From VentureWire Alert, Tuesday, May 27, 2008:
Some venture firms place great importance on having a start-up’s founder around to drive a company forward. But a new study suggests that emphasis may be misplaced.
The study, “The Horse or the Jockey? Evidence from Nascent Firms where a Founder Dies,” contrasted the performance of a set of new companies in Norway where the founder had recently died versus a set of companies where the founder was still alive.
Looking at a number of measures of company health, it found that the performance of the companies whose founders had died was only slightly inferior to companies whose founders were alive and well.
For instance, companies whose founders had died were five percentage points less likely to survive the first four years of operations after the death of the founder. They also became less profitable, but only during the time period right around the founder’s death, suggesting that the death resulted in “an adjustment cost rather than a permanent drop in profitability,” the author, Hans K. Hvide of the University of Aberdeen Business School, wrote.
He failed to find any effect on other variables like sales or asset growth. “Overall, the results suggest that the entrepreneur’s importance as a jockey to the nascent firm is quite limited,” Hvide wrote. “Once firms are set up, the founder seems to be substitutable.”
Hvide cautioned against interpreting the study as evidence that a company founder isn’t important at all. Rather, he wrote, “the results suggest that the founder’s role as a creator and visionary prior to the start-up date is much more important than the role as a jockey.”
Hvide’s sample, which looked at companies started up between 1996 and 2003, included more than 12,000 founders who were still alive and roughly 200 who had died.
A copy of the paper can be found here.