Monday, March 11, 2013

Entrepreneurs matter

Many companies who design and develop vision systems are founded by engineers with an entrepreneurial spirit who want to carve out their own niche in life rather than working in a nine-to-five job for a larger organization.

Such individuals often have the unique ability to not only identify a specific requirement in the marketplace, but are also able to direct their teams of engineers to create systems to meet those needs as well.

But what happens to such organizations when their founder dies? According to new research from the Universities of Warwick and Bergen, the result is rather astonishing -- the death of a founding entrepreneur wipes out on average 60 percent of a firm’s sales and cuts jobs by around 17 percent.

The research, by Professor Sascha O. Becker at Warwick University (Coventry, UK) and Professor Hans K. Hvide at Bergen University (Bergen, Norway) has shed some light on exactly how much a founder-entrepreneur 'matters' in terms of influencing the performance of privately-owned businesses.

To reach their conclusion, the researchers analyzed firms' performance up to four years after the death of the founder-entrepreneur and found a long-lasting and significant negative impact. Although they didn't specifically look at companies in the vision systems design marketplace, from my own experience, there is no doubt that the conclusions that they reached are equally applicable.

As well as the striking effect on sales, companies whose entrepreneur dies have 20 per cent lower survival rates two years after the death, compared to similar firms where the entrepreneur remains alive.

Warwick University's Professor Becker said that while the researchers expected businesses that experienced the death of a founder-entrepreneur to have some kind of a dip in performance immediately after the death owing to the upheaval, they had anticipated that there would be a bounce-back.

However, even four years after the death of a company founder, most firms showed no sign of recovering and the negative effect on performance appeared to continue even further beyond that.

Professor Becker said that the results showed what a vital role such people played in maintaining productivity levels within a firm, but could only surmise as to why that might be so. 

While it could be because the founder was a fantastic sales-person who generated a disproportionately high level of sales, it could be due to their leadership, where the employees were inspired to perform to their best ability.

The researchers looked at various different types of firms to see how they were affected by founder-entrepreneur death. But they found no difference between results for family or non-family firms, urban or rural businesses, and no significant variation across sectors.

The level of education of the founder-entrepreneur also played a role in determining how badly the firms were affected -- those with the most highly educated founders experienced a bigger drop in performance after their death. The researchers also looked at whether ownership shares mattered. What they found was that the effect of the death of a 50-per-cent owner was roughly half that of the death of a majority owner.

In the vision industry, I'm pleased to say that there are some companies that have continued to succeed after their founders have passed away. In many cases, however, they were founded by individuals who recognized the need to entrust the responsibility of running their companies to younger equally entrepreneurially-inspired individuals long before they died.

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