Predicting startup success: the founder's personality

Although good fortune and circumstances may contribute, recent studies have demonstrated that the personality of the founder or the collective personalities of the founding team are of utmost importance in determining the success of a startup. The study, which was published in Scientific Reports, demonstrates that successful startup founders possess personality traits that are notably distinct from those of the general population. Furthermore, it establishes that these traits are more crucial than numerous other factors in determining success.

"We find that personality traits don't simply matter for start-ups -- they are critical to elevating the chances of success," says Paul X. McCarthy, lead author of the study and adjunct professor at UNSW Sydney. "A small number of astute venture capitalists have suspected this for some time, but now we have the data to demonstrate this is the case."

Personality is crucial to the success of a startup

The team, comprising researchers from the Oxford Internet Institute, the University of Oxford, University of Technology Sydney (UTS), and the University of Melbourne, employed a machine learning algorithm to deduce the personality profiles of the founders of over 21,000 founder-led companies. This was accomplished by analyzing the language and activity displayed on their publicly accessible Twitter accounts. The accuracy with which the algorithm could identify successful startup founders was 82.5%.

The researchers then correlated the personality profiles with data from Crunchbase, the preeminent directory on start-ups, in order to determine whether certain founder personalities and their combinations in cofounded teams are associated with start-up success as measured by the company's listing on a public stock exchange, acquisition, or acquisition by another entity.

The researchers discovered a significant deviation in the core Big Five personality traits of successful start-up founders from those of the general population. The Big Five founders are the widely accepted personality traits that comprise openness to experience, conscientiousness, extraversion, agreeableness, and neuroticism.

Successful entrepreneurs are characterized by traits such as an eagerness to try new things, a preference for variety and novelty, and an exuberant demeanor that encourages them to be the center of attention (lower levels of modesty and higher activity levels, respectively).

"The greater presence of these and other personality traits in founders are related to higher chances of success," says Dr Fabian Braesemann, co-author of the study from the Oxford Internet Institute, University of Oxford.

Prof. McCarthy states, "We can see how this plays out in many notable examples." "The adventurousness and openness to experience of Melanie Perkins, the assertiveness and confidence of Steve Jobs, the exuberance and energy of Richard Branson, the calm under pressure Jeff Bezos, the discipline and focus of Mark Zuckerberg, and the trustworthiness of Larry Page and Sergey Brin underpin their company's success."

Dr. Marian-Andrei Rizoiu, a senior lecturer leading the Behavioural Data Science lab at UTS says: "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."

"Our findings clearly show there's not one ideal 'founder-type' personality,"says Associate Professor Margaret (Peggy) Kern, senior author of the study from the University of Melbourne."Instead, the Big Five personality traits of successful start-up founders, which we can break down further across 30 dimensions, reveal six distinct types: fighters, operators, accomplishers, leaders, engineers and developers."

Although personality is essential, numerous other elements, such as connections, timing, and good fortune, continue to influence the ultimate success of founder-led organizations, according to Professor McCarthy.

"Startups, especially during their earliest stages, before there's any demonstrable customer traction rely to a large extent on social proof," Prof. McCarthy says. "In other words, trust in the founders, which can sometimes present barriers for many groups including women, people who have not worked in tech before, or attended prestigious universities."

During the company's infancy, Melanie Perkins, a co-founder of design powerhouse Canva, encountered all three of these obstacles. Prior to securing the necessary funding to build their product, they were rejected by over a hundred investors. She described herself in an interview as "resolute, stubborn, and daring."

Large, diverse in personality founding teams

In addition, the researchers employed multifactor modeling to assess the comparative importance of personality traits in relation to other firm-level variables and the probability of achieving success. It was found that the personality of the founder was a more accurate predictor of success than both the industry (five times) and the age of the start-up (two times).

Additionally, they discovered that start-ups comprising unique and varied combinations of founder types—for instance, an extroverted "developer," an imaginative "leader," and an adventurous "engineer"—had considerably greater chances of success.

"Firms with three or more founders are more than twice as likely to succeed than solo-founded start-ups," says Dr Fabian Stephany, co-author of the study from the Oxford Internet Institute, University of Oxford. "Furthermore, those with diverse combinations of types of founders have eight to ten times more chance of success than single founder organisations."

"While all start-ups are high risk, the risk becomes lower with more founders, particularly if they have distinct personality traits," Professor McCarthy asserts. "Largely founding a start-up 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."

According to the researchers, the results can provide valuable insights for policymakers, investors, and entrepreneurs, as well as aid in the development of more robust start-ups that are capable of generating greater innovation and influence.

"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," according to Prof. McCarthy.

Sam Altman, cofounder of OpenAI and former leader of the illustrious Y-Combinator startup accelerator, stated in a Stanford University lecture that "cofounder relationships are among the most vital in the entire organization."

Furthermore, the implications of the findings extend beyond founder-led organizations, underscoring the advantages of team diversity in terms of personality. Numerous industries, including construction, engineering, and the film sector, depend on cross-functional, project-oriented teams that frequently consist of newcomers and possess numerous attributes commonly associated with start-ups.

"There are lessons here for organisations of all kinds about the importance of having a diversity of personality types in teams, which can lead to stronger performance and impact," Professor McCarthy asserts.

Similar to how data-driven occupation-personality maps can serve as valuable career guidance tools, insights into the personality traits exhibited by successful entrepreneurs can assist individuals in evaluating the suitability of pursuing a career as a founder.

"It's not part of this study, but we estimate 8 per cent of people worldwide may have personality traits that could make them successful founders," according to Prof. McCarthy. "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."

Journal Reference: Paul X. McCarthy, Xian Gong, Fabian Braesemann, Fabian Stephany, Marian-Andrei Rizoiu, Margaret L. Kern. The impact of founder personalities on startup success. Scientific Reports, 2023; 13 (1) DOI: 10.1038/s41598-023-41980-y