Can we boil down an entrepreneur’s success to their DNA? Adeo Ressi, Founder and CEO of the Founder Institute, says yes. This startup accelerator determines acceptance into its prestigious launch program in part based on a series of psychometric tests they claim to determine if a candidate has “Entrepreneur DNA.” Ressi says Entrepreneur DNA is “the equivalent of being tall [in basketball] in entrepreneurship.” It’s not a silver bullet, but it’s a big help.  

In this interview, Ressi explains the elements that make up Entrepreneur DNA and dives into how the Founder Institute is influencing the types of startups that graduate from its program.

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Founder Institute CEO Adeo Ressi

Courtesy of the Founder Institute

 

Full Transcript

JEREMY: Our guest today is Adeo Ressi, CEO of The Founder Institute, a startup accelerator and launch program. Adeo founded the company with the conviction that entrepreneurs can help solve the world’s problems. Today, the Founder Institute has launched over 2,300 companies with a more than 70 percent rate of success. Adeo has also identified the personality types that are most common to successful entrepreneurs. Adeo, thanks for joining us.

ANDREW: Adeo, my guess is, you have worked with or accelerated more startups than anyone. Is that true?

ADEO: That’s a bold claim.

ANDREW: I’m looking for bold. This is about bold questions and bold answers.

ADEO: Well listen, hey, we’re talking about data, so I can just rely on the data and let the audience judge for themselves. So we’ve helped launch in excess of 3,500 startups around the world. And in order to do so, we’ve put about in excess of 10,000 people through our various programs and done psychometric and other evaluations on close to 50,000 aspiring entrepreneurs. So that’s large. It’s the largest one that I know of. But I can always be surprised by things that I haven’t heard of or secretly lurking in the corners that may in fact be larger than we are. But it’s a pretty large number. The largest I certainly know of.

ANDREW: But before we start on our data questions, maybe you can give our audience a little more granular sense of how the program works, how people apply for and come through the program and the duration.

“80% of all of the companies that we’ve helped to create are alive. 65% of them are doing well on or ahead of plan. And over 50% of them are funded by professional investors.”

ADEO: Yeah. Let me take a step back and maybe give a reason why I started this approximately eight years ago. There was a financial crisis, if you recall, where it seemed that the global financial system was on the verge of collapse. And it was clear that bankers and politicians had put the main human system of commerce and interchange at risk through greedy and selfish behavior. And the reality is that entrepreneurs all along have been stewards of society generally trying to do the right thing, trying to grow their business, trying to help their employees. I mean, not everyone but on the whole. And they didn’t have a seat at the table. So the genesis of the Founder Institute was, if we can help create at least a thousand high quality startups, we might have a chance of getting entrepreneurs a seat at the table and setting the future agenda of humanity rather than having the bankers and politicians run everything into the ground. So that was the genesis. And essentially what we realized was that most people fail because they make bad decisions when launching a business at the very beginning. So a lot of people say, you know, “Oh, they run out of money” or “they got the wrong market.” But a lot of times the fact that a company runs out of money or picks a bad market or the team breaks up is because they made poor decisions at the genesis of their organization. So we decided to focus on essentially what you can refer to as the zero to one. So someone who has a day job, they’re dreaming of starting a business, they’ve been thinking about it for some time, and we really help them, in that launch phase through a three and a half month long program, create a company. And what we do is we have a session once a week at night that are in person. Three of the top CEOs in the region will come into that session and mentor the founders. And then we give founders work to do to build their business throughout the week. The founders coordinate with one another in working groups of their peers. And that combination of the mentorship, the structure, and the collaboration with peers leads to very good outcomes. 80% of all of the companies that we’ve helped to create are alive. 65% of them are doing well on or ahead of plan. And over 50% of them are funded by professional investors.

ANDREW: Wow! And total number of employees?

ADEO: Well, you mean at the Founder Institute or-?

ANDREW: No, total number of employees-

ADEO: Oh, I mean we’ve created, it’s hard for us to calculate the exact number. On the low end it’s 15,000. On the higher end it’s about 25,000. And it’s somewhere between 20 and 30 billion dollars of shareholder value from scratch. So if you add up the amount of money that the companies have raised from press releases and other public sources it’s over half a billion dollars. But there are a lot of people that have raised money that they haven’t disclosed the number. So we’re estimating it’s well over a billion dollars of financing raised by the companies. And we’re not just operating, by the way, in like Chicago, New York and Silicon Valley. We’re in Cote d’Ivoire. We’re in Afghanistan. We’re in Yangon. And many cities that are overlooked by traditional accelerators and incubators. And obviously the funding rates and the situations in those markets differ widely. But I’ll throw out an interesting stat. 30% of all companies that raise seed or series A round in the country of Vietnam were graduates of the Founder Institute program.

“I don’t look at a single thing, with some exceptions, that are done well, and every exception where I see that they’re done well, it’s usually some sort of startup or new technology firm that’s done it.”

ANDREW: Wow. So your initial thesis that post-financial crash 2008, entrepreneurship would become more important. And this is beyond you and the Founder Institute. Is that thesis borne out? Is that idea that the relative importance of these early stage startups versus large enterprises grown since 2008? Or are we beginning to see a reversal of that?

ADEO: That’s kind of two interesting questions rolled into one. So absolutely, the thesis does come true. You can just look at every single major company on Earth has some sort of startup outreach program. And most governments have startup-related initiatives.

ANDREW: But Adeo, let me just catch for a second. Is that because they believe that great innovation is going to come from startups? Or are we literally seeing a shifting of number of employees from large enterprises worldwide to these smaller organizations? Notwithstanding the fact that innovation is coming from the smaller companies that may be acquired or may be consumed in some way by the larger enterprises?

ADEO: Well, the motive behind it I don’t think is nearly as altruistic as you’re indicating. I think it’s just fashion and trends in many cases. The country of Denmark has a full-time ambassador or actually a series of full-time ambassadors for the tech industry. Right? They don’t have a country. They don’t even have a place where they reside. They travel a lot. But they’ren ambassadors are too tech. I think that’s a great idea. I’m not sure if it’s born out of great thinking or more, “Hey, this we need to innovate because this is important,” and they’re not exactly sure why. Well, I can answer why it’s important very simply. First, most of the blue collar jobs are at risk of being automated out of existence. And many of the white collar jobs are at risk of being replaced by AI. So, if there is not a core level of entrepreneurship, people will just not have stuff to do in the not so distant future. So that’s problem number one.

ANDREW: So the percentage of people that will be working at smaller companies over time should expand.

ADEO: Right. And there’s another reason for that. Candidly, the world is broken. Fundamentally. I don’t look at a single thing, with some exceptions, that are done well, and every exception where I see that they’re done well, it’s usually some sort of startup or new technology firm that’s done it. So automotive: a disaster. Elon Musk and Tesla: a win. And you just look around at food, the mass harvesting of animals and disaster, and then you see startups creating protein alternatives, a win. And so, when you look around the world and you’re like, “Oh my God, it’s a mess.” And then every single bright spot is run by a entrepreneur or a startup that has been founded by a group of people that believe in something greater and tried to go ahead and fix the world. And that’s essentially what the Founder Institute is doing is providing a zero-to-one platform for anyone in any industry to take a step and try and make the world a better place. And it’s needed. Trust me, there is no shortage of innovations that are required to make the world better today.

ANDREW: So I was I was going to ask you next about Entrepreneur DNA. But since you raised these verticals that are broken, that are ripe for a disruption. I’m curious whether or not, from where you sit, where you’re able to see lots of business plans, whether you’re able to develop a sense above and beyond what we read in the traditional press about the next verticals to be disrupted. Whether or not entrepreneurs are fast followers. In other words, there’s a sense that there are opportunities in Big Data, there are opportunities with drones or with automobiles.

ADEO: Sure.

ANDREW: And as a result, you see you see business plans following what we conventionally learn are the areas for disruption or whether or not in fact, you have an early vantage point into what’s going to be disrupted because you’re seeing a lot of business plans in a vertical.

ADEO: Wow, you’re hitting with the good questions today. So yes, I wouldn’t refer to it as fast following. I would refer to it as tipping points. So there’s tipping points where something that wouldn’t be feasible to do suddenly becomes feasible to do. So, for example, if you wanted to start an AI startup 10 years ago, that would be almost nearly impossible. The core programming languages were not advanced enough. The computing power was pretty primitive and hard to access both locally and in the cloud. And so, you might have been able to get some interesting concepts together and some prototypes and some things that work. But you wouldn’t be able to do anything near what is possible today with the advancement in underlying computing languages, the advancement in cloud infrastructure et cetera. So there are these tipping points that make new ideas possible and then what you see is entrepreneurs who are in that field, whether it be something related to AI or could be food or housing or whatever else, who are aware of these changing dynamics. All of a sudden an opportunity opens up and we will see dozens, in some cases hundreds of companies spring up around the world to tackle those problems. I’ll tell you a funny if not sad story.  10% of our graduates, which is a really large number of companies, are in, you know, broadly speaking, the food delivery space.

ANDREW: Yep.

ADEO: And, again, it’s not even that innovative a concept — people have been doing food delivery for very long. But you had like an uberization, the cell phone with the GPS, with the back-end infrastructure, a lot of people that have logistics knowledge et cetera, et cetera, et cetera. Restaurants with payment systems and terminals and the like, and that created a tipping point where you could suddenly make mass market food delivery services, where it would be difficult or impossible to do so before. So, there are these tipping point moments, but let me just say that that’s great, however, we think there’s a greater purpose. And so, we’re starting to try and influence outcomes and we’re doing that in a couple of different ways.

“If in fact, we’re going to be living on Mars in seven years, we’re going to need hundreds if not thousands of space-related companies started between now and then.”

ANDREW: By influence outcomes you mean that you have ideas about where there should be tipping points and you’re trying to encourage people to move into those areas. Is that right?

ADEO: That’s correct. I’ll give a very easy example that relates to your comment. Space exploration. You know, I know Elon Musk very well. He says we’re going to get to Mars with humanity by 2024. He’s not always exactly right on the timing but he always gets it done. So if it’s not 2024 maybe it’s 2026. Okay. That’s not that far in the future from today. Seven years, okay? If in fact, we’re going to be living on Mars in seven years, we’re going to need hundreds if not thousands of space related companies started between now and then, right?

ANDREW: Someone will get involved in putting up buildings in space. You’ll have a traffic cop, right? Some of us are getting parking tickets. All of the infrastructure and the ecosystem.

ADEO: Forget all that. I mean, you’ve got much more fundamental problems. What are you going to eat? What are you going to breathe? How are you going to live?

ANDREW: You’re encouraging the food delivery companies to consider early market share delivering food on Mars?

ADEO: I think unfortunately that’s a second stage type company. So, in May of this year, we launched something called the Star Fellow, which is an incentive program for people to launch space-related companies, and FI would provide a lot of help. Previous to the Star Fellow program, we had zero graduates working on space. In 2017, we will comfortably launch between 25 and 50 new space-related startups all around the world.

ANDREW: Wow.

ADEO: A recent company coming out of Silicon Valley that was a graduate from the Star Fellow program — and this program operates in every city where we have chapters. So it’s a incentive program to encourage entrepreneurs to work on space-related businesses. This entrepreneur is creating relatively low cost robots that operate in planetary environments besides Earth. So you can buy a robot to work on the moon, you can buy a robot to work on Mars, you can buy a robot to work on an asteroid. And, you know, they’re about four million dollars for the base unit and then up based on additional needs that you would require. And your alternative is to create a custom robot which could be tens to hundreds of millions of dollars. And if the premise is, we’re going to have a lunar base and have bases on Mars, lots and lots of robots are going to be required. That to me is — you were talking food delivery on Mars — that’s a step two business. Step one you need robots to make the habitats and other spaces where humanity will live on the moon, on Mars. You need robots to mine asteroids. So that’s more of a step one business less of a step two business. And by providing incentives and other encouragement, we can influence the outcome. We started doing this with women in 2010. We encourage more women to start businesses and now seven years later, approximately I think the exact number of recent graduates is 40% of every company we’ve created in in 2017 is led by a woman. That is easily double the best accelerator incubator in the market today who is actively trying to work with women. Now, there’s women-dedicated programs, right, that obviously might have a higher percentage might be 100%. But any mixed gender program, a 20% mark would be considered great. And we’re at 40% or above. So you can influence the outcome. And I think we have a social and moral responsibility to try to do so in things that are important for the world to be a better place.

JEREMY: Can you tell us about what Founder DNA means?

ADEO: Let me take a step back and explain how we came up with it. So we started psychometric testing at the inception of the Founder Institute in 2008, 2009. And we said, “Hey, we’ve noticed that Founders are a little — or I’ve noticed that Founders are a little different than your average person. I’m not exactly sure why, but maybe if we psychometric test them we can unpack what it is that makes them different.

JEREMY: How many people have you tested?

ADEO: Approximately 50,000.

JEREMY: Wow.

ANDREW: Is that your term or is that an industry term, psychometric?

ADEO: Well, it is a term unbarred. But it’s not quite a personality test. So we do what’s called a Big Five Personality Test. We do fluid intelligence test things. So psychometric is a term, we use it because we’re testing a variety of different things on these individuals, not just, let’s say, a classic Big Five Personality Test, in which case you might say we did personality testing. We’re doing more than that. So psychometric is a blanket term to cover the different kind of testing that we are doing. And in many cases, by the way, we’ve watched these people now for eight years or so. So we have a pretty, not only large, but relatively long study making it one of the largest thing. And it might also be the largest longitudinal study of psychometrics, again, that I’m aware of. But, you know, the military does a lot of testing and some universities do testing, so it’s possible that there are some bigger studies, but this is pretty big. And and one of the things we’ve discovered is that — and I’m going to try and explain it simply and quickly — but essentially there are in fact traits that can predict if you have what it takes to be an entrepreneur. But the best way that I can draw an analogy is, it’s like, just because you’re tall does not mean that you’re going to be a good basketball player, right?

ANDREW: You’re tall, are you a good basketball player?

ADEO:  I mean, no. I mean, I’m not terrible because I’m tall. A smaller individual trying to shoot with me in front of them is going to have a hard time because I’m tall, and I can swat the ball. Maybe break a finger in the process because I’m not that coordinated, but, you know, being tall gives you an advantage when playing basketball. But it does not mean that you’re going to be a good basketball player. So we’ve essentially identified a series of traits that predict if you have the equivalent of being tall in entrepreneurship. And it turns out that those traits are genetic.

ANDREW: Wow.

ADEO: That’s why we call it the DNA test.

ANDREW: What are those traits?

ADEO: The two big ones are fluid intelligence and openness. So openness is a Big Five Personality trait. The more open you are the more you see the world the way it really is and the more you can creatively solve problems, right? The less open you are, it’s the invert of that. You basically see the world through rose colored glasses, and you can’t, you have difficulty coming up with creative solutions to problems. So entrepreneurs need to have a very realistic view of the world and to be able to problem solve very well, with creative solutions, in order to build great businesses. And fluid intelligence is another big predictor and that is the ability to quickly learn and apply a rule set. So the average entrepreneur deals with many opportunities and many fires almost every day. And you need to very quickly switch between problems and issues, and then apply a new rule set to solve those problems and issues. And so fluid intelligence essentially measures that. And so those are the two very big ones and they’re both genetic. Unfortunately, fluid intelligence declines with age and openness doesn’t really change that much unless you do psychedelics. In which case it goes up.

JEREMY: You mentioned gender earlier. Any gender insight there?

ADEO: We haven’t been able to find any correlation with gender. No. At least in terms of the raw ability of entrepreneurs. There are traits that are gender-specific in the Big Five Personality but they don’t tend to predict as much as the things that are non-gender specific if that that makes sense. So we haven’t found anything related to gender in terms of the raw capability of entrepreneurs.

“We’ve exceeded the theoretical limit of social science to predict outcomes with the predictive admissions test or the DNA test that we give applicants.”

ANDREW: So I assume that means given the age aspect you’re not funding old people?

ADEO: No. Quite the opposite. We find a heavy correlation with age and success. So our older entrepreneurs have performed better than our younger entrepreneurs. But going back to how we factor that into the test. So age isn’t a variable like fluid intelligence and openness that factor into the predictive score that we receive for each entrepreneur that takes the test. And we actually share some of the insights. When you take the test then you can learn about taking the test at fi.co/dna and more detail on the analysis. So back to the point on age. You can have an older entrepreneur, right, that because they’re older, they are more likely to be successful but they might have low fluid intelligence or low openness. And so, these variables offset one another. So you have young entrepreneurs that score better on the assessment than older entrepreneurs and vice versa because all those things factor into a predictive equation that we have that is very accurate. We’ve exceeded the theoretical limit of social science to predict outcomes with the predictive admissions test or the DNA test that we give applicants.

ANDREW: Adeo, what do I do with the fact that I want to be an entrepreneur, I take the FI DNA test, I score poorly and I now understand that it’s genetic. Should I not be an entrepreneur?

ADEO: Not at all. I mean, look it’s like if you’re-, there are a lot of point guards that are very tall and some of the best players in the NBA, right? Period, end of story.

“…you can meet someone, have them tell you [their] idea. Rate it one to five. That’s their maximum potential.”

ANDREW: But I guess what I’m asking you is, I understand that you’re using the DNA test to inform you about who to select into a program. But for someone who’s a wantrepreneur, who’s listening to this. Should their takeaway be as they are exploring careers that there is a conclusion they should reach for themselves?

ADEO: Well, we have more deterministic metrics than that. So the DNA test again is like measuring high. And there’s a lot of small players in the NBA that are great compared to the giant players. And there are a lot of big players in the NBA or tall players in the NBA that aren’t great compared to some small players. This is just a quick way to assess your rough height level, if you will, when it comes to entrepreneurship. We do have a cut off. And below which you’re you’re really disadvantaged. But generally speaking, we’re pretty open-minded, right? We care more about the holistic view of the person than just the raw measurement of their height. Because we’re not in this to be mercenaries. We’re in this to make the world a better place. We want to help everyone and anyone who wants to try and build something build something. Now unfortunately, there is a much more deterministic measurement that we’ve discovered. It’s actually a pretty significant human discovery and we’re talking with the Kauffman Society and Harvard and others about publishing some papers on it. It turns out that when you meet someone for the first time and you tell them your idea, and let’s say you meet a group of people, call it four or five people and those people rate your idea, the average of that rating is deterministic. We discovered this in a kind of a weird way. So we have people rate everyone in the program in a kind of 360 degree way. And we thought like, oh, by the end of the program if someone rates an idea, it’s got to be pretty good right because they know the idea really well. And it turns out wasn’t that good. So then we were like, “I wonder what it looks like, what the rating in the beginning of the program look like.” And it was like much more accurate.

ANDREW: It’s not important to rate the raters. I mean, it’s not-

ADEO: No, no, no. It could be anyone. These are people off the street because these are founders rating other founders. These are not experienced CEOs rating other founders. These are not ecosystem leaders like mental acrobats. These are literally just aspiring founders.

ANDREW: That’s fascinating because I found that there’s a huge variation. There’s a huge variance in the level of entrepreneurs to simply articulate their ideas. And sometimes people are enamored by the ones that are the most articulate, but in fact those aren’t always the best entrepreneurs. But what you’re saying is, I think what you’re saying is that all of these entrepreneurs sufficiently articulate their idea, and then the judgment of that initial articulation is deterministic.

ADEO: I’m not drawing speculations on what the data means. So, one of the things you’ll notice about me is like I’ll tell you what the data conclusively says and I’ll tell you theses on what it might mean, and we have a huge correlation ability but the causation is often unknown. I mean, these are like deep sociological strange things that you could ponder on for many years. And only have theories without any proof. But essentially what we discovered was, so the second half of the program predicted less well than the first half of the program. And the first half of the program predicted pretty good. Then we went to like the first quarter of average ratings of the idea. And that predicted even better than anything else. And then we went to the just the very first one. The very first time you rate someone’s idea, and that predicted significantly better than anything else to the point where the data is deterministic.

Let me explain. So what we did is we said, “Okay. Look at the ratings of the first one. And then look at how the company is performing.” And it turned out if you didn’t get a very good rating, most of the companies that resulted years and months and months and years later, were mostly dead. But some of them were alive. And there was a straight statistical line based on rating at the company performance. Low rating, mostly dead. High rating, mostly doing well. Then we said, it was kind of weird because if you got let’s say five out of five, the average company performance was a two to five. It wasn’t a five. So then we said, so what’s going on here. And we came to a second realization, which was mind blowing. Just under 98% of the companies never surpassed the rating. It was their maximum performance. So if you rated someone a three out of five, the ensuing company, years later, just over 2% of them did better than at three out of five and the rest did worse, or up to. And you rounded up. You needed to rounded it up. So if someone got a four to five, you rounded up to five. But basically it was a maximum performance level rounded up for the ensuing business. And this is like you just meet someone.

ANDREW: Yeah.

ADEO: And they tell you [their] idea.

ANDREW: Yeah.

ADEO: And you rate it. The average is a rating of four or five people. And that turned out to be the maximum performance of the company forever.

ANDREW: So let me see if I can bring this full circle. We started with you talking about the 2008 financial crisis and part of your motivation was social good. Isn’t there a way where we take all of the data that you’ve talked with us about, this Founder DNA and also this data around or this test around determining the likelihood of success-

ADEO: We call it the first impressions score. When you meet someone, what’s your first impression of their idea? By the way Andrew, that changes venture capital, incubator acceptance, blah-blah-blah. Because you can meet someone, have them tell you [their] idea. Rate it one to five. That’s their maximum potential. We’ve also made discoveries, by the way, and just to bring it full circle because I hear what you’re saying. It turns out another discovery that we made is that if a company can make growth milestones faster, then their likelihood of being a large success increases significantly. Right? If you put all those three things together from a data perspective. You can predict if someone has the raw ability to build a great company. You can identify what the ultimate potential for that company is quantifiably. And then you know that if you can help them move quicker through milestones, their likelihood of success will increase. And we’ve measured all this, and have it quantified and we’re working again with top research organizations to publish some of these findings. But they paint an interesting picture of the future.

ANDREW: Let me just try something for a second. If Adeo Ressi was the Secretary of Labor or was the CTO, and the goal was, let’s improve the economy and improve employment or reduce unemployment. Wouldn’t you say if, by dictum you could say, “Everybody generate an idea and take these two tests. Take a DNA test and take a first impression. Generate your idea with your small team. And this ecosystem of tests that I’m suggesting can funnel all the right people into entrepreneurship and all the other people into corporate jobs.” Am I taking that to a crazy place?

ADEO: No. But I would refine that idea just a smidgen and say that the new world is not working for someone, it’s working with someone. So even if someone is not the entrepreneur, there’s lots of people that would work with them because they have shared beliefs. Okay? And rather than dictating that someone take that- So let’s take those two that concept of working with someone and then say, “Okay. How do we find the roughly 2% of humanity that has the best chances for success at building things that are going to make the world a better place and get them going?” I would take a chunk of the hundreds of billions of dollars a year that we spend on defense building outdated war machines in a world of cyberterrorism, eliminate a tank program, and offer some sort of grant. Maybe it’s 10,000, 50,000, some sort of number to anyone that passes, so to speak, the DNA coupled with some sort of idea assessment, goes through some sort of program, and at the tail end of it they get 50 grand. Because you can’t dictate that everyone do it. But if you create an attractive enough financial incentive, the right people will do it. And by the way, just to give you an example, we’ve seen this work. The City of Toronto is giving every graduate of the Founder Institute five grand. Full stop. It’s not even a lot of money. We’ve seen completely full classes sold out and the highest graduation rate of companies worldwide. And at first we were like, “Oh people are just gunning for the five grand and they’re doing crappy work whatever.” We went in and reviewed all the work of all the people, and it was phenomenal. And it’s a small economic incentive. And it produced fantastic, really unbelievable results.

ANDREW: It was enough to say if you’re destined to do this, we’re going to encourage you to do it and to boil the ocean if you will.

ADEO: And all it takes is a small financial incentive. And then if you actually activate the 2-ish percent of the human population that is best set up to change the world by launching companies that are going to innovate on things that need fixing, and you have a workforce that is becoming displaced, but have greater and greater beliefs about the future and what is right, you suddenly have a solution where you’re actually creating meaningful positive change in the world on a global scale. Now, we’re doing that at the Founder Institute without the resources of a tank program in the Department of Defense, but it’s going pretty well nonetheless. So I’m not complaining.

ANDREW: Adeo, this has been great.

ADEO: Thank you so much.

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