Burn the Business Plan

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Burn the Business Plan Page 8

by Carl J Schramm


  Some of Jared’s family members had invested in his business. His relatives, he said, were impressed with his vision. When I asked what they had found intriguing he responded, “This business is all about building the exit.” Jared is betting that, if he can capture even a modest part of the student market, a big mattress company will buy him out for a lot of money.

  Jared’s motivation was to be an entrepreneur and make a lot of money. Most previous generations of startup founders, even the most recent crops of successful entrepreneurs, came at this from the other end: first, they had the business idea (often one about which they were passionate), and then they formed the business. Instead, Jared had decided to form a business and then to look for a business idea, but only a business idea that would permit him a profitable exit in a relatively short time. Assuredly, Jared did not profess any passion for mattresses; he is not driven by his unique expertise or an innovative idea, and he is building a business not to last but to create a reasonably successful and quickly saleable company.

  I wish Jared nothing but the best. I hope that his plan works and that he makes a bundle of money. But the odds are not in his favor. First, he is pursuing a business opportunity that was identified by the government, which is not such a good idea. In examining decades of government forecasting, economists have learned that government’s predictive conclusions as to which new industries will grow, and where the most promising occupational opportunities exist, have been rather notoriously and consistently wrong.5 Research on startup success rates tells us something even more important, however: failure rates are considerably higher for companies that are started with the intention of a short-term sale.

  Jared might have something to learn from Dan the motorcycle-wrench inventor, Billy Mann, Ewing Kauffman, Steve Walker, and Gary Hawkins. While each was motivated to make his startup financially successful, none were solely or even principally motivated by that quest. Rather, starting and building their companies offered them, variously, a chance to make useful products that solved real problems, a fulfilling creative talent, a place to run a company as a boss, and the challenge of growing a legacy business into an innovative and prosperous company. And, of course, they also knew that if they got it right and had a little luck, they might reap significant financial rewards.

  CHAPTER 4

  What Motivates Entrepreneurs?

  Every fall brings certain rituals to college campuses. If the university teaches civil engineering, groups of students will appear on the quad with transits, measuring tapes, and notebooks. Over the years, thousands of students have established for themselves the exact elevation from sea level of the threshold of the engineering building, and precisely how far it is from there to the bottom step of the chapel stairs.

  If the school teaches entrepreneurship, another group of students can be seen walking around, intently peering at everything from the delivery bags used by campus pizza vendors to the tennis courts, wondering if a phone app could more efficiently manage athletic facility reservations. Those students have been charged by their professors to find problems in the world around them that suggest the need for new businesses. Entrepreneurship textbooks call this opportunity recognition. Every student about to write a business plan for an entrepreneurship course is taught that new companies are built on fulfilling unique, previously unmet needs, and students’ plans must articulate the new business opportunities that they have recognized.

  Professors grading their students’ plans throughout the semester will encounter ideas that they will have seen dozens of times before. Typical examples include turning leftover cafeteria food into pet treats, using drones to optimize campus parking spots at different times of the day, and starting a “real” orientation website for new students that contains information that the administration doesn’t necessarily want new students to know, for example, bars that don’t “card” students. Ideas for businesses built on new apps recycle as well: tracking calorie consumption, using games to teach physics, efficiently distributing vaccines in the African bush, and real-time assessment of the wait time at a local take-out restaurant.

  Seldom do new business ideas emerge from this process. Students can no more innovate on demand than anyone else. The picture of students walking around on their first day of entrepreneurship class, desperately looking for a business opportunity, tells us a lot about why colleges fail at teaching entrepreneurship. If we can’t understand how real innovation happens, how can we teach it?

  Creating a new product or service is an organic process, one that is shaped by the background, experience, and acuity of the innovator, as well as his inclination to see that solving a problem is necessary or useful and that the solution is marketable. And, of course, the creation of a new business is determined by the perseverance of the entrepreneur.

  Who Innovates and Why?

  Few successful companies are started as a result of a purposeful search for an opportunity. Most result from the recognition of a real problem, the curiosity to seek an answer and—most often but not always—an existing skill set that informs a possible solution. Whether an entrepreneur invents a new product, buys a franchise, or takes over an existing business, she ideally will be creating a better and more efficient way to get a product or service to customers. Innovation, the creation of new or improved solutions or tools to solve existing or emergent needs, is a process linked both to the state of existing technology and to an individual’s proclivity to recognize an opportunity and invent a solution.

  It’s a given that existing product and service breakthroughs shape the evolution of subsequent innovation. What is not so clear is how that constant evolution enables more innovation in the hands of more people. You can envision the bicycle as a symbol of a transformative leap of enormous importance in and of itself—and also as one that became even more important as a tool that enabled and accelerated innovation in many areas that obviously were unforeseen by the nameless tinkering mechanics who started it all.

  Appearing around 1820, the bike is a brilliant mechanical device that converts human energy into forward motion. The nascent industrial revolution’s creation of hard steel made the needed roller chains and sprocket gears possible. Besides the convenience of making the daily trip to the bakery less time-consuming—a miraculous gift of time to those first experiencing it—millions saw their bicycles as tools for discovery. The world beyond a day’s walk was suddenly knowable. The bicycle opened new horizons for humankind.

  And then along came Henry Ford and the Wright brothers. These geniuses evolved the basic mechanics of the bicycle into new ways to speed travel. Ford’s quadricycle was really two bicycles joined by a platform that held a gasoline engine, itself newly developed for other purposes, and had room for a driver. The engine was connected to the vehicle’s wheels with bike chains. The Wrights, whose original business was building bicycles, invented the first airplane by mounting a gas engine on a winged airframe, connecting it to propellers with bike chains.

  The colossal influence of the bicycle cannot be understated. Today, successive inventions derived from bike technology account for at least one-fifth of the world’s economic activity. Steve Jobs said that the bike operated as a metaphor for discovery; he referred to his personal computer as the means to accelerate any user’s capacity to learn, describing it as a “bicycle for the mind.” Jobs’ computers, and the iPhone, iPads, and phone apps that followed have been the genesis of a fast-rushing and endless stream of subsequent innovation.

  While all innovation builds on a continuously expanding base of technology, creating new products depends on an individual being qualified by background, and predisposed by curiosity, to take up the challenge of fixing a problem that he sees as worth solving. Thus, innovation is the organic process of an individual applying what came before him to a new problem that he chooses to attack. Innovative entrepreneurs all stand on the shoulders of previous inventors.

  To better understand innovators, consider that they are likely to shar
e certain traits. Most are in middle age when they develop solutions that inspire them to form new companies. The average age of an inventor awarded a patent is forty-seven.

  The reason? Innovation involves the synthesis of accumulated knowledge, much of it subconscious, that the inventor has absorbed and compiled over his life. The base from which he draws the information is composed of insights acquired through some combination of formal study and training, work experience, and the cognitive challenges that he recognizes, perhaps even in the most mundane of life’s tasks: driving, shopping, or paying the phone bill.

  The idea of innovators being older is hard to process for some, especially in the narrative of youthful entrepreneurs. Consider, however, that, in most cases, police officers must spend years as beat cops before they are promoted to detective to take on the task of investigating and solving crimes.1 Detectives have gained experience because they’ve previously seen a lot, learned a lot about human behavior, and have been in many different difficult and perhaps tragic situations. This idea is revealed in fiction, too; Sherlock Holmes is a mature man; Miss Marple is a beguilingly sweet elderly lady with a razor-sharp mind, honed by a lifetime of observing human frailties.

  For a somewhat more rarefied example, consider that the median age of a Nobel Prize winner is sixty-two, and that, with some exceptions, the prizes generally are awarded for work done in their forties.

  Another interesting characteristic of many innovators is what might be called situational awareness. Like the aboriginal hunter who recognizes the snap of a twig as dinner-on-the-hoof and responds immediately, the acutely attuned combat Marine whose peripheral vision catches a slight movement to his right that signals trouble, many innovators pick up signs, and perceive a response, that the rest of us will miss. Have you ever been frustrated by not being able to find a cab on a rainy night? Most of us would just curse a little; Travis Kalanick and Garrett Camp came up with the idea we know as Uber.

  Rogers Hollingsworth, an economic historian and sociologist, observes that another trait shared by innovators is an appetite for self-learning, reading widely across many fields and disciplines.2 Innovators are by nature curious about things distant from their immediate zone of interest. Among them is the mechanical engineer who, having forgotten his laptop in the car, picks up Better Homes and Gardens in the doctor’s waiting room and subconsciously files away tidbits of information and frameworks about kitchen ventilation and garden irrigation. Many self-learners become highly proficient in two or more areas; accomplished avocational musical ability among research physicians is high.3 Hollingsworth argues that all innovation involves the synthesis of ideas that have not previously been brought together, but that to do so requires knowing something across disparate fields.

  In addition to out-and-out knowing more, innovators also are more likely to have honed a skeptical mental predisposition, sometimes referred to as “contrarian thinking.”4 This involves the conscious and subconscious recasting of situations in ways that most people don’t see. The historian Herbert Butterfield posits that scientific breakthroughs are the doing of such people who, in his phrase, “see the other end of the stick.”5 Renowned investor Warren Buffett is a contrarian thinker; he ties his wealth to thinking against the wisdom of the crowd, and once attributed his success to being “fearful when others are greedy and to be[ing] greedy only when others are fearful.”

  When a particular individual is described as having been “born to be an entrepreneur,” the commentator usually is trying to describe the innovator’s ability to look at the world differently, and to generate something that may have been hiding in plain sight. Any of us might have conceived Uber. All of the pieces existed—underemployed people interested in flexible second jobs to make more money, pervasive cell-phone ownership, and a phone-based payment platform. Why didn’t you think of that?

  The stories of entrepreneurs that you read here and elsewhere—maybe even on your newsfeed tonight—are linked to new ideas that became the reason for being of a startup company. Is there a bigger picture that explains innovation? That question has been posed for centuries. The answer lies in the creative spirit of humankind, in our absolutely irrepressible organic instinct to invent and improve on our situation. This is the stuff of philosophers, which is available in other books, some of them hundreds of years old. For the moment, when we’re concentrating on twenty-first century innovation and progress, consider the following motivations.

  Safety and Security

  Even prior to recorded history, the human drive to preserve life and repel predators—the survival instinct—prevailed. We know this not because we’ve read books or seen the cave paintings, but because we’re all here today to read and write about it. As modern individuals and citizens, we continue to seek protection from existential threats. Preparing for war, defensively and offensively, has been the greatest driver of innovation in history. The Defense Advanced Research Projects Agency (DARPA) has cradled innumerable innovations, and the companies that grew from them, to produce widespread benefits that have infused life on earth. An incomplete list includes the Internet (first called the ARPANET), GPS technology that now supports Google and all interactive mapping functions (originally developed for precision bombing), the voice recognition software that powers Siri and Alexa, and three-dimensional mapping that laid the groundwork for 3-D printing (perhaps soon to include printing your replacement liver or kidney).6

  Health

  Humankind’s perpetual and universal quest to delay death, and to reduce disability and infirmity, has spurred every single advance in medicine and nutrition that has made possible our longer and better-quality lives. Hundreds of biotech and agritech firms are started around the world every year, all of which work to convert scientific discoveries into distributable commodities. In the USA, much of this work receives funding from the National Institutes of Health and the Department of Agriculture. This suggests that, as a matter of public policy, we as a society have decided that improving life expectancy and quality is a public good.

  Speed

  The bicycle led to the automobile, the airplane, and spaceships, all in our desire to be faster and more efficient in getting from one place to another. Not incidentally, the ability to more quickly communicate with one another was another resulting miracle of faster transit. Recall the couriers of ancient warfare, who ran between battle commanders to report on troop movements and progress, a function that continued largely unchanged through America’s Civil War, where written and spoken orders were transmitted via soldiers who raced across battlefields to deliver critical messages. Native Americans and other tribal cultures around the world developed the first form of long-distance visual communication via smoke signals, but radio and field telephones revolutionized the speed of information transfer during the World Wars. We haven’t looked back since. Jobs told us that the computer was a means to help the brain work faster. That explains why email was embraced and adopted, at rates of penetration into the population and the frequency of use, faster than any other new invention in human history.

  Leisure and Entertainment

  As the developed world moved beyond the full-time job of staying alive, we looked for more and more exciting ways to spend our spare time. One of the first technological advances, which built on the astonishing innovation of photography, was movies. From there, the chain extends to today’s virtual reality games, which includes the ability to don goggles and transcend time and space, an experience that has made billionaires of innovators in that realm. On a more conventional, but hardly unprofitable, level, the innovators who bring us entertainment in the modern NFL, NASCAR (the most popular spectator sport in America), and even Cirque du Soleil, are innovators who have reaped enormous rewards. Nearly one in twenty newly created companies every year is devoted to leisure and entertainment products and services.7

  Convenience and Comfort

  Labor-saving and comfort-enabling devices make up most of this category, which largely operates
in tandem with other motivating forces. Dishwashers, garbage disposals, cell phones, and video-streaming services are the simplest modern examples. Consider, however, the big picture of real economic and social change made possible by innovations that we take for granted, such as central air conditioning. Much of the American South, including thriving cities like Dallas, and sites in the world’s most arid desserts and swampy lowlands, like Dubai and Singapore, have become thriving economic hubs. This could never have happened without the ability of workers to live comfortably within controlled interior climates, and, also, of course, because we now can artificially maintain climates in which sophisticated electronics can operate.

  As long as humankind looks to be safer, live longer, move and communicate more quickly, and has the time to do more than struggle for mere survival for another day, there will be myriad opportunities for innovation. Creating products and services to meet these needs is the business of people who are prepared and motivated to try, and whose inspirations may come from very unexpected quarters. What might motivate you?

  A Friend in Trouble

  Patrick Ambron is a youthful entrepreneur who is an exception to the more-seasoned innovator rule. Ambron possessed the right combination of entrepreneurial characteristics at the right time, and that right time was when his friend and roommate was in trouble and Ambron wanted to help.

 

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