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strategy and business
 / Spring 2006 / Issue 42(originally published by Booz & Company)


Recent Research

On entrepreneurs, innovation, executive women, and CEO pay.

Born to Run?
Ervin L. Black Sr. ([email protected]), F. Greg Burton, Anne M. Traynor, and David A. Wood, “Are Entrepreneurs Born or Made? Views of Entrepreneurs and Venture Capitalists.” Click here.

Photograph by Matthew Septimus
“One does not decide to be an entrepreneur. One is an entrepreneur.” So the multimillionaire Internet startup guru Bo Peabody has observed, adding for good measure: “Those who decide to be entrepreneurs are making the first in a long line of bad business decisions.”

Others take the opposite view. In 1996, Lloyd Shefsky, a clinical professor of entrepreneurship at Northwestern University’s Kellogg School of Management, studied more than 200 entrepreneurs and concluded that the most successful among them were made, not born.

So who is right — or is the answer somewhere in between? This question was tackled by Ervin L. Black Sr. and F. Greg Burton, associate professors of accounting at Brigham Young University; Anne M. Traynor, a student in the entrepreneurial program there; and David A. Wood, a doctoral student at Indiana University.

They asked 28 entrepreneurs and 13 venture capitalists (VCs) to identify the salient traits of successful entrepreneurs. The authors then divided the responses into three categories: innate attributes (persistence or risk taking, for example), learnable skills (such as the ability to delegate or to close deals), or experience factors (marketing or networking skills).

The entrepreneurs and VCs couldn’t have been farther apart. The characteristics that entrepreneurs most prized were innate attributes: hard work (14.5 percent of respondents named it), persistence (10.8 percent), risk taking (8.4 percent), vision (7.2 percent), and independence (4.8 percent). In fact, entrepreneurs cited inherent traits 62 times out of their 83 responses.

The VCs, on the other hand, emphasized experience. The critical traits for entrepreneurs that they cited most frequently were: industry/domain/market experience (9.3 percent), marketing experience (8.2 percent), passion (7.2 percent), leadership skills (7.2 percent), and startup experience (6.2 percent).

Overall, the researchers found that entrepreneurs believe they are born with 75 percent of the traits necessary for commercial success. But the VCs hold that only 44 percent of the traits necessary for success are inherent in an entrepreneur’s nature. As the authors note: “Venture capital providers believe experience is far more important in determining success than entrepreneurs believe.”

Avoiding Innovator’s Remorse
John T. Gourville ([email protected]), “The Curse of Innovation: A Theory of Why Innovative New Products Fail in the Marketplace,” Harvard Business School Marketing Research Paper no. 05-06. Click here.

Research shows that between 40 and 90 percent of all new products fail to gain market acceptance. In addition, the more innovative a product or service is, the more likely it is to miss. For example, Webvan’s online grocery venture, the Segway scooter, and the TV recording technology TiVo have all struggled or failed in the marketplace.

John T. Gourville, an associate professor of marketing at Harvard Business School, offers an explanation for this troubling track record. The more innovative a new product is, the more likely it is to require changes in the behavior and perceptions of consumers who use existing products as their point of reference.

With Webvan, consumers did not have to drive to the store. But in exchange for this convenience, consumers were asked to sacrifice some of the control of the grocery shopping experience, such as the ability to choose their own meat and vegetables. Similarly, in deciding whether to purchase an electric car, consumers often measure it against their current vehicle; electric cars are environmentally friendly, but their driving range leaves a lot to be desired. With most innovations, then, consumers tend to be “loss averse.” The disadvantages loom larger in their minds.

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