Entrepreneurship – Page 182 – artdiamondblog.com

The Entrepreneur Versus the Government

A great story about Jim Clark, who founded Silicon Graphics:

(p. 46) Just a few years back, before the Internet boom, Clark’s house in Atherton had been surrounded by empty fields. Now he was surrounded by new houses, many of them bigger than his own. One morning he looked up from his kitchen table and saw the neighbors looking (p. 47) back. He requested, and was denied, a permit to build a fence tall enough to screen them from his view. The city of Atherton, California, had strict rules about fences, and the fence Clark wanted to build was declared too high. So Clark built a hill, and put the fence on top of the hill. It did not occur to him that there was anything unusual about this.

(page numbers above are from the Norton hardback edition; the full quote is on p. 31 of the paperback edition)

The reference to the hardback edition, is:

Lewis, Michael. The New New Thing: A Silicon Valley Story. New York: W. W. Norton & Company, 2000.

“If Everyone Were Patient, There’d Be No New Companies”

Source of book image: http://www.austinchronicle.com/gyrobase/Issue/review?oid=oid%3A74686

Michael Lewis’ book provides some interesting stories and insights into the important information technology (IT) entrepreneur, Jim Clark, who founded Silicon Graphics, and had a hand in many other IT startups, such as Netscape.

For example, here is more evidence against Buddhism; dissatisfaction drives improvement:

Impatience might be a social vice but, to Clark, it was a commercial virtue. "If everyone was patient," he’d say, "there’s be no new companies." (p. 42 of hardback edition; p. 26 of paperback edition)

The reference for the book is:

Lewis, Michael. The New New Thing: A Silicon Valley Story. New York: W. W. Norton & Company, 2000.

Bush on Entrepreneurship

Source of book image: http://www.harpercollins.com/harperimages/isbn/large/8/9780060841638.jpg

At lunchtime today (11/27/06) I heard part of a C-Span broadcast of a Heritage Foundation event in which Carl J. Schramm gave a presentation based on his new book (see above). It sounded as though Schramm has some useful thoughts about the impact of entrepreneurship, and on how the institutions of higher education are very unentrepreneurial.

I smiled when Schramm mentioned that George W. Bush had once said that: "The problem with the French is that they don’t know the meaning of the word "entrepreneur." To those who don’t "get" the joke: it is another of those Bush-is-stupid jokes, based on the word "entrepreneur" being of French origins.

A web site devoted to "urban legends" identifies the Bush quote as one of these legends:

Yet another "George W. Bush is dumb" story has been taken up by those who like their caricatures drawn in stark, bold lines. According to scuttlebutt that emerged in the British press in July 2002, President Bush, Britain’s Prime Minister Tony Blair, and France’s President Jacques Chirac were discussing economics and, in particular, the decline of the French economy. "The problem with the French," Bush afterwards confided in Blair, "is that they don’t have a word for entrepreneur."

The source was Shirley Williams, also known as the Baroness Williams of Crosby, who claimed "my good friend Tony Blair" had recently regaled her with this anecdote in Brighton.

Lloyd Grove of The Washington Post was unable to reach Baroness Williams to gain her confirmation of the tale, but he did receive a call from Alastair Campbell, Blair’s director of communications and strategy. "I can tell you that the prime minister never heard George Bush say that, and he certainly never told Shirley Williams that President Bush did say it," Campbell told The Post. "If she put this in a speech, it must have been a joke."

The main reference relied on by the Urban Legend web site for this entry, was:

Grove, Lloyd. "The Reliable Source." The Washington Post. 10 July 2002 (p. C3).

The most obvious interpretation of the joke is that it is ridiculing W. But, more subtly, it could be taken to be giving just a bit of a jab to the French too. (Just because the French invented the word, doesn’t mean that they couldn’t have forgotten its meaning, through lack of use.)

The reference on the Schramm book is:

Schramm, Carl J. The Entrepreneurial Imperative: How America’s Economic Miracle Will Reshape the World (and Change Your Life). New York: Collins, 2006.

“Atlas May Actually Decide to Shrug”

(p. A16) During the recent off-year elections, the president repeatedly pointed to the booming economy and noted that his tax cuts were responsible. With growth strong and unemployment low despite the ending of the stock-market bubble, terrorist attacks and the war in Iraq, he had every reason to be proud. Moreover, both economic theory and the actual timing of the economic revival support his claims regarding the tax cuts.

That is why it is so odd that rumors swarm around Washington that the president may be willing to raise taxes as part of a "deal" on entitlement reform. In particular, the rumors suggest the president might be willing to get rid of the provision that caps the income level used to compute Social Security taxes and benefits. These rumors aren’t without substance; last year the president would not rule out raising the cap when asked.

Doing so would raise the marginal tax rate on the entrepreneurs that Mr. Bush credits for having led the economic recovery by more than 10 percentage points. The new effective rate would be five percentage points above the level when he took office. Moreover, in 2011, the rate would go up a further 4.3 percentage points to an effective 53% marginal rate on entrepreneurial income. The president would thus be not just raising taxes on entrepreneurs to well above the levels that prevailed in the Clinton administration, but to a rate higher than that which prevailed in the Carter administration. Most of the improved incentives for entrepreneurship and work brought about under Reagan would be repealed.

. . .

Last year an entrepreneur similar to me would have paid federal taxes equal to 33.9% of total income.

. . .

Don’t make it too tough on him, or Atlas may actually decide to shrug.

For the full commentary, see:

LAWRENCE B. LINDSEY. "Compromised." Wall Street Journal (Mon., November 20, 2006): A16.

(Note: the ellipses are added.)

The last line of the commentary is a not-so-veiled allusion to:

Rand, Ayn. Atlas Shrugged. New York: Random House, 1957.

“Bet the Company”

When entrepreneurs, or innovative companies, take large risks, and succeed, we sometimes begrudge them their success. But we should remember that sometimes they took great risks, and that they could have lost everything if they had lost the ‘bets’ they made.

One of the most famous examples of ‘betting the company’ is when Tom Watson, Jr. of IBM ‘bet the company’ on the development of the expensive, but pathbreaking, system 360.

This episode is mentioned many places. One that I ran across recently is in Gerstner’s memoir of his own time at IBM. The following lines appear in Gerstner’s brief summary of some important periods in IBM’s earlier history:

Much has been written about this period and how Tom "bet the company" on a revolutionary new product line called the System/360—the original name of IBM’s wildly successful mainframe family.

To grasp what System/360 did for IBM and its effect on the computing landscape, one needs to look no further than Microsoft, its Windows operating system, and the PC revolution. System/360 was the Windows of its era—an era that IBM led for nearly three decades. (p. 114)

The reference to the Gerstner book, is:

Gerstner, Louis V., Jr. Who Says Elephants Can’t Dance? Leading a Great Enterprise through Dramatic Change. New York: HarperCollins, 2002.

African Entrepreneur Funds Prize for African Leaders Who Resist Kleptocracy

Billionaire entrepreneur Mo Ibrahim. Source of photo: online version of the NYT article cited below.

At a news conference in London on Thursday, Mo Ibrahim, a 60-year-old Sudanese-born billionaire who made his money in the cellphone business, announced that he was offering a $5 million prize for the sub-Saharan African president who on leaving office has demonstrated the greatest commitment to democracy and good governance. The money will be spread out over 10 years.

“We must face the reality,” Mr. Ibrahim said, referring to Africa’s leadership record. “Everything starts by admitting the truth: we failed. I’m not proud at all. I’m ashamed. We really need to resolve the problem and the problem, in our view, is bad leadership and bad governance.”

. . .

Unlike many projects that aim to help famine-stricken villages or far-flung AIDS clinics, this one is supposed to focus on political leadership — and the post-independence culture of autocrats and kleptocrats that spawned such figures as Mobutu Sese Seko of Zaire or Idi Amin of Uganda.

. . .

Africa’s culture of the Big Man clinging to office was built in part, Mr. Ibrahim said, on a sense among many of its leaders that, if they relinquished power voluntarily, they would face penury and powerlessness and would no longer be the font of patronage or the tenant of what he called “the hilltop palace.”

“We want them to have a life after office,” Mr. Ibrahim said.

“Your leaders here become rich after they leave office,” he said, referring to the directorships, book deals and lecture circuit tours that accrue to Western leaders. “What life is there for our people after office? Some of our leaders cannot even afford to rent an apartment” in their own capitals, he said.

For the full story, see:

ALAN COWELL "Prize to Honor Heroes in African Democracy." The New York Times (Fri., October 27, 2006): A11.

(Note: ellipses added.)

More Good Done With Standard Oil Money: Henry Flagler

The Flagler Memorial obelisk was erected in on a man-made island in 1920, when Miamians still remembered the accomplishments of Henry Flagler. Source of image: http://www.miamibeachfl.gov/newcity/depts/arce/art_public/rw_flagler_monument.asp

The Standard Oil "monopoly" is often lambasted as a sorry episode in our economic history. And yet a strong case can be made that the Standard Oil wealth was created mainly by efficiently providing consumers with a commodity they valued. In addition, mention is often made of the Rockefeller philanthropic activities. Less known, is that others who became rich from Standard Oil, also engaged in productive entrepreneurship, and philanthropy, with their wealth. One of these was Henry Flagler.

In a region that prizes showy monuments to wealth, the lone monument to the man who made it all possible has languished in isolation for decades.

A soaring concrete obelisk dedicated to Henry Flagler, the oil tycoon who hastened South Florida’s development by building a railroad all the way to Key West, it sits on a tiny man-made island in Biscayne Bay, reachable only by boat or, more typically, Jet Ski. Almost everyone here has glimpsed the Flagler Memorial, but few know what it is called, why it exists or how battered it looks up close.

”I’m telling you, it’s a beautiful work of art,” said Paul Orofino, a board member of the Environmental Coalition of Miami Beach, a nonprofit group that occasionally tidies up Monument Island, the memorial’s scruffy, overgrown home. ”It’s a tragedy that nobody pays attention to this thing.”

It is not the kind of South Florida tribute one might expect for Flagler, who extended his railroad from St. Augustine to West Palm Beach in 1894, Miami in 1896 and Key West — a segment that lasted only 23 years until a hurricane demolished it — in 1912.

Flagler was the state’s original megadeveloper, after all, creating its tourism industry by turning swampy pioneer settlements into the world’s grandest resorts. He was also, perhaps, its first huckster, advertising the nascent Miami as ”the most pleasant place south of Bar Harbor to spend the summer.”

His over-the-top winter home in Palm Beach, awash in gold, is now a museum, but most of its visitors come from out of state, said John Blades, the museum’s executive director. Mr. Blades has tried to get a statue of Flagler erected in Palm Beach, which owes its sumptuous existence to the man, but has so far failed.

”Flagler,” Mr. Blades said, ”is probably the most unappreciated titan of the Gilded Age.”

For the rest of the story of the impressive, but deteriorating, Flagler Memorial in Miami, see:

ABBY GOODNOUGH. "South Florida Journal; Unappreciated, With Memorials to Match." The New York Times (Fri., October 7, 2005): A12.

(Note: the hurricane destroyed the Key West link of the railroad in 1935.)

Henry Flagler. Source of image: http://flaglermuseum.us/html/flagler_biography.html

Mellon Allowed Great Innovation By Restraining Intrusive Government

(p. W4) Though scarcely known today, Andrew W. Mellon was a colossus in late 19th-century and early 20th-century America. He would come to play a major role in the management of the American economy, but first he built one of the country’s great fortunes, one that would rank him today with Bill Gates and Warren Buffett. He is now the subject of a comprehensive, if slightly grudging, biography by David Cannadine, the distinguished British historian.

Mellon is not associated with any single industry, in the way that Andrew Carnegie and John D. Rockefeller are. He was a venture and equity-fund capitalist, one of the first to function on a major scale. He and his younger brother, Dick, took over their father’s Pittsburgh-based investment and coal-mining business and expanded it into many fields, including copper, oil, petrochemicals and aluminum (Alcoa).

No banker was as gimlet-eyed; Mr. Cannadine shows Mellon shrewdly and coldly calculating every investment prospect. Yet few venture capitalists were as daring. In the 1890s, when Rockefeller was ruthlessly monopolizing the petroleum industry, Mellon didn’t flinch from setting up a competing refinery. When Mellon finally sold out to Rockefeller, he did so at a considerable profit. Several years later he came back to oil and eventually built Gulf into an industry giant.

Original Supply-Sider

But Mellon was more than an entrepreneurial industrialist. In his mid-60s he became a famous — and infamous — public servant, performing as Treasury secretary under three presidents, from 1921 to 1932. He was the original supply-sider, pushing tax cuts under Presidents Harding and Coolidge. He argued that the high tax rates left over from World War I were depressing economic activity; that lower rates would turn the economy around; that high-income earners would end up paying more and that low-income earners would be removed from the tax roles entirely.

His program was a fantastic success. The top rate was cut to 25% from 77%. The rich did indeed pay more, while low- and middle-income earners saw their tax bills shrink to nothing or next to nothing. The economy boomed. The U.S. outstripped more heavily taxed nations, such as Britain and France. Mellon also pushed painstakingly for the creation of an international monetary system to replace the one shattered by World War I. The big challenge was huge Allied war debts to the U.S. and onerous German reparations. Mellon negotiated the easiest terms that were politically possible so that trade and economies could revive.

We sometimes forget just how dynamic the 1920s were in America. The automobile became a commonplace item for working Americans; labor-saving devices, such as the washing machine, grew ever more common as well; movies and radio provided mass entertainment as never before (an experimental television broadcast was carried out in 1927); and stock ownership widened to include more members of the middle class.

It was a time of great innovation and inventiveness, and in a sense Mellon presided over it all by allowing it to happen without intrusive government policies.

For the full review, see:

STEVE FORBES. "BOOKS; The Man Who Made the Twenties Roar." The Wall Street Journal (Fri., October 6, 2006): W4.

Reference for the book:

David Cannadine. MELLON. Knopf, 2006. 779 pages, $35

Source of book image: online version of the WSJ article cited above.

Entrepreneur Makes Risky, Massive Infrastructure Bet

A Louisiana site where Cheniere is building a terminal for liquified natural gas. Source of image: online version of the NYT article cited below.

Charif Souki is making a risky business decision. If he is wrong, he and his investors will lose much. If he is right, consumers will be better off, having a larger supply of liquified natural gas (LNG). And if he is right, he should be allowed to make a lot of money, both because that is just, and because it is useful for those who have bet right in the past, to have ample means to bet right in the future.

(p. C1) CAMERON PARISH, La. — The Sabine River channel, where alligators and speckled trout live alongside petrochemical plants and oil refineries, has suddenly become the center of a quiet revolution in the world of natural gas.

And it is mainly at the prodding of a little-known company called Cheniere Energy, with help from Exxon Mobil and Sempra Energy. Together they have overcome formidable regulatory hurdles to build three new liquefied natural gas terminals on the channel that will double the nation’s capacity to import natural gas by 2011.

It has been 24 years since anyone on American shores has built a new liquefied natural gas terminal. Two of the country’s four existing onshore terminals, which dock tankers the size of aircraft carriers ferrying supercooled gas from places like Qatar and Trinidad, were mothballed for years because production at home was plentiful and prices were low.

As recently as five years ago almost nobody in the energy world thought it possible to make money from a new American terminal project — with price tags that start at $600 million — let alone get a federal permit.

One lonely believer was Charif Souki, a Lebanese immigrant entrepreneur who had previously raised (p. C4) money for real estate in Paris and hotels in Hawaii before becoming chairman of Cheniere, a floundering gas exploration company. Not even the 9/11 attacks, which made many people on the Atlantic and Pacific Coasts view liquefied natural gas terminals as potential terrorist targets, diverted him from his vision.

Now, even as natural gas prices sag, along with his company’s stock price, and the word glut is on the tip of the tongue among the drilling crowd, Mr. Souki says he is fixed on the longer view.

He is convinced the nation will need to import more gas because North American production is declining. That is the same view Mr. Souki held six years ago, when he decided to shake up the company’s business plan. He defiantly changed its stock symbol to LNG in 2003, and devoted himself to scoping out the country’s coastlines for potential terminal sites.

The already energy-intensive shoreline along the Gulf of Mexico, he concluded, made the most sense, economically and politically, and he started buying real estate in uninhabited harbors close to existing pipelines and gas-thirsty refineries and petrochemical plants.

“People were actually amused that we would be thinking about importing natural gas,” dryly giggled Mr. Souki, 53, a man with a taste for double-breasted suits. “Nobody took us very seriously.”

Cheniere was so unprofitable and utterly spurned by investors in 2002 that Mr. Souki had to borrow $30,000 from his company’s president just to meet a payroll. But over the last four years, Mr. Souki has managed to arrange financing, sign up long-term buyers and master the regulatory process.

For the full story, see:

CLIFFORD KRAUSS. "A Big Bet on Natural Gas." The New York Times (Weds., October 4, 2006): C1 and C4.

The map shows the area in which the terminal is being built. The bottom photo shows a Louisiana site where Cheniere is building a terminal for liquified natural gas. Source of image: online version of the NYT article cited above.

In Egypt: The Authorities Versus the Entrepreneur

Cairo entrepreneur serves good food to willing customers. Source of image: online version of the NYT article quoted and cited below.

In The Other Path, Hernando de Soto wrote about how governments in much of the world make it nearly impossible for the poor to legally get a start as entrepreneurs. Here is a perfect example of de Soto’s point:

CAIRO, Oct. 2 — With his cart tucked beneath a highway overpass, just beside the railroad tracks and behind a parked taxi, Farouk Salem darted his eyes back and forth nervously as he awaited customers.

On most days, except during Ramadan, the sun has barely risen and worshipers are shuffling out of the nearby mosque after morning prayers as the first customers make their way to Mr. Salem. A few quick flicks of a ladle, the shaking of a bottle or two, and breakfast is ready.

Mr. Salem sells ful, the fava bean stew that is a staple of Egyptian cuisine, as a cheap, hearty breakfast for just 20 cents. But he is an unlicensed street vendor, one of the many hundreds of thousands of Egyptians who make their living in what economists here describe as Egypt’s informal work force: selling, delivering, cooking, cleaning, serving, ferrying, shoeshining, anything that will provide income.

Dr. Rashad Abdou, a professor of economics at Cairo University, estimated that the informal sector might account for as much as 60 percent of Egypt’s economy.

“As long as I keep a low profile, they don’t bother me,” Mr. Salem said on a recent day, as his brother worked behind the parked metal cart, dishing out bowls of ful. The police have forced him to move many times and have even confiscated his cart. But it is hard to keep a really low profile when the food is good and the prices are cheap.

As the sun began to heat up the morning air, customers showed up in a steady stream, some still in their pajamas.

“It’s good,” said Muhammad Abbadi. “It’s clean. And the most important thing is it’s cheap. We are poor. You see how poor we are in Egypt.”

. . .

“If the authorities want to chase me away, they will do it,” he says, his face tight and nervous. “If they want to put me in prison, they can. If they want to take my cart away, they can.”

He walked over to get some more bread as Muhammad kept ladling.

For the full story, see:

MICHAEL SLACKMAN. "CAIRO JOURNAL; A Hand on the Ladle, and an Eye Out for the Law." The New York Times (Tues., October 3, 2006): A4.

(Note: ellipses added.)

Ful is a fava bean stew that is popular in Cairo. Source of image: online version of the NYT article cited above.

The reference to the de Soto book is:

Soto, Hernando de. The Other Path: The Invisible Revolution in the Third World. 1st ed: HarperCollins, 1989.

“Work Alone”

Source of book image: http://www.mactime.ru/Environ/WebObjects/mactime.woa/2/wa/Main?textid=6114&level1=mactimes&wosid=b2qk07iEkIh6GoutH7IbVg

Many scholars interpret Schumpeter as believing that large firms would increasingly become the main source of innovation. Scherer, Christensen, and many others, have provided plenty of reason to doubt this belief. Here is another reason, from one of the innovators who helpted bring us the personal computer:

What emerges in "iWoz" is a chatty memoir full of surprises. Yes, Mr. Wozniak cherishes workbench minutiae, such as his tips for connecting circuitry wires. But he also sees this book as a chance to cut through cliché and explain himself to a larger audience. He reveals a technology pioneer who is more charming and annoying — and whose life is more poignant — than we expected.

. . .

As Apple roared ahead, going public in 1980 and then becoming one of the 500 largest U.S. companies, Mr. Wozniak’s golden moment came to an end. New products weren’t developed anymore by a brilliant prankster working with barely any sleep. There were now teams, committees and market studies.

Mr. Wozniak by his own account didn’t like these changes, and he didn’t want to rise into senior management. He hung on at Apple as a lone engineer — and he says he still collects a tiny paycheck from the company — but from the mid-1980s onward turned his attention to other things.

. . .

Fortunately, Mr. Wozniak finishes strong. In his final chapter, he offers a bit of advice to gifted engineers: "Work alone." Big companies tend to stifle innovation, he explains. It’s lonely and risky to work solo. No matter. "Man, it will be worth it in the end," he writes. His life bears out the truth of that simple claim.

For the full review, see:

GEORGE ANDERS. "BOOKS; Technostalgia; Steve Wozniak looks back on the computer revolution and his role as Apple’s co-founder." Wall Street Journal (Sat., September 30, 2006): P8.

(Note: ellipses added.)

The reference to the book by Wozniak:

Steve Wozniak, with Gina Smith. iWoz Norton, 2006. 313 pages, $25.95.

Steve Jobs at left, and Steve Wozniak at right, in San Francisco in 1977. Source of photo: online version of the WSJ article cited above.