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Go Ahead, Take the Risk: Entrepreneurship Pays Off

Go Ahead, Take the Risk: Entrepreneurship Pays Off
Credit: michaeljung/Shutterstock

Starting your own business isn't as big of a financial gamble as you might think, new research finds.

Entrepreneurs whose businesses don't succeed – which statistics show is a good possibility – can return to the salaried workforce and recover their earnings quickly, according to a study from the University of California, Berkeley's Haas School of Business.

The research discovered that becoming an entrepreneur ends up being a no-lose situation for many. Failed entrepreneurs end up with comparable lifetime earnings when they return to a salaried position, while those who remain entrepreneurs earn substantially more than their peers who never branched out on their own.

"Would-be entrepreneurs may think they have a huge chance of failure and will be sacrificing earnings for the rest of their lives, but it's not true," Gustavo Manso, the study's author and an assistant professor at the Haas School of Business, said in a statement. "Even if the business fails, entrepreneurs don't suffer as much since they are able to quickly transition to the salaried workforce."

For the study, Manso followed the careers of both successful and unsuccessful entrepreneurs over three decades, including founders of innovative startups and small business owners, such as restaurant owners. He used the National Longitudinal Survey of Youth-1979 to model entrepreneurship's return on investment. [The Best Colleges to Study Entrepreneurship ]

He had access to data on 12,686 young men and women who ranged in age from 14 to 22 when they were first surveyed in 1979. For the survey, participants were interviewed annually through 1994 and every two years since then.

The data shows that individuals who launch their own business, but abandon entrepreneurship in less than two years, are not punished, achieving approximately the same earnings as similar individuals who never attempted to be entrepreneurs.

"Most entrepreneurs fail quickly and are able to limit their losses by moving back to the salaried workforce," Manso wrote in the research.

Those who continue on their entrepreneurial path end up earning about 10 percent more over the course of their lifetime than salaried workers with similar characteristics, according to the study.

"The study suggests that becoming an entrepreneur is a rational decision and failing isn't as bad as one would think," Manso said. "It doesn't hurt your lifetime prospects."

Chad Brooks

Chad Brooks is a Chicago-based writer and editor with nearly 20 years in media. A 1998 journalism graduate of Indiana University, Chad began his career with Business News Daily in 2011 as a freelance writer. In 2014, he joined the staff full time as a senior writer. Before Business News Daily, Chad spent nearly a decade as a staff reporter for the Daily Herald in suburban Chicago, covering a wide array of topics including local and state government, crime, the legal system and education. Chad has also worked on the other side of the media industry, promoting small businesses throughout the United States for two years in a public relations role. His first book, How to Start a Home-Based App Development Business, was published in 2014. He lives with his wife and daughter in the Chicago suburbs.