Why Entrepreneurs Discourage Others

Some recent studies have shown that our friends' behavior affects ours more than we might suspect. We're more likely to gain weight, get divorced, or quit smoking when our friends do the same-so much more likely, that researchers often refer to the 'contagion' effect of these behaviors.

Now comes some interesting--and counterintuitive--data from Harvard about the possible contagion effects of entrepreneurship. Since small companies are responsible for most of the job growth in the U.S., the ability to figure out which factors lead people to create new companies can have important public policy implications.

Josh Lerner of Harvard Business School and Ulrike Malmendier of University of California-Berkeley, looked at the possible 'contagion' effects of entrepreneurship among Harvard Business School students from 1997 to 2004. They divided students by "section," or a group of about 90 MBA students who, at Harvard, attend their first-year classes together. Their findings:

• Getting to know an entrepreneur makes you less likely to become one. At Harvard, those students whose sections contained more people who had been entrepreneurs were actually less likely to go out and start their own companies.
• The few people who are encouraged by entrepreneurs--or at least, not discouraged by other business owners--were successful. In sections where there were lots of entrepreneurs, relatively few other students went on to form their own companies. But those that did were more likely to be successful than other entrepreneurs from that same business school class. In the years following graduation from business school, there were relatively few entrepreneurial failures among students who had been in section with seasoned entrepreneurs. So perhaps, entrepreneurs may be discouraging the 'right' people from striking out on their own.

The researchers also found several unanticipated patterns:

• Men were more likely to become entrepreneurs
• Single people were more likely to become entrepreneurs

• If you present your business idea to enough qualified people, someone will find the fatal flaw. One explanation might be that would-be entrepreneurs are likely to share their ideas. In sections with lots of entrepreneurs, the odds of at least one person having enough expertise to evaluate an idea, and shoot it down if it doesn't seem that strong, are pretty high. So relatively few students emerge from that entrepreneurship-heavy sections wearing the rose-colored glasses they may have worn on their way in.
• Entrepreneurship is tougher than people think. Another explanation could be that in sections with a lot of entrepreneurs, everyone else got a pretty good idea of what the life of an entrepreneur can be like. This may have dissuaded all but the most stubborn (or best-qualified, depending on your point of view) from making a go of it themselves.

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