Sheena Iyengar in Harvard Business Review: Startups That Seek to "Disrupt" Get More Funding Than Those That Seek to "Build"

Andrew Young — December 01, 2017

In a new article co-authored by Dana Kanze, Network member an S.T. Lee Professor of Business at Columbia Business School Sheena Iyengar explores the impact of society’s fascination with disruptive innovation on startup funding. The piece, “Startups That Seek to ‘Disrupt’ Get More Funding Than Those That Seek to ‘Build,’” shares findings from a study of 950 startups’ LinkedIn profile data, Crunchbase funding data, full-time employee counts, and average employee tenures.

Among other findings, Iyengar and Kanze learned:

“Although our data set revealed that builder-led startups were nearly ten times more common than disrupter-led ones, ‘disrupter’ startups received 1.7 times more funding, on average, than ‘builder’ startups. In fact, the degree to which a startup team valued disruption (which we based on its average composition of ‘disrupter’ vs. ‘builder’ team members) significantly predicted the amount of funds that the startup raised. Controlling for startup age, industry, operating status, and other factors that can affect funding amounts (like entrepreneur age, gender, degree of work experience, and whether or not they are serial entrepreneurs), an increase in team disruptiveness predicted an additional $38.3 million in aggregate funding raised by the startup.”

A follow on experiment uncovered additional insight:

“In order to further understand how disrupters and builders differ when it comes to attracting resources, we conducted an online experiment on 100 Amazon Mechanical Turk participants (81.5% with previous startup and/or investing experience). We had them read a company description that featured either disrupter or builder language, holding all other company information constant. Then we asked these individuals how much hypothetical funding they would invest in each startup and found that they allocated nearly twice as much funding to the disrupt condition ($58,018) as they did to the build condition ($29,545). We also asked participants to imagine themselves as prospective new hires and to evaluate how the company makes them feel. We learned that the description of the disrupter startup made them feel significantly more excited, energized, independent, and inspired than the builder startup.”

Read more here.