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Innovation Begins at Home for User Entrepreneurs

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Nearly half of innovative startups are founded by "user entrepreneurs," a new study has found. These are firms created by entrepreneurs who developed innovative products or services for their own use and then went on to found firms to commercialize them. They leave an outsize mark on the economy; even though they create only 10.7 percent of startups overall, they account for more than 46 percent of innovative startups that have lasted five years or more.

The study, released by the Ewing Marion Kauffman Foundation, a nonprofit group that focuses on entrepreneurship and innovation, quantifies the prevalence and characteristics of user entrepreneurs and indentifies how their firms compare to other U.S. startups in terms of revenue growth, job creation, research and development investment and intellectual property.

The study 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 were based on data a study tracking nearly 5,000 firms.

User entrepreneurship appears to be particularly common among innovative startups, and a high fraction of professional- and end-user entrepreneurs receive venture capital financing, the study found. Almost 6 percent of end-user entrepreneurs across all industries reported receiving venture capital in their first six years of operations.

In addition, 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, the study data showed. 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.

"Users have ignited technological change in industries ranging from medical devices to sports equipment to juvenile products," said study co-author Sonali Shah, an assistant professor at Foster School of Business, University of Washington. "In many cases, users, not producers, have the best information, and their incentive is to build something better for their own use. As a result, they are able to create truly novel innovations. When they commercialize these innovations, we all benefit."


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