Posts filed under ‘Entrepreneurship’
Obama on Small Business
| Peter Klein |
President Obama’s gaffe about business creation — “If you’ve got a business, you didn’t build that. Somebody else made that happen” — has been met with the usual reactions. Defenders claim he simply used infelicitous language to describe the vital role of government in providing essential goods, while critics point out, for instance, that he didn’t even get it right on the Golden Gate Bridge (which received no federal money). I actually feel sorry for the guy. It was an pretty dumb thing to say, politically, and may end up hurting him more than Romney’s role in “exporting American jobs” (gag) hurts the challenger.
The idea that no one builds a business on his own, without help from other people, is in once sense trivially true, as Leonard Read never tired of explaining. No one person knows how to make a pencil, let alone a microprocessor. As a defense of government spending on infrastructure (not only roads and bridges, but things like the internet), it falls completely flat. Of course some entrepreneurs profit from government spending on infrastructure — not just directly (e.g., road contractors, engineering companies hired by ARPA, etc.) but indirectly (from lower transportation or transmission cost, net of tax payments). But such anecdotes do not at all “justify” the expenditures. As I once wrote about the internet:
[E]nthusiasts tend to forget the fallacy of the broken window. We see the internet. We see its uses. We see the benefits it brings. We surf the web and check our email and download our music. But we will never see the technologies that weren’t developed because the resources that would have been used to develop them were confiscated by the Defense Department and given to Stanford engineers. Likewise, I may admire the majesty and grandeur of an Egyptian pyramid, a TVA dam, or a Saturn V rocket, but it doesn’t follow that I think they should have been created, let alone at taxpayer expense.
A gross benefit to particular entrepreneurs from a government program does not, by itself, demonstrate net benefits to the taxpaying community. Vague references to spillovers and multipliers may sound good in a press conference, but are no substitute for serious analysis.
Hardware Matters
| Peter Klein |
Joe Salerno’s post at Circle Bastiat, “There’s No Such Thing as a Free Cloud,” could have been an entry in our nothing new under the sun series. Joe highlights a recent HBR blog piece on the physical footprint and energy requirements of server farms, showing that success in the digital age depends, for some players, on access to tangible capital assets and energy. There are important implications:
The notion of a world without scarcity is thus usually propagated by leftist social theorists–but not always. There were some libertarian futurists around in the early 1970s. But lately many libertarians are among the vanguard of those who, dazzled by the marvels of the Digital Age, argue that many goods have become costlessly and, therefore, infinitely producible. Without government interference, they contend, humankind will be able to satisfy more and more of their wants using the resources freely available inside the Cloud.
Our Post-Scarcity libertarians should tell this to the owners of the 500,000 data centers, which contain the hundreds of millions of servers worldwide that constitute the real and indispensable infrastructure of the Cloud.
There are also the wires, cables, switches, cell towers, and client machines (PCs, smartphones, tablets, etc., not to mention smart refrigerators, cars with OnStar, thermostats, and more) that give us access to the cloud. To be sure, Moore’s law allows us to consume this hardware as never before. But software without hardware is like, hmmmm, peanut butter without jelly, Sonny without Cher, a Tim Burton movie without Johnny Depp. Notes Joe: “Once again, common sense observation of the real world reveals the ceaseless struggle of human actors to economize on the use of resources and vindicates the old and true economics of scarcity.”
Entrepreneurship and the Auteur Theory
| Peter Klein |
I’ve been reading Jack Mathews’ The Battle of Brazil: Terry Gilliam v. Universal Pictures in the Fight to the Final Cut, a fascinating — if absurdly one-sided — look at director Terry Gilliam’s struggle to get his 1985 film Brazil distributed in the US. Mathews tells the story as a noble crusade by a brilliant, iconoclastic, visionary filmmaker against the evil studio system, run by corporate toadies who care only about making money, even if it means destroying the artistic unity of the filmmaker’s creative vision. Gilliam had “final cut” rights for a version released in Europe, but his US distributor, Universal, demanded substantial edits, which Gilliam refused to make. Universal, led by Sid Sheinberg (who comes across heroically in documentaries about Steven Spielberg’s Jaws), was completely within its contractual rights to insist on these changes, but the result was a very different film that has been lampooned by critics. (The Sheinberg version was canned and an alternate Gilliam version eventually shown in the US after a long, ugly, public battle between Gilliam and the studio.)
It’s great reading for those interested in movies and the business of making movies. But there’s an interesting entrepreneurship angle as well. Most film critics, including author Mathews, accept the auteur theory of cinema, which sees movies as the highly personal products of a director’s creative vision. The studio approach, which treats moviemaking as a collaborative enterprise designed to make money, is anathema to the auteurs. The case is usually made with familiar anecdotes: 24-year-old Orson Welles had final control over Citizen Kane and created one of the medium’s great masterpieces, while RKO destroyed the follow-up Magnificent Ambersons (and all Welles’s subsequent films). The studios thought Star Wars would flop, and after George Lucas made his zillions he decided to finance and produce his subsequent films on his own, without studio interference — the dream of every auteur. American art-house darlings like Robert Altman, Peter Bogdonavich, Quentin Tarantino, Jim Jarmusch, etc. are always portrayed as fighting to keep Hollywood from turning their edgy, original films into bland, corporate drivel pitched at suburban soccer moms.
As Paul Cantor and others have explained, however, the auteur theory is bunk. Moviemaking is, in fact, a collaborative venture, and many of the best films are studio pictures created by large teams — the best example being Casablanca, which was essentially written by committee. Or, as Cantor puts it: “Just three words: Francis Ford Coppola.” (The Godfather films were studio pictures; virtually everything Coppola did since, with the partial exception of Apocalypse Now, has been a disaster.) And take George Lucas: Does anybody think the problem with the prequel trilogy was too many people standing around saying, “George, you can’t do that”?
Consider the parallels with entrepreneurship. (more…)
Organizing Entrepreneurial Judgment: Kindle Edition Now Available
| Peter Klein |
Here’s the link — and the price is right, just $16.50!
According to the latest sales figures, we’re up to #1,070,026 on Amazon. So close to the top spot! Incidentally, my sole-authored Capitalist and the Entrepreneur is just behind at #1,210,245, suggesting that the market places only a small value on the marginal Foss contribution. That’s the correct inference, right?
Reminder: “Alternative Investments” Proposals due 15 June
| Peter Klein |
Reminder: Proposals for the Managerial and Decision Economics special issue on “Effects of Alternative Investments on Entrepreneurship, Innovation, and Growth” are due 15 June 2012. Don Siegel, Nick Wilson, Mike Wright, and I are editing the special issue and organizing a paper-development conference 29 October 2012 at the SUNY Global Center in Manhattan. Click the link above or go here for further details. We look forward to your submissions!
IT and Higher Ed
| Peter Klein |
Joshua Gans’s Forbes piece on Stanford’s online game theory course brought up a larger point about higher education. I’ve been involved in various online, distance, web-based educational activities for many years. When designing an online course, the typical professor imagines each element of a traditional course, then creates a virtual equivalent. I.e., paper syllabus = html syllabus; books, articles, handouts = pdf files; classroom lecture = webcast lecture; office hours = chat session; pen-and-paper exams = online exams; and so on. The elements are exactly the same as before; only the method of delivery has changed.
This is almost certainly the wrong way to leverage the information technology revolution. The pedagogy is exactly the same. But isn’t this just what we would expect of entrenched incumbents? The record companies didn’t create iTunes. The online New York Times is pretty much like the paper New York Times; it took Google and Flipboard and other innovators to revolutionize the newsreading business. 
As we’ve noted before, isomorphism and stasis is exactly what we would expect from a protected cartel — disruptive innovation, in the Christensen sense, will almost certainly come from outside. (Hopefully after Yours Truly is comfortably retired.)
Darden Entrepreneurship and Innovation Research Conference
| Peter Klein |
The Darden Entrepreneurship and Innovation Research Conference is now underway in Charlottesville, Virginia. Keynote and roundtable sessions will be streamed on the conference website.
Time to Say Goodbye, but Not Really
| Peter Lewin |
After a most enjoyable and productive tour as a guest blogger on this site (at least for me), the time has come to say goodbye.
I do so at an auspicious moment, having just received my copy of Organizing Entrepreneurial Judgment. This book brings together important work by two of the hosts of this site in a very accessible format that promises to spread their message to many who have yet to hear it. To understand the firm one must understand entrepreneurship and vice versa. We live in a dynamic world in which individual judgments concerning the value of resources and the path of future events play a key role and organizational structures develop to give traction to those judgments. For an unrepentant Austrian subjectivist like me it is all very exciting. I look forward to observing further developments as an observer and casual participant on this blog, and elsewhere.
I would like to warmly thank the hosts of this blog Dick, Nicolai, Lasse, and Peter for extending to me the invitation to participate and look forward to ongoing productive associations with all of them.
And If You Can’t Teach, Teach Gym
| Peter Klein |
Kate Maxwell, writing at Growthology, is concerned about the distance between those who do entrepreneurship and those who teach or research entrepreneurship:
In my reading of the entrepreneurship literature I have been struck by the large gap between entrepreneurs and people who study entrepreneurship. The group of people who self select into entrepreneurship is almost entirely disjoint from the group of people who self select to study it. Such a gap exists in other fields to greater and lesser degrees. Sociologists, for instance, study phenomenon in which they are clearly participants whereas political scientists are rarely career politicians but are often actors in political systems.
But in the case of entrepreneurship the gap is cause for concern. My sense is that all too often those studying entrepreneurship don’t understand, even through exposure, the messy process of creating a business, nor, due to selection effects, are they naturally inclined to think like an entrepreneur might.
I agree entirely with this description, but am not sure I understand the concern. Kate seems to assume a particular concept of entrepreneurship — the day-to-day mechanics of starting and growing a business — that applies only to a fraction of the entrepreneurship literature. Surely one can study the effects of entrepreneurship on economic outcomes like growth and industry structure without “thinking like an entrepreneur.” Same for antecedents to entrepreneurship such as the legal and political environment, social and cultural norms, the behavior of universities, etc. Even more so, if we treat entrepreneurship as an economic function (alertness, innovation, adaptation, or judgment) rather than an employment category or a firm type, then solid training in economics and related disciplines seems the main prerequisite for doing good research.
Of course, this doesn’t mean that entrepreneurship scholars shouldn’t talk to entrepreneurs or study their lives and work. Want to know how if feels to throw the winning Superbowl pass? Ask Tom Brady or Eli Manning. The stat sheet won’t tell you that. But this doesn’t mean that only ex-NFL players can be competent announcers, analysts, sportswriters, etc. Similarly, I like to read about food, and have enjoyed the recent memoirs of great chefs like Jacques Pépin and Julia Child. These first-hand accounts are full of unique insights and colorful observations. But there are plenty of great books on the restaurant industry, on the relationship between food and culture, on culinary innovation, etc. by authors who couldn’t cook their way out of a paper bag.
What do you think?
CFP: Bricolage in Art and Entrepreneurship
| Peter Klein |
Bricolage — doing the best you can with the materials on hand, rather than choosing and end and getting the resources you need — is an important concept in the contemporary entrepreneurship literature. Garud and Karnøe’s influential 2003 paper on the Danish wind power industry helped bring bricolage into the mainstream, and it has important parallels with effectuation and other approaches to entrepreneurship that emphasize experimentation and incremental learning.
The University of Missouri’s Department of Romance Languages and Literatures is hosting an interdisciplinary conference, 12-13 November 2012, on bricolage in art and entrepreneurship, focusing on the work of Ediciones Vigía, a unique artists’ collective that produces limited edition handmade books by Cuban and international authors and musicians. Participants will come not only from the humanities, education, and journalism, but also economics, management, and entrepreneurship. Among the featured speakers are Ivo Zander, who recently co-edited a book on Art Entrepeneurship, and Sharon Alvarez.
O&M readers interested in the relationship between business and the arts, the parallels between artistic creativity and entrepreneurial creativity, the economic organization of artist networks, and related issues should check it out. The full call for papers, along with related information, is below the fold.
Lazear and Spletzer on Creative Destruction
| Peter Klein |
What labor economists call “churn” is an important part of creative destruction, the combining and recombining of productive resources as business entities appear and disappear. New paper:
Hiring, Churn and the Business Cycle
Edward P. Lazear, James R. Spletzer
NBER Working Paper No. 17910
Issued in March 2012Churn, defined as replacing departing workers with new ones as workers move to more productive uses, is an important feature of labor dynamics. The majority of hiring and separation reflects churn rather than hiring for expansion or separation for contraction. Using the JOLTS data, we show that churn decreased significantly during the most recent recession with almost four-fifths of the decline in hiring reflecting decreases in churn. Reductions in churn have costs because they reflect a reduction in labor movement to higher valued uses. We estimate the cost of reduced churn to be $208 billion. On an annual basis, this amounts to about .4% of GDP for a period of 3 1/2 years.
First Copies of the New Book
| Peter Klein |
Nicolai was in town yesterday to deliver the 2012 Sherlock Hibbs Distinguished Lecture in Economics and Business, and he gave a terrific talk about “open entrepreneurship,” the application of concepts and principles from the open innovation literature to the discovery, evaluation, and exploitation of entrepreneurial opportunities. Upon returning to my office after the lecture, I found a surprise waiting for me: the first hardcopies of our new book, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012). As both authors happened to be together, we preserved the moment for posterity.
You can order today on Amazon’s UK site (or pre-order on the US site, which shows a publication date of 30 April). You can order directly from Cambridge (UK or US).
A brief description and some endorsements are below the fold.
NB: Tomorrow Nicolai is giving the Hayek Lecture at the Austrian Scholars Conference, which you can watch live online.
Update: O&M readers can order directly from Cambridge and receive a 20% discount! Use this link.
Foss at Missouri
| Peter Klein |
O&M co-founder Nicolai Foss will give the 2012 Sherlock Hibbs Distinguished Lecture in Business and Economics Tuesday, 6 March 2012, 10:00-11:30am, in 205 Cornell Hall on the University of Missouri campus. The title is “Open Entrepreneurship: The Role of External Knowledge Sources for the Entrepreneurial Value Chain.” The lecture is sponsored by the Hibbs Professors of the University of Missouri’s Trulaske College of Business and the University of Missouri’s McQuinn Center for Entrepreneurial Leadership (which I direct).
The full announcement (with Nicolai’s impressive bio) is below the fold. The lecture is free and open to the public, so all are welcome! (more…)
Perceptions of Opportunities – Part 2
| Peter Lewin |
The second review article in the latest issue of AMR by Venkataraman, Sarasvathy, Dew, and Forster (VSDF) is more ambitious than the first by Shane, discussed in Part 1. In fact one might describe the ambition motivating the article as grandiose. VSDF “seek to recast entrepreneurship as a science of the artificial” an entirely new way of looking at entrepreneurship in the interest of uncovering (what I take to be universal) principles that can serve as the basis of a new empirical and policy-useful science of entrepreneurship. [I see this article as a companion piece to the article by Sarasvathy and Venkataraman (SV) in ET&P January, 2011, in which this grandiose vision is even more apparent.]
The science of the artificial(supposedly a distinct category of science from natural or social science) is derived from the work of Herbert Simon (1996).
As a theory develops it splits into two streams: (1) “basic” research that continues to refine the causal explanations and (2) “applied” research that seeks to alter the variables of explanation. At that point the phenomenon of interest has become an artifact. …
A science of the artificial is interested in phenomena that can be designed [and controlled]. … Design lies is the choice of the boundary values; control lies in the means to change them. (24).
So a useful theory is itself an artifact something that can be used to understand and (importantly) control aspects of the (social) world. And, I suppose, the new science of entrepreneurship will eventually develop such artifacts. [At the end of the article they talk about “recasting opportunities as artifacts” – so I am not sure how this is all connected.]
My lack of expertise regarding the work of Herbert Simon (something which I am now more encouraged to remedy) prevents me from pronouncing with confidence on this part of the article. Suffice it to say that the meaning and contribution of this new “science of the artificial” is far from clear to me. I am left with a feeling that if it is indeed such an important and path-breaking meta-scientific turn, the authors should be able to explain it better. It should be more accessible and transparent. I am left highly skeptical, but I urge readers of this post to read the article and perhaps enlighten me and others. (more…)
CFP: “Effects of Alternative Investments on Entrepreneurship, Innovation, and Growth”
| Peter Klein |
Along with Don Siegel, Nick Wilson, and Mike Wright, I am guest editing a special issue of Managerial and Decision Economics on the “Effects of Alternative Investments on Entrepreneurship, Innovation, and Growth.” Proposals are due 15 June 2011. A special issue conference for developing the papers is planned for 29 October 2011 at the SUNY Global Center in Manhattan. The conference is jointly sponsored by the SUNY-Albany School of Business, the Centre for Private Equity Research at Imperial College Business School, and the McQuinn Center for Entrepreneurial Leadership. Further details and submission guidelines are below the fold. (more…)
Finance and the Nature of the Firm
| Peter Klein |
Raghu Rajan’s AFA presidential address is now online as an NBER working paper:
The nature of the firm and its financing are closely interlinked. To produce significant net present value, an entrepreneur has to transform her enterprise into one that is differentiated from the ordinary. To achieve the control that will allow her to execute this strategy, she needs to have substantial ownership, and thus financing. But it is hard to raise finance against differentiated assets. So an entrepreneur has to commit to undertake a second transformation, standardization, that will make the human capital in the firm, including her own, replaceable, so that outside financiers obtain rights over going-concern surplus. I argue that the availability of a vibrant stock market helps the entrepreneur commit to these two transformations in a way that a debt market would not. This helps explain why the nature of firms and the extent of innovation differ so much in different financing environments.
Perceptions of Opportunities – Part 1
| Peter Lewin |
The January 2012 issue of the AMR (available here for subscribers or those with academic access) features two review articles assessing the progress of the “Promise” examined in the well-known article by Scott Shane and Sankaran Venkataraman (AMR 2000: The Promise of Entrepreneurship as a Field of Research) — one from each of the original co-authors. The first is an interesting, if somewhat pedestrian, article by Scott Shane. The second is a much more profound and ambitious contribution by Venkataraman together with Saras Sarasvathy, Nicholas Dew, and William Forster.
In the decade since that article there has, indeed, been a significant shift in the focus of research in entrepreneurship. Most notable, perhaps, is the focus on entrepreneurial “opportunities” — familiar to Austrian economists from the work of Israel Kirzner, but by now a standard element in the story. Each of the articles spends considerable time revisiting questions about the nature of entrepreneurial opportunities and provides its own resolutions. Here I will provide just a quick overview of this part of Shane’s article. (I intend to provide one for the second article soon).
In considering the “nexus of opportunities and individuals” offered originally in “Promise” as a reason to shift attention from the person to the function, Shane addresses the question of whether entrepreneurial opportunities should be considered “objective” or “subjective” — a question that has proliferated in this research stream, albeit with varying focus and terminology. The problem is, it seems to me, that the notion of “opportunity” is one that depends on the formation of a mental image by some individual or individuals. Opportunity implies plan — a plan of action to use, transform, combine, existing resources in a profitable way. Without the plan there is just the world. So how can “opportunity” be objective? This is related to the question: are opportunities “discovered” (Alvarez and Barney: Organizaҫões em Contexto, 2007) or are they created; or in the words of Venkataraman, et. al. are they made or found? (more…)
Charles Dickens, Capitalist
| Peter Klein |
Did you know 2012 is the centenary of Charles Dickens’s birth? Dickens is often lumped with Carlyle, Shaw, Ruskin, etc. as a Romantic, Victorian, literary anti-capitalist. (Carlyle indeed disliked capitalism, but not for the usual reasons.) But Dickens, as I originally learned from Paul Cantor, was a wildly successful capitalist and entrepreneur, a driving force behind the great nineteenth-century innovation of the serialized, commercial novel. Consider the following from one Dickens scholar:
Stephen Marcus has called Dickens “the first capitalist of literature” in the sense that he worked within apparently adverse conditions to take advantage of new technologies and markets, creating, in effect, an entirely new role for fiction. In Charles Dickens and His Publishers, Robert Patten quotes Oscar Dystel (president and chief executive of Bantam Paperbacks) on the three “key factors” in his development of a successful paperback line: availability of new material, introduction of the rubber plate rotary press, and development of magazine wholesalers as a distribution arm. As Patten points out, parallel factors operated in the Victorian era: a plethora of writers, new technologies, and expanded distribution. And as methods of papermaking, printing, and platemaking increased in efficiency, so did means of transportation. By 1836, a crucial network of wholesale book outlets in the Strand, peddlers, provincial shops, and the royal mailmade possible by the development of paved roads, fast coaches, and eventually the national railway systemhad been consolidated. The final task facing early publishers was, then, to develop the newly accessible market for their commodity. By lowering prices, emphasizing illustrations and sensational elements, and increasing variety of both form and content, publishers created readers within the largest demographic groups: the rising middle and working classes, where readers had essentially not existed before. . . . (more…)
CFP: DRUID 2012
| Peter Klein |
This year’s DRUID conference, “Innovation and Competitiveness: Dynamics of Organizations, Industries, Systems and Regions,” is 19-21 June 2012 in Copenhagen. See the call for papers below the fold. Submission deadline is 29 February. (more…)
The First (Unlikely) Significant Entrepreneurial Team?
| Peter Lewin |
Who was the most significant entrepreneur in the bible (old Testament)?
I ask my students this trying to lead them to Joseph. As a result of his interpretation of Pharaoh’s dreams, not only he, but the whole of Egypt reaps enormous profit. He recognizes the meaning in the dreams and counsels Pharaoh on how to profit from impending misfortune — thus also alleviating the misfortune of many others (by investing in times of plenty to cover the looming famine).
But, thinking about this a bit more, one may argue that what we have here is a veritable entrepreneurial team. After all, it is Pharaoh who has the dream, the vision, though he needed Joseph to interpret it. One without the other was nothing — together they were everything. And then there is the fact that that Pharaoh exercises his judgment in believing Joseph. He takes a huge risk and elevates this lowly, condemned Jewish prisoner to the highest office. He puts aside his ego and courageously follows his better judgment. Surely Schumpeter should have been proud, no?
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