The study: Ross Levine of the Haas School of Business, University of California at Berkeley, and Yona Rubinstein of the London School of Economics’s Department of Management studied the traits associated with successful entrepreneurs, using longitudinal data that included individuals’ responses as teenagers. They found that ”aggressive/illicit/risk-taking tendencies,” when combined with intelligence and other factors, helped predict success in entrepreneurship.

The challenge: The paper generated numerous mentions in the press, many of which dwelled on the connection between smoking pot and entrepreneurial success. But do pot smoking, run-ins with police, and other such “illicit” activity as teenagers really predict entrepreneurial tendencies? Professors Levine and Rubinstein, defend your research.

Levine: The main finding there is that it’s a combination of smart, which we measure as learning ability where people in the survey are given exams when they’re teenagers, and their willingness to bend and even break the rules and engage in aggressive risk-taking behavior, which is measured by an index of the degree to which they engage in illicit activities before they entered the workforce.

HBR: What are we actually talking about in terms of what it is this Illicit Index is measuring?

Levine: This index is based on the answers to many questions. Have you ever taken anything by force? Have you ever stolen anything of $50 or less? Have you stolen anything of $50 or more? Have you been stopped by the police? Have you been arrested by the police? Have you been convicted? Have you been suspended from school? Have you done marijuana? Have you done higher drugs? Have you sold drugs? So, many, many, many questions.

We don’t focus on the specific questions. We use this as an overall indicator of the degree to which people engage in risky activities, the degree to which they bend or break the rules. Also, some of the questions ask about whether respondents have taken things by force, so this provides information about the degree of aggressiveness. So, [to] us this as an overall indicator of a particular set of non-cognitive traits.

So the illicit index is capturing much more than just ‘Did you smoke pot?’.

HBR: To what extent is it possible that the Illicit Activity index is measuring, because it’s self-reported, as much the person’s perception of themselves as the activity?

Levine: The illicit activity index asks very specific questions. It doesn’t ask to what degree did you engage in illicit activities? Rank this 1 to 5, which I think would be very prone to a different interpretation such as the one that you gave. [It asks] have you ever been stopped by the police? Yes or no? Have you ever been arrested by the police? Have you ever been convicted? So, it’s possible, but given the specificity of the questions, we don’t think that that’s what it’s capturing.

HBR: We know that the successful entrepreneurs of incorporated businesses tend to rate higher on the illicit activity index when they’re teenagers. Do we know anything about there being a level of activity on the illicit index that is so high that it starts to become detrimental?

Rubinstein: You can see from the details that it’s more about circumventing the rules rather than becoming a criminal. It’s not that they’re more likely to be arrested and [be] jailed. They are more likely to steal less than $50, but it’s not so high a proportion of them stealing more than $50 in ’79 dollars. So, you can see it’s breaking the rules but not being professional criminals. Strictly following all of the rules when in high school is not the best predictor of a future as a successful entrepreneur.

Levine: It’s not that if you go around in the population and you simply say AHA, here’s somebody who engages in lots of illicit activities, this guy’s going to be an entrepreneur. It’s not that illicit activities by themselves exert this strong predictive power. It is the combination of “smarts” and illicit tendencies that predicts both entry into entrepreneurship and the comparative success of entrepreneurs.

HBR: What if people who are both smart and break the rules just are more likely to succeed at whatever they do and it’s incidental that they succeed as entrepreneurs?

Rubinstein: No, that is not quite right. The combination of “smart” and “illicit” traits is very powerful at explaining success as an entrepreneur, but this combination is not as powerful at accounting for success as a salaried worker.

HBR: One of the responses to your paper said that essentially what had been identified was entrepreneurship as “the ultimate white privilege”. Is that a fair assessment based on what you found?

Levine: I would put it differently because focusing only on color misses the broader results of the paper. Entrepreneurs tend to be white, male, come from higher-income families with better-educated mothers, and [have] high levels of self-esteem. Moreover, entrepreneurs tend to be both smart and exhibit illicit tendencies as youths. Different from salaried workers and other business owners, entrepreneurs have a unique mixture of cognitive and non-cognitive traits.

Rubinstein: So, to the extent that the home environments are important in developing this unique mixture of traits, then people don’t face equal opportunities. But it’s this particular mixture of traits that makes them successful. It’s not purely the family income or purely their race or purely the education of their parents.

HBR: I was really interested in the way that you resolved the definition of entrepreneurship because self-employment is recognized to be an imperfect measure. Why is incorporated versus non-incorporated the better measure?

Levine: The legal definition of what it means to be incorporated was created over many centuries with the very explicit goal of facilitating investment in innovative, risky, large, long-gestation investment projects. Although there are more costs, informational disclosure requirements, and accounting regulations associated with incorporating, people establishing innovative, risky, and large businesses find the legal characteristics of the corporation worth the extra cost. But people opening up opening up businesses that doesn’t involve what we would call entrepreneurial characteristics — that is, people opening up businesses that are not that innovative, risky, large and that do not involve long-gestation investments — are going to tend to organize such businesses in an unincorporated form because of the extra costs and organizational hassles of incorporating. Of course, some skeptics of our approach might ask doesn’t somebody just start as unincorporated and then if they’re successful, they become incorporated? What we find is that exceedingly few businesses change from unincorporated to incorporated, or from incorporated to unincorporated. All of this evidence points toward the view that people choose the structure of their business, i.e. whether it is incorporated or unincorporated, based on the planned nature of the business.

Rubinstein: Our work concerns a very particular set of people that are being attracted to this type of business organization. It’s a very particular mix of traits that were determined many years before they even were dreaming about joining the labor market.