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Are Entrepreneurs Naturally Talented, or Just Hard Workers?

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Tags Booms and BustsThe EntrepreneurEntrepreneurship

It’s the age-old question: is success the result of natural talent or simply hard work? This problem is especially important for entrepreneurs, whose success and failure can make a world of difference to the welfare of society. In fact, doubly so, given the recent emphasis—especially in universities—on encouraging students to be more entrepreneurial and innovative; while there’s much to be said for a more entrepreneurial society, missteps toward that goal waste resources and thus carry large costs.

Importantly, the recent craze for entrepreneurship and innovation tends to assume that business success is mainly about targeted effort rather than innate skill. Yet is this really the case? There’s certainly an enormously popular business literature that promises to mold readers into successful entrepreneurs, provided they take the effort to use some simple tricks or develop a few new habits.

Yet common sense tells us to be skeptical of these works, or at least, to be careful not to overvalue their insights. In fact, there’s an increasing amount of evidence that the role of hard work is less important than natural talent when it comes to attracting support for new business ventures.

For example, The Economist discusses a new paper by Chia­-Jung Tsay that studies whether investors prefer to back “naturals” or “strivers” (hard workers). In her experiment, Tsay created profiles for a group of fictional entrepreneurs that she then presented to investors. These profiles included data on various relevant factors such as, “leadership experience, management skills, IQ and the amount of capital they had raised,” Importantly, they also indicated whether each entrepreneur was more of a natural talent or a devoted worker. The investors then decided which entrepreneurs to back, as well as the trade-offs they would make in order to invest in different kinds of attributes.

The result was that “naturally talented” entrepreneurs tended to be strongly preferred to those identified as hard workers. Furthermore, the trade-offs were significant: to be selected, “strivers would need on average 4.5 more years of leadership experience, 9% better management skills, a 28­-point higher IQ and nearly $40,000 more accrued capital than a natural.”

It should go without saying that this particular experiment is not the last word on the subject, but it’s an intriguing study nonetheless. It also has some bearing on Austrian economics.

Specifically, if investor bias actually reflects entrepreneurs’ abilities, it has important implications for how we think about labor. For example, as The Economist notes, the experiment appears to undermine some time-honored wisdom:

Achieving goals through determination is a recurring cultural meme—think of the American dream, say, or the Protestant work ethic. So maybe it is not surprising that people parrot it as an ideal. When it comes to investing, however, the… experiment suggests that such puritan values fall by the wayside.

Another implications of the experiment is that bias in favour of naturals reflects more entrepreneurial attitudes on their part. Hard workers stress past success over other abilities, and thus “naturals may be chosen because they are deemed to be better at adapting to an uncertain future.” This way of thinking will appeal to Austrians, who tend to stress uncertainty and judgment as the defining aspects of entrepreneurship.

Returning to the original question though, I don’t think Austrian theory is committed to either view, and as The Economist mentions, success likely requires a heathy mixture of talent and hard work. Yet one point Austrians do stress is that entrepreneurship is not about rote decision making and rule-following. So in that sense, the scales appear tipped against simple hard work in favour of talent.

A better question though is what types of entrepreneurship each approach is likely to produce. For instance, does natural talent tend to produce short- or long-term success? The Economist hints that naturals burn out more quickly than strivers, who are more likely to guard the fruits of their labors.

Asking these kinds of questions helps us understand problems outside of entrepreneurship as well. Consider the case of the business cycle. One feature of the expansionary boom is that it encourages low-skill entrepreneurs to enter the market, even as higher-skill entrepreneurs leave. Which of these, if any, are more likely to be the natural talents, and which the hard workers? Perhaps naturals are better suited to the challenges of a particular business cycle, but don’t last in the long run. At the same time, it’s also possible that strivers, because of their belief in the power of hard work, are erroneously confident in their own skills such that they take the bait of artificially low interest rates.

No matter how we answer these questions, it should be clear that if hard work is indeed relatively less important than natural talent, this bodes ill for efforts to teach entrepreneurship directly.

As a case in point, consider the popular business literature: if it really were effective at directing readers’ hard work toward substantive entrepreneurial results, shouldn’t we have seen armies of prosperous entrepreneurs emerge in the last few decades, each clutching one of these guides to success? Furthermore, if some of these ideas were effective, shouldn’t the ineffective ones have by now been weeded out, such that we’d be left with one simple textbook for entrepreneurial success?

These questions can be answered by emphasizing once again the special problem of uncertainty that surrounds and defines entrepreneurs. Uncertainty requires good judgment to overcome, and it’s unlikely such a skill can be imparted through hard work in the form of conventional schooling. By studying related ideas, the Tsay paper is a good example of how new research on entrepreneurship in the social sciences tends to return repeatedly to ideas that Austrians have promoted for decades.

 

Matt McCaffrey, former Mises Research Fellow, is assistant professor of enterprise at the University of Manchester.

Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.

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