Here's a question: If you've been successful as an "entrepreneur" in the black market—selling stolen TVs online, say—what are the chances you could be successful taking those same skills into a more legal business setting? Is there any correlation between illegal business performance and legal business ventures? A recent study holds good news for young crooks looking to go straight—and offers a unique take on what, exactly, separates winners and losers in business.
In a paper called Illegal Entrepreneurship Experience: Does It Make a Difference for Business Performance and Motivation? published earlier this year in the Journal of Business Venturing, two business school professors, Mirjam van Praag of the University of Amsterdam and Ruta Aidis of University College London, studied a group of 399 Lithuanian business owners who started ventures in the newly independent country in the 1990s. Nearly 1 in 4 had some form of "illegal" entrepreneurship experience during the Soviet era, when private business ownership was not permitted.
The authors weren't surprised to find the same traits that made business owners successful in the black market made their businesses function smoothly in the open market, too. The level of motivation among entrepreneurs with illegal backgrounds far surpassed that of law-abiding business owners. And while illegal entrepreneurs' performance, as a group, wasn't always better than their competitors', younger entrepreneurs with shady backgrounds tended to have the ultimate combination: They were not only highly motivated, but they had the highest-performing businesses, too. "Apparently," the authors write, "founding a business requires skills or an attitude similar to those obtained through...[illegal businesses]."
Illegal entrepreneurship had its downside. There was a disappointing tendency, among business owners who'd recently gone straight, to make their business ends justify their occasionally shady means. Nearly half of the illegal entrepreneurs in the study admitted making "unofficial" payments for government services in order to keep their business going. (That, of course, might have been a bigger problem in Lithuania in the 1990s than it is in the United States.) Still, more than 1 in 5 thought misreporting financial results might be necessary to help their company grow and survive.
The risk of the occasional ethical lapse aside, van Praag and Aidis demonstrate the real benefits that might result from legalizing some black-market businesses. The study is particularly relevant in countries like Cuba and Belarus, which continue to cling to centralized economies. But while the authors don't offer any specific examples, it seems clear that their findings could be applied to several stateside black markets as well. (Medical marijuana, perhaps?) There's no doubt a small army of entrepreneurs would be ready and willing to take their operations into the open market, and this paper shows they'd be likely to do quite well. "Given the right conditions and incentives, especially in terms of government policies, these informally developed skills could be successfully transferred to legal businesses," the authors conclude. With the right opportunity—who knows?—one of those young street toughs selling TVs out of his trunk could just be the next Bill Gates.