Naming your business after yourself demonstrates that you prioritize glory and profit over growing and attracting investment, according to a new analysis of records from more than a million firms.
Their research helps us understand why the founders of Google/Alphabet, Apple, Amazon, Facebook and Microsoft made very different naming decisions than old-school tycoons such as Henry Ford, James C. Penney and Walt Disney.
In fairness to the tycoons and their modern-day imitators, putting your name on your business brings perks beyond the ego boost. Such businesses earn significantly higher returns. On average, the researchers found, the owner’s name is worth an extra three percentage points.
It makes sense. If you’re confident in your entrepreneurial chops, then you’re going to stick your neck out, put your name on the door (or gilded skyscraper) and reap the glory and profit.
But if that’s true, why do only about one in five owners follow the president’s lead and slap their own name on the shingle? Shouldn’t we be logging in to Zuckerbook on our Wozniak-Jobs iPhone that we bought at J.P. Bezos? (Amazon chief executive Jeffrey Preston Bezos owns The Washington Post.)
Well, it turns out profits aren’t the only — or even the best — measure of success. Economists have now shown the higher profits earned by businesses that share the owner’s name are offset by slower growth and less access to outside investment.
“In today’s start-up environment, many venture capitalists are looking for rapid growth over steady but small profits,” said economist Aaron Chatterji of Duke University’s Fuqua School of Business.
“No venture capitalist would tell somebody to name a firm after themselves,” Chatterji said. “It just doesn’t happen.” We’ll explain why soon.
Chatterji, his colleague and lead author Sharon Belenzon, and Brendan Daley of the University of Colorado-Boulder’s Leeds School of Business, first published their research last year in the American Economic Review. Most of the conclusions here are from a follow-up working paper that was just released by the National Bureau of Economic Research.
The businesses they studied were based in Western Europe, but preliminary analysis shows the conclusions apply to the United States as well.
The authors found that despite higher profits, sales at businesses named after their owners grew at about half the annual rate of their peers from 2002 to 2012 — 2.1 percent growth compared with 4.1 percent growth. They also hold fewer assets — $2.3 million vs. $2.6 million.
It’s a paradox. If a business produces the best returns, wouldn’t it also grow more rapidly and seduce more investors? Not always. In this case, naming your business after yourself sends a message, namely that it’s a high-quality product that probably won’t scale well.
“It’s a trade-off between growth and glory,” Chatterji said. “Investors are looking for growth, but naming the company after yourself is a sign of limited aspirations for growth. Companies that want to grow — and thus need investors — rarely name their start-up after themselves.”
For investors, an owner with their name on the building brings an extra layer of risk. If something catastrophic happens to that person, the business may also suffer. Similarly, it’s harder to overhaul management when the man or woman you want to replace has their name across the top of every facility and piece of stationery in the company.
Naming a business after yourself may also indicate you’re ego-driven and controlling, which are unattractive qualities in a business partner. Or, it can be a hint you aren’t interested in reaching the top tier, and are instead looking to maintain a comfortable lifestyle with a small, profitable family business.
When conducting their analysis, the economists adjusted for company’s age, size, location and industry. After all, owners in some lines of work — such as law offices — are much more likely to name businesses after themselves than those in social services and electronics.
Belenzon, Chatterji and Daley also found that, as might be expected, the effect was strongest in areas with the best access to financing. If outside investment isn’t really an option, then local entrepreneurs are far more likely to put their name out there. After all, what do they have to lose?