The answers might surprise you.
Heard it on the Street
I’ve heard some things that really bother me about why startup companies succeed and why they fail. They seem more like generalizations and assumptions than anything close to the truth. Perhaps, you’ve heard these, too:
“Men are better at leading companies.”
“We only invest in founders under the age of thirty-two.”
“Most companies fail because they were undercapitalized.”
“To be successful, you must own patented and copyrighted intellectual property (IP).”
That Doesn’t Sound Right
I happen to know many women who are terrific business leaders. I also know a lot of people who started companies well after their thirty-second birthday. I can cite cases of successful companies that bootstrapped their way to success. And I’m pretty sure we both can point out companies that do nothing but sell other people’s stuff and do not have any patented technology at all. Something is not right.
So I turned to the Kauffman Firm Survey for data to remove the air of opinion that seems to be behind these statements. In my search I was able to find three researchers, Carmen Cotei and Susan Coleman of the University of Hartford and Joseph Farhat of Central Connecticut State University, who went through the data in the survey. I am grateful to Carmen, Susan and Joseph for their work and their insights. The survey covers nearly 5000 companies over a seven-year period, and the amount of data is significant. They came to some interesting conclusions.
Gender
The sample group included three times as many companies founded by men than by women. The survey data shows that companies led by men and companies led by women have nearly identical rates of survival. The same fraction of companies in each gender group “fail.”
Gender of the founder doesn’t matter when it comes to predicting the success or failure of a new business.
Age
Contained within the data of the survey is the fact that there were more founders older than fifty than there were founders in their thirties. And if you add together the number of founders in their forties and above fifty, it’s nearly twice as many in their twenties and thirties. Furthermore, if you consider the number of founders in their twenties, it’s a small fraction of the total. The survey also points out that companies founded by people in their twenties have a significant risk of closure when compared to closure rates of companies founded by people older than thirty.
Age of the founder doesn’t matter when it comes to predicting the success or failure of a new business. Younger is not better – it could be worse.
Capital
Companies were divided into three groups: startup capital over $100,000, $10,000 to $100,000 and less than $10,000. The companies with more capital appear to be able to last longer and were better at avoiding being acquired or closing. But they did not, ultimately, succeed at a higher rate. This doesn’t mean the failures had enough money – they may have actually been undercapitalized. It does mean you should know how much capital you need, and don’t worry about impressing your friends.
A larger amount of startup capital (by itself) does not guarantee the success of a new business.
Intellectual Property (IP)
Many more companies in the survey did not have IP than did. Having it or not had little impact on whether the company succeeded or not.
Having IP does not impact the success of a new business.
Conclusion
The next time you hear:
“You can’t start that business because {you’re a man} {you’re a woman}.”
“You’re too old”
“You need way more than $100,000 to get started, or don’t even bother trying.”
“Without a patent, anyone can do what you’re doing – good luck with that…”
The next time you hear that stuff, you can point to the data and say, “oh yeah – watch me.”