Entrepreneurs should be generalists; people who work for others should be specialists: so suggests human capital investment theory.

However, although a survey has found that people who crave variety are more likely to become entrepreneurs, it also found that the more varied the experience of an entrepreneur, the lower his or her household income is expected to be. In general entrepreneurs have a broad range of skills, but they earn less than specialists because they are not especially good at any one thing.

The researchers surveyed 830 Canadian independent inventors and 300 individuals from the general population. Some 70 per cent of the inventors had at some time owned a business (hardly surprising, as independent inventors are more likely to be entrepreneurs than the general population), whereas 43 per cent of the general population had done so. Moreover, the number of different professions or industries in which a person had worked was directly related to the odds that he or she had ever owned a business and the number of businesses owned.

The research found that the number of occupational categories in which a person had worked raised the likelihood of success in those businesses, possibly because, among entrepreneurs, independent inventors are particularly likely to benefit from diverse experience because the commerciali-sation process entails a wide variety of tasks.

On the other hand, the number of industries in which a person had worked actually reduced the success rate, possibly because of a lack of specialist knowledge.

When it comes to household income, skill diversity also brings negative returns, both for entrepreneurs and for employees. Among individuals who had owned at least one business at some time during their career, changing professions five or more times is associated with an 11 per cent decline in annual household income relative to comparable individuals that had specialised in one profession. Changing industry five or more times is associated with an 8 per cent decline in relative income. Comparably diverse industry experience is also associated with a large decline in relative income among nonentrepreneurs: about 15 per cent relative to those having remained employed in a single industry.

Individuals with a taste for variety have a preference for entrepreneurial activities because by definition they are more varied occupations than those filled by specialists.

When employed as specialists these individuals satisfy their taste for variety by frequently switching employment. Individuals with the strongest preference for variety switch industries most often and are most likely to become entrepreneurs, even though on average they will be less successful. Thus people with a taste for great variety will be more likely to become entrepreneurs – with lower incomes.

This is an edited version of Entrepreneurs: Jacks of all Trades or Hobos? by Thomas Astebro and Peter Thompson. The original was published by Rotman School of Management at the University of Toronto.
Full paper: www.rotman.utoronto.ca/ newthinking/Astebro.pdf

FIND OUT MORE

Find out about the four dimensions of the entrepreneurial personality – the dreamer, the thinker the storyteller and the leader – in the first of our extracts from Awakening the Entrepreneur Within by Michael E. Gerber on Times Online. The second extract, next week, will look at five realities of the entrepreneur, including that “everyone posseses the ability to be an entrepreneur ... to create an original business based upon a simple but explosive idea.”
timesonline.co.uk/entrepreneur

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