It’s time to send your preconceptions to the recycle bin
May 10, 2014 8:26 PM
By Vivek Wadhwa
A young male who was born to be an entrepreneur drops out from a computer-science program at a prestigious university. He meets a powerful venture capitalist who is so enamored with his idea that he gives him millions of dollars to build his technology. Then comes the multibillion-dollar IPO.
That’s the Hollywood version of Silicon Valley. But it is as far from reality as is Disneyland. Entrepreneurship is never that easy and the stereotype of the start-up founder is not representative of the technology world.
Yes, there are a few, such as Mark Zuckerberg and Bill Gates, who made it big. But they are the outliers — and they too don’t fit the stereotype. Here are six myths about what it takes to make it:
Entrepreneurs are born, not made
This is a common belief. Venture capitalist Fred Wilson once said he was shocked when a professor told him you could teach people to be entrepreneurs. He explained, “I’ve been working with entrepreneurs for almost 25 years now and it is ingrained in my mind that someone is either born an entrepreneur or is not.” Venture capitalist Mark Suster maintained the same.
They’re wrong. My research team found that, of the 549 successful entrepreneurs that we surveyed in 2009, 52 percent were the first in their immediate families to start a business; about 39 percent had an entrepreneurial father and 7 percent had an entrepreneurial mother. (Some had both.) Only a quarter of the sample had caught the entrepreneurial bug when in college. Half didn’t even think about entrepreneurship then, and they had little interest in it when in school.
This sample doesn’t necessarily prove my point. But look at some of the most successful entrepreneurs that we know: Mr. Zuckerberg, Mr. Gates, Steve Jobs, Jeff Bezos, Larry Page, Sergey Brin and Jan Koum. They didn’t come from entrepreneurial families. Their parents were dentists, academics, lawyers, factory workers or priests. I doubt they were writing business plans while in kindergarten or selling lemonade in grade school.
I myself come from a family of government bureaucrats and teachers. I started my career as an IT professional and never dreamed of becoming an entrepreneur. But when I was 33, the opportunity presented itself to start a company. I made the leap and helped build a business that generated $120 million in annual revenue.
Silicon Valley luminary Steve Blank puts it this way: “Change the external culture and environment, and entrepreneurship can bloom regardless of its source — nature or nurture.”
Entrepreneurship flourishes in places where people can learn from and inspire one another, such as Silicon Valley and New York City.
Great entrepreneurs are young
Silicon Valley investors openly tout their preference for younger entrepreneurs. One famous investor said, “People under 35 are the ones who make change happen … people over 45 basically die in terms of new ideas.”
In response, Mr. Koum, the founder of WhatsApp — the most expensive technology acquisition ever — wrote on Quora: “I incorporated WhatsApp on the day of my 33rd birthday. i had no idea i only had 2 years left.”
My research teams documented that the average and median age of successful technology company founders when they started their companies had been 40. As many had been older than 50 as had been younger than 25; twice as many had been over 60 as under 20. Seventy percent were married when they launched their first business; 60 percent had at least one child and 43.5 percent had two or more children.
Venture capitalists who say older entrepreneurs are over the hill are misguided. Reid Hoffman was 36 when he founded LinkedIn. Reed Hastings was 37 when he founded Netflix; Mark Pincus was 41 when he started Zynga. Pradeep Sindhu was 42 when he founded Juniper Networks and Irwin Jacobs was 52 when he founded Qualcomm.
Drop out; college is a distraction
PayPal billionaire Peter Thiel made headlines when he announced four years ago that he would pay students $100,000 to drop out of college. He wanted to prove that higher education is overpriced and unnecessary, that budding entrepreneurs are better off in building world-changing companies than in studying irrelevant courses in school.
His effort proved to be a dismal failure. Some Thiel start-ups received big media attention and adulation — such as one that announced it would be producing caffeine spray. But none was the success that had been promised.
The Thiel Foundation quietly refocused its efforts on providing an alternative form of education to college dropouts, and several of its sponsored dropouts returned to school. That’s because there is no substitute for education. Yes, there are good alternatives to universities, but entrepreneurs need to learn the basics of business and management to succeed.
My research team found that, on average, companies founded by college graduates have twice the sales and employment of companies founded by people who hadn’t gone to college. What matters is that the entrepreneur completes a baseline of education; the field of education and ranking of the college don’t play a significant role in entrepreneurial success. Founder education reduces business failure rates and increases profits, sales and employment.
Women don’t have the tech gene
Women-founded firms receive hardly any venture-capital investments; they are almost absent in high-level technology positions; they contribute to fewer than 5 percent of IT patents and 1.2 percent of open-source software programs. This is despite the facts that girls now match boys in mathematical achievement, that 140 women enroll in higher education for every 100 men and that women earn more than 50 percent of all bachelor’s and master’s degrees and nearly 50 percent of all doctorates in the United States.
Do female founders receive less VC backing because women are different? Not at all.
Research by the National Center for Women & Information Technology revealed that there are almost no differences in success factors between men and women company founders. Men and women are equally likely to have children at home when they start their businesses, though men are more likely to be married. Both sexes have exactly the same motivations, are of the same age when founding their start-ups, have similar levels of experience and equally enjoy the startup culture.
It’s also not that women can’t cut it in business. Women-led companies are more capital-efficient and venture-backed companies run by a woman have 12 percent higher revenues than others.
You need venture capital
Many would-be entrepreneurs write business plans in the hope of finding a venture capitalist to invest in them, believing that, without this funding, they can’t start a company. And that view reflected reality a few years ago. Then, capital costs for technology were in the millions of dollars. But that is no longer the case.
A $500 laptop has more computing power today than Cray 2 supercomputers that cost $17.5 million in 1985. For storage, back then, you needed server farms and racks of hard disks, which cost hundreds of thousands of dollars and required air-conditioned data centers. Today, one can use cloud computing and cloud storage, costing practically nothing.
Sensors such as those in our smartphones cost tens of thousands of dollars a few years ago. Now they too cost a few dollars or cents. Entrepreneurs can build smartphone apps that act as medical assistants to detect disease; body sensors that monitor heart, brain and body activity; and technologies to detect soil humidity and improve agriculture. And they can participate in the genomics revolution. It cost $100 million to sequence a full human genome a decade ago. It now costs $1,000. Genome data will soon be available on millions of people, and then billions — allowing entrepreneurs to research the causes of disease.
There are similar advances in robotics, artificial intelligence, 3D printing and many other fields. These technologies too require no major capital outlays.
Venture capital follows innovation. If entrepreneurs build new technologies that customers need or love, money will come to them. They don’t need to wait for venture funding to start.
Tech is only for techies
A common belief is that startup CEOs need to be engineers. Bill Gates argues that liberal-arts degrees don’t correlate well with job creation and that the humanities should be defunded in favor of science, engineering, technology and mathematics. In Silicon Valley, there is a general bias against liberal arts and humanities. It is very hard for an artist or an English or psychology major to break in.
But note what Steve Jobs said when he unveiled the iPad 2: “It’s in Apple’s DNA that technology alone is not enough — it’s technology married with liberal arts, married with the humanities, that yields us the result that makes our heart sing, and nowhere is that more true than in these post-PC devices.”
Jobs taught the world that, though good engineering is important, what matters the most is good design. It takes artists, musicians and psychologists working side by side with engineers to build products as elegant as the iPad. You can teach artists how to use software and graphics tools, but it’s much harder to turn engineers into artists.
My research at Duke and Harvard looked into the educational backgrounds of 652 U.S.-born CEOs and heads of product engineering at 502 technology companies in 2008. We found that only 37 percent held degrees in engineering or computer technology, and that just 2 percent held them in mathematics. The rest had degrees in fields as diverse as business, accounting, finance, health care and arts and the humanities.
Critical thinking, communication and scientific validation are skills that are in short supply in the tech world. And these are skills that are abundant in the humanities.
Vivek Wadhwa, a founding executive of Seer Technologies, is a fellow at Rock Center for Corporate Governance at Stanford University and research director for entrepreneurship at Duke University. He wrote this for The Washington Post.
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