Posts Tagged ‘Innovation’

Entrepreneurial Definitions

December 15th, 2013

Last night I was helping my son with some English homework that involved a kind of definition map that he was supposed to use with his vocabulary. The definition map requires that you give examples, non-examples, and describe the properties of the word besides the actual definition. We found verbs were a lot harder to conceptualize than nouns. This activity caused me to reflect on the word ‘entrepreneurial’. I recently reviewed a book that advertised entrepreneurial quizzes. It turned out to be nothing more than a career interest tests with the word ‘entrepreneurial’ slapped in front of each section.

This is not an uncommon problem since being an entrepreneur or entrepreneurial is en vogue. Established businesses are entrepreneurial, leaders are entrepreneurial, and apparently even accountants can be entrepreneurial. It definitely fits into the current business buzzword vernacular. What does entrepreneurial finance mean anyway? Does it refer to finance done by an entrepreneur, a financier doing entrepreneurial things or something else? What is so different about entrepreneurs that it has created this additional adjective?

Often entrepreneurial is used in place of the word innovative, inventive, or creative. However, these are different things. Creative is the use of imagination to create something unique. Inventive is the creation of a new thing. Innovative is using new and old things in new ways usually to solve a problem. However, entrepreneurial is more than that. It solves a problem while making money. This situates the definition in the business world but still requires further clarification.

Google’s top result is a nice big definition but I don’t understand how “taking financial risks in the hope of profit” is different than what any other business person does? This definition is illustrative of the view that start-ups are just smaller and newer versions of large companies. I won’t bemoan what Mr. Blank has so eloquently described in Why the Lean Start-Up Changes Everything. The point is start-ups are about learning what works before scaling and optimizing. That learning function is a key; learning in uncertainty when there is no one right answer or way of doing things. We’ll cover more in just a second.

My definition of entrepreneurship or entrepreneurial is functional allowing people to be entrepreneurial one minute and normal the next whether you are inside a corporation or part of a start-up. So what is the function of an entrepreneur? What do they do? Well, from an economic standpoint they reduce uncertainty and make a profit by doing so. Now when I say uncertainty I am using economist Frank Knight’s version of the unknown unknowns that don’t have probabilities attached to them. Any time someone seeks to reduce uncertainty in executing a business model they are entrepreneurial. The uncertainty may lie within the different business model components such as the technology, market, or even the execution (e.g. franchisees or copy cat firms).

To be entrepreneurial is to reduce uncertainty in the execution of a business model in ways that are profitable. This happens through vision, action, and learning. Most uses of the term are used incorrectly in the context of risk rather than uncertainty which is what regular business is about and what comes after the entrepreneur has done their job.

Thinking Like a Traveler

June 19th, 2011

My absence has been prompted by my geographic relocation. Whenever you move to a new place you notice the differences that disrupt your expectations which isn’t always a bad thing. It reminded me of a section of a talk by Tom Kelley of Ideo fame on How to be an Innovator for Life:

Startup America: The Good, The Bad, and The Missing-Part 2

April 26th, 2011

In the continuing saga of Startup America: The Good, The Bad, The Missing– I bring you Part 2-this time it’s personal (not really, it just sounded fun to say).

The Bad

 Startup America has no concrete goals only intentions. How do we know what we’re aiming for or when we’ve achieved what we set out to do? “Get a man on the moon” gives us a unifying and actionable goal. Instead we have a fuzzy mission statement: “Startup America is the White House initiative to celebrate, inspire, and accelerate high-growth entrepreneurship throughout the nation.” The intentions found on the White House website are:

  1. Unlocking Access to Capital
  2. Connecting Mentors
  3. Reducing Barriers
  4. Accelerating Innovation
  5. Unleashing Market Opportunities

Good intentions right? It seems to make sense- If entrepreneurs have more access to money, more people to coach them, fewer barriers, and even access to new technology then people are more likely to start companies. The government then hopes that leads to more jobs and in turn a healthier economy (GDP, Price Stability/CPI, High Employment).

However, there are a few hang ups with those assumptions. The money in the hands of VC’s and Angels are focused on higher returns; which means only high-growth companies receive funding which are a very small percentage of new businesses. David Rose, creator of Angel soft, threw out some numbers in a talk within the past year or so saying that of the 600,000 US companies created in a year only about 1000 received VC funding. Though the National Venture Capital Association said VC’s did 3,277 deals in 2010 though the 600,000 new businesses get started each year is pretty close.  Almost every entrepreneur thinks they should be funded but the reality is they won’t for two main reasons. One, there are only so many deals that will get funded and two; their business isn’t built to get 10 times the return in productivity or investment that is required for a high-growth company. Yet they will probably produce the majority of the jobs. The point is the other 596,000ish new businesses had to get money from somewhere else.

The other money such as SBIR or small business loans (collateral?) are run with requirements that large business struggle to meet and with delayed timelines (at times there is a 6 month delay between SBIR Phases and you’re not allowed to save any of the money). I don’t really see that the Startup America initiative has really unlocked access to the capital. Bottom line: Creating more jobs isn’t really a criterion used in the money world.

I’m not blaming the VC’s or Angels, they’ve got their own problems to worry about-of the 10 companies they’ve got in their portfolio probably only 1 is going to result in a big success from their perspective. They’re constantly on the lookout for better deal flow.  One of the ways they’ve found to improve their chances is to take graduates from mentor-driven accelerators like Tech Stars (check out Tech Stars success stats).

 This is where the Startup America Partnership has helped the VC’s and Angels by extending the TechStars model by supporting the creation of the Tech Stars Network. This can further the high-growth enterprise creation assuming that mentors know what to do and are the right fit for the personalities of the entrepreneur. Many times mentors either come from a corporate world or have a certain domain expertise that may not fit a startups current situation nor needed expertise.

 However, even if the mentors do know how to advise this select group the system doesn’t necessarily drive more deals or investment flow but just a higher quality resulting in a better return for the investors and founders. The founders’ success is what the economic growth hinges on because they are more likely to start another company in the future.

Reducing barriers is probably the best approach that government policy should take but again goes back to the problem of knowing which barriers are the right ones to remove. For example, whether or not I have to pay capital tax is not going to determine whether or not I start a company but a faster and less expensive patent process may speed up the idea to market.

 I do have to applaud the government’s efforts to understand the problem and utilize crowdsourcing to problem solve. If you want your voice to be heard and want to share your view about how to reduce barriers go to one of the round table meetings they’re conducting across the country or visit the reducing barriers website and let them know your thoughts. Don’t whine when you’ve got a platform for generating and nominating solutions to a problem.

However, there is quite a bit of angst that when it comes time for a decision about what to do that is still being made without entrepreneurs in the room. So even though there is The Bad or flaws with the current product it is encouraging that they know it and are asking for feedback to identify The Missing things that will drive real change. After all, isn’t that what startups do too?

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