Entrepreneurship – Page 175 – artdiamondblog.com

Since Wire Rope Had Not Been Tried, Entrepreneur Roebling Had to Self-Finance His Innovation

(p. 178) It was a bridge across the Niagara that would change life for the nail and wire makers. In 1831 a German engineer had emigrated from Mühlhausen in Saxony to America, where he founded the city (p. 179) of Saxonburg, Pennsylvania (having refused to settle in the American South because of his views on slavery). He then worked as a farmer, as a surveyor on the Pennsylvania Canal and finally as a railway engineer. His name was John Roebling, and he had a strange obsession with wire ropes. Since nobody in America had ever tried to make that kind of rope, the idea was not easy to promote. After failing to interest the firm of Washburn & Company, in Worcester, Massachusetts (we will return to this firm in our story), in 1848 Roebling moved to Trenton, New Jersey, and set up on his own.

After practicing his technique on a number of small bridges in Pennsylvania and Delaware, Roebling finally got a contract for the 3,640 wires into a compact, uniformly tensioned wire cable. Then, using a kite to get the cable to the other side of the river, he went on to finish the first-ever wire suspension bridge, 821 feet in length and strong enough to take the full weight of a train. The bridge opened to rail traffic on March 16, 1855.

Because of his success at Niagara, Roebling’s cable-spinning technique soon became standard on all suspension bridges. He put his name in the history books with his next job: the Brooklyn Bridge.

Source:
Burke, James. The Pinball Effect: How Renaissance Water Gardens Made the Carburetor Possible – and Other Journeys. Boston: Back Bay Books, 1997.
(Note: ellipsis added.)

French Entrepreneur Fourneau Was Against Law, But Used It

The existence and details of patent laws can matter for creating incentives for invention and innovation. The patent laws in Germany and France in the 1930s reduced the incentives for inventing new drugs.

(p. 141) German chemical patents were often small masterpieces of mumbo jumbo. It was a market necessity. Patents in Germany were issued to protect processes used to make a new chemical, not, as in America, the new chemical itself; German law protected the means, not the end. . . .
. . .
(p. 166) Fourneau decided that if the French were going to compete, the nation’s scientists would either have to discover their own new drugs and get them into production before the Germans could or find ways to make French versions of German compounds before the Germans had earned back their research and production costs—in other words, get French versions of new German drugs into the market before the Germans could lower their prices. French patent laws, like those in Germany, did not protect the final product. “I was always against the French law and I thought it was shocking that one could not patent one’s invention,” Fourneau said, “but the law was what it was, and there was no reasons not to use it.”

Industrialist Duisberg Made Domagk’s Sulfa Discovery Possible

(p. 65) . . . Domagk’s future would be determined not only by his desire to stop disease but also by his own ambition, his family needs, and the plans of a small group of businessmen he had never met. He probably had heard of their leader, however, one of the preeminent figures in German business, a man the London Times would later eulogize as “the greatest industrialist the world has yet had.” His name was Carl Duisberg.

Duisberg was a German version of Thomas Edison, Henry Ford, and John D. Rockefeller rolled into one. He had built an empire of science in Germany, leveraging the discoveries of dozens of chemists he employed into one of the most profitable businesses on earth. He knew how industrial science worked: He was himself a chemist. At least he had been long ago. Now, in the mid-1920s, in the twilight of his years, his fortunes made, his reputation assured, he often walked in his private park alone—still solidly built, with his shaved head and a bristling white mustache, still a commanding presence in his top hat and black overcoat—through acres of forest, fountains, classical statuary, around the pond in his full-scale Japanese garden by the lacquered teahouse, over his steams, and across his lawns.

“Four G’s Needed for Success: Geduld, Geschick, Glück, Geld”

One of Domagk’s predecessors, in goal and method, was Paul Ehrlich, who was a leader in the search for the Zuberkugeln (magic bullet) against disease causing organisms. He systematized the trial and error method, and pursued dyes as promising chemicals that might be modified to attach themselves to the intruders. But he never quite found a magic bullet:

(p. 82) Ehrlich announced to the world that he had found a cure for sleeping sickness. But he spoke too soon. Number 418, also, proved too toxic for general use. He and his chemists resumed the search.

Ehrlich said his method consisted basically of “examining and sweating”—and his coworkers joked that Ehrlich examined while they sweated. There was another motto attributed to Ehrlich’s lab, the list of “Four Gs” needed for success: Geduld, Geschick, Glück, Geld—patience, skill, luck, and money.

Source:
Hager, Thomas. The Demon under the Microscope: From Battlefield Hospitals to Nazi Labs, One Doctor’s Heroic Search for the World’s First Miracle Drug. New York: Three Rivers Press, 2007.
(Note: do not confuse the “Paul Ehrlich” discussed above, with the modern environmentalist “Paul Ehrlich” who is best known for losing his bet with Julian Simon.)

Eastman Was a Self-Financed Entrepreneur

Mark Casson has argued that the more original the entrepreneur’s innovation, the more likely he will need to finance all, or a large part, of it himself. To the extent that this is true, it represents an important argument for allowing the accumulation of wealth (and thereby an argument against substantial personal income, and inheritance, taxes.)
Here is an example, consistent with Casson’s argument, of a self-financed entrepreneur:

(p. 36) The idea of loading film into a camera, snapping the picture and then sending the film to a store to be processed was the brainchild of an American from Rochester, New York, called George Eastman. One day in 1879, at the bank where he had worked since leaving school at the age of fourteen, he didn’t get the promotion he was expecting. So he left and used his savings to set himself up as a “Maker and Dealer in Photographic Supplies.” At this time, picture taking was a messy, cumbersome and expensive business, involving glass-late negatives, buckets of chemicals an monster wooden cameras. When Eastman had finished his experiments with the process, his slogan promised, “You press the button. We do the rest.”

Source:
Burke, James. The Pinball Effect: How Renaissance Water Gardens Made the Carburetor Possible – and Other Journeys. Boston: Back Bay Books, 1997.

A True Christmas Story of Hope and Justice

Gerhard Domagk. Source of photo: http://www.nndb.com/people/744/000128360/

Gerhard Domagk spent most of his adult life in a focused, tireless effort to find the first cure for a bacterial infection. Finally, his laboratory discovered a sulfa drug they called “Prontosil,” that seemed effective against strep and some other infections. Domagk published his first preliminary results on the drug in February 1935 (see Hager, p. 164). An increasing number of doctors began testing the drug on their desperate patients.
Life is not always unfair:

(p. 181) In early December 1935, just after the French published the discovery that pure sulfa was the active ingredient in Prontosil, Domagk’s six-year-old daughter, Hildegarde, suffered a bad accident. She was making a Christmas decoration in their house when she decided that she needed help threading a needle. She was on her way downstairs to find her mother, carrying the needle and thread, when she fell. The needle was driven into her hand blunt end first, breaking off against a carpal bone. She was taken to the local clinic and the needle was surgically removed, but a few days later, her hand started swelling. After the stitches were removed, her temperature rose and kept rising. An abscess formed at the surgical site. She had a wound infection. The staff at the clinic tried opening and draining the abscess. When it became reinfected, they opened it again. Then again. The infection started moving up her arm. “Her general state and the abscess worsened to such a point that we became seriously concerned,” Domagk wrote later. “More surgery was impossible.” She was falling in and out of consciousness. The surgeons were talking about amputating her arm. Once the blood tests showed that the invading germ was strep, Domagk went to his laboratory and pocketed a supply of Prontosil tablets, returned to her hospital room, put the red tablets in her mouth himself, and made certain that she swallowed. Then he waited. A day later her temperature continued to rise. He gave her more tablets. No improvement. On day (p. 182) three he gave her more, a large dose, but there was still no improvement. Her situation was growing desperate, so he pulled out all the stops, on day four giving her more Prontosil tablets, then two large injections of Prontosil soluble. Finally her temperature started to drop. He gave her more tablets. After a week of treatment, her temperature finally returned to normal. The infection had been stopped. By Christmas she was able to celebrate the holidays with her family.

Resilience is Key to Surviving Disasters (and to Successful Entrepreneurship)

I believe that resilience is a key characteristic of successful entrepreneurs. Amanda Ripley has some plausible and useful comments on resilience in the passages quoted below.

(p. 91) Resilience is a precious skill. People who have it tend to also have three underlying advantages: a belief that they can influence life events; a tendency to find meaningful purpose in life’s turmoil; and a conviction that they can learn from both positive and negative experiences. These beliefs act as a sort of buffer, cushioning the blow of any given disaster. Dangers seem more manageable to these people, and they perform better as a result. . . .

. . . A healthy, proactive worldview should logically lead to resilience. But it’s the kind of unsatisfying answer that begs another question. If this worldview leads to resilience, well what leads to the worldview?

(p. 92) The answer is not what we might expect. Resilient people aren’t necessarily yoga-practicing Buddhists. One thing that they have in abundance is confidence. As we saw in the chapter on fear, confidence—that comes from realistic rehearsal or even laughter—soothes the more disruptive effects of extreme fear. A few recent studies have found that people who are unrealistically confident tend to fare spectacularly well in disasters. Psychologists call these people “self-enhancers,” but you and I would probably call them arrogant. These are people who think more highly of themselves than other people think of them. They tend to come off as annoying and self-absorbed. In a way, they might be better adapted to crises than they are to real life.

Source:
Ripley, Amanda. The Unthinkable: Who Survives When Disaster Strikes – and Why. New York: Crown Publishers, 2008.
(Note: ellipses added.)

Why You Want Your Surgeon to Be a Disciple of Lister

The sources of new ideas are diverse. Sometimes, as below, even a newspaper article can provide inspiration.
The passage below also provides another example of the project oriented entrepreneur, who is motivated by a mission to get the job done.

(p. 60) In Lister’s early years, the mid-1800s, half of all amputation patients died from hospital fever; in some hospitals the rate was as high as 80 percent. Lister, like all surgeons, had little idea of how to improve the situation. Then he chanced on a newspaper article that caught his interest. It described how the residents of a local town, tired of the smell of their sewage, had begun treating it by pouring into their system something called German Creosote, a by-product of coal tar. Something in the creosote stopped the smell. Lister had heard about the work of Pasteur, and he made the same mental connection the French chemist had: The stink of sewage came from putrefaction, rotting organic matter; the stink of infected wounds also came from putrefaction; whatever stopped the putrefaction of sewage might also stop the putrefaction of infected wounds. So Lister decided to try coal-tar chemicals on his patients. And he found one that worked exceptionally well: carbolic acid, a solution of what today is called phenol. . . .
. . .
(p. 61) Lister’s insistence on stopping the transfer of bacteria in the operating room became absolute. Once when a visiting knighted physician from King’s College idly poked a forefinger into a patient’s incision during one of Lister’s operations, Lister flung him bodily from the room.

Doctors Rejected Pasteur’s Work

Whether in science, or in entrepreneurship, at the initial stages of an important new idea, the majority of experts will reject the idea. So a key for the advance of science, or for innovation in the economy, is to allow scientists and entrepreneurs to accumulate sufficient resources so that they can make informed bets based on their conjectures, and on their tacit knowledge.
A few entries ago, Hager recounted how Leeuwenhoek faced initial skepticism from the experts. In the passage below, Hager recounts how Pasteur also faced initial skepticism from the experts:

(p. 44) If bacteria could rot meat, Pasteur reasoned, they could cause diseases, and he spent years proving the point. Two major problems hindered the acceptance of his work within the medical community: First, Pasteur, regardless of his ingenuity, was a brewing chemist, not a physician, so what could he possibly know about disease? And second, his work was both incomplete and imprecise. He had inferred that bacteria caused disease, but it was impossible for him to definitively prove the point. In order to prove that a type of bacterium could cause a specific disease, precisely and to the satisfaction of the scientific world, it would be necessary to isolate that one type of bacterium for study, to create a pure culture, and then test the disease-causing abilities of this pure culture.

“The Authorities Were Shocked” at Private Airport Success

“Investors renovated a terminal at Domodedovo and oversaw construction of a train line to Moscow.” Source of caption and photo: online version of the WSJ article quoted and cited below.

(p. B9) MOSCOW — A heated battle for passengers between the Russian capital’s main airports offers an unlikely model of competition for the aviation industry.

In most cities, airports are monopolies. Even in cities that have more than one, including New York, Paris and Tokyo, airports are usually owned by the same operator. That means airlines can rarely make the kind of choices passengers take for granted, such as choosing an airport for its efficiency, shopping or lounges.
Not so in Moscow, where two international airports, Domodedovo and Sheremetyevo, owned by rival organizations, battle for business. The result is lower fees, better service and fast-improving facilities all around.
Domodedovo Airport, for example, recently convinced several top airlines to make it their Russian base, thanks to a major modernization that added more than 20 new restaurants, jewelry boutiques and a shop where passengers can rent DVDs to watch in booths.
Sheremetyevo Airport responded by building a fast rail link to Moscow, complete with a Starbucks at the airport station.
Moscow’s airport rivalry highlights a paradox of the global aviation industry: Airlines compete fiercely with each other for customers, but they face many monopolist suppliers, such as air-traffic control systems, fuel distributors and airports. Resulting costs and poor services get passed on to travelers.
. . .
During Russia’s privatization drive of the 1990s, local investors bought Domodedovo, which was previously Moscow’s airport serving Soviet Central Asia. The investors, grouped into an upstart charter-airline operator, East Line Group, renovated a terminal at Domodedovo and oversaw construction of a train line to Moscow.
East Line charged airlines landing and operating fees that undercut Sheremetyevo by around 30%. For passengers, Domodedovo’s rail link guaranteed a 40-minute trip to downtown Moscow. Private Russian carriers, largely frozen out of Aeroflot’s base at Sheremetyevo, expanded quickly at the spacious Domodedovo.
East Line’s big break came in 2003, when British Airways announced it would switch from Sheremetyevo to Domodedovo.
“The authorities were shocked that a major airline would leave the government airport,” recalls Daniel Burkard, BA’s former country manager for Russia.

For the full story, see:
DANIEL MICHAELS. “Moscow Points the Way With Airport Competition; While Most Nations Sport Monopolies, Rivalry Between Two Russian Gateways Ushers in Improvements for Carriers, Travelers.” The Wall Street Journal (Mon., DECEMBER 1, 2008): B9.
(Note: ellipsis added.)

Source of graph: online version of the WSJ article quoted and cited above.

Amateur Leeuwenhoek Made Huge Contribution to Science

(p. 40) Antoni van Leeuwenhoek was a scientific superstar. The greats of Europe traveled from afar to see him and witness his wonders. It was (p. 41) not just the leading minds of the era—Descartes, Spinoza, Leibnitz, and Christopher Wren—but also royalty, the prince of Liechtenstein and Queen Mary, wife of William III of Orange. Peter the great of Russia took van Leeuwenhoek for an afternoon sail on his yacht. Emperor Charles of Spain planned to visit as well but was prevented by a strong eastern storm.

It was nothing that the Dutch businessman had ever expected. He came from an unknown family, had scant education, earned no university degrees, never traveled far from Delft, and knew no language other than Dutch. At age twelve he had been apprenticed to a linen draper, learned the trade, then started his own business as a fabric merchant when he came of age, making ends meet by taking on additional work as a surveyor, wine assayer, and minor city official. He picked up a skill at lens grinding along the way, a sort of hobby he used to make magnifying glasses so he could better see the quality of fabrics he bought and sold. At some point he got hold of a copy of Micrographia, a curious and very popular book by the British scientist Robert Hooke. Filled with illustrations, Micrographia showed what Hooke had sen through a novel instrument made of two properly ground and arranged lenses, called a “microscope.” . . . Micrographia was an international bestseller in its day. Samuel Pepys stayed up until 2:00 A.M. one night poring over it, then told his friends it was “the most ingenious book that I ever read in my life.”

Van Leeuwenhoek, too was fascinated. He tried making his own microscopes and, as it turned out, had talent as a lens grinder. His lens were better than anyone’s in Delft; better than any Hooke had access to; better, it seemed, than any in the world. . . .

(p. 42) Then, in the summer of 1675, he looked deep within a drop of water from a barrel outside and became the first human to see an entirely new world. In that drop he could make out a living menagerie of heretofore invisible animals darting, squirming, and spinning.

The example above is consistent with Baumol’s hypotheses about formal education mattering less, in the initial stages of great discoveries. (And maybe even being a hindrance).
See:
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.

The example is also consistent with Terence Kealey’s claim that important science can often arise as a side-effect of the pursuit of business activity.
See:
Kealey, Terence. The Economic Laws of Scientific Research. New York: St. Martin’s Press, 1996.