A Candidates Guide to Growing a More Entrepreneurial EconomyOr… How to Impress the Entrepreneurial Community (a/k/a/ “The People Who Grow the Jobs”) 1Time for an update on Erik Page’s great 2002 white paper to translate the current state of the art about howto grow a more entrepreneurial economy into a simple guide for civic officials, not just candidates. I crowd-sourced much of this with some excellent policy minds & great researchers but blame me for anything that’samiss. I hope that readers will look at this draft and tell me how to improve it (what to add, cut, change) but Ithink these are a good place to start for candidates to assess their own policy beliefs. Can’t wait to see what you all think! NK/ Boise May 20121) WHY is entrepreneurship so important? Where do jobs come from, really? GDP growth? New high-tech innovations? (New low-techinnovations?) Even higher quality of life scores? Triple bottom line sustainability?? NONE of this happens without the emergence of novel economic activity. How does novel economicactivity arise? Somebody figures out something that creates genuine new value for somebody. We call thatsomething an opportunity; we call that somebody an entrepreneur. We can find entrepreneurs and people who think like them in new firms, but also established firms.In small firms, but also large firms. In for-profit and non-profit. Urban and rural. High-tech and low-tech.Private sector and (amazingly?) public sector. Do you want to be the ‘windshield’ or the ‘bug’? We live in times where most industries offer usone choice: Do you want to be disrupted or BE the disruptor? Little chance these days of sitting things out.Joseph Schumpeter wrote eloquently about “the gales of creative destruction” that sweep throughbusinesses and industries (and entire economies) and change how business and communities operate. Push or Pull? We can take bold action when pushed by threats or we can take bold action topursue and embrace new opportunities. Where there is creative destruction (and it’s everywhere today)Schumpeter also noted that there is a corresponding creative construction as these new opportunitiesemerge, But only if there are entrepreneurs and entrepreneurial thinkers to take action. “Entrepreneur is a Verb”: For the economy to move forward we need more people to see more(and better) opportunities AND act on them. We also need a better understanding across the community.And we certainly need civic officials who clearly understand what is different about entrepreneurialeconomies, what is different about how entrepreneurs think, and how to encourage both. 2 Talking Point : Entrepreneurs. Create. Jobs. Even when larger/older firms create jobs, it’s becausethey are being entrepreneurial. (Entrepreneurs also create innovation, GDP & quality of life.) Talking Point: Windshield or Bug? Disrupt or BE Disrupted? There is no safe harbor any more. Talking Point: “Entrepreneur” IS a verb – seeing opportunities is important, acting even more so!2) Where DO jobs come from? A great free website that the Lowe Foundation, www.YourEconomy.org, has annual data on wherejobs are created and lost, by source, size/age of firm (and some by industry) often down to the city & county 3level. Candidates should make sure they have the statistics. I guarantee you will be surprised. Even in the best of times, we lose jobs; even in the worst of times, we create jobs. Right now, theUS economy’s rate of creating new jobs is at an alarmingly low rate. Trivia: Did you know more people losttheir jobs in the 2000-2001 recession than in the “Great” Recession? How 2008-2010 differed is that jobcreation was at rock bottom. If we look at gross job creation at the state level, the #1 source of new jobs are startups (firms lessthan 1 year old), #2 are existing firms that are growing. (In a typical state, maybe 2% of new jobs arise frombusinesses that in-migrate, even though almost all states & cities devote 90-100% of their economic1 Definitely inspired by Erik Pages great original [http://www.entreworks.net/Download/4249_NCOE_GUIDE.pdf]from 2002 that is still of great relevance. If you use his instead of mine, I will NOT be insulted! ;) ]2 These questions will give you a way to look smart to entrepreneurs!3 Or hire experts on employment statistics like Idaho’s Economic Modeling Specialists, www.economicmodeling.com
development budget to recruitment. You want to look good to the entrepreneurial community, share thesestatistics for your community!) Here is a sample analysis using Idaho. What does your community look like? Talking Point: What are your state’s job creation stats? [again, www.YourEconomy.org or EMSI] If we turn to net growth in jobs, the picture shifts slightly. In most states and cities, if we take the netof firms starting and existing, firms growing and shrinking, and firms in-migrating and out-migrating we findthat it is growing firms that dominate, followed by births minus deaths (and out-migration often matches in-migration.) So, net job creation depends on growing your existing firms; gross job creation on startups(especially startups with growth potential.) Look here for more predictors of job creation. Focus on what we HAVE, not what we lack: It is much easier to help growing firms than shrinking. Itis easier to help startups than to save exiting firms. It is the rare city or state that gets this and channels itsresources and its energies toward new opportunities. Littleton, Colorado has received much press for theiravowed strategy of spending ZERO dollars on business attraction, focusing solely on growing their existing 4businesses. This “economic gardening” works, so why so few have seriously imitated them? Talking Point: Focus all your efforts on growing firms, existing and new. And do it right. Who IS creating jobs? Some cities, states & countries are moving very much against this tide andare creating net new jobs. Think of what is different about Boulder, Colorado or North Dakota or Gothenburgor Singapore. The entrepreneurial fire burns brightly there. Entrepreneurial potential is growing. And civicofficials at least sort of get it, at least enough to get out of the way. Talking Point: Some places ARE creating jobs. It’s their entrepreneurs who are doing it and theirleaders understand that. We CAN learn from them (but ARE we choosing to do so.)3) What is DIFFERENT about entrepreneurial economies? What makes a truly entrepreneurial economy more, well, “entrepreneurial? Again, think “creativedestruction.” In a healthy economy, firms enter and exit, jobs enter and exit. This “churn” is normal and 5healthy. (Some fun cocktail party trivia. From mid-2010 to mid-2011, the USA created a net of 1 million jobs .During that time, 41 million people started a new job while 40 million left a job, at least half of those leftvoluntarily. Sounds crazy? But it’s normal. In fact, as I write this the number of voluntary job exits has slowed(this is a negative predictor for the economy). Churn is normal; churn is healthy. Bottom-up, not top-down: The entrepreneurial ecosystem in many ways really IS an ecosystem.All the ‘players’ are connected, often indirectly but always complex. Small and new firms interact with oneanother and also with service providers AND with larger firms AND with nonprofits AND with government.It’s messy, noisy and often unpredictable. However, if there’s one thing that we know it’s that in a healthyecosystem the top-down forces (key institutions, major ‘players’) work to serve the needs & wants of theentrepreneurial community, to grow the ecosystem. Most often, the institutions are all too prone to makedecisions for the entrepreneurial community. Remember this truth: Bureaucratic processes do not generateentrepreneurial outcomes; if you want entrepreneurial outcomes, you need entrepreneurial processes. Disruption & bold action are embraced: Not change for the sake of change, but change to try tomake something better. Ultimately, change that truly improves lives is discontinuous, it is disruptive. Failure IS an option: Here’s a great marker of a healthy economy. If someone tries something new& pursues it with all their efforts and all their brains… but fails… is this at least tolerated? It is seen as alearning experience? Does the ecosystem help make it a learning experience for everyone? Talking Point: A synonym for a healthy local economy? An entrepreneurial economy. An economycan’t be healthy without being entrepreneurial. Talking Point: Bottom-up! The ‘power players’/institutions in a healthy local economy serve thebottom-up activity of the entrepreneurial community, not dictate policy (no matter how well-intentioned). Talking Point: Bureaucratic processes do not generate entrepreneurial outcomes; if you wantentrepreneurial outcomes, you need entrepreneurial processes.4 Perhaps ironically, Littleton has net in-migration of businesses…without spending a dime. ;)5 And, yes, we should be creating 3 million a year. Minimum.
Talking Point: To maximize benefits for everyone, we have to choose to be the “windshield”,choose to be proactive and recognize something is not a failure unless we fail to learn from it. Myths & Misconceptions: One of the biggest problems we have in developing sound policy &tactics is the widespread prevalence of persistent myth and misconceptions about entrepreneurs &entrepreneurship. It is horrifying to see these myths pervade even business schools. Let me touch on just afew that are most harmful for policy (and ways to look brilliant to entrepreneurs!) *) Missionary, not Mercenary: Entrepreneurship is NOT about making money (or even starting abusiness) – it is about identifying and creating value for somebody. Do it well & you get paid. Do it brilliantly& you can get paid handsomely. *) Entrepreneurs are NOT ‘Risk-Takers’: They embrace uncertainty & ambiguity. Seems a subtlepoint, but we must understand that entrepreneurs view risks VERY differently (e.g., risk of missing the boat!) *) There is NO “Entrepreneurial” Personality: There are some deep cognitive differences but theyare learned, usually through transformational experiences (and with the deep learning guided by mentorsand peers). Have you read Gladwell’s Outliers? What’s important is moving toward an expert’s mindset. *) So, Yes, Entrepreneurs are Made (not Born): Maybe the influence are from an early age but… *) The Failure Rate is NOT as High as Advertised: Whatever you’ve heard, it’s too high. And itincludes voluntary exits. And it definitely does not consider just how much we learn from failure (not just theentrepreneur, but everyone in the ecosystem –at least who’s paying attention.) *) Great entrepreneurs AND great policy makers focus what we HAVE, not what we lack. *) Ideas are a Dime a Dozen: Even great ideas. But can something be a ‘great’ idea if it’s notimplemented. The scarce resources is never ideas, even in Silicon Valley, the scarcity is execution. *) There May Be a Charismatic, Skilled Entrepreneur: But successful ventures are always teams.Bet on the team. (Would you bet on an ‘A’ idea & ‘B’ team… or an ‘A’ team with a ‘B’ idea? Thought so….)4) "Are we there yet?" Markers of a Healthy Entrepreneurial Ecosystem We overuse the term “entrepreneurial ecosystem: almost as often as we overuse “industry cluster.”Nor do we ever really define it, let alone measure it. We have recently begun to map its dimensions but atleast it points our attention toward something very, very important. Just as it is critical for communities tonurture a strong entrepreneurial mindset across its members, it is equally important to have mechanismsthat provide entrepreneurial social capital to support & reinforce the growing entrepreneurial human capital. Talking Point: Entrepreneurship doesn’t happen in a vacuum. Like any economic activity, itoperates in a complex network of other firms, both allies & rivals. We need to understand – and carefullymap – our community’s ecosystem, not just who are the ‘players’ but also understand the dynamics. Talking Point: Strong ecosystems nurture the mindset; pervasive mindset supports the ecosystem.5) Do You Get the Entrepreneurial Mindset? Everywhere I go, communities are eager to grow entrepreneurial thinking but it is hard to draw theirattention to what really is needed. It is so tempting to focus on skills and knowledge but it is that expertmindset that matters if we are to build a truly entrepreneurial local economy. I can learn all the rules ofaccounting, but to be a great accountant, I must learn to think like an (expert) accountant. But the mindset isn’t just for the entrepreneurs. If the entrepreneurial mindset is understood &appreciated broadly & deeply, by everyone in the community… it’s hard to not have a great ecosystem. Novice -> Expert: For entrepreneurs, it is no different. Research shows that it takes 10,000-20,000hours of deliberate practice to move from the mindset of a novice to the mindset of an expert (and maynever get there). Simply learning lots of knowledge and skills is simply not enough. If we want to grow anentrepreneurial economy, we need to start cultivating expert entrepreneurial mindsets. Whether it is formalschooling or non-school training, we need to focus on growing the mindset. Like “ecosystem”, we rarelydefine “entrepreneurial mindset” rigorously but we actually do have a fairly strong sense of its key elements. It Takes Experts to Grow Experts: More important, we have an even stronger sense of how tonurture that expert mindset. Best practices here may not be common but carry huge, proven impact. Moving
6from novice to expert requires deep transformative learning that is experiential at its core . It requiresmentoring (and program design) by those who share the expert mindset. However, those experts aretypically quite rare and typically not always welcomed. But in a healthy entrepreneurial ecosystem, access tothose experts is easier and the community gets the need for deep transformative learning. Talking Point: Entrepreneurial training (even in formal settings) must focus ruthlessly on growingthe expert mindset. Nurturing any expert mindset requires experts. Programs must be designed by thosewho really get the entrepreneurial mindset & that almost always means bringing in new people. Talking Point: Does your education/training system really support developing the mindset? Arethey deploying the right people and tools? Are they deeply immersed in the entrepreneurial ecosystem? Talking Point: What makes Silicon Valley & Boulder so amazingly different? Yes, entrepreneurshave the mindset, but so do potential entrepreneurs, service providers, suppliers, Media & civic officials.6) What TACTICS make sense? (Or “Be A Mensch!”) If your proposed policy idea does not grow entrepreneurial human capital [mindset] or 7entrepreneurial social capital [ecosystem] , then it is unlikely to make a difference. If you look at key markersof a healthy entrepreneurial ecosystem, you will see a list of issues where your community can do thingsthat improve conditions. Even the best ecosystem can improve even its best features! But… always ask yourself, does this policy really advance growing the mindset or the ecosystem?Want a mantra? Celebrate. Educate. Initiate. NEVER miss an opportunity to do any of these. B) So, Be a Mensch!Remember that ideas are nice but good ideas that are brilliantly implemented are what move a communityforward. “Mensch” is a great Yiddish word that means the kind of person you want to be like, who you wantin your corner: Someone who, no matter what, does the right things the right way and for the right reason. You Win with People: No Matter “Amateur Night”To do the right things the right way & for the right reason, almost always requires the right people. If you arenot getting the right things done the right way & for the right reasons, it’s pretty clear that you don’t havethem. Even at the most tactical level, you need to be a mensch to your stakeholders & make certain youhave the right people in place like those who have the mindset). If you do, implementation gets a lot easier. Talking Point: We need to do the right things the right way and for the right reasons. That meanswe need the right people, regardless of turf & politics. [When in doubt? Ask. Then Listen. Really Listen. Then… ACT!] …finally, we return to the ‘windshield’ and the ‘bug’… c) Bold, DisruptiveThe economy is still in tatters, technological change is accelerating in unpredictable directions, social andcultural change is equally unpredictable. If there was ever a time for bold action, isn’t it now? In the famousscene from The Matrix, Neo has to choose the red pill or the blue pill. The blue pill sends him back to hissafe old life; the red pill sends him to the frightening real world. But what Neo realized is what we mustrealize: There is no “safe” any more. We can only choose to be the windshield or the bug. Talking Point: What entrepreneurs realize is that often the smartest, wisest & safest course ofaction is often the most uncertain, riskiest-looking one. In life, the safest course is often the scariest.You want to impress entrepreneurs? You want to actually create jobs? Take the red pill. I’ll be therewaiting for you. And… Entrepreneur Up!6 http://bit.ly/9VyUJm ; http://bit.ly/b6aUYq ;http://www.ieducate.eu/admin/Upload_Data/Resources/Learning_entrepreneurship_from_a_constructivist_perspective.pdf7 or remove tangible barriers to starting, running, or growing a business
Questions for Candidates to Ask Themselves ...and Voters to Ask... Relentlessly :)WHO do you listen to? Really… On the economy? On entrepreneurs? Lots of posers & wannabes out there, sometimes withimpressive titles (see myths & misconceptions) Please, no more ‘Amateur Night’! Do you know who the local experts are? (And who are the posers/wannabes?) Do you know if they have true expertise or just strong opinions and/or job title? Are they connected nationally/globally? (Need to be connected locally too - necessary but FAR from sufficient) Are you willing to trust the metrics & markers? (Are you willing to HAVE the right kinds of metrics?) Are you willing to trust the entrepreneurs? Always: Ask -> Listen -> Act!Do you really "get it"? Will people believe you? Will entrepreneurs believe you? Would someone look at you & think "He/she definitely could start an organization successfully"? Do you really understand what makes entrepreneurs tick? Or do you just mouth the words? This is not something you can "learn up on" in a short time - so do NOT try to fake it (entrepreneurs will see right through you, instead, rely on A+ advisers) Do you get that the entrepreneurial mindset is VERY different? (And in many ways different thanmost observers do not and cannot get)? Are you committed to making sure that we are growing the mindset? (Which is far beyond teachingpeople facts & skills?) Are you willing to challenge the education system? Do you get the entrepreneurial ecosystem? When we say that, we mean the reality that theeconomy IS an ecosystem? It is complex, messy, constantly changing; contains not just new firms and their champions andservice providers but also...? Small firms and large firms, new firms and existing firms, high tech and low tech, for-profit & non-profit, rural & urban, etc.? That we really need to understand all its dynamics?Are you COMMITTED to Bold, Disruptive Action? Can you prove it? We have NO choice any more - do you want your community/state/country to be the windshield orthe bug? [You realize that if you don’t choose ‘windshield,’ you ARE the ‘bug’... no avoiding it these days.] Assuming you choose windshield, are you committed to bold action that disrupt existing businessmodels (knowing that it will change power/turf relationships dramatically & irrevocably?) For entrepreneurs AND for policy, failure isn’t failure if we learn & move forward. Do you realize that if you have NOT demonstrated boat-rocking, trouble-making behavior in thepast, people will be skeptical? NEVER miss opportunities to: Celebrate. Educate. Initiate.What I’ve provided here are things that are smart to say but smarter to believe and smarter still to act on!/s/ NK, Boise, May 2012