The Economist’s special report on entrepreneurship

August 4, 2009 at 11:28 am | Posted in Uncategorized | Leave a comment

The Economist magazine is one of my favorite magazines and reading material of any kind! Here are sections from a special report on global entrepreneurship that I thought were revealing, and while it’s global, alot can be applied to our very own region in Lynchburg and the surrounding counties, here in Virginia.

Five myths of entrepreneurship (Source: The Economist, with my comments interspersed, mostly in brackets):

Myth 1:  Entrepreneurs are “orphans and outcasts” – In fact, entrepreneurship, like all business, is a social activity. Entrepreneurs may be more independent than the usual suits who merely follow the rules, but they almost always need business partners and social networks to succeed. Think Steve Jobs and Steve Wozniak of Apple; Bill Gates and Paul Allen of Microsoft; Sergey Brin and Larry Page of Google; and of course Ben & Jerry’s of the ice cream fame. (With social networking sites making this easier, this fact will only be a growing trend). Entrepreneurship also tends to flourish in clusters (think Sillicon Valley, New York, LA, and Boston).  

In the Lynchburg region, this couldn’t be truer. Partnerships abound. I constantly notice savvy entrepreneurs partnering up; it IS about who you know. I’m also hoping that Virginia’s pro-business climate, will help spur greater startup businesses and attract small businesses to Lynchburg and the surrounding counties, and there will an entrepreneurial momentum).

Myth 2: Most entrepreneurs are “young” – A Kauffman Foundation study found that the average entrepreneurial boss was 39 when he or she started. The number of founders over 50 was twice as large as that under 25.

(Yes, the Bill Gates, Steve Jobs, and Michael Dells who dropped out of college to start businesses, do exist, but they are not the norm! My advice to college and high school students with the entrepreneurial bug: Stay in school. Even more so than in previous generations, knowlege is power and you increase your chance of success in business with a better education. Work in the industry first, and glean your lessons learned that you can then apply to your own business, with less painful consequences!)

Myth 3: Entrepreneurialism is mainly driven by venture capital – Fact: Venture capitalists fund only a small fraction of start-ups. The money for the vast majority comes from personal debt or from the “three fs”  – friends, fools and families.

(Ask any Small Biz Development Center consultant like me: There are NO grants or freebies for virtually any small business. Financing for a business (particularly if it’s from a bank, rather than the 3 F’s but even sometimes 3Fs) requires the 5C’s:  Credit, Collateral, Capital, Conditions, and Cashflow. At the SBDC, we help small business prepare their business plans and loan packaging to get funds for their business. We work with financing sources at all different levels, federal, state, local, and private banks. Check out our in-house loan programs for small business owners in Lynchburg, and the counties of Amherst, Appomattox, Bedford and Campbell at:  http://lbdc.com/index.php?/financing

Myth 4: Entrepreneurs must produce some world changing new product – Fact: some of the most successful entrepreneurs concentrate on processes rather than products. (i.e., give your customers more convenience, efficiency, or reinvent an old product with an innovative process).

Myth 5: Entrepreneurship cannot flourish in big companies – Startups are often more innovative than established companies because their incentives are sharper: they need to break into the market, and ownerentrepreneurs can do much better than even the most innovative company man. BUT, big can be beautiful too. Big firms oten provide startups with their bread and butter. In many industries, especially pharma and telecoms, the giants contract out innovation to small companies.

(Here in the Region 2000/Lynchburg area, we have worked with several startups that were spin-offs of larger established companies such as Areva, BWXT, Tyco, Ericcson, and GE. The small companies were not only former employees of the big companies, but they continue to be key suppliers to their former bosses, and it’s a collaborative relationship benefitting both).

So, the million dollar question – Is there any silver lining to the current downturn and recession confronting entrepreneurial capitalism?

According to The Economist, “harder times will eliminate the also-rans and, in the long run, could make it easier for the survivors to grow. As Schumpeter said “downturns can act as a “good cold shower for the economic system”, releasing capital and labor from dying sectors and allowing newcomers to recombine in imaginative new ways.

Today the ground is far less solid than it was in his day, so the opportunities for entrepreneurs are correspondingly more numerous. The information age is making it easier for ordinary people to start businesses and harder for incumbents to defend their territory. Back in 1960 the composition of the Fortune 500 was so stable that it took 20 years for a third of the constituent companies to change. Now it takes only four years.

Microsoft, Genentech, Gap and The Limited were all founded during recessions. Hewlett-Packard, Texas Instruments, United Technologies, Polaroid, and Revlon started in the Great Depression.

(The Economist goes on to say that most entrepreneurs surveyed say that while times are tough now, they do predict that their businesses and their workforce will grow, and there is likely to be less competition in their industry. Don’t be left behind, be one of the survivors. Check out our SBDC resources to help small business survive the downturn at: http://www.vamis.net/DocumentMaster.aspx?doc=1133 ).

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