one part-time employee to help him out. He's 20 years gone now, but I think of him and his little store often.

Money alone doesn't cause someone to go into business for themselves. And a lack of money doesn't prevent it. Perhaps the people most likely to start a business are those that are told they CAN. Perhaps they've been told with greater frequency that their goals CAN be obtained. Perhaps they've been taught that they CAN achieve success through hard work work (including choosing the right business, preparation, planning, tenacity, persistence, and yes - lining up resources).

And just maybe, in today's America there is now a majority of people who WANT to be told "they can't" and that it isn't their fault. So they blame others, interpret studies to fit their worldview, compare their lives to the rich & famous (easier to do today than at anytime in the past), and elect politicians who will promise to give them what they haven't earned.

 

[seedubya]

The most interesting thing about this thread is people's reactions to the original article. Talk about wearing your world view on your sleeve.

If you read the article, it's not what it appears - entrepreneurs, for example, would not include many of the people on this forum by the study's definition. I don't think the author makes any unusual claims or says anything dishonest although he certainly has an agenda of highlighting white privilege.

The main premises of the article are correct though has NOTHING to do with entrepreneurship they are as follows
- entrepreneurs are more likely to come from middle or upper class families
- entrepreneurs are more likely to be well educated
- entrepreneurs are more likely to be white
- entrepreneurs are more likely to be male
- entrepreneurs are more likely to indulge in certain types of illegal and risky behaviour as teenagers
- they are very unlikely to suffer any serious consequences for this behaviour

- non-white teenagers who indulge in the same behaviours are MUCH more likely to suffer very serious consequences
- non-white folks are less likely to be have any of the above advantages
- non-white folks are less likely to become entrepreneurs (by the definition used here)
- the lower (comparitive) numbers of non-white entrepreners is a direct consequence of white privilege.

Nothing untrue there as far as I can see.

 

[SilverLeaf]

The most interesting thing about this thread is people's reactions to the original article. Talk about wearing your world view on your sleeve.

If you read the article, it's not what it appears - entrepreneurs, for example, would not include many of the people on this forum by the study's definition. I don't think the author makes any unusual claims or says anything dishonest although he certainly has an agenda of highlighting white privilege.

The main premises of the article are correct though has NOTHING to do with entrepreneurship they are as follows
- entrepreneurs are more likely to come from middle or upper class families
- entrepreneurs are more likely to be well educated
- entrepreneurs are more likely to be white
- entrepreneurs are more likely to be male
- entrepreneurs are more likely to indulge in certain types of illegal and risky behaviour as teenagers
- they are very unlikely to suffer any serious consequences for this behaviour

- non-white teenagers who indulge in the same behaviours are MUCH more likely to suffer very serious consequences
- non-white folks are less likely to be have any of the above advantages
- non-white folks are less likely to become entrepreneurs (by the definition used here)
- the lower (comparitive) numbers of non-white entrepreners is a direct consequence of white privilege.

Nothing untrue there as far as I can see.

Good summary of the Atlantic article.

The other linked article in the first post from Quartz has more of a general overview of entrepreneurship and has some interesting references and research linked throughout the article, addressing topics of risk, funding, personality traits, etc. I found it to be an interesting read as well.

 

[Mike McCall]

I don't have a particular interest in reading articles like this as most aren't written by people who who have actually done the thing they're writing about. Of those who have, most of them write from the perspective of doing what worked for them, concluding that one's chances of success (however they define success), are just shy of a sure thing if one does what they did. Few, are the articles that avoid those pitfalls.

This is my second business. My first one failed because I wasn't who the business needed when it grew beyond me. Both opportunity and (some) assistance were there, but I was simply inadequate for the task. Hard lessons in that.

Perhaps too many start businesses with a shallow definition of success. Certainly, when I was younger I felt I had something to prove, and accomplishing that required becoming incredibly wealthy. I had to fail in my first business, and get real about why and what it meant personally before my definition of success changed. Now, I will view myself as successful if I conduct my business fairly and honestly, do quality work the first time, admit when I make a mistake and promptly take care of it, earn the confidence and respect of my customers and business peers, earn enough money to pay the bills (personal/business), and maybe have a little left over to enjoy being alive. I use a much different definition of success than I used to, and that means a different compass is required to find my way there.

 

[Mainstay]

I will view myself as successful if I conduct my business fairly and honestly, do quality work the first time, admit when I make a mistake and promptly take care of it, earn the confidence and respect of my customers and business peers, earn enough money to pay the bills (personal/business), and maybe have a little left over to enjoy being alive. I use a much different definition of success than I used to, and that means a different compass is required to find my way there.

Very nicely said...

I didn't "fail" in my business, but it took me a good 7 or 8 years of working at it before I started to redefine what I thought of as success.

Mike's definition is closely in-line with my own definition.

 

[TechLady]

Reactions to articles like this tend to fall into one of two camps.

Camp 1: This is America, where you can accomplish anything if you just try hard enough, and if it doesn't happen it either wasn't meant to be, you suck or you're lazy. Or all three. Obstacles? They don't exist. If you do run into obstacles, that just means you need to channel Courage Wolf and any and all failures are due to your attitude. Period. There is no fail, only losers with excuses. Generally speaking, immigrants and the poor are the problem, not the wealthy. The wealthy worked their asses off to get where they are, and the poor get what they deserve because they were too busy shooting up drugs and collecting welfare to do any better.

Camp 2: This is America, where the reality of ever-widening socio-economic gaps has created a situation where a two-income family today has less disposable income than a one-income family did thirty years ago, and god help you if you get sick, have kids with expensive disabilities, or have to take care of aging parents. People in this camp acknowledge that sometimes the fiercest Courage Wolf isn't always enough, because although we have tremendous wealth, the rich are paying less taxes than ever and we have fewer social safety nets than most other industrialized countries. Immigrants and minorities still face tremendous barriers to upward mobility, and there's still a lot of places where being gay or black will get you killed. We also know that just because something bad isn't happening to us personally, doesn't mean it isn't happening.

As seedubya pointed out, the article wasn't strictly speaking about the very small business owners like us, though we do face some of the problems the article talks about. I suspect it was speaking more of the larger entrepreneurial ventures you see around New York and Silicon Valley. Fortunately in our field you don't need absurd amounts of capital to start doing computer repair.

 

[seedubya]

The facts are simple - us i.e. 90% of the population are getting rolled over by the 1% who are using the remaining 9% as faux examples of how "capitalism" works for everyone. It's rubbish and anyone with an ounce of sense knows it. The entire economic, taxation and political system in practically every country that calls itself "first world" is set up like this to a greater or lesser degree with the USofA being the prime example but Ireland, UK, Germany etc. not being terribly far behind. These people do not pay their share END OF STORY. Make them pay....

I wish I American so I could vote for Bernie Sanders.

“Socialism never took root in America because the poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires.”

― John Steinbeck

 

[gadgetfixup]

I don't want to start a political debate but most fail to understand you simply cannot tax a business. Taxes are pass through expenses to the products or services they create. While it sounds nice on paper and is good election campaign fodder, the wealthy are neither worried or sweating over such details. You raise their taxes, they pass through the cost to their products and sleep just the same with bottom lines still in tact.

Instead of focusing on the "haves" of the world we need to focus on the "have nots" and provide them better education and opportunity to succeed. Rather than rally around lying politicians and economists with agendas we need to seriously look at wasteful spending by our Governments and direct those funds to potential small business owners. Building more small businesses is the lifeline of our economy. More Cities and States need to say NO to constant expansion of Big Box stores to protect their little guys. Large mergers of mega stores needs to stop and not get the nod of Government to allow competition to thrive.

There are a ton of positive things that could and should happen to build our economy but taxing big business isn't one of them. Government waste is the biggest problem I see in most world economies. In the USA I think limiting terms of Congressmen would largely fix some problems. The long term Politicians are so powerful, the new members of Congress must fear them, play ball with them, or be out of office in short order. Even the President must fear them if they want to get anything done. Those old dogs just need to go, get new blood that can breathe new life into the legislative branch.