the science of start

THE SCIENCE OF START Entrepreneurship Strategies that Work

paulshawsmith scientific business strategy

1. INDUSTRY CHOICE


IT

Publishing

Health

Industry Number of Inc 500

firms

Firm starts Percent of Starts

Pulp mills 6 33 18.182

Computer and office equipment 99 2359 4.197

Guided missiles, space vehicles, parts 2 60 3.333

Nonferrous rolling and drawing 14 581 2.410

Railroad car rental 3 136 2.206

Measuring and controlling devices 49 2482 1.974

Paper mills 3 125 2.400

Search and navigation devices 6 310 1.935

General industrial machinery 26 2173 1.197

Photographic equipment and supplies 7 646 1.084

Manifold business forms 3 281 1.068

Household appliances 4 390 1.026

Electrical industrial apparatus 11 1080 1.019

Legal services 10 129207 0.008

Eating and drinking places 34 494731 0.007

Carpentry and floor work contractors 4 66383 0.006

Real estate operators 5 90042 0.006

Hotels and motels 2 39177 0.005

Painting and paper contractors 2 43987 0.005

Retail bakeries 1 22165 0.005

Grocery stores 5 112473 0.004

Used merchandise stores 1 24442 0.004

Automotive repair shops 5 124725 0.004

Beauty shops 3 79081 0.004

Residential care 1 27710 0.004

Videotape rental 1 27793 0.004

INC 500 vs. TOTAL STARTS BY INDUSTRY Source: Shane (2009)


COMPUTER AND OFFICE

EQUIPMENT


Inc 500

99

Total start ups

2,359

EATING AND DRINKING

PLACES


Inc 500

34

Total start ups

494,731

INDUSTRY AND INC 500


Source: Shane (2009)

Computer and Office Equipment

(1/25)

Eating and Drinking Places

(1/14,550)

MEASURING DEVICES AND

CONTROLLING DEVICES


Inc 500

49

Total start ups

2,482

BEAUTY SHOPS


Inc 500

3

Total start ups

79,081

INDUSTRY AND INC 500


Source: Shane (2009)

Measuring and controlling devices

(1/50)

Beauty Shops

(1/26,360)

Glass Products 85.7

Spinning, weaving and finishing of cottons, artificial and synthetic fibre 81.0

Spinning, weaving and finishing of wool 76.9

Slaughtering 68.0

Knitting Industry 65.7

Cut Stone and Stone Products 65.6

Footwear n.e.c. 65.4

Iron and Steel Industry 64.6

Tanning and Dressing of Leather 63.6

Machinery for the industry n.e.c. 61.5

Radio and TV Communication Equipment 47.4

Fabricated Metal Products n.e.c. 46.7

Manufacturing n.e.c. 44.4

Cement Products 42.7

Clay Products for Construction 42.1

Pottery 41.2

Household Textile Products 40.9

Made-to-Measure Clothing 37.9

Pastry 34.7

Fish Preserving 25.0

INDUSTRY AND SURVIVAL (4 YEARS) Source: Mata and Portugal (1994)


INDUSTRY AND SURVIVAL


Source: Mata and Portugal (1994)

Glass Products

(3/20 failed)

Fish Preserving

(15/20 failed)

INDUSTRY AND PROFITABILITY Source: SARS (2008)


Industry Sector % Profitable

No. Companies

No. Profitable

Social and related community services 58.7 7,256 4,261

Coal and petroleum products 56.3 197 111

Medical, dental and other health and veterinary services 56.0 2,416 1,352

Chemicals and chemical, rubber and plastic products 51.2 1,220 625

Scientific, optical and similar equipment 51.1 264 135

Machinery and related items 50.5 2,803 1,416

Vehicles, parts and accessories 49.7 2,156 1,072

Leather, leather goods and fur (excl. footwear & clothing) 42.6 108 46

Transport equipment 41.8 208 87

Paper, printing and publishing 38.7 1,649 638

Wholesale trade 38.4 8,484 3,260

Wood, wood products and furniture 38.3 1,086 416

Food, drink and tobacco 37.0 1,580 584

Mining and quarrying 35.3 320 113

Research and scientific institutes 30.2 344 104

Retail trade 29.6 33,867 10,011

Employment (director of a company/member of CC) 28.7 261 75

Transport, storage and communications 28.6 7,953 2,278

Recreation and cultural services 27.4 1,835 502

Educational services 26.0 2,175 566

Catering and accommodation 23.6 5,892 1,390

Agencies and other services 23.3 71,327 16,587

Agriculture, forestry and fishing 23.3 6,248 1,456

Construction 22.8 19,839 4,532

Personal and household services 22.6 2,659 600

Long term insurance 22.2 45 10

INDUSTRY AND PROFITABLITY


Source: Lussier (1996)

Coal and Petroleum products

(12/20 profitable) Personal and household

services (4/20 profitable)

INDUSTRY AND PROFITABILITY (ROIC) Source: Porter (2008)


0.00% 5.00%

10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00%

Secu

rity

Bro

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es

Dis

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pir

its

Sem

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Med

ical

Inst

rum

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Men

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Tire

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Ho

use

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pp

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Mal

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ever

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Ch

ild D

ay C

are

Serv

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Dru

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Mo

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Ho

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Bo

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Pu

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Soft

Dri

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Kn

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Mill

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Ho

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Mai

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Air

line

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INDUSTRY AND ROIC


Source Porter (2008)

Soft drinks

(37.6%)

Airlines

(5.9%)

1 Bio technology

2 Software

3 Telecommunications

4 Medicine and Pharmaceuticals

5 Electrical engineering

6 Mechanical engineering

7 Computer hardware

8 Industrial automation

9 Computer semi-conductors

10 Energy

TOTAL VC INVESTMENT PER INDUSTRY Source: Wustenhagen & Teppo (2006)



1) INDUSTRY CHOICE

2. INDUSTRY EXPERIENCE


INDUSTRY EXPERIENCE


Source: Barreria (2004)

(15/20 profitable) (5/20 profitable)

Growing

Ventures

No

Growth

INDUSTRY EXPERIENCE


Source: Fresser and Willard (1990)

Industry experience, 75%

No industry experience, 25%


1) INDUSTRY CHOICE

2) INDUSTRY EXPEREINCE

3. PREPARATION


To prepare or not to

prepare, that is the

question!?!

BUSINESS PLANS


Source: Lange, Mollov, Pearlmutter, Singh and Bygrave (2007)

“new ventures launched with formal written

business plans do not outperform ones

launched without them.”

BUSINESS PLAN?


Source: Bhide (2000)

21%

79%

Yes! No!

BUSINESS PLAN?


Source: Duchesneau and Gartner (1990)

(Avg. 237.3 hrs) (Avg. 84.9 hrs)

Successful

firms

Unsuccessful

firms

INC 500: IDEA TO START UP



More than a month, 74%

Less than a month, 24%


1) INDUSTRY CHOICE


3) PREPARE

4. GET A TEAM


PERCENTAGE SUCCEED (6 YRS)


Source: Eisenhart & Schooven (19900

(4/20) (15/20)

Weak

Team

Strong

Team

DID YOU GROW TO 20 PEOPLE?


Source: Stam and Schutjens (2004)

(0.4% yes) (3.3% yes)


1) INDUSTRY CHOICE


3) PREPARE

4) TEAM

5. HIGH INTIAL SALES


START UP SALES (8 YEARS)


Source: Doutriaux (1992)

(R12,652,800 avg.) (R3,312,000 avg.)

> R400,000

Sales

< R400,000

Sales

START UP SIZE & GROWTH


Source: Reynolds (1987)


1) INDUSTRY CHOICE


3) PREPARE

4) TEAM

5) HIGH INTIAL SALES

6. SEEK ADVICE



Guided

Preparation

GUIDED PREP AND GROWTH Source: Chrisman, McMullun and Hall (2005)


ADVICE AND SURVIVAL Source: Watson (2007)

Advice from accountants 3< /yr

(16/20 survived )

No advice from accountants

(9/20 survived)

NETWORKING & SURVIVAL


Source: Watson (2007)

Network range = How often an entrepreneur networks

x How widely an entrepreneur networks

INCUBATOR & SURVIVAL (5 YRS)


Source: Phillips (2002) and Audretch (1995)

Incubator average

(3/20 fail)

Industry average

(10/20 fail)


1) INDUSTRY CHOICE


3) PREPARE

4) TEAM


6) ADVICE

7. GET AN EDUCATION


UNIVERSITY EDUCATION?


Source: Fairlie and Robb (2007)

University drop outs

University graduates

(25% greater sales)

Post graduate degree

(75% greater sales)

INC 500 FOUNDERS


High school, 11%

Two-year college, 6%

Four-year college, 48%

MBA, 15%

Other advanced

degree, 20%



1) INDUSTRY CHOICE


3) PREPARE

4) TEAM


6) ADVICE

7) EDUCATION

8. USE FINANCIAL CONTROLS


BUGETING AND GROWTH


Source: Davila and Foster (2005)

WHY DID YOU FAIL?


Source: Lussier (1996)

31% Creditor problems &

Slow account receivables


1) INDUSTRY CHOICE


3) PREPARE

4) TEAM


6) ADVICE

7) EDUCATION

8) FINANCIAL CONTORL

9. START WITH MONEY


MONEY AND SURVIVAL


Source: Bruderl, Preisendorfer & Ziegler (1992)

R250,000 or more

(3/20 fail)

R100,000 or less

(11/20 fail)

VC BACKING AND LISTING


Source: Gomper et al. (2009), Shane (2009), CIPRO

(1/10 list) (1/2500 list)


1) INDUSTRY CHOICE


3) PREPARE

4) TEAM


6) ADVICE

7) EDUCATION


9) MONEY

10. TIME


TIME AND SURVIVAL RATES


Source: Evans and Leighton (1989)

START UP EXP AND SURVIVAL


Source: Bruderl, Ziegler & Preisendorfer (1992)

Start up

Experience (3/20 failed)

No start up

Experience (6/20 failed)


1) INDUSTRY CHOICE


3) PREPARE

4) TEAM


6) ADVICE

7) EDUCATION


9) MONEY

10) TIME

11. MANY GOOD DECISIONS


GROWTH FACTORS


Source: Schutjens and Wever (2000)

Team

Well prepared

High initial sales

One person biz

Less prepared

Low initial sales

(46% grew) (4% grew)


= 10 times

more likely

to grow

Team

Well prepared

High initial sales


Predicting New Firm Survival Source: Cooper et. al (1994)


1) INDUSTRY CHOICE


3) PREPARE

4) TEAM


6) ADVICE

7) EDUCATION


9) MONEY

10) TIME

11) MANY GOOD DECISIONS

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