Ross Emmett

Archive for the ‘entrepreneurship’ Category

The Perennial Gale of Creative Destruction: Schumpeter Turns Marx on His Head

Thursday, April 14th, 2011

On Monday, April 4, 2011, I gave a lecture at James Madison College on Schumpeter’s notion of “creative destruction.” The lecture was sponsored by the MC Student Senate, whom I thank for the opportunity. The lecture was streamed live via ustream.

The Perennial Gale of Creative Destruction: Schumpeter Turns Marx on His Head.

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Connecting College Students with New Firms

Tuesday, October 5th, 2010

President Obama wants firms, labor unions and community colleges to work together to put students to work. His grand idea is that firms will tell community colleges what skills they need in new workers, government will fund community college expansion of skill education, and labor unions will cooperate in allowing firms to expand hiring. Several firms have already leapt onboard this plan: McDonalds and Gap, for example, although neither has a unionized workforce. The Gates Foundation is also involved, along with several other liberal education-oriented foundations.

A central problem with Obama’s grand idea is the simple fact that new jobs are usually created by new firms, not established ones. An NBER research paper issued in August 2010 by John C. Haltiwanger, Ron S. Jarmin, Javier Miranda showed that the prevailing wisdom among policy-makers that small firms create the most jobs is misleading. But it is also wrong to say that big firms create the most jobs. The authors argue that strongest indicator of new job creation is whether the firm is young, regardless of whether it is small or big.

Obama’s biggest challenge, then, is one he is not seeking to address: how can we connect college students to young firms?

That question was one the students in the Michigan Futures Seminar identified back in 2009 as a key issue for fostering a more entrepreneurial, innovative Michigan. The students in that seminar created Spotlight Michigan, which began to search for ways to connect students to young firms.

A couple of insights from the 2009 and 2010 versions of the Seminar, both of which developed ideas under the Spotlight Michigan theme, are relevant to President Obama’s idea. Both, however, suggest that throwing federal dollars at the problem will not particularly help.

Insight 1: New firms are not active student recruiters.
This does not mean they will not hire students, but instead that when they look for new employees, they tend to want to hire someone who has both a specific set of skills and the willingness to work in the “new firm” environment. They want a specific set of mechanical or IT skills, of course, which is why the President’s plan is aimed at community college education. But they also want someone who understands that new firms do not have the luxury of hiring you to do only one thing: you’re as likely to participate in a strategy session as you are to spend the day programming. And you may well have to put the coffee on and work long hours alongside owners and other employees from a wide age range.
Such an environment is exciting for some students, scary for others. The fact that 80% of new firms fail within less than 5 years also means that the student hires may well be looking for work again, soon.

Insight 2: Students do not know how to look for jobs with new firms
Ask a student to name a “new” firm, and they’re likely to name Facebook. In other words, most students have no idea what new firms look like, and they don’t know where or how to find those firms. Given insight 1 (new firms are not likely to be sitting between the US Army and IBM at the local career fair), and students’ general inexperience with the business world (having been in the classroom since they were 6), it is no wonder that students don’t consider working with new firms.

Spotlight Michigan has tried a number of ways of bridging the Great Divide between new firms and students. The lessons I take away from their experiences are twofold:

1) the most important thing we can do to link students with new firms is to make a personal connection between an entrepreneur and a student; and
2) encourage students to join young professional or entrepreneurial groups that informally kick around new ideas and spin companies and non-profits out, because that’s where they will meet the entrepreneurs starting new firms.

Neither of these lessons particularly needs the millions President Obama wants to throw at community colleges. Colleges are not really very good at either of these things anyway. And labor unions are not involved at all (why would they be? – they work to protect existing jobs at older firms, not create new jobs at new firms!). What it takes is local involvement of students, entrepreneurs and individuals who are willing to invest time and energy to link the two. In other words, it takes a community to raise entrepreneurial firms.

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Entrepreneurs & Risk-Taking

Saturday, May 29th, 2010

At the recent TEDx Lansing, “Biggby Bob” – aka Bob Fish, entrepreneur and founder of Biggby Coffee – said the following about entrepreneurial risk-taking (I paraphrase, but you find the YouTube link for his talk at the end of this post):

Sure, entrepreneurs take risks. But they don’t see it that way. They have knowledge about a particular market or problem that tells them that what they are planning to do will work. Obstacles have to be overcome, sure, but they are confident they will succeed if they work hard. From the “outside” the entrepreneur’s actions look like risk-taking. But we’re not gambling; we know what we’re doing.

Bob managed to weave together three key themes regarding entrepreneurial action in his brief comment. Trust the entrepreneur to say it succinctly. In typical academic fashion, I’ll pull these apart a bit in order to explain why I agree with him.

Theme 1: Risk

From a “macro” perspective of society-as-a-whole, we know that our current economic resources, technology, and capital both provide us with opportunities and pose risks. Unlike gambling – where the probabilities are often known – the risks posed in the economic realm are often unknown. In fact, the costs of those risks are unevenly spread among the members of society: at any point in time, some of us are greater risk than others, just as some have a greater opportunity to benefit from current resources or technology than others.

Theme 2: Disbursed Knowledge

The knowledge of the world doesn’t reside on a computer hard drive somewhere. It resides in the minds of human beings, who share a lot of knowledge, but also individually know things that others don’t. The dispersion of knowledge is particularly true of practical knowledge – the knowledge of how to do a particular thing in a particular place. When Biggby Bob says that entrepreneurs know things that help them to be confident about their success, he is talking about this disbursed knowledge. The entrepreneur sees the opportunity because of their particular vantage point, which includes their general and particular knowledge.

Note: Disbursed knowledge is one of the reasons why simply increasing the number of highly educated people (even in the sciences and engineering!) doesn’t translate obviously into innovation and entrepreneurship. A recent Kaufman Foundation report says it well: while the general level of knowledge that entrepreneurs need continues to grow, they are no more likely to have higher degrees than anyone else.

Theme 3: Opportunity Taking and Making

Does the entrepreneur take an opportunity that others don’t see, or do they make the opportunity? Both are possible, of course, but I’m inclined to see entrepreneurship in terms of opportunity-making. Opportunities don’t sit around like $20 bills on a sidewalk. The hard work of entrepreneurship is figuring out what the opportunity really is, and making it happen. This does not make the entrepreneur a shyster or gambler. Their particular knowledge and personal outlook on life poses a question to them: is X possible? Sometimes X doesn’t even turn out to be the thing that adds value; remember the entrepreneurial code: fail fast, learn your lessons, and move on. But pursuing X leads them either create a better X, or to figure out that what was really needed was Y.

Putting all three themes back together, we can say that the entrepreneur figures out how to be at the place where an opportunity can be created to add value that others appreciate.

What we cannot say, however, because we don’t really know, is whether the entrepreneur’s actions will increase or decrease our society’s exposure to the uncertainties of life. Even if an innovation reduces some risk, it may create new ones we didn’t know about before.

Bob Fish on TEDx Lansing

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