When Should You Launch Your Startup?

Source: Reuters

Should you launch your startup right after college, or might you benefit from gaining some work experience before becoming an entrepreneur? Recently, Amazon founder Jeff Bezos told Italian Tech Week that gaining work experience is the smarter strategy. He explained, "Go work at a best-practices company somewhere where you can learn a lot of basic fundamental things [like] how to hire really well, how to interview, etc. There’s a lot of stuff you would learn in a great company that will help you, and then there’s still lots of time to start a company after you have absorbed it.”  Bezos argues that college dropouts such as Bill Gates and Mark Zuckerberg are the great exceptions rather than the rule.  

Is Bezos correct?  What do the data show?  Johnny Wood, writing for World Economic Forum, profiled a key study on this topic.  Scholars Pierre Azoulay and Daniel Kim examined the link between age and entrepreneurship.  They published their findings in the American Economic Review.  The researchers examined nearly 3 million ventures over a 7 year period.  They found that experience leads to a higher probability of entrepreneurial success, confirming Bezos' intuition.  Wood writes:

The research looked at 2.7 million business start-ups between 2007 and 2014, and found the average age of people who founded a business and went on to hire at least one employee was 42.  The team also found that experience counts. Those entrepreneurs who had worked in the same sector as their business start-up were found to be 125% more successful than those without a background in their chosen sector.   Azoulay and Kim’s findings show that a small proportion of high-performing start-ups in the study period were founded by 20-year-olds, less than 1%. Those with the highest growth had an average entrepreneur age of 45.

Many reasons exist for this advantage that experience offers.  Building on what Bezos argued, I think that you not only learn best practices, but you learn worst practices too.  You discover what NOT to do by operating in different businesses.  You witness dysfunction, inefficiency, cultural barriers, and customer pain points.  By seeing how companies fail, you increase your odds of succeeding. 

Heterogeneity in Experience Levels Helps Startups Succeed

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You might think that a startup management team consisting entirely of highly experienced managers would clearly outperform teams including members with little experience.  After all, it would seem that past experience launching and running start-ups should be a good thing.  However, that bit of conventional wisdom turns out to be incorrect according to some interesting research by Dorina Thiessa, Charlotta Sirénb, Dietmar Grichnika.  They published a paper titled, "How does heterogeneity in experience influence the performance of nascent venture teams?: Insights from the US PSED II study" in the Journal Business Venturing Insights.  They examined 519 startups using a longitudinal dataset of new ventures in the United States.  Here is what they found:

Our results concerning management and start-up experience heterogeneities demonstrated that venture teams comprising only inexperienced members or only highly experienced founders seemed to be inefficient with regards to expected revenue and the progress of the venture. More specifically, even when heterogeneous teams had an overall low average level of management or start-up experience, they often outperformed those comprising only experienced team members. Furthermore, teams with lower levels of average management or start-up experience benefited from heterogeneous distributions of experience the most. One explanation for these results is that diversification of experience levels enabled team members to escape their own “knowledge corridors” (Gruber et al., 2013, p. 280), broadening the cumulative knowledge set of the team and thereby enabling more innovative insights and market responses, which ultimately resulted in improved venture performance. An accumulation of homogenous experience may also foster the use of mental shortcuts such as overgeneralization, and decreased engagement in counterfactual thinking (imagining alternative outcomes for past events) that assist in formulating more effective market responses (Baron, 1998, Baron, 2000, Shepherd et al., 2003). Thus, nascent venture teams with only experienced team members may fail to extract important insights from entrepreneurial action because team members become increasingly trapped in prevailing ways of thinking.

In sum, experience comes with some limitations or drawbacks.  You may have blinders on, or perhaps you cling too strongly to pre-established notions about how a new venture should be launched, structured, and led.  On the other hand, a team of novices will not likely thrive either. You need a mix of old hands and fresh eyes.  

Solo Founders or Teams: Who Has More Success?

None of us is as smart as all of us. Right?  Teams are smarter and more effective than individuals at challenging tasks, right?  Not so fast.  New research by Jason Greenberg and Ethan Mollick examines new ventures.  They found that solo founders tend to achieve better results, at least in terms of certain metrics, than entrepreneurial ventures founded by a team of people.  Here's an excerpt from an NYU summary of the research:  

Common wisdom has assumed that the value of having a team is additive or even synergistic, based primarily on the theory that starting a business requires a portfolio of skills and resources that few individuals possess. However, in “Sole Survivors: Solo Ventures versus Founding Teams,” Professor Greenberg and his co-author, Wharton’s Ethan Mollick, showed that companies started by solo founders survive longer and generate more revenue than those started by teams, while not performing significantly differently across various operating categories.

The authors’ unique dataset was comprised of companies that were crowdfunded via the Kickstarter site between 2009 and 2015, were eventually established formally, and whose performance could be followed for several years. For-profit and nonprofit companies were analyzed separately, and collectively they raised $151 million in crowdfunding and generated approximately $358 million in revenue.

Of course, these results do not suggest that teamwork is not essential for a new venture.  It speaks to the possible frictions and dysfunctional conflict that can occur when you have multiple founders though.  Moreover, it may speak to the speed of decisions in situations where multiple founders must come to an agreement on key strategic choices.  Still, one should not conclude that a solo founder does not need  a strong team around them.   Collaboration is essential in many aspects of a startup, regardless of the structure at the very top.