Why do some entrepreneurs drive economic growth while others do not? This piece discusses **new research** that studies entrepreneurs using a comprehensive dataset from Denmark. We examine who becomes an entrepreneur, along with their hiring and business decisions, and find that a distinct minority are **"transformative."** These individuals, who generate disproportionate productivity gains, tend to have **high IQ scores**, be **well-educated**, and hire **technical (R&D) workers**. The data support the idea of productivity growth being driven by the **symbiotic relationship** between transformative entrepreneurs and R&D workers. For policymakers, the lesson is that when an economy has more R&D workers and transformative entrepreneurs, they sustain higher long-run productivity growth.

## Facts on Entrepreneurs

Our work develops new facts using comprehensive data on individuals and firms from Denmark Statistics. For instance, individuals' IQ test scores come from a military test that is generally taken in very early adulthood. We combine this measure with details of entrepreneurs' education and parental backgrounds and firm performance to connect individuals' backgrounds with their firms.

We identify entrepreneurs as individuals who register as primary founders of firms with at least one employee. Among this group, we distinguish **transformative entrepreneurs**, those who hire at least one R&D worker, from **non-transformative entrepreneurs**, who do not employ technical personnel. This classification captures innovation intent rather than performance outcomes. R&D workers are defined as individuals employed in occupations with high patenting intensity, reflecting their direct involvement in innovation-related activities.

The data reveal striking patterns. The first chart shows how the shares of entrepreneurs and R&D workers vary across IQ deciles. The pattern is reversed across the two groups: individuals with higher IQs are more likely to be R&D workers, but less likely to be entrepreneurs.

![Bar chart tracking the share of IQ deciles in percentage (vertical axis) against IQ deciles from 1-10 (horizontal axis) of R&D workers (blue bars) and entrepreneurs (gray bars); individuals with higher IQs are more likely to be R&D workers, but less likely to be entrepreneurs.](https://libertystreeteconomics.newyorkfed.org/wp-content/uploads/sites/2/2025/11/LSE_2025_enterpreneurship_pearce_ch1.png)

Source: Denmark Statistics.
Notes: The chart shows the share of all individuals in each IQ decile that are entrepreneurs (gray bars) and R&D workers (blue bars). Definitions available in text and in Akcigit-Alp-Pearce-Prato (2025).

The pattern flips for transformative entrepreneurs, as shown in the next chart: individuals with higher IQs are more likely to be transformative entrepreneurs. These patterns remain when controlling for parental background, education, and age.

![Bar chart tracking the share of IQ deciles in percentage (vertical axis) against IQ deciles from 1-10 (horizontal axis) of non-transformative entrepreneurs (gray bars) and transformative entrepreneurs (red bars); individuals with higher IQs are more likely to be transformative entrepreneurs.](https://libertystreeteconomics.newyorkfed.org/wp-content/uploads/sites/2/2025/11/LSE_2026_entrepreneurship_pearce_ch2.png)

Source: Denmark Statistics.
Notes: The chart shows the share of all individuals in each IQ decile that are classified as non-transformative entrepreneurs (gray bars) and transformative entrepreneurs (red bars). Definitions available in text and in Akcigit-Alp-Pearce-Prato (2025).

Educational attainment shows similar patterns as IQ: college graduates are less likely to become entrepreneurs overall but are much more likely to found transformative firms once they do. The strongest predictor of entrepreneurship is having a parent who is an entrepreneur. Education is central for transformative entrepreneurship and R&D workers, and is a key building block for an innovative ecosystem.

## The Firms of Entrepreneurs

Tracking firm employment over the first decade after a firm is founded reveals substantial performance differences between entrepreneur types. Transformative entrepreneurs start firms that employ approximately **twice as many workers** as those founded by non-transformative entrepreneurs and maintain significantly higher annual employment growth rates (16 percent versus 8 percent). This can be seen in the next chart.

![Line chart tracking the level of normalized employment (vertical axis) for firms from 1 to 10 years old (horizontal axis) of non-transformative (gray dashed) and transformative (red) entrepreneurs; transformative entrepreneurs start firms that employ approximately twice as many workers as those founded by non-transformative entrepreneurs and maintain significantly higher annual growth rates.](https://libertystreeteconomics.newyorkfed.org/wp-content/uploads/sites/2/2025/11/LSE_2025_enterpreneurship_pearce_ch3.png)

Source: Denmark Statistics.
Note: Average employment by firm age and entrepreneur type, normalized to one at age zero.

Revenue trajectories mirror employment patterns. Transformative firms reach **seven times their initial revenue** by year ten, while non-transformative firms plateau at 2.5 times initial levels. Exit rates differ modestly between firm types: in their first year, 16 percent of non-transformative firms exit, compared to 12 percent of transformative firms, though both rates converge to around 8–9 percent by year eight.

Industry sorting by IQ also exhibits intuitive patterns. Low-IQ entrepreneurs concentrate in traditional sectors like trade/transport and construction/agriculture, while high-IQ entrepreneurs dominate knowledge-intensive industries, with the knowledge/communication sector representing 50 percent of entrepreneurial activity in the top IQ deciles.

## The Macroeconomics of Entrepreneurship

We develop a quantitative model to study the macroeconomic effects of entrepreneurship on innovation and economic growth, incorporating individual differences in ability, family income, and entrepreneurial exposure. In the model, individuals choose between production work and R&D careers initially, then decide later in life whether to become an entrepreneur, consistent with the age profile in the data. In line with the data, educational attainment, necessary for a technical career path, is determined by both ability and family resources. The model replicates key empirical patterns: negative selection into general entrepreneurship with respect to ability, positive selection into transformative entrepreneurship and R&D work with respect to ability, and the observed correlation between firm performance and entrepreneur type.

The model captures the **symbiotic relationship** between transformative entrepreneurs and R&D workers by linking individual career choices to firm-level innovation decisions. This microeconomic foundation enables us to trace how barriers and choices at the individual level aggregate to economy-wide productivity effects through both supply-side constraints (shaped by the availability of R&D workers) and demand-side limitations (determined by the pool of transformative entrepreneurs hiring technical talent). This framework is necessary to develop a full range of realistic responses to policies and changes in the institutional environment.

We use the model to study the effects of various constraints and policies. Eliminating financial constraints in education access, for example, increases R&D workers' share of the workforce by **15 percent** and boosts transformative entrepreneurs' share by **7 percent**, with both effects concentrated among high-ability individuals from low-income families. In addition, the pace of economic growth increases by **11 percent**.

Supply-side changes alone generate only 60 percent of the total growth effect, with the remaining 40 percent stemming from increased demand for R&D workers by additional transformative entrepreneurs. This illustrates the symbiotic relationship between these entrepreneurs and R&D workers.

Policy-wise, subsidies to technical education outperform R&D and startup subsidies, generating around **four times as much initial return** at low budgets by unlocking access to innovative careers for talented individuals from disadvantaged backgrounds. These simulations suggest that it is sensible to mix the different subsidies to jointly stimulate the supply and demand sides of the innovation pipeline.

This piece explores the macroeconomics of entrepreneurship using rich microdata. The evidence illustrates that differences between entrepreneur types are stark, and this has substantial implications for aggregate innovation and growth.

The symbiotic relationship between transformative entrepreneurs and technical workers means that policies affecting one group also influence the other. Education subsidies prove most effective because they simultaneously increase both the supply of R&D talent and demand for R&D talent from the pool of innovation-focused entrepreneurs. Policies that develop ecosystems of talent foster connections between the builders of companies and the builders of ideas. This lesson applies broadly to innovation ecosystems: a thriving economy emerges from many interconnected elements working together.

A look at the characteristics of transformative entrepreneurs who generate disproportionate productivity gains.

The Secret to Economic Growth: How Transformative Entrepreneurs with High IQs and R&D Workers Drive Productivity

Roughly one out of three Americans has a **side hustle**—and that number is expected to increase in 2026, something that’s **driving a shift** in the modern working world.

Many of those with a side business are just looking for a little extra income, but roughly one in five are hoping to make their side hustle into a **full-time business**. Those who are entrepreneurially-minded will want to choose a side business that has the potential to **scale**. Here are some fields that are showing a lot of promise for 2026.

## Consulting Business
No matter what field you’ve worked in, your wisdom could be lucrative via a **consulting business**. Firm up your resume, highlighting achievements, such as successful campaigns or large-scale product launches to help as you pitch potential clients. Have some former co-workers you worked well with? Consider recruiting them and launching an agency. “Companies want seasoned counsel without the overhead, and senior talent wants more control over how they work,” Brooke Kruger, founder and CEO of top communications search firm, KC Partners, told *Inc* earlier this month.

You can also turn your expertise into **online educational content**. The e-learning market reached $314 billion in 2024 and is expected to grow to $615 billion by 2029.

## Skilled Trade Business
**AI** is threatening millions of white-collar jobs in the coming years—and some of those displaced people won’t be able to quickly find work. But AI can’t fix a sink. Nor can it build a deck or install an air conditioning unit. Rates for this specialized work can run as high as $300 per hour.

Skilled trade businesses are a hot field right now for **entrepreneurship through acquisition (ETA)**. ETA involves buying an established business (usually from Baby Boomers looking to retire), which gives the new owners existing revenue, customers and infrastructure. New owners then streamline, scale and modernize the business, boosting profits.

## Dropshipping
E-commerce had one of the largest revenue growth rates of any industry in recent years, according to a **study by McKinsey**, jumping from $15 billion in 2005 to more than $1 trillion in 2023. **Dropshipping** is a side business that can act as an onramp into that field. You set up an online store, find a third-party supplier to manufacture and ship the product to the customer, freeing you from having to worry about things like storage, fulfillment, or upfront production costs. Your focus will be on creative and **marketing**.

In the past year, tariffs and the **end of the *de minimis* exemption** have made business more challenging for dropshippers who worked with manufacturers and warehouses overseas, but there are many U.S.-based dropshippers.

## Mobile Car Washing
The service industry has shown resilience amid the economic volatility of the past year—and a growing number of people are looking to have the carwash come to them. A **forecast** by Future Market Insights predicts the global market for mobile car wash service businesses will grow to just under $283 billion by 2035. That’s more than double the $126 billion the businesses are expected to bring in this year.

It’s a **low-barrier, high-demand opportunity** with flexible hours and low overhead. The density of competition in your local market will help you decide the appropriate rate to charge customers, but **national averages** range from $40 for a basic wash to more than $350 for a full detail.

## Localize Businesses
The past several years have illustrated the fragility of global supply chains. Tariffs have disrupted some shipments and made many products much more expensive. That could be an opportunity for the right entrepreneur. If you’re dialed into local suppliers in your area, consider starting a side business as a facilitator.

It’s a **matchmaker-like role**. You help connect suppliers with retailers and other businesses, localizing their inventory and lowering the risk they face from shipping or manufacturing hiccups, collecting a commission on each deal. You’ll need strong communication, listening, and **networking** skills. You’ll also have to have or quickly learn marketing skills to promote the benefits of your services.

![How Small Businesses Can Use Travel as a Growth Catalyst](https://img-cdn.inc.com/image/upload/f_webp,c_fit,w_3840,q_auto/vip/2025/11/inc5000_day3_final-59-1920x1080-1.jpg)

If you're looking for a side hustle with the potential to scale into a full-time business, consider these fast-growing industries.

Stay up to date with our latest news

Startups Articles Published Today

Startups Articles Published 2 days ago