The Kauffman Foundation interviewed thirty-five EY Entrepreneur Of The Year 2015 winners in the emerging category from across the country. We would like to thank these high-growth entrepreneurs for helping us understand how they achieved their success in such a short time.
From the information gathered in these interviews, over the next year, the Foundation will create several more briefings and stories on the characteristics of emerging entrepreneurs, which will help entrepreneurs and those who support them around the country.
Below are ten attributes that surfaced from these thirty-five interviews with EY emerging entrepreneurs—companies that are five years or younger with demonstrated rapid growth, who represent a diverse set of sectors. These attributes provide some initial insight into what makes these successful founders tick.
- EY emerging companies make a big difference to local employment. New businesses account for nearly all net new job creation and almost 20 percent of gross job creation in the United States. The EY emerging companies interviewed hire local, young talent: 37 percent recruit from local universities and 37 percent recruit from their same region; 40 percent recruit recent grads and 20 percent recruit people with little experience. “We have so many great universities here [locally], and so few dominant technology companies, that we have an abundance of graduates from these programs, which are top-notch programs,” said one entrepreneur.
- EY emerging entrepreneurs are motivated by a love of entrepreneurship. These entrepreneurs are motivated to start their companies for a wide range of reasons, but the most common is that they love being an entrepreneur (69 percent). Some love being their own boss, starting a project from scratch, and working on small teams. Other common motivations include solving a problem that they faced or they saw potential customers facing (49 percent). Others were driven by promising economic gain (49 percent) or were “pushed” into starting a business: they lost or disliked their job or thought they could provide a product or service better on their own.
- Experience is important. Prior research suggests that founders with previous startup and managerial experience tend to be more successful than those without. This holds true for EY emerging entrepreneurs. A majority of these successful companies were founded by entrepreneurs with experience—both with running a business (69 percent) and working in their respective industries (74 percent).
- Cofounders are important for all entrepreneurs, especially first timers. A majority of EY emerging entrepreneurs (63 percent) founded the company with one or more cofounders. Of those who founded the company by themselves, 85 percent were serial entrepreneurs. This suggests that first-time entrepreneurs likely start companies with cofounders to increase their knowledge of their industry or how to start their company. Cofounders of those surveyed often were people the entrepreneurs knew well—previous colleagues (43 percent) or personal contacts, such as friends and family (38 percent), though we know from other research that these choices have consequences.
- Even rapidly growing companies are funded by their founders. Research on Inc. 500 companies found that 59 percent of the companies were financed by the entrepreneurs’ own funds. Findings are similar for EY emerging entrepreneurs: 52 percent mentioned using a substantial amount of their own money or money from their previous business to start their company, and 31 percent completely financed the company themselves (with zero investors).
- All entrepreneurs face difficulties raising funds. Even some of these highly successful entrepreneurs were turned down for funding, and 80 percent of the entrepreneurs who were turned down were serial entrepreneurs, meaning that even experienced entrepreneurs find it challenging to raise funding. However, the evidence suggests that when most entrepreneurs are able to demonstrate the progress of their company, they attract funding later. Of the entrepreneurs turned down for funding, more than three-quarters eventually were able to access external funding.
- Entrepreneurs tend to give up equity to grow their business. Most EY emerging entrepreneurs use equity to gain funding and attract employees, executives, and cofounders. Aside from their cofounders, entrepreneurs give equity to investors (43 percent) and employees (32 percent). A small number of these emerging entrepreneurs owned 100 percent of their company.
- EY emerging entrepreneurs learn from customers and markets. Though experienced, these entrepreneurs don’t assume they know everything, and they rely on customers or market intelligence to improve products and services. Fifty-seven percent of companies have added a new product or service line, and 66 percent changed their product or service due to customer demands. As one entrepreneur stated, “We take a lot of that customer feedback to decide where we’re going to invest.”
- They also learn from mentors. Mentorship often is considered a key to entrepreneurial success. Among this group of seasoned entrepreneurs, only 11 percent said they do not have a mentor. The EY emerging entrepreneurs largely sought knowledge about their market from professionals with deep sector experience (40 percent), or mentoring on leadership and management (37 percent).
- EY emerging entrepreneurs give back too. Half of the entrepreneurs (54 percent) gave back to other entrepreneurs by mentoring, giving presentation advice, or encouraging entrepreneurs to start a business. Interestingly, of those entrepreneurs who said they didn’t have a mentor, 75 percent of them did not give back in any of the ways mentioned above; those who receive the value of mentoring are more likely to give back. EY emerging entrepreneurs have worked with groups such as Youth Entrepreneur Council, MIT Entrepreneurial Masters and more. “So I mentor a lot of people—not just in manufacturing but also the startup community” - stated one entrepreneur.
Continue to check www.kauffman.org/emerging for more findings from these interviews over the next year.
Haltiwanger, J., Jarmin, R., Miranda, J., “Who Creates Jobs? Small Versus Large Versus Young” (The Review of Economics and Statistics, 2013), 360.
Gompers, P., Kovner, A., Lerner, J., and Scharfstein, D. "Skill vs. Luck in Entrepreneurship and Venture Capital: Evidence from Serial Entrepreneurs." (National Bureau of Economic Research, 2006), 7.
Wasserman, Noam. “The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup.” (Princeton University Press, 2013).
Bhide, Amar. “The Origin and Evolution of New Businesses” (The Oxford University Press, 1999.)
Eesley, C., Wang, Y., “The Effects of Mentoring in Entrepreneurial Career Choice” (Berkley Fung Institute, 2015), 24.