Unicorns found in the Business School?

April 11, 2023

The recent research by a faculty at the Milgard School of Business debunks many myths about entrepreneurship. Analyzing unicorns, private entrepreneurial firms with more than $1 billion valuation, the study illustrates what entrepreneurs need to scale up fast to unicorn status.

Research Highlights:  S. Joseph Shin, assistant professor, Milgard School of Business

Entrepreneurship is rife with myths. The myths about founders, industry, and investors created an exciting but overly romanticized story about entrepreneurial success. A typical success story would be as follows: A group of founders, some college dropouts in their 20s, start their entrepreneurial journey from a garage in Silicon Valley. They founded a technology company, worked more than 100 hours a week for their prototype, met a prestigious venture capitalist, and viola- the company reached a billion-dollar valuation. 

But recent research from the Milgard School of Business, University of Washington Tacoma, suggests that most of the myths about successful entrepreneurial ventures are not actually close to reality. Specifically, most of the industry, founder, venture, and investment characteristics do not statistically explain the growth speed of startups. It means that what we generally think about a typical successful startup may not be accurate, according to the study co-authored by S. Joseph Shin, an assistant professor of management at Milgard.

S. Joseph Shin - Assistant Professor - Milgard School of Business

S. Joseph Shin, Assistant Professor

“Anyone anywhere can be an entrepreneur. You may not need everything people say you need to build a successful, fast-scaling company because the founders’ age, educational background, and company location do not statistically explain venture growth speed.”

 

Unicorns? In the business school?

The study examined unicorns. Of course, not the mythical creatures resembling horses with spiral horns, but private entrepreneurial ventures with very high valuations, more than one billion dollars. Widely known examples are ByteDance (a company behind TikTok), SpaceX (Elon Musk’s spaceship-building company), OpenAI (creator of ChatGPT and Dall-E), and Discord (an online community for gamers). Also, Uber, Lyft, Airbnb, DoorDash, and Dropbox are ex-unicorns; they previously belonged to this high-profile category of firms until their Initial Public Offering. 

“We analyzed the entire population of unicorn ventures in the US and found several predictors that explain the time to reach a billion-dollar valuation, such as the founder’s previous venture experience, profitability, platform business model, and ventures founded by a single founding member. These factors are found to expedite the scaling speed.”

While the findings intuitively make sense, some additional counter-intuitive findings interest entrepreneurs. “We also found that some of the important factors believed to influence venture success do not influence the growth speed of unicorn ventures. We found that industry, founder age, technical background of the founder, founders’ Ivy School Affiliation, location in Silicon Valley, and investment from prestigious venture capitalists do not matter for the growth speed of unicorns.” Shin explained. In fact, he adds, founders do not need to be young aged and have a technical background from an elite university to scale up their ventures fast. They don’t need to be located in the bay area and may not need financial support from a prominent venture capitalist.

Business Implication

Shin says that the grander message of this study is that entrepreneurs do not need to be restricted by our preconceptions, which sometime may not be all correct. Starting a company may not be something we should be afraid of as long as we’re correctly prepared. “Anyone anywhere can be an entrepreneur. You may not need everything people say you need to build a successful, fast-scaling company because the founders’ age, educational background, and company location do not statistically explain venture growth speed.”

“Time to unicorn status: An exploratory examination of new ventures with extreme valuations” was published in the July 2022 Strategic Entrepreneurship Journal.

 

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