Want to own a successful business? Then you might want to listen to the wise words of your parent—if they own their own business, that is. New research by Hans K. Hvide of University of Bergen and Paul Oyer of Stanford University’s Graduate School of Business finds that kids who grow up with entrepreneurial fathers are more likely to start a business in the same industry and be more successful at it.
While it is well-established that parents’ career choices have a large impact on those of their children, Hvide and Oyer find that this is even more true when it comes to entrepreneurs. The researchers use Norwegian data to look at the role of IQ and fathers’ labor-market experience in shaping whether children become entrepreneurs, and, if so, what sector they work in. The authors also assess how successful these entrepreneurial offspring are compared to the overall population of those starting their own businesses. (Because one of the datasets used in their research is Norwegian military records, which was compulsory for able-bodied young men from 1984 to 2005, the study does not include female entrepreneurs.)
Hvide and Oyer find that the children of entrepreneurs are more successful and are more likely to outperform their peers whose parents work in other industries. Resources and connections do play a role in this success, but the authors find that the biggest factor in entrepreneurial children’s career choices and success is the kind of insider-knowledge acquired from informal conversations with their parent and exposure to their industry while growing up—that is, what they learn over the dinner table. The researchers believe that’s why, overall, the offspring of entrepreneurs that do decide to start their own businesses tend to do so in the same industries as their fathers—they have grown up learning the family business.
IQ also plays a role: High IQ individuals are more likely to be entrepreneurs overall. But among these next-generation of entrepreneurs, the men with relatively higher IQs are also more likely to start businesses in sectors that differ from that of their fathers, usually in more lucrative fields such as technology.
This paper adds to a growing bulk of literature exploring the way in which childhood exposure facilitates innovation and entrepreneurship. Late last year, a team of researchers—including Stanford University economist and Equitable Growth Steering Committee member Raj Chetty—released an expansive study of innovation of the United States, looking at factors such as gender, race, geography, income, and more. (The study was partially funded by Equitable Growth.) Chetty and his co-authors also find that while IQ plays a role, being exposed to innovation—whether through one’s parents or neighborhood—is the most critical driver of whether or not an individual innovates later in life.
These results are significant given the rise in economic segregation in the United States, a byproduct of growing inequality. As Chetty and his co-authors say, “children from low-income families, minorities, and women are less likely to have such exposure through their families and neighborhoods, which helps explain why they have significantly lower rates of innovation overall […] the underrepresentation of certain groups among star inventors implies that there are ‘lost Einsteins.’”
Talent gone unutilized exacerbates economic inequality and harms overall economic growth. The reason: Research has established a causal relationship between innovation and economic growth. Considering that the groups that are underrepresented in both entrepreneurship and innovation—women, low-income individuals, and people of color—make up most of the U.S. population, this means policies should address the lost wealth of opportunity that is affecting almost every corner of the nation.