The Impact of Previous Work Experience on Startup Success
Synthesizing Insights From the Data
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This is the fourth episode of my new “INSIGHTS” series. I’ll publish it every Tuesday and it comes in two alternating formats:
“DIGEST” the most interesting startup research & reports from the previous two weeks. We read all reports, studies, and papers about startups and the wider ecosystem, and condense the most important insights for you. The only source you need to keep up with data-driven startup insights.
“SYNTHESIZE” all available research to create a deep knowledge base for various startup topics such as success criteria, founder backgrounds, hiring playbooks, salary benchmarks, cap table structures, and more. The only source you need to understand any specific startup topic.
The last SNYTHESIZE episode was all about the impact of founder education on startup success. On a related matter, today’s episode will be focused on the impact of a founder’s previous work experience on startup success.
How Important Is Previous Work Experience in Startup-Land?
Research for our last education-related episode revealed some interesting insights about the importance of previous work experience and being a repeat entrepreneur when it comes to startup success. We dug into a broad body of research and will dedicate today’s episode to the most important factors related to previous work experience.
Common wisdom suggests real-world experience might edge out academic credentials in predicting startup success. Let’s delve into how professional backgrounds contribute to the startup journey, from initial growth spurts to sustained success.
Asset or Liability?
A study by Niron Hashau and Shaker Zahar fundamentally analyses different dimensions of founder work experience and startup success. They look into the effects of a founder’s experience in the same and different verticals as their startups.
The study’s most intuitive finding is that industry-specific experience is beneficial. Startups benefit most from founders with prior experience in the same industry, as this experience is contextually aligned with the startup's needs, facilitating growth through relevant knowledge, networks, and understanding of industry challenges.
However, the positive impact of relevant experience on startup growth diminishes over time, as the startup team accumulates new directly relevant knowledge as part of their venture. In some cases, such prior experience may even become a liability, potentially leading to overconfidence and reduced flexibility.
Concerning diversity in founder backgrounds, the study suggests that a mix of different types of experiences within the founding team can be advantageous, providing a balance of skills and knowledge that supports startup growth throughout its development stages.
✈️ KEY TAKEAWAY
Above study finds definite correlations between founder work experience and startup success. Effects are most pronounced in the early phases of the venture and are strongest from industry-specific work experience (the founder has substantial work experience in the industry he has founded a company). Diversity in backgrounds is valuable.
Which Type of Experience Is Best?
With a clear link between work experience and predicted startup success, it is worth spending time on the types of experience and their impact. A meta-analysis of founding teams’ industry-specific knowledge reveals that the right experience and education make a difference.
Growth isn't just about having educated founders; it's about having founders educated in fields that matter. Prior industry-specific work experience, especially in technical roles, is also crucial.
By far the biggest determinant, however, is entrepreneurial (work) experience. Startups with founders who've been down the entrepreneurial road before tend to outperform. This experience equips them with unique skills and an invaluable network. In light of the impact and complexity of this factor, we’ll dedicate another episode to understanding it in full depth, so stay tuned!
For first-time founders, the magic happens when founding teams combine diverse but complementary skills, particularly those blending economic-managerial knowledge with scientific-technical expertise, along with industry-specific technical and commercial experience. This synergy enables startups to leverage a wide range of competencies for growth.
✈️ KEY TAKEAWAY
The best indicator for startup success is undoubtedly a founder’s prior entrepreneurial experience. For first-time founders, the recipe for success is a combination of highly industry-specific knowledge and diverse but complementary work experience in the founding team.
Cross-Industry Skills: Pinpointing the Most Transferable Founder Skills
Recent insights from two pivotal studies shed light on what propels startups forward.
The first, a meta-analysis, uncovers eight key factors that universally drive startup performance. Among them (maybe somewhat surprisingly) is experience in the marketing industry, which is the only work experience-related factor.
Another study by Colombo and Grilli emphasizes the critical role of founders' human capital in the growth of new technology-based firms. The analysis confirms again that specific educational backgrounds and industry-related work experiences, especially those with a technical focus, significantly influence firm growth.
The latter authors identify work experience in the financial sector as a strong signal that contributes to future startup success, regardless of the startup’s industry. It might bode well for founders to partner up with a co-founder with a financial or marketing background!
✈️ KEY TAKEAWAY
The most transferable and universal work experience a founder can have is in marketing and finance. These skills seem to be most universally applicable. The value of such experiences diminishes with a startup’s maturity as specialization through departments occurs.
Entrepreneurial Experience: The Secret Sauce for Startup Success
As we discovered in our previous episode of Synthesis, entrepreneurial experience (as in being a repeat founder) seems by far the best indicator of startup success. A very close second is work experience in a startup or scaleup as a non-founder. It seems to pay off to be an early hire and be part of the executive team.
A study by Burke et al. examines how different types of entrepreneurial backgrounds shape the destiny of employer firms, leading to a surprising discovery: The study finds a significant correlation between the type of prior entrepreneurial experience and critical firm performance indicators, namely survival rates and earnings.
They operate under the premise of “internal” (employee but with account ownership) and “external” (repeat founder) entrepreneurial experience. Specifically, it was observed that a founder’s internal entrepreneurial experience has a positive impact on both the survival and earnings of startups.
This suggests that the skills, knowledge, and resilience developed through firsthand entrepreneurial activities (even if done as an employee) provide a competitive edge, enhancing the firm's ability to thrive and grow financially.
✈️ KEY TAKEAWAY
Ranking work experience in order of signal strength for startup success reveals the following ranking:
Being a repeat founder with a successful exit
Being a repeat founder in general
Being an early employee in a venture-backed startup
Having deep, industry-specific experience as an employee (startup or incumbent)
Conclusion
As we close the chapter on our exploration into the dynamics of startup success, it's evident that the journey to building a thriving company is multifaceted. The data and studies at hand underscore a compelling narrative: previous experiences of the founders significantly shape the trajectory of their startup. It's not just about having experience, but the right kind of experience that aligns with the needs and challenges of the startup ecosystem.
Industry-specific experience emerges as a strong foundation in the early stages, offering startups a leg up as they navigate the complexities of their sector. The most transferable and universal work experience a founder can have is in marketing and finance. However, it should be complemented with other industry-specific backgrounds. The value of such experiences diminishes with a startup’s maturity as specialization through departments occurs.
Among the various backgrounds, entrepreneurial experience stands out as a significant predictor of success. It imbues founders with a nuanced understanding of the startup landscape, equipping them with the insights and networks necessary to steer their ventures through turbulent waters.
A fun fact to close this episode: A longitudinal study by Donegan et al. indicates that pertinent work experience can give a founding team a strong initial boost that tapers off with time, while industry-specific academic education can provide a more long-term edge in R&D and venture survivability. This ties back wonderfully to the last episode’s findings and underlines the importance of the right configuration of backgrounds.
If you enjoyed this new format, leave a like, comment, and share this episode with your friends. If you don’t like it, you can always update your preferences to receive just the regular Thursday “Essays”, just the new Tuesday “Insights”, or both.
Thanks to Jérôme Jaggi for his help with this post.
Stay driven,
Andre
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