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High-Potential Entrepreneurs

May 30 2012 - Stanford Graduate School of Business has reported that its graduates are much more likely to become entrepreneurs than ever before. 16% of the class of 2011 have already started their own businesses compared to a mere 5% in the early 1990s and 10-year trend data is suggesting that there is a generational shift toward entrepreneurship.

According to Pulin Sanghvi, Assistant Dean and Director of Stanford GSB's Career Management Center:

"Despite an uncertain economy, more of our students are willing to take the risk of starting up new enterprises to solve problems, address unmet needs and positively impact society. It is a sign of hopefulness and opportunity for the U.S. and the rest of the world."

Stanford graduates describe their ideal corporate organization and culture as:

  • flat
  • non-hierarchical
  • one that encourages risk-taking, and
  • has a strong mentorship culture

Graduates are increasingly valuing growth potential and early responsibility over money and job security. Stanford GSB considers that this is indicative of the entrepreneurial thinking it teaches - applicable in Fortune 500 companies, management consultancies, non-profits or start-ups. With GSB graduates choosing places where they can make change, traditional corporate recruiters have adapted their approach to more closely match shifting generational motivations.

Engineers or MBAs?

Today's business founders and CEOs are much more likely to have advanced engineering degrees than MBAs, according to Identified, the largest professional database on Facebook. At the beginning of 2012, an edition of its "Revenge of the Nerds" white paper research series also reveals that there is a steady downward trend in the ages of business leaders, possibly indicating a major change in future corporate culturea as younger, 'techie' entrepreneurs take charge.

An analysis of Facebook profile data (90% US-based) showed that the ratio of founders/CEOs with undergraduate business (9,461) and engineering (9,334) degrees was virtually even. But this changed significantly when those with advanced degrees were looked at. Of 36 million professional profiles in the Identified database 3,337 founder/CEOs had advanced engineering backgrounds compared to 1,016 MBAs. Compared with 2008 the the average age had dropped from 36 to 33 years old.

Brendan Wallace, co-founder of Identified said:

"It seems the tables are turning in the modern corporate hierarchy. Not only are engineers highly in-demand in the workplace, but they also are accelerating past their business-educated counterparts as they advance in their education and mature in their careers - founding and running companies at over three times the rate of MBAs. It will be interesting to see what kind of implications this will have on the business world and the economy overall."

Engineer-entrepreneurs are found most commonly in the IT, social and mobile industries. Apart from the 'usual suspects' like Stanford, MIT, UC Berkeley, CalTech and Carnegie Mellon, the study also found that they also come from international programs such as the Indian Institute of Technology Bombay, Canada's University of Waterloo and China's Tsinghua University.

Brendan Wallace concluded:

"The data confirms that innovation is truly an international endeavor and that it doesn't take a business background to be successful in business. All it takes is a brilliant idea, a vision and determination. It also proves that engineers continue to be in very high demand on the hiring side as well, with newer companies like Palantir, DropBox and Quora attracting some of the top talent in the industry."

U.S Entrepreneurs

A study published in 2006 showed U.S. entrepreneurs to be streets ahead of their counterparts in other countries when it comes to developing innovative businesses that keep the economy dynamic and productive.

According to a U.S. Global Entrepreneurship Monitor (GEM) directed by Babson College and the London Business School, entrepreneurs in the U.S. are more likely than any others to be motivated by opportunities in 'high-potential entrepreneurship' - the term GEM researchers use to describe fast growing, new ventures involving the latest technologies and knowledge-transfer businesses. In nine cases out of ten U.S. entrepreneurs are 'opportunity entrepreneurs'. A mere one in ten are self-employed because they have no choice.

Early-stage entrepreneurship is robust in the U.S., having maintained greater stability than the other G7 economies (Canada, France, Germany, Italy, Japan and the UK) after the economic downturn in 2000.

U.S. entrepreneurs have an excellent record of developing early-stage entrepreneurship (startups) into established business ownership. Compared to other countries, the U.S. has:

  • more early-stage and high-expectation entrepreneurship
  • greater investment rates, and
  • a healthier economy overall.

According to the GEM report, high potential entrepreneurs (HPE) have increased U.S. productivity levels more than 100 per cent in recent years.

High-potential entrepreneurs tend to be:

  • young and male
  • come from the upper income groups
  • are motivated by opportunity
  • don't suffer from fear of failure
  • social networkers, benefiting from relationships with other entrepreneurs and 'business angel' investors
  • skillfully choose opportunities from the business, rather than the consumer sector - with 60 per cent of those opportunities being in the innovative technology sectors
  • believe that there is no competition
  • have different ways of thinking than the general population.

Much of the startup activity involving high-potential entrepreneurs has been internet-related. The U.S. dominates internet-related products and services. In 2004, for example, U.S. venture capital firms invested $21 billion in this sector, compared with $4.2 billion in 1994. In the same period the number of companies increased from 961 to 2,399. However, informal investing fuels most startup and early-stage companies. U.S. entrepreneurs average $70,200 to start a new business and contribute 67.9 per cent of that amount themselves.

Stephen Spinelli, Jr., Vice Provost for Entrepreneurship and Global Management at Babson College, is confident that there is a healthy entrepreneurial investment environment in the U.S. "For U.S. entrepreneurs great and small, there is more than sufficient external financing for them to start and grow their ventures," he said.

"This is because there is much more equity capital available than before the Internet bubble, and there are almost twice as many venture capitalists looking for good companies," said Spinelli.

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