The Israeli Puzzle - Home of the Unicorns

By Itai Handler, Special thanks to Eran Hofman & Ella Waiman

The Israeli Puzzle - Home of the Unicorns.pdf

ABSTRACT

For more than half a century, the popular approach among leading economical scholars was that entrepreneurship is good for economic growth, and investment in education is the leading strategy to make new entrepreneurs take risks and develop new endeavors and technologies. But as we will find out, the entrepreneur can be identified in the economic literature with at least thirteen distinct roles for, and none of them are observable in the global educational surveys. And after presenting the Israeli puzzle, we will propose two research:

Create a meta-analysis one the global educational surveys, further diving into a heavy tail comparison.

Continue
Edward P. Lazear (2004) study but with emphasis to the Transformational entrepreneurs.

TBC

Intro

Most of the developed countries use the education score average as a prediction tool for future economical growths and development. The predominant assumption is that if the inbound results are concise, as the education test scores increase, the economy and quality of life improve. However, when we compare the test scores results across countries, some anomalies emerge, for example, let’s look at Israel, despite an average local education score is around ~50th percentile, is being placed in the top 25th countries in innovation. Moreover, Israel is the leader for unicorns, with 1.58 unicorns per capita [1], as shown in the table below, and is a booming economy. This paradox, “the Israeli Puzzle“, undermines the existing paradigm of average education test scores as a good indicator for potential entrepreneurial skills.

The above phenomenon raises the question, are the average education test scores a good indicator, or are there some other cognitive / non-cognitive elements in the mist?

In this work, we will tackle the question, is the average education test scores are a good indicator to predict future entrepreneurs. We will elaborate on the following issues: (a) basic correlations between entrepreneurship and growth. (b) two categories of entrepreneurship "subsistence” and “transformational“(c) the multi-talent and span of control skills.

In the first chapter, we will discuss the key role entrepreneurship plays in economic growth and the country’s clear incentives to advance entrepreneurship growth, based on the decades of academic work that prove the strong connection between entrepreneurship and growth.

In the second chapter We will bring new studies on the differentiation between the two types of entrepreneurs: "the subsistence entrepreneur“ and the “transformational entrepreneur” (

Antoinette Schoar (2009) ), We will show that establish those transformational entrepreneurs are not average people but the leaders who develop the high growth startups Some of them don’t excel in average education test scores and still have a positive effect on economic growth. we would see that the efficiency of the education test scores in predicting transformational entrepreneurial skills is limited as it is not capable of testing and measuring those relevant skills.

In the third chapter, we will address the leading theories that emphasize entrepreneur’s unique human capital traits, we will analyze the relation between multi-skill and entrepreneurship. Further, we will show that multi-skill is one of the transformational entrepreneur skills, that remains undetected by educational test scores as well.

In the fourth chapter, we will borrow the term “span of control” from the “economics of firms” and show how crucial this skill for entrepreneurs. But in the end, we will propose that the multi-skills are more relevant to the subsistence entrepreneur and then we will try to find the skill that the transformational entrepreneur must possess but is not tested or measured in the education test scores.

Finally, we will focus on the Israeli puzzle, and try to show how a country with low education level test scores, produces a high-level per capita of Innovation and successful entrepreneurship. We will suggest a possible explanation that though formal education is important to success, it is only one among many other components that will contribute to the transformational entrepreneur’s growth.

Then, in order to unveil the Israeli puzzle, we will propose further research in two directions:

Create a meta-analysis one the global educational surveys, further diving into a heavy tail comparison.

Continue Lazear's study regarding the Transformational entrepreneurs.

Chapter 1 – Entrepreneurship and Economic Growth

An entrepreneur is an individual who creates a new business (and owns it) bearing most of the risks and enjoying most of the rewards. The entrepreneur’s job is to locate new ideas and to put them into effect. He must lead, perhaps even inspire; he cannot allow things to get into a rut and for him, today's practice is never good enough for tomorrow. In short, he is the Schumpeterian innovator and some more. He is the individual who exercises what in the business literature is called "leadership". (

William J. Baumol (1968) ). Entrepreneurship is the manifest ability and willingness of individuals, on their own, in teams, within and outside existing organizations, to: – perceive and create new economic opportunities (new products, new production methods, new organizational schemes, and new product market combinations) and to – introduce their ideas in the market, in the face of uncertainty and other obstacles, by making decisions on location, form and the use of resources and institutions. (

Wennekers S. & Roy Thurik (1999) )

Throughout intellectual history, the entrepreneur has worn many faces and fulfilled many roles. At least thirteen distinct roles for the entrepreneur can be identified in the economic literature (Hébert and Link, 1989, but also Van Dijk and Thurik, 1995 and Van Praag, 1996), out of the 13 roles, 9 directly linked with change and growth; (a) The person who assumes the risk associated with uncertainty (b) An innovator (c) A decision-maker (d) An industrial leader (e) An organizer and coordinator of economic resources (f) A contractor (g) An arbitrageur (h) An allocator of resources among alternative uses (i) The person who realizes a start-up of a new business.” (

Wennekers S. & Roy Thurik (1999) ) The different historical views of economists offer a broad perspective on the concept of entrepreneurship as well as on the intermediate variables that form the connection between entrepreneurship and economic growth. The neo-classical stresses the role of the entrepreneur in leading markets to equilibrium. In the Austrian tradition, the alertness for profit opportunities and the importance of competition are emphasized. Schumpeter sees the entrepreneur as the innovator in economic life.

The reevaluation of the role of small firms and the role they play as the primal role of the economic agents who link the institutions at the micro level to the economic outcome at the macro level ignited a renewed attention to the role of entrepreneurship. Generally, in a small firm usually, there is one person or a very small group of persons who is in control and which shapes the firm and its future. The role of such a person is often described with the term “entrepreneurship”. (

Wennekers S. & Roy Thurik (1999) )

Entrepreneurship has a positive impact on the growth of GDP and employment therefore it plays a key role in the success of those economies which have managed to grow significantly, as opposed to those that have remained relatively stagnant. The availability of entrepreneurial talent and the motivational mechanism, which drives entrepreneurs, has a positively correlated effect on economic growth. In modern open economies, entrepreneurship has more important for economic growth than it has ever been. (

Wennekers S. & Roy Thurik (1999) ).

“From a viewpoint of linking entrepreneurship to economic growth, two major roles of entrepreneurship can be singled out. The first has to do with “new entry” and the second with “newness” in general. First, the entrepreneur as the founder of a new business: “. . . someone who creates and then, perhaps, organizes and operates a new business firm, whether or not there is anything innovative in those acts”. Secondly, entrepreneurship plays a more general innovative role in economic life: “. . . the entrepreneur as the innovator – as the one who transforms inventions and ideas into economically viable entities, whether or not, in the course of doing so they create or operate a firm” (

William J. Baumol (1968) ).

Being an entrepreneur requires specific skills and abilities, some abilities might be naturally present, and some learned or developed through practice. The leading theories emphasize that

Entrepreneurs have unique human traits such as creativity analytical skills, risk-taking, etc.

Entrepreneurs are highly remunerated for such unique skills and for their risky endeavors.

Liquidity constraints limit entry into entrepreneurship, some influential empirical studies find that:

The typical self-employed person does not have better skills or more education than salaried employees
The typical self-employed person does not earn more than a salaried counterpart.
Liquidity constraints restrict only a small proportion of wealthy individuals from becoming self-employed.

In this paper, we are basing our analysis on Levine & Rubinstein's entrepreneurial standard model that differs from the influential the in two key respects. While it distinguishes between (i) entrepreneurship—which demands entrepreneurial ability, physical capital, and liquidity—and (ii) other forms of self-employment that demand none (or little) of these inputs and is driven primarily by the non-pecuniary benefits of self-employment, such as being one's boss, as aggregating these two groups and calling the combined group “entrepreneurs” can lead to misleading perspectives on entrepreneurship. (

Ross Levine & Yona Rubinstein (2018)).

Chapter 2 – Subsistence and Transformational Entrepreneurship

We mention in the previous chapter the importance of entrepreneurship as personal traits is at the origin of entrepreneurship, and as Levin & Rubinstein model refines the definition of entrepreneurship by distinguishing between self–employed and entrepreneurs. In addition, it is important to differentiate between two very distinct sets of entrepreneurs: subsistence and transformational entrepreneurs (

Antoinette Schoar (2009) ).

Subsistence entrepreneurs become entrepreneurs as a means of providing subsistence income, while transformational entrepreneurs aim to create large, vibrant businesses that grow much beyond the scope of an individual’s subsistence needs and provide jobs and income for others.

Although well-established research tradition focuses on the entrepreneur as the agent of innovation and restructuring in the economy, a transformative role they play in increasing competition and helping shape markets and an important role they play in driving innovation and technological improvements in the economy, it is very important to distinguish the actual entrepreneurs who are the agents of this change and the heterogeneity among these individuals: subsistence entrepreneurs – those who become a means of providing subsistence income and transformational entrepreneurs who aim to create large, vibrant businesses that grow much beyond the scope of an individual’s subsistence needs and provide jobs and income for others.

One can note that subsistence entrepreneurs make up the majority of the entrepreneurs in developing countries such as India or China, occupation groups within the labor force, and transition flow into and out of self-employment and business ownership. They run tiny operations that do not grow into larger firms but merely provide an alternative employment opportunity to the entrepreneur and potentially their family members. However, these firms do not grow to be medium‐ or even large-sized businesses; nor do they create employment opportunities for other workers in the economy. In contrast, transformational entrepreneurs are much rarer in an economy and more difficult to identify for investors and policymakers. They build larger businesses that will achieve rapid growth if put in the right circumstances. Moreover, through their expansion process, they will create jobs for others. As such, they can be seen as the true engines of growth in an economy.

A survey carried out by de Mal in 2007 found a significant difference in the ability and attitude of transformational entrepreneurs. In a baseline survey, the transformational entrepreneurs scored much higher on different measures of IQ, willingness to take risks, motivation, and the level of managerial and financial literacy. the paper also finds that transformational entrepreneurs are more likely to add paid employees and to expand their business. In contrast, the self‐employed often report that they have no intention of growing their business and are content with the (small) size of the business they manage since it provides them with a management task that is comfortable for them and allows them the flexibility to tend to household chores at the same time as the business.

Those results suggest a stark difference in the underlying characteristics of transformation and subsistence entrepreneurs. Ardagna and Lusardi (forthcoming) confirm these findings in a quite different setting using data from the Global Entrepreneurship Monitor (GEM), which collects cross‐national harmonized data on entrepreneurship in 37 countries. GEM data are based on a survey conducted with a minimum of 2,000 individuals in each country. Those authors found that on average Transformational entrepreneurs are more likely to have a college degree, have less fear of failure, and have more confidence in their set of skills. Subsistence entrepreneurs, in contrast, have much lower educational outcomes and are more likely to have been unemployed before starting their businesses. Some studies show that different goals and ambitions could be transmitted through ethnic or cultural networks or upbringing.

It is hard to believe that some countries systematically lack an “entrepreneurial gene” altogether. But it is entirely possible that in some countries incentives or social status are set in such a way that the smartest people do not go into entrepreneurship but rather enter government jobs or professions such as doctors or lawyers. The finding of the survey conducted by Shoer suggests that top managers in emerging markets have a high appreciation for entrepreneurship. shows that the majority of CEOs across all countries ranked entrepreneurship at the top of the social prestige scale by a very wide margin.

Our intuitive assumption that transformational entrepreneurs are likely to sit on the tail end of the average education test scores. In the Israeli case, this tail distribution applies to the forty-one unicorn entrepreneurs whose contribution is turned Israel into a “startup nation”.

A possible explanation for the “Israeli Puzzle” is that in Israel education test scores distribution is heavy right-tailed, and therefore transformational entrepreneurs are indeed represented in the average education test scores.

The following three factors may prevent them from improving the average of the education test scores to align with the international tests and place Israel with a corresponding place to Israel’s Innovation’s ranking:

Firstly, the small number of tested students that are on the heavy tail is sufficient to evolve into Transformational entrepreneurs. The small number among all examinees is but not sufficient to affect Israel’s average education test scores in Israel whole but this number of potential entrepreneurs is big enough to have an impact on Israel’s outcome.

Second, the test is designed to test particular abilities that are deemed as important by the governments; however, those tests may favor the global average student and oversee the potential inert in a student with lower learning capabilities. For example, the top 10% of the examinees will achieve a perfect score, but the 1% in the heavy tail, despite their inert talent will not be able to have any impact on the average education test scores.

As we see the efficiency of the education test scores in predicting transformational entrepreneurial skills is limited as it is not capable of testing and measuring those relevant skills. The next chapter will introduce those skills which are correlated with entrepreneurship.

Chapter 3 – Multi Skills and Entrepreneurship

Even though education is important to success. It is far from the one single thing that will contribute to the Transformational entrepreneur’s growth, throughout intellectual history, the entrepreneur has worn many faces and fulfilled many roles. At least thirteen distinct roles for the entrepreneur can be identified in the economic literature (Hébert and Link, 1989, but also Van Dijk and Thurik, 1995 and Van Praag, 1996):

The person who assumes the risk is associated with uncertainty

The supplier of financial capital

An innovator

A decision-maker

An industrial leader

A manager or a superintendent

An organizer and coordinator of economic resources

The owner of an enterprise

An employer of factors of production

A contractor

An arbitrageur

An allocator of resources among alternative uses

The person who realizes a start-up of a new business.

Leading theories emphasize that entrepreneurs have unique human capital traits—including creativity, analytical skills, risk-taking, self-confidence, education, and managerial acumen (Schumpeter 1911, Lucas 1978, Kihlstrom and Laffont 1979, Evans and Jovanovic 1979, Baumol 1990, Murphy et al 1991, and Gennaioli et al 2013);

The literature that has been published regarding the skill sets required to be an entrepreneur, using data from the Stanford MBA alumni, it is found that those who end up being entrepreneurs study a more varied curriculum when they are in the program than do those who end up working for others (

Edward P. Lazear (2004) ). Entrepreneurs are generalists who are good at a variety of skills, although not necessarily excellent at anyone.

In addition to the correlation between the general curriculum and the likelihood of a student to become an entrepreneur (Lazear, 2004) finds that those who become entrepreneurs also take on a variety of roles after they enter the labor market. It is also shown that this is consistent primarily with an investment view, where aspiring entrepreneurs do different jobs in the firm in order to gain general experience. Data from Stanford MBA alumni support the fact that entrepreneurs are generalists who are good at a variety of skills, (

Edward P. Lazear (2004) )

In general, in modern economies, multi-skill sets can be broken down into three groups: Entrepreneurship Skill – such as critical thinking. risk-taking abilities, creativity, emotional intelligence non-cognitive skills Technical Skills – data analysis software proficiency and Management Skills – people management, coordination with others, judgment, and decision making.

While Technical and Management skills can be acquired and learned by facilitating university-wide entrepreneurship. For example, creating a formal degree in business management that includes training a practical aspect of entrepreneurship.

It is interesting to note that in an economy where only one skill determines people’s productivity in both salaried employment and entrepreneurship, people with the best-salaried job opportunities become entrepreneurs (

Ross Levine & Yona Rubinstein (2018) ).

Levine & Rubinstein developed a model that differentiates between entrepreneurs and other self-employed to address puzzling gaps that have emerged between theory and evidence on entry into entrepreneurship.

Their findings suggest that effective entrepreneurial human ability is a mixture of cognitive skills that are also valuable in paid employment and non-cognitive traits that might be a burden in paid employment. A unique mixture of smart and illicit skills—cognition and personality—provides the capacity for successful entrepreneurial ventures. Human traits of employees and self-employed are similar, the difference between employees and self-employed are small. Generally salaried employees and self-employed have remarkable similar attributes, salaried employees and self-employed individuals have similar human capital characteristics and most businesses start with little or no capital. (

Ross Levine & Yona Rubinstein (2018) )

In a risk-neutral economy, that if early career wages are a good proxy for people’s ability to establish a risk-free business, we may find positive selection into entrepreneurship on wages: The best-paid employees turn out to be the most successful business owners. Yet, when risk matters, this prediction does not necessarily hold. Even when early career wages are a good proxy for pure entrepreneurial ability, high-wage employees will not necessarily make the most successful business owners. Rather, the positive selection into entrepreneurship on wages should hold only among people with the non-cognitive capacity to “deal with risk” and exercise their entrepreneurial skills in entrepreneurial ventures. (

Ross Levine & Yona Rubinstein (2018) )

“In a realm of non-cognitive skills, some studies suggest that parents transmit traits to their children that are supposed to make them fit for success. These skills determine how well people can focus on long-term tasks, behave in social interactions, and exert self-restraint, and include patience, perseverance, and self-discipline, among others. Recent empirical studies emphasize the importance of such human assets for economic success (see Heckman, Stixrud, and Urzua 2006 and Segal 2013). The importance of the propensity to take a risk for entrepreneurship has been emphasized, among others, by Kihlstrom and Laffont (1979). Several studies point to robust evidence that risk-tolerant people are more likely to become entrepreneurs; see, e.g., van Praag and Cramer (2001), Cramer et al. (2002), and Kan and Tsai (2006).” (

Matthias Doepke & Fabrizio Zilibotti (2014))

In sum, we can see that entrepreneurs should possess multi-skills, cognitive and non-cognitive. While most of the cognitive skills can measure one way or the other, there is some elusive skill that in my opinion appears to have a great impact on entrepreneurial success.

To my understanding of these articles, their conclusions support the multi-skill necessity of the entrepreneur, but their empirical outcome focuses on the subsistence entrepreneur. And do not find any findings on the transformational entrepreneur we are contributing to the startup nation phenomena.

Lazear did state that entrepreneurs must be jacks-of-all-trades to some extent. Although they need not be experts in any single skill, they must be sufficiently good at a wide variety to make sure that the business does not fail. (

Edward P. Lazear (2004) ) But, he further shows that the 2002 CPS data reveals those entrepreneurs, defined as the incorporated self-employed, are found primarily in non-technical occupations and not in high-tech industries. Thus, we are missing the component we need to state that transformational entrepreneurs must be jacks-of-all-trades to some extent.

Let us continue to another skill, other than education, that contributes to the transformational entrepreneur’s growth.

Chapter 4 – The Span of Control

In the literature span of control is described as an ability to manage effectively and efficiently by supervisors or managers in an organization a number of subordinates. Typically, it is either narrow or wide resulting in a flatter or more hierarchical organizational structure. The managerial technology involves two elements: variables skills or talent and an element of diminishing returns to scale or to “Span of Control “ (

Robert E. Lucas & Jr. (1978) )

Levine and Rubinstein use incorporated as a proxy for entrepreneurs and show that the incorporated and their businesses engage in activities that demand a relatively high degree of creativity, complex problem-solving, and communication skills, including the ability to persuade, motivate and manage others. In contrast, the unincorporated perform activities that require relatively low levels of these analytical skills but instead require strong manual skills. Under the assumption that stronger cognitive skills are more closely aligned with core conceptions of entrepreneurship than manual dexterity, these observations motivate our use of incorporation as a better proxy for entrepreneurship than aggregate self-employment.

Being an incorporated entity comes at a price in administrative and legal fees, legal hurdles, public disclosure mandate, and increased complexity in bookkeeping, however. there are advantages to being incorporated, as in, the perpetual life of company tax benefits, ability to deduct employees salaries easier access to capital, ability to build credit, it is natural to assume that those who willing to pay the price of incorporation have a different mindset and skills moreover legal structure has an indication not only person’s future plans and goals for growth but also organizational and managerial abilities.

It’s apparent that managerial skills serve as a key component to growth, for example, the study based on overall survey data, regarding why US firms have so much higher software inputs than other multinationals shows that US firms have distinctive organizational features. Moreover, findings suggest that the higher productivity of IT in the US has something to do with specific characteristics of US establishments, which is defined as their “internal organization” such as the ability of regional managers to remotely monitor branches, reduction in branch-level management, and much greater decentralized decision-making for the front-line staff.

As the result of internal organization and suitable managerial technics, US firms appear to obtain significantly higher productivity from their IT capital than other multinational establishments (and domestic establishments), even in the context of a UK environment. This suggests that part of the IT-related productivity gains underlying the recent US “productivity miracle” may be related to US firm characteristics rather than simply the natural advantage (geographical, institutional, or otherwise) of being located in the US environment. (

Xavier Gabaix & Jean-Michel Lasry, Pierre-Louis Lions, Benjamin Moll (2016))

In this context Lucas suggests allocating productive factors over managers of different abilities so as to maximize output, He acknowledges the multiproduct nature of at least the larger modern firm and the mobility of top managers across industries. In his opinion, managerial technology involves two elements: variable skill or talent, and an element of diminishing returns to scale, or a span of control”. In his model, he establishes the correlation between the full-size distribution of the firm and distribution of them managerial talent and implies of the components to the success of a firm it is multilevel, hierarchical management that allocates capital and product workers over several levels of managers, until all the resources are distributed over the top-level management.

As to human capital, considerations are suggested by commonly known features of managerial careers: people tend to move from employee to managerial status later in their careers (as opposed to immediately upon entry to the workforce, as predicted by the theory above); those that make this transition tend to be among the most skilled employees. These facts suggest the existence of a kind of human capital that is productive both in managing and in working for others, and which is accumulated most rapidly as an employee. (

Robert E. Lucas & Jr. (1978) )

As shown by the scholars and by empirical studies “span of control“ is a crucial component of a successful entrepreneur, nonetheless, due to a specific exam structure, this crucial skill is not reflected in global education tests.

Chapter 5 – The Israeli Puzzle

The Israeli puzzle we tackle is a phenomenon in which there is a mismatch between innovation indicators like per capita of Innovation and successful entrepreneurship and globally recognized estimators such as the education score average. Most of the developed countries use the education score average as a prediction tool for future economical growths and development, however contrary to test result score assumption country with low education level test scores produce such high-level per capita of Innovation and successful entrepreneurship.

According to the World Economic Forum’s 2016-2017 Global Competitiveness Report, Israel is the second most innovative country in the world. The study ranked 138 countries in terms of competitiveness, and Israel moved up three steps this year, to hold a place in the top 25[2].

Furthermore, Israel is a leader for unicorns, with 1.58 unicorns per capita[3].

In the following graph, we see Israel at 7th place, with 11 unicorns, but for our needs, we should factor in the unicorns that started in Israel, then the number will grow to 41, which places Israel in 3rd place, after the US and China. And with a population of 9.1 million people, and a GDP (PPP) of $354.9 billion, and with 3.5% growth in 2019 5-year compound annual growth of 3.4%. Israel has a booming economy.

Israel has a history of low score in global educational surveys (PISA, 2018)[4], The PISA report rank Israel; in 29th place (out of the 77 countries involved) in reading; in the 41st place (out of the 78 countries involved) in mathematics; in the 33rd place (out of the 78 countries involved) in sciences.

Given the above data, how can we explain the negative correlation? Moreover, in spite, Israel's average local education score be at the ~50th percentile how Israel be placed in the top 25th countries in innovation?

In prior chapters, we proposed two main theories to shed light on this phenomenon:

Israeli average is lower in the global educational surveys as Israeli inbound educational survey has a heavier tail.

The global educational surveys do not factor in the real estimator for entrepreneurial success.

Transformational entrepreneurs are more likely to sit on the tail end of the average education test scores. Very similarly to the same 41 Unicorns entrepreneurs credited for Israel's “startup nation” title. As we found from interviews with those entrepreneurs, most of them serve in IDF’s 8200 unit, which recruits only the top and exceptional students. And our education test scores distribution is characterized with a heavy right tail; so those Transformational entrepreneurs are indeed represented in the average education test scores, but three factors may prevent them from moving the average of the education test scores to align with the international tests and place Israel with a corresponding place to Israel’s Innovation’s ranking.

Even though education is important to success. It is far from the one single thing that will contribute to the Transformational entrepreneur’s growth. we saw that throughout intellectual history, the entrepreneur has worn many faces and fulfilled many roles. At least thirteen distinct roles for the entrepreneur can be identified in the economic literature, and none of them are observable in the global educational surveys.

To continue our journey, unveiling the Israeli puzzle, we propose the next two research:

create a meta-analysis one the global educational surveys, further diving into a heavy tail comparison.

Continue Lazear's study but invest in developing the transformational entrepreneur's distinction.

Should we take our PISA tests, model Israel’s test score distribution, and factor the right end tail “heaviness”, we could compare this heaviness factor in global research to find if this factor can infer the heavy tail contribution to Israel’s economy.

The Stanford alumni data provide more direct evidence on generalized educational investment patterns. In the late 90s, Stanford surveyed its Graduate School of Business alumni (from all prior years). The primary focus of the survey was compiling a job history for each of the graduates, with special emphasis on information about starting businesses. This resulted in a sample of about 5,000 respondents. These data were matched with the student transcripts so that it is possible to see which courses were taken by those who went on to be entrepreneurs and which by those who became specialists. (

Edward P. Lazear (2004) )

Using data from the Stanford MBA alumni, the hypothesis that entrepreneurs are generalists who are good at a variety of skills, although not necessarily excellent at anyone, is found to hold. But without any distinction for the entrepreneur’s category, we cannot conclude if this hypothesis is relevant for the transformational or the subsistence kind. We would propose to replicate the Lazear 2004 study with this distinction. With these two in-depth research, we could further analyze the root of the Israeli puzzle phenomenon. And create a better prediction model which predicts the future growth of the country’s transformational entrepreneurs.

Chapter 6 – Extra thoughts

On a personal note, my interest in this particular subject comes from my experience from my early years of the PIZA and similar standard exams. I may say it was horrible at best. Based on the results of the exams I was deemed to be a manual worker, as my presumed inborn talents were sufficient for brown intensive occupation and not sufficient to brain intensive occupation (

Chang-Tai Hsieh & Erik Hurst, Charles I. Jones, Peter J. Klenow (2019) )

Despite those grim future prospects and to my parent's relief I managed to finish my B.A. in business management and economics, I started as a business analyst for the fund to support small and medium businesses back by the government in those years encountered above 2000 businesses from various shapes and sizes, with owner profiles ranging from substance entrepreneurs that just focused on getting by, to transformation entrepreneurs, which strive to make a difference and build something unique.

Later, I continued as a product manager in early-stage startups and got to meet in person hundreds of unique individuals that built wonderful high-growth companies and generated employment opportunities for thousands of highly skilled workers.

I found little evidence of a correlation between pre-academic grades average or even academic grades average to becoming transformational entrepreneurship.

Thus, from my personal experience, I believe we could find in my proposal to conduct Lazear 2004 study with a distinction between subsistence and transformational entrepreneurs a better estimator for transformational entrepreneurs’ growth.

Circle back to my experience from my early years of the standardization exams, not only these exams did not capture my capabilities, as I received exceptionally low scores in my pre-academic grades, they had a negative influence on my moral and early development.

And in generalized mater, these tests could lead to human capital wasted, that in a more encouraging environment could contribute to the country’s economic growth.

[1] Guess what nation has the most unicorns per capita? | JNS.org

[2] Innovation in Israel | Israel Innovation (innovationisrael.org.il)

[3] Guess what nation has the most unicorns per capita? | JNS.org

[4] PISA_2018_Report.pdf (education.gov.il)

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Chapter 1 – Entrepreneurship and Economic Growth

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Chapter 1 – Entrepreneurship and Economic Growth

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