Why Immigrants Are More Likely To Start Companies

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Why Immigrants Are More Likely To Start Companies

 



I came across an interesting article from the Seattle Times this week which cites a Duke University study.  The study found that 25% of the technology and engineering companies started from 1995 – 2005 in the U.S. had at least one senior executive (founder, CEO, President or CTO) that was born outside the United States.  The article was particularly timely as I just got back (less than 12 hours ago) from a trip to India.

The original article can be found here: http://seattletimes.nwsource.com/html/businesstechnology/2003508453_immigrant04.html

The article cites a lot of interesting data (including the fact that of the immigrant-backed startups mentioned, 26% have Indian founders/CEOs/Presidents).  It also talks about why these immigrants are important for the U.S. economy because of the jobs created and value produced.  However, one thing the article doesn’t talk a lot about is why the numbers of immigrants starting technology companies is so high.

Being an immigrant myself (I was born in India and spent a lot of my “formative” years there), I’ve thought about why it is that those that are foreign-born seem more likely to start companies.  Here are a list of reasons I think this may be the case.  Apologies if some of these thoughts are controversial or border on drawing stereotypes.  My intent is simply to try and seek patterns.

Why Immigrants Are More Likely To Start Companies
 
  1. Entrepreneurial Upbringing:  I think many immigrants in the U.S. have one or more parents that were entrepreneurs of some sort.  I’m not sure about other countries, but in India, the number of people that had nice, stable jobs in big companies was really small.  In fact, in all the time that I spent there, I knew very few people that had traditional “jobs” in big companies.  Most were doing something more entrepreneurial.  It stands to reason that those growing up in entrepreneurial environments may more naturally lean towards starting companies themselves.

  1. Circumventing Discrimination:  It’s possible that immigrants working in larger companies at one time or another felt discriminated against – or otherwise limited in their career growth.  As such, their “opportunity cost” for leaving a stable career behind may be lower than the average employee.  One of the attractions of startups is that you control your own destiny (to some degree) and the opportunity for being limited by the discrimination of others is lower.

  1. Higher Risk Tolerance:  Many immigrants come over to the U.S. with very little by way of resources.  As such, they may have less to lose than the average person.  Those with less to lose may be more likely to start companies as their risk tolerance is higher.

  1. Academic Intensity:  Going through high-school in India, I experienced a relatively rigorous academic environment – particularly when I was preparing for my 12th grade “board” exams.  Since competition for getting into University is fierce (particularly into medical and engineering programs), students take the standardized tests very, very seriously.  I’m guessing this is similar in other countries outside the U.S. as well.  It’s possible that this experience with long, intense hours makes for an easier “transition” to the startup culture which has a similar, grueling work-week.  Not sure about other people, but working on my first startup and spending 80+ hours a week working was not that much harder than my 12th grade board exam preparations.


What do you think?  Are there other factors at play that I missed?  Do you think that in the next 10 years, immigrants will continue to play a disproportionately large role in starting tech companies in the U.S.?  Would love to hear your thoughts in the comments.

Posted by admin_onstartups.com admin_onstartups.com on Sat, Jan 06, 2007

COMMENTS

Being an immigrant entrepreneur, I certainly find myself with a much higher risk tolerance now than I had before moving to the US. One reason is that I have much more confidence in my own abilities, after overcoming so much during the adaptation phase (language barrier, culture shock, the whole immigration process, etc..).

The other aspect is that it's actually quite easy in the US to start your own business. In France, just to be a self-employed freelance contractor, I had to fill out a mountain of paperwork with the administration and enroll in three or four different mandatory insurance programs. It makes it very hard for someone there to start something on the side an see where it goes.

posted on Saturday, January 06, 2007 at 11:49 AM by cedric


I think Mr. Wadhwa will agree with you also -- http://www.businessweek.com/smallbiz/content/sep2006/sb20060913_157784.htm

posted on Saturday, January 06, 2007 at 11:52 AM by gayatri singhania


I agree with you 100%. It's not only about being an enterpreneur, it's generally a quest for a better life.

Most immigrants don't come to another country because life on the other side was too good. Whether it's starting a business, most immigrants I've met are determined to make something out of themselves, no matter what.

posted on Saturday, January 06, 2007 at 1:22 PM by Alexander Kharlamov


I think the cultural factors in the 'host nation' that Cedric cites are very important.

America's founding principles encourage enterprise; immigrants to Europe experience a very different environment. And I also feel 'circumventing discrimination' may probably be a stronger driving force than in the US.

posted on Saturday, January 06, 2007 at 1:48 PM by Shefaly


Being an immigrant from Switzerland I'm in a little bit of a different situation and so are actually a lot of my friends. We are more looking for something new and exciting, rather than just a better life. But it both cases, becoming an enterpreneur fits totally into the picture. What could be more new and exciting than starting your own company?

posted on Saturday, January 06, 2007 at 2:08 PM by Remy Blaettler


Immigrants have the opportunities to easily tap into the best from both worlds, for example, cheap labor resources from the original countries and matured market in the US. Being fresh immigrants, they tend to spot things that are missing in either side naturally.

That help to compete with the natives who don't have the oversea knowledge advantage.

posted on Saturday, January 06, 2007 at 2:57 PM by Minh Tran


As an immigrant from Indonesia in the UK, I don't feel entrepreneurial at all. Here in the UK, even though they've recently introduced a points-based immigration system, and I'm one of them, you would try to get a stable job first, because the immigration services expects you to. Maybe after we became permanent residents then the pressure lets off a little, we can be a bit more riskier.

posted on Saturday, January 06, 2007 at 3:02 PM by Perry Ismangil


I think in some part it's a numbers game. India and China each have over a billion citizens. A certain percentage of them are going to be high achievers - intellectually, academically, and otherwise. And with a few billion people to choose from, the resulting talent pool will be large.

The high achievers are going to have a better chance to emigrate or study abroad than other people just because of their talents, and the US is a common destination.

So now you have a country (the US) that has attracted all this extraordinary talent. And the country has the laws and infrastructure that fosters entrepreneurship. So what follows next is just a logical extension of the law of averages for those who are above average.

posted on Saturday, January 06, 2007 at 3:56 PM by Nick Hebb


I think another point might be plain old necessity, essentially every immigrant migrates for a reason (i.e. better life, education, etc.) and must eventually justify the reasons for migrating considering the relative cost of migrating might be quite high for most people.

Entrepreneurial success is one possible acceptable reason, particularly for immigrants do didn't have to migrate in the first place (i.e. from wealthy families in their home countries, better business network contacts, established name recognition, etc).

Secondly, perhaps they had an entrepreneurial upbringing as you pointed out, but that could affect the individual negatively if the entrepreneurial endeavors were failures.

Lastly, an interesting study would be the amount of successful immigrants that are using their newly acquired wealth to fund new business ventures in their home countries where it might be possible to get even higher ROIs (almost colonial in some third world countries).

posted on Saturday, January 06, 2007 at 3:57 PM by Bosah C.


Being that there are 300M Americans and 6225M non-Americans in the world, we should not be surprised that non-Americans have a significant presence in Silicon Valley.

I see it less as immigrants having some special advantage and more as non-Americans just being more populous than Americans.

San Francisco/Silicon Valley is also a convenient entrance for many immigrants to the U.S. so it is no surprise that lots of them settle there.

Finally, it is really a matter of comparing apples to oranges. An immigrant who lives in the Silicon Valley normally gains entrance to the U.S. by being selected by a university or an employer through the visa system. Not many Indian cab drivers get H1-B visas. An American who lives in the Silicon Valley only has to have $100 in his pocket and catch a bus. Any American cab driver can come to the Silicon Valley. The selection process is much laxer for Americans.

So, I take this study for what it is but I don't draw the conclusion that non-Americans have any better chance to start a company than an American.

posted on Saturday, January 06, 2007 at 3:59 PM by Daniel Howard


The reason that immigrants are more likely to be founders of their own business really just boils down to one thing: people who immigrate are, by and large, a group of people who have shown (by the mere act of immigrating) that they are willing and capable of taking action to improve their lives.

In other words, it's a self-selecting sample. There are plenty of American-born people with this can-do attitude in the US, it's just that they're a small percentage of the population, just like immigrants are a small percentage of the population of their county of orign.

posted on Saturday, January 06, 2007 at 4:08 PM by Rob


Rob's comment is absolutely correct. Also, after making such a big move as they have, immigrants will feel the need to go through with what they have done - they'll have huge motivation to succeed, and as immigrants will likely have the ability (due to reasons pointed out above)

posted on Saturday, January 06, 2007 at 5:05 PM by Raph


To Rob - that is a silly argument to say that it "...really just boils down to one thing...".

Sure immigrants are by definition risk-takers, but there are millions and millions of immigrants of all feathers, in the US and across the world, who come looking for work in menial jobs and are not exactly starting businesses in droves.

The average Indian immigrant is a very highly educated, skilled and motivated . When this is combined with the US entrepreneurial culture, and a fantastic mentoring network (through orgs like TIE) - you have a very potent combination that leads to the immigrant success stories.

It is a combination of several factors - you are oversimplifying it.

posted on Saturday, January 06, 2007 at 5:12 PM by Mikos


To some of the others who mention that by virtue of sheer numbers that there is statistically more chance of an Indian or Chinese genius is a facetious argument IMHO. After all, less than 50% of Indians or Chinese move past high school. Out Of this less than 10% actually make it into college or University. So in actuality the US is competing with a segment of some 50-100 million people. Finally Out of this pool how many actually enter engineering or medical domains?

The bottom-line the real pool from which these immigrants come from is actually quite small - perhaps the size of France or Germany.

To Dharmesh: You left out a very important point. Asian culture in general places a lot of importance on success. From childhood there is enormous pressure on children to succeed academically. Culture plays a huge part in this.

posted on Saturday, January 06, 2007 at 5:22 PM by Mikos


It may be enlightening to look at the filters within the immigration system itself. To my knowledge, the US does not support free movement of labor from the outside. What national and socioeconomic biases does the immigration system contain?

posted on Saturday, January 06, 2007 at 5:41 PM by Tayssir John Gabbour


I was told by a family friend (probably the single most important thing I was ever told): "you are brown in a white country ... that means you have to work twice as hard. you think that's tough? i'm a woman - i have to work four times as hard" indians and NRIs have a culture of hard work that, while not lacking in others, is definitely more intense for us.

however, almost by definition, being an immigrant means you are a risk taker and looking to take control of your life ...

posted on Saturday, January 06, 2007 at 5:49 PM by Baz


Thanks to everyone for the comments so far.

As I had hoped, the points made in the comments are better than those I made in the original article.

I'm particularly intrigued by the argument for and against the idea that it's simply a "numbers game".

posted on Saturday, January 06, 2007 at 5:52 PM by


As some others have already pointed out, maybe it's rather the fact that if you are already of entrepreneurial spririt, you are more likely to migrate. And: I believe the US has a great entrepreneurial culture that is particularly prone to attracting entrepreneurial minds (okay that was a lot of "entrepreneurial" in one sentence ;-))

However, circumventing discrimination might be an important factor as well - on a related note: Recently, here in Austria, a study revealed that a lot of unemployed people, in particular those who are too old to have any real job opportunities left become entrepreneurs (even if most of these companies are one-man-shops). The most interesting finding was that these previously unemployed entrepreneurs were much more likely still to be in business five years later than the average. Maybe, starting a company out of a desperate situation with regards to their opportunities on the labour market makes success more crucial to them while others might just give up and look for a job at some point, maybe there are other reasons...

posted on Saturday, January 06, 2007 at 7:31 PM by Christian Flury


Beware selection bias: Indians and Chinese are over-represented in high-tech startups because they make up a sizeable percentage of sci/tech grad students.

posted on Saturday, January 06, 2007 at 9:00 PM by Me


I was born in the UK and moved here in my mid-twenties, so while I am an immigrant, I have a slightly different perspective. England may have its problems, but it is certainly not a bad place to live in the big scheme of things.

For me, it was the constraints of the British system that encouraged me to be an entrepreneur. Back when I lived there, the ability to rise through a company was very much tied to "putting in the years" and "paying your dues". Promotion was sometimes based on performance, but only after time-served had been taken into account. I was a VP of a US company before I was 30, with responsibility for 25+ people. That simply would not have happened in the UK.

I think point #2 is very valid, although not one I had to deal with.

I also think, for countries like India and possibly China, #4 is quite valid. Generally, I think both of those countries (and some others) place a higher value on maths, hard science and engineering.

The most interesting though is #3. As several people have noted, the fact that you are an immigrant means you have faced risk. It is not a trivial decision to move to another country. The experience of being well outside your comfort zone and facing completely unknown and unexpected challenges is great training for an entrepreneur.

I think that plays a bigger role than any other factor.

posted on Saturday, January 06, 2007 at 10:32 PM by fewquid


> I'm particularly intrigued by the argument for
> and against the idea that it's simply a
> "numbers game".

Just to clarify, I started off that sub-topic by saying:

"I think in some part it's a numbers game"

I didn't say it was "simply a numbers game". In fact, I didn't mean for that to be interpreted as the **sole** reason for the success of Indian and Chinese immigrants in the high tech sector. I just thought it may be a contributing factor. But after reading many of the insightful comments here, perhaps not.

posted on Sunday, January 07, 2007 at 1:33 AM by Nick Hebb


I've read a Canadian report once on why immigrants are likely to be more entrepreneurial. Some of the issues not highlighted is that biases are present in the new country that they are living in. Biases in terms of lack of grasp in the local language, ageism (who wants to hire an old heavily accented person in McDees or Walmart), culture-barriers (admit it...everyone has always reservations for someone who dresses, smells, talks, behaves or have different background than you do....put a democrat and a republican together...and one guy who just came from india...you definitely see more mingling between Dem & Rep), no recognition for their foreign degrees ([you can possibly find someone with a PhD or MD degrees who are working jobs that are menial in their new found home](http://news.yahoo.com/s/ap/20070107/ap_on_he_me/dr__jacinto_s_choice)), etc. These current biases allows the immigrants to form a community together (Chinatown, little italy etc..) and these immigrants then provide services that caters to their own communities: supermarket& restaurants that caters to their palatates, wiring money services, local herbal medicine shops, temples/church/other services and so on. You can take a walk in Chinatown (every major city in the world has one) and view for yourself services provided in the community, and you will understand why they are more likely to start companies. Usually those indians who provide IT startup in the silicon valley, (my guess) are more likely to be from upper middle or the upper echelons of the indian community...hence they usually have capital or skill or ideas to form start-ups in the Silicon Valley. US is definitely importing some of the best minds from india.

posted on Sunday, January 07, 2007 at 2:46 AM by Hendrian


What Dharmesh listed is very true. I'm also wondering if there is some American culture against startups. I was not familiar with the work life balance concept before coming to the US. Many of my friends in my home country work 15 hours a day quite often even at big companies (now I think that’s a bad custom, though). Although this may be my bias, I don’t see many high-tech entrepreneurs who are Christian and go to church very often.

I’m preparing for incorporation of my company these days. My friends here are concerned about risks. My typical response is this.

“Waiting for my green card at a big company when massive layoffs are going on is much riskier than starting my company with my green card. Even if I fail, I don’t have to leave the US within 60 days.”

I’m so glad now I don’t have to think about packing all my stuffs into my car and decide where to go next. Canada or Mexico. Which is better?

posted on Sunday, January 07, 2007 at 1:33 PM by T


30 years, my mentor told a group a story about why so many Italians and Greeks opened and ran pizza shops. He did the math and showed that pizza shop owners worked really long hours for not a lot of money. His conclusion was that the reason that so many pizza shops were owned by Italians and Greeks was that silver spoon Americans weren't willing to work that hard. Now, pizza shops are not high tech enterprises, but one can't help but ask, "Does it have anything to do with how hard one is willing to work?"

posted on Sunday, January 07, 2007 at 8:59 PM by Rick Roberge


Good points.
Can I add another suggestion ? I think that in some countries making startups is very difficult.
In Italy, just by taking an example of my experience, making a simple startup requires large capitals, a huge amount of time lost in bureaucracy, and the need to solve a lot of other problems.
I think that this aspect kills a lot of small and agile companies that rely on smart business ideas but don't start with too much money.

posted on Monday, January 08, 2007 at 2:21 AM by Stefano


Immigrants are always more hungry, ambitious and prone to making it bigger than the "locals". Mallu chaishops, the entrepreneurial bottom of the pyramid, thrive everywhere in the country and perhaps even the world; yet, in kerala communism thrives.

Take a (wo)man away from home and you'll see the inhibitions wear away. It's the classic lexus versus the olive tree. The more olive tree you have, the lesser risks you will take - for fear of shame, or for the fear of losing the olives. Who eats olives that much anyway?

posted on Tuesday, January 09, 2007 at 1:26 PM by Deepak Shenoy


Oh, if you want to see the original Duke Study:
http://memp.pratt.duke.edu/downloads/americas_new_immigrant_entrepreneurs.pdf

posted on Thursday, January 11, 2007 at 12:13 AM by Deepak Shenoy


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