One mistaken message that these programs advance is that the world is eager to have more entrepreneurs and will welcome them with open arms. In reality, however, the market is seldom happy to see a new company. Many entrepreneurs with great new ideas quickly learn that their innovations threaten markets occupied by big companies. Apple and Microsoft had to survive the efforts of big computer companies, including IBM, to put them out of business. Big companies have reason to fear the challenges startups present; two giant computer companies, Wang and DEC, did not survive the innovative threats that Apple, Intel, Cisco, Dell, and Microsoft posed.
Today, taxi cartels in many cities are attempting to block Uber, Lyft, and other ride-sharing startups from disrupting their hold on local markets. In various cities these companies cannot operate without breaking the law, being fined, and having their drivers arrested and their cars impounded. Competition in business is for keeps.
Your Life As an Entrepreneur
As you read this, about nine million Americans are thinking about starting a company. On average, they will kick the idea around for at least three years. Only about 500,000 will start new companies this year. Starting a business is an exciting prospect. Yet, as the numbers suggest, many shrink from choosing to become entrepreneurs.
Because the likelihood of failure is so high, everyone searches for a map before starting the journey. Writing a business plan has long held the promise of making your decision seem a bit more rational and the desired outcome, a successful business, somewhat more predictable.
Reality suggests that the value of this type of detailed and rigid planning is minimal. Most entrepreneurs dig right in, start their businesses, and plan as they go along. Success won’t yield to a plan. Rather, success is more likely the product of the entrepreneur’s motivation, experiences, and readiness to learn and adapt—a path that reveals itself only after he takes the leap of faith in the first place.
The potential return from starting a company that flourishes, however, is measured not just in money and the earned identity of being a successful entrepreneur. While these are the goals that motivate every entrepreneur in the beginning, most find that, if their ideas succeed, if customers buy their new products, they begin to look at things a little differently. They start to understand that what they do helps people live better, safer, and happier lives. They also know the sense of accomplishment that comes from building a successful organization. New companies create jobs for others and wealth for the whole economy. While Bill Gates has become one of the richest people in history, the money he made is a tiny fraction of the expansion of human welfare that Microsoft made possible and continues to produce.
If our most successful entrepreneurs had written business plans, humanity might never have enjoyed the undeniable benefits that their companies have generated. That is reason enough for you to chart a different path to becoming an entrepreneur. If you’ve already written a business plan, take my advice: Burn it!
Acknowledgments
Ewing Kauffman died ten years before I learned of his foundation. It was my good fortune to meet him through Anne Morgan’s biography and her subsequent service as one of the original trustees of the Kauffman Foundation. I owe enormous gratitude to Anne, John A. Mayer, Ramon de Oliveira, Thomas J. Rhone, and the late Siobhan Nicolau and Brian O’Connell, whose fidelity as trustees to Kauffman’s aspirations for his foundation was inspiring. Kauffman researchers and colleagues, Bob Litan and Dane Stangler, helped me form many of the insights that follow.
I have been blessed by great teachers in life who taught me how to connect empirically established facts to actionable conclusions. They include Professors John P. White; W. Lee Hansen; Rogers C. B. Hollingsworth; the late Robert M. Heyssel, MD, president of The Johns Hopkins Hospital; and Michael Novak of the American Enterprise Institute.
I am especially thankful for faculty colleagues and students at Syracuse University with whom I am privileged to work and teach. Elizabeth Liddy, dean of the School of Information Sciences, is an entrepreneurial academic leader of the first order and the best of campus friends. Jake Smarr provided much appreciated research assistance, and Lois Elmore is always two steps ahead of me.
AJ Sidhu managed the manuscript and much more with good cheer throughout, for which I am grateful. Alice Martell, the best of agents, patiently and graciously provided needed encouragement.
Every author thanks his family. In my case, my wife, Ellyn Brown, was an indispensable spur and source of ideas, for which I am deeply grateful.
Finally, I remember my ultimate go-to source for perspective on entrepreneurs, Paul Magelli. An economist on the faculty at the University of Illinois for more than forty years, Paul died as I was completing the manuscript. He was a model of what a great professor should be—insightful, wise, and extravagantly generous to students, each of whom became his friend for life. I am lucky to be in the legion of those whose lives he brightened.
About the Author
© Photography By: Jenni
CARL J. SCHRAMM is University Professor at Syracuse and has taught at Johns Hopkins, MIT, and UC Davis. For ten years he was president of the Ewing Marion Kauffman Foundation, the world’s leading institution supporting entrepreneurship. Schramm has founded or cofounded five companies, is an active venture investor, and has served in major corporate roles. He was a cofounder of Global Entrepreneurship Week (now celebrated in 170 countries), drafted the Startup America Act, chaired the U.S. Department of Commerce’s Measuring Innovation in the Twenty-First Century Economy Advisory Committee, and was a member of the President’s National Advisory Council on Innovation and Entrepreneurship. He is recognized as having started the discipline of Expeditionary Economics. Mr. Schramm lives in New York and Florida.
Visit the author at www.carlschramm.com
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Also by Carl J. Schramm
Better Capitalism: Renewing the Entrepreneurial Strength of the American Economy (with Robert E. Litan)
Inside Real Innovation: How the Right Approach Can Move Ideas from R&D to Market (with Eugene Fitzgerald and Andreas Wankerl)
Good Capitalism, Bad Capitalism, and the Economics of Growth and Prosperity (with William J. Baumol and Robert E. Litan)
The Entrepreneurial Imperative: How America’s Economic Miracle Will Reshape the World (and Change Your Life)
Healthcare and Its Costs
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Notes
Preface
1. Joseph A. Schumpeter, Capitalism, Socialism and Democracy, 2nd Ed. (1942; Floyd, VA: Impact Books, 2014).
2. William E. Baumol, “Entrepreneurship in Economic Theory,” American Economic Review, May 1968.
Chapter 1: Burn the Business Plan
1. I found there was no evidence of higher prices in cities where for-profit companies owned more than one hospital. Because of government and insurance payment protocols, it was hard to extract monopoly profit. Carl J. Schramm and Steven C. Renn, “Hospital Mergers, Market Concentration and the Herfindahl-Hirschman Index.” Emory Law Journal 869, 1984.
2. The commonly accepted elements of business plans are as follows: product description, estimate of market size, analysis of potential competitors, story of founder’s decision to start company, description of the startup’s team, detailed marketing plan, description of pricing strategy, operating and production plan, analysis of risks,
financing required, exit strategy.
3. Basil Peters, Early Exits: Exit Strategies for Entrepreneurs and Angel Investors (but Maybe Not Venture Capitalists) (Coquitlam, BC: MeteorBytes, 2009).
4. “Our Credo.” Johnson & Johnson, October 3, 2016.
5. Richard L. Florida, The Rise of the Creative Class: And How It’s Transforming Work, Leisure, Community and Everyday Life (New York: Basic, 2002).
6. Daniel Kahneman and Amos Tversky, “Intuitive Prediction: Biases and Corrective Procedures,” TIMS Studies in Management Science 12 (1985): 313–327.
7. Albert O. Hirschman, Development Projects Observed (Washington, DC: Brookings Institution, 1967).
8. The identity of the entrepreneur is so attractive that it has been expropriated by many people starting organizations historically known as charitable, voluntary, or eleemosynary. Today someone starting a nonprofit is commonly said to be a “social entrepreneur.” Most nonprofits, however, do not produce innovations that respond to market needs, where price determines the value of goods or services. The “customers” of nonprofits are philanthropic donors or governments who “buy” services on behalf of beneficiaries. This is one reason nonprofits, certainly those not benefiting from government support, seldom experience scale growth. It is impossible to find nonprofits that have grown like Airbnb, Facebook, Uber, or SnapChat. Carl J. Schramm, “All Entrepreneurship Is Social,” Stanford Social Innovation Review, June 2011.
9. William J. Baumol, The Free-Market Innovation Machine: Analyzing the Growth Miracle of Capitalism. Princeton, NJ: Princeton University Press, 2002.
10. opportunitylives.com/how-wal-mart-serves-the-poorest-americans/.
Chapter 2: Twelve Things Every Aspiring Entrepreneur Should Know
1. William Baumol, Robert E. Litan, Carl J. Schramm, Good Capitalism/Bad Capitalism (New Haven, CT: Yale, 2009).
2. The oldest formal corporate effort is the Johnson and Johnson Development Corporation. Established in 1975 to create strategic partnerships with startups, it often provides capital to support early research efforts and clinical trials.
3. “Entrepreneurial Impact: The Role of MIT,” Kauffman Foundation, 2009.
4. Robert E. Litan, Trillion Dollar Economists (Hoboken, NJ: Wiley, 2014).
5. “Inc. 500 Reveals America’s Fastest Growing Private Companies,” http://www.inc.com/news/articles/200410/inc500.html.
6. Maria Bustillos, “How VCs Turned My Startup into a Nightmare,” https://www.buzzfeed.com/mariabustillos/confessions-of-a-dot-com-entrepreneur?utm_term=.x10rPXN.
7. U.S. Census Bureau, Annual Survey of Entrepreneurs, 2014, http://www.census.gov/programs-surveys/ase.html.
8. “10 Steps to Finding the Right Co-Founder,” https://www.entrepreneur.com/article/244259.
9. “18 Mistakes That Kill Startups,” http://paulgraham.com/startupmistakes.html. See number 1.
10. “Thinking of Going Solo? 7 Reasons You Need a Co-Founder,” https://www.entrepreneur.com/article/239945.
11. “Breaking a Myth: Data Shows You Don’t Actually Need a Co-Founder,” https://techcrunch.com/2016/08/26/co-founders-optional/.
12. “Absolutely, DO NOT, get a co-founder!” https://news.ycombinator.com/item?id=77246.
13. “18 Mistakes That Kill Startups,” http://paulgraham.com/startupmistakes.html. See number 17.
14. Acton School of Business, http://www.actonmba.org/about/teachers/jeff-sandefer/.
15. In some business schools, half of students majoring in entrepreneurship intend to work in nonprofit startups. California is the cradle of nonprofit corporate experiments. See http://www.nonprofitlawblog.com/california-social-purpose-corporation-an-overview/.
Chapter 3: Why Start a Company?
1. Betsy Morris, “Overcoming Dyslexia,” Fortune, May 13, 2002.
2. Journey into Dyslexia, HBO documentary, directed by Susan Raymond, 2011.
3. See https://www.youtube.com/watch?v=9wNgJEuLktE.
4. Joan M. Finucci, Linda S. Gottfredson, and Barton Childs, “Follow-Up Study of Dyslexic Boys.” Annals of Dyslexia 35 (1985): 117.
5. Derek Thompson, “The Government Is Horrible at Predictions (So Is Everybody Else),” https://theatlantic.com/business/archive/2013/12/the-government-is-horrible-at-predictions-so-is-everybody-else.
Chapter 4: What Motivates Entrepreneurs?
1. https://www.quora.com/How-long-do-you-have-to-be-a-street-cop-before-going-into-homicide-detective.
2. Major Discoveries, Creativity, and the Dynamics of Science, Remaprint Wien, 2011.
3. “The Case for Music in the Schools,” Phi Delta Kappan 75.6 (1994): 458–459.
4. Christopher Hitchens, Letters to a Young Contrarian (New York: Basic, 2005).
5. The Origins of Modern Science. Bell, 1950.
6. Sharon Weinberger, The Imagineers of War (New York: Knopf, 2017).
7. Included are resort hotels, theme parks, and sport-equipment manufacturers. Twenty percent of all phone apps are for entertainment.
8. In 1950, a twenty-year-old business student named Warren Buffett invested in GEICO, calling it the most undervalued company in the market. In 1995, Buffett’s investment company, Berkshire-Hathaway, acquired the entire company.
Chapter 5: Can You Survive the Entrepreneur’s Curse?
1. “New Racquet—It’s Smart,” Des Moines Register, December 26, 1976.
2. Fitzgerald, Eugene, Andreas Wankerl, and Carl J. Schramm, Inside Real Innovation: How the Right Approach Can Move Ideas from R&D to Market—And Get the Economy Moving (Singapore: World Scientific, 2011).
Chapter 6: Big Companies Can Be Schools for Startups
1. The Protestant Ethic and the Spirit of Capitalism (Allen and Unwin, 1930).
2. E. M. Schimmel, “The Hazards of Hospitalization,” Annals of Internal Medicine, 1964, 60-100-110. Also, Lucian L. Leape, “Error in Medicine,” Journal of the American Medical Association, December 21, 1984, 272, 23, 1851.
3. Albert O. Hirschman, Exit, Voice, and Loyalty: Responses to Decline in Firms, Organizations, and States (Cambridge, MA: Harvard University Press, 1970).
Chapter 8: Preventing Failure Before It Happens
1. Patients with the drug showed a slight treatment effect.
2. Kamen is also the founder of FIRST Robotics, a now global robotics competition designed to encourage high school students to study engineering.
3. Every patent ever granted is now instantly accessible. See http://patft.uspto.gov/netahtml/PTO/search-bool.html.
4. https://www.fastcompany.com/3059230/the-theranos-scandal-is-just-the-beginning.
Chapter 9: Don’t Waste Time Doing Things That Don’t Work
1. Richard Feynman, “Cargo Cult Science,” 1974, see http://wwwcdf.pd.infn.it/~loreti/science.html.
2. Barton H. Hamilton. “Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment,” Journal of Political Economy 108, No. 3 (2000).
3. In fact, it wasn’t true. Jackson was acquitted, but evidence notwithstanding, he was banned from Major League Baseball and endured lasting public approbation.
4. AnnaLee Saxenian, Regional Advantage: Culture and Competition in Silicon Valley and Route 128 (Cambridge, MA: Harvard University Press, 1994). Saxenian’s work echoes Michael Porter’s earlier “cluster theory” of national development, which suggests that countries should leverage their competitive advantages in natural resources, labor skills, and technology to foster industrial growth. See Michael Porter, “Location, Competition, and Economic Development: Local Cluster in Global Economy,” Economic Development Quarterly 14, 14–34.
5. Fewer than seventeen percent of incubators reported data in a recent survey. See Linda Knopp, State of the Business Incubation Industry, NBIA Research Series (Athens, OH: National Business Incubation Association, 2012).
6. Alejandro S. Amezcua, “Boon or Boondoggle? Business Incubation as Entrepreneurship Policy,” https://www.maxwell.syr.edu/uploadedFiles/news/BoonOrBoondoggle.pdf.
7. As one profes
sor of entrepreneurship has observed, “Most of the incubators that I visit are publicly subsidized real estate operations. Their primary goal seems to be to full occupancy of buildings. As long as they receive rent from tenants and governments they have achieved their objective. In some sense, if a company grows out of its space they have a problem—they need a new tenant.” Private correspondence with author.
8. The Foundry, formed by several firms in 1998, is an early example. Venture firms hoped they could make their own deals by finding and supporting promising entrepreneurs.
9. Brian Solomon, “The Best Startup Accelerators of 2015,” https://www.forbes.com/sites/briansolomon/2015/03/17/the-best-startup-accelerators-of-2015-powering-a-tech-boom/#4672c1d867ca].
10. See http://www.seed-db.com/accelerators.
11. See http://www.leeds.ac.uk/educol/documents/00001500.
12. See http://www.slideshare.net/FranckNouyrigat/mentors-and-mushrooms.
13. Malcolm Gladwell, The Tipping Point: How Little Things Can Make a Big Difference (Boston: Little, Brown, and Company, 2000).
14. Thomas S. Kuhn, The Structure of Scientific Revolutions (Chicago: University of Chicago Press, 1996).
15. Eric Ries, The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses (New York: Crown Business, 2011).
Chapter 10: Planning for Success
Burn the Business Plan Page 24
