Fearon on Entrepreneurship

Richard Fearon picture

 

Richard Fearon, one of the CSIR’s Entrepreneurs-in-Residence, shares some fascinating insights into what it means to be an entrepreneur.

 

 

“The entrepreneur,” said a French economist, JB Say, around the year 1800, “shifts economic resources out of an area of lower and into an area of higher productivity and greater yield.” But, Say’s definition does not tell us who this entrepreneur is and since Say coined the term more than 200 years ago, there has been total confusion over the definition of the entrepreneur and entrepreneurship.

In the United States for instance, the entrepreneur is often defined as one who starts his own new and small business. Indeed, the classes in entrepreneurship that have become popular of late are the descendants of the course in starting one’s own small business that were offered some 30 or 40 years ago, and in many cases are not very different.

But, not every new small business is entrepreneurial or represents entrepreneurship.

The husband and wife who open another delicatessen or restaurant in the average suburb surely take the risk, but are they entrepreneurs? All they do is what has been done many times before. They gamble on the increasing popularity of eating out in their area, but create neither new satisfaction nor new consumer demand. Seen under this perspective, they are surely not entrepreneurs even though theirs is a new venture.

Let me tell you about Leaf Wireless, who truly represented entrepreneurship. It created a new market and a new customer. That is entrepreneurship. Its founder rose to become Ernst & Young’s global emerging Entrepreneur of the Year.

Admittedly, all new small businesses have many factors in common, but to be entrepreneurial, an enterprise has to have special characteristics over and above ‘new’ and ‘small’.

Entrepreneurs are a minority among new businesses because new businesses seldom create something new or something different that changes or transmutes values.

Entrepreneurship is commonly believed to be enormously risky. In highly visible areas of innovation, such as the mobile segment, the casualty rates have been high and the chances of success or survival quite low. Why should this be so? The entrepreneur by definition shifts resources from areas of low productivity and yield to areas of higher productivity and yield, but there is always a risk of the entrepreneur not succeeding. If modestly successful, the returns should be more than adequate to offset whatever risk there might be.

So let’s look at some of the challenges:

  • In reality, the problems that entrepreneurs confront every day would overwhelm most corporate managers.
  • A new company’s strategy must embody the founder’s vision of where the company is going rather than where it is.
  • Anyone can copy an innovative product, but to create an innovative business system is much harder.
  • When an entrepreneur doesn’t stop to think about the ‘culture’ of their company, then the culture happens by chance rather than by design.

I think that most companies are too concerned with competitors’ growth and their own resource constraints. However, what Leaf focused on was delivering that which would delight a customer.

There is no ideal profile for an entrepreneur. They are simply what they are. Importantly, entrepreneurs must be smart enough to recognise mistakes and change or modify strategies.

Innovation

Innovation is a specific tool for entrepreneurs. It is the means by which they exploit change, seeing it as an opportunity for a different business or a different service.

This quality can be presented as a discipline, is capable of being learned and capable of being practiced.

Entrepreneurs need to search purposefully for sources of innovation and they need to see the changes and their symptoms that provide the opportunities for successful innovation. And they need to know and apply the principles of successful innovation.

So entrepreneurs do the following:

  • Evaluate opportunities.
  • Use both the right side and the left side of their brain and don’t focus on figures as much as they do on people.

For innovation to be effective, entrepreneurship has to be simple and focused.

The greatest praise an innovation can receive is for people to say the product or service is “obvious”.

Effective innovations start small and they try to do one thing.

Entrepreneurs don’t do the following

  • Try to be too clever.
  • Diversify or try too many things at once.
  • Work for the future – they innovate for the present. The innovation itself may have a long-range impact and it may not reach full maturity for years. But, if it has an immediate application, that’s where the focus must lie. The development follows naturally.

The concise definition is that innovation is work. It requires knowledge and, most often, great ingenuity and adaptability.

For a business to be receptive to entrepreneurship, innovative performance must be included among the measures by which that business controls itself. Assess the entrepreneurial performance of a business and you find that entrepreneurship translates into action.

In almost every entrepreneurial venture, there is invariably a team and that team tends to behave in ways they are required to.

Financial performance

The financial performance of an organisation has been the most common way to measure or evaluate a business. However, the case for establishing a new way to measure institutional value is powerful.

By way of illustration, consider that intellectual capital represents the buried root mass of the visible tree. Another familiar analogy is that of an iceberg that contains more ice beneath the swells than the tiny islet visible above the surface. Commonly, the ratio is two-thirds. The same can be said of an entrepreneurial business because about two-thirds of its real worth lies in the people and not the product or service. From that, it is evident that there is an enormous inequity in the investment community because they look at the tiny islet of finance rather than the greater mass that underpins it.

For us today, that is the true crisis that extends across our entire economy. We look at the money and not the people.

The greater mass of an entrepreneurial business lies in:

  • Intellectual capital;
  • Knowledge capital;
  • Non-financial assets;
  • Intangible, hidden or invisible assets;
  • Community and global impact;
  • Human focus;
  • Leadership index;
  • Motivation index; and
  • Empowerment index.

 

 Featured image courtesy of Photokanok / FreeDigitalPhotos.net

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