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What really makes startups grow

By Bobbie Gossage, Illustration by Script & Seal, from The May 2015 Issue of Inc. Magazine "Thinking about naming your startup after yourself? You may want to reconsider. A recent MIT study found that companies named after the founder were less likely to grow. The study's authors, Scott Stern, a professor at MIT's Sloan School of Management, and Jorge Guzman, a doctoral candidate there, set out to dissect startup success. They analyzed more than 800,000 companies that had launched in California from 2001 to 2006 and looked at what distinguished the ones with growth (as a proxy, those that had an IPO or were acquired within six years of founding) from the rest. Some of the results were surprising. The trait most correlated with rapid growth? Incorporating in Delaware. Businesses that did so were 35 times more likely to succeed. Of course, the state is known for its business-friendly laws, but "it's a statistical relationship, not a causal relationship," stresses Guzman. "Incorporating in Delaware doesn't make you more successful." He speculates that the Delaware effect may have more to do with funding. "A lot of VCs require it," says Guzman, "and 50 percent of publicly traded firms are incorporated in Delaware. Bigger firms tend to be in Delaware." And, it seems, so do firms that aspire to be big."

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