Sure, Industry Outsiders Can Bring Fresh Ideas. But Are They Better Entrepreneurs?
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Innovation Entrepreneurship Dec 6, 2018

Sure, Industry Outsiders Can Bring Fresh Ideas. But Are They Better Entrepreneurs?

New insights from a definitive study on what successful startup founders have in common.

An entrepreneur perfects her invention.

Lisa Röper

Based on the research and insights of

Benjamin F. Jones

When we think of entrepreneurs, most of us picture someone like the young Steve Jobs—an ambitious, nonconformist spirit eager to challenge the status quo. Indeed, our culture tends to mythologize youthful disruption of staid industries.

But, as research from Kellogg has demonstrated, the majority of successful entrepreneurs are actually middle aged. And while that finding garnered the bulk of media attention, there is another important conclusion in the research: the most successful entrepreneurs have extensive experience in the industry or sector where they end up competing. After all, Steve Jobs dropped out of college to join the team at Atari while still in his teens.

“Entrepreneurs often start companies in the narrow sector of an industry where they’ve worked,” says Ben Jones, a professor of strategy and entrepreneurship who coauthored the study. “And those with industry experience are much more likely to hit a home run than those who come from outside the sector.”

Jones’s research calls for a more nuanced understanding of entrepreneurship.

“Serious innovation often rises from within a field” as a result of deep experience and creative problem-solving, he says. “If you’re familiar with the ins and outs of an industry, having worked in it, and you have a strong professional network, your odds of success are greater.”

Knowing How the Sausage (or the Burger) Is Made

Despite our sometimes gladiatorial view of business competition, “creative destruction” is usually more creative than destructive—more ingenious tinkering than a full-scale tectonic shift. Most innovations combine the industry status quo with something new. To do this well, then, one has to be familiar with the status quo.

“There are many inputs into successful innovation,” Jones says. “But clearly one of them is immersion in a specific field or industry.”

Those who know the products, customers, suppliers, competitors, and channels of distribution are better positioned to see where the opportunity lies because they have seen or experienced the industry’s pain points firsthand.

“These are people who have been around for a while and seen what works.”

And people who work at the cross-section of multiple industries are in an especially good position to translate knowledge into action, Jones says. For example, if you have logged years—and miles—in the cycling industry, you may be better equipped to lead successful innovation in the hydration beverage industry.

Jones describes two well-known examples to illustrate his point. Before his breakthrough success with a McDonald’s, Ray Kroc gained years of experience in the restaurant industry through his work selling milkshake blenders across the United States. So, by the time he visited the McDonald brothers’ burger shack in California, he understood the national promise of the business model immediately, and his knowledge of disposable products—for example, mixers and straws—was directly relevant to the McDonald’s franchise’s early success.

Or take David Duffield, who founded PeopleSoft and eventually sold it to Oracle for more than $10 billion. Nearly two decades later, he did it again with WorkDay, the human resource and finance software company. Having begun his career at IBM as a marketing representative and systems engineer, he knew the nitty gritty of the software industry, and when he saw the need and opportunity for innovation, he made his move.

For Jones, this shows just how much experience can matter, even in fields such as tech that have mythologized the prodigious young success story.

“I’ve studied age and creativity for a while, and there’s a pattern of Nobel Prize winners, inventors, artists, and innovative minds making breakthroughs in their 40s,” Jones says. “I don’t think it’s an accident that we see the same pattern in business. These are people who have been around for a while and seen what works.”

The Value of Human Capital

Clearly, though, it takes more than just working in an industry to become a successful entrepreneur. Part of what sets innovators apart is their ability to learn from every experience.

“Human capital can make a real difference,” Jones says—“some combination of education, experience, and specific market knowledge.” So, having years of milkshake-machine sales under your belt, or a decade as an IBM engineer, builds a unique kind of human capital.

That’s not to say that inexperienced entrepreneurs can’t take advantage of the human capital around them. “A very young entrepreneur with a good idea and funding can still make things happen, but they tend to have an experienced team,” Jones says. It isn’t just about mentorship: young entrepreneurs rely on experienced people around them to understand and preserve those elements of the status quo that really worked.

This is why social capital—or having access to a wide network—is critical to successful entrepreneurship at any age, a point that is often overlooked in our celebration of “solo” founders like Bill Gates, Elon Musk, or Mark Zuckerberg. Rather than toiling away in obscurity, these entrepreneurs work within social networks, which have their own private information flows to facilitate the creation of experienced teams or groups of advisors, which can help them get their ventures up and running.

“Obviously you need financial capital as well,” Jones says, but the human and social capital is what can help hone an idea and get it to work, beyond merely getting it funded.

“More Swings of the Bat”

There is also a fairly straightforward reason why experienced entrepreneurs have a greater chance of success: they have been playing the game longer. The more chances an entrepreneur takes, the greater the odds that one of them clicks, Jones says. And not everyone is willing to keep trying after compiling a list of failed ventures.

Ray Kroc struggled at first for his entrepreneurial ideas to take hold. He was in his fifties before he founded McDonald’s. Even then, it was years before Kroc hit on the idea that made his venture profitable: buying inexpensive suburban land and leasing it to McDonald’s franchisees.

“It’s a matter of probabilities,” Jones says. “Those who study their industry and pay close attention have either learned some things through trial and error themselves, or learned by watching others. Maybe failure itself is a useful instructor. Or maybe it’s just about having more swings of the bat.”

Featured Faculty

Gordon and Llura Gund Family Professor of Entrepreneurship; Professor of Strategy

About the Writer
Drew Calvert is a freelance writer based in Los Angeles.
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