In a crowded marketplace with low barriers to entry, there is one key thing entrepreneurs can do that makes all the difference: figure out exactly who they are.
In this episode of the Kellogg Insight podcast, we offer advice for entrepreneurs on the importance of defining their startup’s identity as early in their journey as possible. We hear from Rick Desai, an adjunct professor of innovation and entrepreneurship at Kellogg and partner at the venture capital firm Listen, about how one fledgling fashion startup succeeded in finding its personality—before it even had a prototype of its product. Then we discuss with Ben Jones, a professor of strategy at Kellogg, his groundbreaking new research on the ages of successful entrepreneurs.
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Emily STONE: How long does it take to start a business in the U.S.? According to venture capitalist Rick Desai, about as long as your average cocktail party.
Rick DESAI: The three of us in a room in three hours could have a Shopify website, could have ads up on Facebook, and could have an inventory management system, accounts management system, and a payment management system up and running. We could go sell other people’s products.
STONE: But there’s a downside to that. The same tools that make it so easy to go into business also make it incredibly difficult to stay in business. When the bar to entry is low, the competition is high.
DESAI: It’s never been easier for someone to launch a business specifically online, and as a result, it’s actually never been more imperative to differentiate.
The same tools that I have as an emerging entrepreneur to start a business, all my competitors have. Oh and by the way, all of the incumbents have them too. If I’m going to launch a new shoelace brand, Nike can do it tomorrow.
STONE: Welcome to the Kellogg Insight podcast. I’m your host, Emily Stone.
This month we look at two aspects of entrepreneurship. First, producer Fred Schmalz learns why it’s so important for startups to hammer out their own identities in a crowded marketplace. Then, I talk with Kellogg professor Ben Jones. His research upends the widely held notion that entrepreneurship is a young person’s game. Stay with us.
Fred SCHMALZ: Rick Desai is not only an adjunct professor of innovation and entrepreneurship at Kellogg. He’s also a partner at the Chicago venture capital firm Listen and co-founder of the startup studio Dashfire.
Over the years, he’s learned that while all startups think they are unique, there’s likely someone else out there who can copy pretty much any element of your company. Except one.
DESAI: Overnight someone can replicate basically everything, your business model, your technology, your design, your marketing, but the one thing that they can’t replicate is the relationship you have with your ultimate end user.
SCHMALZ: In other words, others can re-create what you do, but they can’t re-create who you are. Which is why, Desai says, if you want to survive in the marketplace, you’d better find out who you are.
This is a process that can take some trial and error.
Take the custom furniture website Interior Define. This company makes it easy for consumers to design their home furnishings: chairs, sofas, beds, ottomans, you name it. You can choose the dimensions, the fabric, the style of the legs—all the things that generally aren’t up to you in a regular store.
But the company’s original branding focused on some of the same benefits as stores like West Elm or Crate & Barrel: good price, good product. To Desai, who was an investor in Interior Define, that presented a big opportunity.
DESAI: We realized that a lot of these brands were all operating on the same MO: a lot of style but not a lot of life. And what we wanted for Interior Define was to understand the moment in life when you’re ready to actually make this really big sofa purchase and when you really have the confidence to customize that sofa. That’s what we started playing on. We realized that the ultimate outcome, the emotional outcome which I think every brand really trades on, was comfort.
SCHMALZ: Interior Define realized that it was really selling the idea of a furniture shopping experience that was as comfortable as lounging on your couch.
Everything about Interior Define’s branding now emphasizes just how easy and straightforward the process of customizing your own furniture is. There are free swatches. Free delivery. An app that lets you visualize how your new piece will look in your home. Brick-and-mortar store locations where you can bring your dog and have a snack while checking out furniture samples.
In other words, Interior Define realized its purpose isn’t to make furniture so much as to make people comfortable.
DESAI: We spend most of our time at Listen helping companies understand what their purpose is, and to us purpose needs to transcend product, transcend functionality. When you get your purpose right—and to me that’s the why, why you exist—if you get the why right, it informs the what and the how of your business.
That says to internal stakeholders, “Hey, this is why I work at the company, this is why we make the products, this is why we make the partnerships, this is why we hire the people that we do.”
Now they’ve got a playbook. They can always come back to the purpose and say, “You know what, this is on brand,” or, “You know what, this doesn’t make sense for us, we should stay away from it.”
SCHMALZ: Knowing what your brand identity is, and believing in that identity, can guide your decision making, even when you’re still working on the business’s other fundamentals.
Desai was reminded of this recently when some Kellogg students tried to enroll in his class for developing new ventures. Their concept? A fetching little onesie for men. A romper, if you will. They called it the Romphim.
The problem was, they didn’t have anything more than an idea. Desai’s reaction was immediate.
DESAI: I said, “No, you can’t be in this class. You haven’t made a product, you have no Instagram following, you don’t know how to make the product, you don’t know how to sell, you don’t know e-commerce. Do something, prove something, inspire belief in me.” But then they followed through, they made some prototypes, they started wearing their Romphims at music festivals: Coachella, Pitchfork. And then they went live on the Kickstarter, and it brought the Internet down.
SCHMALZ: Desai let them into the class. To say that they “brought the Internet down” may be overstating it a bit, but the Romphim Kickstarter campaign was wildly successful, raising 35 times its initial goal in the first week.
Desai emphasizes that the Romphim team was successful because they were willing to start building momentum. They knew their purpose, even before they had investors on board. And getting that attention from a hip crowd drove investment. The company is now up and running.
DESAI: If someone pitches me an idea, my next question is, “What’s stopping you from getting your first customer?” Their typical response is, “When we have a product.” My response is, “Fake it till you make it.” You can go put up ads on Facebook. You can go cold-email people on LinkedIn. You can go get an introduction through their warm referral. If you can’t get to the meeting, if you can’t get someone to click your ad, if you can’t get someone to respond to your blog post, that means the actual reason for being isn’t strong enough to get someone to interact or activate.
STONE: Conjure up an image of a successful entrepreneur. Really try to see a picture in your mind. What does this person look like?
If you’re like most of us, you’re picturing someone who, if they are not actually wearing a romper, may still be … on the young side.
Here’s Kellogg strategy professor Ben Jones.
Ben JONES: I think that there are, of course, prominent examples of those individuals, whether it’s Bill Gates or Steve Jobs or Mark Zuckerberg, which is a part of driving that perception.
STONE: And people have come up with plenty of theories to justify that perception.
JONES: For one, young people might be more creative in some sense, less beholden to existing ideas, paradigms of thought, ways of doing things. More capable of that truly disruptive approach or insight.
A different idea is that young people might just be extremely energetic. They can go all in in a way that older individuals would find more difficult. Perhaps it’s basic energy. Perhaps it’s just being unencumbered by other responsibilities when you’re very young, including family responsibilities, being home for dinner with the children, or paying a mortgage or paying tuition, et cetera.
Then a third idea is that young people might just be sharper, at least in some ways. A more deductive, faster, clock speed in their brain. Mark Zuckerberg once famously said, “Young people are just smarter.”
STONE: There’s just one problem with these theories: They’re wrong. Not just a little bit wrong. Very wrong.
We know this because of a groundbreaking study that Jones conducted with coauthors from the U.S. Census Bureau and MIT.
Previous researchers had tried to determine the average age of successful entrepreneurs. But their results were never conclusive. This was likely because they were relying on subsets of data, like studies of a particular industry.
Jones and his team took a much higher-level approach. They got all the data. The researchers combined IRS and Census Bureau information to build a list of 2.7 million company founders.
JONES: This allowed us for the first time to really ask in a systematic way, when do people in life start? Not just firms in general, but the firms that really grow or go on to public offering or are successfully acquired.
STONE: They wanted to focus on firms that became highly successful. They learned that the average age of entrepreneurs with the fastest growing new ventures was—wait for it—45.
JONES: It is partly age 45 because people in their mid-40s do start more companies than people in their 30s or their 20s, so in a sense, they take the most bites of the apple or the most swings at the bat.
But if you ask a related, but very important question, which is, okay, well, conditional on starting a company—so let’s say you tried—what is your probability of hitting a home run? If you do it that way, you find that your batting average for home runs only goes up with age.
Actually, at that point, 55-year-olds look the best. They’re even better than 45-year-olds, who are better than 35-year-olds, who are better than 25-year-olds.
STONE: There are a few possible reasons for that. One, of course, is that, as we age, we become more experienced. Another is that older people have had more time to build their professional networks and their financial reserves.
Additionally, the researchers found that people who had previously worked in a particular industry more than doubled their chances of becoming successful entrepreneurs in that industry.
But what about visionaries like Steve Jobs or Bill Gates? They all started their companies very young, right? That’s true, but there’s a big catch.
JONES: Steve Jobs, what was his blockbuster product? What was Apple’s great success? Well, it’s the iPhone. Maybe somewhat before that, the iPod, but certainly the iPhone. That comes when Jobs is 52. It’s once he has come back to Apple later in life, more seasoned, after some failures along the way, and produces this blockbuster invention, innovation. So too, Microsoft. Its market capitalization has grown most rapidly when Bill Gates is in his middle age.
If you really are a true outlier, you can do well in your 20s, but you still are going to even do better in middle age.
STONE: To Jones, the myth of the young founder is not only wrong, it may be discouraging some would-be entrepreneurs in their 40s.
JONES: Let’s say you’re self-reflecting on whether you want to start a company and everyone seems to think that, “Well, if you were in your young 20s, that was the time to do it, and now you’re over-the-hill,” that can be chilling, and people who might be interested won’t necessarily do it.
STONE: And venture capitalists should also be aware that, while it may be tempting to concentrate resources on younger entrepreneurs, doing so may be risky.
JONES: Separately, those who are giving out limited early stage finance to help entrepreneurs get going, if they believe it’s all about young people, very young people, they, other things equal, are going to be less likely to allocate dollars towards more middle-aged people. In fact, they’re going to be giving money in the wrong direction in terms of where the success is likely to be. That suggests that we might have potentially a much less efficient financing system than we otherwise would.
STONE: Not only that, but we might see funding directed away from enterprises that enrich society in the long term. If all the attention goes to trend-setting consumer tech, that may mean less investment in other important innovations.
Because, while Facebook and Snapchat are useful for connecting with friends and family, those products are definitely NOT designed to solve some other problems.
JONES: It’s not advanced manufacturing. It’s not solving clean energy and dealing with climate-change problems. It’s not super interesting insights in forensic accounting or finance. It’s not biotech typically. It’s not solving the healthcare systems. Young people have a wide variety of ideas, but typically you’re going to end up biasing innovation towards certain consumer-level social media–type things and probably away from areas that are, if anything, as or more important to socioeconomic prosperity, like health or energy or those kinds of things.
STONE: This program was produced by Kevin Bailey, Jessica Love, Fred Schmalz, Jake Smith, Emily Stone, and Michael Spikes. It was written by Anne Ford.
Special thanks to our guests, Rick Desai and Ben Jones.
As a reminder, you can find us on iTunes, Google Play, or our website, where you can read more about how to find success as an entrepreneur. Visit us at insight.kellogg.northwestern.edu. We’ll be back next month with another episode of the Kellogg Insight podcast.
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