Too rich or too poor for success? A middle-income background is often an advantage for business founders

October 29, 2013 3:15 pm

Too rich or too poor for success?

By Jonathan Moules

Keith Wymer’s father was a “journeyman window clean­er” when he was born and his mother worked in a factory. Two years later, the family took an assisted-passage flight to Canada to take up unskilled manual work, trying to better themselves. By the time he was 11, in 1965, they were back in a freezing London flat with no television, telephone or car. The experience made young Keith determined to work his way out of it.“I was miserable,” he says. “I had grown up in the bright and shiny new world where even families like mine would have a phone and a car and even a house. I cried for months as I tried to get used to the awful wet weather. I was really bitter about this and found it hard to settle.”

After leaving full-time education with few qualifications and trying his hand at sales jobs, Mr Wymer was persuaded by a friend to set up his own business, Hotlines Telemarketing. Started with a £6,000 redundancy cheque, it became a leading telesales trainer. Some may not thank Mr Wymer for his great innovation: pioneering the use of Indian call centres to phone people in the UK. But when he sold Hotlines Telemarketing 10 years ago for £2.1m, with a turnover of £3m, he was employing 300 people in London, Glasgow and Mumbai.

Would Mr Wymer, now a serial entrepreneur, have achieved this much if he had been from a more comfortable background? Or would more financial security have helped him to achieve more?

Research suggests that Mr Wymer might indeed have done better if his background had been slightly wealthier – but not too wealthy. Vivek Wadhwa, the Indian-American technology entrepreneur and academic, recently interviewed 549 founders for the Ewing Marion Kauffman Foundation, the US-based entrepreneurship research centre. When it came to questions of family background, he found that the most successful entrepreneurs tended to come from middle-income backgrounds (see panel).

The key was having enough support to be able to focus on the business, but not so much that the urge to keep grafting is lost. Mr Wadhwa says: “To succeed you need both the motivation and the connections. If you come from a very rich family, you will have advantages but I would argue you have less motivation [to start a business].”

His view is echoed by David Giampaolo, chief executive of London-based investor network Pi Capital. “I don’t like to invest in people who have zero net worth if that means they are going to be worried about where their next meal comes from,” he says. “But at the other end, it is hard to be as driven and as hungry and as motivated and tenacious if you have, say, £25m in the bank.”

Roots of the matter

Vivek Wadhwa interviewed 549 US entrepreneurs in a wide range of sectors about family background and motivation:
●Less than 1 per cent said they came from extremely rich or extremely poor backgrounds.
●71.5 per cent said they came from middle-class backgrounds.
●21.8 per cent said they came from upper-lower-class families (blue-collar workers in some form of manual labour).
●The fathers of 50.1 per cent of the company founders held bachelor’s or advanced degrees, as did 33.9 per cent of their mothers.
●95.1 per cent of respondents held bachelor’s degrees, while 47 per cent had more advanced degrees.
●51.9 per cent were the first in their family to launch a business; 38.8 per cent had a father who had started a business, while 6.9 per cent had a mother who had started a business.

Source: The Anatomy of an Entrepreneur, Ewing Marion Kauffman Foundation

The idea that those from middle-income backgrounds are best at starting businesses does not always seem to hold in practice, however. Mr Wadh­wa, for instance, recently argued that Silicon Valley had become beholden to young men from privileged backgrounds. His comments sparked debate on social media.

“If you look at the boards of companies like Twitter, it is a boys’ club that stacks the decks in the favour of an elite group of people, mostly graduates of elite universities,” he says. The problem, according to Mr Wadh­wa, is that tech investors expect entrepreneurs to mirror them. “They know what a successful tech company will look like, but it always looks like them,” he argues.

In the US, some of the most famous founders of recent years, from Bill Gates to Mark Zuckerberg, have indeed had wealthy backgrounds and a good college education. In the UK, one of the most well-known entrepreneurs is Sir Richard Branson, the privately educated son of a barrister.

Yet there are plenty of examples of entrepreneurs rising from humble circumstances. Rapper Shawn Carter, better known for his stage name – Jay-Z – grew up in the public housing projects of Brooklyn and was last year estimated to be worth $500m. Lord Sugar, founder of computer maker Amstrad and presenter of BBC Television’s The Apprentice, had a modest upbringing in east London.

Self-made entrepreneurs face an intriguing challenge when they come to starting a second business. They do not always realise how privileged they have become, says Mr Giampaolo.

“I have heard too many times people say that money is not going to change them,” he says. “What they don’t realise is that the expensive family holiday they never had, the boat, the plane – it all changes the way they go into their next business.”

Improved circumstances do not render someone unable to create a successful venture, Mr Giampaolo says, but it may affect their hunger for success. “What I look for is an alignment of interests between the investor and the entrepreneur,” he says. If the entrepreneur wants to do well, Mr Giampaolo will do well.

At the other end of the scale, unemployment can be a spur to success. Syd Nadim founded London-based digital marketing agency Clock in 1997, aged 23, with a £3,000 loan and a £500 grant from the Prince’s Trust, Prince Charles’s charity for young people, after being made redundant twice. “Desperation was a very good motivator,” Mr Nadim says.

Having money in the bank or wealthy family members to call on would have helped, he says, but he also argues that what really makes a difference is an ability to make connections and build networks.

Jamie Waller, meanwhile, was born in his parents’ two-bedroom rented flat above a shop in London’s East End. He quit formal education at 16 with no qualifications but he proved a natural at business.

Starting with a window cleaning business, he progressed from selling cars on a disused plot of land to a stint as a self-employed bailiff. He now owns two businesses, JBW, a debt recovery operation, and AR-12, an IT services company. These were started 10 years ago with £4,000 of credit card debt and today have a combined turnover of £10m, generate net profits of £2m and employ more than 130 people.

He does not regret the lack of parents with money or a place at an elite university: “Growing up with very little, living in rented accommodation and always wanting what we could not afford was what made me start a business in the first place.”

Mr Waller notes that, while few of the founders he knows are from privileged backgrounds, some ambitious entrepreneurs among his peer group play down their roots in order to make their success look all the more meteoric.

“It’s our own little entrepreneur league table of success,” he says. “The poorer the background, the higher in the league table of respect you climb. It is rare that you hear an entrepreneur tell a story about how their daddy’s golfing partners made them who they are today.”

The debate about economic background will continue – but there is broad agreement that hunger is key. Apple co-founder Steve Jobs once told graduating students at Stanford University to “stay hungry”; he could have added that you need to be hungry in the first place.