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Entrepreneurial Growth Companies:A Working Definition of
Entrepreneurship
Patrick Von Bargen
Executive Director
November 15, 2000
Accelerating Change in Global Economy
• Technological change, demographic change, cultural change, and business model responses (pyramid to web models)
• In 1960, it takes 20 years to replace 35% of Fortune 500; in 1999, it only takes 3-4 years
• Huge Interest in Start-ups in the US
– 600,000 to 800,000 new firms each year• 14-16 startups for every 100 existing firms
Accelerating Change and the Internet
• Internet reinforces/accelerates structural change. It does not cause it.
• But, its effects are profound. And permanent?
– Lowered Barriers to Entry
– Intensified Competition
Entrepreneurial Growth Companies Transform Change into Opportunity• Jobs! 5-10% of U.S. firms (“EGCs”) create
2/3 of 240,000 new jobs every month.
• Innovation. Entrepreneurs account for at least 2/3 of all technological innovation.
• Prosperity. 1/3 to 2/3 of difference in national growth rates is due to high growth companies
Trying to focus ...
• Isn’t the term “entrepreneurial growth company (EGC)” just a fancy name for a small business?
Small Businesses & EGCs
• Very Similar at the Start:
• Both start small and require tremendous energy from their founders
• Both serve important economic functions, meeting market needs and creating jobs
• Both start with limited means
Small Businesses & EGCs
• The Questions:
• Which small businesses will stay small (and later be a supplier to the EGCs)?
• Answer: Most small businesses
• Which will emerge as EGCs (the eventual customer for small business suppliers?)
• Answer: Very few
Small Businesses & EGCs• Why do some small businesses emerge as EGCs?• Example: Ewing Marion Kauffman• Answer: The entrepreneur heading the small
business sees (1) an opportunity (2) to build a big company.
• The goal morphs from independence/ economic well-being for the family to building a big company for the nation and even the world
Small Businesses & EGCs• Intention to build a large, high-growth business leads
to other differences:
• EGCs tend to emerge in newly deregulated or emerging industries; small businesses populate traditional industry sectors (construction, retail, personal service)
• EGCs face more uncertainty -- fewer proven business models and support nets
• EGCs: “small business with a lottery ticket attached”?
Trying to focus ...• Isn’t the term “entrepreneurial growth company
(EGC)” just a fancy name for a small business?• So EGCs are just the high-flying technology
companies that start out with millions of dollars in venture capital, world-class managers with years of experience in their industries, a proven business strategy -- none of which exist in my state, right?
5 Myths about Entrepreneurship• Yes, some companies fit that description -- these
companies are in industries where “get big, get niche, or get out” applies from the very start:
• Biotechnology example
• Internet example
• But given that generalizations here are risky
• Most EGCs evolve over time, through rough stages of development
Close Doors
Stay Small
Grow
AcquiredClose Doors
Grow
Walking Dead
Self-Growth
AcquiredClose Doors
Formal Capital
Walking Dead
AcquiredIPO
Close Doors
Walking Dead
Rough Stages in the
Entrepreneurial Period of a
High-Growth Company
Risk
Intel Prop
Planning
Expertise
Formal Capital
Time of Entrepreneurial Period
Five Characteristics
Risk
Intel Prop
Planning
Expertise
Formal Capital
Time of Entrepreneurial Period
Five Characteristics
5 Myths about Entrepreneurship
• “Most successful entrepreneurs take wild financial and other risks!”
• Earliest stages:
• Not much money, and even then …
• Not much experience in the industry …
• Persuading others to take on risk: employees, suppliers, customers
5 Myths about Entrepreneurship
• “Most successful entrepreneurs take wild financial and other risks!”
• Later Stages:• Value created that might be lost …• To grow, the tasks are more difficult
(management, strategy, sound investment)• If the entrepreneur fails, he may lose his
company, or lose control, or lose his share
Risk
Intel Prop
Planning
Expertise
Formal Capital
Time of Entrepreneurial Period
Five Characteristics
5 Myths about Entrepreneurship
• “EGCs are all built on some radical technology breakthrough!”
• Earliest Stages:
• Interferon vs. Jiffy Lube: exceptional execution of an ordinary idea …
• Minor improvements, slight variations: WalMart, Schwab, McDonald’s
5 Myths about Entrepreneurship
• “EGCs are all built on some radical technology breakthrough!”
• Later Stages:• Distinctions leading to dominance --
WordPerfect vs. Wang, Wordstar• Protecting the distinctions• (And remember the “get big, get niche, or get
out” industries)
Risk
Intel Prop
Planning
Expertise
Formal Capital
Time of Entrepreneurial Period
Five Characteristics
5 Myths about Entrepreneurship• “Entrepreneurs have well-researched ideas built
into a proven business plan!”
• Earliest Stages:
• Research = 4%; business plan = 33%; just consulted a lawyer = 50%
• Jumping from rock to rock vs. plans for the Golden Gate Bridge
• Adaptiveness, open-mindedness, deciding quickly, face-to-face selling
5 Myths about Entrepreneurship• “Entrepreneurs have well-researched ideas built into a
proven business plan!”
• Later Stages:
• Growth demands strategic planning, strategic decisions
• Growth demands coordinated management
• Growth demands investment which demands accountability
• (And remember the “get big, get niche, or get out” industries)
Risk
Intel Prop
Planning
Expertise
Formal Capital
Time of Entrepreneurial Period
Five Characteristics
5 Myths about Entrepreneurship• “Most entrepreneurs have world-class expertise and
experience in their industries!”
• Earliest Stages:
• 40% = no industry experience; 33% = no job
• Jann Wenner; Steve Wozniack; John Katzman
• High opportunity costs vs. bootstrapped corps
• Instead: intelligence, desire, adaptability, sales skills, willingness to provide specialized products
5 Myths about Entrepreneurship
• “Most entrepreneurs have world-class expertise and experience in their industries!”
• Later Stages:
• Growth requires “upgrading resources”
• Skilled, experienced, specialized training
• Steve Ballmer at Microsoft; Starbucks
• (And remember the “get big, get niche, or get out” industries)
Risk
Intel Prop
Planning
Expertise
Formal Capital
Time of Entrepreneurial Period
Five Characteristics
5 Myths about Entrepreneurship• “Most entrepreneurs with a decent idea get millions
of dollars in venture capital!”
• Earliest Stages:
• 66% = less than $50,000; average = $25k; not 1, or 3, or 13 million dollars
• Rolling Stone, Waste Management, Hotmail, Microsoft, Dell Computers
• Personal savings, friends & family, credit cards … and then angels?
5 Myths about Entrepreneurship• “Most entrepreneurs with a decent idea get millions
of dollars in venture capital!”• Later Stages:• Growth requires investment, and that requires
money• Remember the “get big, get niche, or get out”
industries• Venture capital participation may be critical to
successful transitions to later stages
• Transition through growth stages requires “comprehensive” changes in the entrepreneur and her company
• From start to finish, new attitudes and new skills and roles -- sometimes opposites
Risk
Intel Prop
Planning
Expertise
Formal Capital
Time of Entrepreneurial Period
Five Characteristics
• The difficulties of the “comprehensive” changes required explain in part the relatively few number of EGCs that make to the pinnacle of growth
Close Doors
Stay Small
Grow
AcquiredClose Doors
Grow
Walking Dead
Self-Growth
AcquiredClose D oors
Formal Capital
Walkin g Dead
AcquiredIPO
Close Doors
Walking Dead
Rough Stages inthe
EntrepreneurialPeriod of a
High-GrowthCompany
Policy Implications: Past 30 Years in U.S.
• For first time, created a vibrant capital market to finance EGCs: credit, angel capital, venture capital, acquisition system, and IPOs and NASDAQ
• Huge investment in technology, intellectual property protection, tech transfer regime
• Moved tech and management expertise to EGCs: stock options, relaxed employment covenants, little stigma for failure, bankruptcy
Policy Implications: Past 30 Years in U.S.
• Opened significant new market opportunities: trade; and deregulation of industries: package delivery, transportation, telecommunications, and now finance and even electricity
• Invested in stable, dependable, and ubiquitous legal & physical infrastructure: rule of law, securities regulation, transportation and telecommunications, and universities