Young innovative companies are the subject of much interest. Their example reinforces a mythology of innovation that has its classical examples, its specific locations (MIT, the Silicon Valley), its theoreticians (Joseph Schumpeter and the economics of innovation), its heroes (from Edison to Mark Zuckerberg). But behind the scene lies a more complex reality. What does a sociological approach reveal?
Young innovative companies (often referred to as startups) are the subject of much interest from government and public agencies, who often see them a driving force for economic development. Examples like Apple, Microsoft, Google, Facebook, Free or Myriad Genetics have shown that companies based on technical innovations can experience tremendous growth, reach a gigantic stock market value in but a few years, and recruit employees by the thousands.
In the fields of computing or biotechnology, growth rates can be once more witnessed that had not been seen since the heyday of the automotive sector of the early 20th Century or of 19th Century chemistry. Their example reinforces a mythology of innovation that has its classical examples, its specific locations (MIT, the Silicon Valley), its theoreticians (Joseph Schumpeter and afterwards the economics of innovation), its heroes (from Edison to Mark Zuckerberg, the creator of Facebook).
Our team (Jean-François Barthe, Nathalie Chauvac and I, with the help of several other colleagues or students) has sought to understand the underlying social logics of the process of creating these innovative companies, focusing on those who claim technical innovations. We conducted a survey between 2005 and 2014 on 97 companies considered innovative by various bodies (business centers, incubators, agencies granting innovation awards, etc.) located in various cities in the French Midi-Pyrénées region (Toulouse, Castres, Tarbes) as well as those of Bordeaux, Grenoble and Marseille, most of them created in the 2000s. We have reconstructed the stories of these companies’ creations, based on multiple testimonials and written sources.
The survey shows that there are on average just over two founders per company, whereas only a quarter of firms have just one.
Public researchers notwithstanding, as they generally retain their jobs while participating in the creation of companies where their findings are put to good use, we are most often dealing with engineers or technical executives, aged between 30 and 50, who already have a professional career as employees and who make the decision to set up a business at a given time of said career – and often in a situation of relative professional instability.
The fact that they are often people who already have a professional career and are founding companies while being in phases of instability reinforces our conception that business creation is rather a process than the spontaneous expression of particular personal qualities of an entrepreneur.
While previous work experiences and examples encountered among relatives or colleagues may constitute significant ingredients in the process of creating your own company, they are much less decisive than the professional situation immediately preceding it.
What were these people doing before the company was created and how did they go about this? Commitment to entrepreneurship is a complex equation that includes family situations, relational environments (people whom the founders know, who approach them to create businesses together, encourage or discourage them), “life choices” (self-employment, resettlement in the south), professional situations (stalled career, dissatisfaction at work, conflicts, company restructuring or undergoing difficulty, risk of job loss, precarious job, redundancy, etc.), sectoral contexts (crisis of the “Internet bubble” in 2000) or geographical motives (existence of local industrial circles).
There is also the prominent issue of personal occupational and financial risk. The founders interviewed are unanimous in considering that it is not easy to create a company and that wage-earning is far more secure. Engaging in the creation of a venture is therefore perceived as a more risky and rather less profitable activity than wage-earning.
However such risk is obviously very variable. Some retain a permanent job and simultaneously embark on entrepreneurship, which leaves the door open to eventually leaving the job. Others are cornered by an instable situation to begin with: they have already lost their job, or are at high risk of losing it in the short term, or it is precarious, or simply is their first. It is always difficult to distinguish between these elements, especially as formal situations are not necessarily good points of reference.
For example, “voluntary" resignations are often obtained under threat (during the period under review, the “serious misconduct” clause was widely used to dismiss managers) and, conversely, redundancies are sometimes requested by employees and negotiated with the employer in order to qualify for specific aid programs.
One third of the founders (64 individuals, or 32%) enjoy stable situations at the time of venture creation and will not leave them. The other two thirds comprise people who change jobs when the new company is created. Of these, about one-third (or just under one-quarter of the total number of founders) is composed of people who leave stable employment to develop the technical project that is the focus of the new venture. The other founders (two-thirds of those who change jobs, half of the total) are in a situation of professional instability and therefore have to think about their professional future in any event. In this case, the creation of a company appears to be one option among others, which is balanced against the search for another salaried employment or, in the case of independent professions (doctors, veterinarians, etc.), a liberal practice.
The foundation of a startup, however “innovative,” is therefore rarely the result of visionary risk-taking by a person in a stable situation, and much more frequently one solution among others for someone who is in an unstable situation, sometimes even with their back to the wall.
The formation of entrepreneurial collectives associating several people (this being the most frequent case) is also very much contingent and depends on the career paths, projects and interpersonal relations of the founders, yet we were able to identify a few patterns.
People involved with public research generally remain in their laboratory and therefore group with others to set up companies built upon their work, whether these persons outside the laboratory are members of their families, doctoral students, or engineers or executives with whom they are in contact.
Engineers or executives often build teams of two or more, with a sort of division of tasks in both the founding process and then the operation of companies. Our survey shows a vision of the business creation process that somewhat differs from the prevailing conception of the entrepreneur or the “project leader”: most often what we see are small clusters of people tinkering with projects as they go – the latter being constantly refined and adapted over time, depending on countless random factors.
Founding a company means accessing (or attempting to access) multiple resources ranging from the most intangible (information, advice) to the most tangible (premises, tools), but also funding and recruitment. Our survey confirms that even in western economies and in activities such as those related to technical innovation, impersonal coordination mechanisms, the “market institutions” to use a vocabulary of economists, are a framework but for a fraction of total transactions. Much of this is carried out on the basis of interpersonal relationships.
We can only concur here with other findings on this subject, in particular those of the American sociologist Mark Granovetter and the currents of economic sociology that they inspired. Of particular interest in the approach we have adopted is the fact that it allows for an evaluation of the amplitude of this recourse to interpersonal relations and to understand its variations. Indeed, the degree of embedding of economic activities into networks of social relations varies according to the national contexts (it is higher in southern Europe than in the north for example), sectors of activity (very weak in mass retail or ordinary banking activities, much higher in handicrafts, “alternative” distribution channels or in the leading circles of large industrial groups), and during the different phases of the activity of the same company.
Startup founders, just like anyone creating businesses in general, heavily rely on their personal relationships in the initial stages of project development and launching of the new company. Afterwards, more impersonal processes play an increasingly significant part, yet they reach a “ceiling” at a certain threshold, which leaves room for the mobilization of personal relationships: these range from anywhere between 30% to 40% of cases, except for customers whenever the ventures created gain access to relatively large markets.
There seems to be a sort of general ratio of “embedding” of economic activities in the networks of social relations in a given country. A good example would be the prevailing level observed in the labor market.
The trajectories of the “innovative” firms that we have studied only very partially conform to the linear models used by agencies fostering the creation of enterprises. They rather resemble a series of improvisations and adaptations, guided by more or less precise projects and the intention of the founders to put their company on the map, and if need be, modifications of many aspects of the initial project over time.
The analysis of our data has led us to identify regimes which, for a given period, function as frameworks for the relationships between people involved in the company and their environment. While there is a predominance of project situations (all activity is oriented towards the realization of a defined product or service) and “market” situations (outlets have stabilized and a significant part of the company’s activity is oriented towards customer satisfaction) among these frameworks, we have also identified other regimes, such as exploration (seeking outlets or technical adaptations by exploring various solutions and seeking different partners), crisis (an accumulation of financial difficulties or internal conflicts imply that the situation cannot last) or simply survival (the company is ready to do anything to survive). The sequence of these regimes has allowed us to construct a typology of business trajectories.
This somewhat chaotic process manages to make businesses relatively sustainable (over five years) in two-thirds of cases, which is a relatively high survival rate compared to that of ventures as a whole. On average, these companies generated about ten jobs, with obviously very strong variations. At the end of the day the stories are not always failures, and they are sometimes accepted and inserted in an ordinary course of things, and even sometimes considered as successes when the company is redeemed under conditions deemed favorable by the founders. Failures, from the point of view of founders, correspond to cases where the ventures have failed to find sufficient outlets or, in some cases, where internal conflict situations ended painfully.
Our interviews and all the data we were able to assemble reinforced ours belief that the creation of companies is not carried out by people who, inherently, would be endowed with special capacities for this. It is the personal and professional context that forms the main framework for their involvement in the founding of new ventures. Of course, it is likely that some people are more inclined than others to be involved in this type of activity, but we have not seen in our data anything that might particularly favor or explain such propensity, apart from a few previous experiences and examples from the entourage.
The same is true for the success or failure of the ventures created: we have not determined any personal characteristics that could explain the differences in the way these companies fare later on. The few differences that we did observe rather relate to the professional and relational contexts in which the creation of a business takes place, such as already having in hand professional relationships that can be mobilized, for example.
Some of these results can provide pause for thought for public policies aimed at fostering startup creations. The survival of these businesses seems relatively unpredictable, both for the people involved (entrepreneurs, employees, support bodies) and for analysts who observe them from the outside. We have interpreted this unpredictability as the result of two causes. The first is the selection operated by the support agencies, a selection that has largely guided ours, since a claim of technical innovation, which was our main criterion for inclusion in our survey, is generally associated with subsequent monitoring and aid by these agencies. One might think that a number of projects considered very unrealistic could have been excluded by these services, which in fact limits the variety of the companies we studied.
The second, more fundamental cause is the very variety of factors that make or break businesses: outlets that emerge and disappear along with the flow of global economic changes, strategies of major industrial groups and initiatives by competitors, internal conflicts, resources which become abundant or scarce depending on the context, financial problems which are difficult to anticipate, etc.
This may encourage governments and public agencies to foster a much greater number of projects and not merely be satisfied with those that they consider to be the most promising. Watering a whole field is often more efficient than dumping all the available water on but a few square meters... Securing solid support by authorities, companies that are deemed innovative are doing better than the others if one considers their survival rate. Perhaps it would not be absurd to offer an equivalent support to businesses in other economic circles.