Entrepreneurship – Page 170 – artdiamondblog.com

To Get Things Done “Doesn’t Leave Any Time for Golf or Cocktails”

I am grateful to Matthew Pianetta for calling my attention to this wonderful quotation from the entrepreneurial Admiral Hyman G. Rickover:

(p. 239) “Efficiency isn’t the objective, Dunford, effectiveness is. Don’t confuse effectiveness with efficiency. I’m convinced that the only way to be effective, to make a difference in the real world, is to put ten times as much effort into everything as anyone else thinks is reasonable. It doesn’t leave any time for golf or cocktails, but it gets things done.”

Source:
Rickover as quoted in Rockwell, Theodore. The Rickover Effect: How One Man Made a Difference. Lincoln, NE: iUniverse, Inc., 2002.
(Note: paging of quote seems same in both 1992 and 2002 editions.)

Entrepreneur’s Dresses “Would Save Mothers Endless Work”

Schumpeter would have loved the passage quoted below—it is a wonderful example for his argument that capitalism mainly benefits ordinary people of modest means.

(p. 147) Listen to how Borgenicht describes his decision to expand beyond aprons:

From my study of the market I knew that only three men were making children’s dresses in 1890. One was an East Side tailor near me, who made only to order, while the other two turned out an expensive product with which I had no desire at all to compete. I wanted to make “popular price” stuff–wash dresses, silks, and woolens. It was
my goal to produce dresses that the great mass of the people could afford, dresses that would–from the business angle–sell equally well to both large and small, city and country stores. With Regina’s help–she always had excellent taste, and judgment–I made up a line of samples. Displaying them to all my “old” customers and friends, I hammered home every point–my dresses would save mothers endless work, the materials and sewing were as good and probably better than anything that could be done at home, the price was right for quick disposal.

Source:
Gladwell, Malcolm. Outliers: The Story of Success. New York, NY: Little, Brown, and Co., 2008.

Past Successful Entrepreneurship is a Predictor of Future Successful Entrepreneurship

“William H. Davidow, a venture capitalist, says he would want to know why an entrepreneur’s last deal failed “and what the person learned from it.” ” Source of photo and caption: online version of the NYT article quoted and cited below.

The research reported below, goes against the conclusions of some (such as Christensen and Raynor) that entrepreneurs often learn useful lessons from their failures. However, if true, the research has interesting policy implications.
For instance, if it is true that entrepreneurs who have succeeded in the past, are also more likely to succeed in the future, then it makes sense to allow them to keep the wealth from their entrepreneurship. In that case, the wealth is not only an incentive and reward for hard work, and taking risks. It also provides them the seed-funds for ever-more ambitious future entrepreneurial efforts that have a better-than-average chance of success. E.g., the profits from Disney’s cartoon movies, were crucial for funding Disneyland.
(The Gompers et al research is consistent with one of Edwin Mansfield’s papers, that I think I mention in my review of Mansfield’s contributions to the economics of technology.)

(p. 3) Professor Gompers and his co-authors Anna Kovner, Josh Lerner and David S. Scharfstein found that first-time entrepreneurs who received venture capital funding had a 22 percent chance of success. Success was defined as going public or filing to go public; Professor Gompers says the results were similar when using other measures, like acquisition or merger.

Already-successful entrepreneurs were far more likely to succeed again: their success rate for later venture-backed companies was 34 percent. But entrepreneurs whose companies had been liquidated or gone bankrupt had almost the same follow-on success rate as the first-timers: 23 percent.
In other words, trying and failing bought the entrepreneurs nothing — it was as if they never tried. Or, as Professor Gompers puts it, “for the average entrepreneur who failed, no learning happened.”
This finding flies in the face of conventional wisdom in Silicon Valley, where failure is regarded as an important opportunity for learning. No less an authority than Gordon Moore, a co-founder of Intel, says that in the Valley, “You’re more valuable because of the experiences you’ve been through under failures.”

For the full article, see:

LESLIE BERLIN. “Prototype; Try, Try Again, or Maybe Not.” The New York Times, SundayBusiness Section (Sun., March 22, 2009): 3.

The research by Gompers et al, can be downloaded from:
Gompers, Paul A., Anna Kovner, Josh Lerner, and David S. Scharfstein. “Performance Persistence in Entrepreneurship.” Harvard Business School Working Paper, No. 09-028, 2008.

“Mark Pincus, who founded Tribe.net and then Zynga, says: “As an entrepreneur, you have to get used to failure. It is just part of the path to success.” ” Source of photo and caption: online version of the NYT article quoted and cited above.

Costs of Entry Were Low in Entrepreneurial Garment Industry in 1900

(p. 146) This was the second great advantage of the garment
industry. It wasn’t just that it was growing by leaps and bounds. It was also explicitly entrepreneurial. Clothes weren’t made in a single big factory. Instead, a number of established firms designed patterns and prepared the fabric, and then the complicated stitching and pressing and button attaching were all sent out to small contractors. And if a contractor got big enough, or ambitious enough, he started designing his own patterns and preparing his own fabric. By 1913, there were approximately (p. 147) sixteen thousand separate companies in New York City’s garment business, many just like the Borgenichts’ shop on Sheriff Street.

“The threshold for getting involved in the business was very low. It’s basically a business built on the sewing machine, and sewing machines don’t cost that much,” says Daniel Soyer, a historian who has written widely on the garment industry. “So you didn’t need a lot of capital. At the turn of the twentieth century, it was probably fifty dollars to buy a machine or two. All you had to do to be a contractor was to have a couple sewing machines, some irons, and a couple of workers. The profit margins were very low but you could make some money.”

Source:
Gladwell, Malcolm. Outliers: The Story of Success. New York, NY: Little, Brown, and Co., 2008.

Jewish Immigrant Garment Entrepreneurs “Worked Hard”

(p. 145) “There is no doubt that those Jewish immigrants
arrived at the perfect time, with the perfect skills,” says
the sociologist Stephen Steinberg. “To exploit that opportunity,
you had to have certain virtues, and those immigrants
worked hard. They sacrificed. They scrimped and
saved and invested wisely. But still, you have to remember
that the garment industry in those years was growing
by leaps and bounds. The economy was desperate for the
skills that they possessed.”

Source:
Gladwell, Malcolm. Outliers: The Story of Success. New York, NY: Little, Brown, and Co., 2008.
(Note: italics in original.)

The Meaningful Work of Immigrant Sweatshop Entrepreneurs

(p. 141) “To me the greatest wonder in this was not the mere
quantity of garments–although that was a miracle in
itself–” Borgenicht would write years later, after he
became a prosperous manufacturer of women’s and children’s
clothing, “but the fact that in America even poor
people could save all the dreary, time-consuming labor of
making their own clothes simply by going into a store and
walking out with what they needed. There was a field to
go into, a field to thrill to.”

Borgenicht took out a small notebook. Everywhere he
went, he wrote down what people were wearing and what
was for sale–mens wear, women’s wear, children’s wear. He
wanted to find a “novel” item, something that people would
wear that was not being sold in the stores. For four more
days he walked the streets. On the evening of the final day
as he walked toward home, he saw a half dozen girls playing
hopscotch. One of the girls was wearing a tiny embroidered
apron over her dress, cut low in the front with a tie in the
back, and it struck him, suddenly, that in his previous days
of relentlessly inventorying the clothing shops of the Lower
East Side, he had never seen one of those aprons for sale.
He came home and told Regina. She had an ancient
sewing machine that they had bought upon their arrival in
America. The next morning, he went to a dry-goods store
on Hester Street and bought a hundred yards of gingham
and fifty yards of white crossbar. He came back to their
tiny apartment and laid the goods out on the dining room
table. Regina began to cut the gingham–small sizes for
toddlers, larger for small children–until she had forty (p. 142)
aprons. She began to sew. At midnight, she went to bed
and Louis took up where she had left off. At dawn, she rose
and began cutting buttonholes and adding buttons. By ten
in the morning, the aprons were finished. Louis gathered
them up over his arm and ventured out onto Hester Street.
“Children’s aprons! Little girls’ aprons! Colored ones,
ten cents. White ones, fifteen cents! Little girls’ aprons!”
By one o’clock, all forty were gone.
“Ma, we’ve got our business,” he shouted out to Regina,
after running all the way home from Hester Street.
He grabbed her by the waist and began swinging her
around and around.
“You’ve got to help me,” he cried out. “We’ll work
together! Ma, this is our business.”

Source:
Gladwell, Malcolm. Outliers: The Story of Success. New York, NY: Little, Brown, and Co., 2008.
(Note: italics in original.)

Entrepreneurs, Not MITI, Decided Japan Outcomes in ’60s, ’70s and ’80s

(p. 164) Ishibashi’s regime was followed in the early 1960s by the “income-doubling campaign” of his associate Hayato Ikeda, who assumed power in 1961 and continued the supply-side thrust. The result was a steady upsurge of domestic growth, with firms and industries rapidly gaining experience in intense rivalries at home before entering the global arena as low-cost producers, and with government cutting taxes and increasing revenues and savings.

It is from this domestic crucible of intense competition with normal rates of bankruptcy far above those in the United States, with scores of rivals in every field, that the great Japanese companies have emerged. At various times during the last three decades, for example, there have been 58 integrated steel firms, 50 motorbike companies, 12 auto firms, 42 makers of hand-held calculators, 13 makers of facsimile machines, and 250 producers of robots. Overlooking this welter are always the crested bureaucrats of MITI, sometimes offering useful aid and guidance–but at the center, deciding outcomes, have always been the entrepreneurs.

Source:
Gilder, George. Recapturing the Spirit of Enterprise: Updated for the 1990s. updated ed. New York: ICS Press, 1992.

“Dynamism Has Been Leached From Our System,” But Not from Our Brains or Our Hearts

Sometimes one of Peggy Noonan’s columns reminds us that she was once one of Ronald Reagan’s best speech writers:

(p. A11) I heard a man named Nathan Myhrvold speak of a thing called Microsoft. I saw a young man named Steve Jobs prowl a New York stage and unveil a computer that then we thought tiny and today we’d call huge. A man named Steve Wozniak became a household god as my son reported his visionary ways. It was a time so full of genius and dynamism that it went beyond words like “breakthrough” and summoned words like “revolution.” If you were paying attention, if you understood you were witnessing something great, the invention of a new age, the computer age, it caught at your throat. It was like hearing great music. People literally said what had been said in the age of Thomas Edison: “What will they think of next?” What a buoyant era.
. . .
And for a moment, as I sent and received my first airborne Wi-Fi emails, I was back there. And I was moved because I realized how much I missed it, how much we all do, that “There are no walls” feeling. “Think different.” “On January 24th, Apple Computer will introduce Macintosh. And you’ll see why 1984 won’t be like ‘1984.’ ” That was 25 years ago. The world was on fire.
It has cooled. And the essential problem with the crash we’re in is no one can imagine quite feeling that way again. People can remember it, but they can’t quite resummon it.
. . .
I end with a hunch that is not an unhappy one. Dynamism has been leached from our system for now, but not from the human brain or heart. Just as our political regeneration will happen locally, in counties and states that learn how to control themselves and demonstrate how to govern effectively in a time of limits, so will our economic regeneration. That will begin in someone’s garage, somebody’s kitchen, as it did in the case of Messrs. Jobs and Wozniak. The comeback will be from the ground up and will start with innovation. No one trusts big anymore. In the future everything will be local. That’s where the magic will be. And no amount of pessimism will stop it once it starts.

For the full commentary, see:
PEGGY NOONAN. “Remembering the Dawn of the Age of Abundance; Times are hard, but dynamism isn’t dead.” Wall Street Journal (Sat., Feb. 21, 2009): A11.
(Note: ellipses added.)

Gladwell Misses His Own Central Message: Long Hard Work Matters Most

Source of book image: http://bharatkhetan.com/akanksha/?p=19

Malcolm Gladwell is on a roll. His three recent books have been best-sellers: The Tipping Point, Blink, and now Outliers. All three books are well-written, and deal with important issues.
I suspect that sometimes Gladwell over-simplifies and over-generalizes. But he often makes plausible, thought-provoking claims, and he presents academic research in a clear, painless way.
In the Outliers book, I enjoyed his examples: the NHL hockey players who are overwhelmingly born in the same three months, the entrepreneurial immigrant Jews entering the clothing business, silicon valley superstars having access to computers at an early age.
To Gladwell, the main point of the book is that over-achievers owe their success to lucky circumstances. But to me, the main point was a different one: in case after case, the successful put in a huge number of hours (about 10,000) of practice to achieve the mastery of their activities.
To use the memorable analogy from Collins’ Good to Great: hour after hour, day after day, year after year, they all kept “pushing the flywheel” to reach the threshold of excellence.

The reference for Outliers is:
Gladwell, Malcolm. Outliers: The Story of Success. New York, NY: Little, Brown, and Co., 2008.

The reference for Collins’ book is:
Collins, Jim. Good to Great: Why Some Companies Make the Leap. And Others Don’t. New York: HarperCollins Publishers, Inc., 2001.

Government’s Terrible Track Record Running Businesses

John Steele Gordon, the author of the sagacious commentary below, has also written a wonderful book called A Thread Across the Atlantic, which tells the story of how entrepreneur Cyrus Field persevered in his attempts to lay telegraphic cable across the Atlantic Ocean.

(p. A17) The Obama administration is bent on becoming a major player in — if not taking over entirely — America’s health-care, automobile and banking industries. Before that happens, it might be a good idea to look at the government’s track record in running economic enterprises. It is terrible.

In 1913, for instance, thinking it was being overcharged by the steel companies for armor plate for warships, the federal government decided to build its own plant. It estimated that a plant with a 10,000-ton annual capacity could produce armor plate for only 70% of what the steel companies charged.
When the plant was finally finished, however — three years after World War I had ended — it was millions over budget and able to produce armor plate only at twice what the steel companies charged. It produced one batch and then shut down, never to reopen.
Or take Medicare. Other than the source of its premiums, Medicare is no different, economically, than a regular health-insurance company. But unlike, say, UnitedHealthcare, it is a bureaucracy-beclotted nightmare, riven with waste and fraud. Last year the Government Accountability Office estimated that no less than one-third of all Medicare disbursements for durable medical equipment, such as wheelchairs and hospital beds, were improper or fraudulent. Medicare was so lax in its oversight that it was approving orthopedic shoes for amputees.
. . .
It is government’s job to make and enforce the rules that allow a civilized society to flourish. But it has a dismal record of regulating itself. Imagine, for instance, if a corporation, seeking to make its bottom line look better, transferred employee contributions from the company pension fund to its own accounts, replaced the money with general obligation corporate bonds, and called the money it expropriated income. We all know what would happen: The company accountants would refuse to certify the books and management would likely — and rightly — end up in jail.
But that is exactly what the federal government (which, unlike corporations, decides how to keep its own books) does with Social Security. In the late 1990s, the government was running what it — and a largely unquestioning Washington press corps — called budget “surpluses.” But the national debt still increased in every single one of those years because the government was borrowing money to create the “surpluses.”
Capitalism isn’t perfect. Indeed, to paraphrase Winston Churchill’s famous description of democracy, it’s the worst economic system except for all the others. But the inescapable fact is that only the profit motive and competition keep enterprises lean, efficient, innovative and customer-oriented.

For the full commentary, see:
JOHN STEELE GORDON. “Why Government Can’t Run a Business; Politicians need headlines. Executives need profits.” Wall Street Journal (Weds., MAY 21, 2009): A17.
(Note: ellipsis added.)

The wonderful book, I mentioned, is:
Gordon, John Steele. A Thread across the Ocean: The Heroic Story of the Transatlantic Cable. New York: Walker & Co., 2002.

An Environment Where Long-Term Hunches Could Thrive

An environment in which long-term hunches can be pursued, is important not just to science and invention. I speculate that it is also important to entrepreneurship.

(p. 74) If great ideas usually arrive in fragments, a partial cluster of neurons, then part of the secret to having great ideas lies in creating a working environment where those fragments are nurtured and sustained over time. This obviously poses some difficulty in modern work environments, with deadlines and quarterly reports and annual job reviews. (The typical middle manager doesn’t respond favorably to news that an employee has a hunch about something that probably won’t see results for twenty years.) But Priestley had created an environment for himself where those long-term hunches could thrive with almost no pressure, and his habit of simultaneously writing multiple documents (on multiple topics) kept the fragments alive in his mind over the decades. In the final pages of his memoirs, he mentions a lifelong habit of writing down “as soon as possible, every thing I wish not to forget.”

Source:
Johnson, Steven. The Invention of Air: A Story of Science, Faith, Revolution, and the Birth of America. New York: Riverhead Books, 2008.