Differences Between Main Street vs. Silicon Valley Entrepreneurs
In order to understand how regulation may impact Main Street vs. Silicon Valley entrepreneurs in different ways, it is important to first draw out some differences in their respective group characteristics and traits.
Growth and Innovation
Arguably the most important difference between these two groups is that Main Street entrepreneurs do not generally grow and innovate their businesses as Silicon Valley entrepreneurs do. Technology startups are often thought of as “high-growth” potential because the aim of the initial founders and of the startups is to substantially grow the business, typically within 7-10 years. In fact, the goal of venture capitalists investing in startups is to achieve returns in the order of 20% or more per year within a 10-year period (Hargadon and Kenney 2011; Niles 2018). With that 7-10-year time frame, startups generally either go public or become acquired. On CrunchBase, which is a database of technology startups, acquired companies were an average of seven years old, while companies that went public were around 8.25 years, on average.[46] However, biology technology (Biotech) and some medical technology (Medtech) companies have much longer timespans, around 15-25 years of age. A more “standard” Silicon Valley startup, such as advertising technology (Adtech) was found to have an average lifespan of six years, at which point, 82% of startups are acquired.[47] Fewer than 5% of Adtech startups exist past 10 years of age.
in their report on technology startups in the United states, Wu and Atkinson (2017, 7) explain that: “In general, technology-based startups have high-growth potential, in both employment and revenue, as a result of them seeking to develop innovations that have a clear competitive advantage in the global market.” Hall and Woodward (2010), using a dataset of venture-backed startups in the United States, find that startups attract entrepreneurs who have expectations and beliefs about high payoffs from their products.
Haltiwanger et al. (2010) and Haltiwanger (2011) also find that startups exhibit an “‘up or out' dynamic: they have a high probability of exit, but those that sur vive exhibit rapid growth on average” (Haltiwanger 2011, 123). Furthermore, almost all venture capital firms will only fund startups that have potential to takeoff within a time period of seven years[48]—thus, investing in startups that have this growth potential.In contrast, Hurst and Pugsley (2011) find that most “small businesses” start small and stay small in their entire life cycle. Furthermore, these small businesses do not innovate along any obser vable margin.[49] While Hurst and Pugsley (2011) do not make an explicit distinction that these small businesses are in fact “Main Street” entrepreneurial ventures, the descriptions of the vast majority of small businesses that they analyze seem to capture this concept of mom-and-pop shops (sometimes referred to as “brick-and-mortar” or “local businesses”).[50]
Supplementing a survey to understand the motivations and intent of these entrepreneurs, Hurst and Pugsley find that most of these small businesses start with no expectations of growth or innovation. They explain (2011, 75):
When asked at the time of their business formation, most business owners report having no desire to grow big and no desire to innovate along observable dimensions. In other words, when starting their business, the typical plumber or lawyer expects the business to remain small well into the foreseeable future and does not expect to innovate by developing a new product or service or even to enter new markets with an existing product or service.
Furthermore, as discussed above, Schoar (2010) also shows these differences among subsistence entrepreneurs, who become entrepreneurs in order to provide subsistence income, and another group as the transformational entrepreneurs—those who aim to create large, vibrant businesses that grow beyond the scope of an individual’s subsistence needs. Aulet and Murray (2013) also made this distinction between the “small-and- medium” enterprises vs. the “innovation-driven” enterprises.[51] The main category distinctions in both the Schoar (2010) and Aulet and Murray (2013) is that one group aims to start a business as a way to make a living and with no real intention to grow beyond serving the local market, while the other group aims to create high-growth businesses reaching national or global markets.