Why People Start Ventures
- by Peter Cohan
Here are two myths about start-ups that need busting:
- Entrepreneurs are heroes who are born and can’t be made.
- Entrepreneurs start companies to get rich.
In my Forbes Startup Economy blog, I wrote about the 100 year old myth that entrepreneurs are super-human beings that can accomplish things no other person can. Stories of college dropouts like Bill Gates, Steve Jobs, and Mark Zuckerberg help reinforce this myth.
One inconvenient truth is that there are 113,000 papers cited in Google Scholar that contradict the idea of entrepreneurs as born and not trainable. As Candida Brush, Professor of Entrepreneurship at Babson College, where I teach, points out — the academic research shows that education is correlated with start-up success.
More specifically, she cites research that shows the probability of start-up survival is 7% for a company started by an entrepreneur with no college education or industry expertise — with both education and industry expertise, the odds of start-up survival rise to 77%. And the same benefits of education and industry expertise hold true for start-up profitability — without them there’s an 8% chance of profits; with them a 61% probability.
And 2,500 entrepreneurship programs, including Wharton’s, can teach people to become entrepreneurs. For example, Brush’s colleague Patti Greene has identified 45 “roles and tasks” that entrepreneurs perform. These 45 roles and tasks include creating new products and services, inspiring others to embrace the vision and values of the company, and controlling costs.
Babson is using these 45 to create a so-called Entrepreneurial Self-Efficacy Scale that aspiring entrepreneurs can use to rank themselves. In so doing, they can identify their strengths and opportunities for improvement in these 45 roles and tasks. And education can help them improve where they’re weak.
Why do entrepreneurs start companies? It’s not to get rich. After all, only about 10% of venture-financed start-ups hit it big. And only about 3% of the two million new ventures started every year even take venture capital.
My interviews with about 100 start-up CEOs for my forthcoming book, Start-up Strategy, reveal a different purpose — to create a world in which the entrepreneur wants to work. When I started my company back in 1994, I was hoping to get control of how I spent my time while doing work that others valued enough to pay me for.
One of the entrepreneurs I interviewed recently put that purpose far more eloquently. Jeff Hammerbacher is a 2005 Harvard graduate who worked at Bear Stearns and Facebook before starting Cloudera in 2008. A Facebook colleague described Hammerbacher as “scary smart, a maverick, individualistic, dynamic, a sponge when it comes to new ideas and his interests evolve quickly.” When Hammberbacher started Cloudera, its mission was to apply the computing power he had built at Facebook to solve more important problems. Instead of helping to answer what a group of friends “like” the most on Facebook, Cloudera customers would be able to answer questions such as, “What gene do all these cancer patients share?”
At Harvard, Hammerbacher took a core course on moral reasoning which required him to read philosopher John Rawls’ concept of the Veil of Ignorance. As Hammerbacher described it, Rawls’ idea was that if the moment before you were born, you could decide which part of the world you would be born into, how would you design that world so you would have a fair shot at life?
Hammerbacher’s vision is to build Cloudera to last. As he told me, “The vision is to build an exceptional, standalone enterprise software company respected for its technical depth and expertise. We’d like to help commoditize the infrastructure for analyzing all kinds of data at arbitrary scales, so that companies can derive more business value from the data they generate. DEC, Tandem Computers, and Sun are companies that, in their prime, had cultures similar to the one we’re trying to build.”
Entrepreneurs are not heroes, they are just people who are seized by a powerful vision of the work that they want to do and the desire to build an organization that can turn that passion into real products that make customers better off.