Youthful Rule-Breaking Could Be a Factor in Business Success Later On

The National Bureau of Economic Research has published a working paper that argues that rule-breakers are more likely to succeed in business than their more rule-abiding peers. The paper, authored by economists Yona Rubinstein and Ross Levine, used data from the March Supplements of the US Census Bureau’s Current Population Survey, along with the National Longitudinal Survey of Youth, to draw conclusions about which kinds of demographic traits make it more likely for someone not only to start their own business rather than working for a salary, but also for that business to achieve success.

Levine and Rubinstein argue that previous study of businesses suffered from casting their nets too wide. Researchers would attempt to draw conclusions by looking at all business owners, thus not drawing a distinction between a small storefront and a large enterprise. To avoid a similar pitfall, Levine and Rubinstein looked at only incorporated businesses – believing that the time and expense required for the incorporation procedure is a strong indicator of owner’s intent to grow and expand their business.

The economists argue that self-employed workers who incorporate their businesses show the intent and agency to start a new, profitable venture and are therefore more representative of entrepreneurship than those who haven’t incorporated their businesses. Furthermore, not many self-employed workers switch from unincorporated to incorporated and vice versa, the economists say, providing more support for the idea that incorporation coincides with an entrepreneurial venture. ”The nature of the business tells you about the nature of the person,” says Mr. Rubinstein.

Looking at the data, Levine and Rubinstein concluded that self-employed individuals with incorporated businesses were almost three times as likely to engage in minor criminal or illicit activity when they were younger than people who worked for a salary. Other factors that successful entrepreneurs had in common was their privileged background. They tended to come from wealthier two-parent households, and were more educated than their self-employed peers.

However, as Levine told Khadeeja Safdar of The Wall Street Journal, their willingness to play outside the system while being smart enough not to get caught prepared them for their future as businessmen and women.

“Of course, you have to be smart,” says Mr. Levine. “But it’s a unique combination of breaking rules and being smart that helps you become an entrepreneur.”

These qualities also have a downside. Risk-taking tendencies in combination with high self-esteem make successful entrepreneurs prone to dangerous lapses in judgment, the Wall Street Journal reported in June, finding that many financial advisers have to keep their entrepreneur clients in check.