Entrepreneurship Not As Risky As Some Think

A working paper suggests that if entrepreneurs fail, their long-term risk might not be as much as once previously thought.
Statistically speaking, entrepreneurial ventures have a high risk of failure. However, a working paper by Gustavo Manso, an associate professor with the Haas Finance Group at the University of California, Berkeley, suggests that even if entrepreneurs fail, their long-term risk might not be as much as once previously thought.

Manso analyzed the National Longitudinal Survey of Youth-1979, which includes data that tracks the careers of 12,686 men and women over 30 years, whose ages ranged from 14 to 22 when the survey began in 1979. Manso placed each participant in one of two groups: those who were self-employed at some point in their careers and those who were never self-employed. Manso found that 52 percent of the entrepreneurial endeavors undertaken by the first group lasted less than two years. However, most of those entrepreneurs were able to “fail quickly and … limit their losses by moving back to the salaried workforce,” Manso writes. By doing so, they limited any decrease in their lifetime earnings. Those who remained entrepreneurs, even after failures, earned 10 percent more over their lifetimes than those who never started businesses.

"Would-be entrepreneurs may think they have a huge chance of failure and will be sacrificing earnings, but it's not true," says Manso.

Manso's working paper, "Experimentation and the Returns to Entrepreneurship," is available at faculty.haas.berkeley.edu/manso/ee.pdf.