Why Highly Educated Entrepreneurs Rarely Grow Their Businesses
- Research suggests money is not the most important motive for highly educated entrepreneurs
- Because of this, educated entrepreneurs are less likely to grow their firms
- Giving stimulation packages to solo-entrepreneurs might not necessarily increase jobs
When we think of successful entrepreneurs we might think of someone rich and famous like Richard Branson or even Bill Gates, who famously said, “If I had a dollar for every time someone made fun of me in high school—oh, wait. I do!”. Passionate people who dropped out of school or started with nothing, and worked relentlessly to grow their own billion-dollar firms.
But what about those other entrepreneurs? The ones that stuck with their education and decided to start their own businesses in search creativity, autonomy and freedom, rather than building their own empire and making millions?
Well according to new research from Trinity Business School in Ireland, those highly educated solo entrepreneurs (the ones who may have MBAs or PHDs) actually value the autonomy of their work above everything else. As a result, they rarely seek to grow their businesses by hiring staff.
To find this out, the researchers used a survey to interview solo entrepreneurs as they started their business to investigate their hiring plans. Surprisingly they found that only one third of solo entrepreneurs intended to hire any employees later down the line.
They also found a negative relationship between entrepreneurs’ higher levels of education and their future plans to hire employees – suggesting that money is not the most important motive for highly educated solo entrepreneurs to start a business.
According to the researchers there is a specific form of autonomy which explains this. Many highly educated entrepreneurs pursue careers in what we call Knowledge-Intensive Services (KIS) sectors, such as artificial intelligence or architecture. The research suggests that the choice to work in these sectors is an indicator of a desire to have self-expression in their work.
And although it’s not quite like having your own luxury island in the BVIs, the perks of autonomy fulfilment are huge, both in and out of the workplace. Autonomy often makes people feel psychologically healthy, secure in their relationships and gives them the ability to perform to the best of their abilities while also feeling satisfied.
Perhaps solo entrepreneurs feel that hiring staff will take them away from this flexibility and freedom? The whole reason they decided to take the plunge and go it alone. The hassle of recruitment could be too much of a trade-off.
And while this is great for the individual, what about the wider economy?
According to Professor André van Stel, expert in the economics of entrepreneurship and senior research fellow at Trinity Business School, “Entrepreneurship stimulation programs often have a double objective; to create a job for the participating entrepreneur and to create additional jobs if the entrepreneur decides to hire employees. However, our research suggests that this is not straightforward, not even for highly-educated entrepreneurs, arguably the group with the greatest ability to expand their firms. This is particularly important for policy makers.”
The fact is, he says, entrepreneurs who create jobs generate a disproportionately larger share of new employment. But governments need to make sure they’re encouraging this kind of high-growth entrepreneurship. A common mistake is to focus on simply increasing the number of start-ups.
Perhaps encouraging start-ups, especially given the churn that will inevitably occur among them, is the wrong place for government support? Maybe a smarter plan would be to support growth in companies that are ready to scale up instead. Governments need to seek out the entrepreneurs that definitely want to hire staff. This research reveals that this is unlikely to be the highly educated ones.
Interestingly, the researchers also observed higher job creation intentions among younger entrepreneurs, those aged 30 and below, and among entrepreneurs coming out of unemployment, which is counterintuitive. André van Stel believes this reflects unrealistic expectations among entrepreneurs starting from this background.
In a post COVID word entrepreneurship stimulation programs will be more important than ever, however, this research suggests this is not straightforward as we might like to think. If one of the ways out of economic crisis is new job creation, we might need to follow André van Stel’s advice and look past the Harvard Business school graduates and instead focus on the drop-outs.