Entrepreneurship & Innovation

An analysis of the environments of leading manufacturing firms operating in the United States and in Australia produced a series of hypothesized differences in the strategies, organization structures, and market environments of firms in the two countries. Parallel hypotheses about differences between domestic Australian firms and subsidiaries of foreign multinationals operating in Australia were also developed. The hypotheses were by and large supported when tested on data obtained from leading corporations in the two countries.

Economic frictions pervade the founding, financing, growing, and exiting of high-growth entrepreneurial firms. This chapter considers one friction that currently affects a small, but important, set of entrepreneurs: racial and gender discrimination. I first collect facts from a large empirical literature that show clear gender and race gaps in participation and financing of startups. Female founders manage 16-25% of all startups, while Black entrepreneurs rarely exceed 3% of the startup population.

We show theoretically that a critical determinant of the attractiveness of VC-backed entrepreneurship for high-earning potential founders is the expected time to develop a startup’s initial product. This is because founder-CEOs’ cash compensation increases substantially after product development, alleviating the non-diversifiable risk that founders face at startup birth.