Myths of Entrepreneurship
Add comment March 18th, 2008 David Bush - Iasta
I was sent a link from the doctor, regarding entrepreneurship, as he thought I would find it interesting. And, I did. This blog/article was written by Scott Shane, the A. Malachi Mixon Professor of Entrepreneurial Studies at Case Western Reserve University.
Since almost every other spend management company, eroded its entrepreneur spirit long ago, I thought I would provide commentary on some of the myths that I related to most.
Myth 2: Venture capitalists are a good place to go for start-up money. Not unless you start a computer or biotech company. Computer hardware and software, semiconductors, communication, and biotechnology account for 81 percent of all venture capital dollars, and seventy-two percent of the companies that got VC money over the past fifteen or so years. VCs only fund about 3,000 companies per year and only about one quarter of those companies are in the seed or start-up stage. In fact, the odds that a start-up company will get VC money are about one in 4,000. That’s worse than the odds that you will die from a fall in the shower.
Well, there is a strange convergence here. We are in high tech (which is were the vast majority of VC goes), but, never tried to get any money. I still remember the headlines from SupplierMarket.com (6/20/00 - $581M purchase price, low customer count, only 155 employees when purchased and bleeding money). Who knows what path we would have taken, with different decisions, but its unlikely we would be here today, and even more unlikely we would have hit the lottery like those SM guys did.
Myth 7: The growth of a start-up depends more on an entrepreneur’s talent than on the business he chooses. Sorry to deflate some egos here, but the industry you choose to start your company has a huge effect on the odds that it will grow. Over the past twenty years or so, about 4.2 percent of all start-ups in the computer and office equipment industry made the Inc 500 list of the fastest growing private companies in the U.S. 0.005 percent of start-ups in the hotel and motel industry and 0.007 percent of start-up eating and drinking establishments made the Inc. 500. That means the odds that you will make the Inc 500 are 840 times higher if you start a computer company than if you start a hotel or motel. There is nothing anyone has discovered about the effects of entrepreneurial talent that has a similar magnitude effect on the growth of new businesses.
Ok, glad we did not open a bar. I would be out of business and have lung cancer. I actually do agree though. When you build something that has value to so many, you have slightly more margin for error. Oh, and since we did make that Inc list, I guess we are also in the 90th percentile of start ups in the computer industry.
Myth 10: Starting a business is easy. Actually it isn’t, and most people who begin the process of starting a company fail to get one up and running. Seven years after beginning the process of starting a business, only one-third of people have a new company with positive cash flow greater than the salary and expenses of the owner for more than three consecutive months.
Surprisingly, this is true, even if you are in the right industry at the right time. Look at all the acquisitions that constantly occur through out supply management. They are usually raids on financially distressed companies.
And, if you thought running a business was hard, try writing a daily blog.
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