A Study of 3,526 Companies Shows 1 Decision Makes Startups More Successful
Jason Greenberg of New York University and Ethan Mollick of the Wharton School sent surveys to more than 65,000 companies launched over a seven-year period on Kickstarter in an intriguing research project.
Surprising new research from NYU and the Wharton School indicates that entrepreneurs with one or more partners who start a company on their own are more likely to succeed than those who do so.
That's almost the opposite of what would be guessed by most aspiring founders. You can't be amazing at all after all. You may be an expert in marketing, but you don't know how to handle the cash flow. Or you may be good at making great items, but terrible at setting prices for them. So you're teaming up with someone who's good in the weak places, and you're starting a company together.
This argument seems logical, and it's how most people see entrepreneurship—even experts. In fact, it is such an entrenched belief that instead of those with a solo founder, VCs and other investors routinely tend to finance companies formed by teams. But that's dead wrong, too. Jason Greenberg of New York University and Ethan Mollick of the Wharton School sent surveys to more than 65,000 companies launched over a seven-year period on Kickstarter in an intriguing research project.
About 10,000 people completed the survey. The researchers narrowed their attention to ventures requiring a substantial amount of funding—the kind that could be used to start a real company, beginning with either a single founder or two or more partners, and finishing with 3,526 firms.
They noticed that businesses with multiple founders were able to raise more capital than those led by a single entrepreneur, consistent with the preference of investors against teams rather than solo founders (and possibly the fact that multiple people have more friends and family members than one). This would give founding teams an advantage over single founders, you would think, but you'd be wrong. After beginning with a smaller stake, it was more likely that businesses with a single founder were still in operation than those with two or more. And while teams may have initially been able to raise more cash than single founders, businesses with only one investor still saw higher sales than those with two or more.
The researchers extended their reach, looking at data from Crunchbase, the Panel Analysis of Entrepreneurial Dynamics from the University of Michigan, and a survey of Wharton graduates, to see if these results will hold true in the non-Kickstarter world. Although this analysis has not yet been completed, Greenberg told the Wall Street Journal that preliminary results are consistent with the Kickstarter study: over time companies with a single founder perform better than those with multiple founders.
Why One Founder Is Better?
Why are businesses with single founders more likely to be able to survive? One reason is indicated by the findings. In businesses with several founders, income is lower than in businesses with a single founder. But two or more individuals cost more than one, especially if salaries are received by the founders. For two founders, even though they aren't, office space, phone service, travel, and so on cost more than they do for one.
Researchers have pointed to some truths about the complexities of leadership. In terms of broader experience, starting a business with several founders can bring an advantage—but a solo founder may also recruit others to provide the expertise he or she lacks. On the other hand, thinking things through and then making a decision is far simpler and faster for a single founder than it is for two individuals to address an issue or opportunity and agree on a course of action.
And there's a chance then. To start with, starting a business is a risky undertaking. But many entrepreneurs tend to be conservative and hedge their bets until they've taken the leap. Two or more individuals making decisions together are less likely than one person acting individually to make risky steps and take risks.
In studies like this, of course, it can be difficult to discern cause from effect. It's definitely true, for example, that two or more individuals making a decision together are more likely to escape risk than one individual deciding alone. But it is equally true that an alone entrepreneur who wishes to start a company on his own or her own is possibly more of a risk-taker than someone who wants to start a business but wants a second founder's comfort to share the burden of responsibility. And someone who cares enough about a new product or idea to be willing to start a company on their own may have more enthusiasm than a team of founders for the product or business concept. Teams of entrepreneurs can be as inspired by the concept of working together as they are by their new venture or product.
Further research can better understand why the success of solo entrepreneurs than teams is greater. The message is, meanwhile, direct. You're better off starting it by yourself if you want your new company to succeed.