From economists to politicians to everyday citizens, Americans agree: The country needs more entrepreneurs. A paper from the Federal Reserve Bank of Cleveland reports that Americans started 116,000 fewer businesses with employees in 2009 than in 2007—a nearly 20 percent decline in new firm creation. Given that young businesses create most of America’s new jobs, that spells bad news for the rest of the economy.
So what can we do? The federal government can provide tax incentives and stimulus programs to aid new businesses. Local governments can reduce the regulatory hoops companies need to jump through to incorporate. And banks can make it easier by offering more small companies loans.
But we don’t just need more businesses. We need more entrepreneurs to start them. And economists, business-school professors, and policymakers are very interested in figuring out the best way to mint them.
The idea that you can acculturate—and even teach—entrepreneurship is very trendy. According to the Kauffman Foundation, since the 1980s, about two-thirds of America’s colleges and universities have started offering coursework in entrepreneurship. They have built dozens of startup “centers,” too. (Harvard, for instance, opened the doors on an incubator this fall.) And in the past decade, a “small but growing number” of institutions of higher education have started offering master’s or bachelor’s degrees in starting a business.
Classes can’t teach everyone to risk their life savings on a dream. A group of European and American researchers have found that the “tendency to be an entrepreneur” is highly heritable (PDF). They looked at pairs of identical and fraternal twins to determine whether nature, not just nurture, plays a role in determining whether an individual will start a business. And they found genetics plays a significant role in a given person’s likelihood of owning a business, starting one, and being self-employed. (The researchers note that the tendency to be an entrepreneur strongly associated with other heritable personality traits, like being extroverted, open to new experiences, and “sensation-seeking.”)
But researchers now want to know whether entrepreneurship education will help increase the entrepreneurial spirit in the more wary, or give those with innate entrepreneurial instincts better tools to succeed. It is a hard question to answer, because of a causation-correlation problem. Most of the studies involve students who elected to go to business school or take a class in starting a business. Of course, those students would be far more likely to start a business—why else would they have signed up?
For instance, take evidence from the University of Arizona’s Berger Entrepreneurship Program. The school surveyed graduates from both its business school and its special entrepreneurship program. It found, unsurprisingly, that the Berger grads were three times more likely to be self-employed than grads of the regular B-school, and three times more likely to start a new business. “Entrepreneurship education increased the probability of being instrumentally involved in a new business venture by 25 percent.” (The Berger students were also significantly out-earning their fellow students.) The conclusion: Kids who enroll in entrepreneurship programs become entrepreneurs. Numerous other studies have found the same.
But what influence does the program itself have? The most frequently cited evidence comes from an exhaustive analysis of other studies conducted by Gary Gorman, Dennis Hanlon, and Wayne King. They found that “most of the empirical studies surveyed indicated that entrepreneurship can be taught, or at least encouraged, by entrepreneurship education.”
One thing is certain: Entrepreneurship education makes better entrepreneurs, if not more entrepreneurs. In one study conducted in Peru, researchers randomly assigned female entrepreneurs to a micro-credit program. The women who received training did not necessarily run more profitable businesses. But they did have higher sales and were more likely to reinvest profits into the company. A similar study conducted in Tanzania found that entrepreneurship classes helped improve business practices, if not the bottom line.
So what to teach America’s business creators? Basic business-school classes on accounting, human-resources management, leadership, and bookkeeping all seem to have a positive impact. Exposure to other entrepreneurs for “informal” learning about the unique challenges of running a business does too, according to the Global Entrepreneurship Monitor. Indeed, in a survey it conducted, businesspeople cited good training as one of the most important aspects of creating a good environment for entrepreneurs.
In a recent speech, Barack Obama called for “standards and assessments that don’t simply measure whether students can fill in a bubble on a test, but whether they possess 21st century skills like problem-solving and critical thinking, entrepreneurship, and creativity.” Like most Americans, he’s hoping that a change in classrooms now will eventually mean more profitable boardrooms later.
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