Monday, November 24, 2014

The Age of Big Entrepreneurship 1: Confusing Personality for Impact

You may have more pressing questions in your life than to wonder if former Spice Girl Victoria Beckham is an entrepreneur or not, but just such a debate raged across my LinkedIn Pulse screen last week.  Beckham had recently been crowned UK Entrepreneur of the Year by a British magazine, and columnist Gene Marks took issue. 

“I don’t think Victoria Beckham is an entrepreneur,” he wrote.  “That’s because entrepreneurship is not just about business savvy. . .Or celebrity.  Or wealth.  Or even about financial success.  She’s got all that too.  It’s about the risk one takes to achieve those objectives.”

Marks then invoked the spirits of Sam Walton, who borrowed money to purchase a variety store, and Richard Branson who “started his record business with next to nothing in a church basement.” He also conjured up the story of a person who left her job selling wholesale clothing to pitch her own jewelry online, and another who left college and went into “their dad’s business selling electronic components to the computer industry.” Marks added, “These are the risk takers.  These are the dreamers.  These are the entrepreneurs.”

This might make for a good slogan for a weekend Tony Robbins retreat, but it’s hard to find a definition of entrepreneur that’s wandered further off the path of economic impact into the world of personality than this.  Welcome, my friends, to the 21st-century Age of Big Entrepreneurship, where the world revolves around the personal attributes of the individual.  In this case, Marks believed,  Beckham might be a successful businesswoman, but she’s no entrepreneur—just “ask any successful entrepreneur who took risks and suffered failures and they’ll tell you there is a difference.”[2]

The fact that Beckham could go broke and still jet around the world in luxury had excluded her as an entrepreneur, Marks concluded.  In this people-centered definition, the level of risk taken by an individual establishes his or her membership as a card-carrying entrepreneur.

An Odd Response

Fortunately it did not take long for my LinkedIn Pulse screen to light up with a response, this one from “ghostwriter and speaker” Jeff Haden who concluded that Marks’s definition of entrepreneur was flawed.  Thankfully, it seemed, I was not alone in my distress.  But then Haden hit his drive at a 90-degree angle, through the trees and into the clubhouse.  Haden decided that Marks had left out a “big chunk of the entrepreneur community: people who have full-time jobs and work nights and weekends on their startups.  Some of them invest nothing but time and effort into their ideas. . .But they are still entrepreneurs.  They have an idea.  They have a dream.  They may not be risking everything they own to make that dream happen. . .but they’re still entrepreneurs.”

This was not the crisp economic thinking for which I pined.  In fact, this was a crisply stated version of perhaps the single least helpful definition of entrepreneurship, the one that includes every person opening a dry cleaning store or selling jewelry on the web.  “My definition of ‘entrepreneur’ is broad,” Haden wrote: “any person who starts his or her own business and, at least where that venture is concerned, does not work for someone else.”  He concluded, “That’s why you don’t have to found a successful business to be called an entrepreneur.”[3]

Wow.  This is the Age of Big Entrepreneurship at its most extreme: It’s all about the entrepreneur and his or her motivations and not a bit about market impact.  In this version of economic reality, launching a failed business creates an entrepreneur so long as he’s working for himself when he slips into bankruptcy.

Presumably, failing twice makes for a serial entrepreneur.

A Dose of Data

In 2008, Scott Shane of Case Western Reserve offered a classic, data-based takedown of this definition.  Many people start marginal businesses that have little economic impact and end up failing, Shane wrote.  In fact, most people are so bad at picking growth-oriented, innovative ideas and being able to execute against those ideas that, around the world, the number of people who run their own businesses is negatively associated with economic growth.
In the United States, for example, the typical start-up operates in the retail or personal services space and aspires to $100,000 in revenue in five years--hardly an engine of innovation.  And, as a nation gets wealthier the number of start-ups declines.  “So if you want to find countries where there are a lot of entrepreneurs,” Shane wrote, “go to Africa or South America.”
It turns out that in a healthy modern economy, investing a dollar of time in expanding an existing business turns out to be a better use of resources than investing the same in starting a new business.  This is not what Big Entrepreneurship teaches or wants its college grads to hear. 
Shane, who remained steadfastly focused on economic impact, concluded that only a tiny percent of all start-ups contribute to economic growth and are truly entrepreneurial.  Their impact is significant, and it tends to be our friends in the angel and venture capital communities who do all the heavy lifting to uncover these impactful companies.  “Only a select few entrepreneurs will create the businesses that will take people out of poverty, encourage innovation, create jobs, reduce unemployment, make markets more competitive, and enhance economic growth,” Shane wrote.  We need to worry about “extraordinary entrepreneurs, and worry less about the typical ones.” [4]

I would argue that Shane's "typical ones"--those whose goals are to reach $100,000 in revenue in five years by providing services that already exist in the market--may be honorable, hard working risk-takers, but they're not entrepreneurs.

Maybe a Football Analogy Will Help

How good a quarterback is Peyton Manning?

Would we determine our answer by testing how early Manning arrives at practice, and how hard he tries?  Would we wonder if he had given up a lucrative consulting job, and try to calculate his opportunity cost?  Unlikely.  Even if we knew nothing about football, we’d at least know to ask “how’d he do?”  We’d want to measure his passing yards, his win-loss percentage, his number of championships.  In other words, how good Peyton Manning is--or any other quarterback--begins with their success on the field.  We might at some point mention that he has a terrific work ethic, but it’s all in relation to performance.

Should we not hold entrepreneurs to the same standard?  Only in the self-absorbed, narcissistic culture of today’s Big Entrepreneurship could we possibly spend so much time assessing entrepreneurial success by effort expended, risk assumed and personality traits.  It's the entrepreneur as selfie.

Another reason to love Schumpeter: He said he wanted to
become the world's greatest economist, horseman and lover--
but the horses were not cooperating.
Economist Joseph Schumpeter, who planted the modern concept, said the reason we care about entrepreneurs is because they are the “New Men” (and Women) who bring innovation to market.  And the reason we care about innovation is because that’s what breaks business flows to create new products and services.  Innovation is what grows the market, creates new jobs and industries, and improves the standard of living.  Innovation is measured as a market-based, economic phenomenon--just the way we need to measure entrepreneurs.  Innovation is the thing that keeps capitalism from becoming stagnant. The fact that an entrepreneur may take a risk bringing an innovation to market, or quit his job, or assume debt is irrelevant.  

To be clear, then, the one and only reason we care about entrepreneurs is because they bring innovation to market.  Everything else is just noise.

In the current Age of Big Entrepreneurship the equation has been reversed; we spend endless hours worrying about the qualities of the entrepreneur and almost no time measuring the impact of their innovation.  (In fact, Haden argued above that market impact is irrelevant.)

Is Victoria Beckham an entrepreneur?  Well, if she convinces a person to give up her perfectly good red t-shirt from last season to purchase this year’s new purple t-shirt with fringe then Beckham is at least breaking a fashion flow, and perhaps an economic flow.  I put fashion design in a category of “Innovation Light” because I believe it replaces or steals more existing share than it does create new demand or launch new industries.  Still, all things considered, defining innovation is not an exact science and I have no problem if a UK magazine wants to give Beckham an award.  It certainly will help their circulation—and LinkedIn's.

The point is to assess Beckham not by who she is or what she possesses, but by what she’s accomplished in the marketplace.

The Jobian Narrative

The Big Entrepreneurship emphasis that Marks and Haden place on the personality traits of individuals is part of our current obsession with the epic Jobian Narrative.  A good example is John Gartner, whose 2005 book offered the hypothesis that “American entrepreneurs are largely hypomanic,” a mild form of mania apparently found in the relatives of manic depressives.  “Hypomanics are brimming with infectious energy,” Gartner wrote, “irrational confidence, and really big ideas.”[5]  Think Jim Clark and Steve Jobs. 

Gartner’s idea came from a pilot study in which he placed an announcement seeking to speak with technology entrepreneurs.  From this he interviewed precisely ten “Internet CEOs”:  ten self-selected “Internet CEOs.”  Gartner read them a list of hypomanic traits, asking if these traits described them personally or entrepreneurs generally.  His list featured examples of people who were risk-takers, easily irritated by minor obstacles, fast-talking, witty and gregarious. 

Gartner was overwhelmed by the results:  His pilot of ten CEOs expressed excited agreement on almost every point.  And to his surprise, “One hundred percent of the entrepreneurs I interviewed were hypomanic!  This couldn’t be chance.”[6]

I hardly know where to begin critiquing such Big Entrepreneurship research.  I am fairly certain that you and I could devise most any theory we like—that the world is really flat, for example—and with a self-selected group of ten flat-earthers prove the theory beyond the shadow of a doubt. 

Maybe a story from David Hackett Fischer’s 1970 book, Historians’ Fallacies will help.  In it, Fischer described what he called the fallacy of statistical sampling.[7]  He then tells the story of a scientist who published an astonishing and improbable generalization about the behavior of rats.  When an incredulous colleague visited, the scientist dragged out his voluminous records saying, “Here they are.” The records were impeccable, the data pristine.  The scientist was overwhelmed with his own results.

Then, pointing to a cage in the corner, he beamed, “And here’s the rat.”[8] 

Well, here’s the entrepreneur:   One observer thinks every entrepreneur is a “mutant,” wrote Carl Schramm, former head of the Kauffman Institute.  “He means they seem different in their vision, their passion, and their energy.  They are unlike regular people.  They are a little crazy.”[9]  Another observer attended a church where the preacher sermonized about spiritual gifts, including leadership, evangelism, empathy, faith and entrepreneurship.  “The entrepreneurial gift isn’t to manage and administer,” she said.  “It’s to start things.”[10] 

When Max Levchin, a founder of PayPal, was asked by MIT Technology Review in 2013 what makes a "great entrepreneur" he might have said any number of things: smart market selection, a killer business model, an ability to sense opportunities that others do not, poor competitors, easy financing, copious amounts of luck.  These are all "outside in" descriptors that get at the issue of market impact.  Instead, he poured the Kool-Aid of Big Entrepreneurship, citing all personal characteristics: "drive, inability to play well with others, decisiveness, general indifference to reason on occasion."  He also added "constantly flying blind, by the seat of your pants, and also of constantly projecting the extreme confidence that everything is going to be just fine."

In the Age of Big Entrepreneurship, entrepreneurs have made the leap from delivering economic impact to being crazy mutants and courageous rock stars, some even possessing spiritual gifts.  Columnist Rich Karlgaard found that most entrepreneurs he knows are a “mix of visionary and hustler, with a dash of attention deficit disorder thrown in.” However, he retained a level-head by admitting he would not go quite so far as a friend who thinks "entrepreneurs are on the side of God.”[11]

Back to Basics

Let’s go back to basics: entrepreneurship is not about personality.  Nor is it about drive, desire, courage, hypomania, spiritual gifts or being on the side of God.  It is not about being passionate, or even being passionate about disruption.  It’s not some arbitrary level of risk-taking.  These are all the anecdotal conclusions of a selfie culture where personal qualities trump economic impact. 

If you can’t make your way through Schumpeter—and if you don’t want to read the economic tracks, at least try Thomas McGraw’s masterful Prophet of Innovation—then you can still read the single best thing ever written on the topic: Peter Drucker’s 1985 Innovation and Entrepreneurship.  Drucker is unwavering in his conclusions: Entrepreneurship is not a personality trait.  “In thirty years I have seen people of the most diverse personalities and temperaments perform well in entrepreneurial challenges.”[12]  

"An entrepreneur who does not learn how to manage will not
last long.  A management that does not learn how to innovate
will not last long.  --Peter Drucker (Management Challenges
For the 21st Century
, 1999)
Drucker also had a pointed way of reminding us to think markets first, people and personalities second: “The single most important thing to remember about any enterprise is that results exist only on the outside. The result of a business is a satisfied customer. The result of a hospital is a healed patient. The result of a school is a student who has learned something and puts it to work ten years later. Inside an enterprise, there are only costs.”[13]
And, he added, “The test of an innovation, after all, lies not in its novelty, its scientific content, or its cleverness.  It lies in its success in the marketplace.”

Being an Entrepreneur, Briefly
Perhaps the single worst feature of Big Entrepreneurship, besides encouraging us all to look at the world through personality instead of economic impact, is convincing young people that entrepreneurship is a full-time occupation with its own unique set of skills. 

From my experience at least, this couldn't be any further from the truth.

Take Sensitech, for example.  Over a period of a decade we launched about a dozen new products, fundamentally changed the business model in two large markets, introduced data and professional services into a transactional business, and made the Inc. 500 twice and the Technology Fast 500 three times.  We had impact, were clearly entrepreneurial and very innovative.  Both Schumpeter and Drucker would have approved.

"Nobody ever is an entrepreneur all the time,
and nobody can ever be only an entrepreneur."
--Joseph Schumpeter, 1939
But now, let me tell you about my job as CEO.  There were some fascinating moments of disruptive product and service development and scheming around new business models.  We engaged in some difficult selling, trying to convince companies to change the way they did business.  There was money and sweat (and a few missed forecasts) spent trying to get companies to adopt data.  But--the vast majority of my time was spent finding good management, building a senior team, meeting with investors and the board, worrying about customer service and quality, beating down bugs and putting out fires, sizing and defining market segments, moving boxes around org charts, assessing partners and acquisitions, evaluating HR and benefits policies, building marketing and sales plans, raising money and watching cash flow, setting commissions and incentives, keeping headhunters from hiring away our good engineers—and endlessly worrying about making quarterly numbers.  In other words, once we dazzled ourselves with our newest innovation, we actually had to run the company.  Consequently, if we actually were full-time, occupational entrepreneurs, we were working awfully hard just trying to be regular old managers.

That’s why the folks who invented our modern concept of entrepreneur, folks like Schumpeter and Drucker, are emphatic that entrepreneur is not an occupation.  Listen closely to Joseph Schumpeter: "Everyone is an entrepreneur only when he actually 'carries out new combinations," and loses that character as soon as he has built up his business. . .being an entrepreneur is not a profession and, as a rule, not a lasting condition."  It's hard not to conclude that Big Entrepreneurship does a major disservice to young people trying to convince them that it is, or encouraging them to leave school to build a dumb, me-too app instead of learning real skills in an educational program or at a great company that is launching innovations at a steady clip.

By 1939 when Schumpeter authored Business Cycles, he had (from the perspective of the modern mythical entrepreneur) gone completely over to the Dark Side, writing that giant companies offered "new units of control, new principles of management, new possibilities of industrial research" and the "absolute optimum" way to commercialize new technology.  The patron saint of Big Entrepreneurship, read carefully, had sold his soul to Big Business.  There is a lesson there for every college senior engaged in a job search.

This too shall pass.
Still, if you insist that "entrepreneur" is a career path and long-term occupation, at least look outward before you purchase your first black mock turtleneck: Find an attractive market.  Select a good business model.  Treat innovation as disciplined research and hard work, not luck and lightning bolts.  Find something truly worth your time and energy, something whose "disruption" will yield a tangible good.  Think economic impact, not rock star status.  And work hard at learning the skills of a great manager, a terrific leader.

The time you get to actually "disrupt" is fleeting compared to the time you have to manage the disruption--which quickly looks an awful lot like "business as usual."

Remember, too, that the market does not care a wit about how much risk you take on or how much hypomania seeps through your pores.   Now, if you happen to be gorgeous, marry a soccer star and can sing, you might win an award one day.  But if you have successfully identified an attractive market and business model first, and you are able to deploy some strong management skills, that award stuff will just be icing on the cake.




[2] Gene Marks, “Why Victoria Beckham Is Not a Successful Entrepreneur,” Inc.com, October 29, 2014, http://www.inc.com/gene-marks/why-victoria-beckham-is-not-a-successful-entrepreneur.html.
[3] Jeff Haden, “I Disagree: Victoria Beckham Definitely Is An Entrepreneur,” LinkedIn, November 14, 2014, https://www.linkedin.com/pulse/article/20141114134538-20017018-i-disagree-victoria-beckham-definitely-is-an-entrepreneur.
[4] Scott Shane, “Why Encouraging More People to Become Entrepreneurs is Bad Public Policy,” World Entrepreneurship Forum, 2008, 2.
[5] John D. Gartner, “The Hypomanic Edge,” The New York Times, April 10, 2005, http://www.nytimes.com/2005/04/10/books/chapters/0410-1st-gartn.html?_r=0.
[6] John D. Gartner, “The Hypomanic Edge,” The New York Times, April 10, 2005, http://www.nytimes.com/2005/04/10/books/chapters/0410-1st-gartn.html?_r=0.
[7] David Hackett Fischer, Historians Fallacies: Toward a Logic of Historical Thought, New York: Harper Colophon, 1970, 109.
[8] David Hackett Fischer, Historians Fallacies: Toward a Logic of Historical Thought, New York: Harper Colophon, 1970, 109.
[9] Carl J. Schramm, The Entrepreneurial Imperative: How America’s Economic Miracle Will Reshape the World (and Change Your Life), Kindle edition, New York: HarperBusiness, 2013, Loc. 996.
[10] Richard Karlgaard, “Blessed Are the Hypomanic,” forbes.com, June 2, 2006, http://www.forbes.com/forbes/2006/0619/037.html.
[11] Richard Karlgaard, “Blessed Are the Hypomanic,” forbes.com, June 2, 2006, http://www.forbes.com/forbes/2006/0619/037.html.
[12] Peter F. Drucker, Innovation and Entrepreneurship, New York: Harper & Row, 1985, 25-26.
[13] Peter F. Drucker, The Essential Drucker: The Best of Sixty Years of Peter Drucker's Essential Writings on Management, London: Collins Business Essentials, Kindle edition, 2008, Loc. 255-257.