ELSEVIER
EXECUTIVE
FORUM
ENTREPRENEURSHIP REFLECTIONS SUBVERSIVE
ACTIVITY
RAYMOND Kauffman
Foundation,
ON A
W. SMILOR
Kansas City, Missouri
Entrepreneurship is a subversive activity. It upsets the status quo, disrupts accepted ways of doing things, and alters traditional patterns of behavior. It is, at heart. a change process that undermines current market conditions by introducing something new or different in response to perceived needs. It is sometimes chaotic, often unpredictable. Because of the dynamic nature of entrepreneurship and because of the entrepreneur’s ability to initiate change and create value, economist Joseph Schumpeter’s concept of “creative destruction” is an apt description of the process (Schumpeter 1934). By innovating, the entrepreneur thus disrupts the economic status quo, and as a result creates new market opportunities.
ABIDING
ELEMENTS
But what makes an effective entrepreneur? What differentiates the person who may start from scratch and build something of significant value from the individual who flounders along the way? Despite a variety of perceptions, definitions, attitudes, and feelings about entrepreneurship, there are some abiding elements to the entrepreneurial process. For me, these elements are talent, opportunity, capital, and know-how. When these elements are linked together, an entrepreneur increases his or her chances to successfully initiate and build an enterprise or organization.
Talent Entrepreneurs are remarkably diverse. Despite the extensive amount of research that has focused on the traits or characteristics of entrepreneurs, there is no clear set of traits or characteristics that applies to all entrepreneurs. In fact, the attempt to identify a specific set of Address 64112-2776.
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characteristics or to define a specific psychological profile to predict who will be a successful entrepreneur has proven to be a generally fruitless endeavor. Effective entrepreneurs are dreamers who do. I like this depiction of the entrepreneur who creates real value because it combines the ability to envision the possible with the chutzpah to make it happen. Perhaps the most observed phenomenon of the entrepreneurial processis the passion of the entrepreneur. Passion is the enthusiasm, joy, and even zeal that come from the energetic and unflagging pursuit of a worthy, challenging, and uplifting purpose. In the entrepreneur, it is described as drive-the determined, optimistic, and persistent desire to succeed at one’s own venture. It is the “fire in the belly” that makes the improbable possible. Passion emerges when one has the freedom and opportunity to pursue one’s dream. Passion is intrinsic. Its locus is inside each one of us. George Bernard Shaw provided the essential insight about one’s purpose. He said, “This is the true joy in life-the being used for a purpose recognized by yourself as a mighty one . . .” (Shaw 1903). Complementing the entrepreneur’s passion are three dispositions that guide the entrepreneur in initiating and building an enterprise, and that provide insight on what makes an entrepreneur effective. First is a proclivity for action. “Ready, fire, aim” is a common approach to problems and initiatives. Entrepreneurship is essentially a practice, as Peter Drucker points out, a doing that ultimately depends on performance (Drucker 1985). Entrepreneurs who perform demonstrate Steven Covey’s first habit of highly effective people: to be proactive (Covey 1989). Proactivity means that our behavior is a function of our decisions, not our conditions. Rather than let a situation determine how they would act, effective entrepreneurs take the initiate to change their situation. The second disposition is a tolerance for ambiguity. Starting and building an enterprise is like riding a roller coaster. One must endure constant and unseen ups and downs, turns and twists. The ability to deal with the unexpected and handle the unknown is part and parcel of the entrepreneurial process. Not knowing whether one can make payroll, or facing the loss of a primary customer, or needing to find capital for growth and survival puts physical and emotional strains on an entrepreneur. The person who needs routine, who expects assurances, who counts on guarantees, is likely to find the entrepreneurial process an extremely disquieting experience. The third disposition is a desire for control. Entrepreneurs like to be in charge of their own destinies, to do their own thing. They seek independence, which is often expressed in being one’s own boss. Entrepreneurs are usually referred to as risk-takers. But I don’t think this is quite accurate. Effective entrepreneurs are not simply gamblers who are willing to bet everything on one role of the dice and then pray that it comes up seven or eleven. A better analogy would be the chess player, who may make a bold move, but also understands the parameters of the game and anticipates the possible counter moves. In this sense, the entrepreneur takes calculated risks, preferring the odds to be stacked in his or her favor. More importantly, the effective entrepreneur seeks to secure those better odds by acquiring superior knowledge about the domain in which the risk is taking place. This may be done through efforts such as market research, business planning, and competitive analysis.
Opportunity Effective entrepreneurs recognize and pursue opportunities. Jeffry Timmons of Babson College points out that at the center of an opportunity is always an idea, but not all ideas are opportunities (Timmons 1994). An opportunity is customer-driven. It is rooted in meeting a real need in the marketplace, solving a real problem, or filling a real niche within a reason-
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able time. Thus there is a “window” to every opportunity. It is a product or service that thus creates or adds real value for the customer. Usually, the entrepreneur pursues the opportunity with minimal or limited resources. The entrepreneurship faculty at the Harvard Business School has thus defined entrepreneurship as “the pursuit of opportunity beyond the resources one currently controls” (Stevenson and Gumpert 1985). For the entrepreneur, opportunity is based in innovation. Peter Drucker has said, “Innovation is the specific function of entrepreneurship... It is the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth” (Drucker 1985). Innovation requires a prepared mind. Herb Simon argues that the most creative and innovative individuals develop “chunks” of knowledge (Simon 1985). These are sets of patterns and relationships that develop over time that allow one to see solutions to problems-to make connections between events and actions. This reflects the truth in the adage that “chance favors the prepared mind.” One can actually work to develop a prepared mind. This is what the effective entrepreneur does in assessing market need by getting customer feedback, tracking trends, synthesizing information, and monitoring the competition. Effective entrepreneurs also seize opportunity through “bisociation,” a phenomenon historian Arthur Koestler observed in the creative process (Koestler 1990). Bisociation is the ability to relate two seemingly unrelated things to produce that “ah-ha” sensation in the marketplace. Michael Dell combined computers with mail order to launch Dell Computer Corporation; Fred Smith related mail and overnight delivery to start Federal Express, and Debbie Fields linked cookies and information technology to build Mrs. Fields Cookies.
Capital Every dynamic process needs to be fueled. The fuel for the entrepreneurial process is capital. Capital is the catalyst in the entrepreneurial chain reaction, the lifeblood of emerging and expanding enterprises. In business, it is the sine qua non of a new product, an innovative service, or a compelling opportunity. Entrepreneurs thus work to marshal financial resources. That is, they must often forge ahead with little or minimal actual cash in hand. To do this, they utilize “sweat equity” and bootstrapping to get what they need “for free or better!“They would rather control resources than own them and thus favor borrowing, renting, or leasing where possible. Effective entrepreneurs constantly seek to leverage resources for maximum use. Research on the sociology of entrepreneurship has revealed that entrepreneurship is facilitated or constrained by linkages between entrepreneurs, resources, and opportunities, and by the social relationships through which entrepreneurs obtain information. resources, and social support. (Aldrich and Zimmer 1986). Thus, entrepreneurship is embedded in networks of continuing social relations. The more extensive, complex, and diverse the web of relationships, the more the entrepreneur is likely to have accessto opportunities, the greater the chance of solving problems expeditiously, and ultimately the greater the chance of successfor the venture. The fewer, less dense, and more homogeneous the web of relationships, the less likely it is for a new venture to succeed. This networking dimension is especially important in finding and using outside resources such as bankers, lawyers, and accountants.
Know-how Effective entrepreneurs develop and/or acquire the skill and expertise to run an enterprise. This skill development or know-how involves the practical but essential ability to manage
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change both personally and organizationally. Personal know-how involves skills such asleading, communicating, listening, and negotiating. Organizational know-how involves marketing, finance, accounting, production, and manufacturing. Successful entrepreneurship requires quantitative information and qualitative insights. One springs from data; the other, from experience. One relies on numbers; the other, on judgment. One demands objectivity, the other, personal involvement and commitment. In this regard, effective entrepreneurs are exceptional learners. They learn from everything. They learn from customers, suppliers, and especially competitors. They learn from employees and associates. They learn from other entrepreneurs. They learn from experience. They learn by doing. They learn from what works and, more importantly, from what doesn’t work. As an enterprise grows, they also learn that they can’t do everything themselves. Consequently, team-building becomes a critical way to acquire know-how by complementing and extending the skills of the lead entrepreneur. Marilyn Kourilsky of the Center for Entrepreneurial Leadership points out that the entrepreneurial development team usually has an extremely strong affinity for the entrepreneur and a commitment to the integrity of the entrepreneur’s business vision (Kourilsky 1995). The team engages in entrepreneurially innovative and proactive applications of its group skills to scale up the venture’s resources, processes, and performance.
THE
ENTREPRENEURIAL
ENVIRONMENT
Perhaps the most compelling aspect of the entrepreneurial process is its paradoxical nature. Only by recognizing the range of paradoxes that exist for the entrepreneur is it possible to appreciate the dynamism and unpredictability of the entrepreneurial process and the tremendous energy required to start and build a venture. A paradox is a set of contradictory or diametrically opposed elements, both of which are real and true, that exist side by side in the same environment at the same time. Managing these paradoxes in a growing venture separates the effective entrepreneur from the one who never reaches his or her full potential (Eggers and Smilor 1996). In the entrepreneurial organization, order exists side by side with chaos. The very purpose of structure is to try to bring order out of chaos as a company grows. And yet, too much order kills the energy and creativity of the building process. The entrepreneur must find a way to hold on to the spirit, purpose, and direction of the company while simultaneously letting go through delegating, allocating responsibility, and letting others make their own mistakes. By giving up ownership in the company through stock options, equity sharing, and incentive plans, the entrepreneur actually maximizes his or her ownership. The entrepreneur must take short-term actions while maintaining long-term vision. This may require that the company collaborate with others, even competitors, through strategic alliances in order to be competitive in the marketplace. Entrepreneurs thus commit quickly to a course of action and then de-commit or pull the plug on that course of action if it proves ineffective. Entrepreneurs must sweat the details, focusing on each activity day by day. while conceptualizing and keeping the big picture in front of them. They must practice patient urgency, striking the precarious balance between getting things done now and waiting for the right time and circumstances to act. Within this context, there are key differences between the entrepreneur and the manager (Stevenson and Sahlman 1986). The entrepreneur tends to make minimal commitments of resources over many stages to keep options open and to search for effectiveness. The
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manager tends to make a complete commitment of resources in a single stage by depending on planning systems and searching for efficiency. The entrepreneur utilizes networks and a flat management structure to coordinate non-owned resources and to maximize the personal involvement of others, while the manager utilizes a more formal management hierarchy that sharply defines authority and responsibility. An entrepreneur’s approach to control favors temporary use or renting of assets to avoid obsolescence and minimize risk. A manager prefers to own assets for status, efficiency, and more coordination. Compensation and reward systems for entrepreneurs tend to be value-based and team-based to tie rewards to outcomes and increase personal involvement; for managers these systems tend to be more individually based and hierarchical. The entrepreneur’s commitment to opportunity tends to be quick and short to emphasize their action orientation and to manage risk. The manager’s commitment tends to be long and slow to eliminate risk and to involve many in the decision process.
CATALYST
FOR
CHANGE
Effective entrepreneurs create and manage change. By innovating, they initiate change, and by building viable organizations, they manipulate that change to their advantage. As the organization grows, they get others to buy into the change that he or she has created, and to win not just their involvement but also their commitment to managing that change. This requires clarity of direction from the entrepreneur along with the delineation of roles and the development of reward systems for all those who join the enterprise. As resource architects, they maximize resources, no matter how minimal they may be. And throughout the entrepreneurial process, they continually sense the pulse of the customer and then match real product differences with real customer needs. In this way, entrepreneurs disrupt the economic status quo. They are, in fact, necessary subversives. Their penchant for change and their knack for pursuing opportunities creatively destroy existing systems and markets. But with this destruction comes remarkable vitality. By innovating, effective entrepreneurs launch new products and services, open new markets, and create real value that are essential for economic and social well-being.
REFERENCES Aldrich
H, and Zimmer C. 1986. Entrepreneurship through social networks. In D.L. Sexton and R.W. Smilor, eds., The Art and Science of Entrepreneurship. Cambridge. MA: Ballinger Publishing Company, pp. 3-23. Covey, S.R. 1989. The 7 Habits o,f Highly Effective People: Powerful Lessons in Personal Change. New York, NY: Simon and Schuster. Drucker, P. 1985. Entrepreneurship and Innovation: Practice and Principles. New York. NY: Harper Business. Eggers, J.H., and Smilor, R.W. 1996. Leadership skills of entrepreneurs: Resolving the paradoxes and enhancing the practices of entrepreneurial growth. In R.W. Smilor and D.L. Sexton, eds.. Leadership and Entrepreneurship: Personal and Organizational Development in Entrepreneurial Ventures. Westport, CT: Quorum Books. pp. 15-38. Koestler, A. 1990. The Act of Creation. New York: Viking Penguin. Kourilsky, M. 1995. Entrepreneurship Education: Opportunity in Search of Curriculum. Kansas City, MO: Center for Entrepreneurial Leadership Inc. Shaw, G.B. 1903. Man & Superman, epistle dedicatory. New York, NY: Viking Penguin, Inc. Simon, H.A. 1985. What we know about the creative process. In R.L. Kuhn, ed. Frontiers in Crr-
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Management. Cambridge, MA: Ballinger Publishing Company, pp. 3-22. Schumpeter, J.A. 1934. The Theory of Economic Development. Cambridge, MA: Harvard University Press. Stevenson, H., and Gumpert, D. 1985. The heart of entrepreneurship. Harvard Business Review 63 (March-April):85-94. Stevenson, H., and Sahlman, W. 1986. Importance of entrepreneurship in economic development. In R. Hisrich, ed., Entrepreneurship, Zntrapreneurship and Venture Capital. Lexington, MA: Lexington Books. Timmons, J.A. 1994. New Venture Creation, Fourth Edition. Burr Ridge, IL: Irwin. ative and Innovative