research@hec - Issue #10 - (Page II)

What Makes Entrepreneurs Tick? A well-known fact about entrepreneurship is that 75% of all entrepreneurs make less money than if they had stayed employed. Why then do so many people still choose to become entrepreneurs? To address this question, Associate Professor Åstebro (Department of Strategy) invited leading scholars to discuss their latest research to shed insight on the processes explaining the decision to become an entrepreneur. Three broad drivers emerged: individual differences, innovation, and regional factors. Firstly, individual differences in (a) early experience running a business, (b) social and technical abilities, and (c) preferences for risk, play an important role in the decision to be an entrepreneur. Robinson (Duke University) finds that those who ran their own businesses as adolescents are three times more likely to become entrepreneurs. Similarly, Van Praag (University of Amsterdam) finds that social and technical ability at a relatively young age positively predicts the likelihood of becoming an entrepreneur. Going beyond prior experience and abilities, Åstebro (HEC Paris) with Mata (Universidade Nova de Lisboa) and Santos-Pinto (HEC Lausanne) show that entrepreneurial entry depends on the preference for risky options that offer a small probability of large gains. Secondly, entrepreneurial entry is driven by innovation in terms of (a) identifying worthwhile ideas or inventions, (b) employee spinoffs, (c) investors financing risks, and (d) investor valuations. Braguinsky (Carnegie Mellon) suggests that the decision to become an entrepreneur varies with employment experience within a given industry, which increases the likelihood of identifying an idea or invention worth pursuing entrepreneurially. Nada (Harvard) explains that innovation-driven entrepreneurship faces two types of risk: fundamental risk (a non-viable project that gets funding) and financial risk (a viable project that cannot get funding). The success of innovation-driven entrepreneurial entry depends on investors’ willingness to fund, which might be rationally held back if the investor expects that later investors will not follow due to “bad times.” Finally, the decision to be an entrepreneur is contingent on regional factors such as (a) employer-based health insurance policies, (b) non-compete agreement policies, and (c) the size research "Workshop on Entrepreneurial Entry", September 18th & 19th 2009. hec of the city. Fairlie (UCSC) shows that regions that emphasize employerbased health insurance policies suppress the rate of entrepreneurial entry. Marx (MIT) provides evidence that regions that enforce employee non-compete policies will experience a brain drain in that inventors will leave to start-up in other regions. Strange (University of Toronto) also suggests that inventors who leave for other regions to seek entrepreneurial opportunity would do well to consider the effects of task complexity, balance of skills, and the size of the region. Entrepreneurial ventures involving complex tasks are indeed best undertaken in large cities where there are greater varieties and availability of skills and knowledge. In a concluding session co-sponsored by OECD, Structural Policy Division Directorate for Science, Technology and Industry; Colombo (Milan Politecnico), Parker (University of Western Ontario) and Åstebro provided background briefs that set the context for a lively debate on how much we know about entrepreneurial entry and which robust government policies can be drawn from accumulated research. OECD representatives found the various arguments illuminating; and the hope is that some of the insights from this conference may find their way into recommendations to policy-makers in France, the European Union, and beyond. I By Kevyn Yong and Thomas Astebro, professors at HEC Paris. Three broad drivers emerged: individual differences, innovation, and regional factors. II research@hec • September-October 2009

Table of Contents for the Digital Edition of research@hec - Issue #10

Cover & Contents
What Makes Entrepreneurs Tick?
This I Like, That I Don’t Like
Entrepreneurial Optimism
Partnering with Competitors: a Thoughtful Choice

research@hec - Issue #10