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The small start-ups are as vital as the stars

August 27, 2013 4:37 pm

The small start-ups are as vital as the stars

By Luke Johnson

In the 19th and 20th centuries, Britain and the US were dynamic and open to novelty

Are entrepreneurs freaks of nature? Jim Clifton thinks so. He is the boss of research firm Gallup, and recently wrote about studies it is undertaking to find those especially talented individuals who can build the next Google, Ryanair or Bloomberg. Gallup estimated that such “super-entrepreneurs” number just three out of 1,000 across a sample population. These are the risk-takers capable of founding so-called gazelle companies: the fastest-growing breakthrough organisations that create a high proportion of the new jobs and genuine innovation in an economy.Identifying these prime movers is incredibly difficult. It is not like spotting brilliant footballers or pianists, where there are exams, courses, teachers and systems to discover and cultivate rare prowess. However, the skills displayed by the next Steve Jobs or Sir James Dyson are more complex and less well understood. They involve an ability to organise and promote a business, make a commercial idea concrete, hire and lead a team, generate sales and add value. There can be no academic qualification for attributes such as inventiveness or a spirit of enterprise.

It is a tragedy that the economics profession almost ignores this subject, and that business schools have done so little useful work to identify key character traits of the vital few. Venture capitalists would have much to gain by undertaking serious scientific studies into the personalities of winners in business. But they seem resigned to the idea that there are few rules or systems for finding the right ones to back.

Scott Shane, a prolific writer on entrepreneurship, postulates that genetic factors are powerful determinants of whether someone will develop a successful business. His book Born Entrepreneurs, Born Leaders suggests innate, inheritable predispositions really matter.

A survey of entrepreneurs at Northeastern University supports his view: 61 per cent of respondents said innate drive was the main reason they started a business: only 1 per cent said their higher education was a significant factor.

Not everyone buys the idea that a small number of extraordinary risk-takers are the ones who make a difference, however. Mass Flourishing , an important new book by Nobel prizewinner Edmund Phelps, suggests individuals matter much less than overall culture and social values. The subtitle of his text is “How grassroots innovation created jobs, challenge, and change”. His thesis is that most industrial discoveries were not pioneered by a few isolated visionaries, such as Henry Ford. Instead, he argues that progress was driven by huge numbers of citizens empowered to create and sell thousands of incremental improvements, from craftsmen and farmers to traders and factory workers. Together they generated an extraordinary period of prosperity, starting in the 1820s in Britain and petering out in the 1970s in the US.

Now, in the west, Professor Phelps believes there is a sense that the “glorious history of desire and dreams” has run out of steam. Unquestionably, there is an unholyalliance of conservatism and socialism that impedes economic and technological advances by resisting innovation.

In Britain, for instance, whether it is fracking, immigration, reforming the state or genetically modified foods, we suffer from neurotic environmentalists and Nimby elements who object to change and are deaf to rational arguments. They defy modernity, and seek to embrace what they imagine are “traditional” values. So they resent wealth creation, cling to bloated welfare and pension systems, resist new developments and so forth. By contrast, Prof Phelps shows how in the 19th and 20th centuries Britain and the US, among other nations, were dynamic and open to novelty – and that the good life was surprisingly inclusive then.

I agree with him that all entrepreneurship is important, not just the famous names. I also think that government, industry, regulators and institutions must be more venturesome if a nation is to compete successfully in a global marketplace. Meanwhile, educators, mentors, universities and philanthropists should explore much more deeply why certain entrepreneurs have such an impact, how to breed more of them, and how to encourage surroundings that will enable them to flourish.

lukej@riskcapitalpartners.co.uk
The writer runs Risk Capital Partners, a private equity firm, and is chairman of StartUp Britain

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About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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