This article is cross-posted from Forbes.
January inevitably brings reflection and consideration for what’s next in life. For many of us, as we begin 2013, that means dreams of throwing caution to the wind (as well as reliable paychecks) to make a go of it as entrepreneurs. But dreaming isn’t doing ― and the reality is that most people aren’t willing to take on the risk associated with entrepreneurship.
Since leaving Google nine months ago to found Upstart, I’ve spent a lot of time visiting college campuses, talking to aspiring entrepreneurs across the spectrum of engineers, MBAs, artists, and writers. Thinking back on these visits, I’m struck by the fact that the focal point of entrepreneurial activity on campuses tends to be among freshmen and sophomores. The e-ship clubs and classes are dominated by underclassmen, who are busy starting companies in their dorm rooms, sometimes one right after the other.
But by junior and senior year, most students tend to fall in line with that decades-old tradition: the on-campus job search. Interestingly, the more elite the university, the more prominent this trend seems to be. (I make an exception for Stanford and MIT, where it seems almost shameful to accept an on-campus job interview!)
Given all the buzz and glamour about “doing your own thing,” why do most people forego their dreams and step so willingly onto the corporate treadmill ― which was invented more than half a century ago? It’s not hard to guess. Consider the case of a soon-to-be minted MBA from a top program in the US, where graduates’ starting salaries are approaching $200,000. With a bit of hustle and well-practiced job interview skills, the next step up the success ladder is there, just waiting for you. And why? Because two and a half years ago, you were accepted into that top MBA program.
Who in his right mind would forsake a well-earned and almost guaranteed path to success and comfort, to take on a mission where “they” don’t care how impressive your performance reviews at your last job were, where you went to school, or how you just missed a perfect SAT score? In fact, there is no “they” ― there’s just you, trying to create something from nothing.
Last Spring, I met with the Dean of a Top 10 MBA program who told me all this noise about entrepreneurship was just that: noise. When push came to shove, the vast majority of MBAs couldn’t resist taking that approaching-$200K job offer. What’s worse, this Dean actually suggested this was a good thing.
All this leads to a really interesting question: Does it pay to be an entrepreneur? The common wisdom seems to be that while things worked out peachy for Bill Gates and Mark Zuckerberg, the majority would do better to stick with that Wall Street or McKinsey job. Put another way, an offer letter in hand is worth two prototypes and a Google Apps slide deck in the bush.
Fortunately, it’s not true.
A study published in 2009 by IZA, the international Institute for the Study of Labor, suggests just the opposite. In short, the study found that the mean, median, and standard deviation of incomes for entrepreneurs ― controlled for education, general ability (as measured by standardized test scores), and demographics (including age and parental income) ― tended to be higher than those for good old-fashioned employees.
And the difference is by no means small: mean income for entrepreneurs is almost 50% greater than for “employees.” And what’s more, this effect is not explained by “professional” entrepreneurial pursuits such as opening a medical or law practice.
Why is this? The study theorizes that entrepreneurs can control their environments in order to play more to their strengths. While employees suffer from the “guard rails” and “iron cages” of corporate America, entrepreneurs are able to create environments over time that maximize the value of their education and skills. That makes intuitive sense: create an environment that plays to your strengths, and you’ll be happier and more productive.
The fallacy of our thinking is that employment in established corporations is the model for income stability and dependable professional development. In reality, stability comes from the development of real-world skills, honed through hard work in highly ambiguous scenarios every day ― the classic description of the entrepreneur’s world. And despite the signature examples of Gates and Zuckerberg, completing your degree actually pays back for entrepreneurs.
The study also suggests that highly educated adults tend to irrationally shy away from becoming entrepreneurs. This is unsurprising given the shared sentiment of key influencers. How often have your parents applauded your decision to turn down a lucrative job offer? There are also rational reasons that people bypass the entrepreneurial path – such as overwhelming burden of student debt.
The study concludes that entrepreneurs do more good in the world ― innovating, creating market efficiencies, and (as we all know) promoting job growth. Perhaps that MBA dean and others like him should actively encourage more graduates to take the road less traveled. We will all benefit.