The Anatomy of an Entrepreneur

I get an email periodically from the Kauffman foundation, and today’s carried a link to two recent academic reports on the Anatomy of an Entrepreneur. I've placed in bold some items in the summary that I found particularly interesting. From the summary:

Although entrepreneurs provide the majority of jobs in the United States, little is known about what makes them tick. The Anatomy of an Entrepreneur fills in some gaps by providing insights into high-growth founders' motivations, their socio-economic, educational, and familial backgrounds, as well as their views on the factors determining the success of start-ups.
A team of researchers led by Vivek Wadhwa of Duke University, Raj Aggarwal of the University of Akron, Krisztina Holly of the University of Southern California, and Alex Salkever of Duke University surveyed 549 company founders of successful businesses in high-growth industries, including aerospace, defense, computing, electronics, and health care. The findings are presented in the following two reports.

Family Background and MotivationThe Anatomy of an Entrepreneur: Family Background and Motivation provides insights into high-growth founders' motivations and their socio-economic, educational, and familial backgrounds. Findings include:
More than 90 percent of the entrepreneurs came from middle-class or upper-lower-class backgrounds and were well-educated: 95.1 percent of those surveyed had earned bachelor's degrees, and 47 percent had more advanced degrees.

Seventy-five percent of the respondents ranked their academic performance among the top 30 percent of their high school classes, and 52 percent said they ranked among the top 10 percent. In college, 67 percent of the founders ranked among the top 30 percent of their undergraduate classes, and 37 percent ranked their performance among the top 10 percent.
Founders tended to be middle-aged—40 years old on average—when they started their first companies. Nearly 70 percent were married when they became entrepreneurs, and nearly 60 percent had at least one child, challenging the stereotype of the entrepreneurial workaholic with no time for a family.

Making of a Successful EntrepreneurThe Anatomy of an Entrepreneur: Making of a Successful Entrepreneur provides insight into company owners' views about what influences the success or failure of a startup business. Entrepreneurs identified prior work experience, learning from previous successes and failures, a strong management team, and good fortune as the most important factors in their success. Findings include:
Professional networks were important to the success of their current businesses for 73 percent of the entrepreneurs. In comparison, 62 percent felt the same way about personal networks.
Only 11 percent of the first-time entrepreneurs received venture capital, and 9 percent received private/angel financing. Of the overall sample, 68 percent considered availability of financing/capital as important. Of the entrepreneurs who had raised venture capital for their most recent businesses, 96 percent considered financing important.
Eighty-six percent of Ivy-League graduates ranked university education as important, as compared with 70 percent of the overall sample. Only 20 percent of entrepreneurs and 18 percent of Ivy-League graduates ranked university education as extremely important.
Most company founders (86 percent) ranked state or regional assistance as slightly or not at all important.

In identifying barriers to entrepreneurial success, the most commonly named factor – by 98 percent of respondents – was lack of willingness or ability to take risks. Other barriers cited by respondents were the time and effort required (93 percent), difficulty raising capital (91 percent), business management skills (89 percent), knowledge about how to start a business (84 percent), industry and market knowledge (83 percent), and family/financial pressures to keep a traditional, steady job (73 percent).

High Growth Firms, Jobs and Policy

The Kauffman Foundation has a wonderful new piece of entrepreneurship research out, that I finally had a chance to read today. It’s called, High Growth Firms and the Future of the American Economy. Besides being a wonderful title, the document speaks to a topic near and dear to many of us …policy implications for entrepreneurship. From the report:

The data generally show that:
• In any given year, the top-performing 1 percent of young firms generate roughly 40 percent of new job creation.
• Fast-growing young firms, comprising less than 1 percent of all companies, generate roughly 10 percent of new jobs in any given year.

A couple of other points of interest:

In 2007, the U.S. economy contained 5.5 million firms. About half a million of these were brand new (age zero, that is); another two million, or just over one-third, were five years old or younger. Some companies were expanding, some contracting, some standing still. By and large, job creation (about two-thirds) came from young firms, many of which were small and never got much bigger. Only a small number of firms, moreover, creates a disproportionate share of such additional jobs; these are the top-performing firms. For example, the top 5 percent of companies (measured by employment growth), or about 273,000 firms, creates two-thirds of new jobs in any given year. The top 1 percent of companies (about 55,000), generate 40 percent of new jobs in any given year.

Every year, roughly half a million new firms are started in the United States; not all of these will survive, of course, and survival rates across time are remarkably stable.4 In the first two years, roughly a third of these companies will fail and, in five years, just under half (48 percent) will remain.