A new business' odds of survival have a lot to do with the innate abilities of the entrepreneur who founds it
In many ways, it's never been easier to be an entrepreneur. From small-business loans to university courses to mentorship programs to incubators, resources abound for people who want to start new businesses. Yet only about half of all new businesses survive the first five years, despite the support their owners receive. To discover what makes some businesses thrive while others wither, Gallup studied the behaviors that successful entrepreneurs exhibit.
Only about half of all new businesses survive the first five years.
Our findings indicate that a new company's odds of survival have a lot to do with the innate abilities of its founder. All other things being equal, people with talent for a task outperform people without it -- and that includes entrepreneurship. Those with the inherent ability to meet the demands of entrepreneurship are more likely to create a sustainable and successful venture than those with less ability to meet these demands.
Business size affects the relationship between individual talent and business performance
Gallup research indicates that an entrepreneur's personality has a direct relationship with business success in a small startup environment. In these environments (with fewer than 30 employees), the entrepreneur wears many hats and is in direct control of all the decision making about products/services, marketing, human resources, and operations. In small environments, the entrepreneur's level of talent has a direct impact on company performance because he or she makes the decisions that enable business success.
As the size of the company grows, the relationship between entrepreneurial talent and business success becomes less direct. In mid-sized companies (those with about 50 employees), the personality of the founder influences the planning, overall strategy, or the general culture of the company, which in turn affects company performance.
"Early on, I set a lot of goals and objectives and just told everybody, 'These are the goals and objectives,'" says Mark Floersch, CEO of People Services Center, an Omaha tech consulting firm. "As we've grown, I've realized that I need to get buy-in and alignment from the leaders of different groups or divisions or smaller teams. That's a lot of work and a lot of relationship building, and it takes a lot of teamwork."
Floersch describes the shift in his decision-making process from the early stage to the later stage of his business. There is a direct personality-success relationship in the early stage, but it becomes weaker as the business grows in size and situational contingencies (such as Floersch's effort to align all his divisional heads) mediate the relationship.
Linking personality to business success
Regardless of the size of the business, we know there is a relationship -- direct or indirect -- between an entrepreneur's personality and business performance. Looking at the 10 demands of successful entrepreneurs, we find that an entrepreneur with high scores on the Know your personal brand and Be self-reliant domains in Gallup's demands of entrepreneurship assessment, for example, has high levels of self-awareness and self-reliance. She can articulate the competitive advantage of her firm in the marketplace, which leads to business growth.
The 10 Demands of Successful Entrepreneurs
1. Know your personal brand. Entrepreneurs must interact effectively with others. Successful entrepreneurs know themselves well and can perceive others accurately.
Having strong talent in this domain enables entrepreneurs to connect and interact with employees, customers, suppliers, and investors in a way that results in positive business outcomes. This demand is relevant when the business is established and entrepreneurs are likely to conduct negotiations, influence others, and motivate employees.
2. Take on challenges. There is an inherent risk involved in venture creation. Entrepreneurs must constantly make decisions in complex situations and often operate without complete knowledge of the factors that could positively or negatively affect their ventures. Moreover, most businesses are created with scarce resources, high uncertainty, and ambiguity. These conditions would deter most people from taking on the task of starting or growing a venture.
Entrepreneurs with strong talent in this domain stretch themselves, raise the bar, face their fears, and are willing to experiment. They resist constraints and have an overly optimistic perception of the risk involved. They are willing to seek out challenges and take the risks associated with venture creation and growth. This demand is most relevant in the early stage of business creation.
3. Think through possibilities and practicalities. Entrepreneurs must be creative and think beyond the boundaries of what exists. High scores in this domain lead entrepreneurs to stretch their imagination while absorbing existing facts to blend the present with the future.
Successful entrepreneurs take an existing idea or product and turn it into something better by looking at it with fresh eyes. Their creative minds typically fire with many different ideas. This demand is more relevant in the early stage, but its relevance continues into the later phase of the business life cycle.
4. Promote the business. Successful entrepreneurs are their own best spokespeople. Strong talent in this domain makes it easy for them to persuade others. This enables them to convey a clear and compelling message that promotes their point of view and their business. This demand is relevant in the early and the established stages of business.
5. Focus on business outcomes. Running a business requires focus. Profit orientation is a spontaneous, moment-to-moment mental activity. Highly successful entrepreneurs judge decisions as good or bad based on their observed or anticipated effect on profit. Successful business-focused entrepreneurs set goals and live by their commitment to them.
Entrepreneurs with high business focus set goals that are important to their business and that they can objectively measure. This demand is relevant in the early and the established stages of business.
6. Be a perpetual student of the business. Successful entrepreneurs are ongoing and active students who are preoccupied with their business and constantly seeking knowledge to grow their venture. This obsession is crucial to ensure business survival. Continually gaining input and acquiring the knowledge and skills required to grow the business are essential to an entrepreneur's success. This demand is specifically relevant in the established stage of business.
7. Be self-reliant. In the early stage of business creation, entrepreneurs often fill multiple roles to address the needs of a startup. Successful entrepreneurs are prepared to do whatever must be done to see the business succeed. This demands high levels of self-reliance.
Though it takes many people to grow a successful venture, an entrepreneur's sense of responsibility and levels of competence play a critical role in the early stage of venture creation. A word of caution: Entrepreneurs need self-reliance in the early stage of business development. But entrepreneurs who cannot contemplate a shift in style from self-reliance to delegation may ultimately hamper the growth of their business.
8. Be a self-starter. Startups and businesses that are growing rapidly demand long hours of work and high levels of energy and stamina. Successful entrepreneurs are passionate doers who push to make things happen. They show initiative and possess an enduring sense of urgency because there is never enough time to do it all. They see opportunity where others see roadblocks. This demand is relevant in the early and the established stages of business development.
9. Multiply yourself through delegation. As businesses grow, the autocratic, unilateral decision-making style of early-stage entrepreneurs must change into one in which the entrepreneurs delegate authority and take on the role of a team manager. Norman R. Smith and John B. Miner (1983) suggest that the transition point is around 30 employees and $750,000 in assets.
Entrepreneurs who are successful in leading their enterprises to the established stage recognize that they cannot do everything themselves. They are willing and able to contemplate a shift in style and control, thus accelerating the growth of the firm. This demand is specifically relevant in the established stage.
10. Build relationships. Starting or growing a business involves interacting with many people. An entrepreneur may be the originator of the idea, but almost immediately, he or she must interact with others to secure resources, engage with potential customers and suppliers, or hire and manage employees. The ability to build strong relationships is crucial for survival and growth.
Successful entrepreneurs are adept at building relationships. They have strong social awareness and can attract and maintain a constituency. The enthusiasm and positivity of strong relationship builders make it easier for others to interact with them. These entrepreneurs also have high standards of personal conduct that enable others to trust them and form strong relationships with them. This demand is relevant in the early and established stages.
Similarly, an entrepreneur with a high score on the Take on challenges domain has an innate ability to tolerate risk and tackle challenges. He is quick to take on the task of developing a unique product or service, usually years ahead of the market. He is likely to offer unique solutions to meet customer expectations and demands.
Entrepreneurship is messy, and there is no one predictor of success.
"My point of risk taking is very strong. I will figure out how to get it done," says Tom Long, president of ISI Technologies, which creates sales messaging solutions for companies. "Our company succeeds, in part, from my ability to look at our clients' products and develop a fresh look with a unique sales message in the marketplace. This helps us develop long-lasting relationships with our clients and advance our capabilities through delivered strategies."
Long illustrates his ability to create out-of-the-box solutions for his customers. Entrepreneurs like Long can create a customer-oriented environment in their firms. They easily establish an emotional connection with customers, and they are more likely to understand what the customers need, to share new ideas with customers, and to exceed customer expectations compared with entrepreneurs who have low risk tolerance.
Entrepreneurs who are natural at building relationships (those with a high score on Build relationships) use their talents to access resources internally and externally to grow their business. They know how to align the strengths of their employees to their roles. Entrepreneurs who are natural advocates for their business (those with a high score on Promote the business) are able to communicate a clear and consistent vision of the company to employees and clients. They also have a clear growth strategy, which affects business growth.
Profit-oriented entrepreneurs -- those with a high score on Focus on business outcomes -- can maximize employee engagement to drive business results. These entrepreneurs invest a lot of time planning growth strategies and have a talent for aligning employee responsibilities with company goals, thus accelerating the growth of the firm.
Gallup research indicates that entrepreneurs who meet six or more of the 10 demands at a high level are more likely to exhibit behaviors that increase their odds of business success. These entrepreneurs have a clear vision of where they want to be, are goal oriented, measure all aspects of their business performance, are more likely to align employee activities to employee strengths, create emotional engagement with customers and employees, and are more growth oriented than entrepreneurs who meet only one or two demands of the role at a high level.
Though high scores on the 10 demands make success more likely, few people are talented in every area -- but these people do exist. Gallup research indicates that a small group of individuals have the innate ability that can lead to extraordinary success -- high business growth and ultimately, job creation. We call these entrepreneurs gazelles.
Gazelles can meet at least nine of the 10 demands of entrepreneurship. They are more likely to meet their profit and sales goals year over year, create high-growth enterprises, and create disproportionately more jobs than entrepreneurs with moderate or low talent for meeting the 10 demands.
Our research shows that 5% of all entrepreneurs are gazelles. This does not mean that those with moderate to low talent levels should be ignored, because supporting them will also yield positive results. But as decades of Gallup research has shown, trying to succeed in an area in which one has little talent will take much more work and might still result in average performance. To achieve the greatest results, practitioners and policymakers should identify the vital few who have the potential for extraordinary performance and provide the right environment to support and foster their growth.
Entrepreneurship is messy, and there is no one predictor of success. Multiple determinants come together in additive and sometimes multiplicative ways to predict success. Nonetheless, the 10 demands of entrepreneurship provide a road map to existing or potential entrepreneurs, and they help identify entrepreneurs who have the innate ability to create successful ventures.
Identifying an entrepreneur is like finding an athlete with a natural ability to take the game to the next level. And providing systematic interventions to nurture the entrepreneur's innate ability is likely to yield extraordinary results, increasing the potential for significant returns on investment -- for instance, improving the success rate of business incubators, enhancing the efficacy of coaching and support programs, and helping leaders make informed policy decisions.
Ultimately, those extraordinary results benefit everyone. Successful businesses employ workers, create the products customers need, and -- because they are a central engine of growth -- create and sustain the economy. There is no end of reasons to identify and support talented entrepreneurs. And there's no time to lose either.