Innovation from 'User Entrepreneurs'
Last week, the Kauffman Foundation released a report about "user entrepreneurs”—those who have created innovative products or services for their own use, then subsequently founded firms to commercialize them.
The study, “Who Are User Entrepreneurs?” reveals, among other things, that user entrepreneurs have founded more than 46 percent of innovative startups that have lasted five years or more, even though this group creates only 10.7 percent of U.S. startups overall. In the first study to quantify the prevalence and characteristics of these founders, the report identifies how the firms they start compare to other U.S. startups in terms of revenue growth, job creation, R&D investment and intellectual property.
Three particularly interesting patterns emerge:
- User entrepreneurship appears to be particularly common among innovative startups, and a high fraction of professional- and end-user entrepreneurs receive venture capital financing. Almost 6 percent of end-user entrepreneurs across all industries reported receiving venture capital in their first six years of operations.
- Professional-user entrepreneurs seem to possess greater amounts of and richer human capital relative to other types of entrepreneurs. Their firms also seem to prosper with respect to revenue generation and were more common in the high-tech industries.
- End-user entrepreneurship may be a particularly attractive path for women and some minority groups. Although end-user entrepreneurs do not appear to possess greater human capital compared to other types of entrepreneurs and were different with respect to comparison groups, again a relatively high fraction of these firms reported receiving venture capital financing.
The authors compared three types of user entrepreneurs – end-user entrepreneurs (those who developed products or services for personal use); professional-user entrepreneurs (those who developed products or services for business use); and hybrid professional-/end-user entrepreneurs – with other "innovative" U.S. startups that had performed R&D during their first year of operations, and with U.S. startups in general. The findings draw on data from the Kauffman Firm Survey longitudinal study tracking nearly 5,000 firms founded in 2004.