Download - What really makes startups grow
2%
3%
7%
26%
37%
39%
70%
87%
GROWTHCOMPANIES
NONGROWTHCOMPANIES
1%
5%
63%
14%
1%
1%
15%
10%
–76%
–62%
92%
536%
50%
2,502%
618%
NAMED AFTER
FOUNDER
LOCAL
BUSINESS
SHORT
NAME
PATENTS
INCORPORATED
IN DELAW
ARE
CORPORATION
HIGH-TECH
INDUSTRY
TRADEMARKS
3,593%
MADE FOR SPEEDA new study on what successful companies have in common
G R OW T H WAT C H
THINKING ABOUT NAMING your startup after your-self? You may want to reconsider. A recent MIT study found that companies named after the founder were less likely to grow. The study’s authors, Scott Stern, a professor at MIT’s Sloan School of Management, and Jorge Guzman, a doctoral candidate there, set out to dissect start-
up success. They analyzed more than 800,000 companies that had launched in California from 2001 to 2006 and looked at what distinguished the ones with growth (as a proxy, those that had an IPO or were acquired within six years of founding) from the rest. Some of the results were surprising. The trait most correlated with rapid growth? Incorporating in Delaware. Businesses that did so were 35 times more likely to succeed. Of course, the state is known for its business-friendly laws, but “it’s a statistical relationship, not a causal relationship,” stresses Guzman. “Incorporating in Delaware doesn’t make you more successful.” He speculates that the Delaware effect may have more to do with funding. “A lot of VCs require it,” says Guzman, “and 50 percent of publicly traded firms are incorpo-rated in Delaware. Bigger firms tend to be in Delaware.” And, it seems, so do firms that aspire to be big. —BOBBIE GOSSAGE
ILLUSTRATION BY SCRIPT & SEAL
—
THE DELAWARE EFFECT
Incorporatin
g in Delaware
was most
close
ly
associa
ted with
growth.
And companies w
ith
patents and D
elaware
roots? They
were
a whopping 19
5
times m
ore likely
to su
cceed.
—MORE
THAN JUST
TECHNOLOGY
Being in a
high-tech
secto
r
(aerospace
, IT,
and biotech) w
as
corre
lated with
growth, b
ut oth
er
factors,
inclu
ding
secu
ring patents
or trademarks
within a ye
ar of
founding, were
more importa
nt.
—
THE BETTER
TO GOOGLE
YOU WITH
Companies with
names that w
ere
two w
ords or s
horter
had a better c
hance
of succe
ss. A
nd
forget LLC
s.
A corporatio
n
was more th
an
six tim
es as l
ikely
to ta
ke off.
—
THINKIN
G
TOO SMALL
Business
es
that h
ad
mostly l
ocal
clients
were
not as l
ikely
to grow.
LIKELIHOOD
A COMPANY
WILL GROW
WHEN THESE
TRAITS ARE
PRESENT
PORTIONS OF
COMPANIES
WITH
THESE
TRAITS
INC. - MAY 2015