4 Common Myths Debunked
Facebook. Amazon. Whole Foods. All of these startups changed the rules of the game for their industries. They represent what business guru Clayton Christensen calls "disruptive innovation" — new ventures that turn traditional business models upside-down. But do you have to be the next Mark Zuckerberg or John Mackey to call yourself an entrepreneur? Do you have to change the world to be considered successful?
No. That's a myth — one of several that scholar-practitioners like myself are working to debunk.
While there are a number of ways to classify businesses, entrepreneurship experts generally use three major categories. First, there are companies that cause disruptive innovation, either through technology (like Facebook and Nest) or a new business model (like Zappos). The companies that successfully commercialize these types of innovations may ultimately be worth millions or even billions of dollars.
Next, there are salary-substitute ventures. These are started by entrepreneurs who want to build their own companies, not necessarily to sell them or take them public, but to be their own bosses. Consider Amy's Ice Cream in Central Texas, a 30-year-old company with annual revenues of more than $6.5 million, 15 stores and 200 employees. Founder Amy Simmons has long said her goal is to build a 100-year-old company, and she wants to run it as long as she is having fun. Local employers like Simmons are often capital-efficient job creators that are good for the economy. Her interest goes beyond the tubs of Mexican Vanilla she is famous for — she wants to give value to her community.
Last, there are lifestyle ventures founded by people who are passionate about something, like a biker starting a cycling shop or a photographer launching a studio. These businesses can be social, local or even global in reach, as long as they support the founder's passion. Guerin Rife, for example, who started Rife Golf and whose putters are frequently used by PGA tour golfers, sold his company in 2011. But two years later, he launched Guerin Design Putter Company. Clearly, he is driven by his passion, rather than business-model or technology innovation.
In fact, many university entrepreneurship programs focus on educating students to start and run businesses. Community and university-based incubators and accelerators are becoming the standard for establishing bona fide entrepreneurs. But is the appropriate goal of an entrepreneurship program to create founders of companies or to educate students about startup and new business environments so that they can then be successful in those environments?
According to the Small Business Association, only "about half of all new establishments survive five years or more and about one-third survive 10 years or more." Many of the businesses that make it have founders with previous work or domain experience. We just don't have data about the success rate of businesses started by recent college graduates. What we do know is that 75 percent of the venture-funded startups between 2004 and 2010 failed to return investor capital, according to recent research out of Harvard. While these businesses may not have all "failed" in the sense of closing their doors, a lack of return on investment at this level shows the significant risk that venture firms take by focusing on business-model or technology innovation companies.
Does this mean that entrepreneurship education is doomed or that we are sending students on a fool's errand? My view is that entrepreneurship education is critical for improving the success rate of startup businesses and providing students with valuable skills that will help them be successful in that environment.
That's why success stories matter. Well, sometimes. They can be illustrative of methods, problems and approaches that have worked for a specific entrepreneur in a specific situation. But that does not mean they are replicable for all, or even any, other circumstances.
That's why a multidisciplinary approach is the key to entrepreneurship education. Students should learn about marketing, finance, operations, statistics, accounting and other core subjects that will enable them to excel in environments where, on any given day, they may be making a sales call, developing a marketing plan, or building a proforma for a new service or product. Successful entrepreneurs thrive on problem solving and wearing many functional hats. Successful new-venture employees are able to do the same thing.
Experience is critical. The processes and methods are well-established -- balance sheets, cash-flow statements, profits and losses. The variability is in the kind of business. Things that don't work are going to be very specific to that market niche, and it will take time, capital and experience to figure out what works and what doesn't.
Failure used to be something to be feared. It still should be. One of the most valuable lessons I learned as a junior manager working on my first department budget was to treat expenditures as if they were coming out of my own pocket. By "owning" the budget, I could focus on what was necessary for success, not just what was desired to spend. This same approach is needed for startups. If the money invested in the startup were coming out of the founders' personal bank accounts, would they be comfortable with failure? If not, then why should they embrace failure when it is investors' money at risk?
The trick is to develop a healthy fear of failure -- a fear of having to start over, disrupting employees' lives and losing investors' money. That fear should drive the entrepreneur to work the 12 to 15 hours a day, seven days a week, necessary to keep the business moving in tough times. If a business does fail, even after the herculean efforts of the entrepreneur and founding team, then understanding what led to the failure should improve the likelihood of success on the new venture.
The bar to creating a new business that is successful is high. While failure is understandable and sometimes inevitable, it's inconceivable that it should be embraced. That's why I would rather train 30 people to be valuable assets to any kind of startup and increase the odds that all of them will succeed. The flip-side -- training 30 students to start 30 businesses knowing that a majority will likely fail -- only perpetuates the idea that you're not really an entrepreneur if you're not changing the world.
In the end, it comes down to what we teach -- how to become an entrepreneur or how to develop an entrepreneurial mindset. I'll invest my intellectual capital in the latter.
David Altounian is an assistant professor of Entrepreneurship at The Bill Munday School of Business at St. Edward’s University in Austin, Texas. He is also a partner in Capital Factory, an Austin incubator for startups, and the founder and former co-chairman and CEO of Motion Computing, a leading provider of mobile computing products for vertical markets.
This article also appeared in the Huffington Post.
Read more articles like this from St. Edward's University.