The Impact of Previous Work Experience on Startup Success
Synthesizing Insights From the Data
👋 Hi, I’m Andre and welcome to my weekly newsletter, Data-driven VC. Every Tuesday, I publish “Insights” to digest the most relevant startup research & reports, and every Thursday, I publish “Essays” that cover hands-on insights about data-driven innovation & AI in VC. Follow along to understand how startup investing becomes more data-driven, why it matters, and what it means for you.
Brought to you by Compass - The New Data-Driven Platform From Landscape
Compass is the first full-stack OS for investors looking to become data-driven. We help forward-thinking venture funds:
Unlock full market visibility through data-driven sourcing
Drive efficiencies in manual screening workflows
Automate monitoring startups on their watchlist
Join leading global venture funds using Compass today.
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.