« Random Links | Main | Do We Really Need Daily Doses of News? »

August 11, 2009

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00e55212008788330120a53d2a61970c

Listed below are links to weblogs that reference Why Don’t More Entrepreneurs Want to Be Entrepreneurs?:

Comments

Nice post, couple of ideas around mitigating risks and communicating rewards.

Help entrepreneurs with the earliest seed stage capital, make it easier to get new business loans without personal guarantees. Health insurance for entrepreneurs etc.

For the number of people wanting to be VCs tell em about the number of VCs who were ex entrepreneurs and the benefits of that path into the venture biz.

Maybe people in this country are becoming more cautious of failure? One might claim that the (very) old moral dimension to failure is rearing its ugly head again. If that is true, that might explain why young people are more interested in venture capital, where you get to play the portfolio game and hence have a lower risk of total failure than a pure entrepreneur.

A video which coincidentally might support this line of reasoning is posted here: http://epicureandealmaker.blogspot.com/2009/08/fooled-by-fabulousness.html

Simple ... most do not have either ideas or a real passion ... they must live off others energy ... they listen to the music of others, the stories of others, the movies of others ... why not the ideas and passion of others in business ... they just pay to be admitted

Thanks for posting, great topic that many are and must be interested in. Much discussion around cities and universities on this front.

While I understand the policy goal of increasing entrepreneurship (more of a good thing must be good); I often wonder what the right amount of entrepreneurs is? Has anyone answered that?

Obviously we all can't be entrepreneurs. And, different eras/economic phases demand different participation rates, as do different industries in different periods of development. (100 years ago this wouldn't have even been a policy discussion).

How many entrepreneurs should there be in 2009? I am not a quantitative researcher, but rather qualitative and speak with a lot of entrepreneurs. For the most part, in a highly developed, creative economy like the US, most 'high impact entrepreneurs' are entrepreneurs because they choose to be. They take this challenge because they want to. You can encourage this, but I don't believe education policy or labor policy will determine this.

I disagree also that it is just a numbers game. 1 more Bill Gates, Fred Smith, or Kevin Plank will not be found by guaranteeing $5,000 or $10,00 loans.

Widespread seed funding could in fact draw out the 'wrong' type of people to become entrepreneurs; we may just find ourselves with more franchises and day care centers.

Yes we know high growth entrepreneurs have used govt services, but there is no evidence that those actions determined the path of their firms. When we talk about FedEx, we discuss Smith's innovative business strategies and personal risk management skills.

Thanks again for bringing up this topic. I look forward to reading more.

"Simple ... most do not have either ideas or a real passion ... they must live off others energy ... they listen to the music of others, the stories of others, the movies of others ... why not the ideas and passion of others in business ... they just pay to be admitted "

I hate to say it, but I actually teach an entrepreneurship class and this is closest to the truth. If we taught kids to go find their passions and handed them the tools to make a real impact, like how to code or build stuff, we'd see a lot more entpreneurs. We're teaching them all Porter and not enough Python.

BTW... You need to get this blog on Disqus. Commenting and not being notified of responces via e-mail is archaic.

This certainly wasn't my experience in business school. I graduated in 2007 in an Executive MBA class of 75. Probably 50-60 of us want to be entrepreneurs. Most of us work for large corporations and will eventually work for ourselves. The comments about lack of passion are true but only regarding our current circumstances. All of us have latent passion we can channel in support of the right idea. And there is no shortage of ideas among my class.

I'm not sure how most people think, but it's economically rational to be a VC vs. being an entrepreneur.

What is the likelihood I will succeed as an entrepreneur? ~10% (I'm making that up, but I would wager that this number is optimistic). As an entrepreneur, I likely have to wager all my savings and my career on one idea/company that has a limited chance of success.

What is the likelihood I will succeed as a VC? As a VC, instead of making one bet at ~10% payoff, I would make several bets with ~10% success rate. Thus my expected value here is much better than if I were just an entrepreneur. In addition, as a VC I'm likely using other people's money from the very beginning, as opposed to having to use my own savings as an entrepreneur.

I'd say part of the solution is to identify those with a passion and ideas, but not the foggiest notion that entrepreneurship is an option for them. If ideas and passion make the best entrepreneurs, it's not in an Entrepreneurship classroom that the most promising Entrepreneurs will be found.

One pool with great potential: Our nation has a disgracefully high number of unemployed and underemployed PhDs, who have committed 4, 6, even 12 years of their lives in the pursuit of some idea. They have the passion and the commitment, else they wouldn't have completed their programs.

Many have been so committed to developing their ideas, that they've neglected to consider alternative paths. Often they haven't given the slightest thought to how entrepreneurship might allow them to develop their ideas into something useful and valuable.

Why not tap that resource? Why not work to engage that group to identify that percentage of them for whom entrepreneurship makes sense? Why not foster programs like the Small Business Innovation Research program, and establish others for seed stage funding of promising ideas? Why not increase competition for these awards, grants, and contracts by seeking out the passionate ideas people, and encouraging them to apply?

The better question is why would anyone want to be an entrepreneur (working hard, always selling, begging for capital, getting paid very little, with some small chance of an equity upside) rather than being a VC (working hard, although less hard, getting sold, listening to pitches, getting paid a lot, with a bigger chance of an equity upside)? Lots of entrepreneurs are doing it not because they love it but because they can't get a job at a venture fund.

Could some of it be the economic realities of free riding and rent seeking?

While I really like the Jeff's comments about free riding and rent seeking, I think the reticence to pursue the entrepreneur's life is really a risk returns question. I want to use a broader definition of entrepreneur, and include all early participants in a start-up not just the founder.

In the last 9 years, in a SarbOx/FASB induced freeze out, the potential return vs. opportunity cost has gotten way out of wack. The impact has hit the venture community at large as well, but on a personal level, let me put it this way: If MSFT or Yahoo or Google or Dell were started now, do you think as many options and shares would be issued to rank and file employees? Those options made thousands of people participants in the venture process who might not have otherwise left cushy jobs. When they became MSFT millionaires, some of them took additional risks, and started another wave. Now, in a world where options are required to be expensed, it is different. Ownership Participation has to pbe watered down. Hell, even with 9% unemployment, it is hard in some parts of the country to get people interested in participating in a new venture - they would rather wait for a "safe" job.

Venture and entrepreneurship is like a participatory democracy; when it becomes obvious you aren't getting fair representation for you efforts, you lose interest.

Well, as a venture backed entrepreneur myself, who counts as my close friends entrepreneurs backed by the likes of Battery, Index, Accel, DAG, Sequoia, DFJ, and Intel Capital, I will tell you what we talk about over beers:

1. The VC system is rigged against entrepreneurs. Perfect execution is assumed, but any stumble will result in VCs extracting their pound of flesh.

2. After you kill yourself, sacrifice your family, your marriage, etc., and you only manage a small exit you realize that with liquidation preference, multiple preference, full participation, etc., whittle down your proceeds to barely more than you would have made if you stayed in a senior role at an established company.

3. With the economy the way it is, down rounds, wash outs, etc., are all in effect stripping the reward from the risk.

4. VCs will often demand founders take small salaries as a sign of their commitment and it is supposed to be OK because of all those "common shares" you have, then when the down round hits you realize those common shares are basically worthless.

So if you want an answer to your question, I suggest you start with the 'man in the mirror' - it is the greed and bad behavior of VCs that make entrepreneurs think they are on the wrong side of the table.

Doesn't it seem better to sit on those comfy management fees for 5-10 years, investing other people's money, and stick it to every entrepreneur in your portfolio whenever you get the chance?

I get so tired hearing VCs wax poetic about entrepreneurship when every founder I know considers VCs (and I'm including my own batch of friends from Sand Hill) the great destroyers of value and the biggest obstacles to start-up's success.

Yours truly,
Venture Backed Founder with Liq Pref stuffed upped by arse

"One of the biggest problems we face as a society is convincing more people to be entrepreneurs."

This is impossible. Entrepreneurs are driven heart and soul to make an impact on the world, their way. Society can't, and shouldn't be, egged on to start something it is too lazy to finish.

Far more troubling is that you're wondering why these kids want to be VC's.

Look at your local businesses. How may were started by MBA grads? Look online. How many of these kids have a business lure in the water? You'll notice a trend rather quick that doers do what they love spontaneously. It is them.

If these kids had a passion they'd be following it. Instead they're looking for cash.

@ Stephen
"This certainly wasn't my experience in business school. I graduated in 2007 in an Executive MBA class of 75. Probably 50-60 of us want to be entrepreneurs."

There are so many things wrong with this statement:
1) You say this wasn't your experience but you list zero entrepreneurs in your class and 60 wannabes.
2) Trying and "hoping someday I might" are very different.
3) No one I know who has been successful wants to be an entrepreneur. They wanted to change this, or do this better, or had a brilliant idea about this, and so they went and did it. They moved mountains in their way. But to set out to be an entrepreneur for the sake of it...well...

I think the idea of health insurance for entrepreneurs is a great one. what do you say kaufmann?

As long as the cost of attending a business school continues to outpace inflation, a lower proportion of graduates will try their hand at an uncertain outcome. I would LOVE to start my own company; however, the inherent risk of doing so is not an attractive prospect to the banks which I owe hundreds of thousands of dollars in student loan repayments.

Find a way for potential entrepreneurs to afford education, and you may see this number creep back up.

Paul, you can't take the expressions interest in venture capital vs. entrepreneurship by business school students at face value.

What I mean is, what business school students are looking for out of school is a job that is relatively secure, looks good on a resume', and pays well enough to retire a large pile of student debt. A job at a venture capital firm checks all of those boxes quite handily. It's what I did out of Harvard Business School as a former entrepreneur myself.

When I realized that general partnership wasn't in the cards for me at my then-present firm for structural/generational reasons, I took a role at an upstart company in our portfolio rather than look for another venture capital job. And I will eventually found a company myself -- this particular opportunity was just too good in terms of timing etc to pass up.

Anyway, when I look around at my former classmates, only 1 of the 8 or so of us who went into venture capital my year is still in that field. 6 of the remaining 7 are either at early stage companies or have founded companies themselves.

The statistics for how many HBS grads eventually found businesses are truly astounding (given the school's image as a factory for Fortune 500 corporate clones).

I know this doesn't effectively counter the macro-level evidence you submitted above about entrepreneurship rates, but my point really is not to grow too jaded when talking to business school students, because their apparent short-term interest in VC likely belies a deeper longer-term interest in entrepreneurship. It just takes a while to get some useful experience, repay those pesky loans, and establish a bit of upward career trajectory credibility first. Because while entrepreneurs may be perceived as risk-takers, you and I both know that in reality the best ones are first-and-foremost effective risk managers.

"joe" is dead-on. Entrepreneurship is not "rational" in the sense that economists use that word -- VCs get paid well, have relative job security for many YEARS, and sit in judgement all day long in nice offices with assistants and little on the line personally. (Venture-backed) entrepreneurs too often hear from some ex-banker who never risked a dime of his own money on anything that they should be taking massive pay cuts and working 120 hour weeks. Entrepreneurs live in a constant state of stress about that next product milestone, next fundraising, next customer, next press hit, etc. Every day their personal wealth, health, and family is on the line.

Take away the intense passion that keeps us entrepreneurs going and, in the abstract, sitting on "this" side of the table vs. "that" side of the table doesn't seem very attractive. The romantic image many who have never been in funded startups imagine wears off very quickly -- it's a marathon of sprints, and all too often investors are sources of doubt and frustration rather than support.

[posting anonymously lest I piss off my Board ;) ]

Wow, Paul, it looks like you really hit a nerve here!

As a serial entrepreneur, I have to agree with the point that entrepreneurship simply isn't a rational economic choice today, and that keeps most sane people away from it.

Here I am at my 3rd startup, putting my family at risk and putting virtually everything I've saved on the line, when I could be drawing a good salary working on other people's ideas with other people's money. Logically, I should NOT be doing this.

Apparently I have some mental defect (hubris? adrenaline addition?) that causes me to do this. But most rational beings, even those with ample passion and ideas, would objectively consider the odds and decide this is the financial equivalent of running out onto the freeway.

However, I think your stated goal ("to create more entrepreneurs") is just slightly off mark. We don't really want to "create entrepreneurs", we want to foster innovation. And we know from history that the biggest and best innovations tend to come from creative and passionate people who are working outside the constraints of large corporations (aka entrepreneurs). There IS a very valid public policy goal here, and it would be very well served by lowering (slightly) the risk of entrepreneurship. A greatly expanded SBIR/STTR program be a start. Easier access to seed funding and some form of health insurance program for startups would really help too.

If we want to foster more innovation in this country (by encouraging entrepreneurship) we need to improve the risk/reward ratio for people starting a company.

Deep well you are probing in this post, with a complicated set of inputs that drive the outcome you are aiming your focus at.

Lets agree for starters that we are not seeing the creation of entrepreneurs in our schools. Were the programs designed for that purpose? The SBA has been supporting entrepreneurship education for years, however it was never their mission to focus on the entrepreneur, instead it has been their intention to use entrepreneurship as a means of boosting job creation. Job creation is not the purpose of entrepreneurship, unless you are the SBA. In a sense this points to the real motivation for training entrepreneurial leaders in our business schools.

Our management systems need to function in a more entrepreneur-like manner. We are not creating entrepreneurs in our business schools because we are creating more entrepreneurial-managers instead. I believe this is necessary.

As a society, we fought the Civil War in a move to make the job the core component of our society's structuring. The socio-economic system is far more powerful on a per unit basis when operating under a system of employment rather than enslavement. Since people would readily make slaves of themselves in one form or another (as has been shown throughout time), thus giving up the accountability to provide 101 percent of the needed resources for entrepreneurial self-reliance and success, it is no surprise that the VC option would seem more enticing to students who believe that job-security and fringe benefits matter more than personal power and the kind of self-empowerment that only entrepreneurs know.

Our society is moving from one based on employment to one based on what you own. Every young mind needs to run into the question "What Do You Own?" In this world there is one state more empowering than freedom, and it is found within the freedom that you own. At birth, what does a human child own? Our socio-economic system is going to need to sort this out. It is just so happening that the most social creation of our time, one which empowers entrepreneurs like no other ever has, yet emerged from within a government services walled garden, is forcing this matter.

Consider that Napster was never an attack on the makers of music, but was instead an attack against the jobs that resided inside of the music labels that controlled the music making process. Consider that Google search indexing, blogging and micro-blogging were never about attacking the process of reporting the news or the role that the news reporters play in the structure of democracy, but instead were an attack on the corporate structure of providing jobs to these same people.

Look how the people respond: it takes the Supreme Court of the United States of America to put the entrepreneurial genie back in the bottle, and even that just will not do. Our society needs to be more entrepreneurial, your children need to get educated on the entrepreneurial-management process, and you need to figure out how to own the most vital elements of your life.

Great discussion overall, though as a former engineer/scientist turned VC, I have to say the I'm a little disturbed at the extraction of meaning from data that in my eye looks to be a bunch of noise and to some level questionable.

The drop in "entrepreneurship" was most pronounced from the mid 80s- mid 90s. It's a bit academic, but I'd love to hear an explanation for that drop as I doubt it was due to a flight of talent to venture firms. My guess is corporate America just got a lot more successful in attracting and retaining talent. From 1996 to present, however, all I see is noisy data that trends relatively flat.

More telling in this data is that the rates did not appreciably increase during the hype of the late 90s or that there wasn't a crash after the bubble popped. Is there any good explanation for why this doesn't appear in the data? My guess is the definition of entrepreneurship is broader than the tech startups we think of and these results are more of a comment on reduced opportunity for small service businesses that were very lucrative in the eighties.

In my experience, Entrepreneurship is alive and well in business schools as evidences by the sheer number of "institutes" and "centers" for entrepreneurship that have sprung up in the last 10 years. No only are students getting encouraged to consider alternative careers, they as a percentage choose to strike out more often than in previous years.

All that said, it's certainly not just for MBAs. Entrepreneurship is critical to our society's success and is something we should encourage wholesale to everyone. It is a numbers game where those that succeed will carry those that respectably tried but failed.

I agree. Those who are looking at Business Schools only to gauge entrepreneurial interest are missing the folks that actually create and develop technology, many of whom are equally interested in the entrepreneurial experience (i.e. great risk, great reward). Have surveys been consistently done at the country's engineering schools and technology centers?

The reason for a drop in entrepreneurs is that the VC terms and economics are so unfavorable (something we call subprime VC) that no right-minded entrepreneur would pick that endeavor over whatever else he is engaged in. Not in the least because the terrible quality of VCs creates a plethora of false positives and false negatives.

While a lot of them may want to be a VC, with the promise of relatively no downside (for the next ten years), few people without experience setting up a company and selling it should be part of the VC industry. We've enjoyed those ones for the last ten years at an IRR of less than 10%.

VCs are derivatives to innovation, and most people prefer to be lazy than do all the hard of creating value.

My hypothesis is that there are few entrepreneurs because schooling and university systems teach entrepreneurial skills too late in a person's lifecycle.

The typical lifecycle is go to school, then complete a degree in university, get a job, buy a house and car, get a bigger job, take on more debt as your salary rises, complete an MBA, get a bigger job paying more, build a bigger house, take on more debt. Once you're in this cycle it becomes increasingly difficult to take the risk of becomming an entrepreneur even though you have aquired the skills to do so. Opportunity costs are so much higher the longer you continue.

We have to be teaching teenagers the principles of entrepreneurship and taking them through practical learning curves before they go to university and get caught up in the rat race. While they are young, they will be able to absorb the risks, while the opportunity costs are as low as possible, and they will also have the skills to improve their chances of success.

Basically if we want to "breed" more entrepreneurs we need to provide entrepreneurial training at a younger age.

I teach entrepreneurship to computing students (i.e. NOT at business school) and they love it, quite a few start-ups too. I agree with "Campus Entrepreneurship" that entrepreneurship has to have a concrete and practical context, otherwise, like many in this blog have said, it is just a hollow empty subject taught at buisness school to those who don't want to be entrepreneurs.

Tim: As I wrote on my blog, Truth on the Market, I think Tyler is pretty far off base with this one. See http://www.truthonthemarket.com/2009/04/28/what-does-tyler-know-about-law-and-economics-anyway/

Fantastic website (http://www.goahats.com) I will bookmark it and come back later. Thanks for posting this. Very nice recap of some of the key points in my talk. I hope you and your readers find it useful! 59fifty baseball hats Thanks again

I am jolly a great deal happy to discovery and your web log and discover the invaluable facts on the topic hashed out. You were arresting me occupied within 1 hour showing your blog and clauses. I genuinely apprize your blogging and dreaming up building a internet site by myself.


You made some good points there. I searched this topic and found out that most people will agree with your blog.

Thank you for sharing this information. I found it very informative as I have been researching a lot lately on practical matters such as you talk about.

The reason for a drop in entrepreneurs is that the VC terms and economics are so unfavorable (something we call subprime VC) that no right-minded entrepreneur would pick that endeavor over whatever else he is engaged in. Not in the least because the terrible quality of VCs creates a plethora of false positives and false negatives.

In theory I'd like to write like this too - taking time and real effort to make a good article... but what can I say... I procrastinate alot and never seem to get something done.

You have mention good post above I really enjoy the information. I wish to come again on your site in future

Nice blog, looking good. :)

Our competitive price make our customers confident to develop their own business, at the same time, reaping big benefit from this transaction. Our favor tends to the customers who are from United States, Britain, France, Spain, Germany and Australia etc.

Texture si desidera una buona giacca in giù con la giacca cosa a buon mercato? Per il sito

ora Qui ci sono diverse opzioni per

voi:piumini moncler
giubbotti moncler
moncler kids
outlet moncler
moncler uomo
moncler donna


Maybe, change is a good new life.

Good article, thanks for pointing this out. esteroides Fortunately this topic is also presented in your blog, assuring a good coverage.

You have some good insights! Entrepreneurs want to learn more to be come a better entrepreneur...

Maybe, change is a good new life.

1 to keep warm and avoid cold cold. Because the cold virus itself will cause fetal malformations and development, particularly early pregnancy 3 months, affecting fetal heart development. Moreover, many cold medicines treat the fetus is not conducive to growth and development. http://www.cheap-moncler-jacket.com/
http://www.ugg-bottes-prix.com/
http://www.watchfordream.com
http://www.scheda-r4.com/
2 away from pets. Many pets such as cats, dogs, who are covered with parasites, such as Toxoplasma gondii, may cause fetal malformations, miscarriage. If you do not accidentally bite, the rabies virus is more detrimental to the fetus. 3 comfortable environment is the ideal environment for your baby's birth, listen to soft music, flower, books, drawing, and cultivate your baby's temperament will help. Watch violence, horror and unhealthy video, is taboo in prenatal education.

I guess the point is to give and save as much as you can and make your money work for you like the good servant we should strive to be.

Those people who doesn't want to be entrepreneurs doesn't know how to enjoy life of being an entrepreneur. I sometimes think that you need the talent before you can become an entrepreneur. Being a capitalist is not bad but don't you think that while being a capitalist it's better if you're also an entrepreneur?
Thanks for putting up this topic Paul. It really caught my attention. =)

When you're ready to build out your client base beyond referrals, open a new geographic market, or simply control the costs associated with reaching new clients--SJN Sales can help.

Our mission is to help average American folks save money on their insurance, and we have been doing it for many years nowÂ… We accomplish this by constantly adding new insurance companies to our huge database that enables us to offer you the cheapest insurance rates.

good points.I can't agree any more. thanks very much for that..Well worth to read this article

good to know your opinion.. thanks very much indeed.

The comments to this entry are closed.