Rags-to-riches tale rarer than people think

But easier access to finance could help poorer entrepreneurs
Donald Trump © AFP

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Every culture has its myths and the field of entrepreneurship is no exception. The American West has the plucky homesteader carving a living out of unforgiving soil. Entrepreneurship has the sole founder who was shining shoes at 10 and sold his prized possession to fund a business.

Donald Trump, the Republican US presidential contender, cultivates that image and has played up his business success as a way to “make America great again”.

In fact he started with a $1m loan from his father, Fred Trump, who was a successful property developer and whose connections and name helped his son get started and opened up lines of finance.

Research into the issue has found that the “rags to riches” story is the exception rather than the rule.

A 2009 study by the Kauffman Foundation, a US think-tank, and three US universities surveyed 549 US company founders of successful businesses in high-growth industries, including aerospace, defence, computing, electronics and healthcare.

More than 90 per cent came from middle-class or upper-lower-class backgrounds and were well-educated. Of those surveyed, 95 per cent had earned bachelors degrees and 47 per cent had more advanced degrees.

Founders tended to be middle-aged — 40 years old on average — when they started their first companies. Nearly 70 per cent were married when they became entrepreneurs, and nearly 60 per cent had at least one child.

But Manny Stul, a child of Polish refugees who settled in Australia, believes it is easier to get started now than ever. Mr Stul’s parents fled Poland in 1949 when communists came to power. He was born in a refugee camp.

The family arrived in Australia on New Year’s Eve 1950 and their first two years were spent living in an old army barracks near Perth while Mr Stul’s father worked as a cabinet maker. They then shared a home with three other Polish families.

Mr Stul dropped out of university and scraped together enough money to tour Europe for five months.

“I decided I wanted to start a gift company because I had seen some wonderful designs in Scandinavia,” he recalls. He earned the money to buy his first products by labouring on a construction site in 1973. In 2000 he floated the business, Skansen, for more than A$15m ($11m).

“The biggest relief is that I finally had the footprint of the bank off my neck. Everything was pledged to the bank,” he says. “It would be easier to set up now. You have alternative ways of financing. People are more receptive to disruption. Back in the 1970s the banks controlled access to capital.”

In 2000 he bought toymaker Moose. It is now the US’s sixth biggest toy brand, according to EY, supplies the likes of Toys R Us and Walmart and sells in more than 80 countries. It is behind character toys such as Shopkins and the Trash Pack; each has its own cartoons and online worlds. Moose has also pioneered electronic pets. Staff headcount has increased from just 10 in 2001 to more than 200 today.

“You have to innovate. You can’t stand still,” he says. At 67, he has no intention of stopping.

Sean Duffy, head of the technology, media and telecoms team at Barclays, says: “Building a high growth company is complex. There is a lot to get right. An awful lot of the founders we meet come from an affluent and educated background.”

He adds: “I am not saying that is the only way to do it. But when we make decisions we are looking at the quality of management and you are more likely to back them if they have a gilt-edged background.”

He cites start-ups such as Zoopla, the UK property website, and Deliveroo, which delivers restaurant food, who he says had experienced people involved from the start.

Iain Tait, partner and head of private investment at London & Capital, a wealth manager, says that there are fewer “rags-to-riches” stories in the developed world.

“The wider access to education and finance in the UK means that you are far less likely to meet an entrepreneur in their thirties or forties today from the type of impoverished background that was common a generation or two ago,” he says. “Those building businesses pre- or post-second world war, or who were part of the early baby-boomer generation, were the ones that had often risen from almost nothing to create substantial wealth.”

However, he says great fortunes are being made from scratch in Asia. “This is a trend I am now seeing more and more when I visit East Asia and meet clients in our Hong Kong office: first-generation wealth creators, from sectors such as retail, property and manufacturing who have created serious wealth from humble beginnings.”

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