Enterprise society

Enterprise society

Let’s stop wasting peoples’ time: Entrepreneurship as a new form of management

There is too much hype in entrepreneurship and too much focus on the individual. Microsoft clipart

The word “entrepreneur” is probably one of the most misunderstood and abused words in the English language. Former US President George W. Bush once remarked that the French don’t have a word for entrepreneur. However, the origins of the word can be traced back to 19th Century France with the word “entreprendre” meaning to undertake, usually a task.

In contemporary English the word is typically used to refer to someone who establishes and manages an enterprise for the purpose of profit and growth. Typically this is a business venture that encompasses a degree of innovation, uncertainty or risk.

Such individuals can be found owning their own businesses, or working within larger organisations as “intrapreneurs”. More recently the concept has been applied to not-for-profit and social business ventures in the realm of social entrepreneurship.

Hunting the Heffalump

There are many definitions of entrepreneurship. However, despite a substantial investment by academics over several decades the concept of what is or is not an entrepreneur remains elusive.

In an article published in 1971, Peter Kilby from Wesleyan University, likened the process of trying to identify an entrepreneur to A.A. Milne’s notion of “Hunting the Heffalump” in the classic tale of “Winnie the Pooh”. This related to the existence of an enormous mythical creature that had never been directly observed, but which various hunters had claimed to have caught.

Writing again in 2003 in an article in the Journal of International Entrepreneurship, Kilby revisited his earlier work, noting that despite the passage of over 30 years entrepreneurial activity could still not be readily quantified, only inferred from its consequences. As he commented:

“…investigators improvise proxies drawn from their discipline, assert that the motivating appetite is the maximand of that discipline and then claim to a somewhat sceptical audience that they have captured the determinants of entrepreneurial performance” (Kilby 2003, p. 14).

In a paper published earlier this year in the Entrepreneurship Research Journal, Peter Rosa from the University of Edinburgh observed that:

The entrepreneurship field since the 1970s has been eclectic and fragmented. The most basic challenge, how to achieve a consensus in defining entrepreneurship, has eluded and still eludes the field. There is no single theory of entrepreneurship, but many competing theories borrowed from economics, psychology and sociology. Nor is entrepreneurship as a subject confined to business schools, but is increasingly taught and researched in other subjects such as education, sociology and social policy, economic development, economics and social psychology” (Rosa 2013, p. 37).

In essence what Kilby and Rosa are highlighting is the dilemma facing academics who seek to study the domain of entrepreneurship. However, this poses even greater problems for government agencies and the business community who look to entrepreneurship as a solution to economic downturns.

The field of entrepreneurship has certainly evolved over the past 30 years, but it remains a work in progress and far too much misunderstanding and misguided hype exists around the issue of what it is and what it might offer the world.

Not enough focus on policy and practice

For Rosa the contribution of academic research to the shaping of policy and practice in entrepreneurship has declined in recent years. In his article he overviews the evolution of how entrepreneurship research has evolved in relation to public policy.

However, he laments what he sees as a noticeable decline in the contribution of academic research to policy and practice. According to Rosa the leading academic journals in the field, e.g. Journal of Business Venturing and [Entrepreneurship Theory & Practice](http://onlinelibrary.wiley.com/journal/10.1111/(ISSN) (ETP), have largely ignored policy and practice:

The number of recent articles which are policy driven, practice driven, empirical and exploratory has declined since the 1990s…in ‘ETP’ the word ‘practice’, though in the title, has mostly disappeared as a criterion for inclusion…Of 86 articles between 2010 and 2012 in the special issues, only three attempted (though only fleetingly) to justify the significance of the research from a policy or practitioner perspective, and less than 20 articles contained some discussion (though usually less than two paragraphs) on policy and practitioner implications of their research” (Rosa 2013, pp. 40-41).

His conclusion was that the policy and practitioner agenda is not being seriously addressed in the mainstream academic journals that focus on entrepreneurship.

The mythology of entrepreneurship

These concerns expressed by academics such as Kilby and Rosa have been echoed by practising entrepreneurs such as Eric Ries. He was a young software engineer from Silicon Valley whose early failure in the launch of new business ventures led him to develop the “Lean Start-up” approach to business development.

Since the publication of his book, “The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Business”, in 2011 the Lean Start-up concept has become something of a revolution in entrepreneurship circles. Ries has been appointed to Harvard Business School as an “entrepreneur in residence” and his Lean Start-up method is a global movement.

In the introduction of his book Ries suggests that there is far too much myth-making taking place in relation to entrepreneurship. The amazing success of someone such as Mark Zuckerberg and facebook, who took a business idea from his college dorm and turned it into a multi-billion dollar business within 6 years, has only compounded this myth-making. As Ries explains:

There is a mythmaking industry hard at work to sell us that story, but I have come to believe that the story is false, the product of selection bias and after-the-fact rationalization. In fact, having worked with hundreds of entrepreneurs, I have seen firsthand how often a promising start leads to failure. The grim reality is that most startups fail. Most new products are not successful. Most new ventures do not live up to their potential” (Ries, 2011, p.1).

According to Ries we need to stop wasting peoples’ time and realise that entrepreneurship is not about quirky maverick personalities and entrepreneurial charisma, it is actually a new form of management. Like any management process it can be defined, measured and learnt, and it requires discipline to implement.

Entrepreneurship as the foundation of economic growth

Austrian economist Joseph Schumpeter (1883-1950) is acknowledged as one of the pioneers of entrepreneurship as a concept within business and economics. His analysis of economic history led him to conclude that economic change and growth revolved around a nexus between innovation and entrepreneurial activity. It was the entrepreneurial spirit of people willing to launch businesses with new technologies that served to creatively destroy or disrupt the status quo of established industries.

Since that time much has been written about entrepreneurship and entrepreneurs. The academic literature highlights the ability of entrepreneurs to identify opportunities in the market. They either discover these by identifying gaps in existing markets, or create them by developing new business models or redesigning existing ones. There is understood to be a nexus between the individual entrepreneur and the opportunity they identify and then seek to exploit.

Implicit within this individual-opportunity nexus is the need for entrepreneurs to not only identify the opportunity, but to respond appropriately in seeking to exploit it. Typically they do this with limited resources and a high degree of uncertainty over potential outcomes. This capacity to manage uncertainty is a key attribute of entrepreneurs and one that is often confused with risk taking.

The ability of some successful entrepreneurs to grow new businesses and introduce new technologies and products is a key reason for governments to see entrepreneurship as a potential panacea for economic downturns and stagnation. In the aftermath of the Global Financial Crisis (GFC) there has been a renewed interest in entrepreneurship by governments and international organisations.

An example of this is the World Economic Forum (WEF) who released a report in 2009 about the need to unlock the entrepreneurial capabilities of the population through education. For the WEF the challenge of the 21st Century was not just to recover from the GFC, but to use entrepreneurship and innovation as a means to solve a wide range of global challenges including sustainable economic growth and human welfare. In the report’s introduction they defined “entrepreneurship” in very broad terms:

When we speak about entrepreneurship, we are defining it in the broadest terms and in all forms – entrepreneurial people in large companies, in the public sector, in academia and, of course, those who launch and grow new companies. Now more than ever we need innovation, new solutions, creative approaches and new ways of operating. We are in uncharted territory and need people in all sectors and at all ages who can "think out of the box” to identify and pursue opportunities in new and paradigm-changing ways“ (World Economic Forum 2009, p. 7).

As can be seen from this quotation the perspective of many organisations like the WEF and most governments, is that entrepreneurs and entrepreneurship offer potential solutions to high unemployment and stagnating economies. This has helped to fuel the level of interest in entrepreneurship research and education programs around the world.

This was a point noted by Robert Strom of the Ewing Marion Kauffman Foundation in an article published last year in the Huffington Post. He referred to the emergence of entrepreneurship as a field of academic research and the role played by academics in helping to shape government policy in relation to entrepreneurship. However, he also cautioned that there is still a long way to go.

Too much focus on start-ups and not enough on management

Although Strom’s observations of the rapid growth in entrepreneurship studies are correct, his focus remains largely on the encouragement of new venture creation. In his article he points to the ”substantial increase in the number of students seeking to create new businesses during their college careers“, science and engineering departments seeking to commercialise research and the fostering of a new generation of who might become future entrepreneurs. As he concludes:

In our current economic environment, these future entrepreneurs are more important than ever – both for our recovery from the recent recession and for our ability to confront the critical national and global problems we will face in the future“.

This type of thinking is understandable for those seeking to promote entrepreneurship and who hope to use it as a force for economic and social change. However, this also feeds into the hype and mythology criticised by the likes of Eric Ries. In fact some, including this author, feel that too much attention has been given to entrepreneurial start-ups and too little to the process of management of a business once launched.

Daniel Isenberg from Babson made this observation in a Harvard Business Review blog last year. According to Isenberg there has been too much focus on start-ups and not enough on the growth or "scale-up” of the business. As most new business ventures and new products are likely to fail it is important to get nascent and novice entrepreneurs to understand how to manage a business effectively.

This requires disciplines of management and process as highlighted by Ries. The most important things are not pitching for venture financing or stimulating creativity, but learning how to sell and market new products, manage cash flow, negotiate deals, hire and manage people and control often complex business operations. As Isenberg explains:

Extraordinary value creation cannot occur without growth, and entrepreneurial growth post start-up has numerous challenges which can be an order of magnitude more difficult than simply starting a venture.

Entrepreneurial Management not Entrepreneurship,

So academics and government agencies continue to hunt for their entrepreneurial Heffalump, while those who found and operate business ventures continue to learn from experience often at a high cost. To break this impasse I would suggest we focus less on the concept of the entrepreneur and more on entrepreneurial management.

I agree with Isenberg that we have paid too much attention to encouraging the creation of new business ventures. I also agree with Ries that “entrepreneurship is a kind of management”.

However, it requires a new approach to how we think about management. While traditional management is about maintaining the organisational system within well-known parameters, entrepreneurial management is about operating within an environment that lacks well-defined boundaries.

Entrepreneurial managers need to learn how to operate within highly uncertain task environments. In many cases they will be developing new ground rules and having to do so without the guidebooks that they can usually rely upon.

Such an environment requires creativity, innovation, a tolerance for risk and failure, but also a capacity to think in a divergent rather than a convergent manner. It also requires good skills in networking and communication, particularly with key stakeholders such as customers, suppliers and investors.

These are all the skills that are typically identified as being associated with entrepreneurs, but they can be learnt and there can be managerial systems developed to help them work through these uncertain environments. The “Lean Start-up” method pioneered by Ries is an example of this approach.

In an article published last year in the Academy of Management Review Scott Shane from Case Western University reviewed the past decade of entrepreneurship research. He noted that despite much progress in the field we have little understanding about how opportunities are identified, how business ideas are formulated or how opportunities – in particular high growth potential opportunities – are identified and exploited. He also noted that there is “no optimal approach to the entrepreneurial process”, and that too much attention has been given to the individual characteristics of the entrepreneur.

Future academic research and the educational programs that emerge from it should concentrate on developing entrepreneurship as a new form of management. As such it should be approached as a process that can be learnt and one that can assist entrepreneurial managers to make fewer mistakes.

This may require a narrowing of the field of entrepreneurship away from the current broad approach. There should also be a greater focus on management practice. The relationship between theory, policy and practice in academic research into entrepreneurship also needs to be rebalanced.

Note: Tim Mazzarol is President of the Small Enterprise Association of Australia and New Zealand (SEAANZ).

SEAANZ is a not-for-profit organisation founded in 1987. It is dedicated to the advancement of research, education, policy and practice in small to medium enterprises.

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