An Entrepreneur Who Manufactures Entrepreneurs; A personality test is the first step for a student applying to the Founder Institute, which offers a kind of entrepreneurial immersion education

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November 13, 2013

An Entrepreneur Who Manufactures Entrepreneurs

By IAN MOUNT

Conventional wisdom holds that some 90 percent of start-ups fail. After years of observation, Adeo Ressi — a serial entrepreneur who founded TheFunded.com, an online community where entrepreneurs rate investors; Methodfive, a website developer; and Total New York, which became AOL Digital Cities — concluded that the high failure rate was the result of the wrong people starting businesses and not getting the right training.In 2009, Mr. Ressi started the Founder Institute to teach the basics. Unlike other incubators, the Founder Institute doesn’t take students who already have a company. Instead, applicants are chosen through a personality test. Those accepted learn the process and develop their ideas through h a mixture of workshops and what might be called entrepreneurial immersion. The program has opened in 60 cities around the world and charges a sliding scale, from nothing at a Johannesburg scholarship program to about $1,000 in the United States. It also takes a 3.5 percent stake in the companies started by its students.

In a conversation that has been condensed and edited, Mr. Ressi, 41, said that more than 1,000 companies had come out of the program, which he said had flipped the failure rate to 10 percent from 90 percent and created 10,000 jobs. His goal is to create 20,000 jobs a year by 2020 and to “globalize Silicon Valley.”

Q. You try to identify potential entrepreneurs through personality testing. What do you look for?

A. There are a number of traits that combine to create entrepreneurial potential. We find that openness coordinates very well with successful entrepreneurs. The more open-minded you are, the more you see the world as it actually is. The more closed-minded, the more you see the world as you want it to be. An open-minded person running a business might catch a problem faster than a closed-minded person. And when they identify a problem they can fix it much faster.

Q. In comparing yourself to start-up accelerators like Y Combinator and 500 Startups, you have said that while they make jewelry, you mine diamonds. What do you mean?

A. The Founder Institute takes people right when they are taking the first steps to launching a business. We help them launch the business and become full-time entrepreneurs. Most other programs take founders who have already established companies. The inputs to most incubators today are the output of the Founder Institute.

Q. Why start prelaunch?

A. Because we’re dealing with people at the point of inception, we can help them avoid mistakes before they are made. Start-ups often die in the first 18 to 24 months because of formative mistakes, like choosing a bad co-founder or the wrong corporate entity or an inappropriate platform. Ninety percent of the companies the Founder Institute has created are alive because we’ve helped them avoid those mistakes.

Q. Ninety percent? Really?

A. We’ve recently helped launch our thousandth company and about 10 percent — 116 — are dead. Another 15 percent — 146 — are hibernating or being run by people still at their day job. The 75 percent of our businesses that aren’t dead or hibernating are producing jobs.

Q. Once you have identified likely entrepreneurs, what do you teach them?

A. Our role is not to teach them but to condition someone who has the traits to become a successful entrepreneur. We essentially give them the types of work that an entrepreneur would do and we put them in the kinds of situations that an entrepreneur would find himself in. And we increase the intensity over time and manage that transformation from an employee to an entrepreneur.

Q. How do you do that?

A. A lot of times a company’s initial employees are a very interesting and diverse group of people. We try to replicate what a founding team would look like and we place these entrepreneurs in those founding team environments. We create working groups with four or five peers, and they meet multiple times per week to discuss their progress in building their business. These groups act like a founding team because they help one another build their businesses.

Q. When you say employees can be interesting and diverse, do you mean difficult and contentious?

A. There is a saying in entrepreneurship that your early employees are all commandos. Commandos are people who can do almost everything well: emails, strategy, code, design. Founders are also often commandos. So these working groups resemble closely what your company will look like over the first 16 to 24 months of existence. Are they super easy to deal with and friendly? No. They are usually supersmart and hardworking, and they usually don’t suffer fools very well. So you have to manage your working group like you’ll manage your early employees and that’s not going to be easy. But if you don’t have experience doing it, you’re going to fail.

Q. You also have C.E.O. mentors teach subject workshops. How did you develop your curriculum?

A. I asked members of TheFunded.com, who are all C.E.O.’s, to give me some feedback. About 2,000 C.E.O.’s participated. Then we logically arranged those topics, and that became the first curriculum. When we ran that curriculum, we realized there was a lot of duplication in it, so we ended up merging a bunch of topics and that became version 2.0. In version 3.0, we modernized the curriculum. A few years ago, social media wasn’t critical to your success but today you really need to factor it in.

Q. There’s got to be a downside to working with pre-company entrepreneurs.

A. The downside is that the commitment level in someone quitting their job and starting a company is low, even when they say they are 100 percent committed. When you push them, they quit entrepreneurship. So we have a number of strategic inflection points that make founders in the program decide if they really want to be an entrepreneur. As a result, we see that 65 percent of those who start the program drop out and go back to their previous lifestyle. You have to kiss a lot of frogs to find a prince.

Q. What happens to the 65 percent who drop out?

A. For some, the entrepreneurial lifestyle is too much of a sacrifice or others don’t have a good idea they’re passionate about. It’s not like they’re dropping out and saying, ‘The program is terrible. I’m going to start my own company.’ The vast majority go back to the corporate world.

Q. You’ve launched in 60 cities, many of them in nontraditional entrepreneurial environments like Colombia and Vietnam and Saudi Arabia. Why?

A. We’re not a money-driven organization. We’re mission-driven. I firmly believe that 2 percent of the population has the “entrepreneurial genes,” and I believe it’s our mission to help them launch meaningful and enduring technology companies, wherever they are. If it’s on an island off the coast of Sumatra or in Riyadh or Santiago de Chile, if we can help them achieve their dream, we’ll do it.

Q. How’s Riyadh doing?

A. Riyadh’s not a good example because we haven’t launched there yet. It’s very hard because we’re trying to let women in the program, which is creating setbacks for us. But we’re working on it.

Q. What percentage of your participants are women?

A. Thirty-six percent of our graduates are female, up from 14 percent when we started.

Q. How much do you adapt your program to individual countries?

A. Zero. We translate it. We’re in a lot of languages. But we don’t localize the program. Because the program is the same everywhere, a graduate in Vietnam or Colombia or South Africa is the same quality as someone in Silicon Valley. But the pool of entrepreneurs in that culture is of much lower quality, so they are exceptional there. Companies that come out of these foreign markets dominate their local markets.