Every year, more than one million new businesses are established in the United States. Studies have concluded that, at any one time, nearly 4 percent of working age adults -- approximately 7.0 million people -- are actively engaged in the process of starting a new business. But many of these prospective businesses will never open their doors, and the survival rate for those that do is disappointing. Although much new job creation and technological innovation are attributed to new business startups, the coveted secrets of entrepreneurial success have long been elusive. Who has "the Right Stuff" -- and what is "the Right Stuff" anyway?
The newly-formed Entrepreneurial Research Consortium is seeking to answer these evasive questions through rigorous research. The Coordinator of this Consortium, Paul D. Reynolds, Professor in Entrepreneurial Studies at Babson College (Babson Park, Massachusetts), anticipates it will embrace more than 20 economic research centers and universities. Several preliminary research papers have already been presented suggesting some discerning findings.
A dominant characteristic of successful entrepreneurs is their commitment to making the business real, both to themselves and to their surrounding community. Dormant entrepreneurs tend to concentrate on activities internal to the startup process (e.g., developing business plans and saving money), but devote inadequate effort toward activities that would make the business real to others. They often concentrate on talk and "plans," not on action; they are more passive rather than action-oriented.
In contrast, the successful entrepreneurs are much more aggressive in making their businesses real to others. They undertake activities that make their new businesses tangible to others. For example, they establish a legal entity, look for equipment and facilities, seek and secure the requisite financing, assemble a team, procure equipment and facilities, and commit their full time to the new business. These successful entrepreneurs appear to act with a high level of intensity, they seem to believe in the emerging business. They undertake more early functional activities than those individuals who eventually chose not to start their own businesses. These successful individuals throw themselves into the day-to-day tasks of operating an ongoing business as rapidly as possible, and are able to generate early sales and cash flow. In summary, these successful entrepreneurs act before their community as well as themselves as if their new business will be successful, and quickly work energetically to assure its success.
Significantly, most successful startups open rather briskly. Successful entrepreneurs report the median time between their initial startup decision and (1) their first sale is only four months, (2) positive cash flow is eight months, and (3) being confident the venture will succeed is ten months. This undoubtedly reflects their grasp of commercial necessity and reality.
Of course, many dormant entrepreneurs who never started their own businesses may have been equally "successful." Their prolonged investigations and planning may have suggested that the contemplated business was not viable or too risky, or that they did not have the specific psychological characteristics to be a happy and successful entrepreneur. The flexibiity and adaptability to discover more creative ways to surmount the barriers they encountered may have been lacking. But they successfully resisted the temptations to rush into a likely failure or disappointment.
Not surprisingly, the 25-34 year age bracket is the most common period of entrepreneurial formation, followed by the 35-44 year age bracket; more than 80 percent of all new business formations spring from these age groups. And there is no gender gap within these age groups. Except for individuals within households with annual incomes of $10,000 or less, there is little correlation between wealth and entrepreneurial ambitions. The lack of a high school diploma is a significant deterrent, but beyond this minimal standard, the level of education yields no appreciable variation in entrepreneurial formation.
Successful new business startups are dependent upon a number of critical factors, e.g., products or services with some demonstrable superiority, the "right" location, the "right timing," and/or an advantageous cost structure. A special blend of realism and optimism are essential. But looking at would-be entrepreneurs themselves, the investigations of the Entrepreneurial Research Consortium are suggesting their perseverance springs from their willingness to make a "major personal commitment", to pursue the venture with passion, to believe their quest is destined for success.
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Revised: February 8, 2002 TAF
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