Economist: Entrepreneurialism | The Next Deal

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Schumpeter ? Crazy Diamonds

By The Economist, July 20 2013.

ENTREPRENEURSHIP is the modern-day philosopher?s stone: a mysterious something that supposedly holds the secret to boosting growth and creating jobs. The G20 countries hold an annual youth-entrepreneurship summit. More than 130 countries celebrate Global Entrepreneurship Week. Business schools offer hugely popular courses on how to become an entrepreneur. Business gurus produce (often contradictory) guides to entrepreneurship: David Gumpert wrote both ?How to Really Create a Successful Business Plan? and ?Burn Your Business Plan!?.

But what exactly is entrepreneurship (apart from a longer way of saying ?enterprise?)? And how should governments encourage it? The policymakers are as confused as the gurus. They assume that it must mean new technology; so they try to create new Silicon Valleys. Or that it is about small businesses; so they focus on fostering start-ups. Both assumptions are misleading.

Silicon Valley has certainly been the capital of technology-based entrepreneurship in recent decades. But you do not need to be a geek to be an entrepreneur. George Mitchell, the Texas oilman who pioneered fracking, did as much to change the world as anybody in the Valley. Nor do you need to be a conventional innovator. Miguel D?vila and his colleagues built a huge business by importing the American multiplex cinema into Mexico. Their only innovation, says Mr D?vila, ?was putting lime juice and chili sauce on the popcorn instead of butter.?

Equally, there is a world of difference between the typical small-business owner (who dreams of opening another shop) and the true entrepreneur (who dreams of changing an entire industry). Jim McCann, the creator of 1-800-flowers.com, is an entrepreneur rather than just a florist because, when he opened his first shop in 1976, he looked at the business ?with McDonald?s eyes?, as he put it, and laboured for years to build the world?s biggest flower-delivery business.

These misconceptions matter because they produce lousy policies. The world is littered with high-tech enclaves that fail to flourish. Malaysia?s biotech valley has been nicknamed ?Valley of the BioGhosts?. The world is also full of small-business departments that fail to produce many jobs. The Kauffman Foundation, which researches such matters, has shown that the bulk of new jobs come from a tiny sliver of high-growth companies.

Daniel Isenberg has spent 30 years immersed in the world of entrepreneurship as a (sometimes failed) entrepreneur and venture capitalist as well as an academic (he previously taught at Harvard Business School and is now at nearby Babson College). He has also travelled the world accumulating examples?he is just as interested in Iceland?s generic-drug industry as in Silicon Valley?s giants. In a new book, ?Worthless, Impossible, and Stupid?, he presents a new definition of entrepreneurship. In essence, entrepreneurs are contrarian value creators. They see economic value where others see heaps of nothing. And they see business opportunities where others see only dead ends.

There are plenty of striking examples of this: Mo Ibrahim, the founder of Celtel, saw the possibility of bringing mobile phones to sub-Saharan Africa when telecoms giants saw only penniless peasants and logistical nightmares. On a trip to Tobago Sean Dimin and his father Michael observed that fishermen were leaving tonnes of fish to rot, so they created a company, Sea to Table, to get the surplus fish to New York restaurants. As a student at Harvard Business School, Will Dean noticed that social media were irrigating a fashion for extreme sports. So he established a company, Tough Mudder, that charges people to subject themselves to pain and humiliation.

Mr Isenberg emphasises that successful contrarians also need the self-confidence to defy conventional wisdom (Mr Dean?s professors told him that he was crazy) and the determination to overcome obstacles (it took the Dimins two years to get the fishermen to change their habits). Indeed, some of the best entrepreneurs are distinguished more by their ability to achieve the impossible than by the originality of their thinking. TCS is essentially a Pakistani version of FedEx. But to get it going, Khalid Awan had to overcome ?insuperable? problems such as striking deals with the gangs that control the haulage industry and sweet-talking the politicians who can shut a new company at the drop of a hat.

In it for the money

Mr Isenberg has two important bits of advice for policymakers who genuinely want to foster entrepreneurship. First, they should remove barriers to entry, and growth, for all sorts of business, rather than seeking to build particular types of clusters. Second, they should recognise the importance of the profit motive. There has been much fancy talk of ?social entrepreneurship??harnessing enterprise to do good deeds?but in truth the main motivator for entrepreneurs is the chance of making big money. This is what drives people to take huge risks and endure years of hardship. And this is what encourages investors to take a punt on business ideas that, at first sight, look half-crazy.

Politicians and bureaucrats do not just confuse entrepreneurship with things they like?technology, small business?they also fail to recognise that it entails things that set their teeth on edge. Entrepreneurs thrive on inequality: the fabulous wealth they generate in America makes the country more unequal. They also thrive on disruption, which creates losers as well as winners. Joseph Schumpeter once argued that economic progress takes place in ?cracks? and ?leaps? rather than ?infinitesimal small steps? because it is driven by rule-breaking entrepreneurs. It might be nice to think that we could have growth and job-creation without a good deal of Schumpeterian cracking. But, alas, some thoughts really are worthless, impossible and stupid.

See?The Economist, Crazy Diamonds, July 20 2013.

(Emphasis added)

Source: http://thenextdeal.org/economist-entrepreneurialism/

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