A simple game ushers us into the world of entrepreneurship as a constant interplay between value and meaning.
In the word ladder game, allegedly invented by Lewis Carroll, one connects two initial words via a chain of successive words that differ only by one letter. For example, one can go from COLD to WARM through the following chain: COLD → CORD → CARD → WARD → WARM.
Through a chain of incremental steps, one enters new spaces of meaning. The game can be open-ended, continuing on to WARN→ BARN → BORN, etc. It can get even more interesting if we inter-mix languages or start making up words and meanings on the go.
The game can be continuously re-invented by those who play it. But it nevertheless retains a thread of continuity that connects the past and future, taking it back to some starting words or old meaning.
Describing someone as entrepreneur gives us no sense of what they are trying to do, other than looking to change the world in some way. To say they are starting a new venture is similarly uninformative. They are trying to make something work, but what?
We need a reference to what they have in mind, the blueprint for their entrepreneurial journey. This is what the notion of opportunity represents, an articulation of what an entrepreneur is aiming to do or achieve. Early on, when one has nothing but their imagination, an opportunity can be described and thus constructed only through words or other symbols.
Entrepreneur and opportunity are two sides of the same coin. We cannot speak of someone as an entrepreneur without a sense of the “opportunity” they are pursuing. Similarly, we cannot speak of an opportunity in an a-personal sense, without someone actually pursuing it. Otherwise, ‘entrepreneur’ would become a label reflecting past achievements and thus detached from current efforts. Similarly, opportunity would become a label for idle speculation (someone might do it) and thus detached from any commitment. In scientific discourse, the concept of opportunity has been a source of confusion, mainly because it implicates the stance of the scholar in regard to the focal entrepreneurial effort and thus brings into question the relationship between scholar and entrepreneur.
Entrepreneurship research has been motivated by the observation that new products and services arise in the economy from which no markets previously existed. This naturally poses the question of understanding and explaining how they come into existence. While it is clear that human enterprise is part of the answer – without nothing would happen – it is also clear that it is not enough. When we think about the ultimate success of an entrepreneurial effort, it is intuitive that it has been made possible by a multitude of factors beyond the control of the entrepreneur. This set of favourable conditions and contingencies has been defined as opportunity, aiming to serve as complement to human enterprise in explaining entrepreneurial success. Hence the notion of entrepreneurship as a nexus between enterprising individuals and lucrative opportunities.
This is where problems start to arise. The above formulation implies a totalising view, connecting initial efforts and ultimate outcomes. Just as we look retrospectively to evaluate past efforts from their current outcomes, so one could imagine that current efforts will one day be evaluated in the light of future outcomes. In other words, were the current entrepreneurial efforts to succeed, the opportunity for their success would be determined by such retrospective evaluation that can take place only in the future. Hence, when opportunity is defined as the conditions that make entrepreneurial success possible, it is obvious that it can be deployed as a concept only in a retrospective sense. Thus, many scholars would argue that we cannot speak of opportunity when discussing current, unrealised entrepreneurial efforts.
In the sense in which being an entrepreneur is an effort to change the world rather than an already realised accomplishment, there is no future to speak of in a factual sense. Whatever future is discussed at this point is imaginary in nature for it involves relationships and outcomes that do not yet exist. This does not prevent the entrepreneur from speaking about such future – and indeed painting a vivid picture of it in our minds – as a way of articulating their aspirations, generating excitement, and garnering support. Thus, the entrepreneur speaks of opportunity.
A difference therefore arises between (1) opportunity as word, i.e. the content of the entrepreneur’s speech and (2) opportunity as world, i.e. the conditions that would make future success possible. This is the difference between “opportunity” and opportunity. To speak of the first is simply to say that someone believes something to be an opportunity and is compelled enough to act in its behalf. In this sense, a scholar is merely reporting another person’s beliefs and reasons for acting, without any commitment to their veracity. To speak of the second is to commit the scholar directly to the truth claim that certain future success is possible. Of course, no scholar would commit to that.
This distinction helps explain the ambiguity in the statement ‘entrepreneur pursues opportunity’ as arising from two different scholarly stances. A scholar interested in explaining why the entrepreneur acts implicitly thinks of opportunity in the sense of “opportunity”, i.e. as something the entrepreneur articulates to explain what s/he is doing. In contrast, a scholar interested in explaining why the entrepreneur succeeds implicitly thinks of opportunity in the sense of opportunity, i.e. as the external conditions of success.
Here we have it: “opportunity” as what the entrepreneur says and opportunity as what the world needs to be like for what the entrepreneur says to be ultimately true. The former reflects that entrepreneurs are unbounded in what they can imagine, aspire to, and express. The latter is a reminder that their efforts are ultimately accountable to the real world.
We can’t recognise entrepreneurs, the way we recognise doctors or teachers, from the settings in which they operate. When we think of entrepreneurship as a force of the new, driven by human imagination and ingenuity, then entrepreneurs are defined by their active efforts to change the world, driven by their visions of a different world. We readily recognise entrepreneurs by the impact they have already made, but this introduces an obvious success bias. Most change efforts do not succeed. This cannot be an argument for not hoping and trying.
Most accounts of the etymology of the word ‘entrepreneur’ relate it to the French ‘entreprendre’, with its meaning of undertake or begin something. Even more vivid is the etymological relationship to the Sanskrit ‘antah prana / prayukti’ (अन्तः प्राण / प्रयुक्ति), meaning inner breath of life / motivation. This reflects an active stance towards the world, ready to engage with it with a sense of purpose. Without the entrepreneur’s stance, the world is just an amorphous whole. As John Dewey vividly explains in his classic work The Quest for Certainty, “there is a moving whole of interacting parts; a center emerges wherever there is effort to change them in a particular direction” (1960 p. 291).
All of this suggests that we cannot identify entrepreneurs from the outside. To an external observer, entrepreneurs may be indistinguishable – in terms of who they are and what they do – from other people. It is the meaning of what they do – arising from their purpose and proactive stance – that marks them as such. In this sense, ‘entrepreneur’ is not a label that one carries for life, on account of past achievements, but a signal of seeking to bring about a different future, of not taking the status quo for granted.
Everyone can be an entrepreneur. It is a matter of finding that inner impulse to make the world a better place.
Dewey, J. (1960). The quest for certainty. New York: Capricorn Books
Deceptively simple, this question invites us to choose conceptual categories under which to describe entrepreneurship. Each category makes salient distinctions, enabling us to make comparisons and identify similarities and differences with what can be deemed non-entrepreneurship.
To understand entrepreneurship is first and foremost to choose the conceptual language in which to express our understanding. This language reflects and reveals our points of view as scholars.
In broadest terms, entrepreneurship is a human activity. In this sense, it is similar to other human activities such as gardening and reading in that it is done by humans and there is an inherent purpose to it.
eIn contrast to a non-social activity such as reading, entrepreneurship is a social activity. This suggests its meaning is derived from the social practices in which it is embedded. We therefore would expect different manifestations of entrepreneurship in different societies.
In contrast to non-economic activity such as a celebration, entrepreneurship is an economicactivity. In this sense, it is associated with production and exchange of goods and services. So far, so good.
In contrast to existing economic activity, such as the running of a business as a going concern, entrepreneurship involves neweconomic activity. This is where things get tricky. The term ‘new’ can be applied in many different ways to create a contrast between something that already exists and something new. These involve variations on the economic categories of product and market, which reflect what is produced and how and where and how it is exchanged.
The question of ‘new’ thus boils down to defining a new product and a new market. This inevitably brings us to consider the categories or types of product and market as a way of specifying whether we are dealing with a variation within an existing category or the creation of a new category (within a broader category).
We should recognise that product and market are relational categories, i.e. it is impossible to consider them in isolation from one another. Thus, to speak of something as ‘product’ is to have a sense of its practical use. That is, a product (as opposed to an undefined gadget) is something designed to perform a particular function, which in turn implicates a context of use and thus a potential beneficiary. A product is always for someone. Similarly, to speak of something as ‘market’ is to have a sense of someone’s practical need to be fulfilled. That is, a market is a context that invites technical solutions to particular problems. A market is always for something.
The combination of product and market defines a distinct value space in which economic activity becomes meaningful. Such space of meaning brings together production and exchange – one tapping into the possibilities afforded by technology, the other reflecting the values and needs of society, and the alignment of the two afforded by existing models of economic organisation. The space of meaning and value thus arises at the intersection of technology, society, and economy. It can be stretched or made new in each of these directions as we conceive of products, markets, and organising in new ways.
Let’s start with products. Designed to perform particular functions, products can be categorised by reference to the function they perform. In this sense, a bicycle and a car are both transportation products, designed to move someone or something for someone from point A to point B. In this sense, they all share the feature of having a source of energy that gets converted into motion. We can add, subtract or replace features of existing products. The question is at what point do we have the emergence of a new category?
The complexity here can quickly overwhelm us. We distinguish different categories of bicycle – children vs adult, professional vs amateur, road vs mountain – derived from who uses the bicycle and for what purpose. We can introduce new features within a category (colour, frame, tyres) as well as define new categories (e.g. city, shopping). The energy source of bicycles is human effort (pedalling). When we replace it with an electric motor, we get electric bicycles. When we replace the pedalling with pushing off the ground, we get scooters. And when we remove the human effort there, we have electric scooters. If, instead of the electric motor, we put in a combustion engine, we have a motorcycle. When the energy source is external – such as a horse – we have a horse cart, which also introduces four wheels. Replace the horse with a combustion engine and we have a car. Replace the engine with an electric motor and we have an electric car. Replace the driver and we have self-driving car. Replace the ownership of the car and we have transportation as a service (based on time or destination).
The picture is similarly complex on a market side. An existing market simply reflects the products and services that are already exchanged. To speak of new markets is to think about new exchange relationships in the light of who the existing recipients are. Here, again, we can have a proliferation of categories based on how we can draw meaningful distinctions. We can speak of industrial (B2B) or consumer markets (B2C). On the industrial side, we can speak of small, medium or large enterprises, of profit vs non-profit enterprise, of private vs government enterprises. On the consumer side, we can draw distinction in terms of location (city, region, country, world), demographics (age, gender, occupation, socio-economic status), behaviours (usage, loyalty, benefits) or psychographics (personality, lifestyle, attitude). There is no limit to the categories we can create over time, as we find creative ways to draw meaningful distinctions.
We face equal complexity when we think about organising. Boundaries and priorities are continuously re-drawn as we speak about firms, cooperatives, B-corps, ecosystems, self-employed contractors, and remote working. These change the categories under which we consider things to be economically viable.
In short, ‘new’ represents a continuously evolving space as our needs and values get differentiated, as new technologies emerge that enable us to do new things or existing things in new ways, and as we re-draw boundaries and reconsider priorities. We simply need to be attuned to the ways in which society, technology, and economy co-evolve to make existing categories obsolete or too crude. Thus, while our practical needs may not really change in some basic sense – we need food, shelter, transportation, communication, education, etc. – the forms in which they get satisfied continuously evolve.
Therefore, entrepreneurship is simply the force of the new, driven by human imagination and ingenuity. It creates and expresses new spaces of meaning and value creation within which economic activity takes place. Just as the self-sustaining process of life creates a diversity of life forms in an open-ended evolutionary process, so entrepreneurship keeps human economic activity open and ever evolving.
Our inherent creativity and hopefulness – the urge and passion to try new things – are often deemed unreasonable. That is, it is impossible for others to see any point to them or they simply seem too far fetched. This reflects a pervasive genius-vs.-lunatic tension between the retrospective clarity of breakthroughs once they happen and the paralyzing uncertainty of those yet to happen.
In the documentary Banking on Bitcoin, Erik Voorhees reflects on the questions of the early days of BitInstant: “Is this going to change the world in a good way? Are we just a bunch of crazy people who don’t know what the hell we are talking about? Or are we actually starting to initiate an industry which in hindsight would look obvious to everyone but right now not?”.
Similarly, in his book Against Method, Paul Feyerabend argues that (scientific) ideas are often made clear by actions, that today’s rationality exists because at various points in the past reason – as it operated then – had been overruled. On this basis, the only principle that can be defended in all circumstances is “anything goes”. “If scientific achievements can be judged only after the event and if there is no abstract way of ensuring success beforehand, then there exists no special way of weighing scientific promises”.
Or consider the closing scene of the movie Ratatouille, when the food critic – overwhelmed by the taste of the dish prepared by Remy the rat – writes in his review: “But there are times when the critic truly risks something and that is in the discovery and defense of the new… Not everyone can become a great artist, but a great artist can come from anywhere.”
In a new paper with Daniel Lerner and Richard Hunt – Action! Moving beyond the intendedly-rational logics of entrepreneurship – we explore the implications for entrepreneurship theory of action without reason. We propose that:
(1) entrepreneurial processes can be initiated by non-deliberate actions whose consequences give rise to the very purpose that ultimately defines those processes;
(2) such actions generate consequences that cannot be anticipated or evaluated by a priori judgment; the relationship between the two is diachronic.
Deviation – sidestepping reason – seems to be a vital condition for progress. The problem is it is neither necessary nor sufficient: and yet we can’t reap the benefits of entrepreneurship without it.
Every entrepreneurial project has a large degree of uncertainty that cannot be eliminated. The inability to foresee not only the outcomes of our actions, but also the consequences of those outcomes, and the meaning of those consequences represents an irreducible tension. The more we commit to one particular unfolding of the events ahead – with all the elation this brings – the heavier the counterweight bag containing doubt and the possibility of being wrong. Commitment comes with baggage. When the two move together, the baggage is a constant reminder of the need to focus on learning and to maintain flexibility to change direction.
Something interesting happens in organizations: commitment and baggage get separated. Unhitched, the commitment slowly rises upwards, ultimately bringing certainty to the top management. In the meantime, the bag is left behind and sinks, leaving the uncertainty with middle managers or front liners. No matter how hard they try, they are left holding the bag…
[Left holding the bag: being in a situation where you are responsible for something, because others fail to take responsibility for it (Collins English Dictionary)]
As uncertainty travels downwards, accountability travels upwards, defined by the expectations from the top. These arise from the certainty of received commitments about the impact of entrepreneurial initiatives. At that point, the bag of uncertainty has already vanished – the multitude of possibilities have collapsed onto the single path of history. This, in turn, cements the original commitment as a viable reference point and triggers a search for points of blame.
If only uncertainty and accountability could travel in the same direction. When the bag of uncertainty is held at the top, those who work on entrepreneurial initiatives no longer feel the pressure of being left with it. It also changes the focal point of accountability from what we did not achieve to what we did learn. When commitment and bag are held together, there is recognition at the top that the commitment is necessary to structure our action, but also that this structure is always tentative.
To avoid the anarchy of complete lack of accountability, there needs to be a clear labeling for the bags to indicate which go upwards (accountability) and which stay down (incompetence).
As universities offer more and more entrepreneurship courses in their curricula, their ambition to promote innovative thinking runs against one of the pillars of academic provision, namely the measurement of academic achievement. When its power as a signal of quality is too significant to ignore, it becomes an end in its own right. In the UK in particular, achieving less than an upper second class degree (2:1) can disqualify one from graduate jobs or further study. Students become invested in achieving a first class degree.
Measures of academic achievement are meant to signal relative standing based on the premise of their normal distribution. Their rigour is underpinned by quality-assurance processes that triple-certify the assessment and enforce its (normal) distribution through moderation, exam boards, and external examiners. In between the student fixation on grades and the imposition of the processes that produce them, innovation loses its punch.
For all the exciting activities that can be done in an entrepreneurship course to develop skills in creativity, experimentation, and design, if they are not graded students lose genuine interest to engage in them. If they are to be graded, two forces quickly deflate them. First, they have to be subject to certification, which makes the use of written or standardized assignments expedient for the transparency of their assessment. Second, these activities have uncertain outcomes and unscripted processes, which necessarily enshrines them in ambiguity and the risk of coming out empty handed. But such ambiguity is intolerable when students need a certain grade: they want to know what is to be done to achieve it. Model answers serve as anchors and effectively box in the outputs.
Norms and normal distribution around them work for basic knowledge and skills, where achievements have clear boundaries. But the power of innovative ideas and entrepreneurial initiatives lies in their unbounded nature, in the long tail of outliers that arise naturally from unrestrained social processes of interaction and experimentation, fueled by innate purpose and curiosity. When these processes are defined by external purpose and restrained from the start through the instruments that measure their outputs, that power is lost.
The concept of human capital has a stronghold in entrepreneurship research, as a reflection of the experience and skills entrepreneurs bring to their journey. It originates from economics where it was introduced as a means to measure the returns to years of education and experience. The main assumption behind it is that all years of accumulation are the same.
In a new paper, I demonstrate the need for a qualitative understanding of experience. The knowledge and skills subsumed under human capital are not only derived in different contexts but also form qualitatively different combinations. Therefore, the term “capital” is misleading as it forces them into homogeneous units to be quantified. This works for financial capital because, regardless of its sources, it is ultimately assembled in the same bank account and put to the same uses. In contrast, the sources of human capital each feed into different pockets: 10 years of total experience
can amount to qualitatively different capacities depending on whether they are composed of education, industry, managerial or entrepreneurial experience.
The shades of human capital matter. In earlier work, I show that they can drive the entrepreneurial process to different realizations. They even point to different sets of skills in venture capital investing: those that minimize failure are different from those that maximize success. My favorite is that they can also explain investment decisions: finance expertise and early-stage investments do not go well together. It seems the focus on numbers and financial modeling can stifle even the greatest idea early on.
In a dynamic world, companies recognize the imperative of being entrepreneurial, of exploring opportunities outside their comfort zones. But it is not long before this new energy runs against the core organizational forces of reliability and accountability. Entrepreneurial activity needs to deliver foreseeable results, for how else could it be justified?
As I explored in an earlier post, the messy, chaotic nature of entrepreneurial efforts sit uncomfortably within corporate structure: mistakes are a normal part of the process, it is impossible to know whether efforts are effective or efficient; it all looks like a huge expense rather than an investment. Mysteriously, the closer one looks and oversees, the more problematic entrepreneurship seems. To link to another previous idea, control is not the answer.
But stepping off and letting go is counter-intuitive and not conducive to a good-night’s sleep. The challenge is front and central at the Strategy & Innovation Forum I am currently attending. Three ideas resonated with me from the shared stories of how people deal with this challenge within organizations. The first is that when we let go and keep our distance, we have to replace the void in between with trust. Trust can mean many things, but in this setting I see it as being about giving credence to the knowledge we cannot verbalize (our intuition) and not dwelling on the unknown (for the more we dwell, the more we fear it).
Lest the above induces a sense of being stuck in quicksand, the second idea is one of scaffolding, of basic discipline that we can hold on to. It is about setting boundaries, within which we can trust people to deliver: creating a sandpit in which there is play is free and unscripted, but a sense of purpose is clear. The boundaries evolve to facilitate productive behaviors and prevent destructive ones.
The third one is about not taking purpose for granted. It needs to arise from an exploration of how the original problem that sets the process off is embedded in a broader, holistic system. Rather than loose sight of what we are trying to do in the first place – a natural consequences of embarking on a linear, sequential, one-way process – we need to continuously revisit this question in the light of our broader understanding of the context. This is process of active perception – zooming and re-framing – through which we peel off layer after layer … under we get to a core that frees and inspires people to unleash their creativity and, at the same time, keeps them anchored.
Great piece in the FT (below) on the mis-use of mathematics in finance. The target of criticism are those who over-fit past data to profess a successful trading strategy for the future.
It is not a long shot to extend this to explanations of entrepreneurial performance. To a large degree, we tend to look for patterns in past performance data, but are these really useful as guides for the future?
Because we know what actually happened, we can always find an explanation for it. But since what happened cannot be assessed probabilistically among its many alternative paths (which did not happen and which cannot be really enumerated) there is no weight to our explanation in guiding us towards an open ended future.
Financial Times, When use of pseudo-maths adds up to fraud