Required Reading

When I was in college, guys usually pretended they were in a band. Now they pretend they are in a start-up.

In the March 14th edition of The Economist, a special report on entrepreneurship offers a comprehensive analysis of our favorite subject.  Authored by Washington bureau chief Adrian Wooldridge, the report is a collection of nine articles examining virtually every facet of innovation-driven new enterprise.  Wooldridge cites our friends at the Kauffman Foundation in defining entrepreneurial companies as specifically innovative, as contrasted to replicative, businesses.

The leading article, Global Heroes, explodes the "five myths" about entrepreneurialism.  These include:

• Entrepreneurs are "orphans and outcasts"; solitary, antisocial nerds making widgets in isolation
  

Entrepreneurs may be more independent than the usual suits who merely follow the rules, but they almost always need business partners and social networks to succeed.

• Entrepreneurs are young.
  

The Kauffman Foundation examined 652 American-born bosses of technology companies set up in 1995-2005 and found that the average boss was 39 when he or she started. The number of founders over 50 was twice as large as that under 25.

• Entrepreneurship is driven by venture capital

Monitor, a management consultancy that has recently conducted an extensive survey of entrepreneurs, emphasises the importance of “angel” investors, who operate somewhere in the middle ground between venture capitalists and family and friends. They usually have some personal connection with their chosen entrepreneur and are more likely than venture capitalists to invest in a business when it is little more than a budding idea.

• Entrepreneurs must create world-changing new technology

Sir Ronald Cohen, the founder of Apax Partners, one of Europe’s most successful venture-capital companies, points out that some of the most successful entrepreneurs concentrate on processes rather than products. Richard Branson made flying less tedious by providing his customers with entertainment. Fred Smith built a billion-dollar business by improving the delivery of packages. Oprah Winfrey has become America’s richest self-made woman through successful brand management.

• Entrepreneurship cannot occur in large companies

Many big companies work hard to keep their people on their entrepreneurial toes. Johnson & Johnson operates like a holding company that provides financial muscle and marketing skills to internal entrepreneurs. Jack Welch tried to transform General Electric from a Goliath into a collection of entrepreneurial Davids. Jorma Ollila transformed Nokia, a long-established Finnish firm, from a maker of rubber boots and cables into a mobile-phone giant; his successor as boss of the company, Olli-Pekka Kallasvuo, is now talking about turning it into an internet company.

Just as importantly, big firms often provide start-ups with their bread and butter. In many industries, especially pharmaceuticals and telecoms, the giants contract out innovation to smaller companies. Procter & Gamble tries to get half of its innovations from outside its own labs. Microsoft works closely with a network of 750,000 small companies around the world. Some 3,500 companies have grown up in Nokia’s shadow.

As we've pointed out before, an economic downturn is a good time to start businesses.  Wooldridge notes that it is also an opportune time for growing entrepreneurial businesses.  Citing a study from Endeavor, entrepreneurs surveyed forecast that "their businesses would grow by 31% and their workforces by 12% this year. Half of them thought they would be able to hire better people and 39% said there would be less competition."

In addition to this overview, additional articles in the report include:

• Managing entrepreneurship
  
• Time for entrepreneurship
  
• The United States of Entrepreneurs
  
• Entrepreneurs in India and China
  
• Lands of opportunity
  
• The formula for entrepreneurship
  
• Entrepreneurs doing good
  
• The entrepreneurial society

Anyone professing an interest in innovation and entrepreneurship will be significantly better informed after reading this authoritative analysis.