Anatomy of an Entrepreneur: They Aren't Who You Think They Are
The average entrepreneur or founder of a fast-growing technology or knowledge industry company is married, has children, and worked for many years at a company or for someone else before branching out and starting his or her own business. In short, everything we believed about what the average entrepreneur looks like proved to be mistaken. Those mistaken assumptions, however, hold significant seeds of hope for fostering entrepreneurship, particularly in the technology sector. And they expose the lie that older CEOs and founders are bad bets for tech companies or venture capitalists.
Why is this so important? In 2004, companies with fewer than 500 employees employed 50.9% of the nation's private-sector work force and generated 50.7% of its non-farm, private gross domestic product, according to the U.S. Small Business Administration. Beyond that, small businesses, by some measures, have been responsible for more than 75% of all job growth in the U.S. over the past 20 years. It's rapidly becoming a strong consensus in economic circles that entrepreneurs and small businesses are the primary drivers for growth in the U.S. economy as a whole.
Will the Real Small-Business Founder Please Stand Up
The overall picture that Wadhwa and I constructed of an entrepreneur is intriguing and completely counter to stereotypes. While the idea persists in the media that entrepreneurs are childless -- thus, more able to can pull all-nighters -- in fact 61.1% of respondents indicated they had at least one child when they launched their first business. Crazy bachelors? Nope. By our numbers, 72.5% of entrepreneurs were married when they launched their first venture. Rich kids given a leg up in starting their businesses? Not really. About 71% of our entrepreneurs came from middle class backgrounds, with the majority of them coming from lower-middle and mid-middle class backgrounds.
Are entrepreneurs are usually first-born hyper-achievers? Around 42% were, but that still puts second- and later-borns in the majority. Do they come from families of entrepreneurs, raised with the sickness in their blood? Hardly. Roughly 53% respondents were the first ones in their family to launch a business. Highly educated mom and dad? Again, not really. Less than half of the parents of respondents had college or advanced degrees. Unable to work for other people? Definitely untrue. More than three-quarters of the entrepreneurs we surveyed had worked for someone else for at least six years before launching their businesses.
When it comes to money, again, existing stereotypes of a heavy reliance on venture capital to launch high-tech and high-growth ventures don't hold water. We learned that the most significant source of funding for all businesses started by respondents was their personal savings. In our surveys, 70% said they had used personal savings as a main source of funding for their first business, more than four times the number for any other category. Even in subsequent startups, more than half of the entrepreneurs relied on their personal savings. Friends, family or bank loans were a source of funding for around 13 to 16% of our sample. Venture capital and private/angel investments played a role in the first startups of only a few entrepreneurs. Just 10.8% received venture capital, and 9.2% received angel financing. The main obstacle entrepreneurs reported was lack of knowledge about starting a business, and fear of failure and the aftermath.
The implications of these findings for how we can pursue an economic strategy to encourage entrepreneurs is quite clear. "Look in the workforce, not in the university business-plan contest, for startup talent," said Wadhwa. He also believes that the focus on venture capital as a primary funding source is not really warranted; while VCs have their place, there are lots of other ways to get a startup funded. Lastly, Wadhwa believes that just about anyone who wants to can become an entrepreneur. "These people saw very few barriers to starting their own company and that is key to their success," says Wadhwa. In other words, the most important ingredient for an entrepreneur is not age or youth, not experience, not family or lack of commitment, but the belief in oneself and the desire to succeed.