From Side Hustle to Entrepreneur
A Conversation with Margarita Tsoutsoura about the Gig Worker's Path to Ownership.
The other day, I hopped in an Uber to head to the airport. As is par for the course for me, I ended up striking up a conversation with my driver. I would say he was about 25 years old. Shortly into our conversation, he let me know that this work—driving— was merely his taking of a short break before heading back to school to get his PhD in physics. Driving, in other words, was simply a short-term gig until getting into his next thing.
Our conversation got me thinking about all the other drivers I have had over the years. What was their “primary thing”? It might have been the driving… sure… and nothing is wrong with that. At the same time, for some people, the gig is a short-term step to something different, something bigger, an unspoken plan still not yet disclosed in the space unknowing between the front and back seat.
Insights on the Gig Economy from US Tax Returns
To gain some insight into this space, I want to introduce you to Margarita Tsoutsoura, my colleague in the finance department of Olin Business School.
Margarita, welcome to the Owner’s Box!
MARGARITA: Thanks for having me, Peter!
Margarita, I wonder if you can give us a quick snapshot of your background… your current role at Olin, and what you do outside of hte university.
MARGARITA: Yes, I'm Margarita Tsoutsoura. I'm a Professor at the Olin School at Washington University in Saint Louis. I'm also a research associate at the National Bureau of Economic Research and a research fellow at CPER.
I want you to get to know Margarita because 1… she is awesome, and 2… some of her recent research speaks to this very question — the path from Uber to Entrepreneur, or more broadly, from gig economy to creating something new. The way they ran their it is especially interesting. Margarita and her team (Spyros Lagaras and Matthew Denes) looked at administrative data on tax returns to find out whether or not people who started in the gig economy were more likely to end up as entrepreneurs.
Before we get into the paper, Margarita, what got you so interested in the path to entrepreneurship in particular?
MARGARITA: Yeah, we know that the path to entrepreneurship is usually difficult for a lot of people given that it often needs a lot of capital, especially at the beginning, to set up a business. We also know that this the gig economy is a huge innovation in the labor market, one that has grown a lot in the last decade. So, part of our curiosity was finding out the link between the two — whether the gig economy actually facilitates entry to entrepreneurship and of the interplay between the two.
Really interesting… ok, well let’s transition into the paper itself. Can you give us a sense of how you looked at this question, and what you ended up finding in this work?
MARGARITA: Of course! So in this paper, our goal was to understand if participation in the gig economy could act as a pathway to entrepreneurship. Beyond that, we also try to see who benefits and who responds to this specific innovation in the labor market.
So to answer the question, we used detailed administrative data on tax returns for the universe of firms and individuals in US, a dataset covering about 10 years—2012 to 2021. What we find is that individuals who previously received income from the gig economy are significantly more likely to start new firms. This was especially true for first time entrepreneurs who make up 75 % of those starting new firms.
The next step was trying to understand who reacts and determine the role of capital constraints, life-size considerations, and flexibility. And we do find that lower income individuals are more likely to start new firms, as well as younger individuals and individuals who have dependents. This indicates that flexibility could be an important consideration.
The next step was to try to see what type of firms they start. And we find that they often start firms in the same industry as the one they are participating in the gig economy. In this way, the gig economy actually provides on the job learning — helping them experiment and learn new relevant skills.
One of the cool things we can do is that we can follow these firms over time and see how they're doing. We do find that gig founded firms are less likely to survive, but if they survive, they have higher performance and they grow larger relative to firms started by non-gig founders. So overall, our results kind of show that indeed the gig economy provides a pathway to entrepreneurship.
I love this…. so, let’s conclude by having you reflect on what most surprised you in these findings. Was there anything in particular that you were especially struck by?
MARGARITA: Yeah, so first, we didn't know whether we will find a positive relationship because it's not clear whether these two parts of the economy — the gig economy and entrepreneurship — are complements or substitutes.
And the second thing that was very surprising to us was the magnitude. Those who participate in the gig economy were more than twice as likely to start a business as those who hadn't, which is a large magnitude. Given that entrepreneurship is such a rare phenomenon, this magnitude really surprised us.
And finally, we were surprised by the type of firms they create. Specifically, entrepreneurs who transition from the gig economy are about 10 to 15 % more likely to have a businesses that employ at least five employees. In this way, because these firms are the kinds that employ other people, they are exactly the kind of businesses that are especially important to support and encourage.
Thanks, Margarita… it is great to have you on the Owner’s Box!
Lessons from the Gig Economy for the Aspiring Entrepreneur
I love this paper because it adds some nuance to our understanding of the sometimes winding path toward ownership. Yes, sometimes the entrepreneur is the individual in the garage tinkering around with an idea until they bring it to market. But sometimes, they are the person pulling their car out of the garage to take someone to the airport.
Let me try if to pull out three critical implications of this work for the would-be entrepreneur.
First, developing an idea requires time… but this time doesn’t necessarily require quitting your day job. If possible, find a job — whether in the gig economy or not — that gives you the flexibility to push your idea forward. Adding to this point, still other research shows that employees engaged in this kind of side hustle can also become more engaged in their day job. It really can be a win-win.
Second, pay attention to your risk tolerance and how that is likely to change over time. As much as my forty year old self loves sharing Pierre Azoulay’s research that the average age of high-growth entrepreneurs is individuals in their the mid-40s, your obligations are higher at that age and your risk tolerance may be lower. I think this might explain Margarita’s findings on the effects on the younger workers. Consider the fundamental trade-off of age and experience. More time means more insight, but it might also reduce your appetite for risk.
Finally, put yourself in an ecosystem conducive to generating new ideas. Not all gig workers are like my fellow Uber drivers with new riders in the backseat every 15 minutes. That said, some jobs will expose you to a broader range of ideas than others. If good ideas often combine depth in one area alongside a cross-pollination of novelty from other fields, consider whether your job provides that ideal blend of input to grow into a future company. This is a big part of why I like the university. We have a lot of flexibility, and there is no shortage of exposure to interesting ideas that could become a company.
Margarita’s research reminds us that the path toward starting something isn’t always getting a degree in entrepreneurship or spinning something out of an established company. Sometimes, the path is about being young, flexible, and willing to tinker within a flexible career path—the gig economy—one that didn’t exist in the same way 20 years earlier.
Show Notes & Ownership in the News
As always, I am including below a few relevant links to explore this idea further or to see other stories of ownership in the news:
Here is Margarita’s full paper and some recent coverage in the Wall Street Journal. Way to go Margarita and team!
If interested in the work of side hustles on the main gig, I’d point you again to this study in the Academy of Management Journal. Their key finding — “Although scholars have suggested that side-hustles conflict with full-time work performance, we assert that psychological empowerment from side-hustles enriches full-time work performance.”
This week, Sam Altman announced the shift of OpenAI (think: ChatGPT) from its original non-profit structure into a for profit Public Benefit Corporation (PBC). In his view, this is intended to help the company “continue to make rapid, safe progress and to put great AI in the hands of everyone.” Time will tell!
Fresh off the press— Bill Gates announced his plans to wind down the Gates Foundation by 2045. It will be fascinating to see how the philanthropic strategies pursued by the larger umbrella take different forms when accelerating toward this new spend down goal.
See you all in a couple weeks with a full episode and interview with Anna-Lisa Miller of Ownership Works!