Anatomy of an Entrepreneur 6 - Kauffman.org/media/kauffman_org/research reports and...Figure 6:...

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Authors: Vivek Wadhwa Raj Aggarwal Krisztina “Z” Holly Alex Salkever The Anatomy of an Entrepreneur Making of a Successful Entrepreneur November 2009

Transcript of Anatomy of an Entrepreneur 6 - Kauffman.org/media/kauffman_org/research reports and...Figure 6:...

Authors:

Vivek Wadhwa

Raj Aggarwal

Krisztina “Z” Holly

Alex Salkever

The Anatomy of an Entrepreneur

Making of aSuccessful

Entrepreneur

November 2009

Vivek WadhwaAssociate Director, Center for Entrepreneurship and Research Commercialization

Pratt School of Engineering, Duke UniversitySenior Research Associate

Labor & Worklife Program, Harvard Law School

Raj AggarwalSullivan Professor

College of Business Administration, The University of Akron

Krisztina “Z” HollyVice Provost for Innovation, University of Southern CaliforniaExecutive Director, USC Stevens Institute for Innovation

Alex SalkeverVisiting Researcher

Masters of Engineering Management ProgramPratt 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, AibekNurkadyr, Rachel Prabhakaran, Keertana Ravindran, Arjun Reddy, Anisha Sequeira

This research was funded in part by the Ewing Marion Kauffman Foundation.The contents of this publication are solely the responsibility of the authors.

T h e A n a t o m y o f a n E n t r e p r e n e u r : M a k i n g o f a S u c c e s s f u l E n t r e p r e n e u r 1

The Anatomy of an EntrepreneurMaking of a Successful Entrepreneur

November 2009

T h e A n a t o m y o f a n E n t r e p r e n e u r : M a k i n g o f a S u c c e s s f u l E n t r e p r e n e u r2

Table of Contents

Introduction and Findings .....................................................................................................................4Experience, 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 ........................................................................................7Figure 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........................................................................................................................................................9Figure 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

T h e A n a t o m y o f a n E n t r e p r e n e u r : M a k i n g o f a S u c c e s s f u l E n t r e p r e n e u r 3

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

I n t r o d u c t i o n a n d F i n d i n g s

T h e A n a t o m y o f a n E n t r e p r e n e u r : M a k i n g o f a S u c c e s s f u l E n t r e p r e n e u r4

Introduction andFindings

According to the U.S. Small BusinessAdministration, since the mid-1990s, small businessesgenerally have created 60 to 80 percent of the netnew employment in the United States. Further, theyfound that net job creation in the immediate yearsfollowing the 1990-1991 and 2001 recessionsstemmed from employment generated by small firmswith fewer than 500 employees.1 Therefore, it wouldseem that one good way to boost economic recoveryis to encourage more business creation. To do this,policymakers need to understand the backgrounds andmotivations of the founders of such businesses. Theyalso need to understand what inhibits others fromstarting businesses and becoming entrepreneurs.

Our earlier research paper, Anatomy of anEntrepreneur, provided some insights into themotivations of founders of high-growth companies, aswell as their socio-economic, educational, and familialbackgrounds. We found that technology entrepreneursare most likely to come from middle-classbackgrounds, to have parents who are less educatedthan they are, and to be married with children whenthey launch their first companies. Their primarymotivations for launching a company are financial andemotional. They wanted to build wealth and had abusiness idea on which they wanted to capitalize.Many said they had always wanted their owncompanies some day.

In this paper, we explore company founders’opinions and observations about their own trajectoryand what influenced the success or failure of theirbusinesses. By understanding what entrepreneurs thinkand believe, we hope to provide more insights intohow to better support entrepreneurs and createsocietal, political, and economic conditions that canmore efficiently foster entrepreneurship.

This research is based on a survey of 549 companyfounders in a variety of industries, including aerospaceand defense, computer and electronics, health care,and services.

While our research cannot be generalized strictly tothe entire population of entrepreneurs in the UnitedStates, it is meant to be illustrative of the backgroundsof entrepreneurs in industries that we expected to behigher growth.2 We surveyed founders of businessesthat had made it past the startup stage. So thisresearch focuses on the successful businesses ratherthan all businesses that are started in the industries we selected.

Here are some of our key findings. Detailed statisticsand charts are available in the latter sections of thispaper. Note that we use the terms “companyfounder” and “entrepreneur” interchangeably.

Experience, Management, and Luck:The Keys to SuccessWe asked company founders to rank the importanceof a series of factors on the success of their most

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 everyfive 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 haveinformation 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.

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.

I n t r o d u c t i o n a n d F i n d i n g s

T h e A n a t o m y o f a n E n t r e p r e n e u r : M a k i n g o f a S u c c e s s f u l E n t r e p r e n e u r 5

recent startups and to tell us what other factors wereimportant.

• 96 percent ranked prior work experience as animportant success factor; 58 percent ranked this asextremely important.

• 88 percent said that learning from previoussuccesses, and 78 percent said that learning fromprevious failures, played an important role in theirpresent successes. 40 percent said that lessons fromfailures were extremely important (the factor ratingsecond-highest as “extremely important”).

• 82 percent said their management team wasimportant to their success. 35 percent said this wasextremely important.

• 73 percent said that good fortune was an importantfactor in their success. 22 percent ranked this asextremely important.

Professional Networks, Education,Funding, Personal Networks: Important• 73 percent said professional networks were

important to the success of their current businesses.In comparison, 62 percent of respondents felt thesame way about personal networks.

• 70 percent said their university education wasimportant. Ivy-League graduates valued this more,with 86 percent indicating this was important. Only20 percent of all entrepreneurs and 18 percent ofIvy-League graduates ranked university education asextremely important, however. (Our previous paperhad documented that 95 percent of companyfounders had earned Bachelor’s degrees and 47percent had more advanced degrees).

• 68 percent of the overall sample consideredavailability of financing/capital as important. 96percent of the entrepreneurs who had raisedventure capital for their most recent businessesranked this as important.

• Venture capital and private/angel investments play arelatively small role in the startups of first-time

entrepreneurs. Only 11 percent received venturecapital, and 9 percent received angel financing fortheir first startups.

Location, Investor Advice, AlumniNetworks, and Regional Assistance:Not so Important• Entrepreneurs were almost evenly divided about the

importance of the location of their businesses. 50 percent said location was important. But thisvaried by region: 58 percent in the Southwest, 51 percent in the West, 44 percent in New England,40 percent in the Midwest, and 37 percent of thoselocated in the Mid-Atlantic ranked location asimportant.

• Of the entrepreneurs who received advice orassistance from their company’s investors, only 36 percent ranked it as important, 38 percentsaying that it was not at all important. Surprisingly,venture-backed businesses also did not put asignificant premium on advice offered by theirinvestors—only 55 percent ranked it as important,with 32 percent saying it was only slightlyimportant.

• Only 19 percent believed that university or alumninetworks were important. Of the Ivy-Leaguegraduates, 29 percent ranked these as important.

• The vast majority (86 percent) of entrepreneursranked the assistance provided by the state orregion as not at all or slightly important.

Entrepreneurs Perceive Very FewObstacles for Themselves

We asked company founders to rank the challengesthey faced in starting their businesses. In hindsight, theonly factors that a majority considered a challengewere the time and effort required, capital/financing,and experience in running a business.

• 61 percent said amount of time and effort requiredwas a challenge; 13 percent said this was anextremely big challenge

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.

I n t r o d u c t i o n a n d F i n d i n g s

T h e A n a t o m y o f a n E n t r e p r e n e u r : M a k i n g o f a S u c c e s s f u l E n t r e p r e n e u r6

• 52 percent said lack of available capital/financingwas a challenge; 11 percent ranked this as anextremely big challenge

• 52 percent said lack of prior experience in running abusiness was a challenge, but only 4 percentconsidered this to be an extremely big challenge.

• 41 percent said they had concerns about protectingtheir firm’s intellectual property, but only 5 percentconsidered this to be an extremely big challenge.

Even factors which entrepreneurs believe areproblems for others (listed below) weren’t significantissues for them.

Entrepreneurs Believe Entrepreneurship isVery Risky and is Hard Work

We asked the company founders to provide anopinion on the factors which may prevent others fromstarting their own businesses. We wanted tounderstand the barriers potential entrepreneurs mayface from the perspective of those that had alreadyfaced these.

• The factor most commonly ranked as important—by98 percent—was lack of willingness or of ability totake risks, with 50 percent believing this to be anextremely important barrier to entrepreneurship.This clearly indicates that these company foundersconsidered entrepreneurship to be a risky endeavor.

• 93 percent said that the amount of time and effortrequired was an important barrier. This mirrors theviews they expressed about their own challenges.

• 91 percent said that difficulty in raising capital wasan important inhibitor.

• 89 percent said business management skills, 84percent said knowledge of how to start a business,and 83 percent said knowledge about the industryand markets were important issues.

• 73 percent believed that family or financial pressuresto keep a traditional, steady job were issues.

Using Personal Savings is the Norm,Venture Capital Comes to theExperienced, and Friends and Family areAlways There

The average number of companies started by thecompany founders in our sample was 2.3 and 41percent were running their first businesses. Weanalyzed the sources of funding for the businessesstarted by the serial entrepreneurs:

• The most significant source of funding for allbusinesses was company founders’ personal savings:70 percent said they had used personal savings as amain source of funding for their first business, morethan four times the number chiefly financed by anyother type of funding. Even in subsequent startups,more than half of the entrepreneurs relied on theirpersonal savings.

• Venture capital and private/angel investments play arelatively small role in the startups of first-timeentrepreneurs, but the percentage who tookventure and angel funding increased withsubsequent business launches, with 26 percent and22 percent, respectively, of entrepreneurs’ mostrecent startups receiving such funding.

• Friends and family provided funding for 16 percentand banks provided funding for 16 percent of therespondents’ most recent startups. Corporateinvestments played the major role in 7 percent.

It seems that entrepreneurs are forced to usepersonal savings in their initial startup, but it becomeseasier for some entrepreneurs to raise angel andventure funding after they have started morecompanies.

Other Success FactorsWe allowed entrepreneurs to write in factors that

they considered important but were not included inour list. The most commonly mentioned factor was theimportance of faith and God. Many considered this

The most significant source of funding for all businesses was their personalsavings: 70 percent said they had used personal savings as a main source of

funding for their first business, more than four times the number chieflyfinanced by any other type of funding.

T h e A n a t o m y o f a n E n t r e p r e n e u r : M a k i n g o f a S u c c e s s f u l E n t r e p r e n e u r 7

extremely important to their success. Other factorslisted by respondents included the importance hardwork, perseverance/determination, timing, spouseforbearance and support, optimism, naivety, andwillingness to risk everything.

Entrepreneurship is Believed to beStressful, with Unanticipated Challenges

We asked respondents to list factors that our surveymay not have considered. The most common andhighly ranked factors were the stress involved inrunning a business; the difficulty of maintaining abalance in life; challenges with understanding anddeveloping products for markets that kept changing;problems with government regulations, taxes, andcosts of employee benefits; and lack of knowledgeabout raising capital.

Methodology,Definitions, andBackground

The primary data source for this work is a subset ofan existing dataset of corporate records included in theOneSource Information Services Companies database.To construct our dataset, we extracted records ofcompanies based in the following industries:

Automotive & Aerospace

• Aerospace & Defense

Computers & Electronics

• Audio & Video Equipment

• Computer Hardware

• Computer Networks

• Computer Peripherals

• Computer Services

• Computer Storage Devices

• Electronic Instr. & Controls

• Scientific & Technical Instr.

• Semiconductors

• Software & Programming

Health Care

• Biotechnology & Drugs

• Health Care Facilities

• Medical Equipment & Supplies

Services

• Computer Services

• Engineering Consultants

• Software & Programming

We extracted randomized records by region. We

visited the Web sites of these companies to make surethe company was still in operation and to obtainnames of founders and contact information. Wecontacted company founders via email and requestedthey complete an online survey consisting of a seriesof questions about their own personal and familybackgrounds as well as their views on and motivationstoward starting a business. Our team of researcherssent up to four unsolicited emails to these founders. Insome cases, we followed up with phone calls.

We allowed each company executive to tell us ifthey were a founder. We provided guidelines fordefining a “founder” as any early employee, typicallyjoining the company in its first year, before thecompany developed its products and perfected itsbusiness model.

All questions on the survey except name, company,and email address were optional. Five hundred andforty-nine respondents took the survey and answeredthe majority of the questions asked. Five hundred andten (or 93 percent) of these respondents answered allof the questions asked. We estimate that, of thefounders we could reach, approximately 40 percentcompleted the survey and answered the majority ofthe questions asked. We discarded responses thatwere less than half complete.

Of our sample, 8 percent were women and 18percent were foreign-born. The largest of the foreign-born group were born in India (4 percent) and theUnited Kingdom (2 percent).

We asked the founders to categorize theircompanies by industry. These responses were notalways consistent with the OneSource classification ofthese companies. The chart below details theclassification reported by respondents.

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

T h e A n a t o m y o f a n E n t r e p r e n e u r : M a k i n g o f a S u c c e s s f u l E n t r e p r e n e u r8

The majority of the entrepreneurs in our sample wereserial entrepreneurs; the average number of businesseslaunched by respondents was approximately 2.3.3

But 41 percent were running the first business theyhad started.

We analyzed some responses by graduates of “Ivy-League” schools. The “Ivy League” is an athleticconference comprising eight elite private institutions of higher education in the northeastern United States.These eight schools are: Harvard University, YaleUniversity, University of Pennsylvania, PrincetonUniversity, Columbia University, Brown University,Dartmouth College, and Cornell University.

Figure 3: How Many Businesses Have You Started?

1

2

3

4

5

6

8

9

More than 10

7

Percentage0 10 20 30 40 500

41%

1%0.5%1%2%

2%2%

8%17%

26%

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 or Founded

Computer Hardware/Software

Engineering Consultants

Medical

Defense

Energy

Biotechnology

Other

Telecommunication

Percentage

0 5 10 15 20 25 300 5 10 15 20

30%

23%

18%

4%

4%

4%

5%

10%

Figure 2: Respondents by Region

West

Southwest

South

New England

Midwest

Mid Atlantic

Percentage

0 5 10 15 20 250 5 10

25%

23%

14%

14%

21%

15%

11%

West

Mid-Atlantic

New England

Southwest

South

Midwest

Figure 2a: Respondents by Regions

3. In this calculation, we assigned the weighted value ten to respondents who had indicated they had launched ten or more businesses. The potential forunderestimating the average number of businesses launched per respondent is likely minimal, due to the small number of respondents claiming to have launched tenor more businesses.

T h e A n a t o m y o f a n E n t r e p r e n e u r : M a k i n g o f a S u c c e s s f u l E n t r e p r e n e u r 9

Experience contributes to successRespondents overwhelmingly indicated that

experience was the most important factor in thesuccess of their most recent startups: 96 percentbelieved prior work experience constituted animportant factor, and 58 percent ranked it asextremely important. 88 percent said that learningfrom previous successes was important, and 78 percent said that learning from failure wasimportant. Lessons from failures were judged as an extremely important factor by 40 percent ofrespondents, the second-highest percentage in the extremely important category.

Figure 4: Importance of Prior Industry/Work Experience

Percentage0 10 20 30 40 50 600

58%

27%

11%

0.5%

3%

2%

Extremely important

Very important

Important

Slightly important

Not at all important

N/A

Figure 5: Importance of Lessons Learned from Previous Successes

Percentage0 5 10 15 20 25 30 35 400 5

39%

31%

19%

5%

4%

3%

Extremely important

Very important

Important

Slightly important

Not at all important

N/A

Figure 6: Importance of Lessons Learned from Previous Failures

Percentage0 5 10 15 20 25 30 35 400 5 10

40%

24%

14%

10%

5%

6%

Extremely important

Very important

Important

Slightly important

Not at all important

N/A

D e t a i l e d F i n d i n g s

Detailed Findings

Success FactorsWe 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 factorsand rank the importance of these factors.

Lessons from failures were judged as an extremely important factor by40 percent of respondents, thesecond-highest percentage in theextremely important category.

Figure 7: Importance of Company’s Management Team

Percentage0 5 10 15 20 25 30 350 5

35%

29%

18%

4%

7%

7%

Extremely important

Very important

Important

Slightly important

Not at all important

N/A

D e t a i l e d F i n d i n g s

T h e A n a t o m y o f a n E n t r e p r e n e u r : M a k i n g o f a S u c c e s s f u l E n t r e p r e n e u r10

Figure 8: Importance of Good Fortune

Percentage0 5 10 15 20 25 30 350 5

19%

22%

32%

4%

13%

9%

Extremely important

Very important

Important

Slightly important

Not at all important

N/A

Figure 9: Importance of Professional/Business Networks

Percentage0 5 10 15 20 25 300

24%

22%

26%

2%

13%

14%

Extremely important

Very important

Important

Slightly important

Not at all important

N/A

Figure 10: Importance of Personal/Social Networks

Percentage0 5 10 15 20 250

23%

13%

25%

3%

18%

18%

Extremely important

Very important

Important

Slightly important

Not at all important

N/A

Management team importanceEntrepreneurs felt strongly that their management

teams were important, with 82 percent ofrespondents indicating that this constituted animportant factor in the success of their currentbusinesses.

Good fortuneThe factor next-highest-rated as important was

good fortune, at 73 percent, with 22 percentranking it as extremely important.

The importance of networksProfessional 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.

D e t a i l e d F i n d i n g s

T h e A n a t o m y o f a n E n t r e p r e n e u r : M a k i n g o f a S u c c e s s f u l E n t r e p r e n e u r 11

University education was important to successUniversity 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-Leaguegraduates, however, ranked university education as extremely important.

Figure 11: Importance of University Education

Percentage0 5 10 15 20 25 300

22%

20%

28%

2%

14%

13%

Extremely important

Very important

Important

Slightly important

Not at all important

N/A

Figure 12: Importance of University Education for Ivy-League Graduates

Percentage0 5 10 15 20 25 30 35 400 5 10 15

32%

18%

36%

0%

14%

Extremely important

Very important

Important

Slightly important

Not at all important

Availability of financing/capitalAvailability of financing/capital was considered

important to the success of their currentbusinesses by 68 percent of respondents. Thisfactor was ranked much higher by entrepreneurswho had raised venture capital for their mostrecent businesses. 96 percent of this group saidthis was important.

Figure 13: Importance of Availability of Financing/Capital

Percentage0 5 10 15 20 250

23%

23%

23%

11%

17%

4%

Extremely important

Very important

Important

Slightly important

Not at all important

N/A

Figure 14: Importance of Availability of Financing/Capital for Founders of Venture-backed Companies

Percentage0 5 10 15 20 25 30 35 400

36%

40%

20%

3%

1%

Extremely important

Very important

Important

Slightly important

Not at all important

Among entrepreneurs who hadraised venture capital for their mostrecent businesses, 96 percent saidthe availability of financing/capitalwas important to their currentbusiness success.

D e t a i l e d F i n d i n g s

T h e A n a t o m y o f a n E n t r e p r e n e u r : M a k i n g o f a S u c c e s s f u l E n t r e p r e n e u r12

Figure 15: Importance of Location of Business

Percentage0 5 10 15 20 25 300

7%

13%

27%

25%

3%

25%

Extremely important

Very important

Important

Slightly important

Not at all important

N/A

Figure 16: Importance of Location of Buiness by Region in which Founders’ Firm is Located

Mid Atlantic

Midwest

New England

South

0 10 20 30 40 50

Extremely important Important

Not at all important

Very importantVery important

N/ASlightly important

Southwest

West

Percentage

The role of business locationEntrepreneurs were almost evenly divided

about the importance of the location of theirbusinesses. 50 percent ranked location as not atall important or slightly important. Theimportance of company location did vary byregion, though. Compared with 58 percent ofthe entrepreneurs in the Southwest and 51percent in the West, 37 percent of thoselocated in the Mid-Atlantic and 40 percent inthe Midwest ranked location as important.

Overall, 50 percent of entrepreneurs ranked location as slightly or not at all important.

D e t a i l e d F i n d i n g s

T h e A n a t o m y o f a n E n t r e p r e n e u r : M a k i n g o f a S u c c e s s f u l E n t r e p r e n e u r 13

Investor advice and assistanceOf the entrepreneurs who received advice or

assistance from their company’s investors, only36 percent ranked it as important, 38 percentsaying that it was not at all important.Surprisingly, venture-backed businesses also didnot put a significant premium on advice offeredby their investors. In businesses that hadreceived venture capital, 55 percent ranked it asimportant and 32 percent said it was onlyslightly important.

Figure 17: Importance of Advice/Assistance Provided by Company Investors (all responses)

Percentage0 5 10 15 20 25 30 350 5 10 15 2

4%

10%

15%

21%

19%

30%

Extremely important

Very important

Important

Slightly important

Not at all important

N/A

Figure 18: Importance of Advice/Assistance Provided by Company Investors (excludes N/A )

Percentage0 5 10 15 20 25 30 35 400 5 10 15 20 25 30 35

5%

13%

19%

26%

38%

Extremely important

Very important

Important

Slightly important

Not at all important

Figure 19: Importance of Advice/Assistance Provided by Company Investors for Founders of Venture-backed Businesses

0 5 10 15 20 25 30 350 5 10

6%

20%

29%

32%

13%

Extremely important

Very important

Important

Slightly important

Not at all important

Investor advice or assistance was ranked as more important by those who received venturecapital than for those who did not.

D e t a i l e d F i n d i n g s

T h e A n a t o m y o f a n E n t r e p r e n e u r : M a k i n g o f a S u c c e s s f u l E n t r e p r e n e u r14

Figure 20: Importance of University/Alumni Contacts/Networks

Percentage0 10 20 30 40 50 600 10

4%

4%

11%

14%

12%

55%

Extremely important

Very important

Important

Slightly important

Not at all important

N/A

Figure 21: Importance of University/Alumni Contacts/Networks for Ivy-League Grads

Percentage0 5 10 15 20 25 30 35 400 5

7%

4%

18%

32%

4%

36%

Extremely important

Very important

Important

Slightly important

Not at all important

N/A

Figure 22: Importance of Assistance Provided by State/Region

Percentage0 10 20 30 40 50 60 70 800 10 20

1%

2%

4%

7%

18%

68%

Extremely important

Very important

Important

Slightly important

Not at all important

N/A

University or alumni network importanceOnly 19 percent of the respondents believed

that university or alumni networks wereimportant, very important, or extremelyimportant for their businesses. The graduates of Ivy-League universities ranked this higher at29 percent.

This finding was surprising, given theconventional wisdom that these networks areparticularly valuable for business contacts.Clearly, entrepreneurs felt that professionalnetworks were more important than alumninetworks for the success of their businesses.

Assistance from state or regionThe vast majority (86 percent) of

entrepreneurs ranked the assistance provided bythe state or region as not at all or slightlyimportant.

Given the conventional wisdomthat university or alumni networksare particularly valuable forbusiness contacts, it wassurprising that only 19 percent of respondents ranked thesenetworks as important, veryimportant or extremelyimportant.

D e t a i l e d F i n d i n g s

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Figure 23: Importance of Assistance Provided by State/Region in Which Founder’s Firm is Located

Mid Atlantic

Midwest

New England

South

0 20 40 60 80 100

Extremely important Important

Not at all important

Very importantVery important

N/A

Slightly important

Southwest

West

Percentage

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 lowestpremium on it, with only 1 percent ranking it as important, followed by the West and South, both with 4 percent.

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 inadditional factors. Here are some of the more common responsesthat generally were rated very important or extremely important inthe approximate order of the number of times in which these werementioned.

• 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

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Figure 25: Ranking of the Challenges Faced by Founders in Starting Business(es)

0.0 0.5 1.0 1.5 2.0 2.5 3.0

Difficulty of co-founder(s) recruitment

Family or financial pressures to keep a traditional, steady job

Lack of available capital/financing

Amount of time and effort required

Availability of health insurance/risk of losing existing coverage

Lack of industry knowledge

Lack of available mentors or advisors

Concern about the consequences of failure

Concern about protecting company’s intellectual capital

Lack of prior experience in running a business

1.6

1.8

1.9

2

2

2.2

2.3

2.5

2.6

2.9

1=Not at all a challenge 2= Small challenge 3=Somewhat of a challenge4=Big challenge 5=Extremely big challenge

Challenges they Faced in Starting Their BusinessesWe 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 bigchallenge 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 protecting company’s intellectual property

Lack of available mentors or advisors

Concern about the consequences of failure

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

Extremely big challenge Somewhat of a challenge Not a challengeBig challenge Small challenge

Percentage

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

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Other FactorsWe asked respondents to list other factors that were not

included in the set we had used. Here are some of themore common responses. These are ranked in theapproximate order of the number of times in which thesewere mentioned. The only factor ranked as an extremelybig 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 (skepticismabout technology)

• Ability to scale management and infrastructure with company growth

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Inhibitors to EntrepreneurshipWe 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 theperspective of those that had already faced these.

The overall responses indicate that the respondents perceive the barriers to entrepreneurship being muchgreater 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, veryimportant, or extremely important factor, and 50 percent ranked this as extremely important. This clearly indicatesthat 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 werebusiness-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

Knowledge about the industry and markets

Knowledge about how to start a business

Lack of business management skills

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

Extremely important factor Important factor

Not a factor

Very important factor

Not very important factor

Percentage

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

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Figure 27: Ranking of Factors that Prevent Others from Becoming Entrepreneurs

0 1 2 3 4 5

Difficulties in recruiting co-founders

Family or financial pressures to keep a traditional, steady job

Amount of time and effort required

Difficulties in raising capital/financing

Lack of business management skills

Knowledge about the industry and markets

Availability of health insurance/risk of losing existing coverage

Knowledge about how to start a business

2.5

2.7

3.2

3.3

3.4

3.6

3.8

4.0

4.3%

1=Not at all a challenge 2= Small challenge 3=Somewhat of a challenge4=Big challenge 5=Extremely big challenge

Willingness or lack of ability to take risks

Sources of FundingWe 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 analysisof 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 theirpersonal savings: 70 percent said they had used personal savings as a main source of funding for their firstbusinesses, more than four times the number for any other category. Even in subsequent startups, more than halfof the entrepreneurs relied on theirpersonal savings.

Friends and family and bank loanswere a source of funding for around13 percent to 16 percent of oursample.

Venture capital and private/angelinvestments played a role in the firststartups of only a few entrepreneurs—just 11 percent received venturecapital, and 9 percent received angelfinancing. But the proportion ofentrepreneurs who take angel andventure funding increases with eachsubsequent business launch by theentrepreneur. The percentage of thesample of serial entrepreneursreceiving venture capital for theirlatest startup was 26 percent and 22 percent received private/angelfinancing.

Figure 28: Main Sources of Funding

Corporate investment

Bank loan(s)

Private/angel investor(s)

Venture capital

Business partner(s)

Personal savings

Friends and family

Other

0 10 20 30 40 50 60 70 80

Current business Previous Business 2Previous business 1 First business started

Percentage

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Analysis and Conclusions The responses to this survey clearly contradict some strongly held

beliefs about starting a business and entrepreneurship. The four mostimportant factors for entrepreneurial success, according to ourrespondents, are prior work experience, learning from successes andfailures, management teams, and luck.

Networks and financing also were important factors. However, whenasked about sources of funding, few took venture capital or angelfinancing in their first ventures. The lesser role of venture capital fundingimplied by the responses indicates that perhaps this avenue of funding isless useful for first-time entrepreneurs than even bank funding. Further,the lack of importance entrepreneurs place on investor advice impliesthat they value “smart money” less than expected, and thatentrepreneurs are even more self-reliant than previously assumed.

The lack of reliance on alumni networks also implies that the statedvalue of attending a top-grade institution, with one of the explicit goalsbeing to obtain access to the alumni network, has been overstated as abenefit for startups. However, lessons learned in college are greatlyvalued, particularly for alumni of Ivy League schools.

The emergence of professional networks as an important successfactor for startups implies that such weak yet functional ties are perhapsthe most useful as opposed to close personal ties or extremely weak tieslike those found in alumni networks. This could be a fertile area for studyof social networks with regard to startups.

Understanding what makes entrepreneurs successful could helpdevelop better policies to foster entrepreneurship and increase thenumbers of high-growth companies.

T h e A n a t o m y o f a n E n t r e p r e n e u r : M a k i n g o f a S u c c e s s f u l E n t r e p r e n e u r 21

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