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What are the characteristics of successful entrepreneurs?
Are they demographically different from unsuccessful entrepreneurs?
Or is it all due to individual differences?
At the heart of Pace’s inquiry, I think, is something many people long to know: How can I decide whether I should become an entrepreneur?
Here’s the first part of my two-step response, and one I sincerely believe: If you’re seriously thinking of starting your own business, then you have what it takes to start your own business. We’ve seen that “personality” and other personal attributes are poor predictors of entrepreneurial inclination, let alone success.
But at the same time, we need to move beyond simplistic “you can do it!” exhortations and faith in sheer willpower.
So here’s the second part of my answer, in the form of three questions that will help you drill down to the hard realities of whether you should start a business.
What industry are you targeting?
The choice of sector in which you start your company could be the single most important factor in your success. Most entrepreneurs — and remember, we define “entrepreneur” as anyone who starts a business, including one-person, home-based sole proprietorships — start their ventures in mature, low-growth, highly competitive sectors. And that’s why so many entrepreneurs (again, we’re talking about the entire population of self-employed people) fail, or earn less than they would as employees.
Those who launched software companies between 1982 and 2002, for example, were 608 times more likely to have their startups join the Inc. 500 than those who launched restaurants, according to Scott Shane, a professor of entrepreneurial studies at Case Western University.
Deliberately choosing a higher-growth sector, such as healthcare or education, is a smart first move (see J.D.’s discussion of recession-proof jobs, which touches on high-potential industries ).
What is your work experience?
Most entrepreneurs, naturally enough, start businesses in sectors where they already work. So here’s the first takeaway: if you currently work in a mature, low-growth, highly competitive sector, becoming an entrepreneur in that sector will predispose you toward failure. If you work in the restaurant industry, for example, you should not become an entrepreneur — unless you are extremely talented and savvy about both your niche and the industry as a whole.
What should you do if you’re in the above situation but still committed to starting your own business? Consider switching industries first. But start by getting a job in the new sector, rather than launching a new venture in unfamiliar territory.
Will you focus on businesses or consumers?
Many new entrepreneurs want to target consumers. That’s natural because all of us, as consumers ourselves, have a basic understanding of, and affinity for, many consumer products and services. But most successful new companies focus on selling to other businesses rather than to consumers (they are business-to-business, or “B-to-B”, rather than business-to-consumer, or “B-to-C”, ventures).
Why? Businesses tend to make rational purchase decisions, so if you can demonstrate that your service or product provides cost savings or a quick return on investment, you’ll make sales. Consumers, on the other hand, can be, well, downright irrational in their purchasing habits, at least compared to businesses. Marketing to consumers can be far more difficult, and you must often depend on retailers or distributors to reach them. Unless you or someone on your team have a strong track record of successful consumer marketing, you’re more likely to enjoy success targeting businesses.
So there you have ‘em: three questions to help you decide whether you should become an entrepreneur. Keep in mind that these are simply guidelines, and that some entrepreneurs successfully ignore them. But why not let the facts improve your odds?
