Frank Holmes looks at whether starting a company at the right time and in the right industry is a matter of skill or luck
Those of us in business are often intrigued by the mysterious factors which influence the success or failure of new enterprises. What makes the difference?
Instinctively we would imagine that entrepreneurs with a track record of success are much more likely to succeed than first-time entrepreneurs and those who have previously failed. We would also subscribe to the demonstrable notion that “timing is everything” and applies to entrepreneurs who have demonstrated market timing skills. This is the component of success that comes from starting a company at an opportune time and place.
This is consistent with the view that if suppliers of capital, labour, goods, services and customers perceive the entrepreneur to have market timing skill and therefore more likely to succeed, these stakeholders will be more willing to commit resources to the new business. In this way, success breeds success even if successful entrepreneurs were just lucky. And, success breeds even more success if entrepreneurs have some skill.
We conjecture that the most and least successful entrepreneurs do not become serial entrepreneurs. The very best entrepreneurs are either too wealthy or too involved in their business to start new ones. However, it is most likely that the very worst entrepreneurs are unlikely to be able to receive venture funding again.
The second component of success is determined by the entrepreneur’s management of the venture.
At this point it is worth introducing the concept of first-mover advantage which remains firmly embedded in business thinking. One reason is that pioneers that fall by the wayside get forgotten. The belief that “first is best” is also buried deep in people’s minds and sustains the myth.
However, market pioneering is not always necessary or sufficient for long-term success and this is where “fast followers” dispel the romance around the idea of leading with breakthrough innovation. The first mover sometimes over-complicates the beginning while the “fast follower” can use the former’s experiences to learn about market size and demand, new designs, manufacturing techniques and optimum distribution channels.
So where does the money chase the deal? Research data across the UK and USA highlights a clear concentration of entrepreneurs in the three sectors that are most closely associated with the venture capital industry: internet and computers; communications and electronics; and biotechnology and healthcare. These are also the three industries with the highest representation of serial entrepreneurs.
The other industries, such as financial services and consumer goods, have a lower percentage of serial entrepreneurs.
Right now investors looking for the next bubble will be tracking long-term global changes involving increasing international trade and demographic shifts of an aging population. Their medium-term focus on security, spending changes and the impact of technological innovation in these sectors will create exciting ventures for investors seeking a timely opportunity.
Frank Holmes is founder partner of Gambit Corporate Finance LLP which is based in Cardiff and celebrates its 20th anniversary this year.
