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Anatomy of an Entrepreneur
 

Anatomy of an Entrepreneur

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Paper Dr Vivek Wadhwa-and team

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    Anatomy of an Entrepreneur Anatomy of an Entrepreneur Document Transcript

    • The Anatomy of an Entrepreneur Making of a Successful Entrepreneur Authors: Vivek Wadhwa Raj Aggarwal Krisztina “Z” Holly Alex Salkever November 2009 Electronic copy available at: http://ssrn.com/abstract=1507384
    • Vivek Wadhwa Associate Director, Center for Entrepreneurship and Research Commercialization Pratt School of Engineering, Duke University Senior Research Associate Labor & Worklife Program, Harvard Law School Raj Aggarwal Sullivan Professor College of Business Administration, The University of Akron Krisztina “Z” Holly Vice Provost for Innovation, University of Southern California Executive Director, USC Stevens Institute for Innovation Alex Salkever Visiting Researcher Masters of Engineering Management Program Pratt School of Engineering, Duke University Special Thanks: Bob Litan, E.J. Reedy Student Researchers: Karna Vishwas, Jeffery Lee, Moline Prak, Francisco Regalado, Neeti Agarwal, Savithri Arulanandasamy, Tahsin Hashem, Swetha Kolluri, Ayoola Lapite, Lynn Lee, Vinay Lekharaju, Aibek Nurkadyr, Rachel Prabhakaran, Keertana Ravindran, Arjun Reddy, Anisha Sequeira ©2009 by the Ewing Marion Kauffman Foundation. All rights reserved. Electronic copy available at: http://ssrn.com/abstract=1507384
    • The Anatomy of an Entrepreneur Making of a Successful Entrepreneur November 2009 The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur 1 Electronic copy available at: http://ssrn.com/abstract=1507384
    • Table of Contents Introduction and Findings .....................................................................................................................4 Experience, Management, and Luck: The Keys to Success.......................................................................4 Professional Networks, Education, Funding, Personal Networks: Important.............................................5 Location, Investor Advice, Alumni Networks, and Regional Assistance: Not so Important .............................................................................................5 Entrepreneurs Perceive Very Few Obstacles for Themselves.....................................................................5 Entrepreneurs Believe Entrepreneurship is Very Risky and is Hard Work .................................................6 Using Personal Savings is the Norm, Venture Capital Comes to the Experienced, and Friends and Family are Always There................................................................................................6 Other Success Factors .............................................................................................................................6 Entrepreneurship is Believed To Be Stressful, With Unanticipated Challenges .........................................7 Methodology, Definitions, and Background ........................................................................................7 Figure 1: Type of Business Currently Running or Founded.................................................................8 Figures 2 and 2a: Respondents by Region .........................................................................................8 Figure 3: Number of Businesses Started by Respondents...................................................................8 Detailed Findings ....................................................................................................................................9 Success Factors........................................................................................................................................................9 Figure 4: Importance of Prior Industry/Work Experience ...................................................................9 Figure 5: Importance of Lessons Learned from Previous Successes ...................................................9 Figure 6: Importance of Lessons Learned from Previous Failures.......................................................9 Figure 7: Importance of Company's Management Team ..................................................................10 Figure 8: Importance of Good Fortune ............................................................................................10 Figure 9: Importance of Professional/Business Networks .................................................................10 Figure 10: Importance of Personal/Social Networks ........................................................................10 Figure 11: Importance of University Education ...............................................................................11 Figure 12: Importance of University Education for Ivy-League Graduates .......................................11 Figure 13: Importance of Availability of Financing/Capital ..............................................................11 2 The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur
    • Figure 14: Importance of Availability of Financing/Capital for Founders of Venture-Backed Companies ........................................................................................................11 Figure 15: Importance of Location of Business................................................................................12 Figure 16: Importance of Location of Business by Region in which Founders’ Firm is Located.................................................................................................12 Figure 17: Importance of Advice/Assistance Provided by Company Investors (All Responses) ............................................................................................13 Figure 18: Importance of Advice/Assistance Provided by Company Investors (excludes N/A).............................................................................................13 Figure 19: Importance of Advice/Assistance Provided by Company Investors for Founders of Venture-Backed Businesses ......................................................................13 Figure 20: Importance of University/Alumni Contacts/Networks .....................................................14 Figure 21: Importance of University/Alumni Contacts/Networks for Ivy-League Grads....................14 Figure 22: Importance of Assistance Provided by State/Region........................................................14 Figure 23: Importance of Assistance Provided by State/Region by Region in Which Founder’s Firm is Located ...............................................................................15 Other Factors: Faith, Hard Work, and Perseverance..................................................................................15 Challenges They Faced in Starting Their Businesses.........................................................................16 Figure 24: Challenges Faced by Founders in Starting Their Business(es) ..........................................16 Figure 25: Ranking of the Challenges Faced by Founders in Starting Business(es) ...........................16 Other Factors .................................................................................................................................................17 Inhibitors to Entrepreneurship ............................................................................................................18 Figure 26: Factors that Prevent Others from Becoming Entrepreneurs .............................................18 Figure 27: Ranking of Factors that Prevent Others from Becoming Entrepreneurs ...........................19 Sources of Funding ........................................................................................................................................19 Figure 28: Main Sources of Funding................................................................................................19 Analysis and Conclusions.....................................................................................................................20 The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur 3
    • I n t r o d u c t i o n a n d F i n d i n g s Introduction and In this paper, we explore company founders’ opinions and observations about their own trajectory Findings and what influenced the success or failure of their businesses. By understanding what entrepreneurs think According to the U.S. Small Business and believe, we hope to provide more insights into Administration, since the mid-1990s, small businesses how to better support entrepreneurs and create generally have created 60 to 80 percent of the net societal, political, and economic conditions that can new employment in the United States. Further, they more efficiently foster entrepreneurship. found that net job creation in the immediate years following the 1990-1991 and 2001 recessions This research is based on a survey of 549 company stemmed from employment generated by small firms founders in a variety of industries, including aerospace with fewer than 500 employees.1 Therefore, it would and defense, computer and electronics, health care, seem that one good way to boost economic recovery and services. is to encourage more business creation. To do this, While our research cannot be generalized strictly to policymakers need to understand the backgrounds and the entire population of entrepreneurs in the United motivations of the founders of such businesses. They States, it is meant to be illustrative of the backgrounds also need to understand what inhibits others from of entrepreneurs in industries that we expected to be starting businesses and becoming entrepreneurs. higher growth.2 We surveyed founders of businesses Our earlier research paper, Anatomy of an that had made it past the startup stage. So this Entrepreneur, provided some insights into the research focuses on the successful businesses rather motivations of founders of high-growth companies, as than all businesses that are started in the industries well as their socio-economic, educational, and familial we selected. backgrounds. We found that technology entrepreneurs Here are some of our key findings. Detailed statistics are most likely to come from middle-class and charts are available in the latter sections of this backgrounds, to have parents who are less educated paper. Note that we use the terms “company than they are, and to be married with children when founder” and “entrepreneur” interchangeably. they launch their first companies. Their primary motivations for launching a company are financial and emotional. They wanted to build wealth and had a Experience, Management, and Luck: business idea on which they wanted to capitalize. The Keys to Success Many said they had always wanted their own We asked company founders to rank the importance companies some day. of a series of factors on the success of their most By understanding what entrepreneurs think and believe, we hope to provide more insights into how to better support entrepreneurs and create societal, political, and economic conditions that can more efficiently foster entrepreneurship. 1. U.S. Small Business Administration, Office of Advocacy, The Small Business Economy, Washington, 2009 2. The Survey of Business Owners from the Census Bureau is a good source of overview statistics on business owners in the United States but is only completed every five years and has very limited space for questions - http://www.census.gov/econ/sbo/index.html. Other private surveys, such as the Kauffman Firm Survey, also have information on owner backgrounds but are focused on a different population of businesses and longitudinal data collection - http://www.kauffman.org/research-and- policy/kauffman-firm-survey.aspx. 4 The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur
    • I n t r o d u c t i o n a n d F i n d i n g s 73 percent said professional networks were important to the success of their current businesses. In comparison, 62 percent of respondents felt the same way about personal networks. recent startups and to tell us what other factors were entrepreneurs. Only 11 percent received venture important. capital, and 9 percent received angel financing for • 96 percent ranked prior work experience as an their first startups. important success factor; 58 percent ranked this as extremely important. Location, Investor Advice, Alumni Networks, and Regional Assistance: • 88 percent said that learning from previous successes, and 78 percent said that learning from Not so Important previous failures, played an important role in their • Entrepreneurs were almost evenly divided about the present successes. 40 percent said that lessons from importance of the location of their businesses. failures were extremely important (the factor rating 50 percent said location was important. But this second-highest as “extremely important”). varied by region: 58 percent in the Southwest, 51 percent in the West, 44 percent in New England, • 82 percent said their management team was 40 percent in the Midwest, and 37 percent of those important to their success. 35 percent said this was located in the Mid-Atlantic ranked location as extremely important. important. • 73 percent said that good fortune was an important • Of the entrepreneurs who received advice or factor in their success. 22 percent ranked this as assistance from their company’s investors, only extremely important. 36 percent ranked it as important, 38 percent saying that it was not at all important. Surprisingly, Professional Networks, Education, venture-backed businesses also did not put a Funding, Personal Networks: Important significant premium on advice offered by their • 73 percent said professional networks were investors—only 55 percent ranked it as important, important to the success of their current businesses. with 32 percent saying it was only slightly In comparison, 62 percent of respondents felt the important. same way about personal networks. • Only 19 percent believed that university or alumni • 70 percent said their university education was networks were important. Of the Ivy-League important. Ivy-League graduates valued this more, graduates, 29 percent ranked these as important. with 86 percent indicating this was important. Only • The vast majority (86 percent) of entrepreneurs 20 percent of all entrepreneurs and 18 percent of ranked the assistance provided by the state or Ivy-League graduates ranked university education as region as not at all or slightly important. extremely important, however. (Our previous paper had documented that 95 percent of company Entrepreneurs Perceive Very Few founders had earned Bachelor’s degrees and 47 Obstacles for Themselves percent had more advanced degrees). We asked company founders to rank the challenges • 68 percent of the overall sample considered they faced in starting their businesses. In hindsight, the availability of financing/capital as important. 96 only factors that a majority considered a challenge percent of the entrepreneurs who had raised were the time and effort required, capital/financing, venture capital for their most recent businesses and experience in running a business. ranked this as important. • 61 percent said amount of time and effort required • Venture capital and private/angel investments play a was a challenge; 13 percent said this was an relatively small role in the startups of first-time extremely big challenge The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur 5
    • I n t r o d u c t i o n a n d F i n d i n g s • 52 percent said lack of available capital/financing Using Personal Savings is the Norm, was a challenge; 11 percent ranked this as an Venture Capital Comes to the extremely big challenge Experienced, and Friends and Family are • 52 percent said lack of prior experience in running a Always There business was a challenge, but only 4 percent The average number of companies started by the considered this to be an extremely big challenge. company founders in our sample was 2.3 and 41 • 41 percent said they had concerns about protecting percent were running their first businesses. We their firm’s intellectual property, but only 5 percent analyzed the sources of funding for the businesses considered this to be an extremely big challenge. started by the serial entrepreneurs: Even factors which entrepreneurs believe are • The most significant source of funding for all problems for others (listed below) weren’t significant businesses was company founders’ personal savings: issues for them. 70 percent said they had used personal savings as a main source of funding for their first business, more Entrepreneurs Believe Entrepreneurship is than four times the number chiefly financed by any other type of funding. Even in subsequent startups, Very Risky and is Hard Work more than half of the entrepreneurs relied on their We asked the company founders to provide an personal savings. opinion on the factors which may prevent others from • Venture capital and private/angel investments play a starting their own businesses. We wanted to relatively small role in the startups of first-time understand the barriers potential entrepreneurs may entrepreneurs, but the percentage who took face from the perspective of those that had already venture and angel funding increased with faced these. subsequent business launches, with 26 percent and • The factor most commonly ranked as important—by 22 percent, respectively, of entrepreneurs’ most 98 percent—was lack of willingness or of ability to recent startups receiving such funding. take risks, with 50 percent believing this to be an • Friends and family provided funding for 16 percent extremely important barrier to entrepreneurship. and banks provided funding for 16 percent of the This clearly indicates that these company founders respondents’ most recent startups. Corporate considered entrepreneurship to be a risky endeavor. investments played the major role in 7 percent. • 93 percent said that the amount of time and effort It seems that entrepreneurs are forced to use required was an important barrier. This mirrors the personal savings in their initial startup, but it becomes views they expressed about their own challenges. easier for some entrepreneurs to raise angel and • 91 percent said that difficulty in raising capital was venture funding after they have started more an important inhibitor. companies. • 89 percent said business management skills, 84 percent said knowledge of how to start a business, Other Success Factors and 83 percent said knowledge about the industry We allowed entrepreneurs to write in factors that and markets were important issues. they considered important but were not included in • 73 percent believed that family or financial pressures our list. The most commonly mentioned factor was the to keep a traditional, steady job were issues. importance of faith and God. Many considered this The most significant source of funding for all businesses was their personal savings: 70 percent said they had used personal savings as a main source of funding for their first business, more than four times the number chiefly financed by any other type of funding. 6 The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur
    • M e t h o d o l o g y, d e f i n i t i o n s , a n d b a c k g r o u n d extremely important to their success. Other factors We asked respondents to list factors that our survey listed by respondents included the importance hard may not have considered. The most common and work, perseverance/determination, timing, spouse highly ranked factors were the stress involved in forbearance and support, optimism, naivety, and running a business; the difficulty of maintaining a balance in life; challenges with understanding and willingness to risk everything. developing products for markets that kept changing; problems with government regulations, taxes, and Entrepreneurship is Believed to be costs of employee benefits; and lack of knowledge Stressful, with Unanticipated Challenges about raising capital. Methodology, visited the Web sites of these companies to make sure the company was still in operation and to obtain Definitions, and names of founders and contact information. We Background contacted company founders via email and requested they complete an online survey consisting of a series The primary data source for this work is a subset of of questions about their own personal and family an existing dataset of corporate records included in the backgrounds as well as their views on and motivations OneSource Information Services Companies database. toward starting a business. Our team of researchers To construct our dataset, we extracted records of sent up to four unsolicited emails to these founders. In companies based in the following industries: some cases, we followed up with phone calls. Automotive & Aerospace We allowed each company executive to tell us if • Aerospace & Defense they were a founder. We provided guidelines for Computers & Electronics defining a “founder” as any early employee, typically • Audio & Video Equipment joining the company in its first year, before the company developed its products and perfected its • Computer Hardware business model. • Computer Networks All questions on the survey except name, company, • Computer Peripherals and email address were optional. Five hundred and • Computer Services forty-nine respondents took the survey and answered • Computer Storage Devices the majority of the questions asked. Five hundred and • Electronic Instr. & Controls ten (or 93 percent) of these respondents answered all of the questions asked. We estimate that, of the • Scientific & Technical Instr. founders we could reach, approximately 40 percent • Semiconductors completed the survey and answered the majority of • Software & Programming the questions asked. We discarded responses that Health Care were less than half complete. • Biotechnology & Drugs Of our sample, 8 percent were women and 18 • Health Care Facilities percent were foreign-born. The largest of the foreign- • Medical Equipment & Supplies born group were born in India (4 percent) and the United Kingdom (2 percent). Services • Computer Services We asked the founders to categorize their companies by industry. These responses were not • Engineering Consultants always consistent with the OneSource classification of • Software & Programming these companies. The chart below details the We extracted randomized records by region. We classification reported by respondents. The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur 7
    • M e t h o d o l o g y, d e f i n i t i o n s , a n d b a c k g r o u n d Figure 1: Type of Business Currently Running Figure 2: or Founded Respondents by Region Computer Hardware/ Software 30% West 25% Engineering Consultants 18% Southwest 14% Medical 4% Defense 4% South 21% Energy 4% New England 14% Biotechnology 5% Midwest 15% Telecommunication 10% Other 23% Mid Atlantic 11% 23% 0 5 10 15 20 25 30 0 5 10 15 20 25 Percentage Percentage Figure 2a: Respondents by Regions West Southwest South Midwest Mid-Atlantic New England The majority of the entrepreneurs in our sample were Figure 3: serial entrepreneurs; the average number of businesses How Many Businesses Have You Started? launched by respondents was approximately 2.3.3 But 41 percent were running the first business they 1 41% had started. 2 26% 3 17% We analyzed some responses by graduates of 4 8% “Ivy-League” schools. The “Ivy League” is an athletic 5 2% conference comprising eight elite private institutions 6 2% of higher education in the northeastern United States. 7 2% 8 1% These eight schools are: Harvard University, Yale 9 0.5% University, University of Pennsylvania, Princeton More than 10 1% University, Columbia University, Brown University, 0 10 20 30 40 50 Dartmouth College, and Cornell University. Percentage 3. In this calculation, we assigned the weighted value ten to respondents who had indicated they had launched ten or more businesses. The potential for underestimating the average number of businesses launched per respondent is likely minimal, due to the small number of respondents claiming to have launched ten or more businesses. 8 The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur
    • D e t a i l e d F i n d i n g s Detailed Findings Success Factors We asked company founders to rank the importance of a series of factors on the success of their most recent startups. They were asked to select whether the given factor was not at all important, slightly important, important, very important, extremely important, or not applicable. We also allowed them to enter other factors and rank the importance of these factors. Experience contributes to success Figure 4: Respondents overwhelmingly indicated that Importance of Prior Industry/ experience was the most important factor in the Work Experience success of their most recent startups: 96 percent Extremely important 58% believed prior work experience constituted an important factor, and 58 percent ranked it as Very important 27% extremely important. 88 percent said that learning Important 11% from previous successes was important, and 78 percent said that learning from failure was Slightly important 3% important. Lessons from failures were judged as Not at all important 2% an extremely important factor by 40 percent of respondents, the second-highest percentage in N/A 0.5% the extremely important category. 0 10 20 30 40 50 60 Percentage Figure 5: Importance of Lessons Learned from Previous Successes Extremely important 39% Very important 31% Important 19% Slightly important 4% Not at all important 3% N/A 5% 0 5 10 15 20 25 30 35 40 Lessons from failures were judged Percentage as an extremely important factor by Figure 6: 40 percent of respondents, the Importance of Lessons Learned from second-highest percentage in the Previous Failures extremely important category. Extremely important 40% Very important 24% Important 14% Slightly important 5% Not at all important 6% N/A 10% 0 5 10 15 20 25 30 35 40 Percentage The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur 9
    • D e t a i l e d F i n d i n g s Figure 7: Importance of Company’s Management Team Extremely important 35% Very important 29% Important 18% Management team importance Entrepreneurs felt strongly that their management Slightly important 7% teams were important, with 82 percent of Not at all important 7% respondents indicating that this constituted an important factor in the success of their current N/A 4% businesses. 0 5 10 15 20 25 30 35 Percentage Figure 8: Importance of Good Fortune Extremely important 22% Very important 19% Important 32% Slightly important 13% Good fortune Not at all important 9% The factor next-highest-rated as important was good fortune, at 73 percent, with 22 percent N/A 4% ranking it as extremely important. 0 5 10 15 20 25 30 35 Percentage The importance of networks Professional networks were ranked by 73 percent of respondents as important to the success of their current businesses. In comparison, 62 percent of respondents felt the same way about personal networks. Figure 9: Importance of Professional/ Figure 10: Business Networks Importance of Personal/Social Networks Extremely important 22% Extremely important 13% Very important 24% Very important 23% Important 26% Important 25% Slightly important 13% Slightly important 18% Not at all important 14% Not at all important 18% N/A 2% N/A 3% 0 5 10 15 20 25 30 0 5 10 15 20 25 Percentage Percentage 10 The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur
    • D e t a i l e d F i n d i n g s University education was important to success University education was ranked as important by 70 percent of respondents. This percentage was higher for Ivy- League school graduates (86 percent). Only 20 percent of all entrepreneurs and 18 percent of Ivy-League graduates, however, ranked university education as extremely important. Figure 12: Figure 11: Importance of University Education for Importance of University Education Ivy-League Graduates Extremely important 20% Extremely important 18% Very important 22% Very important 32% Important 28% Important 36% Slightly important 14% Not at all important Slightly important 0% 13% N/A 2% Not at all important 14% 0 5 10 15 20 25 30 0 5 10 15 20 25 30 35 40 Percentage Percentage Availability of financing/capital Figure 13: Availability of financing/capital was considered Importance of Availability of important to the success of their current Financing/Capital businesses by 68 percent of respondents. This Extremely important 23% factor was ranked much higher by entrepreneurs who had raised venture capital for their most Very important 23% recent businesses. 96 percent of this group said Important 23% this was important. Slightly important 11% Not at all important 17% N/A 4% 0 5 10 15 20 25 Percentage Figure 14: Importance of Availability of Financing/Capital for Founders of Venture-backed Companies Among entrepreneurs who had Extremely important 40% raised venture capital for their most recent businesses, 96 percent said Very important 36% the availability of financing/capital Important 20% was important to their current business success. Slightly important 3% Not at all important 1% 0 5 10 15 20 25 30 35 40 Percentage The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur 11
    • D e t a i l e d F i n d i n g s The role of business location Figure 15: Importance of Location of Business Entrepreneurs were almost evenly divided about the importance of the location of their Extremely important 7% businesses. 50 percent ranked location as not at all important or slightly important. The Very important 13% importance of company location did vary by 27% Important region, though. Compared with 58 percent of the entrepreneurs in the Southwest and 51 Slightly important 25% percent in the West, 37 percent of those Not at all important 25% located in the Mid-Atlantic and 40 percent in the Midwest ranked location as important. N/A 3% 0 5 10 15 20 25 30 Percentage Figure 16: Importance of Location of Buiness by Region in which Founders’ Firm is Located Mid Atlantic Midwest New England South Southwest West 0 10 20 30 40 50 Percentage Extremely important Very important Important Slightly important Not at all important N/A Overall, 50 percent of entrepreneurs ranked location as slightly or not at all important. 12 The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur
    • D e t a i l e d F i n d i n g s Figure 17: Importance of Advice/Assistance Provided by Investor advice and assistance Company Investors (all responses) Of the entrepreneurs who received advice or Extremely important 4% assistance from their company’s investors, only 36 percent ranked it as important, 38 percent Very important 10% saying that it was not at all important. Surprisingly, venture-backed businesses also did Important 15% not put a significant premium on advice offered Slightly important 21% by their investors. In businesses that had received venture capital, 55 percent ranked it as Not at all important 30% important and 32 percent said it was only N/A 19% slightly important. 0 5 10 15 2 20 25 30 35 Percentage Figure 18: Importance of Advice/Assistance Provided by Company Investors (excludes N/A ) Extremely important 5% Very important 13% Important 19% Slightly important 26% Not at all important 38% Investor advice or assistance 0 5 10 15 20 25 30 35 40 Percentage was ranked as more important by those who received venture capital than for those who did not. Figure 19: Importance of Advice/Assistance Provided by Company Investors for Founders of Venture-backed Businesses Extremely important 6% Very important 20% Important 29% Slightly important 32% Not at all important 13% 0 5 10 15 20 25 30 35 The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur 13
    • D e t a i l e d F i n d i n g s Figure 20: University or alumni network importance Importance of University/Alumni Only 19 percent of the respondents believed Contacts/Networks that university or alumni networks were important, very important, or extremely Extremely important 4% important for their businesses. The graduates Very important 4% of Ivy-League universities ranked this higher at 29 percent. Important 11% This finding was surprising, given the Slightly important 14% conventional wisdom that these networks are Not at all important 55% particularly valuable for business contacts. Clearly, entrepreneurs felt that professional N/A 12% networks were more important than alumni 0 10 20 30 40 50 60 networks for the success of their businesses. Percentage Figure 21: Importance of University/Alumni Given the conventional wisdom Contacts/Networks for Ivy-League Grads that university or alumni networks Extremely important 7% are particularly valuable for Very important 4% business contacts, it was 18% surprising that only 19 percent Important of respondents ranked these Slightly important 32% networks as important, very Not at all important 36% important or extremely N/A 4% important. 0 5 10 15 20 25 30 35 40 Percentage Figure 22: Importance of Assistance Provided by Assistance from state or region State/Region The vast majority (86 percent) of entrepreneurs ranked the assistance provided by Extremely important 1% the state or region as not at all or slightly Very important 2% important. Important 4% Slightly important 7% Not at all important 68% N/A 18% 0 10 20 30 40 50 60 70 80 Percentage 14 The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur
    • D e t a i l e d F i n d i n g s Midwest and Southwest entrepreneurs put a slightly higher premium on this assistance than others did, with 19 percent and 15 percent, respectively, ranking it as important. Entrepreneurs from New England put the lowest premium on it, with only 1 percent ranking it as important, followed by the West and South, both with 4 percent. Figure 23: Importance of Assistance Provided by State/Region in Which Founder’s Firm is Located Mid Atlantic Midwest New England South Southwest West 0 20 40 60 80 100 Percentage Extremely important Very important Important Slightly important Not at all important N/A Other Factors: Faith, Hard Work, and Perseverance We asked respondents to list other factors that were not included in the set we had used. Nearly 100 respondents wrote in additional factors. Here are some of the more common responses that generally were rated very important or extremely important in the approximate order of the number of times in which these were mentioned. • Faith, belief in God • Hard work • Perseverance/determination • Timing/luck • Spouse forbearance and support • Listening to clients • Optimism, naivety • Willingness to risk everything • Lessons learned from father’s mistakes • Ability to adapt and change • Ability to make difficult and unpopular decisions • Creativity The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur 15
    • Challenges they Faced in Starting Their Businesses We asked company founders to rank the challenges they faced in starting their businesses on a scale of 1–5, with 1 = not at all a challenge, 2 = small challenge, 3 = somewhat of a challenge, 4 = big challenge, 5 = extremely big challenge. The results show that these entrepreneurs perceive very few obstacles that can stand in the way of their success. The only factors that a small majority considered somewhat of a challenge, big challenge, or extremely big challenge were the time and effort required, capital/financing, and experience in running a business. And only 13 percent ranked time and effort, and 11 percent ranked capital/financing required as extremely big challenges. Most factors were ranked as not at all a challenge or a small challenge by the majority. Figure 24: Challenges Faced by Founders in Starting Their Business(es) Amount of time and effort required Lack of available capital/financing Lack of prior experience in running a business Concern about the consequences of failure Concern about protecting company’s intellectual property Lack of available mentors or advisors Lack of industry knowledge Availability of health insurance/risk of losing existing coverage Family or financial pressures to keep a traditional, steady job Difficulty of co-founder(s) recruitment 0 10 20 30 40 50 60 70 80 Percentage Extremely big challenge Big challenge Somewhat of a challenge Small challenge Not a challenge Figure 25: Ranking of the Challenges Faced by Founders in Starting Business(es) Difficulty of co-founder(s) recruitment 1.6% Family or financial pressures to keep a traditional, steady job 1.8% Availability of health insurance/ 1.9% risk of losing existing coverage Lack of industry knowledge 2% Lack of available mentors or advisors 2% Concern about the consequences of failure 2.2% Concern about protecting company’s intellectual capital 2.3% Lack of prior experience in running a business 2.5% 1=Not at all a challenge Lack of available capital/financing 2.6% 2= Small challenge 3=Somewhat of a challenge Amount of time and effort required 2.9% 4=Big challenge 5=Extremely big challenge 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Percentage 16 The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur
    • C h a l l e n g e s t h e y f a c e d s t a r t i n g t h e i r b u s i n e s s e s Other Factors We asked respondents to list other factors that were not included in the set we had used. Here are some of the more common responses. These are ranked in the approximate order of the number of times in which these were mentioned. The only factor ranked as an extremely big challenge was the first: work–life balance. • Stress of running a business/maintaining a balance in life • Perfecting a business model • Government regulations/rules/taxes/cost of employee benefits • Lack of knowledge about raising venture capital • Technology cycles/market conditions • Finding and maintaining good employees who share the business vision and values • Ability to communicate/market products • Sales cycle/building a sales team • Reputation of sector which business was in (skepticism about technology) • Ability to scale management and infrastructure with company growth The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur 17
    • Inhibitors to Entrepreneurship We asked the company founders to provide an opinion on the factors that may prevent others from starting their own businesses. We wanted to understand the barriers potential entrepreneurs may face from the perspective of those that had already faced these. The overall responses indicate that the respondents perceive the barriers to entrepreneurship being much greater for others than what they personally faced. The highest-ranked factor was the willingness or ability to take risks. 98 percent said this was an important, very important, or extremely important factor, and 50 percent ranked this as extremely important. This clearly indicates that these company founders considered entrepreneurship to be a risky endeavor. The second highest-ranking inhibitor was the time and effort required. 93 percent ranked this as an important, very important, or extremely important factor. This mirrors the views they expressed about their own challenges. Difficulty in raising capital was considered to be a significant inhibitor (by 91 percent of respondents), as were business-management skills (by 89 percent) and knowledge of how to start a business (by 84 percent). Figure 26: Factors that Prevent Others from Becoming Entrepreneurs Willingness or lack of ability to take risks Amount of time and effort required Difficulties in raising capital/financing Lack of business management skills Knowledge about the industry and markets Knowledge about how to start a business Family or financial pressures to keep a traditional, steady job Availability of health insurance/risk of losing existing coverage Difficulties in recruiting co-founders 0 10 20 30 40 50 Percentage Extremely important factor Very important factor Important factor Not very important factor Not a factor 18 The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur
    • I n h i b i t o r s t o E n t r e p r e n e u r s h i p Figure 27: Ranking of Factors that Prevent Others from Becoming Entrepreneurs Difficulties in recruiting co-founders 2.5% Availability of health insurance/ risk of losing existing coverage 2.7% Family or financial pressures to keep a traditional, steady job 3.2% Knowledge about 3.3% how to start a business Knowledge about the 3.4% industry and markets Lack of business management skills 3.6% Difficulties in raising capital/financing 3.8% 1=Not at all a challenge Amount of time and effort required 4.0% 2= Small challenge 3=Somewhat of a challenge Willingness or lack of ability to take risks 4.3% % 4=Big challenge 5=Extremely big challenge 0 1 2 3 4 5 Percentage Sources of Funding We asked survey respondents a series of questions about their business background and sources of funding. We asked about their most recent business, two previous businesses, and their first business. We present an analysis of the sources of funding for businesses started by serial entrepreneurs. We learned that the most significant source of funding for all businesses started by respondents was their personal savings: 70 percent said they had used personal savings as a main source of funding for their first businesses, more than four times the number for any other category. Even in subsequent startups, more than half of the entrepreneurs relied on their personal savings. Friends and family and bank loans Figure 28: were a source of funding for around Main Sources of Funding 13 percent to 16 percent of our Corporate investment sample. Bank loan(s) Venture capital and private/angel investments played a role in the first Private/angel investor(s) startups of only a few entrepreneurs— just 11 percent received venture Venture capital capital, and 9 percent received angel financing. But the proportion of Business partner(s) entrepreneurs who take angel and Personal savings venture funding increases with each subsequent business launch by the Friends and family entrepreneur. The percentage of the sample of serial entrepreneurs Other receiving venture capital for their latest startup was 26 percent and 0 10 20 30 40 50 60 70 80 22 percent received private/angel Percentage financing. Current business Previous business 1 Previous Business 2 First business started The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur 19
    • Analysis and Conclusions The responses to this survey clearly contradict some strongly held beliefs about starting a business and entrepreneurship. The four most important factors for entrepreneurial success, according to our respondents, are prior work experience, learning from successes and failures, management teams, and luck. Networks and financing also were important factors. However, when asked about sources of funding, few took venture capital or angel financing in their first ventures. The lesser role of venture capital funding implied by the responses indicates that perhaps this avenue of funding is less useful for first-time entrepreneurs than even bank funding. Further, the lack of importance entrepreneurs place on investor advice implies that they value “smart money” less than expected, and that entrepreneurs are even more self-reliant than previously assumed. The lack of reliance on alumni networks also implies that the stated value of attending a top-grade institution, with one of the explicit goals being to obtain access to the alumni network, has been overstated as a benefit for startups. However, lessons learned in college are greatly valued, particularly for alumni of Ivy League schools. The emergence of professional networks as an important success factor for startups implies that such weak yet functional ties are perhaps the most useful as opposed to close personal ties or extremely weak ties like those found in alumni networks. This could be a fertile area for study of social networks with regard to startups. Understanding what makes entrepreneurs successful could help develop better policies to foster entrepreneurship and increase the numbers of high-growth companies. 20 The Anatomy of an Entrepreneur: Making of a Successful Entrepreneur
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