November 23, 2014

How Smart Is the Average Entrepreneur?

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In an earlier column, I discussed a paper written by the Chief Economist of the Office of Advocacy of the U.S. Small Business Administration, Chad Moutray, which showed that students who received “mostly A’s” as their college grades were two percent less likely than other students to be self-employed.

A lot of readers commented that college grades don’t necessarily reflect how smart a person is, so we shouldn’t interpret this paper’s results to mean that entrepreneurs are less intelligent than those who work for others.

I completely agree.

But that still leaves open the question of whether entrepreneurs are more or less intelligent than those who work for others.

Of course, the average entrepreneur might be no smarter (or dumber) than anyone else. We might just have intelligent and not-so-intelligent entrepreneurs and non-entrepreneurs.

While the intelligence of entrepreneurs is by no means a burning question in the academic community, a few researchers have looked at how intelligence affects the odds that a person will become an entrepreneur. Here’s what they’ve found:

• A paper published way back in 1989 by Gerrit de Wit and Frans van Winden of the University of Amsterdam showed that people whose IQ scores were higher when measured at age 12 were more likely to be self-employed when they were adults.

• A 2001 article Roope Uusitalo of the Government Institute for Economic Research in Finland reported that the score on mathematical ability section of the Finnish armed forces test (similar to an IQ test) was positively correlated with later self-employment (although the verbal score was negatively correlated).

• A more recent working paper by Simeon Djankov of the World Bank, Yingyi Qian of the University of California at Berkeley, Gérard Roland of the University of California at Berkeley, and Ekaterina Zhuravskaya of the Center for Economic and Policy Research examined “400 entrepreneurs and 540 non-entrepreneurs of the same age, gender, education and location in 7 Brazilian cities” and found that the “entrepreneurs scored quite higher on cognitive scores…”

As you might expect, more intelligent entrepreneurs do better at running their own businesses than less intelligent ones. In a different article, published a year after the one mentioned above, de Wit and Winden found that the self-employed with higher IQs tended to earn more money than those with lower IQs. And the recent working paper by Djankov, Qian, Roland and Zhuravskaya found that “failed entrepreneurs are less smart” than successful ones.

So what do these studies tell us? Maybe they are little more than a statistical curiosity or maybe they hint at a pattern.

Subject to the caveat that we have only handful of studies and all of them are based on correlations, here’s the pattern suggested by the data: The average person who works for herself is more intelligent than the average person who works for others, but (as my earlier column pointed out) she doesn’t do as well in school.

17 Comments ▼

Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

17 Reactions

  1. Scott, I do think in general you do some of the most unusual and serious research in the field. However, I would suggest that intelligence is too broad a brush to be meaningful in this discussion – for that matter so is entrepreneurial success. Entrepreneurship encompasses anyone from a freelance technical writer to Bill Gates. And intelligence has been shown by Gartner and other to comprise many distinct abilities, only some of which are measured by IQ tests.

    As an entrepreneur, of course I think we are more intelligent than the average (and we are better drivers and better looking!) But other than for an ego boost, I’m not sure how useful the correlation of two such broad descriptions are.

  2. John,

    I agree with you.

    In the post I tried to point out how limited these findings are. Perhaps that didn’t come across as well as I’d have liked.

    Nevertheless, I think it’s interesting for people see what researchers have found about different aspects of entrepreneurship, no matter how limited their findings.

  3. Seems to me that an entrepreneur only needs to be smart enough to realize that they have more potential and more control over their situation when self-employed. Once you come to that realization, it’s not to hard to take the plunge.

  4. I find all of this highly problematic. We know that college grades (especially of MBA students) don’t correlate to success in later life. So I wonder how far IQ correlates, frankly, to anything beyond IQ tests. Of all the 100s of entrepreneurs I’ve interviewed, I’ve found brilliant ones and stupid ones – both running highly successful businesses! And as an entrepreneur myself, I often thought I might do better if I could see fewer options, not more!

    Of course what could be the case is that smarter people are more confident which means they are more likely to have the nerve required for entrepreneurial adventures.

  5. Entrepreneurs and small business owners thrive by using skills not adequately measured by school tests or even IQ tests. Intuition, innovation, risk-evaluation, problem-solving … http://ventureneer.com/vblog/stuff-entrepreneurs-and-social-entrepreneurs-do-you-have-what-it-takes; the list goes on.

    Not only is this not a burning question, it’s one that can’t be answered by paper-and-pencil tests any more than a good actor or dancer can be assessed in that way.

  6. Well Scott, I’m 1 for 2;

    I didn’t do well in school.

    :)

    The Franchise King

  7. Scott:
    All this assumes that there is just one type of IQ and that it can be accurately measured with a standardized test.

    I wonder how many potentially brilliant entrepreneurs are out there who have not followed through on their dreams because they have had it drummed into their head s that they are not smart enough.

    I wonder how many people in their 40

  8. Scott,
    I did bad in school and took the plunge at 35 and haven’t looked back. If they can do it I can do it! And so can many others.
    I think some of being succesful has to do more with the way people view their surroundings and how they react to them. Some one who works for a person or company does not have an interest in solving problems like the owner does. Problem solving is a big part of being in business. You may be a smarty pants but not be able to figure out how to get to work every day.
    There are so many factors -one of which is opportunity -that can’t be measured, but is is nice to know I could be 2% smarter!
    Great blog.

  9. Entrepreneurs may not be any more intelligent than the rest of the population, but are probably wiser.

  10. I agree with most of the points above and I believe that entrepreneurship is what makes this country great. I have thought about this topic a lot though and have a bit of a contrarian view about entrepreneurs and their intelligence. I spent 15 years with corporate America and always heard about how bureaucratic and slow-moving large companies are. I always had this perception that entrepreneurs were smarter, faster, and more confident. I have now been in the entrepreneurial world (started a business) for almost two years. The only perception that I had right about entrepreneurs was confidence. Don’t believe the hype. For all the downsides with corporate America, you can always pick out a few people in your organization that have been successful based on true, results-driven experience and leadership and follow them. Many entrepreneurs undervalue true business experience (the “been there, done that”) and think that just by having an idea you are somehow entitled to run a business. Unfortunately, many of them have followed their entrepreneurial friends that have never had any true success (look at the success rates). Therefore, they’ve never seen things done “right” from the inside and don’t have the experience to ever get it right. There are plenty of incredibly talented, smart, successful entrepreneurs out there but I would argue you can find that same number in the corporate world. I’m only writing this because I think that until entrepreneurs get rid of their hubris that they are somehow smarter or wiser than corporate people, they will be destined to chasing dreams that 90% of the time never pan out (and I want them to be successful). No matter what career (entrepreneurial or big business) you choose, there are always going to be successes and failures.

  11. Jay W- Good thoughts. Entrepreneurs have several traits. First and foremost, they never give up. Also, they seem to be quite confident in what they are trying to accomplish. Good entrepreneurs have a distinct focus for getting things done and are willing to work 70 hours per week to make it happen.

    Smarter? No. Wiser and more focused? Yes.

  12. Based on what I’ve seen this is true. Traditional education vs. being an entrepreneur are two completely different skills. Those who were born to have their own businesses seemed to know what they were doing early on and looked bored with school. I think it’s knowing the system vs. working the system.

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