Entrepreneurship – Page 146 – artdiamondblog.com

Resilience

(p. 183) In 1832, a young man was fired from his job and lost his bid for election to the state legislature. The next year his new business failed. Three years later he suffered a nervous breakdown. After recovering, he was defeated as speaker in the state legislature. He was defeated in his efforts to win his party’s nomination to Congress in 1843. He was rejected as land officer in 1849. In 1854, he was defeated in the U.S. Senate election and, in 1856, his efforts to win the nomination as his party’s vice president failed. The string of failures continued. He was again defeated in the Senate election in 1858. Finally, in 1860, Abraham Lincoln was elected as the sixteenth president of the United States.

Source:
Audretsch, David. “Review of: Adapt: Why Success Always Starts with Failure.” Journal of Economic Literature 50, no. 1 (March 2012): 183.

Entrepreneurs Thrive in a Culture of “Chutzpah”

“Manhattan District Attorney Cyrus Vance, Jr.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. C13) Before a recent business trip to Israel, someone handed me a copy of “Start-Up Nation: The Story of Israel’s Economic Miracle,” a book by Dan Senor and Saul Singer about Israel’s culture of innovation and entrepreneurialism. I had finished the book on the overnight flight to Tel Aviv. When I returned home a week later, based on what I had seen in Israel, I purchased multiple copies and handed them out to senior staff who work with me.

“Start-Up Nation” recounts and dissects how Israel, in just 60 years, has thrived as an economy, creating an environment where talent and technology have attracted more venture-capital dollars per person than any other country in the world.
In a nutshell, and admittedly oversimplifying, the authors boil Israel’s success down to a few, core themes. First, Israel was born into and exists in an adverse political environment. Surrounded by hostile neighbors, Israelis survived–and thrived–by adapting quickly, making the most out of limited resources and taking on outsize challenges without fear or undue regard for authority. The latter quality might be called chutzpah. Second, Israelis all participate in military service, before university. The skills they learn in the military, and the maturity they gain from military service, make their work force better skilled and more capable of better teamwork at the entry level on up.
If my recent visit provides any evidence of national characteristics, Israelis question authority, openly and all the time. At any given meal, whether it included ordinary citizens, generals, government officials or business executives, deference was in short supply. No quarter is given. But debate and disagreement create a climate of self-awareness. That in turns helps to create a culture of achievement.
So why did I give copies of the book to my senior staff? I believe in a bottom-up organizational culture, where problems are identified, raised and solved by the line employees who make the enterprise run. Our American system–and especially our legal and government cultures–frequently operates with a top-down style, which can discourage creativity and individualism.
The one thing that I am not planning to do is give copies of “Start-Up Nation” to my children until they graduate from college and have left the house. They have questioned my authority enough already.

For the full book discussion, see:
Cyrus Vance. “Twelve Months of Reading: Cyrus Vance.” The Wall Street Journal (Sat., December 17, 2011): C13.
(Note: the broad multi-page article was sub-divided into sections headed by the name of the person who was writing the book advice in that section. Internally the broad article seemed to be entitled “Books of the Year.”)

The first book Vance recommends is:
Senor, Dan, and Saul Singer. Start-up Nation: The Story of Israel’s Economic Miracle. hb ed. New York: Twelve, 2009.

Overly Optimistic Entrepreneurs Seek Government Support for Projects that Will Usually Fail

People have a right to be overly-optimistic when they invest their own money in entrepreneurial projects. But governments should be prudent caretakers of the money they have taken from taxpayers. The overly-optimistic bias of subsidy-seeking entrepreneurs weakens the case for government support of entrepreneurial projects.

(p. 259) The optimistic risk taking of entrepreneurs surely contributes to the economic dynamism of a capitalistic society, even if most risk takers end up disappointed. However, Marta Coelho of the London School of Economics has pointed out the difficult policy issues that arise when founders of small businesses ask the government to support them in decisions that are most likely to end badly. Should the government provide loans to would-be entrepreneurs who probably will bankrupt themselves in a few years? Many behavioral economists are comfortable with the “libertarian paternalistic” procedures that help people increase their savings rate beyond what they would do on their own. The question of whether and how government should support small business does not have an equally satisfying answer.

Source:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.

For Inventors “Optimism Is Widespread, Stubborn, and Costly”

(p. 257) One of the benefits of an optimistic temperament is that it encourages persistence in the face of obstacles. But persistence can be costly. An impressive series of studies by Thomas Åstebro sheds light on what happens when optimists receive bad news. He drew his data from a Canadian organization–the Inventors Assistance Program–which collects a small fee to provide inventors with an objective assessment of the commercial prospects of their idea. The evaluations rely on careful ratings of each invention on 37 criteria, including need for the product, cost of production, and estimated trend of demand. The analysts summarize their ratings by a letter grade, where D and E predict failure–a prediction made for over 70% of the inventions they review. The forecasts of failure are remarkably accurate: only 5 of 411 projects that were given the lowest grade reached commercialization, and none was successful.
Discouraging news led about half of the inventors to quit after receiving a grade that unequivocally predicted failure. However, 47% of them continued development efforts even after being told that their project was hopeless, and on average these persistent (or obstinate) individuals doubled their initial losses before giving up. Significantly, persistence after discouraging advice was relatively common among inventors who had a high score on a personality measure of optimism–on which inventors generally scored higher than the general population. Overall, the return on private invention was small, “lower than the return on private equity and on high-risk securities.” More generally, the financial benefits of self-employment are mediocre: given the same qualifications, people achieve higher average returns by selling their skills to employers than by setting out on their own. The evidence suggests that optimism is widespread, stubborn, and costly.

Source:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.

Entrepreneurs Are Optimistic About the Odds of Success

(p. 256) The chances that a small business will survive for five years in the United States are about 35%. But the individuals who open such businesses do not believe that the statistics apply to them. A survey found that American entrepreneurs tend to believe they are in a promising line of business: their (p. 257) average estimate of the chances of success for “any business like yours” was 60%–almost double the true value. The bias was more glaring when people assessed the odds of their own venture. Fully 81% of the entrepreneurs put their personal odds of success at 7 out of 10 or higher, and 33% said their chance of failing was zero.

Source:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.

“If Apple Is a Fruit on a Tree, Its Branches Are the Freedom to Think and Create”

(p. B3) Millions of Chinese flooded the popular micro blogging site Sina Weibo to tweet their condolences on the death of Steve Jobs over the past two days. They also raised the question: Why isn’t there a Steve Jobs in China?
. . .
One of the most popular postings on Mr. Jobs’ legacy came from scholar Wu Jiaxiang. “If Apple is a fruit on a tree, its branches are the freedom to think and create, and its root is constitutional democracy,” he wrote. “An authoritarian nation may be able to build huge projects collectively but will never be able to produce science and technology giants.” On that, Wang Ran, founder of a boutique investment bank China eCapital Corp., added, “And its trunk is a society whose legal system acknowledges the value of intellectual property.”

For the full story, see:
Li Yuan. “China Frets: Innovators Stymied Here.” The Wall Street Journal (Sat., October 8, 2011): B3.
(Note: ellipsis added.)

“Planning Fallacy”: Overly Optimistic Forecasting of Project Outcomes

(p. 250) This should not come as a surprise: overly optimistic forecasts of the outcome of projects are found everywhere. Amos and I coined the term planning fallacy to describe plans and forecasts that

are unrealistically close to best-case scenarios

could be improved by consulting the statistics of similar cases

. . .
The optimism of planners and decision makers is not the only cause of overruns. Contractors of kitchen renovations and of weapon systems readily admit (though not to their clients) that they routinely make most of their profit on additions to the original plan. The failures of forecasting in these cases reflect the customers’ inability to imagine how much their wishes will escalate over time. They end up paying much more than they would if they had made a realistic plan and stuck to it.
Errors in the initial budget are not always innocent. The authors of unrealistic plans are often driven by the desire to get the plan approved–(p. 251)whether by their superiors or by a client–supported by the knowledge that projects are rarely abandoned unfinished merely because of overruns in costs or completion times. In such cases, the greatest responsibility for avoiding the planning fallacy lies with the decision makers who approve the plan. If they do not recognize the need for an outside view, they commit a planning fallacy.

Source:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.
(Note: ellipsis added; italics in original.)

“Let the Consumers Decide When and Where They Want to Eat”

“Rachel Billow is the co-founder of La Cocinita, a food truck in New Orleans that serves Latin American cuisine. She says the city’s requirement that mobile food vendors change locations after 45 minutes in one spot isn’t feasible. “It takes about a half-hour to set up,” she says.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. B8) A street fight is brewing between gourmet food-truck vendors and restaurants–not over the grub, but how it’s sold.

Under pressure to protect bricks-and-mortar restaurants from increased competition, several big cities are starting to apply the brakes on a rising tide of food-truck vendors with fully loaded kitchens.
Boston, Chicago, St. Louis and Seattle are among the cities enacting laws that restrict where food trucks can serve customers in proximity to their rivals and for how long. Some food-truck operators argue that they shouldn’t be punished for offering an innovative service, especially since many cities already allow restaurants to open up alongside one another.
“The rules are unfair,” says Amy Le, owner of Duck N Roll, a food truck in Chicago serving Asian-style cuisine that includes short ribs and mango lychee.
Three weeks after she launched the business last fall, she received a ticket from local law enforcement for doing business about 150 feet from a wine bar–50 feet within the city’s limit for how close food trucks can park outside of retail food establishments.
Ms. Le says she later had to spend nearly a full day in court to find out what the violation would cost her–about $300–and that she lost an estimated $600 to $700 in sales as a result.
“The 200-foot buffer prohibits me from competing,” says Ms. Le, 32 years old, who also opposes a new rule requiring food trucks to install global-positioning devices so the city can track their whereabouts. “It is a free market. Let the consumers decide when and where they want to eat.”
. . .
Gourmet food-truck operators say another problem is that in many cities they are still relegated to antiquated rules intended for ice-cream, hot-dog and other traditional mobile vendors with smaller and less complex menus.
New Orleans, for example, requires mobile food vendors to change locations after 45 minutes in one spot, among other restrictions.
“It’s not a feasible amount of time for this business model,” says 31-year-old Rachel Billow, who last year co-founded La Cocinita, a food truck that serves Latin American cuisine such as plantains and arepas. “It takes about a half-hour to set up.”
Ms. Billow says she and her business partner, Venezuelan chef Benoit Angulo, started La Cocinita after several years of working in the restaurant industry. They invested $50,000 in start-up costs, an amount that included $12,000 in modifications to their vehicle to satisfy the city’s fire code, she adds.

For the full story, see:
SARAH E. NEEDLEMAN. “Street Fight: Food Trucks vs. Restaurants; Some Big Cities Jump Into the Fray, Enacting Parking Restrictions to Cope With Rising Tide of Gourmet Vendors.” The Wall Street Journal (Thurs., August 9, 2012): B8.
(Note: ellipsis added.)

“Amy Le, owner of Duck N Roll, an Asian-style food truck in Chicago, says last fall she received a fine for doing business about 150 feet from a wine bar–50 feet within the city’s limit for how close food trucks can park outside of retail food establishments.” Source of caption and photo: online version of the WSJ article quoted and cited above.

Revolutionary Entrepreneurs Need “Unbridled Confidence and Arrogance”

(p. B1) Will there be another?
It’s a bit absurd to try to identify “the next Steve Jobs.” Two decades ago, Mr. Jobs himself wouldn’t even have qualified. Exiled from Apple Inc., . . . Mr. Jobs was then hoping to revive his struggling computer maker, NeXT Inc. . . .
But just as Mr. Jobs followed Henry Ford and Thomas Edison, there will some day be another innovator with the vision, drive and disdain of the status quo to spark, and then direct, big changes in how we live.
. . .
“You have to try the unreasonable,” says Vinod Khosla, a co-founder of Sun Microsystems Inc., who, as a longtime venture capitalist, has seen thousands of would-be revolutionaries. Two key characteristics, Mr. Khosla says: “unbridled confidence and arrogance.”

For the full story, see:
SCOTT THURM and STU WOO. “Who Will Be the ‘Next Steve Jobs’?” The Wall Street Journal (Sat., October 8, 2011): B1 & B3.
(Note: ellipses added.)

Vivid Examples of Government Obstacles to Entrepreneurship

EconomicFreedom.org/Stories is posting video clips of free agent entrepreneurs and the obstacles that government policies put in the path to their achievements. The videos give concrete examples and make the costs of regulations more real by connecting the costs to the faces of actual people.

“Unknown Unknowns” Will Delay Most Projects

Kahneman’s frequently-used acronym “WYSIATI,” used in the passage quoted below, means “What You See Is All There Is.”

(p. 247) On that long-ago Friday, our curriculum expert made two judgments about the same problem and arrived at very different answers. The inside view is the one that all of us, including Seymour, spontaneously adopted to assess the future of our project. We focused on our specific circumstances and searched for evidence in our own experiences. We had a sketchy plan: we knew how many chapters we were going to write, and we had an idea of how long it had taken us to write the two that we had already done. The more cautious among us probably added a few months to their estimate as a margin of error.

Extrapolating was a mistake. We were forecasting based on the informa-(p. 248)tion in front of us–WYSIATI–but the chapters we wrote first were probably easier than others, and our commitment to the project was probably then at its peak. But the main problem was that we failed to allow for what Donald Rumsfeld famously called the “unknown unknowns:’ There was no way for us to foresee, that day, the succession of events that would cause the project to drag out for so long. The divorces, the illnesses, the crises of coordination with bureaucracies that delayed the work could not be anticipated. Such events not only cause the writing of chapters to slow down, they also produce long periods during which little or no progress is made at all. The same must have been true, of course, for the other teams that Seymour knew about. The members of those teams were also unable to imagine the events that would cause them to spend seven years to finish, or ultimately fail to finish, a project that they evidently had thought was very feasible. Like us, they did not know the odds they were facing. There are many ways for any plan to fail, and although most of them are too improbable to be anticipated, the likelihood that something will go wrong in a big project is high.

Source:
Kahneman, Daniel. Thinking, Fast and Slow. New York: Farrar, Straus and Giroux, 2011.