We often hear that early stage investors bet on the jockey, not the horse. Many investors believe that a good founder can make any business work. So, what happens when you try to quantify that je ne sais quoi? How do you account for the personality traits of founders of billion dollar companies? At Fundr, we’re quantifying the evaluation of early-stage startups, including the personality of the founders leading them. And there’s real science behind it.
Exploring personality profiles can be a way of identifying and optimizing work preferences, team composition, and outputs for founders and investors. The basis of our personality assessment is the Big 5, a multidimensional approach towards defining personality by measuring Openness, Conscientiousness, Extraversion, Agreeableness, and Neuroticism, or OCEAN. The OCEAN framework and the Big 5 model has been the predominant method of business personality assessment since the 1980s.
In recent years, researchers have been exploring the connection between the Big 5 personalities and entrepreneurship to answer deep questions about business owners: What personality traits do entrepreneurs have? How do those traits differ from other ambitious professionals? Can personality traits predict success?
Zhao, Hao, Seibert, and Scott E. (2006) find that entrepreneurs and managers differ significantly in their Big 5 traits - entrepreneurs generally score higher on Conscientiousness and Openness and lower on Neuroticism and Agreeableness. Contrary to the Western idea that founders have larger-than-life personalities, extraversion has no impact on whether someone is a successful entrepreneur. This makes sense when you think about founders. They not only have to be open to new ideas and be willing to fight for those ideas, they must also be responsible enough to see them through and weather the ups and downs that they’ll inevitably face along the way.
While many studies have reviewed the personality tendencies of entrepreneurs, including a 2017 meta-analysis published by Harvard Business School, the evidence linking personality types and business success continues to grow. Importantly, Fleeson and Gallagher (2010) worked to show the connection between the Big 5 personality traits and behavior. The team reviewed 20,000 reports of connections between personality traits and behavior over eight years. Their research finds that personality traits and behaviors are strongly linked, and additionally provides scientific evidence that personality traits can be predictive of behavior. We’re even starting to parse out the difference between successful founders and those who don’t go the distance. Further study by Zhou, Yang, Li, and Zhang (2019) finds connections between entrepreneurship success and personality levels - the founder’s relative standing on personality traits as compared to other founders.
The research opportunities, and policy and business ecosystem implications, continue to evolve. For Fundr, the use of personality assessment in the evaluation process for startup investment provides another opportunity for investors to deeply learn about founders, their businesses, and viability. Fundr’s layered assessment tools work together to give investors and startups a well-rounded view of the business, the founding team, traction, and more. If you are an investor or a startup founder who wants to be part of a new way forward in the startup ecosystem, join Fundr today!