Five myths about entrepreneurs
By Vivek Wadhwa,
The legends of Bill Gates, Steve Jobs, Mark Zuckerberg and other high-tech entrepreneurs have fed a stereotypical vision of innovation in America: Mix a brainy college dropout, a garage-incubated idea and a powerful venture capitalist, stir well, and you get the latest Silicon Valley powerhouse. That’s Hollywood’s version of technological innovation; unfortunately, it’s also the one that venture capitalists try to fund and government planners seek to replicate. But these individuals are not America’s typical entrepreneurs. To find them, first let’s dispense with some major misconceptions about where our best ideas comes from.
1. America’s typical tech entrepreneurs are in their 20s.
My research team at Duke University has studied the backgrounds of the country’s entrepreneurs, and our findings debunk this popular notion. Our 2009 survey of 549 company founders across a dozen fast-growth industries found that, in fact, the average and median age of these founders when they started their companies was 40.Twice as many were older than 50as were younger than 25; twice as many were over 60as under 20. Seventy percent were married when they launched their first business; an additional 5.2 percent were divorced, separated or widowed. Sixty percent had at least one child, and 43.5 percent had two or more children.
Entrepreneurs are motivated to take the risk of starting a venture because they get tired of working for others, have ideas for new businesses based on the experience they gained working for others or want to strike it big before they retire. The mythology of the kid in the garage is grounded more in Hollywood than in Silicon Valley.
2. Entrepreneurs are like top athletes: They are born, not made.
Silicon Valley investors such as Jason Calacanis proudly proclaim that successful entrepreneurs come from entrepreneurial families and start off running lemonade stands as kids. After meeting Wharton Business School students last year, venture capitalist Fred Wilsonblogged that he was shocked when a professor told him that you could teach people to be entrepreneurs. “I’ve been working with entrepreneurs for almost 25 years now,” he wrote, “and it is ingrained in my mind that someone is either born an entrepreneur or is not.”
They’re wrong. Our research on successful entrepreneurs revealed that 52 percent were the first in their immediate families to start a business — as were Bill Gates, Jeff Bezos, Larry Page, Sergey Brin and Russell Simmons. Their parents were academics, lawyers, factory workers or bureaucrats. Only about 39 percent had an entrepreneurial father, and 7 percent had an entrepreneurial mother; some had both. Only a quarter caught the entrepreneurial bug in college.
3. College dropouts make better entrepreneurs.
Today, Silicon Valley is debating the Thiel Fellowship, which offers students $100,000 to drop out of college. The logic? That higher education is overpriced and unnecessary, and that budding entrepreneurs are better off building companies than studying irrelevant subjects.
No doubt some brilliant people may be able to get by without a college education. But our research finds that U.S.-born founders of engineering and and technology firms tend to be well educated. And on average, companies founded by college graduates have twice the sales and workforce of companies founded by people who didn’t go to college. Surprisingly, attending an elite university doesn’t provide a significant advantage in entrepreneurship. What matters is that the entrepreneur gains a degree; the choice of major or college doesn’t play a big role in success. The greater the education of the founder, the lower the rate of business failure and the higher the business’s profits, sales and employment.
4. Women can’t cut it in the tech world.
Women start only around 3 percent of the nation’s technology companies. They are almost absent in high-level technology positions. They contribute to fewer than 5 percent of all I.T. patents and 1.2 percent of open-source software.
All this despite the fact that girls now match boys in mathematical achievement, 140 women enroll in higher education for every 100 men, and women earn more than half of all bachelor’s and master’s degrees and nearly half of all doctorates.
So, is there something about women that leaves them out of the high-tech industry? Not at all. Our research found almost no difference in the factors driving success for male and female company founders. They had the same motivations, were of the same age, had similar levels of experience and about equally enjoyed the culture of start-ups. Men and women were equally likely to have children at home when they started their businesses. (But men were more likely to be married.)
It’s not that women don’t do well in business. According to research by the venture capital firm Illuminate Ventures, women-led companies are more capital-efficient, and venture-backed companies run by women have 12 percent higher revenue.
The problem is a broader one, as I learned through interviews with female entrepreneurs. Few girls get encouragement from their parents to study engineering; they encounter negative stereotypes in the workforce; when they approach venture capitalists, they are asked demeaning questions such as, “How are you going to manage your company when you have children?”
5. Venture capital is a prerequisite for innovation.
The National Venture Capital Association touts its members’ impact on the U.S. economy, saying they created 12 million jobs and generated $3 trillion in revenue in 2010 (equivalent to 21 percent of the nation’s GDP), and claiming credit for eight out of 10software-industry jobs.
But these numbers do not isolate venture capital’s real role. They include all the revenue generated in 2010 by any company that a venture capitalist ever invested in, at any stage of its existence. Venture capitalists could buy stock in a company before its initial public offering and then claim credit for its success in perpetuity.
Less than 5 percent of venture capital goes to early-stage companies — those taking the risk of developing innovative products. Our analysis of more than 500 companies in high-growth industries revealed that not even 11 percent of these companies took venture capital at any stage of their existence. The Kauffman Foundation ran a similar analysis of companies on the Inc. magazine 500 list and found that only 16 percent of them raised venture capital.
The reality is that venture capital follows innovation. Such investors seek out companies that already have working products and proven business models. Venture capital doesn’t stimulate innovation; it wants in once it looks like a good bet.
Vivek Wadhwa , a Washington Post columnist, is the director of research at the Center for Entrepreneurship and Research Commercialization at Duke University.
For more news and ideas on innovation, visit www.washingtonpost.com/innovations.
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