american entrepreneur

Modern Times 2.0

Changemaking through the 21st century

I’ve been writing about the role of entrepreneurship in the creation of value and prosperity for many years. This is a natural deduction for me, having spent about half my career working as an economist and the other half starting and running businesses.

In fact, looking back in history, there is enough evidence to support this. The countries that have prospered the most – Netherlands in the XVII-XVIII centuries, nineteenth century England, twentieth century U.S. and, more recently, places like South Korea and Israel – were the ones where people with good ideas had access to capital, under systems that promoted accountability (see here for full discussion).

That said, in today’s world, I’m convinced this vision needs refinement.

Recently, I’ve had the privilege of spending a few hours talking to Bill Drayton, the founder and CEO of Ashoka. Bill enlightened me with his vision of “frame change” and “everyone a changemaker” (EACH) world. During our conversation, it became clear to me that the original model of “entrepreneurship + access to capital” alone is no longer sufficient to promote wealth and prosperity.

In the twenty-first century, the success of people, organizations and countries alike depend on the understanding and implementation of a new framework.

The new model for problem-solving at all levels requires a rupture with the old way of doing things. From the Industrial Revolution through late twentieth century, value was created with efficiency gains, mostly through specialization and repetition. The roles of leadership and innovation were confined to a handful of people, who also benefited disproportionately from the system. The majority of the workforce was limited to dully specialized labor.

As satirized in Charles Chaplin’s “Modern Times” (1936), depicted above, a typical worker would spend most or all of his time doing the same job. Each person would have a defined task, compatible with the education and training received, and would follow orders according to a strict hierarchy. Decisions were made from the top down, by those who controlled information and knowledge.

Nowadays, there is a new game, which is driven by change, not repetition. And everyone wants to be a player.

Information is no longer the privilege of few. Enabling technologies are cheaper and more accessible. Almost anyone, anywhere, has the ability to gather the resources needed to be a changemaker – in their communities, institutions, and country. In this context, the rate of change becomes exponential.

Twenty-first century problems are increasingly being solved by (social) entrepreneurs, who are strategically positioned to come up with the best solutions. People no longer wait passively for others to solve their problems. As the changemaker mantra goes: “everything you change changes everything”, and that’s contagious and unstoppable.

What does this mean for businesses? In such scenario, old structures are doomed. Companies that are not able to adjust will lose relevance and eventually die.

There is no coming back. Institutions must reform and embrace the new world. Leading firms can no longer expect people to work in silos, perform monothematic jobs, take orders at face value, remain detached from the organization’s vision and decision making. Walls must come down.

Teams need to be formed – and dissolved – quickly and seamlessly in order to tackle problems and innovate continuously, under a fluid “team of teams“. This requires embracing a new framework, where every person is offered the resources, networks and tools to become a co-leader in the respective team. Leadership and innovation are no longer the privilege of few, but the responsibility of all.

The EACH framework and the team of teams system reinforce each other and bring the best out of each player.

The new paradigm relies on pro-activeness, empathy and collaboration. Top-down leadership, rigid hierarchies, and aggressive behavior towards others become liabilities. The same values one applies at home, with family and friends, become vital in the work environment. Measures of character and success at work and life are no longer distinguishable. Empathy, teamwork, and leadership become the norm. Those who don’t embrace these values will fall behind.

Make no mistake: changing the way societies think and operate is one of the greatest challenges imaginable.

However, we live in a historical moment. We have the resources to take on this challenge, transforming mindsets and behavior. How exactly? Well, that’s the “seven-billion-people question”. Breaking this code, however, I’m convinced is the key to a more prosperous and peaceful world.

Like Chaplin in the 1930s, Bill Drayton is telling us that there is something fundamentally wrong with our current values and system. And this is no laughing matter.

Andre Averbug is an entrepreneur and economist.

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The Benjamin Button Startup

baby startup

Guest post by Suhail Kassim

A new startup is like a baby

A startup needs to be cradled and nourished. Even so, there is no certainty that the baby will grow up to be a lean mean fighting machine. In this post, I begin to investigate the phenomenon of some exciting startups which then refuse to grow up — the “Benjamin Button” startups.

Introducing the Benjamin Button startup

A very small minority of entrepreneurs seem to be amazing at finding the right sort of help in their early days. They join rock-solid incubators, find top-notch mentors, maneuver their way into active university forums, win famed business plan contests, know where the hungry angel investors sit. These entrepreneurs are obviously off to an awesome start. Destined for greatness, right?

Not necessarily. Many (if not most) of these startups struggle to fulfil their potential. They stubbornly refuse to scale-up, linger on until they lose relevance, then meet a slow yet inevitable demise. The internet is littered with outdated websites of nascent ventures that never monetized. The chrysalis never transforms into a butterfly. 

I call such ventures “Benjamin Button Startups”, named after Benjamin Button children who refuse to show signs of growing up.

Startups fail all the time, what’s the big deal?

In my personal experience, there is a growing trend of highly promising startups running into the ground. This trend is disturbing for at least two reasons. 

Firstly, this sends a hugely discouraging signal to all other startups: if these poster children fail, despite everything going in their favor, what hope is there for the rest of us?

Secondly, outside startup hotbeds like the Valley, the early stage ecosystem is typically not vibrant. It often has limited resources that can only support a few chosen entrepreneurs at a time. Hence their imperative to succeed — and thereby to return more to the ecosystem than they took out of it — is higher. When they do not, it causes a small ripple. Just a few such ripples could shake up the already fragile ecosystem. The already wary seed investor will turn away, LP funding will ruthlessly re-route to greener pastures, incubators will be left with tarnished reputations, the Fortune 500 executive will politely decline to mentor the university business plan winner. 

What makes a startup a Benjamin Button?

Sometimes it seems to me such startups are victims of their own early success. The founder confuses the “first big win” with the ultimate destination. He/she gets caught up in all the attention, the award ceremonies, the media buzz, the blogosphere hype. Some entrepreneurs succumb to the heady temptation to become celebrities today instead of business moguls tomorrow. They end up doing a ton of calorie-burning activities like giving guest lectures, mentoring other startups, speaking at jazzy forums. As a result, they stay stuck in the “successful-student-startup” mode instead of growing up. And if the founder does not grow up, the startup won’t either.

There is also an element of hubris. Entrepreneurs sometimes think the same skills needed for early wins will carry them through scale-up. This is almost invariably not the case. Early stage success can happen through blue sky thinking, strong personal and professional networks, hyperactive multitasking, good mentors, and a couple of passionate co-founders. There is adrenaline rush after adrenaline rush. Scaling up, on the other hand, needs grit, patience and the ability to fight boredom. It needs long nights out working on a particularly stubborn piece of code while dining on ramen noodles. It needs the founder to hyper-delegate and decentralize or risk falling into the “Founder’s Trap”. It needs a different kind of mentor and adviser — not someone who can ideate but someone who has actually implemented. 

Also, for VC-stage companies, the VC is always more demanding — and less polite — than the angel investor. Unlike a basement startup with three high school friends who are bootstrapping off their pocket money savings, here the money runs out quicker: the VC-stage venture needs to pay its “employees” (it’s no longer just the co-founders) market-pegged salaries (and, gosh, benefits!) — and I’m not even including joining bonuses and annual bonuses and small stock options to the first 100 employees… . In some ways, starting a venture is akin to a part-time Masters program, while scaling up is like a full-time PhD program. Not every MBA gold medalist is suited to do a doctorate in business administration.

Finally, there is the culture of failure. Some ecosystems reward failure — the Valley places a premium on “fail fast, fail early, fail often” — which reduces the tolerance level needed to slowly but surely cultivate a fledgling startup, leading to premature demise of ventures that should have succeeded. Other cultures punish failure — and in such places, the founder is tempted to grab whatever minor victories he/she can — whether it be to speak at a forum or give a newspaper interview — at the cost of focusing on the core business itself.

See also Time To Start a Business – or Not. Illustration: covenant-harvest.org

Have you witnessed instances of Benjamin Button startups? If yes, do you agree with the reasoning above? What are the other explanations as to why this happens? Leave us a comment and let us know your thoughts!

5 Bad Excuses Not To Start a Business

entrepreneur startups

Lame reasons to give up before you even start

I often hear people claim to have good ideas for a business, but say they can’t pursue them for one reason or another. Some of course are valid, but others are misconceptions that deserve to be revisited. Here are the top five from my experience.

1. I don’t have the business skills

Not having business experience is not necessarily a problem. There are several ways for a person with a good idea for a product or service to develop it into a business, regardless of his/her background. First, you can look for a business savvy co-founder, someone you trust and that can take the lead on the business side while you focus on developing your product. Second, you can look for structured initiatives that support startups through mentorship and guidance, such as business incubators and institutional programs, like I-Corps and others. Third, you may join an accelerator, like Y-Combinator, TechStars and dozens of others, where mentorship and funding come hand-in-hand. (However, as I point out in another post, you do have to bring something to the table other than just an idea.)

2. I don’t have the technical skills

This is the other extreme to the excuse above: not having the technical skills to develop your product or concept. This is even less of a problem because, if you have the business skills and can articulate the commercial value of your idea, finding engineers or coders to build a prototype or MVP should not be so hard. You might engage them by offering equity (even bringing someone in as co-founder and potential future CTO), royalty payments, or raising a little seed capital to pay consulting fees. You can also explore partnerships with universities and other research centers. If you got something big and present yourself properly, finding the right resources to build your product should not be a deterrent. (Note: In my companies we have built software and websites without previously knowing much about coding – we simply mobilized the right resources).

3. I don’t have the time

Well, you don’t have to immediately quit your job or drop out of school to launch your startup. Most entrepreneurs begin to develop their ideas working a few hours at night and on weekends. If you are really passionate about your idea, you can certainly put on 30+ hours a week even if you are working full-time or going to school. You can also involve people who would put a few hours of their own. After 6-12 months in this “part-time” fashion, you should be able to at least reach a point where you can make an educated decision about betting the next couple of years full-time on it.

4. I don’t have the money

Raising funds for early stage is certainly not easy. But nowadays, building a prototype or MVP is much cheaper than it used to be, so funding needs are much lower on average than say 10+ years ago. There are several free or cheap tools for building products (open source software, Wix.com and others for websites, 3D printers for hardware, CrowdSpring and the like for design etc.) and marketing them (Salesforce, Facebook pages, blogs etc). Similarly, funding has become a bit easier with tools like Angel.co, that match angel investors with entrepreneurs, crowdfunding websites like Kickstarter, and the angel clubs and networks that sprout all over the place. Also, don’t be shy to approach family and friends for seed capital or loans, they will likely appreciate your efforts (as long as you are transparent about the risks). Finally, you may be able to get a lot done without any funding at all, just by bootstrapping and involving the right partners, who would work for equity or success-based returns.

5. I don’t have connections (nobody knows me)

Today it is easier than ever to make your voice heard and connect with people. Even if you don’t know anyone in the industry and don’t have a track record to show for, if you build something that people care about, you will be able to reach the right persons. Check your LinkedIn connections (if you don’t have a LinkedIn account, get one yesterday!) and see if anyone in your network (2nd and 3rd levels included) knows a person you need to reach: ask for an intro. Sign up for all relevant Facebook/LinkedIn groups and take part in discussions. Participate in industry events, meet people, shake hands, network. Cold-call if you have to, just make sure you do it with taste. Start blogging/tweeting about your product or industry. In other words, if you don’t have connections, just make them.

If you believe you have a winning business proposition, as well as the drive and guts to pursue it, none of the issues above should deter you from going for it!

See also Time To Start A Business – Or Not. Picture: ThinkingForward (Tumblr).

Are you sitting on a good business idea? Leave us a comment!

Greatest Entrepreneurs Adapt to Survive

greatest entrepreneurs successful entrepreneurs

Successful entrepreneurs welcome change

There are tons of studies about the key traits that make up a successful entrepreneur. Some of the characteristics attributed to the greatest entrepreneurs are: vision, talent, perseverance, ability to innovate, leadership. However, from my observation, their single most important common characteristic is the ability to adapt. In a clear Darwinian fashion, those who adapt the best, thrive. No entrepreneur has succeeded without going through at least one of three forms of adaptation: adjustment, pivoting and rebirth.

Successful entrepreneurs adjust, pivot and resurrect

The first form of adaptation, and one that most companies go through in one way or another, is business model adjustment. Companies need to constantly evolve and adjust, quickly reacting to customer feedback, market changes, competitors’ moves. Facebook started as a simple “hot or not” website and evolved to the giant social media platform it is today, by exploring new forms of social interactions and testing monetization schemes. Apple tinkered with several consumer electronics before focusing on computers and then expanding to music and other business lines. Google stumbled for many years as an unprofitable search engine, before it figured out how to make money and expand to other (profitable) areas.

The second form is business pivoting, which implies a more radical change in direction. I’ll use the example of one of my companies, Brazil’s PV Inova. We started the business as a BoP (base of the pyramid) model, developing telecommunication technologies for public transportation vehicles, targeting the low-income population. However, because margins were too thin, after a few years, we decided to capitalize on the knowledge acquired dealing with fleets and changed the business completely. We developed a fleet management software to be offered on the cloud to companies that manage large fleets. The company was pivoted, from a hardware telecom business to a scalable SaaS logistics venture. Also, to use a more well-known example, Paypal started as a cryptography company and only later reinvented itself to become an online payment pioneer.  

Finally, the last and most traumatic form of adaptation is rebirth after failure. Most successful entrepreneurs have folded at least one business (sometimes several) before they hit the jackpot. Being able to rise from the ashes is the ultimate adaptation challenge and requires passion, conviction, and courage. Most iconic tycoons have dealt with failure before launching a successful venture. Henry Ford had two unsuccessful car companies before getting it right. Bill Gates failed with Traf-O-Data before launching Microsoft. Even Richard Branson, with all the amazing businesses he launched, went through more failures than successes, including Virgin Cola and Virgin Records, which were never sustainably profitable.

When it comes to launching a startup, there is only one certainty: it will not become a great company if you stick to a rigid plan that was set out in the beginning. If you are doing something minimally innovative, you will have to go through many transformations. The entrepreneur is the chameleon of the business world. 

See also An Idea is Just That. Image: scribblitt.com.

Are you an entrepreneur and pivoted a business or failed? Leave us a comment!

MBA For Entrepreneurs Can Still Matter

mba for entrepreneurs

MBA and entrepreneurs

At times it seems MBA programs are passed their glory days. Every so often we see articles saying that they can be a waste of time and money, especially if your goal is to become an entrepreneur. My two cents: if you have no business background and you can afford it, a good MBA is still a great thing! My background is in economics and I wouldn’t have started my first company without the skills and confidence I acquired in business school.

MBA for entrepreneurs

If your undergrad is in the sciences or the arts and you want to start your own company, an MBA can be a good idea. Some will say that all you need is a business-savvy partner; but you know what, it’s not ideal to rely solely on others. Of course you will not become a management guru overnight (you don’t want that anyways), but by going to business school you at least learn the basics, the jargon, and know where to find the answers. You can sit down in front of an investor or Board and not look like a big question mark when they start talking about P&Ls, financial ratios, or SWOT analyses.

In a good business school you also meet interesting people, from different countries and sectors, expanding your network and perspective on things. You can bounce off ideas with smart people and potentially find the partner you’re looking for. You become part of an alumni group that can be of service in the future. Hey, even some of your professors might not be as dull as you think and give you good advice and open doors for you.

Depending on your age and where you currently stand professionally and financially, it might be that a two-year full-time program doesn’t make sense anymore. The opportunity cost can be too high. But you can do a one-year program, there a great ones in Europe, Canada and a few in the US. Or do a part-time executive program. If you can afford it, it’s never a waste to learn new skills and meet good people.

See also Entrepreneurship, Innovation and ProsperityImage: linkedin.com

Are you an entrepreneur and attended business school? Leave us a comment!