Where Entrepreneurs Have Ideas

Where do successful entrepreneurs get their best creative ideas? Molly Reynolds* interviewed some entrepreneurs to find out. Here are my favorites :

  • John Goodman, John Goodman PR: Takes a three-hour walk and that’s “when I have my best creative ideas. My head de-clutters, and I start thinking clearly.”
  • Kat Quinzel, Cash Cow: “I get my best ideas when I’m making food. I think it’s because I tend to forget about everything else.”
  • Bian Li, The Hungry Lab: His ideas come while scuba diving.
  • Allen Klein, author/speaker: “my best ideas come from times when I’m walking my dog.”
  • Lisa Kipps-Brown, Glerin Business Resources: “I get my best ideas when mowing the grass with a push mower.”

These stories align with creativity research. Researchers have found that ideas are more likely to come when you take time off from your hard work. We call it incubation. It often happens when you’re doing something physical, like walking or cooking. (Warning! It only happens if you’ve worked hard and long before you take this time off.)

*Molly Reynolds, Kiplinger news service, “Inspiration points: Entrepreneurs reveal what sparks their creativity.” July 2017.

Why Aren’t Entrepreneurs More Creative?

I just read a provocative research article that makes a surprising claim: most new startups aren’t very creative. The authors, Professors Howard Aldrich and Martha Martinez-Firestone, state their claim on the first page:

Generally, entrepreneurial efforts leading to stable, self-sustainable organizations yield simple replications of existing organizational forms. The products and services offered are typically slight variations on what already exists, rather than dramatically different ones. Indeed, radical innovation in entrepreneurship is an uncommon phenomenon.

But all of the conversation I hear is about how entrepreneurs drive innovation. We keep hearing that small startups identify opportunities that big companies miss. Visionary outsiders come up with radical ideas, that transform entire industries, and make billions of dollars in the process. That’s the story we’re used to hearing…and this new article says just the opposite! If you care about innovation and entrepreneurship, you need to read their argument very closely, because it turns out, it’s pretty convincing. Even better, they conclude by offering great advice for entrepreneurs, about how they can break this pattern and truly innovate.

They ground their argument in New Institutional Theory (NIT) (after all, in an academic paper you need a theory!). NIT argues that “institutional forces severely limit variations in behavior” and “NIT downplays the likelihood of human creativity and innovation” (p. 3). Most institutions that occupy the same markets and industries tend to converge on pretty much the same organizational form; “they develop similar structures and strategies over time” in what is called institutional isomorphism. Even when everyone realizes that the world has changed, and these routines and structures are no longer optimal, they persist due to inertia and the difficulties of changing. Basically, entrepreneurs have only two choices. Either they can work in ways that are “compatible with existing institutions” or they can “engage in collective action to change the institutional order.” The second option is pretty darned hard, and usually isn’t possible. (p. 6)

The article argues that entrepreneurs are even more  constrained by these institutional forces than established firms, because they’re just trying to get on their feet and stay alive; and they have to steal away customers from the established players, and those customers are comfortable with the old ways of doing business. “New ventures often adopt the structures of incumbent firms in their industry. Although not very creative, it is a rational choice for entrepreneurs wishing to grow their ventures successfully” (p. 4).

The good news is that this research helps us understand what situations are more likely to result in genuine innovation. The first is institutional complexity. The second is when there are multiple audiences with divergent expectations. Institutional complexity has been increasing for years, with decentralization and globalization. As a result, the “institutional isomorphism” is beginning to break down in certain organizations and industries. This is also why “chaos and uncertainty” are more likely to foster entrepreneurial innovation: because the routines and practices inherited from history break down and stop working.

A final characteristic that fosters innovation is network structures: connections among people that are diverse, with lots of small and indirect relationships.

Entrepreneurs with diverse networks and many weak ties are more likely to be innovators, as are entrepreneurs who have contacts that go beyond their local environments (p. 7)

Sad to say, most startups don’t have any diversity. Founders they “assemble teams of cofounders very much like themselves” (p. 8). This makes it much less likely they’ll be creative.

They conclude by saying it’s time to get rid of “the heroic image of innovative entrepreneurs that have plagued entrepreneurship research for decades” (p. 9). It’s the same point I’ve been arguing about creativity: creative breakthroughs never come from a single solitary individual. Creativity and innovation always emerge from collaborations, teams, and networks. It’s a myth that super-creative people generate brilliant ideas while they’re alone, and then reveal them to the world (and are showered with venture capital). It doesn’t happen that way–not with entrepreneurship, and not with any other type of creativity, either.

 

 

How To Foster Faculty Entrepreneurship

I just led a four-day intensive workshop for university professors, here at the University of North Carolina in Chapel Hill. We grouped professors in teams, and guided them through the entrepreneurship process in just four days! It’s so intense that it’s known as the “boot camp.”

The workshop was created in 2009, by Professor Holden Thorp. At that time he led the university as the Chancellor, so he was in a position to make something happen. The workshop was inspired by research Thorp did for his 2010 book Engines of Innovation. His research showed that universities drive economic growth; they’re hotbeds of new ideas and research. But the research also showed that the full potential of university research wasn’t being realized, because so many researchers don’t know how to develop their ideas into real businesses.

  • They don’t know how to think about customer needs, or about how to create value for customers.
  • They don’t know how to think about strategy, competition, and market advantage.
  • They don’t know how to leverage partnerships, or to develop new relationships with non-academics who have important skills they’ll need to be successful.

In short, university professors don’t know how to think like entrepreneurs. And that’s where our workshop comes in: to help professors develop the entrepreneurial mindset. We’re blessed to have the strong support and commitment of Chancellor Carol Folt, and that’s why the workshop was officially called “The Chancellor’s Faculty Entrepreneurship Boot Camp.”

We organized the workshop around six key skills associated with successful entrepreneurs:

  • Innovate: How to generate good new ideas and identify promising challenges and problems
  • Listen: How to understand customers and how they perceive value
  • Plan: How to think strategically, to spot unique opportunities and potential competition and challenges
  • Clarify: How to think in detail about the value being created for customers, and how to communicate that quickly in a pitch
  • Support: How to develop networks and relationships to move your idea along
  • Iterate: Using the lean process, with frequent pivots and zigzags, to build your business

We had participants from 14 of the 17 UNC system campuses, a full range of institutional types: art schools, engineering schools, medical schools, HBCUs. We even had a participant from the system’s residential high school for high-talent science and math students.

The average participant evaluation was 4.8 out of 5.0, so we know the participating faculty got a lot out of the workshop. And, it proves that our core lessons apply not just to flagship research universities, like UNC Chapel Hill, but to all higher education. Next year, I think we’re ready to open this up to universities around the country. What do you think?

The Future of Educational Technology

It’s my job to stay on top of educational technology. In the last two months alone, I’ve attended huge ed tech conferences like SXSW.edu and ASU+GSV, each with hundreds of well-funded new ed tech ventures. But I’ve been constantly disappointed, because almost none of this ed tech innovation is grounded in the science of how people learn. Of the 2,500 people at ASU+GSV, less than ten of them were learning scientists, and only two of the speakers on the program had any claim to such expertise. (Less than 50 people showed up to hear what they had to say.)

Just a few days ago, Bror Saxberg, the Chief Learning Officer at Kaplan, published an important article noting this same problem, and making a strong claim: technology will not help people learn, until ed tech developers start to work closely with learning scientists.

This is a key problem: Almost no one who is involved in creating learning materials or large-scale educational experiences relies on the evidence from learning science.

Saxberg says what we need are learning engineers–professionals who can apply learning sciences research. And ed tech companies don’t have them; instead, ed tech developers “are essentially using their intuition and personal experience with learning rather than apply existing science.”

I agree with Saxberg, and that’s why I’m creating a new master’s degree program, at the University of North Carolina, in educational innovation, technology, and entrepreneurship–to create this new generation of “learning engineers”.

This morning, Daphne Koller, the President of Coursera, published an article in the Wall Street Journal that makes an important point:

The “sage on the stage” at a university will no longer be a common mode of delivery. In the classroom–whether physical or virtual–we will see more attention given to group projects, conversations and applied learning, with lecture content going the way of textbooks as something experienced in preparing for class. At the same time, universities will devote considerably more effort to activities that occur outside the classroom, be it research, individual mentoring by faculty or senior students, team activities, volunteering, internships, study abroad…

I predict that in two decades, lecture halls will no longer be used. Not because of cost, or technology, or student preference, or high professor salaries, or because “they don’t scale”–but because the science of learning shows that lecture is an ineffective pedagogical technique. But this doesn’t mean the future of college is online, because the same learning sciences research shows that MOOCs are ineffective. Let’s hope that ed tech innovators increasingly work with learning sciences researchers: that’s the future of educational technology.

A New Trend: Educating Entrepreneurs

A Chronicle of Higher Education story reports on a nationwide trend I’ve been studying myself: the increasing proliferation of entrepreneurship classes for college undergraduates (April 20, 2015, “Now everyone’s an entrepreneur.”). Lots of students love the classes, because they combine fun and creative activities with hands-on internships and links to interesting job opportunities. They also send a message of empowerment that’s popular with today’s students: “You can make a difference, you can change the world.” As the Chronicle article puts it, “entrepreneurship offers the creativity and independence that traditional careers seem to lack.”

College leaders and supporters love it, too, because it provides an important rationale for the modern university: It’s a source of economic growth, a way to commercialize innovations that create value for the region and the country. This is the argument made by Holden Thorp and Buck Goldstein, of the University of North Carolina at Chapel Hill, in their book Engines of Innovation. And in fact, way back in 2009, Carolina was one of the first universities to embed innovation and entrepreneurship throughout all academic units, not just in the school of business–for example, by creating its entrepreneurship minor, and a “special assistant to the Chancellor” position in innovation and entrepreneurship, held since 2009 by Judith Cone, formerly of the Kauffman Foundation.

Beth McMurtrie, the author of the Chronicle article, writes with a mild underlying tone of skepticism. When it’s not done well, such programs can seem like “a superficial blend of buzz words and rosy promises.” They quote one professor saying, sensibly, that “it’s unrealistic to imagine that one or two classes will help a student become more entrepreneurial.”  They anonymously quote “some professors” worrying that “focusing on entrepreneurship gives students an exaggerated sense of their own power”.

I read this article closely, because here at Carolina I’m charged with creating entrepreneurship programs in our School of Education. I think this article does a good job of pointing out the potential strengths and also the potential ways that such programs can go wrong. I think we’re doing it right here in the School of Education. First of all, our programs will be graduate degrees for adults–for example, a master’s degree for experience professionals, who have some expertise and possibly, some valuable successes and failures already completed. My classes will focus on the science of creativity and innovation, on how to manage effective collaboration, how to foster innovative organizational designs and cultures–and how these come together to foster successful innovation and entrepreneurship. I’ll also be requiring a hands-on internship with a local innovative educational organization.

Because I study improvisational creativity, I love that “one lecturer likened teaching entrepreneurship to improvisational jazz” 🙂

Here Come the Disrupters: Insights into Entrepreneurship in Foreign Affairs Magazine

If you care about entrepreneurship, you need to read the latest issue of Foreign Affairs magazine (January/February 2015). The cover title is Here Come the Disrupters—the Special Entrepreneurship Issue. You’ll find influential, smart, and high-powered writers and interviewees, including Jeff Bezos (founder of Amazon.com), Michael Moritz (one of the most successful technology venture capitalists), Robert Litan (an economist at the Brookings Institution), Mariana Mazzucato (Professor at the University of Sussex and author of The Entrepreneurial State), and even Harvard’s Clayton Christensen. Here are my key takeaways:

1. Innovation zigs and zags

New ventures never end up being successful according to the original plan. Michael Moritz, an early investor in Google, points out that (1) at that time, most experts thought it was already too late to start a new search company, and (2) the company didn’t start off in the business that it eventually tapped. (Google started by selling licenses for its technology to web sites and corporations, before it stumbled on an algorithm that ranked advertisements, and that’s what transformed the business.) Niklas Zennstrom, co-founder of Skype, points out that when they started the company, they couldn’t have known that all laptops would soon have microphones, and not long after that, that they would all have video cameras.

Creativity research has come to the same conclusion. That’s why my latest book is called Zig Zag: The Surprising Path to Greater Creativity.

2. The social value of entrepreneurship

Innovation and entrepreneurship provide social benefits to society. Even though they make a few people very rich, they increase the quality of life for everyone. In his interview, Zennstrom says:

On balance, disruptive innovation is very positive. For customers, it’s fantastic. Over the long term, if you don’t have disruptive innovation, you will become a country or a market full of incumbents and will eventually be disrupted by somebody else.

Yes, the huge wealth generated by new technological innovations has gone to a relative few people, and many new technologies have put people out of work and lowered wages. But as Zennstrom points out,

Technology itself is not creating poverty. If anything, technology makes things cheaper and allows people who are living in challenging conditions to get access to more opportunities.

3. The role of government

Mariana Mazzucato has been getting a lot of press lately with her new book, The Entrepreneurial State. She argues that all innovations originate with government funding and support—not from private sector market competition, and not from visionary venture capitalists or entrepreneurs. In her article in this special issue, you’ll get a good overview of her argument. But her view is explicitly rejected by all of the other experts. They all agree that government has a role to play, but much more limited than what Mazzucato advocates: the experts believe that the government’s most important role is funding basic research at universities and private think tanks. After all, everyone knows that Silicon Valley is in Palo Alto because of Stanford University and the federally funded research that took place there. These experts also believe that government should provide support systems like education and health care, and remove burdensome regulations that block innovation, particularly relating to employment (get rid of noncompete clauses; reduce certification requirements for various workplace functions). Governments should allow greater immigration and provide tax breaks for early-stage investing. Liberals will like some of these ideas, and conservatives will like others. Innovation research can’t be easily shoehorned into either end of the political spectrum.

Those are my three big takeaways. Here are some highlights I enjoyed from each of the articles, if you’re interested in more details.

Interview with Michael Moritz (early stage investor)

Do you know from the beginning that a Google is going to be a Google?

No. It’s the PR people and the marketers and the revisionists who proclaim that everything was obvious from day one. On day one, nothing is obvious, because all you’re doing is trying to concentrate on getting through the first six months.

If we or the founders are honest about what we thought was possible on day one…we consistently underestimate the potential of a company that becomes great.

What are the most important qualities for an entrepreneur to have?

Clarity of thought. The ability to communicate clearly. A great sense of mission. A massive willingness to persevere. A willingness to make painful decisions. Extraordinary energy.

What can governments do to increase the scale and quality of entrepreneurship?

First, help to underwrite the cost of fundamental basic research that occurs within universities.

The state’s role in the evolution of technology is best aimed at fueling adventures of the mind into the impossible reaches. That is very long range, and it’s the sort of thing that almost no companies have the wherewithal to contemplate.

[Finally, because of the rapid change caused by creative destruction] the government has to provide a fantastic educational system so that people have the skills and wherewithal to be able to make a living for themselves in a world where manual endeavor is no longer valued.

Interview with Niklas Zennstrom (co-founder of Kazaa and Skype)

[The most important qualities for an entrepreneur are] courage—because as an entrepreneur, you’re trying to do something that no one has done before, and a lot of people will try to discourage you….Another important thing is curiosity….And the ability to question the status quo, to ask why things cannot be done in a different way.

[A lot of success depends on luck and timing that you can’t predict. The success of Skype depended on more widespread broadband, which in fact happened. And then: when we launched, laptop computers mostly did not have microphones. But then soon after, all laptops started to be shipped with microphones.] And the year we launched video coincided with all laptop manufacturers starting to install video cameras into their computers. Is that luck? Is that skill? It’s timing. We could not foresee everything.

Robert Litan (An economist who is a senior fellow at the Brookings Institution)

Litan notes that over the past 30 years, the rate of start-up formation in the U.S. has slowed down a lot. He argues that the U.S. government needs to (1) allow more immigration, (2) reduce business regulations, (3) provide free health care to all workers, (4) improve the education system. (Again, note that these are half liberal and half conservative recommendations.)

Closing the wage gap…will require significantly overhauling public education systems so that they can better teach technological literacy….Better education represents the best change to level the playing field.

James Bessen (Lecturer at Boston University)

Bessen argues that in recent years, government policies in the U.S. have increasingly favored entrenched special interests, stifling new innovation startups. He argues for a return to the original U.S. model, where government provides research funding to universities and a variety of private firms. Over the decades, this has been far more successful than the French and British model of providing funding to national telephone and computer companies. (Does anyone remember France’s Minitel?)

He argues that patent law, especially the 1990s extension of the law to cover software, favors larger established companies at the expense of smaller innovative startups. This change in law was largely due to the immense lobbying power of established, large companies.

He argues that states with “cumbersome employment regulations”, especially noncompete agreements, are blocking innovation. An additional block to innovation is “strict requirements for certification to work in certain fields”.

Mariana Mazzucato (author of The Entrepreneurial State)

Mazzucato has become the flag-bearer for a very leftist and distinctly European vision of innovation—the same model explicitly rejected by every other contributor to this special issue. She rejects the established wisdom among economists that governments have always been lousy at picking winners; she says

That view is as wrong as it is widespread…the state has historically served not as a meddler in the private sector but as a key partner of it. Across the entire innovation chain, from basic research to commercialization, governments have stepped up with needed investment that the private sector has been too scared to provide.

I think this is just a matter of which colored glasses you’re wearing. Everyone agrees that the U.S. military funded the ARPAnet, which later turned into the Internet. Everyone knows that the U.S. military originated GPS. Everyone agrees that governments should fund basic, long-range research. But it’s simply false that governments have led the way with commercialization; it’s false, and even crazy, to say that the private sector is “too scared” to drive innovation, implying that governments are braver, stronger, and smarter.

If Mazzucato were correct, then the most centralized economies with the largest governments would be the most innovative countries. But exactly the opposite has occurred: The most Capitalist countries, with the most vibrant private markets, have generated the great majority of worldwide innovation and entrepreneurship.

Clayton Christensen with Mezue and van Bever (Harvard University)

This article comes right after Mazzucato, and in the first paragraph, they reject her thesis:

It is not societies, governments, or industries that create jobs but companies and their leaders. It is entrepreneurs and businesses that choose to spend or not, invest or not, hire or not.

They make a really good point: in countries that have emphasized “top down” government-driven investments, the result has been “sustaining innovations”—small incremental improvements in existing technologies—rather than “market-creating” or “disruptive” innovations—and the latter generate greater value and wealth. I think this is exactly right, and it’s why countries with vibrant private sectors, access to venture capital, market competition, and minimal government involvement have been the most innovative.

Desperately Needed: Entrepreneurs Under 30

The percentage of people under age 30 who own their own private business has reached a 24-year low: About 3.6% of households headed by adults younger than 30 owned stakes in private companies (Wall Street Journal, January 3-4, 2015). That is WAY down from 10.6% in 1989, and 6.1% in 2010. In 2013, the proportion of young adults who start a business each month dropped to its lowest level in at least 17 years (Ewing Marion Kauffman Foundation). The U.S. “startup rate”–new firms as a percentage of all firms–fell by almost half between 1978 and 2011 (Brookings Institution).

What about all those news stories about young 20-somethings who just became multi-millionaires in the latest IPO? It turns out they are pretty rare exceptions. For a country to have a vibrant, innovative economy, you need lots more innovation, not just of the famous tech millionaire variety.

No one’s really sure why. It’s some combination of:

  • Difficulty raising money (no access to capital or credit)
  • Fear of failing leading young adults to be risk-averse
  • They haven’t acquired the skills and experience needed to start a successful business
  • In the U.S., we’re seeing an unusually strong job market, and high salaries, in established technology companies. So why take the risk, when you’ve got several strong job offers at successful companies, with good pay and benefits?

This is a big problem for the U.S., because as Harvard’s John Davis says,

We need startups not only for employment, but also for ideas. It’s part of the vitality of this country to have people starting new businesses and trying new things.

Amen! The Wall Street Journal article doesn’t suggest solutions. I have a few:

  • Increase entrepreneurship education in high school and in college
  • Reduce the costs of failure (free health care for everyone is a good start, something conservatives should support to foster new venture creation; also various forms of tax breaks and credits)
  • Increase availability of capital (perhaps with VC and accelerator funds)
  • Provide more opportunities for mentoring and entrepreneurship education, in accelerator and incubator spaces

What do you think we should do to foster more entrepreneurship in our young adults?