We Don’t Need More Entrepreneurs, We Need Better Entrepreneurs

Too often our media and politicians divide our economic world into “big business” and “small business.” In our culture, we tend to think that the dividing line is drawn between massive businesses like Citicorp or General Motors and little “mom and pop” businesses. The Small Business Administration (SBA), however, generally defines small businesses as any U.S. “nonfarm, for-profit” firm with fewer than 500 employees. That means that TiVo, until recently, was a small business, since it fell below this arbitrary employee threshold.

When you close your eyes and think of a small business, does TiVo come to mind? Not likely, yet the company whose name has become an indispensable verb in millions of homes across the country was until recently a “small business” when applying the most generic SBA standard of proof. In fact, by this definition, 99 percent of all businesses in America are technically small businesses. The definition is so large as to be pointless. The real line of demarcation shouldn’t distinguish between big and small, but between those that are sustainable and produce a broad net impact on our society and those that do not. After all, we may operate in an economy composed of markets, but we live in a society made up of communities.

This book is about building those real businesses, businesses that will grow to hire employees but may never have more than twenty paid staff. What matters about these businesses is that they become sustainable and bolster local economies and the communities they operate in.

When pundits say that we need new businesses to create jobs, they are rarely telling the whole story. Creating new businesses is a good idea, but the jobs they create have been historically fleeting and contribute to “job churn”—that all-too-cyclical phenomenon in the workforce where our economy sheds jobs as quickly as it creates them. And the evidence shows that what really creates jobs that last is investing in mature businesses—firms whose management has found ways to keep them afloat—if not thriving—for over twenty-five years. That point is profoundly unsexy, I know. But that doesn’t make it any less true. It is equally true, though unpopular to state, that our nation doesn’t need more entrepreneurs: we simply need better-prepared entrepreneurs.

Figure 1
Employment by Firm Size

What those of us who care about helping entrepreneurs must do is teach them not just how to start a business, but how to start a business that will be sustainable. It’s sustainable businesses that help create broad value beyond the return to their own shareholders and consumer base and create good jobs that last beyond a quarterly job report from the Department of Labor, or longer than an election cycle.

We don’t often dream about being a mom-and-pop outfit, but these small-scale, community-centered businesses are as key to the sustained vitality of our local economies as are the multinational corporations whose tentacles reach into virtually every neighborhood across the fruited plain.

Many entrepreneurs who have a good attitude, a great idea, and a willingness to work diligently will build businesses that do not survive long. Most may never get beyond the incubation stage, and therefore never generate enough revenues to allow the founders to leave their day jobs, let alone hire employees. Of the millions of businesses that exist in the U.S., most do just that: exist. They neither expand nor contract; they stagnate.

Certainly, I recommend having and maintaining a constructive outlook based on reality. I daresay a good attitude, a great idea, and a willingness to work hard are important things to have, particularly if the entrepreneurial road you have taken is a lonely and a daunting one. That said, a good attitude has not been proven to cause business success. And when one’s optimism is based on wishful thinking that denies the unavoidable negativity entrepreneurs must repeatedly confront, such “positivity” is not only of dubious value, it is noticeably absent from the top predictors of entrepreneurial viability, as is revealed in chapter 4.

Rosalene Glickman makes this point well in her counterintuitive but compelling argument in her book Optimal Thinking:

Many positive thinkers believe that their dreams will be realized by a magical, divine process that is triggered by the intensity of their hopes, wishes, and faith. They approach life with a false sense of security, and are ill prepared for negative consequences. Their positive thinking is often no more than wishful thinking and can be extremely dangerous.

[Instead] acknowledge and respect negativity as an authentic expression of reality. When we notice ourselves finding fault and worrying, we accept our negative viewpoints, seek to understand them, and immediately ask the most constructive questions in order to find the best solution.

By understanding invisible capital, how it works, and how best to leverage it, we may very well have to accept the inherent negativity in a system that has produced and distributed it so unequally. However, we can choose to be “positive” and ignorant, or realistic and solutions oriented with regard to improving entrepreneurial opportunity for ourselves and others despite the very long odds detailed in this book.

Some research suggests that certain individuals pursuing different forms of entrepreneurship exhibit a particular personality trait that includes a strong “internal locus of control.” In other words, some entrepreneurs believe that much of what positively impacts business outcomes for their new venture is well within their own power to influence. However, while there may be a significant link between entrepreneurs who think this way and their likelihood of starting a new venture, there appears to be no meaningful correlation between the prevalence of this attitude among start-ups and the ultimate viability of those start-ups.

Despite ample research debunking the singular value of mind-set on business viability, whole cottage industries have been created to contradict this evidence in order to better market “secrets to business success” supported by neither research nor reality. (This unsavory phenomenon will be explored in chapter 4 as well.)

In defiance of the long odds of success in business, every year roughly 2 million start-up ventures are founded in the U.S.—slightly fewer than the number of marriages. Generally, most marriages fare better than most businesses. And even in light of the sorry state of matrimony these days, marriages still last longer than businesses.

Those who have not prospered in business—or, as is the case for most would-be entrepreneurs, those who never fully made it out of the starting gate—are not necessarily the people who lacked the psychological resolve, the creativity, or the “sweat equity” (that is, the work hours invested in the venture). They are often the individuals who lacked what I have coined “invisible capital.”