The entrepreneurial mind

When you are asked to describe the essence of an innovative mind-set, you are faced with a dilemma, as expectations are high and preconceived ideas differ widely. The question you receive is often one for concrete advice: Which values should an organisation embrace to implement an innovation culture? How can an individual be more innovative? But at the same time, there is no commonly agreed definition of innovation: for some, innovation is creativity and inventiveness, while others see innovation in using the latest technology; some describe it as the fuel for a successful business enterprise, while others emphasise its role in societal change. All of these ideas are valid, but their diversity offers little common ground.

Today, I’ll tackle the question of the innovative mind-set in a slightly counterintuitive way: by escaping it. Rather than trying to reconcile those diverging ideas, I’ll address a proxy question: What describes the entrepreneurial mind? Granted, entrepreneurship and innovation are not at all the same; but their significant overlap is undisputed. Therefore, I hope to cast some indirect light on the innovative mind-set by talking about the entrepreneurial mind. All that we need for a start is the famous observation by the 19th century economist Jean-Baptiste Say:

The entrepreneur shifts economic resources out of an area of lower
and into an area of higher productivity and greater yield.

Following this thinking, you will find that the entrepreneur’s impact essentially derives from the re-allocation of resources. And that idea leads to a number of considerations that are rarely addressed in mainstream discussions on innovation.

So let’s begin with the most obvious question: What is re-allocation? And further: What are its implications? Or: What does the shift of resources mean ? In essence, it means that the previous distribution of resources changes: some will receive more than they had before, and some will get less. It should be common sense, but it’s hardly ever stated clearly: There’ll be winners and losers. That basic reality is one of the key drivers for the resistance that the entrepreneur has to put up with. And it is the prime motivation for hostility he’ll be faced with. This resistance to change and the hostility against its promoters are natural outcomes of any entrepreneurial activity, because access to resources mains influence, and control over them means power. Hence losing resources translates directly to loss of status. And that hurts immediately. On the other hand, entrepreneurial activity promises improvement and betterment for many, but that seems like a faint hope for a distant future. Read this way, Jean-Baptiste Say offers a plain explanation for the asymmetry observed in many fields: the quiet majority of longer-term beneficiaries on one side, and the vocal minority of those disadvantaged in the near-term on the other.

The second question is equally relevant: What are those economic resources ? Textbooks of economics will mention different types of capital: labour, land, and money. However, I suggest a less business-centric perspective in order to broadly include all the resources that ultimately drive a society: energy and raw material, human skillsinformation and knowledge, and attention. Especially attention might not be on everybody’s list of resources, but I believe it is essential in the increasing complexity of our day-to-day lives. Think about decision-making in big business or in politics, where leadership is often far removed from the specific situations and environments that will be affected by their judgments and choices. Getting these decision-makers’ attention for the right topic at the right time is vital. On the other hand, focused attention is increasingly scarce in our hyper-connected, over-excited, always-distracted times. Through this combination of scarcity and relevance, I would argue that attention has become the most critical of all our resources; to be handled with utmost care.

That leads us to the third question: How to allocate those valuable resources ? Jean-Baptiste Say portrays the entrepreneur as focusing on productivity and yield, i.e., on the outcome of using resources for a purpose. As long as we do not simply limited ourselves to the narrow business context or to a strictly monetary perspective, that is a wise investment strategy. With this approach, we are forced to sift through our intentions and look for our real purposes, for “things we really need to get done”. Usually, those will be numerous, so we’ll need to prioritise them and allocate resources accordingly. Sounds simple, but is actually quite tricky. Peatnut-buttering is definitely the wrong approach, as simply spreading your resources evenly over all your purposes would give too much to many, and too little to some. Instead, the idea of portfolio management is helpful. Assess your purposes for their resource requirements, the risk entailed, the potential pay-off, and the time-to-delivery. Then make sure that the near-term, basic requirements are met, but keep a small portion for genuine investment: for medium- to longer-term impact and accepting high-risk for high-payoff. Needless to say that such plans should be reviewed regularly, and revised as necessary.

Fourth – Jean-Baptiste Say’s description does not address the question of resource ownership, and that opens an interesting avenue. I’d argue that you don’t have to be rich to be an entrepreneur. You don’t need to own the resources that you want to re-allocate. [Of course I do not advocate expropriation or theft; my considerations are entirely set within the given legal framework.] All you really need is influence: influence over those who own resources; influence over those who make decisions on resource allocation. Take Christoph Columbus as example for this entrepreneurial mindset: if you do not own the resources required to build, equip, and man three vessels for a journey beyond the limits of the known world, you need to find somebody who could resource your endeavour, and then convince them to do it. This kind of patronage still works today; we just don’t look for kings and queens, but for angel investors. Other approaches to exert influence over resource allocation include crowd-funding and lobbying. The entrepreneur’s quest for influence over resource allocation is very much geared towards the attention of resource owners and decision-makers. That is yet another reason for the critical importance of attention as a scarce resource.

Finally, the entrepreneurial mind is dedicated to implementation, seeing things through to the end, pursuing the execution of ideas rather than their generation. In that sense, the entrepreneur prefers the action mode and favours the novelty of deed with its concrete, tangible outcome over the novelty of thought (creativity, inventiveness, discovery). And that’s where the difference between the entrepreneurial and the innovation mindset is most pronounced: while innovation necessarily combines the thought with the deed, the development of ideas with their implementation, the entrepreneurial mind focuses on the tail-end of innovation. And that is of course essential for any successful innovator.

We can all benefit from entrepreneurial spirit à la Jean-Baptiste Say, whether as individuals or as organisations. He reminds us to prioritise our investments, to expect resistance to our plans, to keep a broad perspective of the resources we need, to exert influence over resources beyond our immediate control, and to stay focused in the final implementation. These ideas, expressed at a time when the Industrial Revolution still gained momentum, have not lost their relevance. On the contrary, they offer solid orientation for us today as we navigate the evolving Digital Revolution.

 

Comments

  1. cardiffkook says:

    As a one time entrepreneur* (now retired) I agree strongly with your description and analysis. I especially second your emphasis on implementation of ideas. Creative types create all types of ideas. Entrepreneurs select (or create) those rare ideas that have potential and they know how to figure out how to get them to work. In doing this they create massive change and thus are opposed by everyone threatened by change.

    *I led innovation and product development and new product implementation within a very large corporation. I owned none of the resources I commanded.

  2. tapiohelsinki says:

    Hi Ulf, great stuff. As you know, we are doing human experiments with really great people in order to understand better this.

    I quite like your point about not needing to own the resources. A great part of entrepreneur’s work is to find and recruit the right resources, usually by a building mutually beneficial, aligned case with the potential partners.

    I am not sure if I fully agree with Say, without going back to my old text books, I wonder if he took into account accumulating and dynamic nature of resources (Myrdal and onwards, through New Growth Theory). So, technically, in addition to shifting existing resources, new resources are made (or unearthed) and efficiency border moved. Digitalization, obviously.

    Back to empirics:
    Early study about how entrepreneurial leadership differs from “regular” leadership: http://www.eexglobal.com/blog/entrepreneurial-leaders-for-corporations

    Some recent reflections on how strategy work differences between startup and BIG company (yes, some of this is so different that it’s downright funny)
    http://www.eexglobal.com/blog/hardcore-strategy-without-pomp-and-slideware

    • Hi Tapio, thanks for a very healthy reminder about the differences between big organisations and start-ups. I looked at your post on hardcore strategy, and which I find really compelling. Especially your point on decision-making starts my thinking. Agree that the how of decision-making is of paramount importance under “impossible” circumstances (high stakes, deep uncertainty, now). This leads to another important skill of the entrepreneur: the ability to take a decision. Unlike the deer staring into the headlights (and being run over but that truck), the entrepreneur “remains functional” under extreme pressure. He’s able to stay agile and to keep the momentum (for himself, but of course for his organization as well). That doesn’t mean the everything must always happen under intense time pressure. But that it is essential to be at ease with time pressure, to be comfortable with risk and uncertainty, and to arrive at reasonable decisions when they are required.
      Again, thanks a lot for the stimulus.

      • tapiohelsinki says:

        Hi Ulf, I believe “functional under pressure” is essential, would be interesting to compare how military trains for this. Entrepreneurship is about taking a beating, re-organizing and charging forth some new way – and repeating. If I had time, I’d like to compare entrepreneurship proper, entrepreneurial leadership in large organizations and guerrilla leadership.

        Perhaps a cute add-on, we all remember Fitzgerald quote “The test of a first-rate intelligence is the ability to hold two opposed ideas in mind at the same time and still retain the ability to function.”

        People tend to forget the last part, ability to function under deep intellectual uncertainty. Should we consider this “functioning” as capability to continue thinking or, is it about action, doing stuff – not to be hit by the truck?

        Pressure and contradicting pieces of information, sounds much like to world we are living in!

      • Hi Tapio, couldn’t agree more. I like the comparison between entrepreneurial and military leadership. You mention guerilla as well, I’d then think about special operation forces as an addition. Your “if I had time” project should certainly be enlightening.
        On the “ability to function”, I feel that it’s in part about ‘not being hit by the truck’, but it’s as much about ‘bouncing back in case you got hit’. That’s when we arrive at resilience (I like the notion of ‘bouncebackability’). And resilience is inversely correlated with organisational complexity: more complex, less resilient. Which then closes the loop once again to start-ups: small, agile, resilient. Fascinating 🙂

  3. tapiohelsinki says:

    Hi Ulf,

    About ability to function I am with you on bouncebackability [though doubt my English teacher would join us]. Crucially: when innovating, you are blind and deaf in middle of motorway, you WILL be hit – just not possible to create something completely new and nail it first time.

    Driving anything remotely new [radical?] you also always get diverging feedback. To proceed you must be able to think further AND act, device more probes to promising directions, all under contradictory evidence. Indirect proof: if you follow all the feedback and advise you get, you won’t get anywhere.

    One of my primary interest would be to understand how we can cultivate and leverage social capital, others’ support to overcome or/and mitigate the risks involved in innovating.

    I wouldn’t mind talking with someone who is into leadership and innovation in VUCA environment. Must be quite a few people thinking all this these days. So maybe we should nudge some bright PhD candidate to do it?

    In my view complexity does not necessarily have inverse relationship with resilience. Complexity can produce more varieties, hence more responses for any given shock, provided that complexity does not mean rigidity – different competing views but again “Ability to Function”! (You ever figured out Taleb’s “anti-fragile”?)

    Here from stems also my optimism for Europe – we are incredibly rich in terms of varieties and numbers of educated people, infrastructure, markets, and environmentS for new thought (cf. late middle ages and renaissance structure of Europe and flourishing thinkers and tinkerers in competing courts) . And the current challenges we get from East and West are only for our good, an antidote hopefully equal to our complacency.

    On organizational/structural stuff, maybe I should read “Teams of Teams” this summer?

    • Hi Tapio, once again thank you for sharing your insights and ideas. You are certainly correct that complexity is not necessarily the inverse of resilience. Rather, in a complex organisation or system, size (accumulated resources) usually goes with increasing interconnectedness and interdependence of the component parts (rigidity as you suggest), and that is decreasing the overall resilience of the system (well described by Gunderson and Holling in ‘Panarchy’). And then I am entirely with you that complexity can as well be seen as the source of diverse inputs and contributions, especially if your system or organisation maintains open boundaries and is willing to engage the outside world. Europe and the amazing diversity across a tiny continent is a prime example, and I do share your optism there.
      For the underlying leadership questions, I’d love to see these concepts explored with scientific rigor. Actually McChrystal’s book should be a good source of inspiration. And I’d hope that James Mattis would share his experiences sometime, not only as a marine four-star, but also as Secretary of Defense. Should be quite insightful.

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