Wednesday, April 01, 2009

Debunking Enterpreneurship

The world is in recession right now, deeper than any since the Great Depression of the 1930s, so every conceivable media is reporting. Unemployment has hit record highs, with many people thrown out on the streets because they can no longer pay their mortgages. Many in the US are living no differently from those in 3rd world countries, who call a tent, or a 'house' built from 5 wooden planks stringed loosely together their home. It is heartwrenching, but what can these people do? They can probably do one of three things:
  1. Live on government (or any charitable) dole
  2. Do odd-jobs (if any are available, i.e.)
  3. Start their own business

Starting their own business looks like the best way to 'get up and going' and not wallow in self-pity. And that is really what happens in a recession, or at least when jobs are few and far between. Statistics from the past have shown that this is what the unemployed do. But statistics have also shown that most such businesses (if not all) are bound to fail. Don't ask me, ask Prof Scott Shane, a professor of Entrepreneurial Studies at the Weatherheard School of Management, Case Western Reserve University. He has written the book, "The Illusion of Entrepreneurship", in which he debunks popular myths about Entrepreneurship.

And what are some of these myths?
  1. The US isn't one of the most entrepreneurial countries in the world. Countries such as Peru and Uganda are more entrepreneurial (page 28)
  2. Most entrepreneurs don't select the most profitable industries, but instead pick industries with highest firm failure rates (page 38)
  3. Psychological factors account for very little of the difference between enterpreneurs and other people...(page 61)
  4. ...The typical start-up is very ordinary, not-very-innovative, home-based business that starts and stays tiny (page 76)
Prof Shane goes on to list a total of 67 such 'busted myths and key realities' in this book. And he does not do so with bald assertions, as many who write management books do. In all instances, he appeals to authoritative statistics and studies collected and conducted in the past. The book has 33 pages of notes citing references and authorities. It certainly corrected many perceptions that I have held before. For example, that getting an education will help, not hinder, one's performance as an entrepreneur (myth #50 - page123). The adage to study hard and get a good education continues to hold true. Another important point he made was that public policy towards enterpreneurship (and by extension, schools teaching entrepreneurship) should not blindly support any and all types of start-ups. He asks a question towards the end of the book:

Between a high school dropout entrepreneur who starts a personal cleaning business and a former Microsoft employee of 15 years of experience with an MBA starting an internet company, which is more likely to succeed?

The answer may or may not surprise you, but this question goes to the heart of message of this book - that most enterpreneur fail, but there are some with particular characteristics that will do well. Read the book to find out.