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  • [RH] The Impact of Founder Personalities on Startup Success

    By Paul X. McCarthy, SCIENTIFIC REPORTS, October 17, 2023

    The stats don’t lie - the overwhelming majority of start-up companies fail. So, what makes the seemingly lucky few not only survive, but thrive?

    While good fortune and circumstances can play a part, new research reveals that when it comes to start-up success, a founder’s personality - or the combined personalities of the founding team - is paramount.

    The study, published recently in Scientific Reports, shows founders of successful start-ups have personality traits that differ significantly from the rest of the population - and that these traits are more important for success than many other factors.

    The study found that personality traits don’t simply matter for start-ups - they are critical to elevating the chances of success.

    A small number of astute venture capitalists have suspected this for some time, but now hard data demonstrate this is the case.

    First, using a machine learning algorithm, researchers from the University of Oxford and their Australian colleagues inferred the personality profiles of founders at more than 21,000 founder-led companies based on language and activity in their publicly available Twitter accounts.

    And based on this assessment, the algorithm distinguished successful start-up founders with 82.5 percent accuracy.

    They then correlated the personality profiles with data from Crunchbase, the largest directory of start-ups in the world.

    The goal was to determine whether certain founder personalities and their combinations in cofounder teams related to start-up success as measured by the company being acquired, acquiring another company, or being listed on a public stock exchange.

    The researchers looked at the Big Five core personality traits based on the widely accepted model of human personality, 

    1. openness to experience, 
    2. conscientiousness, 
    3. extraversion, 
    4. agreeableness, and 
    5. neuroticism 

    They found that the Big Five for successful start-up founders significantly differed from that of the population at large. The facets distinguishing successful entrepreneurs include:

    1. a preference for variety, novelty and starting new things (that is, more openness to adventure),

    2. a liking for being the center of attention (that is, lower levels of modesty), and 

    3. being exuberant (that is, showing high activity levels).

    The greater presence of these and other personality traits in founders is related to higher chances of success.

    The researchers said, “We can see how this plays out in many notable examples. The, the assertiveness and confidence of Steve Jobs, the exuberance and energy of Richard Branson, the calmness under pressure of Jeff Bezos, the discipline and focus of Mark Zuckerberg, and the trustworthiness of Larry Page and Sergey Brin underpin their company’s success.”

    They went on to say, “We used machine learning and a variety of advanced statistical tests to reveal that there is not just one type of successful founder but indeed six types.”

    That’s because the Big Five personality traits of successful start-up founders, can be broken down further across 30 dimensions, which reveal six distinct types: fighters, operators, accomplishers, leaders, engineers and developers.

    Furthermore, the study found that while personality is crucial, many other factors play a role in the ultimate success of founder-led companies, including luck, timing, and connections.

    Startups, especially during their earliest stages, before there’s any demonstrable customer-traction, rely to a large extent on “social proof.”

    Therefore, trust in the founders, can sometimes present barriers for many groups including women, people who have not worked in tech before, or attended prestigious universities.

    The researchers undertook multi-factor modelling to measure the relative significance of personality on the likelihood of success versus other firm-level variables.

    They discovered a founder’s personality was five times more predictive of success than the industry and two times more predictive than the age of the start-up.

    They also found start-ups with diverse and specific combinations of founder types, such as an adventurous leader, an imaginative ‘engineer’, and an extroverted ‘developer’, had significantly higher odds of success.

    Notably, firms with three or more founders are more than twice as likely to succeed as solo-founded start-ups.

    Furthermore, those with diverse combinations of types of founders have eight to ten times more chance of success than single founder organizations.

    So, while all start-ups are high risk, the risk becomes lower with more founders, particularly if they have distinct personality traits.

    As the researchers put it, “founding a startup is a team sport and now we can see clearly that having complementary personalities in the foundation team has an outsized impact on the venture’s likelihood of success, which we’ve termed the Ensemble Theory of Success.”

    The researchers say the findings have critical applications for entrepreneurs, investors, and policy-makers and can enable the creation of more resilient start-ups capable of more significant innovation and impact.

    What does this mean for investors? When OpenAI cofounder Sam Altman led the storied start-up accelerator, Y-Combinator, he discovered that “cofounder relationships are among the most important in the entire company.”

    The researchers say, “By understanding the impact of founder personalities on start-up success, we can make better decisions about which start-ups to support and help fledgling companies form foundation teams with the best chances of success.”

    Notably, these findings have implications beyond founder-led companies, highlighting the benefits of personality diversity in teams. For example, many fields, such as construction, engineering and the film industry, rely on project-based, cross-functional teams that are often new ventures and share many characteristics of start-ups.

    Furthermore, “There are lessons here for organizations of all kinds about the importance of having a diversity of personality types in teams, which can lead to stronger performance and impact.”

    Just as occupation-personality maps derived from data can provide career guidance tools, information about successful entrepreneurs’ personality traits can also help people decide whether becoming a founder may be a good move for them.

    As the lead researcher observed, “8 percent of people worldwide may have personality traits that could make them successful founders. Likely, many are not in the entrepreneurial field right now.

    Identifying these misfits and people in roles unsuited to their personalities will be the focus of some of our follow-up studies.”

    SCIENTIFIC REPORTS, October 17, 2023. “The Impact of Founder Personalities on Startup Success,” by Paul X. McCarthy, et al. © Springer Nature Limited. All rights reserve. 

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