Category: Entrepreneurship

Entrepreneurs Learn “Not in the Classroom Where Old Ways are Taught, But in the Factories and Labs, Where New Ways Are Wrought”

Gilder’s rhyme about the classroom is cute, and maybe mainly true. In an important paper, Baumol has more prosaically (in the literal sense) expressed a similar view.
But there are counterexamples. Gilder himself, in his Microcosm, notes how what was taught in some classrooms was crucial to progress in information technology.

(p. 296) Entrepreneurs can be pompous and vain where it doesn’t count; but in their own enterprise, the first law is to listen. They must be men meek enough–and shrewd enough–to endure the humbling eclipse of self that comes in the process of profound learning from others.
In all the history of enterprise, most of the protagonists of major new products and companies began their education–and (p. 297) discovered the secrets of their later breakthroughs–not in the classroom, where the old ways are taught, but in the factories and labs, where new ways are wrought.

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

The important Baumol paper mentioned above, is:
Baumol, William J. “Education for Innovation: Entrepreneurial Breakthroughs Versus Corporate Incremental Improvements.” In Innovation Policy and the Economy, edited by Adam B. Jaffe, Josh Lerner and Scott Stern, 33-56. Cambridge, Mass.: MIT Press, 2005.

RIP Marjorie Grene, Who Helped Polanyi with Personal Knowledge

GreneMarjorie2009-06-10.jpg

“Marjorie Grene in 2003.” Source of photo and caption: online version of the NYT obituary quoted and cited below.

The NYT reported, in the obituary quoted below, that philosopher Marjorie Grene died on March 16, 2009, at the age of 93.
Although I studied philosophy at the University of Chicago, my time there did not overlap with Marjorie Grene’s and I don’t believe that I ever met her, or ever even heard her speak (though I did occasionally walk past her former husband David Grene, on my way to talk to Stephen Toulmin).
I am increasingly appreciating Michael Polanyi’s book Personal Knowledge in which he introduced his view of what he called “tacit knowledge.” In particular, I am coming to believe that tacit knowledge is very important in understanding the role and importance of the entrepreneur.
So if Marjorie Grene was crucial to Personal Knowledge, as is indicated in the obituary quoted below, then she is deserving of serious consideration, and high regard.

(p. 23) In Chicago, she had met Michael Polanyi, a distinguished physical chemist turned philosopher; she ended up helping him research and develop his important book “Personal Knowledge” (1958). The book proposed a far more nuanced, personal idea of knowledge, and directly addressed approaches to science.

“There is hardly a page that has not benefited from her criticism,” Dr. Polanyi wrote in his acknowledgments. “She has a share in anything I may have achieved here.”
. . .
Her sense of humor sparkled when she was asked about being the first woman to have an edition of the Library of Living Philosophers devoted to her — Volume 29 in 2002. Previous honorees included Bertrand Russell and Einstein. “I thought they must be looking desperately for a woman,” Dr. Grene said.

For the full obituary, see:
DOUGLAS MARTIN. “Marjorie Grene, a Leading Philosopher of Biology, Is Dead at 98.” The New York Times, First Section (Sun., March 29, 2009): 23.
(Note: ellipsis added.)

The reference for the Polanyi book, is:
Polanyi, Michael. Personal Knowledge: Towards a Post-Critical Philosophy. Chicago: University Of Chicago Press, 1958.

“Entrepreneurs Must Be Allowed to Retain the Wealth They Create”

(p. 305) Entrepreneurs seek money chiefly for positive reasons: to perform their central role in economic growth. Just as a sociologist needs free time and access to libraries and research aides, and a scientist needs a laboratory and assistants, and a doctor needs power to prescribe medicine and perform surgery–just as intellectuals need freedom to write and publish–capitalists need economic freedom and access to capital to perform their role in launching and financing enterprise. Entrepreneurs must be allowed to retain the wealth they create because only they, collec- (p. 306) tively, can possibly know who to give it to–how to invest it productively among the millions of existing businesses and the innumerable visions of new enterprise in the world economy.

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

“Clear Relationship in Rice Farming Between Effort and Reward”

(p. 236) What redeemed the life of a rice farmer, however, was the nature of that work. It was a lot like the garment work done by the Jewish immigrants to New York. It was meaningful. First of all, there is a clear relationship in rice farming between effort and reward. The harder you work a rice field, the more it yields. Second, it’s complex work. The rice farmer isn’t simply planting in the spring and harvesting in the fall. He or she effectively runs a small business, juggling a family workforce, hedging uncertainty through seed selection, building and managing a sophisticated irrigation system, and coordinating the complicated process of harvesting the first crop while simultaneously preparing the second crop.

And, most of all, it’s autonomous. The peasants of Europe worked essentially as low-paid slaves of an aristocratic landlord, with little control over their own destinies. But China and Japan never developed that kind of oppressive feudal system, because feudalism simply can’t work in a rice economy. Growing rice is too complicated and intricate for a system that requires farmers to be coerced and bullied into going out into the fields each morning. By the fourteenth and fifteenth centuries, landlords in central and Southern China had an almost completely hands-off relationship with their tenants: they would collect a fixed rent and let farmers go about their business.
“The thing about wet-rice farming is, not only do you (p. 237) need phenomenal amounts of labor, but it’s very exacting,” says the historian Kenneth Pomerantz. “You have to care. It really matters that the field is perfectly leveled before you flood it. Getting it close to level but not quite right makes a big difference in terms of your yield. It really matters that the water is in the fields for just the right amount of time. There’s a big difference between lining up the seedlings at exactly the right distance and doing it sloppily. It’s not like you put the corn in the ground in mid-March and as long as rain comes by the end of the month, you’re okay. You’re controlling all the inputs in a very direct way. And when you have something that requires that much care, the overlord has to have a system that gives the actual laborer some set of incentives, where if the harvest comes out well, the farmer gets a bigger share. That’s why you get fixed rents, where the landlord says, I get twenty bushels, regardless of the harvest, and if it’s really good, you get the extra. It’s a crop that doesn’t do very well with something like slavery or wage labor. It would just be too easy to leave the gate that controls the irrigation water open a few seconds too long and there goes your field.”

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

“Hard Work is a Prison Sentence Only if it Does Not Have Meaning”

(p. 149) When Borgenicht came home at night to his children, he may have been tired and poor and overwhelmed, but he was alive. He was his own boss. He was responsible for his own decisions and direction. His work was complex: it engaged his mind and imagination. And in his work, there was a relationship between effort and reward: the longer he and Regina stayed up at night sewing aprons, the more money they made the next day on the streets.

Those three things — autonomy, complexity, and a connection between effort and reward–are, most people agree, the three qualities that work has to have if it is to be satisfying. It is not how much money we make (p. 150) that ultimately makes us happy between nine and five. It’s whether our work fulfills us. If I offered you a choice between being an architect for $75,000 a year and working in a tollbooth every day for the rest of your life for $100,000 a year, which would you take? I’m guessing the former, because there is complexity, autonomy, and a relationship between effort and reward in doing creative work, and that’s worth more to most of us than money.
Work that fulfills those three criteria is meaningful. Being a teacher is meaningful. Being a physician is meaningful. So is being an entrepreneur, and the miracle of the garment industry–as cutthroat and grim as it was–was that it allowed people like the Borgenichts, just off the boat, to find something meaningful to do as well.”” When Louis Borgenicht came home after first seeing that child’s apron, he danced a jig. He hadn’t sold anything yet. He was still penniless and desperate, and he knew that to make something of his idea was going to require years of backbreaking
labor. But he was ecstatic, because the prospect of those endless years of hard labor did not seem like a burden to him. Bill Gates had that same feeling when he first sat down at the keyboard at Lakeside. And the Beatles didn’t recoil in horror when they were told they had to play eight hours a night, seven days a week. They jumped at the chance. Hard work is a prison sentence only if it does not have meaning. Once it does, it becomes the kind of thing that makes you grab your wife around the waist and dance a jig.

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

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

DavidowWilliamVentureCapitalist2009-05-31.jpg“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.

PincusMarkEntrepreneur.jpg

“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.)