(left to right) Emily Weiss of Glossier, Tony Xu of Doordash, Neil Blumenthal of Warby Parker – Photos: Instagram/@emilyweiss; Twitter/@t_xu; Warby Parker
Is retail losing its entrepreneurial spirit?
A new report from small-business lending platform OnDeck finds consulting, finance and technology among the top sectors for creating future business founders. Retailers, by comparison, ranked low.
The study was based on an analysis of LinkedIn profiles of the top 100 firms across the states.
Among retailers, the top four were Saks, which saw 3.34 percent of its former employees start their own businesses, followed by Nike (3.24 percent), Tiffany (3.13 percent) and Neiman Marcus (2.93 percent).
That compares to Bain & Co., which was found to produce more startup founders than any other business, with 13 percent of former staff leaving to start their own venture. Overall, six of the top ten businesses producing future business founders were consulting firms. The report stated, “The contacts and breadth of expertise a management consultant develops during their career make it an ideal proving ground for future business founders.”
Among finance companies, Goldman Sachs (5.92 percent) produced the most future founders, although a number of other firms also ranked high. OnDeck said, “Their prudent financial management, strategic thinking and risk calculation are all highly valuable when going it alone.”
The study noted that Jeff Bezos was formerly a VP at hedge fund D.E. Shaw before founding Amazon.com.
The tech sector, particularly known for its constant startup activity, was led by Twitter (6.27 percent), Yahoo (5.92 percent), Monster (5.79 percent) and Google (5.68 percent).
Executives with technology, finance and consulting backgrounds are leading many of the firms providing the technology driving retail’s digital shift. Doordash’s founder Tony Xu, for instance, was formerly at McKinsey.
In fact, many of retail’s hyped newcomers in recent years were founded by entrepreneurs that lacked strong retail backgrounds:
- Everlane was founded in 2010 by Michael Preysman, who had been investing in media and entertainment firms for the investment fund Elevation Partners.
- Glossier was founded in 2014 as a blog by Emily Weiss when she was a fashion assistant at Vogue.
- Warby Parker was launched in 2010 as co-founders, Neil Blumenthal and Dave Gilboa, were earning MBAs at the Wharton School of the University of Pennsylvania.
Discussion Questions
DISCUSSION QUESTIONS: Have the traits that drive entrepreneurial success in the retail space significantly changed over the years? Why do you think employees in the consulting, finance and tech sectors are much more likely to launch their own businesses than those in retail?
Poll
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Does anyone else find these anti-retail reports exhausting? I know plenty of independent retailers who launched their businesses with limited retail experience. Who cares? They are successful.
I sometimes wonder if silly studies like this don’t mostly serve as Bulletin Board material … to come to retail’s defense. (It’s a lot easier, than — say — refuting a study that claims retail is underpaid.)
I don’t know if retail is losing entrepreneurial spirit or if those naturally drawn to entrepreneurialism don’t seek out retail to start their careers. It’s no surprise that employees of investment banks, consulting and finance are most likely to launch their own businesses. Those careers attract a certain type of individual and many are exposed to the challenges facing companies across multiple industries and the technologies and processes that can or could address those challenges, a critical element of entrepreneurialism (problem solving). And finally, many of those people seeking those jobs develop both the means and the connections necessary to launch an entrepreneurial venture.
Large brands and retailers are forced to focus on maximizing earnings to satisfy their boards and investors, which is not the best breeding ground for an entrepreneurial mindset. This hasn’t changed over the years, but the greater availability of venture capital in recent years has allowed more people with creative business ideas to test and launch. Entrepreneurial thinking tends to come from people in roles and environments that value thinking outside the box and who understand the need to reinvest profits into future growth.
Innovation in technology and consulting has a lot more runway than in retail concepts.
I’m speculating that alums of the consulting and finance industries are exposed to sources of capital along with broad exposure to a lot of industries. This enables them to identify market opportunities — whether in retail or not — and to build out those businesses with human and other capital. I know a Goldman Sachs executive who eventually started a successful swimwear company, by identifying a niche and putting together a workable strategy.
As to the relative lack of entrepreneurs coming directly from retail, maybe one issue is the changing nature of retailing itself. Without harping on “the good old days,” I’d say that the business is more cautious and data-driven than in the past, with less risk-taking and experimentation.
Consulting, finance and tech have ALWAYS birthed new businesses — it is in the DNA of those sectors. Why? I think there are two core reasons: the amount of money paid in these sectors is (typically) a LOT more than, say, retail, giving professionals a personal financial cushion for starting something new AND these sectors are “networking heavy” — if you are ambitious you can leverage the connections made in these sectors into something different.
Retail cannot compete here. It is way too operational in nature. It is also way too risk averse — stemming from an “old school” approach to operations. It is difficult to take chances if you are running a multi-store chain — the risks are high if you fail.
What newly minted MBA out of (name a top ten business school) says “when I graduate I want to be a store manager”?
I wouldn’t say it’s losing it’s entrepreneurial spirit; it’s just changing. Retail and DTC brands are often born out of blogs and social influencers. For retail entrepreneurs today, it’s less about reselling someone else’s creation and instead creating your own product.
You ask the question like retail had previously been a fertile breeding ground for innovation. Within the confines of retail, for sure there have been people who have done innovative things. But this is a buy low/sell high business, driven by optimizing the costs incurred in between. The biggest driver of innovation in retail in the last 20 years is technology, in a space where few CIOs go on to become CEOs, even if they leave their last company to join a new one. Of course tech, finance, and consulting (which is really about advising on the other two) lead the way. Retail has been notoriously bad at internally fostering the kind of innovation that is paying off these days.
I would argue that the cost of entry for a new retailer is far higher than for someone who wants to build a new app or open their own consulting practice. Marketing, finding and running stores, managing fulfillment, buying inventory — lots of moving parts to manage, especially when you’re small and all those responsibilities fall to one or two people.
There’s plenty of innovation in the retail space. Both from existing “legacy” retailers (the best of whom are constantly reinventing their products, offers, and how they engage customers) and in the technology sector that supports retail. I submit the three floors of packed booths at NRF as evidence.
Retail has chased shiny baubles of tech for far too long. Finding entrepreneurial opportunity at retail requires that we walk away from expecting tech, by itself, to create significant opportunity. Instead, we need to seek retail opportunity by improving the whole of the shopping experience including products, stores, locations, and service.
Retail is hard work. It demands owners have an eye for fashion, deals, finances, personnel, and importantly retail math. Why are they there? Rewards can be wonderful. It is not a forty hour work week, no. But it can be more fulfilling than anything. Spoken by a guy who has been there.
The entrepreneurial spirit is alive and well (and thriving) for many retailers. Sure, as in any industry there are those operators unwilling to embrace change or feeling “stuck.” That said, I’m inspired every day by the heroes of retail who are Agile, Innovative, and Motivated. It is this AIM philosophy that separates the true winners from the losers — and I have no doubt that retail has many, many entrepreneurial-spirited leaders who are propelling their business toward Retail Tomorrow!
First of all, this isn’t the most rigorous survey methodology I’ve ever seen. Secondly it is based on how many former employees were grabbed by the entrepreneurial spirit. People leave consulting because they don’t necessarily think of it as a lifetime profession, so there is little surprising in the Bain statistic. If anything, it shows that established retailers offer careers people like to stick with. Is entrepreneurism dead in retail? Not based on empirical evidence. There were ~5 million new business applications filed last year, a fair number of them retail businesses. I know this isn’t as scientific as a study of LinkedIn companies, but it still seems pretty convincing to me.
As tech keeps empowering consumers, agile founders question then smash the inefficient, high-friction status quo. Successful entrepreneurs see systemic pain points and build business models around customer-centric solutions.
Consulting, finance and tech workers grasp the big picture, spot high-margin opportunities and love to solve problems. They make ideal entrepreneurs.
How can we possibly compare a company like Bain, that draws from the top 1% of the top 1% of … to a typical retailer This study seems like a strong candidate for the DUH! Award.
My (admittedly unsubstantiated) casual impression is that starting a business is easier than ever: sites like eBay and Etsy allow practically anyone to test the waters of retailing with little expense or effort; actually succeeding at it, of course, is a different matter.