Jack of all trades theory of entrepreneurship

What is the jack of all trades theory of entrepreneurship?

The jack of all trades theory of entrepreneurship was proposed by Stanford University economist Edward P. Lazear in a working paper that was eventually published in The American Economic Review in 2004, entitle Balanced Skills and Entrepreneurship.

The theory seeks to explain and predict who becomes and entrepreneur, and which entrepreneurs will be successful. According to Lazear, individuals that become entrepreneurs may have more balance in their investment strategy (on average) as compared with individuals that specialize employee roles.

Jack of all trades, master of none, still better than a master of one?

Lazear's core idea is that entrepreneurs need to be good at many different things, that is, they are generalists rather than specialists. For instance, when first starting out, a restaurant entrepreneur needs to select vendors for inputs such as food, furniture, equipment, and construction. He or she may also need to be good at marketing (pricing, promotion, place selection, and product design) to get customers in the door. The entrepreneur may also need to be able to design a menu and to actually prepare meals or meal prototypes. Hiring and training employees is also an important skill entrepreneurs need to get their businesses up and running. Finally, the skill of persuasion to convince investors to provide capital to get the business going may be important.

While it is unlikely that any one individual will have all of these skills, those that have more than others might be expected to be more likely to start a business and to succeed in business. Most studies examining the theory count the number of functional areas that entrepreneurs have had experience in. For instance, Wagner counted the number of different kinds of professional training and the number of times an individual changed professions.

Evidence and critiques

Overall, the evidence for the jack-of-all-trades theory is mixed. Although some of the studies find support for the theory, even when controlling for sex, nationality and age, other empirical examinations controlling for unobservable characteristics that simultaneously determine skill accumulation and occupational choice seem to disprove the theory (see the work of Olmo Silva). Silva concludes from his Italian sample that: “All in all, this analysis suggests that if a JAT attitude matters for entrepreneurship, it does so as an innate ability. Previous claims, on the ‘causal’ effect of acquiring a balanced skill-mix on the probability of becoming entrepreneur, should be more cautiously interpreted.” Similarly, ├ůstebro and Thompson (2009) find that “that inventor-entrepreneurs typically have a more varied labor market experience, and that varied work experience is associated with lower household income”.

The debate centers around whether individuals can actually balance skills by varying their curricula studies, work functions, and employers. If so, then individuals seeking to become entrepreneurs might intentionally pursue such variety. If not, that is, if individuals who become entrepreneur simply have a taste for variety that is innate, then no amount of purposeful variety seeking behavior can help. The fact that some studies show that individuals with varied experience and who are not entrepreneurs have lower earnings should give us pause. One is reminded of the individual who starts many things but never finishes—switches majors over and over, changes jobs with abandon, is shifty within their organization—perhaps not exemplar to imitate?

Other Economic Theories of Entrepreneurship:

Sources:

├ůstebro, T., and Thompson, P. (2011). Entrepreneurs, Jacks of all trades or Hobos?. Research policy, 40(5), 637-649.

Lazear, E. P. (2004). Balanced skills and entrepreneurship. The American Economic Review, 94(2), 208-211.

Silva, O. (2007). The Jack-of-All-Trades entrepreneur: Innate talent or acquired skill?. Economics letters, 97(2), 118-123.

Wagner, J. (2003). Testing Lazear's jack-of-all-trades view of entrepreneurship with German micro data. Applied Economics Letters, 10(11), 687-689.

Comments

Jordan Lardani said…
Love how well explained this theory is! Really feel I was able to grasp the concept well.
There is absolutely, positively, definitely, for realsies no freaking way that a jack of all trades is going to go anywhere in entrepreneurship. You've heard the saying about how you can't chase two rabbits, because you'll catch neither? That applies to the JAT trying to chase 20 rabbits. Hire a consultant. Heck, hire ten. You do not have to know all the things. You can not do all the things. (Ask me how I know!)
Unknown said…
It seems to be almost impossible for anyone to fulfill every role by themselves once a company or organization reaches a certain size. At the beginning, it may be possible, as the stakes are much lower, so the required knowledge will be lower as well. Once a company grows, it is necessary to outsource labor in the form of staff like accountants and general labor.
Jonathan Smith said…
To be a successful entrepreneur, I believe that you do actually need be a generalist in many aspects. Most entrepreneur begin with innovative ideas but they do so through a lean start-up. You need to have a well rounded set of skills to do this. Another thing I have noticed is that most successful entrepreneurs combine unlike or unusual skills sets and passions to create something valuable and unique. You have to stand out from the crowd but you cannot afford to outsource your work to everyone else.
Tdady Mturk said…
I thought this whole section was super interesting to read with it's facts backed up with good information. I do believe that you can be the Jack of all Trades if you put enough studying and time into enough things. One thing I read was someone questioning whether it's good to be pretty good at a bunch of things or just really good at one thing, and I would definitely be with pretty good at a whole bunch of things because that just seems way more beneficial and logical. Great read!
Unknown said…
This is a very thought proving post for would be entrepreneurs. It's a bit of a relief to know that it tends to work out better when you don't try to tackle everything and should just seek out some help. Making the leap into entrepreneurship can seem like an insurmountable task otherwise