Abstract
This essay highlights why entrepreneurship is a terrible idea for most people, most of the time.
Keywords
One thing I know is that entrepreneurship is a terrible idea. At least for most people, most of the time.
As regards its benefits, it is very clearly documented that success in entrepreneurship is incredibly skewed. Only about 1 in 10 entrepreneurs actually succeed at creating companies that grow, and on the order of 0.002 percent of startups result in the IPO’s that make the news headlines, as Howard Aldrich and Martin Ruef document in their “Unicorns, gazelles, and other distractions on the way to understanding real entrepreneurship in the United States.” As Paul Nightingale and Alex Coad argue in “Muppets and Gazelles,” startups fail at high rates and the great majority of entrepreneurial firms remain economically marginal and too small to achieve efficient scale and innovate, and perform poorly as a result. There is even a good, empirically well-supported argument to be made that entrepreneurial success is like winning the lottery: wildly unlikely, and more or less random. Entrepreneurship is best thought of as a career in professional sports or the high arts in this regard.
At the same time, there are real costs to being an entrepreneur. André Spicer, Anders Krabbe, and I review these costs in “Towards an Untrepreneurial Economy?” They make for grim reading. Entrepreneurs have lower lifetime earnings than wage-earners. Surprisingly to many, established organizations tend not to value entrepreneurial experience very highly relative, and evidence increasingly suggests that entrepreneurs are less, not more, employable than wage-earning counterparts. Entrepreneurs also have a higher incidence of stress, anxiety, depression, substance abuse and various other ills, which are likely to be exacerbated by entrepreneurial failure, which is all too common. Being in a startup is associated with higher divorce rates, and entrepreneurship may well stress precisely those social relationships that people would need to rely to deal precisely with these psychological issues. Sure, there are findings that entrepreneurs are also happier than wage-earners on average, but at what cost.
This combination of uncertain benefits and likely costs makes it particularly problematic that the value of entrepreneurship is increasingly taken for granted in higher education. More and more universities offer an increasing number of courses on entrepreneurship to increasing numbers of students in programs. More and more universities have entrepreneurship hubs, incubators, clubs and competitions to expose students to entrepreneurship and encourage them to set up their own ventures, despite the fact that young people make bad entrepreneurs, as Pierre Azoulay and colleagues show in “Age and high-growth entrepreneurship.”
This expansion of entrepreneurship education is often pegged as a way to drive economic growth. This is reasonable enough: dynamic economies do depend on entrepreneurs (not as much, perhaps, as the popular story goes, but certainly to some degree), and exposing more people to entrepreneurship could conceivably lead to more entrepreneurs, meaning that more might succeed. The ethical quandary here is that while society (typically, sometimes) benefits when an entrepreneur succeeds, individuals only benefit when they succeed, and they probably won’t.
Also, it not at all clear that entrepreneurship education leads to positive outcomes. Entrepreneurship education at its best would equip students to better identify and execute entrepreneurial opportunities, which would certainly be valuable for both individuals and society. But it is just as likely that entrepreneurship education could end up boosting prospective entrepreneurs’ confidence and build up excitement around the prospects of being an entrepreneur. Confidence and excitement, while positive emotions, make a poor basis undertaking a business venture.
This is not to disparage entrepreneurship education, or entrepreneurship generally. It is rather to suggest that we need to take seriously that most entrepreneurial ideas are bad ideas<I> and that failure is likely even for incredibly good ideas. When we also acknowledge that entrepreneurship has real costs, it becomes clear that it should not necessarily be encouraged. Rather, the burden of evidence should be reversed. Let entrepreneurship education present students with the facts that the costs are real and the outcomes uncertain, and let it than equip students to assess when their ideas deserve to be abandoned, when their ventures do not merit their time and its opportunity costs. Students could also be encouraged to work for startups instead of founding them. That way, they will know much better what entrepreneurship actually entails, should they decide to pursue a venture eventually. However, they too should know that entrepreneurship is a terrible idea for most people, most of the time.