Do You Have to Start Out Rich to Succeed As an Entrepreneur?
WHY YOU SHOULD CARE
Because if you want to make a big splash in Silicon Valley, it helps to have your own pool.
You’ve heard it before: “Our best entrepreneurs are wealthy because they were willing to take the big risks.” Well, as famous fictional entrepreneur Willy Wonka liked to say: “Strike that; reverse it.” That’s right — have you ever considered that the opposite might be true? Perhaps our most-esteemed entrepreneurs were able to take big risks because they were already wealthy.
Scrappy unknowns with a suitcase and a dream are the exceptions, not the rule.
America’s entrepreneurs, including Silicon Valley’s finest, are extolled as the best of a rare breed: Bill Gates, Mark Zuckerberg, Jeff Bezos and many more are celebrated for their courage, creativity, job creation and, perhaps most of all, their willingness to take game-changing risks. But what if a deeper look at who is succeeding revealed that most of them were rich kids who just got one more break? That dropping out of Harvard when your dad is a millionaire is not that risky. That starting FedEx with a substantial inheritance is still an achievement but not exactly the stuff of Horatio Alger.
Reuters recently analyzed Series A funding from five of Silicon Valley’s top firms from 2011 to June 2013, and found that 70 out of 88 of the founders had “traditional Silicon Valley” backgrounds. “Scrappy unknowns with a suitcase and a dream are the exceptions, not the rule,” writes Sarah McBride.
Instead, the survey found that these founders likely attended one of just three universities: Stanford, Harvard or the Massachusetts Institute of Technology. This is not exactly a surprise. The survey “supports academic research showing that tech entrepreneurs are substantially wealthier and better educated than the population at large,” says McBride.
It seems there is much that can be done to increase the socioeconomic diversity of our entrepreneurial ranks.
Maybe we should focus on giving talented outsiders a shot at competing with the rich kids.
Are the venture capital funds – also staffed predominantly by people who grew up wealthy – really the innovation game changers that we need? Or do we need a publicly-sponsored VC fund with a clear mission to back game-changing entrepreneurs in a serious way? More Kickstarters? How do we enable smart, creative risk-taking from every rung of the economic ladder?
Research has shown that the interplay between social background and entrepreneurship is complex. While one study revealed that more than 90 percent of entrepreneurs surveyed came from middle-class or upper-lower-class backgrounds, other research suggests that entrepreneurs from higher socioeconomic backgrounds have greater access to both human and financial capital than their lower socioeconomic counterparts — and thus their new enterprises tend to have greater profitability and growth potential.
While it is easy to cherry-pick examples, even a quick glance at Fortune Magazine’s top 12 entrepreneurs of all time reveals that most on the list got their start in less-than-humble financial situations. Howard Schultz, the Starbucks CEO who grew up in New York City public housing, is a notable exception.
Take Jeff Bezos for starters. The Princeton grad spent summers on his grandfather’s 25,000-acre ranch in Texas and worked for a decade on Wall Street before leaving his job as a senior VP for a hedge fund to start Amazon. Not exactly living hand-to-mouth while waiting to hit pay dirt. Or take Fred Smith. The founder of Federal Express, and a fellow Skull and Bones “Bonesman” with George W. Bush and John Kerry at Yale, took his flying leap into the unknown of integrated air-ground delivery with $4 million of inherited money ($21 million in today’s dollars).
Are top tech entrepreneurs atypical examples of wealth made wealthier, or representative of a larger phenomenon?
Most people know that William Gates III dropped out of Harvard to found Microsoft, but few realize that the whiz kid came from a prominent Seattle family that backed his new venture. His mother, Mary Maxwell Gates, a member of United Way’s board of directors, even helped Bill get his first big contract with IBM – through fellow board member and IBM CEO John Opel.
More recently, Facebook founder and CEO Mark Zuckerberg’s climb boils down to something like this: the son of a well-to-do White Plains dentist attends Phillips Exeter Academy, then Harvard, before taking advantage of a summer without paid employment to rent a house in California and pursue his dream.
Are these just atypical examples of wealth made wealthier? Or are they representative of a larger phenomenon?
Crowd-funding and other measures are already helping to level the entrepreneurial playing field, but that doesn’t mean we should be blind to the role that existing wealth often plays in getting that big break. Unlike Willy Wonka’s eventual heir, Charlie Bucket, most aspiring entrepreneurs — however virtuous they might be — cannot afford to wait around for a Golden Ticket to come their way. Especially if some of their better-off competitors are simply printing their own.
What else do you think can be done to help level the playing field for aspiring entrepreneurs? A more aggressive Small Business Administration? A publicly sponsored venture capital fund?