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By Bobbie Gossage, Illustration by Script & Seal, from The May 2015 Issue of Inc. Magazine "Thinking about naming your startup after yourself? You may want to reconsider. A recent MIT study found that companies named after the founder were less likely to grow. The study's authors, Scott Stern, a professor at MIT's Sloan School of Management, and Jorge Guzman, a doctoral candidate there, set out to dissect startup success. They analyzed more than 800,000 companies that had launched in California from 2001 to 2006 and looked at what distinguished the ones with growth (as a proxy, those that had an IPO or were acquired within six years of founding) from the rest. Some of the results were surprising. The trait most correlated with rapid growth? Incorporating in Delaware. Businesses that did so were 35 times more likely to succeed. Of course, the state is known for its business-friendly laws, but "it's a statistical relationship, not a causal relationship," stresses Guzman. "Incorporating in Delaware doesn't make you more successful." He speculates that the Delaware effect may have more to do with funding. "A lot of VCs require it," says Guzman, "and 50 percent of publicly traded firms are incorporated in Delaware. Bigger firms tend to be in Delaware." And, it seems, so do firms that aspire to be big."
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GROWTH WATCH 3,593% 2,502% MADE FOR SPEED A new study on what successful companies have in common T had launched in California from 2001 to 2006 and looked at what distinguished the ones with growth (as a proxy, those that had an IPO or were acquired within six years of founding) from the rest. Some of the results were surprising. The trait most correlated with rapid growth? Incorporating in Delaware. Businesses that did so were 35 times more likely to succeed. Of course, the state is known for its business-friendly laws, but “it’s a statistical relationship, not a causal relationship,” stresses Guzman. “Incorporating in Delaware doesn’t make you more successful.” He speculates that the Delaware effect may have more to do with funding. “A lot of VCs require it,” says Guzman, “and 50 percent of publicly traded firms are incorpo- rated in Delaware. Bigger firms tend to be in Delaware.” And, it seems, so do firms that aspire to be big. —BOBBIE GOSSAGE HINKING ABOUT NAMING your startup after your- self? You may want to reconsider. A recent MIT study found that companies named after the founder were less likely to grow. The study’s authors, Scott Stern, a professor at MIT’s Sloan School of Management, and Jorge Guzman, a doctoral candidate there, set out to dissect start- up success. They analyzed more than 800,000 companies that 618% 87% 63% CORPORATION 70% ILLUSTRATION BY SCRIPT & SEAL 5% IN DELAWARE INCORPORATED 536% THE DELAWARE EFFECT Incorporating in Delaware 50% associated with growth. 39% was most closely — And companies with patents and Delaware 1% roots? They were GROWTH COMPANIES a whopping 195 PATENTS times more likely to succeed. 37% 14% SHORT 92% NAME TO GOOGLE THE BETTER 26% — YOU WITH NONGROWTH COMPANIES Companies with names that were two words or shorter 1% had a better chance TRADEMARKS of success. And forget LLCs. A corporation was more than six times as likely 7% –62% to take off. 1% HIGH-TECH INDUSTRY THAN JUST MORE high-tech sector 3% — TECHNOLOGY –76% 15% LOCAL Being in a (aerospace, IT, and biotech) was LIKELIHOOD correlated with growth, but other BUSINESS A COMPANY factors, including WILL GROW securing patents WHEN THESE THINKING TRAITS ARE or trademarks TOO SMALL 2% PRESENT PORTIONS OF — within a year of Businesses founding, were 10% FOUNDER more important. that had mostly local NAMED AFTER clients were COMPANIES not as likely WITH TRAITS THESE to grow. INC. - MAY 2015
