A Garage and an Idea: What More does an Entrepreneur Need?

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Transcript of A Garage and an Idea: What More does an Entrepreneur Need?

  • We thank John Freeman, AnnaLee Saxenian, and David Vogel for their helpful comments on earlierversions of this article and Adrian Bangerter and Chip Heath for sharing their questionnaire on theMozart effect. Many research assistants helped with this project and the authors are especiallygrateful to Ara Cho. The authors thank California Management Review for funding a 2004-2005doctoral student fellowship for Chris Rider.

    CALIFORNIA MANAGEMENT REVIEW VOL. 48, NO. 1 FALL 20056

    A Garage and an Idea:WHAT MORE DOES ANENTREPRENEUR NEED?

    Pino G. AudiaChristopher I. Rider

    S ilicon Valley started with a garage (or so the story goes). In a smallgarage in Palo Alto, California, in 1938-1939, William Hewlett andDavid Packard experimented with numerous electronic devices,including a prototype for an audio oscillator. That oscillator eventu-ally enabled the pair of entrepreneurs to launch Hewlett-Packard (HP), one ofthe largest high-tech companies in the world today. Over the next 50 years,numerous technology companiesincluding Apple, Cisco, and Intelwould be founded in Silicon Valley, the worlds foremost high-tech region. In 1989, the garage at 367 Addison Avenue was designated California Historic LandmarkNumber 976 and a plaque declaring Birthplace of Silicon Valley was placed atthe front of the garage.

    The HP garage is the most celebrated example of a popular belief in theUnited Statesthat it is common for entrepreneurs to start companies in garages(hereafter, the garage belief). Indeed, U.S. business history offers numerousstories of successful entrepreneurs (e.g., Walt Disney, Steve Jobs) whose garagesserved as early workshops for the products and services that eventuallylaunched prominent U.S. businesses. However, the garage signifies more thanjust a commonly perceived locus of entrepreneurship. Rather it is a symbol thatconjures up some common images of entrepreneurship, including the inspira-tional generation of innovative ideas, old-fashioned hard work and Americaningenuity, bootstrapping resources to chase a dream, a rejection of the statusquo, and the freedom of working for oneself.

  • This article explores the realities of the entrepreneurial garage by address-ing three main questions. First, how popular is the garage belief? Second, howaccurate is the garage belief (and what other stories might be more accuratethan the garage)? Third, why is the garage belief popular and why does itpersist?

    For many garage entrepreneurs, the garage (or basement or dorm roomor kitchen) is primarily a temporary logistical arrangement and not a prerequi-site for entrepreneurship. Moreover, the garage is not nearly as common toentrepreneurship as is commonly believed. The garage entrepreneur is a con-temporary legend that obtains its staying power not from its accuracy but,rather, from its ability to tap common emotions in the portion of the Americanpublic that is interested in entrepreneurship (i.e.,entrepreneurs, the business press, venture capi-talists, and business school students and faculty).The legend of the garage entrepreneur obscures amore central reality of entrepreneurship research.Many entrepreneurs acquire the psychologicaland social resources necessary to form new com-panies through prior experiences at existing orga-nizations in related industries. Although someindividuals become successful entrepreneurs without related prior experience,they are the exception, not the rule. Entrepreneurs are often organizationalproducts.1 The legend of the garage entrepreneur is misleading because it implic-itly teaches the wrong lessons about what it takes to become a successful entre-preneur. While the legend of the garage entrepreneur evokes the image of thelone individual who relies primarily on his or her extraordinary efforts and tal-ent to overcome the difficulties inherent in creating a new business, the processof creating a new company is eminently social. By misrepresenting the processby which many individuals become entrepreneurs, the garage belief may lead toseriously misinformed employment choices by individuals, ill-advised resourceallocation decisions by companies, unsuccessful course offerings by businessschools, and/or ineffective program offerings by governments.

    How Popular Is the Garage Belief?

    In addition to its association with HP and Silicon Valley, the garage owesmuch of its prominence to its association with the founding stories of severalsuccessful companies. For example, the Walt Disney Companys story includes at least two different garages (one in Kansas City and one in California) thatWalt Disney used as animation workshops prior to founding his company. Inaddition, the history of Apple Computer includes tales of Steve Jobs and SteveWozniak and Apples early days in Jobs parents garage. Furthermore, thefounding stories of toy companies Mattel (the Los Angeles garage of foundersElliott and Ruth Handler) and Wham-O (a Pasadena garage) also feature garagesin prominent roles.2 These examples are a few of many such stories.

    A Garage and an Idea: What More Does an Entrepreneur Need?

    CALIFORNIA MANAGEMENT REVIEW VOL. 48, NO. 1 FALL 2005 7

    Pino Audia is an Assistant Professor ofOrganizational Behavior at the Haas Schoolof Business at the University of California,Berkeley.

    Chris Rider is a Ph.D. student in Organi-zational Behavior at the Haas School ofBusiness at the University of California,Berkeley.

  • At some point, the entrepreneurs garage began to symbolize the proto-typical early, formative phase of a startup company. For example, a prominentSilicon Valley venture capital firm bears the name Garage Technology Ventures.Co-founder Guy Kawasaki explains his firms name by stating that Garage is a state of mind. Its a rejection of the status quo. Its I dont need dozens ofengineers and marketers with MBAs to clean the competitions clock.3 GarageTechnology Ventures is no bit player in Silicon Valleythe biggest investor inthe firms $20 million Garage California Entrepreneurs Fund is the CaliforniaPublic Employees Retirement System,4 the largest public pension fund in theUnited States. In 2004, Kawasaki published a best-selling book, The Art of theStart, that offered strategies and tactics for nascent entrepreneurs. Summarizingthe books contribution to entrepreneurs, Michael Moritz, a partner at SequoiaCapital, remarked: A successful entrepreneur requires three things: a garage, an idea, and this book.5

    Now, is the garage belief primarily a Silicon Valley or even a Californiaphenomenon? The U.S. National Commission on Entrepreneurship funded astudy by two Harvard Business School researchers that investigated the foundinghistories of the 1997 Fortune 200. The product of this study was a report titledFrom the Garage to the Boardroom: The Entrepreneurial Roots of AmericasLargest Corporations.6 Clearly, the garage belief has national prominence.Moreover, references to the garage belief have surfaced outside of North Amer-ica. For example, in discussing the promotion of Bruce Chizen to CEO of AdobeSystems, an article in The Economist suggested that the companys founders real-ized that Adobe had to outgrow its garage culture.7 This is a rather peculiarchoice of words given that Adobe was founded in December of 1982 by JohnWarnock and Charles Geschke on the basis of the PostScript language the twodeveloped at Xerox PARC.

    The garage is a symbol of entrepreneurship that elicits common under-standings among business professionals. This belief is supported with more thanjust anecdotal observations. We conducted a survey of business school studentsto gauge their familiarity with the idea of the garage entrepreneur. While thegarage appears to be the most prominent reference for entrepreneurial work-shops, other stories of successful entrepreneurs include the basement (Jim Caseyand Claude Ryan and the American Messenger Companynow UPS), the dormroom (Michael Dell and Dell Computer), and the kitchen (catalog entrepreneurLillian Vernon).8 We included these alternative workshops in our survey.Respondents (N = 204) reported familiarity with the notion that entrepreneursoften start businesses in garages, basements, dorm rooms, or kitchens (mean =4.1 on a 1-5 scale of increasing familiarity). In addition, 89% of respondentswere able to name at least one company started in such locations. Furthermore,respondents estimated, on average, that 48% of entrepreneurs start businessesin this way. To check the popularity of the garage entrepreneur belief outside of business schools, we conducted a random telephone survey in the 510 areacode, with respondents (N = 79) representing a broad range of occupations (e.g.,architects, painters, business owners, lawyers, consultants, full-time mothers)

    A Garage and an Idea: What More Does an Entrepreneur Need?

    CALIFORNIA MANAGEMENT REVIEW VOL. 48, NO. 1 FALL 20058

  • and age groups (range: 20 to 85). They also reported familiarity with the notionof the garage entrepreneur (mean = 3.5 on a 1-5 scale of increasing familiarity).Furthermore, 87% of the respondents named at least one company started in agarage, basement, dorm room, or kitchen. Apple and HP were the most commonexamples. On average, these respondents estimated that 30% of entrepreneursstarted businesses in such locations.

    We also conducted an archival study to estimate the popularity of thegarage belief in the U.S. business and finance press as compared to a commonindicator of entrepreneurial activity, annual venture capital investment (in mil-lions of dollars). We conducted searches on the Lexis-NexisTM Academic searchengine from 1980 to 2003 to measure the number of business and finance newsarticles that included the term entrepreneur and garage, basement, dorm, orkitchen. Then, each article returned by the search was counted as a hit. Theannual hit counts ranged from two in 1981 to 245 in 2000.