The Right Advice at the Right Time Boosts Chances of Startup Survival

Professor Aaron Chatterji studies entrepreneurial performance

April 10, 2018
Professor Ronnie Chatterji With Students

Aaron Chatterji is interested in how innovation becomes entrepreneurship, and how entrepreneurship yields success.

That led the associate professor of strategy at Duke University’s Fuqua School of Business to study the explosive growth of the Indian tech sector. He ran a huge field study with more than 100 startup founders in Bengaluru in 2016 that was designed to see how and when advice best boosted their chances of success.

Chatterji expands on his research in this Fuqua Q&A.

What kind of advice matters and measurable effects can it have?

We know that our peers can affect us, so if you are a startup founder, your peers can affect how you think about your own company and what strategies you pursue. It’s also widely known that management quality affects firm performance, and that the resulting performance gap persists despite efforts to improve founders' business skills. We wanted to know how founders and firms can best implement management practices that have the greatest chance of leading to success.

Our findings suggest founders who receive help from active managers experience significant employee growth two years after the intervention, and are more likely to survive. We found peer advice especially shapes business performance for firms led by founders lacking business education or incubation. `Good' and `bad' advice can greatly influence entrepreneurial performance when there’s a lack of formal business training.

How did the experiment work? How did you get at these findings?

To study which founders and firms can learn and implement management practices, we conducted a randomized field experiment with more than 100 high-growth technology firms who received advice from founders who varied in their managerial experience. To do that, we co-sponsored a three-day boot camp for entrepreneurs on the corporate campus of the Indian tech giant Infosys in Mysuru with iSPIRT, a software products association.  For the startup founders, it was an educational program on strategies to grow their businesses. It was a successful event and we got a lot of good feedback. But for us, it was also a laboratory to study entrepreneurship.

It’s novel research because usually you don’t have 100-plus startups in one place, and it’s very expensive to run these conferences. We wanted to use this entrepreneurial boot camp for one of the largest-ever laboratories to study high-tech entrepreneurship.

We collected lots of feedback at the event and followed up with post-surveys, trying to find out whether they changed their practices, whether they raised money or spent more time on different activities, and we correlated that with who they met. We were interested in who they talked to and how what they learned impacted their business. We wanted to know how important these boot camps are for their dissemination of knowledge, and once you create these networks in an ecosystem, how knowledge diffuses across those in a way that might affect entrepreneurial performance.

What made the tech sector in India the right setting?

Several factors. There have been a couple of high profile companies that have reached over $1 billion valuation, such as Flipkart, that are becoming household names. Also, India has a large domestic market, like China. Some of the startups that launch in India might be similar to the ones we have here in the U.S., but they can get huge domestic market share and become so valuable that they don’t necessarily need to leave India, so we need to go there to study them. Plus India has a high concentration of high-tech talent, some educated at home and some who came home after emigrating abroad. That gives Indian startups a talent pool to draw from. Finally, the government is working hard to promote entrepreneurship and has talked a lot about it, which can potentially create a nurturing environment for startups.

The objective is to understand what catalyzes high-growth entrepreneurship. We know that Silicon Valley, for example, is a hub for entrepreneurs, but it’s hard to know why people are working on one thing or another. Basically we want to understand something more about the entrepreneurial ecosystem in India as it relates to tech and startups. There’s been all this great work on technology startups in clusters all around the world, but we don’t know all that much about India and it’s clearly a major center.

We’re continuing to extract findings from the data that will be useful to entrepreneurs and innovators everywhere, as well as anyone interested in the dynamic entrepreneurial landscape in India in particular.

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