Entrepreneurs don’t have a gene for risk–they come from families with money
qz.com
qz.com
This was true for me as well, and is why I've never had trouble starting things, even when I didn't have investors or a rich family to rely on.
YMMV, etc…
People that want to make high margin, high growth companies will be making “tech companies” (cloud based ephemeral software services)
Developers are rich in “I dont need to pay other developers I cant communicate with to build the initial idea” and are ALSO rich in money
Survivorship bias means they can try and fail and try again very quickly, compared to someone that gets one shot before having to save up again for the next 15 years who experiences life changes and loved ones saying “maybe its time to get realistic Roy”
I feel like this is analogous to something many people here are used to. We all know people that have been programing since they were a child. Those people had money for a computer (I'm under 30 and this was still a thing). Most of those people had a parent or two that were more highly educated and even more likely that one did STEM (and probably knew some programming or someone that did).
Is that privilege? Yes.
Do I wish I had those opportunities as a kid? Kinda
Am I going to do anything about it? No. Why would I?
If this article is only about the myth of the self made millionaire/billionaire then okay. But that doesn't come across. We all already knew that these people came from high places of privilege. But complaining about how they had opportunities that we don't is useless. The problem is lack of opportunities and resources for the less privileged. You don't even need to take away the opportunities from those already privileged. This isn't a zero sum game. If you want to present solutions I am happy to read more articles and do my part. But this just came off as complaining.
As noted by others in this thread, starting with entrepreneurship is a combination of knowledge, skills and somewhat being financially independent enough to commit significant amounts of time to creating something from scratch and - most significantly - having a network to achieve the latter.
Creating opportunity is a systemic, complex and long term challenge that you can't simply put a $ amount to. Your surroundings and upbringing shape you massively and there is no money which can make up for that and time. When you're 25 coming from a dirt poor community and are the first to study in your family there is such a slim chance you have seized dozens of opportunities correctly so that they stack up to put you in a spot where you are not only able to (aka resources present) but capable of achieving successes comparable to privileged peers. Network and skills are essential. Highly recommend reading "Cities and Ambition" (http://www.paulgraham.com/cities.html) for more context.
I guess what I'm trying to say is that the old Chinese proverb "Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime." is true when it comes to creating opportunity. It's not a "point in time", but a continuous problem.
I think this articles primary objective is to inform question 1.
If your inherent response to 3. Is "no. Why would I" Then it makes sense why you would see this as complaining. On the other hand if you were possessed by the smallest fraction of western social political impetus then I doubt your retort would be so terse.
Do you get it? Yes. Do I get it? I've been homeless. Does hacker news get it? Eh... Look around at some of the comments, and notice that most of the folks actively engaged are on our level. And this isnt exactly a hot topic.
Having to scroll past this headline while they search for that next investment is healthy for those neo-feudalist deniers among us.
That's what this is about.
So, how are you gonna vote to fix this? That's not exactly a high risk, antisocial behavior. Some people even still consider such your moral duty.
Heck, join or donate to the DSA. Or your local Anarchist/Communist group that puts on a community meal. Teach your skills. Do something, anything other than just complain about how powerless you feel, and how nothing is getting done.
I for one welcome the future days when hacker news keeps up with the IWW - you programmers are about to end up like auto factory workers, and you need to know how to react.
Fuck it - wanna start a co-op VPN?
The answer is increasing taxes progressively to ensure when some have far more than they need that others at least get a shot at life. Good schools and good social safety nets. We are all part of a society and that society enables such wealth inequality that some become fabulously rich and others fall into despair. The challenge is making sure that we give everyone a fair shot no matter their origin. There is obviously a lot of resistance to this idea, people refer to it as social justice but all it really is as with most things at the core, is class warfare.
This sounds to me like they really mean big money, high growth enterprises and are out-of-hand dismissing the kind of people who start more traditional small businesses with no goal of ever becoming a Mega Corp.
I haven't looked at the data too much recently, but twenty to thirty years ago:
Women had trouble getting funding at all, plus typically had ongoing obligations to do the women's work at home, so they typically started smaller ventures with less risk and less growth potential. They were disinclined to borrow any money at all and completely bootstrapped it, paying for any growth out of earnings as they were able to afford it.
If your very definition of business de facto excludes the type of businesses typically started by women -- and no doubt other less-privileged groups -- you shouldn't be shocked when they are underrepresented in your data.
Actually, the original study makes a distinction between unincorporated and incorporated self-employment as a proxy for business type.
> Women had trouble getting funding at all, plus typically had ongoing obligations to do the women's work at home, so they typically started smaller ventures with less risk and less growth potential.
Well, yes. They cite papers studying that effect, including one by one of the authors (Rubenstein) of the paper being discussed on the other side of the link.
So, basically, if you start a local landscaping business, you don't count for purposes of being "an entrepreneur" in their eyes.
That's exactly my point. It's not some kind of rebuttal of my point.
The reason for this distinction is that if you only divide the population into other-employed and self-employed, they have similar profiles in almost every way, except that the self-employed earn less. That doesn't square with the theory that entrepreneurs are somehow different from the general population -- smarter, more charming, whatever it might be.
They use data to show that the population of unincorporated and incorporated businesses closely tracks two groups in the underlying population of job titles, those which are more manual and those which are less. They also note that business types rarely change, so what you start with is usually what you wind up with.
When you make that distinction, the paradox of entrepreneurship disappears. The populations have distinct characteristics.
If you want entrepreneurs to include folks with small businesses (fine by me, regular small business is much harder than being handed millions of dollars by a VC) then the conflict with Schumpeter's notion reappears. If you go with the narrower definition, this paper has useful contributions.
An argument over the exact scope of "entrepreneur" as a word doesn't really change the shape of the data.
All this does is very, very politely tell us in extremely PC terms what we already know: Rich white people have more opportunities in the US than people outside that group.
I'm interested in figuring out how we break down some of those barriers. I'm a woman. I've been on HN a decade. Virtual hobnobbing with all the right people has so far failed to open any doors for me. As best I can tell, my gender has played a large role in that.
My efforts to understand that, resolve that, or even just discuss it tend to be met with open hostility.
So color me unimpressed with this extremely PC way of saying "The Old Boy's Club is alive and well. No girls or brown people are really welcome."
I live with that reality every single day.
Your experiences are upheld by the literature that I've seen (eg [0]). I don't think anyone intends to reinforce the current state of the world by studying it closely, quite the contrary.
[0] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2846047
Yes, I'm aware.
I don't think anyone intends to reinforce the current state of the world by studying it closely, quite the contrary.
And yet you and other people here are all too happy to dismiss small businesses as not really entrepreneurs in part because of how this article chose to define a word for which there is no generally agreed upon definition.
Entrepreneurship Definitions
Economists have never had a consistent definition of "entrepreneur" or "entrepreneurship"
https://www.investopedia.com/terms/e/entrepreneur.asp
So, I don't count because I'm poor. I will never count because it's circular reasoning that will help to continue to exclude me (and others like me).
I'm getting downright aggravated at this point. This article seems to be doing a very handy job of gatekeeping and reinforcing the current status quo.
Of course, she also had a reputation for ignoring what other people said she couldn't do, and hugely enjoyed her life. I wish I'd met her.
My parents had a small business for a time back before the internet and all that. It failed.
I knew a lot of small business people growing up. I was surrounded by people who worked from home, etc.
Most small businesses are not incorporated. If they have to be incorporated to be part of your study, it's practically a dog whistle that "We're actually only studying businesses created by rich people."
I'd pay for the candy by sending my friend gummi bears, which were not available at the time in the US.
I probably could have made decent money at it if I wasn't so lazy.
At the same time, I find this to be true for a small type of entrepreneurship. My barber, the local store, my favorite restaurant is not really connected to privilege and everyone of them has gotten where they are anyways.
The obvious extension of this point is that entrepreneurs require no special treatment, favoritism, or perks in exchange for exceptional entrepreneurial traits to coax them to your territory of taxation (or whatever).
Instead you might consider developing your current population by increasing their access to capital, resources, connections and safety nets to enable new business ventures based on their proposals to meet a real need that turns a sustainable profit and creates jobs at all salary levels (not just the bottom). No need to provide additional support to just any millionaire/billionaire that will do nothing productive except seek to extract rents from those with less means.
There’s nothing special about them except they have all come from money. Not a single one was the bootstrap rags to riches story. I know those are out there but don’t let them fool you: at least in the Bay Area tech startups (if you want to be a founder) is a rich man’s game. This is based on my experience working for about 10 startups over about 15 years.
You're a developer working at Bay Area tech companies? Move somewhere cheaper (or don't!) and take contract jobs. Set your own schedule, work 15 or 20 hours a week, and you'll be able to afford rent, even in expensive SF. Spend your free time starting your company.
Alternatively, save up your money and take a year or two off.
Source: I've successfully taken both approaches.
If the business fails, I’ll be out all that money and time that I can never get back. People with money may just have to trade in their Tesla for a Range Rover.
But the fact is that many millions of average people can afford to make these sacrifices and take these risks. Your initial comment heavily implied that this is only something the rich can afford to do.
> When you know you have a safety net, you are more willing to take risks.
Maybe to a certain degree, but not really.
Not having a safety net is what makes you more likely to succeed because there's no "well, if this doesn't work out at least I live in a mansion and my family has enough millions of dollars to live however I want to a realistic degree for the rest of my life".
When you have no access to money, you have a special kind of drive. It's the drive that says "look, working a regular job for the next 40+ years is going to drain your soul -- either bust your ass and figure out how to do what you want, or suffer for the rest of your life". The alternative is so awful that you'll do anything to avoid it (assuming you want to be someone who starts their own business).
This is coming from the POV of knowing with 100% certainty I was not made out to work a regular job since I was 11 years old and my family has no money.
Ironically, what you fail to see is that this line of thought is only possible under two circumstances: rock bottom, or born to money. An unemployed 30 year old in between would give their right arm to have a job for 40 years.
I wasn't born into money and I never hit rock bottom. I worked a few part time non-technical jobs as a teenager before I really got into computers and quickly realized that there's a 0% chance I would be able to exist in a world where I was reporting to someone every day for 40+ years in hopes they keep me employed. That lifestyle just isn't for me.
I was lucky enough to find computers in my late teens and programming is something I very much love doing so I made a freelance career out of it for the last ~20 years and still do it today (because I like it).
That drive to work for yourself is not tied into having a safety net. It's a mindset and maybe genetic (I have no idea). Most of my related family works for someone else though, so it's not like I'm coming from 10 generations of entrepreneurs here.
I think it's more of a mindset because I don't do this for the money. If we lived in a world where you could somehow survive comfortably with no income I would still try to make my own business doing whatever I really enjoyed doing. The primary output of what I do to me isn't money, it's personal enjoyment and the satisfaction of helping others.
> An unemployed 30 year old in between would give their right arm to have a job for 40 years.
And this is where the problem lies. Unless you're super skilled working at a company that is massive and will never run out of funds then there's practically a 0% chance you'll have a guaranteed steady job for 40 years. You might get a few years or a decade even in some places but it's never guaranteed. The only thing that's mostly guaranteed is you will get paid your salary for a span of a single pay check duration or perhaps any duration you pre-define in a contract. After that, you're hoping that the business you work at stays in business and you are doing your job well enough not to get laid off.
I think this is a big factor. There are a lot of us whose parents lived in the "you get a permanent job with a company and then work with them til you retire" era, who saw their parents give their lives to a company and then saw that same company screw their parents over to save a few bucks. It makes it really hard to trust your employer later in life. I think for people like that, starting a company is an attempt at building a safety net.
> I was lucky enough to find computers in my late teens
25 years ago?
You still don't get it... 25 years ago, how many people could afford to "find computers" in their late teens?
"Coming from money" doesn't mean you are institutionally wealthy. It means that you have access to opportunities others don't and failure isn't even visible to you. When you have no idea of the consequences of failure, you are able to take risks. For me, I have personally (unfortunately) been involved with some bad people but were it not for my inability to understand what failure is, I would never have recovered and there would be a pretty unfortunate cycle starting with me.
You have not dissuaded me from that perspective at all. Indeed, all you have said is "I was successful and didn't want to be a slave like the others in my family". But you never saw failure. You never wanted a safety net. Perhaps you used one and you didn't even know it.
So what in your life would have made you afraid to take risks?
In the public high school I went to they had a computer program, so I had access to that which helped. There's also the public library too. Although in my case I was able to eventually get a computer at home but it took a lot of saving. Also in the mid / late 1990s computers started to come down a lot in price compared to the early 90s.
But really, nowadays it's a totally different world so my specific situation doesn't matter. You can grab a decent laptop for $350ish. You could work a summer job to afford that while still going to high school, or a part time job for a few months. There's also an endless amount of free (or paid) tutorials on a ton of technical topics.
> So what in your life would have made you afraid to take risks?
I'm not smart enough to answer that question because I can't figure out what you're asking.
But I will leave you with, of course having a base line of family security is helpful. For example if your parent(s) are employed and you are able to have food, clothes and electricity then you have an advantage over someone who lives on the street but the article made it seem like you need "family money, an inheritance, or a pedigree and connections that allow for access to financial stability" to run your own business. To me that's much more than the basics. When I read that, I read that as coming from a family where your parents probably make 350k+ year and there's 5+ million in a low risk trading account or something that can be liquified on demand.
That's a totally different world from a family living paycheck to paycheck but can still save a little bit here and there. That type of family is more in tuned with how I was brought up. It was always a struggle with a lot of sacrifices, but it was never "bad bad".
> 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.
Your (and my) basic needs were met. In the USA, 40% of families could not meet a $500 surprise expense. That's not paycheck to paycheck, that's pretty close to the edge and such a family would generally be averse to rocking the boat.
The ability to take risks is very important for success, but what that really translates to for entrepreneurs is an inability to believe failure is a thing.
So again, you did not have an upbringing that would make you afraid to take risks, therefore you took them.
I had an upbringing that made me afraid to take risks because even though my father was well off, his upbringing was during wartime. I took risks anyway, and my kids are basically rich kids in that they are unafraid to go after everything they want. It's very strange to see.
If you aren't grotesquely incompetent and can avoid serious misconduct, it's fairly attainable in the public sector (specifically, civil service), especially if you avoid getting downsized in the first few years, since then even if you are in a position impacted by downsizing, seniority protects you.
And even to the extent it's not guaranteed security, if you are downsized many civil service systems have priority reinatatement rights.
Is it possible to make a living and be comfortably financially independent with a business even without a safety net? Absolutely.
Is the stuff one does in such a situation "disruptive"? Hell no. It's freelance consulting (low risk, high margin "time for money") or maybe an agency or niche SaaS in 80% of the cases. That is not "risk taking" business.
Look at successful founders - for example Slack - and you'll see many tried several ventures before hitting a model which scaled up big time. And this kind of risk taking - which brings you in the really huge league - is definitely a) more comfortable with a safety net and b) has a higher outcome to lead to success over time. Do bootstrapped ventures go big? Sure, I'd argue significantly less often and doing so in areas where either timing (technology, market cycle) was critically in their favour.
My personal goal isn't to be in the "really big leagues". I would much rather stay a small business than get massive amounts of funding with intent to cash out ASAP.
I trade time for money but it's much different than a traditional job. I'm not forced into a schedule defined by someone else. I can choose to put in 80 hours a week and get paid for 80 hours or put in 10 hours a week and get paid for 10 hours. Also for the last few years I've been doing things that help generate income without trading direct time, such as creating video courses.
Honestly though, that's missing the point. There are plenty of persons with a high appetite for risk who end up as burglars, robbers, embezzlers, fraudsters, or some other unsavory and largely unsuccessful or net destructive career. In my observation there are two essential traits for a successful entrepreneur: persistence and creativity. Everyone knows what persistence is, but I mean creativity in a broader sense than just art. Anyone who has read Julian May's marvelous Saga of Pliocene Exile will know what I mean. For those who haven't, creativity is essentially the ability to create. Every successful entrepreneur has by definition created something of value. Since as far as we know all traits are heritable, creativity must be heritable as well. However it's an even more subtle and ephemeral quality than intelligence, so I doubt we'll be able to identify the genetic basis of creativity within our lifetimes. By this I mean that while it is at least somewhat possible to synthetically test intelligence, there is no test for creativity other than reality itself.
I actually believe that for the sufficiently creative individual, risk is a non-factor. I have had the privilege of knowing a few people of this type, and they literally can't really fail. Sure, one enterprise might not work out, but these folks are just a wellspring of ideas plus execution. They could be dead broke and they'd still succeed in building things.
is compatible with being a successful entrepreneur. Common wisdom says it's essential, even.
When you don't have a safety net or you've always had to struggle to get by it's very hard to take chances with money. Of course, there are exceptions but given poor vs rich, I would bet that entrepreneurs are more likely to appear in the population that never had to struggle to get by.
It doesn't hurt to come from money, and get a small loan of a million dollars, sure. But more important than that luck is being resilient and having stoic ideals, and that's something most Americans including the author of this article lack nowadays. It's very easy to constantly put yourself in a victim position and complain about how your life is harder than that of others, but that's mostly just self destructive as it wastes intellectual and mental energy you could instead spend on something more productive.
Instead they present another causal factor for creating startups and just implicitly deny that other factors exist.
I think Quartz is basically the archetype of fake news at this point.
Thanks mom and dad!
Working for others isn't such a bad life if you have the drive to establish a life that you want for yourself.
(Sidestepping the question of whether the article is bunk, because it doesn't really seem to be saying much interesting.)
1. first generation earns the money
2. second generation spends it
3. third generation has no money
I don't think having everything handed to one is conducive to being a successful businessman.
Using personal anecdotes to refute a binary assertion backed with data is a category error, even though I don’t doubt your experience.
1. Most people don't recognize opportunity because it comes disguised as hard work.
2. He'd tell me I wasn't afraid of hard work, because I'd lie down and go to sleep right next to it.
It just means that it's not impossible to win in entrepreneurship starting poor. But then again nobody said it is: the article says it's just much harder and thus less common.
Here's what TFA says:
"University of California, Berkeley economists Ross Levine and Rona Rubenstein analyzed the shared traits of entrepreneurs in a 2013 paper, and found that most were white, male, and highly educated. “If one does not have money in the form of a family with money, the chances of becoming an entrepreneur drop quite a bit,” Levine tells Quartz. New research out this week from the National Bureau of Economic Research (paywall) looked at risk-taking in the stock market and found that environmental factors (not genetic) most influenced behavior, pointing to the fact that risk tolerance is conditioned over time (dispelling the myth of an elusive “entrepreneurship gene“)."
It says nothing about there NOT being people who've made it in startups coming from a poor background. It merely says those are way less compared to males, that are highly educated and with family money.
That doesn't mean they have money. Most PhD students appear to be scraping by on a stipend provided by the university, not zipping to campus in their Lambos.
One founder I know personally who's a wealthy man today drove a wretched Datsun for a decade as he had nothing while he worked for his PhD.
Besides, you seem to have ignored the "If one does not have money in the form of a family with money, the chances of becoming an entrepreneur drop quite a bit" part...
I don't buy that. I know lots of PhD's with no family money. In fact, modern complaints are about PhD's deeply in debt from student loans.
Yet we don’t.
Wealthy families in the US provide a far greater safety net than the legal minimum one faces in European countries.
Several European countries have as many or more entrepreneurs than the US. It's just that in Europe it's small self-owned/family businesses, not Facebooks and Theranoses.
"In 2016, about 5.6 million small business employers and 24.8 million non-employers were counted in the United States"
compared to:
"There were estimated to be approximately 24.5 million small and medium-sized enterprises (SMEs) in the European Union in 2017, with the vast majority of these enterprises micro-sized firms which only employed fewer than nine people. A further 1.42 million enterprises were small firms with between 10 and 49 employees and 231 thousand were medium-sized firms that had 50 to 249 employers."
https://eig.org/dynamism (great report)
https://www.hamiltonproject.org/charts/the_entrepreneurship_...
For example, if Google buys 20 start-ups, they are no longer counted as small businesses.
Less taxes, much more business friendly legislation (contracts, labour) and tolerance towards failure = less individual safety but much more dynamics = lower absolute numbers of entrepreneurs but much higher scale aka mega corps.
Add the fact we're living in the time of technology with close to 0 marginal cost of information flows and the power law (80/20) kicks in with full force, allowing digital companies of larger scale to significantly grow further.
Compared to Europe, the US perfected that principle.
[0]: https://www.zillow.com/homedetails/207-Lafayette-Dr-Bolingbr...
That said it took me until I was 36 to have the money to take any entrepreneurial leaps. It took me that long to save up enough money. Working in bad conditions that most kids with money would never put up with.
I'm not special in any way except my character is rare, resilient.
I wouldn't join in being resentful towards rich kids but I do recognize the need to force the wealthy to pay a lot more in taxes to give others like me and the worse off, a chance to succeed.
That's what we all owe to the society that enabled our wealth. Some owe more than others, as their wealth increases.
The situation I mentioned creates a high friction situation sometimes, in which those who work under rich founder (without many prospects outside the company) start to actually take the potential for success seriously, while rich founder is oblivious to poor management and bad decisions having any serious implications for themselves longer term.
It would be interesting to see a survey done on this actually, even more interesting would be to work for a company where consequences of action matter more.
None. None of the founders I know were influenced by the endless stream of people telling them they couldn't possibly succeed. The people who aren't founders justify it with an endless stream of excuses.
The thing is: some founders come from privileged backgrounds. They have nothing to fear, so they take big chances.
Some come from unprivileged backgrounds. They have nothing to lose, so they take big chances.
My guess? Both of these types of people will be over-represented, compared to the general population.
In any case, after two clicks, it's possible to read the original paper everyone was hanging their blog posts off at the time: https://www.nber.org/papers/w19276.pdf
The same authors have continued to work on the population characteristics of entrepreneurs: http://faculty.haas.berkeley.edu/ross_levine/Papers/SES_FULL...
> Research (paywall) looked at risk-taking in the stock market and found that environmental factors (not genetic) most influenced behavior
how does one reach the conclusion of the title from these 2 very distinct data points? It's nonsense. Plus there is a very wrong causation argument being made for the first one. This is worse than clickbait
https://news.ycombinator.com/item?id=20545221
I feel like I'm taking crazy pills of late. I understand you all may be dealing with unprecedented volume, but I hope you can address egregious ridiculousness when it occurs. I'm willing to acknowledge my shortcomings (I have many), but I would like to understand the fundamental errors of my ways.
Of course unincorporated businesses are limited in size and complexity. Incorporated businesses are going to be made by people familiar with lawyers, business practices, etc. Businesses that require large amounts of capital are more likely to be incorporated. People who actually incorporate their business I suspect are more likely to have had a good education.
So yes, if you exclude all the people who are just hustling along with all the mom and pop businesses, then it seems to be that richer people are what is left.
The article also mentions that both incorporated and unincorporated entrepreneurs were more likely to engage in illicit activities in their youth. So it seems the lede of the article is not supported at all.