The Dirty Secret about Entrepreneurism that No One Wants to Talk About
Entrepreneurs are great! I should know, right? After all, almost all of my clients are entrepreneurs. I, of anyone, should be singing their praises. They are the job-growers, risk-takers, the doers of things. What's not to love? However, something has bothered me for a while. It came to a head the other night when I was talking with my wife. We were looking through some publication that was recognizing a slate of entrepreneurs when she said, flatly, "No one makes anything." My first reaction was, "Don't be ridiculous," but, knowing that she's smarter than me, I looked over the list again. Sure enough, the list was peppered with some well-dressed people with great job descriptions, some even with some notable real successes. Noticeably lacking, however, was stuff.
Where was the beef?
Psst... Hey Kids, Wanna Buy Some Securities?
If you grace the door a modern-day pitch event, you will see a pitch for some mobile application. If you do not see a pitch for a mobile application, you are mistaken, and you are not actually at a pitch event. Apps are as prolific in today's entrepreneurship culture as the game invites you receive every time you log into Facebook. "Susan wants you to invest in her peer-to-peer gardening startup."
Unfortunately, I hear about a new app idea about once a week. Usually, these ideas aren't very fleshed out, but they promise to "disrupt" someone else's business who has done it for a lot longer. For most of these companies, that's as far as they make it: an idea.
However, a surprising number damn the torpedoes and put together enough of a shiny new toy to show to some prospective investors. They usually survive some very light screening and are given a few minutes on stage to talk about how great their business is. The crowd rarely consists, if ever, of real investors, but are usually just people who like the entrepreneurship scene and enjoy hearing new ideas. The aspiring entrepreneur will then spend 2:32 of their allotted 3:00 minutes explaining some very technical aspect of their business using industry jargon that no one understands, and end by throwing in some greatly inflated revenue projections in the last 20 seconds to convince you that they do math.
In case you haven't noticed already, I go to a lot of these events, and I see the same thing over and over and over. I could give half of these presentations for these companies without knowing anything about what their product or service actually does. Honestly, I could not care less, because the truth is...
Your App Sucks
There are more than 1.6 million apps on the iTunes App Store. What is the likelihood that your app is going to make the top ten most downloaded app for even a single day? Most likely never. With chances that slim, why take such a big risk for such a minimal reward?
The problem is that most entrepreneurs are stuck on the glitz of "tech" without understanding technology. Our modern perception of technology is so limited by the invention of the microprocessor that we don't grasp how impactful it can be. While they seem primitive now, some of the most successful people in history implemented technology that changed the world, such as processing kerosene, harnessing electricity, and pumping clean, potable water to entire cities. The app that makes it more convenient for you and your friends to schedule happy hour isn't exactly world-changing, which is critical, because the risks are the same.
Much To Do About Nothing
With technological progress so prevalent in today's society it's difficult to understand why this so-called "progress" isn't really getting us anywhere. Economists have long been struggling with an apparent disparity in the economy, despite record-breaking advances in technological development, specifically in computer hardware and software, we are not seeing significant gains in actual productivity. For economists, productivity is what drives most of the advances in the economy, especially in the areas of income and wealth. For as much technological development that we have seen over the last 20 years, especially with the rapid growth of the Internet, we are still not seeing significant advances in statistical economic productivity. I even asked an economist why this was, and the only excuse that he could give was that it appeared that most of this technological development was isolated in communications (i.e. your abilities to talk to your coworkers, clients, and grandparents). It did not seem that this technological development was actually making it any easier for us to create or do the things that we need done on a day-to-day basis. At least not like the invention of the assembly line over 100 years ago.
In fact, these technological developments may actually be leading to a bigger problem: we might actually be accomplishing less. Psychological reports and anecdotal evidence seems to suggest that people are accomplishing less at work than they previously were a generation before. Productivity seems to have stagnated in economic terms. While technology has allowed us to do more in less time, even with the actual length of the work day increasing to 9 or 10 hours per day, we're only accomplishing effectively the same each day that we were 30 years ago with eight-hour workdays, hour-long lunches, and absolutely no access to any type of computing capability whatsoever.
What this means is that effectively all the high-gloss technological innovation that we've seen over the last 30 years may not actually be doing mankind any significant productivity favors. This has especially been noted in how dismal the economy has responded since the Great Recession of 2008. Never in history has the US economy failed to rebound from an economic downturn as fast as the US has "recovered" from the past recession.
The reason for the United States' slow growth is chalked up to any number of excuses depending upon which economist you ask, but the scariest answer might be this: there might be no singular answer for why the US hasn't kicked back into high gear.
No, productivity is not increasing as fast as we would like it to. Yes, other cost centers are putting downward pressure on the market, such as healthcare and educational spending. It also appears that money is not flowing as easily as it once did in financing new projects for new businesses. Regulations can partly be blamed for this stagnation. However, anywhere you look, economists cannot agree on a singular problem that we can isolate and blame for the slow pace that we've seen cumulatively over the last 15 years.
But if you're looking at television, the Internet, or anywhere else for that matter, you would think that the world of entrepreneurship is continuing to drive the American economy like it ever has. Shows such as Shark Tank and Silicon Valley, and runaway success is like Uber, Google, Tesla, and any number of other unicorn startups would lead you to believe that we are living in the Golden Age of Entrepreneurship. It also appears that universities are cashing in on this phenomenon is well, with undergraduate and graduate programs in entrepreneurship cropping up in every single academic institution of any repute across the country.
Stiff Upper Lip
The numbers tell a different story. Entrepreneurship in the United States is suffering. New business startups are well down from where they were 20 or 30 years ago. Small business success rate is down, and hiring growth rates among early-stage companies are the lowest that they have been in a generation. Long story short: startup businesses are less common, less successful, and slower than they have been in a very, very long time.
The glorification of entrepreneurship has changed the way we think of that singular American dream of starting your own business. We hear of companies that get billion-dollar valuations on one hand, while also hearing of wildly successful online companies that are run by single person. Somehow, these businesses also allow not just employees, but also the management and owners to earn a good income while also making it home in time for their children's Little League games. The runaway success stories that we have heard so often in the news are exactly that, runaway success stories that are good for headlines. Just because somebody wins the lottery does not mean that there are not millions of others who lost money on a gamble that did not pay off.
Sadly, I see this unrealistic lottery phenomenon with startup companies all the time. They are convinced that they will not only receive a $1 million valuation for their company that hasn't sold a single product, but if they do not receive that $1 million investment within two or three months of the idea being hatched, they refuse to rethink their business concept or otherwise adjust their strategy. Meanwhile, aspiring entrepreneurs on the other end of the scale refuse to take the risks necessary to take their business to the next level. Convinced that they can do it all, these entrepreneurs run themselves ragged and ultimately burn themselves out because they aren't willing to take a simple risk such as hiring support staff for pushing outside their comfort zone.
What that leaves are two types of entrepreneurs that are grossly underrepresented in the current entrepreneurial marketplace. The first of these entrepreneurs is the "base hitter." These individuals are highlighted in the book Moneyball, players that are known not for their flashy home run percentage, but consistency and reliability. They don't try to go for the next base when it isn't worth the risk, and don't swing for the fences every time they're at the plate. Businesses like these can be incredibly successful. No, you're probably never going to see a billion-dollar valuation, but who cares? You can still be wildly successful with a job that you enjoy, impacting people's lives while earning a comfortable six-figure salary and priming yourself, if done correctly, to sell your business and cashing out with enough money to retire happily. Who can argue with that?
The other type of entrepreneur that we're not seeing as much of are the big thinkers. These guys understand the risk of starting a business. They also understand that it might take millions of dollars and they might fail miserably, but the risk is worth a shot. After all, if you're going to sink your entire fortune and forever wreck any possibility of ever having a good credit score ever again, why do it on something as trivial as a niche market social media app? These entrepreneurs, such as Elon Musk, recognize that the success of their business relies on them doing something that no one else is willing to do and then doing it anyway. Damn the torpedoes, full speed ahead.
Entrepreneurship is not, will not be, and has never been easy. As much as we would love to be able to pursue the American dream of starting our own businesses, most people never will. It is an incredibly daunting undertaking, and most Americans simply aren't cut out for the job. However, it's a dirty job that somebody needs to do. Entrepreneurs are the growth makers, the job builders, and, potentially, the very people that may save our species from itself. We need big thinkers that have big projects that could solve big problems. We need people that are willing to take the risk on something big, such as alternative energy, space transportation and colonization, human longevity, and, perhaps even solving a way of eliminating the differences between us so that we can accomplish more without the strife in disputes that we have now. These are big problems, some that may never be fully solved, but that doesn't make them not worth pursuing.
There are still frontiers left to explore, there are still pioneers needed to stake out new territory. Unfortunately, right now, there are just not enough.