Generalists Succeed as Entrepreneurs
STANFORD GRADUATE SCHOOL OF BUSINESS—Entrepreneurs must be generalists. To start a company, whether it specializes in building construction or Internet services, requires a variety of skills, argues Edward Lazear, and he uses data from a survey of Stanford Business School MBA alumni to prove his point.
"Those who end up being entrepreneurs study a more varied curriculum when they are in the [MBA] Program than do those who end up working for others," writes Lazear, the Jack Steele Parker Professor of Human Resources Management and Economics.
He has been studying data from a 1997 survey in which about 5,000 Stanford MBA alumni responded to questions about their careers. Entrepreneurs, he found, are jacks-of-all-trades, not specialists. Their past work experience included a greater variety of tasks compared to classmates who went on to work for others and, says Lazear, in graduate school the entrepreneurs were more likely to have enrolled in classes that expanded their knowledge than to have specialized.
In an earlier analysis of the MBA survey, Lazear reported the overall probability that any single graduate would found a company was about 25 percent at some time in his or her career. At any given time, fewer than 7 percent were entrepreneurs. The probability of founding a business rose noticeably for individuals whose career path showed they had held a number of different types of positions. In his most recent research, Lazear looked at the courses entrepreneurs took in graduate school.
"Among Stanford alumni, those who go on to start businesses took a more general course curriculum when they were at Stanford than those who never start a business," he writes. Rather than take eight classes in finance, for instance, and an average of three in each of four other academic areas, entrepreneurs were more likely to balance their courses among a variety of disciplines.
"This view of entrepreneurship is at odds with the intuition of those who believe that entrepreneurs are technical specialists who base their new companies on innovation," he writes. The Stanford data and information from two other surveys "strongly rejects this view. To the extent that entrepreneurs are innovators, for the most part they are business innovators. The innovation may be as seemingly minor as recognizing that a particular street corner would be a good location for a dry cleaner. Most entrepreneurs are non-technical people who form businesses in non-technical fields."
He cites data from the Current Population Survey, made up primarily of non-MBAs, that studied the industries where entrepreneurs founded companies. In 2002, the top five industries were non-technical: construction, with 13.48 percent of companies founded by entrepreneurs; retail trade, 12.98 percent; other professional services, 11.02 percent; business services, 8.10 percent; and insurance and real estate, 6.72 percent.
"Balanced Skills and Entrepreneurship," Edward Lazear, American Economic Review, May 2004.
"Entrepreneurship," Edward P. Lazear, NBER Working Paper No. w9109, August 2002; revised December 2003 Details
"Testing Lazear's Jack-of-All-Trades View of Entrepreneurship with German Micro Data," Joachim Wagner, Applied Economics Letters, September 2003