Why entrepreneurs start companies rather than join them

Photo credit: Wu Jianxiong / Unsplash

If you asked me why I gravitated to startups rather than work in a large company, I would have answered at various times:

“I want to be my own boss.”

“I want flexible work hours.”

“I want to work on tough problems that matter.”

“I have a vision and want to see it through.”

It never crossed my mind that I gravitated to startups because I thought more of my abilities than a large company would. At least not consciously. But that’s the conclusion of a provocative research paper, Asymmetric Information and Entrepreneurship, that explains a new theory of why some people choose to be entrepreneurs.

The authors’ conclusion:

Entrepreneurs think they are better than their resumes show and realize they can make more money by going it alone. And in most cases, they are right.

I’ll summarize the paper’s conclusions, then share a few thoughts about what they might mean — for companies, entrepreneurs, and entrepreneurial education. (By the way, keep in mind the authors are talking about everyone who chooses to be self-employed — from a corner food vendor without a high school diploma to a high-tech founder with a Stanford PhD.)

The authors’ research came from following 12,686 people over 30+ years.

They found:

1. Signaling

When you look for a job, you “signal” your ability to employers via a resume with a list of your educational qualifications and work history. Signaling is a fancy academic term to describe how one party (in this case someone who wants a job) credibly conveys information to another party (a potential employer).

Lemons vs cherries

So, what to make of all this?

Lessons learned