by Derek Lidow
… research to date shows that the correlation between success and any characteristic or even any group of characteristics is so small as to be irrelevant to anyone’s decision to become an entrepreneur. … See Zhao, Hao, Scott E. Seibert, and G. Thomas Lumpkin. “The relationship of personality to entrepreneurial intentions and performance: A meta-analytic review.” Journal of management 36.2 (2010): 381–404. While the authors find some relatively small correlations between certain characteristics and broadly defined entrepreneurial performance, they state, “It is also appropriate for educators to advise students that personality explains ‘only’ about 10 percent of the variance in firm performance, and they should not place undue weight on this one set of factors.” In Frank, Hermann, Manfred Lueger, and Christian Korunka. “The significance of personality in business start-up intentions, start-up realization and business success.” Entrepreneurship & Regional Development 19.3 (2007): 227–251 the authors conclude that the correlation of personality to business success “practically drops to zero.” Finally, Paul Reynolds in his “Start-up Actions and Outcomes: What Entrepreneurs Do to Reach Profitability.” Foundations and Trends® in Entrepreneurship 12.6 (2016): states emphatically on page 528, “What you do is more important than who you are.” (Underlining is from the article.)
Over half of the entrepreneurs in the United States work on their own … See Reynolds, Paul D., and Richard T. Curtin. “Business creation in the United States: Panel study of entrepreneurial dynamics II initial assessment.” Foundations and Trends® in Entrepreneurship 4.3 (2008): page 204.
Founding a company with a spouse or other direct relative as a partner is also common, occurring in over a quarter of the cases. … ibid. page 206.
Among high-risk entrepreneurs, however, founding companies with relative strangers is common. … ibid. page 248 finds 53 percent of entrepreneurs aspiring to build a “substantial” company team up with strangers. Noam Wasserman, in his classic book on entrepreneurship, Founder’s Dilemmas, Princeton (Princeton), 2012, finds only 16.1 percent of the large number of VC-backed founding entrepreneurs he has tracked founded their companies alone (see pages 73–74).
… many high-risk entrepreneurial ventures fail at least in part because of a break-up among key members of the founding team. … The tricky aspects of picking and working with founding team members is a major focus of Noam Wasserman’s Founder’s Dilemmas.
… it does increase familial stress … See Parasuraman, Saroj, and Claire A. Simmers. “Type of employment, work–family conflict and well-being: a comparative study.” Journal of Organizational Behavior 22.5 (2001): 551–568.
Chapter 3: What
Entrepreneurial opportunities are everywhere. … I do not mean to imply that “everything” is an entrepreneurial opportunity nor that “all” entrepreneurial opportunities are easy to spot and easy to exploit. Additionally, this statement is not meant to imply that anyone is able to exploit any given opportunity (which opportunities any given person can realistically pursue is the subject of chapter 7: How Good). A more specific statement would be, “every field and market holds entrepreneurial opportunities for those that take the time and expend the effort to understand where the market incumbents are failing to make their customers happy with their products and services.”
The United States collects a great deal of data about its businesses and has a well-established system for organizing them into over 1,000 different industries. … See https://www.census.gov/eos/www/naics/ for a description of the North American Industry Classification System. The exact number of NAICS codes (1,057) is quoted in the 2017 NAICS Manual (https://www.census.gov/eos/www/naics/2017NAICS/2017_NAICS_Manual.pdf) on page 14.
Currently, high-risk entrepreneurial activity is concentrated in software related businesses … The National Venture Capital Association, Yearbook 2016, gives a breakdown of all venture capital investments in dollars in 2015 on page 13, Figure 7.0, as follows: Software 40 percent, Biotechnology 13 percent, Consumer Products and Services 8 percent, Media and Entertainment 8 percent, IT Services 7 percent, Financial Services 5 percent, Industrial/Energy 5 percent, Medical Devices and Equipment 5 percent, and Other 9 percent.
Vidal Herrera’s entrepreneurial journey … The information about Vidal Herrera comes from a series of interviews and email exchanges held from July 2015 through May 2017.
Sam Walton grew up with just enough. … The information on Sam Walton comes from a large number of sources. His autobiography, Made in America, has been a prime source, as were many of the oral histories compiled by the Walmart Museum. Of particular importance were:
Interview with Loretta Boss Parker, conducted by Kenneth Durr, October 4, 2011 at Bentonville, Arkansas.
Interview with Gary Reinboth, conducted by Fritz Steiger, May 2, 2012, WMTV Studio, Bentonville, Arkansas.
Interview with Jim Dismore, conducted by Fritz Steiger, July 1, 2012, Denver, Colorado.
Interview with Claude Harris, conducted by Fritz Steiger, October 8, 2013, WMTV Studio, Bentonville, Arkansas.
Interview with Clarence Leis, conducted by Fritz Steiger and Derek Lidow, December 16, 2016, WMTV Studio, Bentonville, Arkansas.
I have also had access to historical documents archived at the Walmart Museum. When I quote an archival document or oral history I will cite it specifically in the notes. Vance Trimble’s book, Sam Walton: The Inside Story of America’s Richest Man has occasionally provided an additional perspective.
… she [Helen Robson] had been valedictorian and a varsity athlete at her high school … Helen’s brother Frank recounts Helen being her class valedictorian in an oral history. Evidence of Helen’s lettering in fencing comes from artifacts held by the Walmart Museum.
… backed by a $20,000 loan from Helen’s dad … I quote here Sam’s recollection from his Made in America (page 28). Vance Trimble and others quote a $25,000 figure but do not take into account that $5,000 of that amount came from Sam and Helen’s personal savings.
The transistor was co-invented by William Shockley … Joel Shurkin’s biography of William Shockley, Broken Genius: The Rise and Fall of William Shockley, is the most comprehensive descriptions of the man, based upon his personal papers and also extensive interviews with family and those that worked with him. The point of view of Robert Noyce, a pivotal employee of Shockley Semiconductor and later founder of Fairchild Semiconductor and Intel is told in Leslie Berlin’s book, The Man Behind the Microchip: Robert Noyce and the Invention of Silicon Valley. The best descriptions of William Shockley’s leadership lapses are contained in the book Crystal Fire: The Invention of the Transistor and the Birth of the Information Age, by Michael Riordan and Lillian Hoddeson (see pages 247–248).
Steve Jobs and Steve Wozniak initially tried to sell PC boards to hobbyists … see page 66 of Walter Isaacson’s book Steve Jobs, Simon and Schuster (New York), 2011.
They make their customers so happy that the customers gladly give them money in return. … This is my summation of entrepreneurship. I along with my research associate Yash Huilgol spent much of a summer of 2015 looking for precedents and/or research relating to customer happiness and well-being and startups—to no avail (we found plenty of research relating entrepreneurship to the happiness of the entrepreneur).
… most aspiring entrepreneurs, consciously and subconsciously, attach a social status to the entrepreneurial opportunities they decide to pursue or reject. … See for example, Anderson, Cameron, et al. “The local-ladder effect: Social status and subjective well-being.” Psychological Science 23.7 (2012): 764–771.
Chapter 4: Why
Over a million aspiring entrepreneurs every year in the United States do succeed in starting profitable enterprises. … This is derived from an estimate of the annual number of total new entrepreneurs derived from the “Rate of New Entrepreneurs” found in the Kauffman Index of Startup Activity, accessible at: http://www.kauffman.org/kauffman-index/reporting/startup-activity. I estimate that 30 percent of these 4 million annu
al new entrepreneurs reach profitability. The 30 percent number comes from page 463 of Reynolds, Paul D. “Start-up Actions and Outcomes: What Entrepreneurs Do to Reach Profitability.” Foundations and Trends® in Entrepreneurship 12.6 (2016): 443–559. The data summarized in Table 5.1 for the United States in the PSED I and PSED II studies indicates that less than three out of ten nascent entrepreneurs—those entrepreneurs that have diligently started to found a business—have reached “profitability” after six years. Profitability is defined in these studies as making enough money to cover expenses and pay salaries.
About 70 percent of the people who actually become full-time entrepreneurs in a typical year abandon their efforts or do not make any money back whatsoever … ibid. These data also show that after seventy-two months almost half have abandoned their efforts, with less than 25 percent still trying to make a go.
… thousands of studies, led by many brilliant researchers, have yielded valuable insights on why we do what we do and also why we do some things with more determination, passion, and intensity than others. … For an in-depth overview of this research see: Elliot, Andrew J., and Carol S. Dweck, eds. Handbook of competence and motivation. Guilford Publications, 2013.
… making our own trade-offs between immediate pleasure and long-term feelings of well-being and purpose. … See for example: Ryan, Richard M., and Edward L. Deci. “On happiness and human potentials: A review of research on hedonic and eudaimonic well-being.” Annual review of psychology 52.1 (2001): 141–166.
… the difference between implicit and explicit motivations … This refers to a great body of work by the famous psychologist David McClelland. You can read the book, McClelland, D.C., Assessing Human Motivation, General Learning Press (New York), 1971, but you can get a strong sense of the work in the review article: McClelland, David C., Richard Koestner, and Joel Weinberger. “How do self-attributed and implicit motives differ?” Psychological review 96.4 (1989): 690–702.
Implicit and explicit motivations are different than intrinsic and extrinsic motivations and often get confused. … They are nonetheless related as intrinsic motivations often, particularly in childhood, align with implicit motivations. How extrinsic motivations can become internalized as implicit motivations is described in Ryan, Richard M., and Edward L. Deci. “Self-determination theory and the facilitation of intrinsic motivation, social development, and well-being.” American psychologist 55.1 (2000): 68.
Most of us are pretty bad at fulfilling our explicit motivations if we can’t do it quickly. … See the previously cited article, “How do self-attributed and implicit motives differ?”
… our brain protects us from feeling too badly about failing to achieve all our explicit motivations. … See for example, Bénabou, Roland, and Jean Tirole. “Mindful economics: The production, consumption, and value of beliefs.” The Journal of Economic Perspectives30.3 (2016): 141–164.
Academics have spent a great deal of time studying the explicit reasons aspiring and successful entrepreneurs cite for having taken on the burden of starting an enterprise. … To understand the state of the research into entrepreneurial motivation see: Collins, Christopher J., Paul J. Hanges, and Edwin A. Locke. “The relationship of achievement motivation to entrepreneurial behavior: A meta-analysis.” Human performance 17.1 (2004): 95–117 and Shane, Scott, Edwin A. Locke, and Christopher J. Collins. “Entrepreneurial motivation.” Human resource management review 13.2 (2003): 257–279 and Carsrud, Alan, and Malin Brännback. “Entrepreneurial motivations: what do we still need to know?” Journal of Small Business Management 49.1 (2011): 9–26.
Entrepreneurs often cite making money as their motivation. … See page 246 of the previously cited Reynolds, Paul D., and Richard T. Curtin. “Business creation in the United States: Panel study of entrepreneurial dynamics II initial assessment.” Wealth and financial security is overall the second most important motivational dimension of entrepreneurs in the U.S. after autonomy and independence. See also, Wasserman, Noam. “RICH VERSUS KING: THE ENTREPRENEUR'S DILEMMA.” Academy of Management Proceedings. Vol. 2006. No. 1. Academy of Management, 2006.
Josephine Esther Mentzer’s [Estée Lauder] life was transformed by an insult. … This vignette is from Estée Lauder’s autobiography, A Success Story, Random House (New York), 1985. The more complete and factual biography is Lee Israel’s, Estee Lauder: Beyond the Magic, Macmillan (New York), 1985.
Chapter 5: What If
Jeff Bezos is spending hundreds of millions of dollars to build the rockets and the support organizations to enable him to travel to Mars … See for example Nick Stockon’s Wired article, “Jeff Bezos’ New Rocket Could Send the First People to Mars,” 9.13.16; https://www.wired.com/2016/09/blue-orgins-new-glenn-rocket/.
High-risk entrepreneurs play a disproportionately important role in job and wealth creation … see my notes from chapter 1 on how 99.5 percent of all entrepreneurs create over 90 percent of all the wealth created by startups.
… less than a fraction of a percent of all startups create around 10 percent of all the wealth created by startups … ibid.
The entire field of venture capital works in almost perfect synchronization. … author’s discussions with a multitude of venture capitalists. I do know of one VC who refuses to hold his partner’s meeting on a Monday.
… most venture capital firms do not actually invest in startups. About a third do, but most don’t. … See Yearbook 2016, National Venture Capital Association, figure 1.05 on page 20.
Two-thirds of all venture investment dollars go into more mature startups. … ibid., figure 3.10 on page 33.
Research has shown that the more successful a venture backed startup, the more likely the venture capital firm is to try to replace the founder. … See Wasserman, Noam. “Founder-CEO succession and the paradox of entrepreneurial success.” Organization Science 14.2 (2003): 149–172.
VC partners are usually allowed to spend 2 percent each year on their own salaries and expenses, sometimes reduced to 1.5 percent after five years. … Every firm negotiates their fees with their largest “anchor” limited partners but 2 percent is the basis around which they start their negotiations. See Robinson, David T., and Berk A. Sensoy, “Do private equity fund managers earn their fees? Compensation, ownership, and cash flow performance,” Review of Financial Studies 26.11 (2013): 2760–2797 for a statistical review that shows the median VC fund charges 21.4 percent in management fees over the lifetime of the fund.
A few [startup investments] will do better than expected but the overwhelming majority stumble or hit some unanticipated constraint. … See Da Rin, Marco, Thomas F. Hellmann, and Manju Puri. A survey of venture capital research. No. w17523. National Bureau of Economic Research, 2011, pages 78–90.
… the majority of venture capital funds fail to return to their investors a lot more money than was originally invested … ibid.
… most venture capital firms return less than a compounded 13 percent ROI. … ibid.
As of 2015, there were 718 active venture capital firms in the U.S. Only 238 of these firms invest in early stage startups … See the note above, “most venture capital firms do not invest in startups …”
There are an estimated 300,000 angel investors in the U.S. … The Angel Capital Association and The Angel Resource Institute are both good resources for information about angel investing. See https://www.angelcapitalassociation.org/faqs/#How%20many%20angel%20investors%20are%20there%20in%20the%20U.S.?
In aggregate angel investors invest just as much money as VCs in startups … The Center for Venture Research at the University of New Hampshire estimated angel investors invested $24.6 billion in 71,110 startups in 2015 (https://paulcollege.unh.edu/sites/paulcollege.unh.edu/files/webform/Full%20Year%202015%20Analysis%20Report.pdf). According to the North American Venture Capital Association 2016 Yearbook VCs invested a total of $59 billion in 2015 but only $21 billion of that amount was invested in seed or early-stage rounds.
Angel investors want their money
back … See https://www.angelcapitalassociation.org/faqs/#How_do_I_know_my_business_is_right_for_an_angel_investment_.
Accelerators take a small ownership in companies started by teams … A summary of the investment offers of Global Accelerator Network members can be found at http://gan.co. Y Combinator offers $120,000 for a 7 percent stake in companies they accept into their program.
In the United States there are about 300 accelerators … The number quoted can vary widely depending upon the exact definition of what is an accelerator. Brookings (https://www.brookings.edu/research/accelerating-growth-startup-accelerator-programs-in-the-united-states/) found nearly 700 companies in the United States that claimed to be an accelerator but found only 172 that fit their definition. That definition comes from Susan Cohen, a professor at University of Richmond, who authored the most widely used definition: offers seed capital, working space, networking, and mentorship for a limited duration, culminating in a “demo day.” Susan Cohen has counted 300 US accelerators as of early 2015 (https://www.quora.com/How-many-accelerators-incubators-are-there-around-the-globe). By her definition most university based, government funded (most prominently I-Corps), or non-profit accelerators do not meet these criteria.
Accelerators mentor and train over 4,000 teams each year in their programs, including more than 12,000 aspiring entrepreneurs. … This number is my estimate based upon thirteen startups accelerated at each of Susan Cohen’s 300 accelerators, each startup with at least three team members.
A small number of accelerated companies from the top dozen most highly regarded programs (i.e., the top 2.5 percent accelerators) receive funding by VCs … See Hallen, Benjamin L., Christopher B. Bingham, and Susan Cohen. “Do Accelerators Accelerate? A Study of Venture Accelerators as a Path to Success?” Academy of Management Proceedings. Vol. 2014. No. 1. Academy of Management, 12955.