Entrepreneurship – Page 168 – artdiamondblog.com

Guidelines for Innovative Thinking?

Source of cartoon: http://filipspagnoli.files.wordpress.com/2009/11/innovation-cartoon.jpg?w=361&h=364

The NYT ran the above cartoon by New Yorker cartoonist Leo Cullum as part of Cullum’s obituary.

(p. A22) Leo Cullum, a cartoonist whose blustering businessmen, clueless doctors, venal lawyers and all-too-human dogs and cats amused readers of The New Yorker for the past 33 years, died on Saturday in Los Angeles. He was 68 and lived in Malibu, Calif.

Mr. Cullum, a TWA pilot for more than 30 years, was a classic gag cartoonist whose visual absurdities were underlined, in most cases, by a caption reeled in from deep left field. “I love the convenience, but the roaming charges are killing me,” a buffalo says, holding a cellphone up to its ear. “Your red and white blood cells are normal,” a doctor tells his patient. “I’m worried about your rosé cells.”
. . .
His most popular cartoon, from 1998, showed a man addressing the family cat, which is sitting next to the litterbox. “Never, ever, think outside the box,” he says.

For the full obituary, see:
WILLIAM GRIMES. “Leo Cullum, New Yorker Cartoonist, Dies at 68.” The New York Times (Tues., October 26, 2010): A22.
(Note: the online version of the obituary is dated October 25, 2010.)
(Note: ellipsis added.)

William Rosen’s “The Most Powerful Idea in the World”

Source of book image: http://ffbsccn.files.wordpress.com/2010/07/the-most-powerful-idea-in-the-world.jpg

The range of William Rosen’s fascinating and useful book is very broad indeed. He is interested in THE question: why did the singular improvement in living standards known as the industrial revolution happen where and when it did?
The question is not just of historical interest—if we can figure out what caused the improvement then and there, we have a better shot at continuing to improve in the here and now.
I especially enjoyed and learned from William Rosen’s discussion, examples and quotations on the difficult issue of whether patents are on balance a good or bad institution.
Deirdre McCloskey taught me that the most important part of a sentence is the last word, and the most important part of a paragraph is the last sentence, and the most important part of a chapter is the last paragraph.
Here are the last couple of sentences of Rosen’s book:

(p. 324) Incised in the stone over the Herbert C. Hoover Building’s north entrance is the legend that, with Lincoln’s characteristic brevity, sums up the single most important idea in the world:

THE PATENT SYSTEM ADDED

THE FUEL OF INTEREST

TO THE FIRE OF GENIUS

In the next few weeks I will occasionally quote a few of the more illuminating passages from Rosen’s well-written account.

Book discussed:
Rosen, William. The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention. New York: Random House, 2010.

“Small-Business Marketplace at a Standstill”

“David Wetzel tried for two years to sell his New Jersey hardware store.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. B1) Small-business owners banking on a big payoff when they sell their establishments may have to settle for a lot less than planned.

A combination of tight credit, skittish buyers and business owners unwilling to sell at rock-bottom prices–factors similarly affecting home sellers–has left the small-business marketplace at a standstill.
. . .

(p. B4) “Owners still think their businesses are worth what they used to be,” says Thomas Coffey, a partner in Malvern, Pa., with B2BCFO, a provider of outsourced chief financial officers to small businesses. In reality, many “small companies just aren’t earning what they used to earn,” he says.

For the full story, see:
SARAH E. NEEDLEMAN. “Businesses Put Up for Sale Smack Into Harsh Reality.” The Wall Street Journal (Thurs., OCTOBER 14, 2010): B1 & B4.
(Note: ellipsis added.)

Home Depot Co-Founder Asks Obama to Stop Blocking Startups

Below I quote from the comments that Home Depot co-founder Ken Langone addressed to President Obama:

(p. A21) A little more than 30 years ago, Bernie Marcus, Arthur Blank, Pat Farrah and I got together and founded The Home Depot. Our dream was to create (memo to DNC activists: that’s build, not take or coerce) a new kind of home-improvement center catering to do-it-yourselfers. The concept was to have a wide assortment, a high level of service, and the lowest pricing possible.

We opened the front door in 1979, also a time of severe economic slowdown. Yet today, Home Depot is staffed by more than 325,000 dedicated, well-trained, and highly motivated people offering outstanding service and knowledge to millions of consumers.
If we tried to start Home Depot today, under the kind of onerous regulatory controls that you have advocated, it’s a stone cold certainty that our business would never get off the ground, much less thrive. Rules against providing stock options would have prevented us from incentivizing worthy employees in the start-up phase–never mind the incredibly high cost of regulatory compliance overall and mandatory health insurance. Still worse are the ever-rapacious trial lawyers.
Meantime, you seem obsessed with repealing tax cuts for “millionaires and billionaires.” Contrary to what you might assume, I didn’t start with any advantages and neither did most of the successful people I know. I am the grandson of immigrants who came to this country seeking basic economic and personal liberty. My parents worked tirelessly to build on that opportunity. My first job was as a day laborer on the construction of the Long Island Expressway more than 50 years ago. The wealth that was created by my investments wasn’t put into a giant swimming pool as so many elected demagogues seem to imagine. Instead it benefitted our employees, their families and our community at large.

For the full commentary, see:
KEN LANGONE. “Stop Bashing Business, Mr. President; If we tried to start The Home Depot today, it’s a stone cold certainty that it would never have gotten off the ground.” The Wall Street Journal (Fri., OCTOBER 15, 2010): A21.

Entrepreneurial Improvisation is Like “Jumping Rock to Rock Up a Stream”

“Crossing the Sulphurous River.” Source of caption and photo: http://www.flickr.com/photos/33506763@N00/211985842#/photos/sparlingo/211985842/lightbox/

In The Venturesome Economy book, and later (pp. 129 and 142) in the book quoted below, Bhidé describes the entrepreneur’s decision process as “improvisation.”

(p. 18) Entrepreneurs who start uncertain businesses with limited funds have little reason to devote much effort to prior planning and research. They cannot afford to spend much time or money on the research; the modest likely profit doesn’t merit much; and the high uncertainty of the business limits its value.

Sketchy planning and high uncertainty require entrepreneurs to adapt to many unanticipated problems and opportunities. One entrepreneur likens the process of starting a new business to jumping from rock to rock up a stream rather than constructing the Golden Gate Bridge from a detailed blueprint. Often, to borrow a term from Elster’s discussion of biological evolution, entrepreneurs adapt to unexpected circumstances in an “opportunistic” fashion: Their response derives from a spur-of-the- moment calculation made to maximize immediate cash flow. Capital-constrained entrepreneurs cannot afford to sacrifice short-term cash for long-term profits. They have to play rapid-fire pinball rather than a strategic game of chess.

Source:
Bhidé, Amar. The Origin and Evolution of New Businesses. Oxford and New York: Oxford University Press, 2000.
[Note to self: the search phrase “jumping rock stream” seems most productive of relevant images]

“Chris and Andrea Jumping from Rock to Rock Up a Stream.” Source of caption and photo: http://picasaweb.google.com/lh/photo/Q-FvMT8GFG7kZdvUm8d_Jw

“Girl (10-12) jumping on rocks in river.” Source of caption and photo: http://cache4.asset-cache.net/xc/200447463-001.jpg?v=1&c=NewsMaker&k=2&d=B3B7071D257FC0393BFC8E309AE4811E35B7CE0CF91BE8709437A3EAE6A5D3E800123AA3B5A18ED0

Joe Ricketts Stands Tall Against Earmarks

Entrepreneur Joe Ricketts. Source of photo: online version of the Omaha World-Herald article quoted and cited below.

I used to teach an Economics of Technology course in the UNO EMBA program (until a curriculum committee axed the course). As a long-shot I once invited Joe Ricketts to speak to the class. I was surprised that he accepted, and maybe also surprised that he clearly invested some time and thought in his presentation. The class was riveted not only by the story of his own entrepreneurial challenges, but also of his views of the policy issues of the day. I remember his good-natured persistence in arguing with one student who challenged him on his view of the importance of tort-reform.
From his manner, and some of the stories he told, he seemed to be the sort of entrepreneur who exemplified George Gilder’s view that great entrepreneurs have a kind of humility that leaves them open to learning, at least in key areas related to their business goals. By all accounts, Sam Walton was another example. And I heard Charles Koch speak this summer and saw him interact with some of his executives; he also gave the impression of being down-to-earth, and open to learning.
(Of course, then there’s Steve Jobs and Larry Ellison—generalizations on entrepreneurship are hard to come by!)
Ricketts and Koch also share another trait—this one too rare among successful entrepreneurs. They are both willing to invest a considerable part of their hard-earned wealth in order to preserve and protect the institutions of limited government that will make it possible for future entrepreneurs to succeed. In Ricketts’ case, for example:

(p. 7A) WASHINGTON — Joe Ricketts wants to bring down at least one Capitol Hill lawmaker who seeks earmarks so he can get the rest of Congress’ attention.

The founder and former CEO of what is now TD Ameritrade has started a new organization called Taxpayers Against Earmarks, which will seek to highlight what he describes as the evils of legislators setting aside money for pet projects back home.
. . .
Ricketts said that while some earmarks support worthy projects, he is against them all because the process is flawed. He compared those who support earmarks to addicts and criminals.
“I’m sure that all over the country there are people that like earmarks and people come to defend earmarks, and those are the people that are on the dope,” he said.
Ricketts said those who seek earmarks are asking legislators to spend other people’s money for their purposes.
“That’s theft,” he said. “As Tom Coburn says, that’s intergenerational theft. So those people that like earmarks, you can consider thieves.”
. . .
Ricketts said . . . the process encourages lawmakers to throw their support behind other spending bills to gain other lawmakers’ support for their earmarks.
“A lot of elected officials like the earmarks, but they’ve never had anybody like me or anybody else push back. … So now the scales are going to balance a little bit,” he said. “I’m going to spend as many years and as many dollars as it takes to be successful.”

For the full story, see:
Joseph Morton. “Joe Ricketts Will Put Up Big Bucks to Fight Earmarks.” Omaha World-Herald (Friday, October 1, 2010): 7A.
(Note: all ellipses added, except for the last one which was in the original.)
(Note: the online version of the article has the title “Joe Ricketts will help fight earmarks.”)

Long and Unknown Incubation Time Sometimes Needed for Innovation

(p. 118) The incubation stage is the most mysterious of the three stages of divergent thinking. Sometimes it appears as if the problem-solving process has stopped altogether.

Incubation is the absolute opposite of the normal business processes of the operating organization. It is often totally unpredictable. But since it is also the heart of the creative process, it creates a dilemma for the business executive who wants to support innovation but has little patience for unfocused activity. In the incubation period, observations stew on the edge of consciousness until something clarifies. As Newton observed, “I keep the subject constantly before me, and wait until the first dawnings open slowly, little by little, into the full and clear light.”

There is no way to plan “enough” incubation time. What, then, can one do to improve the productivity of this period of incubation? One useful tool is what psychologists call “suspending disbelief–suspending judgment on data or observations that seem to make no sense. It allows time for the rearrangement of data, allowing one time to find new images that explain or illustrate how things might work. Suspending disbelief (p.119) is essential to avoiding premature closure on an issue, or entrenchment in existing ideas and approaches. Suspending disbelief helps to improve one’s chances of finding a fresh view of the universe. It is an unnatural act for an operating organization, but an essential trait for an innovative organization.
A second useful tool is to deconstruct the problem so that you can recombine elements of it and gain fresh insight. Sir James Black, Nobel Prize winner for the discovery of histamine antagonists, suggests that one “turn the question around.” Dr. Black prefers an “oblique attack” to a problem rather than a direct one.
One way to change context, Csikszentmihalyi observes, is to position yourself at the intersection of different cultures or disciplines: “where beliefs, lifestyles, and knowledge mingle and allow individuals to see new combinations of ideas with greater ease. In cultures that are uniform and rigid it takes a greater investment of attention to achieve new ways of thinking. In other words, creativity is more likely in places where new ideas require less effort to be perceived.”

Source:
Foster, Richard N., and Sarah Kaplan. Creative Destruction: Why Companies That Are Built to Last Underperform the Market—and How to Successfully Transform Them. New York: Currency Books, 2001.

What Cuba Must Do to Welcome Entrepreneurs

“Serafin Blanco is the owner of Ñooo! ¡Que Barato!, a huge discount store in Hialeah, Fla., where recent arrivals stock up on $1.99 flip-flops and other items for relatives to resell in Cuba.” Source of caption and photo: online version of the NYT article quoted and cited below.

(p. A6) “Things move very slowly in Cuba be-(p. A9)cause they are very, very concerned about breaking the balance of power with economic reforms,” said Jorge Sanguinetty, president of the Association for the Study of the Cuban Economy, a research group. “This is the reality. They don’t want to emulate Gorbachev when he started making reforms in Russia and the whole thing came down.”

Mr. Sanguinetty, who served as a senior economic official with the Cuban government until he resigned in June 1966, said that Cuba might be just beginning the long, painstaking process of rebuilding the most basic economic relationships. He noted that Cuba even eliminated accounting schools in the first decade after the 1959 revolution because officials thought money would be unnecessary, and that many Cubans had no experience with credit cards, banks or checks. Now, he said, the government must move forward — with import-export licenses, with clearer communication about rules — if it hopes to make entrepreneurs a vital element of the economy.

For the full story, see:

DAMIEN CAVE. “Near to Cuba, Wary Kin Wait for Proof of a New Path.” The New York Times (Weds., September 22, 2010): A6 & A9.
(Note: the online version of the article is dated September 21, 2010 and has the slightly different title “Near Cuba, Wary Kin Wait for Proof of a New Path.”)

Twitter CEO Returned to Nebraska to Found First Company

Evan Williams, Twitter CEO. Source of photo: online version of the NYT article quoted and cited below.

(p. 9) I GREW up on a farm in Nebraska, where we grew mostly corn and soybeans. During the summers I was responsible for making sure the crops were irrigated.

After high school, I enrolled at the University of Nebraska at Lincoln, but I stayed only a year and a half. I felt college was a waste of time; I wanted to start working. I moved to Florida, where I did some freelance copywriting. After that I moved to Texas and stayed with my older sister while I figured out what to do next. In 1994, I returned to Nebraska and started my first company with my dad.
We didn’t know anything about the Internet, but I thought it was going to be a big deal. We produced CD-ROMs and a video on how to use the Internet, and we did some Web hosting. I recruited some friends and we tossed around some ideas, but none of us knew how to write software and we didn’t have much money. We watched what entrepreneurs in California were doing and tried to play along.
. . .
My life has been a series of well-orchestrated accidents; I’ve always suffered from hallucinogenic optimism. I was broke for more than 10 years. I remember staying up all night one night at my first company and looking in couch cushions the next morning for some change to buy coffee. I’ve been able to pay my father back, which is nice, and my mother doesn’t worry about me as much since I got married a year and a half ago.

For the full story, see:
EVAN WILLIAMS. “The Boss; For Twitter C.E.O., Well-Orchestrated Accidents.” The New York Times, SundayBusiness Section (Sun., March 8, 2009): 9.
(Note: the online version of the story is dated March 7, 2009.)

Successful Entrepreneurs Do Not Need to Give Back to Society—They Already Gave at the Office

(p. A15) Successful entrepreneurs-turned-philanthropists typically say they feel a responsibility to “give back” to society. But “giving back” implies they have taken something. What, exactly, have they taken? Yes, they have amassed great sums of wealth. But that wealth is the reward they have earned for investing their time and talent in creating products and services that others value. They haven’t taken from society, but rather enriched us in ways that were previously unimaginable.
. . .
Let’s hope the philanthropy of those who . . . sign the Giving Pledge achieves great things. But let’s not fool ourselves into thinking that businessmen are likely to achieve more by giving their money away than they have by making it in the first place.

For the full commentary, see:
Kimberly O. Dennis. “Gates and Buffett Take the Pledge; Wealthy businessmen often feel obligated to ‘give back.’ Who says they’ve taken anything?” The Wall Street Journal (Fri., AUGUST 20, 2010): A15.
(Note: ellipses added.)

Tax Hike Would Hurt Entrepreneurs

(p. A17) When Congress returns from its summer recess, members will face a pivotal decision about the expiring Bush tax cuts. President Barack Obama has called for their permanent extension for singles with incomes below $200,000 and married couples with incomes below $250,000, but has proposed that most of the tax cuts for households with higher incomes be allowed to expire.
. . .
The fact that there are millions of people in the lower tax brackets with small amounts of business income may be interesting for some purposes, but it is irrelevant for the assessment of the economic impact of the tax hikes.
The numbers are clear. According to IRS data, fully 48% of the net income of sole proprietorships, partnerships, and S corporations reported on tax returns went to households with incomes above $200,000 in 2007.
. . .
Economic research supports a large impact. A pair of papers by economists Robert Carroll, Douglas Holtz-Eakin, Harvey Rosen and Mark Rider that were published in 1998 and 2000 by the National Bureau of Economic Research analyzed tax return data and uncovered high responsiveness of sole proprietors’ business activity to tax rates. Their estimates imply that increasing the top rate to 40.8% from 35% (an official rate of 39.6% plus another 1.2 percentage points from the restoration of a stealth provision that phases out deductions), as in Mr. Obama’s plan, would reduce gross receipts by more than 7% for sole proprietors subject to the higher rate.
These results imply a similar effect on proprietors’ investment expenditures. A paper published by R. Glenn Hubbard of Columbia University and William M. Gentry of Williams College in the American Economic Review in 2000 also found that increasing progressivity of the tax code discourages entrepreneurs from starting new businesses.

For the full commentary, see:
KEVIN A. HASSETT and ALAN D. VIARD. “The Small Business Tax Hike and the 97% Fallacy; The president’s plan to raise top marginal rates is holding back the very people who should be leading the economic recovery.” The Wall Street Journal (Fri., SEPTEMBER 3, 2010): A17.
(Note: ellipses added.)

One of the papers by Carroll et al, is:
Carroll, Robert, Douglas Holtz-Eakin, Mark Rider, and Harvey S. Rosen. “Income Taxes and Entrepreneurs’ Use of Labor.” Journal of Labor Economics 18, no. 2 (April 2000): 324-51.

The Hubbard paper is:
Gentry, William M., and R. Glenn Hubbard. “Tax Policy and Entrepreneurial Entry.” The American Economic Review 90, no. 2 (May 2000): 283-87.