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July 24, 2010 / Tony Arena

The Secret of Successful Entrepreneurs

In a recent blog post, Ross Douthat describes the “trouble with meritocracy,” or our belief that the best and brightest (as measured by their SAT scores and GPA) should all attend the same elite universities:

Part of the problem with meritocracy is that it homogenizes in the name of diversity: It skims the cream from every race and class and population, puts all of the best and brightest through the same educational conveyor belt, and comes out with a ruling class that’s cosmetically diverse but intellectually conformist, and that tends to huddle together rather than spreading out to enrich the country as a whole. This is Christopher Lasch’s lament in “The Revolt of the Elites” — that meritocracy co-opts people who might otherwise become its critics, sapping local communities of their intellectual vitality and preventing any kind of rival power centers from emerging.

The obvious rejoinder to any critique of meritocracy is that, like democracy, it’s the worst system except for all the others that have been tried. Nevertheless, I think it’s still worth considering ways in which our meritocratic institutions – I’m looking at you, Harvard – can improve their outcomes and help mitigate the very real problem of social homogenization.

The first thing to note is that homogenization happens automatically: we naturally construct our social network so that it consists mostly of people like us. (Sociologists refer to this failing as the self-similarity principle.) In 2007, Paul Ingram and Michael Morris conducted a study of business executives at Columbia University. The executives were invited to a cocktail mixer, where they were encouraged to network with new people. Not surprisingly, the vast majority of executives at the event said their primary goal was to meet “as many different as people as possible” and “expand their social network”. Unfortunately, that’s not what happened. By surreptitiously monitoring the participants with electronic devices, Ingram and Morris were able to track every conversation. What they found was that people tended to interact with the people who were most like them, so that investment bankers chatted with other investment bankers, and marketers talked with other marketers, and accountants interacted with other accountants. Instead of mixing with new people, the leaders made small talk with those from similar backgrounds; the smallness of their social world got reinforced. According to Ingram and Morris, the only successful networker at the event was the bartender.

So far, so obvious. However, it’s important to note that cultivating diverse social networks – connecting with people who think differently – comes with real, tangible benefits. Consider this interesting study led by Martin Ruef, a sociologist at Princeton. He began by interviewing 766 graduates of the Stanford Business School, all of whom had gone on to start their own business. Ruef was most interested in the structure of their social networks. He noticed that most entrepreneurs had a rather homogenous collection of contacts. They might have lots of friends, but all of their friends came from the same place and were interested in the same things. This isn’t particularly surprising: We naturally self-segregate.

But not every entrepreneur had such a self-similar network of friends. In fact, Ruef discovered a small subset of business people who were embedded in diverse social structures. They didn’t just hang out with colleagues and close friends. Instead, these entrepreneurs maintained a large number of “weak ties” with people at different companies and from different backgrounds. Their social networks were varied and undirected, full of surprising interactions and “informational entropy”. These entrepreneurs made a habit of hanging out with people who told them unexpected things; they chatted with acquaintances and struck up conversations with random strangers.

Ruef then analyzed each of these entrepreneurs using an elaborate metric of innovation. He measured the number of patents they’d invented and kept track of all their trademarks. He rated the originality of their products and gave them bonus points if they’d “entered an unexploited niche” or pioneered a new marketing method. He then compared these innovation rankings to the structure of the entrepreneur’s social networks. The results were impressive: Business people with entropic networks were three times more innovative than people with predictable networks. Because they interacted with lots of different folks, they were exposed to a much wider range of ideas and “non-redundant information”. Instead of getting stuck in the rut of conformity – thinking the same tired thoughts as everyone else – they were able to invent startling new concepts.

There is something unsettling about Ruef’s data. We think of entrepreneurs, after all, as individuals. If someone has a brilliant idea for a new company, we assume that they are inherently more creative than the rest of us. This is why we idolize people like Bill Gates and Richard Branson and Oprah Winfrey. It’s also why we invest in the meritocracy: We believe that we can identify talent in isolation. But Ruef’s analysis suggests that this focus on the singular misses the real story of entrepreneurship. Unless we take our social circle into account – that collection of weak ties and remote acquaintances who feed us unfamiliar facts – we’re not going to really understand the nature of achievement. Behind every successful entrepreneur is a vast network.

And this returns us to meritocracy. It’s not enough to simply take the smartest kids and make them smarter. What’s just as important is teaching these young people to seek out strangers, to resist the tug of self-similarity and homogenization. Diversity can seem like a such a vague and wishy-washy aspiration, but it comes with measurable benefits. To the extent our meritocratic institutions diminish our social diversity – are your college buddies just like you? – they might actually make us less likely to succeed. Perhaps Bill Gates knew what he was doing when he dropped out of Harvard.

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