What is Self-Interest, Anyway?

Self-interest is what gives the world its shape. That’s a view first promulgated by Adam Smith, and hardly any economist disputes it. Self-interest is what infuses people with energy and gives them an appetite for risk. People’s overwhelming motivation by self-interest is what constitutes the invisible hand. It’s the way the world coordinates itself. 

So, the question is, What exactly did Smith mean by self-interest?

Some years ago, I conducted a study of 600 start-ups around the world. The young companies we studied were located in the places where most of the world’s start-ups are found — the United States, Canada, Britain, the Scandinavian countries and Israel. Most of the companies were in the software, telecommunications and biotech fields.

Interestingly, we did not find a single entrepreneur out of more than 700 — many companies were started by a team of more than one person — who was in it for the money.

Don’t get me wrong.

No one in our sample turned down options, shares or money. No one mortgaged his or her house indifferently or wanted to go broke.

But that was not why they went to all the effort of starting a company. In fact, since many of the entrepreneurs were serial entrepreneurs, and already very rich from having started other companies, we believed them when they said that money wasn’t what motivated them.

In a number of instances, the entrepreneurs who took part in our study said they took on the risks and effort of starting a company to prove a point. They wanted to show the world that their software or hardware or molecule was superior to what others had developed. They wanted to show that their business model would succeed. They wanted to demonstrate they had a solution no one else had thought of.

In other cases, these entrepreneurs wanted to change the world. They believed what they were doing was so important and so different that the world would be better as a result of their efforts. This was particularly true among the biotech companies, but it wasn’t limited to them. Some software pioneers felt exactly the same way.

And, finally, some of the entrepreneurs started companies to have fun, work with friends or work with people they admired.

Self-interest may be what gives shape to the world, but it is not self-interest in the narrow sense. I think Adam Smith would agree since most companies in his day were private family-run operations.

The goals of the founders were to do something new, something important, and to create something that would last.

Nothing exemplifies these broader goals more than when an entrepreneur returns to a company that he or she started when it is struggling. When Michael Dell, Howard Schultz and, most famously, Steve Jobs returned respectively to Dell Computer, Starbucks and Apple, it was not because they needed money.

All of them were flush. They returned because their own sense of self-interest was very much identified with the interests of the people they had worked with and had hired. They wanted to make sure that the companies they had started lived up to their promise.

This suggests Adam Smith was right, but not in the way it’s commonly recounted. It’s not self-interest as in greed or selfishness that motivates people. It’s self-interest in the sense of the bigger self, as in us.

I’m not suggesting that entrepreneurs are selfless, or that they don’t have egos. Far from it. I am suggesting that people start companies for reasons bigger than themselves — for the team, the group, the world.

We make a mistake when we think about self-interest in its narrowest sense. It demeans the concept. And while there might be a few entrepreneurs whose dream is to drive cars made of solid gold and light cigars with $100 bills, I have yet to meet one.

Most of the entrepreneurs I’ve met have been focused on goals that are bigger. I can’t help but believe that’s what Adam Smith meant.