|Life / Books|
Small is beautiful and boring
Entrepreneurs may not be the innovative risk-takers they appear to be. Tony Jackson weighs new evidence from the US
Entrepreneurs are everybody's darlings these days. They may be small, but they are innovative. And innovation, we are assured, is the main engine of economic growth.
For policymakers everywhere, the task is to get the little critters to nest and breed. Give them the conditions they like - plenty of venture capital, tax breaks and a risk-taking culture - and the sun will shine on all of us, just like in California.
Along comes Amar Bhidé to tell us most of this is plain wrong. Entrepreneurs, he asserts, are not risk-takers at all. Nor do most of them innovate, or depend on venture capital.
Indeed, the notion of using policy to help entrepreneurs could be a mistake. The start-up venture and the big, established company are two sides of the business coin. Why should we help one at the expense of the other?
If that sounds odd, this is a perfectly serious book. Mr Bhidé is a business school academic, who has taken the trouble to talk to the founders of 100 of the fastest-growing start-ups in the US.
His findings are striking enough. Start with his assertion that entrepreneurs are not innovators or risk-takers. The vast majority of new businesses, he points out, start small and stay that way. These are the hairdressing salons, corner shops and landscape gardeners. Those are mature, predictable industries. For just that reason, they are the least profitable.
The success stories come in areas of high uncertainty: where markets are changing fast because of technology, regulation or fashion. A very large proportion, unsurprisingly, are in computing.
But Mr Bhidé insists they are rarely innovative. The people who start high-growth businesses take a humdrum idea, usually from someone else, then change it constantly to fit the market. The starting point is much less important than what happens next.
Nor are they risk-takers. These are typically young people, with no money, expertise or status. They have nothing to lose. Risk arrives later on, when they have made their pile and must decide whether to invest in long-term growth or sell out.
This is one reason why so few promising start-ups become a Dell or Microsoft. Taking planned, calculated risks is the job of big, established companies, Mr Bhidé argues. True entrepreneurs rarely have the temperament for it.
What they have, instead, is a high tolerance for ambiguity - defined as knowledge that you know you do not have. Few of Mr Bhidé's interviewees began with any kind of business plan. That would have been a waste of time: the future was simply too uncertain. Therein lay their opportunity.
Big companies may be happy with risk, but they cannot stand ambiguity. They can invest billions in a chip plant or oil field, but only when they know the odds. When the odds are unknown, entrepreneurs have the game to themselves.
Ambiguity aside, what are the qualities of a successful entrepreneur? Mr Bhidé provides a helpful list: creativity, ambition, luck, administrative skill, vision and foresight. Typical entrepreneurs need none of them.
Rather, they will be extremely self-confident, and good at handling rejection. They must be excellent at face-to-face selling. They must abandon Plan A at a moment's notice, yet still retain their self-belief.
Nor do they need big chunks of outside capital, Mr Bhidé says. Venture capital might be nice to have, but only about 5 per cent of Mr Bhide's companies had any.
This is because venture capital outfits, like big companies, are good at risk and bad at ambiguity. They can risk large sums, but need lots of information. The vast majority of start-ups could not provide that if they tried.
Compaq began with venture capital, and Microsoft funded itself, Mr Bhidé points out. This gave Compaq a faster start, but only for a while.
Perhaps most important from a policy viewpoint, Mr Bhidé does not accept that entrepreneurs are the main source of innovation. Few start-ups - barring rare exceptions such as Federal Express - are built on a revolutionary idea.
Big innovations, again tend to come from big companies. They are equipped to screen ideas and to fund them. The entrepreneur's job is to fill the gaps - to take small, uncertain ideas and run with them.
Finally, Mr Bhidé has the temerity to suggest that the onward march of the entrepreneur may not last for ever. People used to think big companies would sweep the world. Instead, they have been downsizing and focusing. When they recover their nerve, they may start filling some of the gaps now left to entrepreneurs.
A good deal of
what Mr Bhidé says is contentious. But the strength of his book
is that it hands us large quantities of empirical and awkward fact. Any
future theorising about the role and nature of the entrepreneur must take
account of it.
and Evolution of New Business by Amar Bhidé is published by Oxford
University Press. To order for $32: email@example.com
Back to Amar Bhide home page