And imagine that such a book, published in  2000, contains no discussion of the
                    Internet – doesn't mention the Internet, in  fact, in its otherwise obsessively thorough
                    index, even though one of its central tenets is that "promising startups cluster
                    in market niches characterized by high uncertainty generated by technological" or
                    other forces.

                    Now imagine the strangest thing of all, that in spite of failing to acknowledge the
                    600-pound gorilla munching noisily at the table, the book is filled with useful and
                    even startling insights based on exhaustive research. Such is the strange
                    case of The Origin and Evolution of New Businesses (Oxford University Press) by
                    Harvard Business School professor Amar V. Bhide, who purposely excluded the Net from his otherwise authoritative-sounding study.

                    The question, of course, is why?

                    "I live off the Internet," Bhide said in a recent telephone interview,
                    noting that he was zapping files around long before there was even a
                    World Wide Web. "I'm not a luddite. On the other hand, I think the
                    processes by which new Internet businesses are being formed and
                    funded and taken public are aberrant." In other words, we're in the
                    midst of a bubble. And, says Bhide, "I think it's going to bust."

                    The funny thing is that Bhide's insights apply to some Internet
                    startups after all – just not the ones getting all the ink. Indeed, some
                    of the biggest players on the Net started by following the pattern
                    Bhide sets out for successful new businesses. For these very
                    reasons, budding Internet entrepreneurs – especially those who
                    believe the rapid cycle of idea to VC to IPO can't last forever – simply
                    can't afford to ignore the professor's ideas, despite his decision to
                    entirely overlook the Internet.

                    Perhaps the best way to explain those ideas is to start with the myth
                    they appear designed to shatter. Free associate for a minute: If you
                    hear "entrepreneur," what comes to mind? A risk-taking go-getter,
                    right? A classic type-A personality who comes up with a great new
                    idea and pursues his dream of building it into a business with
                    single-minded tenacity.

                    Bhide's research suggests this picture is all wrong. If anything, it's
                    the exception that proves the rule. In fact, most new businesses are
                    of the lawn-care variety: At best, they might provide a living for their
                    proprietor, but have little or no profit potential.

                    To figure out what sets apart successful businesses, Bhide takes an
                    approach that's akin to 19th century psychologist William James' view
                    of religion. James considered religion to be of two kinds: chronic and
                    acute. Most people might be called chronically religious, but to really
                    understand the phenomenon, he felt, one had to focus on the few
                    who were acutely religious, so the thing might be observed in full
                    flower.

                    To Bhide, all those hairdressers and lawn-care outfits are chronic
                    businesses. To find some acute businesses for his inquiry, he focused
                    on the 1989 Inc. magazine list of 500 fastest-growing small
                    companies. In 1988, these firms had average sales of $15 million, 135
                    employees and five-year sales growth of 1,407 percent. They are
                    exemplars of the kind of firm some researchers have called "gazelles,"
                    which account for most of the new jobs created in the small-business
                    sector.

                    In studying these firms, Bhide comes up with some striking findings.
                    First, far from being high-risk ventures, these businesses were
                    started on a shoestring by entrepreneurs who didn't have much to
                    lose. Their median startup capital was just $10,000, and more than a
                    third of the founders he interviewed didn't even have to forgo a
                    steady paycheck, having already quit or been fired from their regular
                    jobs.

                    Nor did they have to rack their brains to come up with a big idea.
                    Instead, the typical entrepreneur of a high-growth venture begins
                    with a modification or even duplication of an existing product or
                    notion, often in an unsettled or fast-changing field.

                    Instead of a fancy business plan, the venture thrives as a result of
                    the founders' adaptability. And instead of vision in the traditional
                    sense, the key instead appears to be what Bhide calls "myopic
                    opportunism," or a willingness to exploit short-term advantage in the
                    startup years. As to personality types, most of the usual
                    generalizations appeared wrong. More important than anything else
                    was a relatively high tolerance for ambiguity. Other useful skills:
                    "tactical ingenuity, self-control, perceptiveness and sales skills."

                    The visionary and charismatic advocate of the "big idea" – the human
                    force of nature who simply will not let anything get in his way – is the
                    rare exception. As is evident from Bhide's account of the early history
                    of Federal Express and its dynamic founder, Frederick W. Smith, there
                    are good reasons why this sort of thing is rare. FedEx made it big,
                    but it took a series of small miracles all along the way.

                    Bhide, a 44-year-old alumnus of the Indian Institute of Technology
                    and Harvard Business School, speaks and writes like a classic
                    intellectual, but entrepreneurship is in his blood. His father started his
                    own glass-related business in Bombay in the 1930s, and when Bhide
                    came to the U.S. in 1977, it was with the intention of returning
                    someday to run the family business.

                    Instead, he piled up graduate degrees and launched his own
                    entrepreneurial ventures, none of them particularly successful. "I fell
                    on my face," he says cheerfully.

                    In one, he was going to have Japanese securities filings translated
                    into English in his native India and then make them available to U.S.
                    investors. It was a new idea, but it never got off the ground. He also
                    developed a scheme to give investors a piece of the action in
                    residential real estate by helping cash-short yuppies buy homes.
                    Another big idea.

                    He launched a little hedge fund, but it fell apart along with the
                    collapse of Long Term Capital Management, the much-bigger
                    Nobel-prize-studded fund whose demise nearly took down a good
                    chunk of the financial world.

                    Bhide hasn't been moved to start any Internet businesses, though it
                    would seem the ideal arena for entrepreneurs playing by his rules.
                    "High uncertainty and low capital and opportunity costs create a
                    'heads I win, tails I don't lose much' proposition for entrepreneurs," he
                    writes. But after holding true at the outset (Yahoo (YHOO) was
                    founded by graduate students with little money and less to lose),
                    Bhide's precepts have been buried under an avalanche of capital.

                    "What's different," he says, "is the breakdown of the Darwinian
                    process," whereby businesses that were unfit or founded by unskilled
                    entrepreneurs would fail long before billions of dollars were sunk into
                    them. It's as if political primaries were abolished and the parties found
                    themselves backing untested candidates for the White House.

                    "Either this is an unprecedented revolution that deserves to be
                    disassociated from normal economic forces," says Bhide, "or there's
                    something spooky about all this."

                    He cites the personal computer business as a contrast. He describes
                    its development as a "normal process" in which many entrepreneurs
                    vied for dominance, much like the early auto industry. After a while,
                    several firms rose to pre-eminence and got funded, eventually going
                    public.

                    "All that was good and healthy. That has been the pattern
                    throughout technological history," he says. "Only a few like Compaq
                    (CPQ) jumped the gun, and these were held to a higher standard" by
                    venture capitalists.

                    He notes that venture funds on average don't especially outperform
                    the stock market, particularly on a risk-adjusted basis. But unlike
                    mutual funds or traditional money managers, he suggests, there are
                    probably bigger differences between good and bad venture
                    capitalists, with the most successful enjoying a halo effect – the
                    most promising businesses are brought to them first – that only
                    reinforces their lead.

                    Bhide doesn't pretend to have an explanation for the Internet funding
                    frenzy, but he points to an earlier, analogous phenomenon as a
                    cautionary tale. "Biotech proves the point that these things don't
                    work," he says, noting that from 1990 to 1992 the amount of capital
                    invested in the once-hot biotechnology field shrank by two-thirds.

                    That's not to say he doesn't see a future for Internet
                    entrepreneurship. "The 2005 Inc. list will have lots of Internet
                    companies," he says. "But they will follow the traditional pattern."
 
 

                    Daniel Akst is a writer teaching this semester at UC Berkeley's
                    Graduate School of Journalism.