Encouraging entrepreneurship

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Sam and I are both working for organizations whose mission is to encourage entrepreneurship. The question of “why” one should encouragement entrepreneurship is an interesting one – perhaps another post for another time. Our current focus is how.

There are two primary factors at play when discussing the volume of activity:

1) The number of entrepreneurial ideas hatched (the pipeline)
2) The % of ideas attempted (follow through)

The first factor (number of ideas) is a real can of worms – perhaps something Sam or I will try to touch on later. Suspect it might have something to do with EDUCATION though. Purpose of this post is to discuss the second factor, the chance of follow-through.

Imagine you are a fledging entrepreneur with a great idea in your head (for example building a better bar or better prostitution ring). What determines whether you follow through – soft factors like laziness aside? Your internal calculation looks something like this:

Net gain from taking the plunge =
Probability of success * Return on success – Probability of failure * cost of failure

In a risk-neutral world, you green-light any idea where the first factor exceeds the second.

If the goal is to encourage entrepreneurship, there are three questions you need to ask. These questions are really the focus of our organizations:

1) How do you increase the probability of entrepreneurial success (and conversely decrease the probability of failure)?
2) How do you increase the returns on success (both social and $$$)?
3) How do you decrease the costs of failure?

Increasing the probability of success

Very important, but fairly vanilla. These all can play a role: Connections, access to funding, advice, encouragement, access to talent, etc. Endeavor focuses heavily on connections. Agora (correct me if I’m wrong, Sam) focuses on access to funding.

Increasing the returns on success:

Here’s where it starts to get interesting. There are a lot of ways to make a million dollars. Suppose someone you know makes a cool million on Wall Street. Golf clap. Bravo. Zzzzzz. Suppose someone you know makes a cool million with their own company. Let the panty throwing commence.

Returns on entrepreneurship go far beyond monetary gains. People who succeed with their own companies are total rock-stars. They are idolized. Mark Zuckerberg has no business being anyone’s hero in any other capacity than founder of Facebook. It has far less to do with his billions than his balls.

The cultural phenomenon of entrepreneur adulation – a huge boon to our growth and prosperity – is unfortunately fairly unique to the US. Here in Chile (as in most of Latin America is my sense), the man who makes the cool million on Wall Street is the hero. This attitude limits innovation, development and growth.

So how do you provide external encouragement? Be a cheerleader. Treat them like heroes. Publicize, propagandize, lionize.

Decreasing the cost of failure

The story of the American hero: “I failed. I failed. I failed again.  Then, at last, I succeeded”

The story of the Chilean hero: “I succeeded”

The story of the Chilean hero that could have been: “I failed. I was not given a second chance.”

Legally, financially, and (above all) culturally bold failure is encouraged in the United States. Ever read a biography without a “trials and tribulations” section? Are you more or less likely to hire someone who ran a failed start-up? Probably more, right?

There is one side of this involving bankruptcy laws, disclosures and venture capital markets. Far less interesting than the cultural side. How do you create a culture of bold attempts and bold failures where it does not already exist?

One possibility: Have a safety net waiting on the other side of potential failure.

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2 Responses to “Encouraging entrepreneurship”

  1. Theo Steward Says:

    Amazed and refreshed by this post, a definite add on to my blogroll on our supporting Entrepreneurship blog at revenuweb.info; thumbs up for originality and a fresh approach. Keep it coming.

  2. Why they are poor « The Invisible Hand, in your pants Says:

    […] out Phil’s post on this problem and how to fix it. Very insightful. I spoke to some entrepreneurs who said that […]

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