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News : Innovation Last Updated: Nov 9, 2010 - 7:20:55 AM


A prize for Failed Irish Entrepreneur of the Year?
By Michael Hennigan, Founder and Editor of Finfacts
Nov 8, 2010 - 7:02:22 AM

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In the US, all net job creation comes from startups and these firms have a high failure rate. With both the US and Ireland desperately in need of entrepreneurs, we ask tongue-in-cheek if there should be a prize for Failed Irish Entrepreneur of the Year?

Professor David Storey of Warwick Business School has written in the FT that it has become commonplace to suggest that failure is good for entrepreneurs.

He said in the UK, the evidence is that novices are neither more nor less likely to have a business that either grows or survives than experienced founders. In Germany, where much more extensive statistical work has been undertaken, it is clear that those whose business had failed had worse-performing businesses if they restarted than did novices.

Success in business depends heavily on luck and  Prof. Storey says even in the US, research carried out for more than a decade shows that those states with generous bankruptcy laws were the ones where it was most difficult for individuals to obtain bank finance to start a new business.

All else being equal, a venture-capital-backed entrepreneur who starts a company that goes public, has a 30% chance of succeeding in his or her next venture. First-time entrepreneurs, on the other hand, have only an 18% chance of succeeding, and entrepreneurs who previously failed have a 20% chance of succeeding, according to researchers at Harvard Business School.

“The Social Network,” the new movie that tells a fictional version of the founding of Facebook, captures the pressures on personal relationships as entrepreneurs compete to create the next big thing.

The real Mark Zuckerberg, is often surprisingly unsettled when in the public arena but despite the impression given in the movie, working in a team is a key factor in his success.

Successful CEO-cum-founders are however, a very rare breed.

Professor Noam Wasserman of Harvard Business School wrote in a 2008 Harvard Business Review article (pdf) : "New ventures are usually labours of love for entrepreneurs, and they become emotionally attached to them, referring to the business as 'my baby'." But from the moment founders bring in outside investors, their jobs are at risk. In an analysis of 212 US start-ups, Professor Wasserman discovered that by the time the ventures were three years old, 50% of the founders were no longer chief executive. By the time of the companies' initial public offerings, only 25% of the founders were still leading them. Most had been forced out.

Other researchers have subsequently found similar trends in various industries and in other time periods. Wasserman says we remember the handful of founder-CEOs in corporate America, but they’re the exceptions to the rule.

Robert Samuelson recently cited the experience of Morris Panner with a software startup that become a success after a hard slog and was sold for $31m in 2008.

There are more than 500,000 start-ups annually in the US. Most never get venture capital and few become blockbusters.

"You can't do anything until you meet someone's needs," says Panner. Discovering what works is exhausting, frustrating and chancy. Failure rates are high; half of new firms die in five years.

In 2009, US venture capitalists invested $17.7bn in 2,795 start-ups  - - 37% less cash and 30% fewer deals than in 2008. Internet companies, which have excited investors for more than a decade, took a big hit as investment declined 39%.

More than 5m Americans age 55 or older run their own businesses or are otherwise self-employed, according to the Small Business Administration. And the number of self-employed people ages 55 to 64 is soaring, the agency says, climbing 52% from 2000 to 2007.

The United States has a particular advantage in the number of foreign-born entrepreneurs who create startups in the US, often after graduating from a top American university.  

The Kauffman Foundation, a philanthropy with $2bn in assets, dedicated to entrepreneurship research and education, reported in a study that tracked technology and engineering start-ups from 1995 to 2005, that one quarter of them had a foreign-born chief executive or head technologist; by 2005, the surviving companies generated $52bn in sales and employed 450,000 workers.

Indian immigrants founded 26% of these startups - more than the next four groups from Britain, China, Taiwan, and Japan combined.

Foreign nationals also contributed to a majority of some U.S. companies' patent applications, including Qualcomm - - 72%, Merck - - 65%, GE - - 64%, and Cisco -- 60%. More than 40% of the US government-filed international patent applications had foreign authors. These numbers did not include immigrants who had become citizens at the time of filing.

Insight on Facebook's new privacy settings, with Mark Zuckerberg, Facebook founder; CNBC's Julia Boorstin; and Rob Cox, Reuters Breakingviews US editor:

Data on Irish startups during the property bubble showed that Ireland was among the top countries in Europe for entrepreneurship. However, it's not clear what the longterm trend will show as property related startups were popular, while there were few Irish company successes at international level.

"Policies focused on foreign direct investment (FDI) in the past were very successful, but that was when the world was a different place. The world economy was thriving. The US wanted to go into Europe and Ireland was an attractive gateway," Prof. Kenneth Morse, a founder of MIT's Entrepreneurship Centre in Boston, said at an event in Sligo last September.

Apple and Microsoft were both founded in 1975 during a recession.

It helps to have no family obligations or be unemployed and have access to bank credit.

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