Who Are User Entrepreneurs? Findings on Innovation, Founder Characteristics, and Firm Characteristics

“Who Are User Entrepreneurs?” is the first study to quantify the prevalence and characteristics of user entrepreneurs – those who have created innovative products or services for their own use, then subsequently founded firms to commercialize them – and identify 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:

• First, 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 professional-user entrepreneurs across all industries reported receiving venture capital in their first six years of operations.
• Second, 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.
• Third, 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.

Several previous industry-level studies suggested that user entrepreneurs were the first to introduce many key innovative products and services into the commercial marketplace in industries as diverse as medical devices, juvenile products, and sporting goods. User entrepreneurs have founded many well-known and successful companies, including Yahoo!, Black Diamond, and Medtronic. Firms founded by the three user entrepreneur types also differed from U.S. startups overall, and from one another, in terms of market sectors, revenue, financing methods, and intellectual property ownership.