Ending the Guesswork about What Makes a Startup Go
Ground-breaking research on new businesses is under way, but it could end up buried in academe
Lots of people claim to know the secret of starting a successful business. Gurus churn out books on the subject constantly. Some push to-do lists. Others advocate a certain mindset (Buy the author's video to achieve it!).
Notwithstanding the gurus' claims, no one knows why businesses survive or fail. It's difficult to research small businesses because they're a fragmented group and there's a dearth of public financial information. Studies often rely on anecdotes, old data, or entrepreneurs' selective memories. "In the whole realm of social sciences, no one has an intelligent answer to the basic question: How do new businesses come into being?" says Paul D. Reynolds, who holds the Paul Babson Chair of Entrepreneurial Studies at Babson College in Wellesley, Mass.
Now, amid great public interest in small companies, the Entrepreneurial Research Consortium is tackling the question. The ERC's 31 members colleges, business organizations, and government agencies are studying almost 700 U.S. entrepreneurs chosen randomly from 30,000 people to create a comprehensive database on startups.
The researchers are also surveying a comparison group of non-entrepreneurs. The project, whose coordinator is Babson's Reynolds, started with pilot studies in 1995 and 1997. The $1 million study is funded by consortium members and the National Science Foundation. Academics and policymakers from seven European countries, Australia, and Canada are also consortium members, and they're planning parallel studies.
Data from the first follow-up interviews are just emerging, and researchers will release their findings over the next year. (See "Early Findings from the Entrepreneurial Research Consortium".) During the next two years four years, if funds are available 111 researchers in 35 teams will crunch the numbers and do annual follow-ups.
The subjects have already provided in a 12-page questionnaire and interviews 1,400 pieces of information about age, income, education, and about how they make decisions, survey the competition, find money, and juggle work and family. Reynolds says the consortium plans to release the information as teams complete their work in journal articles, academic conferences, and the media.
The goal is to improve entrepreneurial training and support programs and produce a "more efficient entrepreneurial engine," notes Reynolds. "If we can figure out the optimal startup sequence, finally people teaching courses on how to start a business will have something to say backed with data," he explains. "Right now, we don't even know if having a written business plan makes a difference."
The consortium members also hope to shed light on whether women and minorities have a particularly hard time getting capital; whether women with young children are hamstrung in business; and whether incubators and mentor programs make a difference. Unlike previous studies, ERC follows startups from an entrepreneur's first concrete step toward starting a business to the point where he or she has three months of positive cash flow or quits. Most startup studies locate subjects through new phone listings, business registries, and income tax filings milestones of companies that are often well on their way. Typically, the data "was all based on recall, says Patricia Greene, professor of entrepreneurial studies at the University of Missouri at Kansas City and principal investigator of the effects of race on startups. "People may have euphoric recall ("Oh, yes, it was great") or fatalistic recall ("Everything was awful and hard and we barely got it going)."
Where will entrepreneurs be able to go to tap this gold mine of data? That's unclear. "No constraints have been placed on how the information is to be released," says Reynolds. The ERC has no mechanism for releasing the results through one forum, though it plans to hire a press officer. "We might try to assemble the sexier stuff and have a big press conference," he adds. Eventually, he says, the results will probably be posted on the Web, but the researchers are resisting that because their priority is to publish in academic journals. "The problem is that many of the peer-review journals refuse to publish research after it has appeared on a Web site," explains Reynolds. So ground-breaking research to help real entrepreneurs improve their businesses might still end up circulating primarily among academics hidden away in the ivory tower.
By Meg Lundstrom in New York