The Entrepreneur's Mentor

Further Entrepreneurial Myths

In my last two posts I have discussed Scott Shane's book,The Illusions of Entrepreneurship. It is illuminating in any number of ways, as Shane shows that the average entrepreneur is not who we would expect him or her to be.

The typical start-up is an ordinary business, not an innovative game-changer. It is home-based, and it typically stays tiny. It is started by one person or two spouses and does not grow beyond that.

Most are not based on someone sifting through numerous ideas and opportunities. Rather, they are based on offering the same or similar service to the same or similar customers as their previous employers. I can think of at least five businesses that arose from ex-employees of my last business. Some try to capture a particular narrow niche. Some try to capture market share by offering lower prices. Some just think they can make more money on their own.

Here is where there is an intersection with another great book, The E-Myth by Michael Gerber. Gerber states that many people who think of themselves as entrepreneurs just trade one boss for another. Instead of working hard in the business of their employer, they end up working hard in their own business. Their life has not gotten better- they have not been liberated. Now, instead of just doing the job they may have done well, they are running a business that does that job, so on top of the "job", they are responsible for paying bills, doing accounting, selling, marketing and everything else. Talk about jumping from "the frying pan into the fire."

If many become entrepreneurs simply to avoid having to work for someone else, they need to consider what it would be like owning and running a business. It may be more than they think they want.

Some may be reluctant entrepreneurs. They lose a job or they are in a dead end job and are looking for a change. They may see no other options. They may succeed. They may grab at an opportunity and do well with it. Or they may fall on their faces.

Once the decision to be an entrepreneur is made, there needs to be thought and planning and budgeting.  No matter why one decides to start a business there are right ways and wrong ways to go about it. Doing the right things and doing them right increases the chances of success.

More Myths Busted

Scott Shane's book The Illusions of Entrepreneurship provides chapter after chapter of new insights.

As we listen to the talking heads on cable news talk about our financial crisis, they all speak to the entrepreneurial aspect of America and how we are so much different from Europe and other areas.

But Shane has some interesting facts that can be added as fuel to this fire.

• America is not becoming more and more entrepreneurial. In fact, entrepreneurialism is on the decline in the US.

• We are not even one of the most entrepreneurial countries. Turks are four times as likely to start their own business. Peruvians are three and one half times as likely to become entrepreneurs. The US is in the bottom third of countries when measure by the number of young businesses per capita.

• Silicon Valley and high-tech corridors are exceptions rather than the core of entrepreneurialism in the US. People are more apt to start businesses in poorer and more agricultural areas.

• Businesses are more likely to be started in areas of high unemployment than people in places with low unemployment. Unemployed people are more likely to start a business than those with jobs.

• Startups in an area tend to mirror businesses already in the area. That is because most people start businesses in the industries in which they are currently working and in the geographic areas where they live and work.

• Businesses do not start up in greater abundance in areas where there is a lot of capital available. Business does not follow capital. In fact, capital follows business. So capital tends to gravitate to areas where a number of businesses are starting.

The American entrepreneur looks pretty different from Donald Trump, Bill Gates and Steve Jobst. And while some of us would like to achieve what they have, most just want to make a living.

Costly Myths

I have recently come across a rather shocking book, shocking in the sense that it shatters a number of commonly held beliefs about entrepreneurs. The book is The Illusions of Entrepreneurship by Scott Shane. Shane is a professor at the business school of my alma mater, Case Western Reserve University.

Over the next few posts I am going to focus on these myths.

Before even getting into the meat of his book, Shane sets out some fairly startling facts in the Introduction.

• Contrary to common belief, entrepreneurs are not a rare breed. It is a common vocation, with more than 11% of American households owning a business.

• In the US, more people start a business each year than get married or have children.

• The typical entrepreneur is a married white man in his forties who has some college education, but not a degree.

• He lives where he was born, not in high-tech corridors.

• The new business is low-tech and is in an industry where he has much work experience.

• He has no big plans. He just wants to make a living.

• The typical entrepreneur starts a business to avoid working for others.

So, the picture of the wunderkind with a big new, innovative idea that blooms into a large employer and business powerhouse is much more the exception than the rule.  This is only the beginning of what Shane has to offer. And his findings are based on significant research.

Opportunity in a Crisis

It isn't going away. This recession or depression, whichever it is, is going to be around for a while. During that "while", thousands of businesses will go under every month. Many of the owners will feel victimized by the times and will not take any responsibility for their plight.

Yet, many businesses will survive. They exist in the same circumstances as the others. Why do they make it?

They make it because they use the downturn as an opportunity- an opportunity to make changes in the business, in the strategy, in the niche...in many areas. They see that within a crisis lies an opportunity or two.

Instead of lying down or going through hand-wringing, every business owner needs to stop and look at what the market needs and what changes need to occur to offer that to consumers. I am not talking about precipitous cutting of prices. I am talking about reaching out to different markets; different uses of products and services; bundling of services for value; strategic alliances with competitors or suppliers or customers. I am talking about using technology, the web, viral marketing.

Now is the time to examine everything you do and why you do it. If there is not a sound business reason, make a change. Get rid of those sacred cows that may be bogging you down or keeping you from seeing innovative approaches. There should be no "givens".

Now is the time to work "on your business". Now is the time to get out and talk to people about what they are doing to survive; it is the time to be open to change.

Doing the right things now may not only save your business now, but it can point you in the right long term direction.