Reminder: Why I Love Entrepreneurship

We are entering an increasing – no pun intended- age where size is dominant. Big Business, Big Government, Big Unions, Big Data and most damning of all “Too Big To Fail”. We have sacrificed the principles of micro economics such as the optimum size of the firm and the law of diminishing returns to build dominant global enterprises- behemoths more closely related to their bureaucratic enemy, government, than they will ever admit. These entities lumber around the world chasing low costs and cheap labour in the name of maximizing profits. If they fail they plead their case in a public forum that they are too significant to let die. They are pyramids paying outrageous rewards to those that scale to the top.

What are the implications for individualism. Job stability no longer exists. Big data is generating information far beyond are ability to comprehend. The rate of change is staggering. 24/7 hyper-connectivity has us all chasing our tails, Are we headed for Big Brother? Globalization is both an opportunity and a threat. Small business is vulnerable to competitors around the world but at a time when things are moving at lightening speed entrepreneurs are flexible and adaptable giving them the opportunity to find a niche and move into it before others. The most important skill to learn in this new era is the ability to create your own job. Without it the threat is the loss of upward mobility for many and perhaps economic independence for most. The divergence of wealth between the rich and the poor and the eroding middle class are forewarnings. Entrepreneurship is critical for the individual.

But it is also critical for these huge entities. Without the impact of disruption based on challenges to the status quo , sometimes referred to as ‘intrapreneurship’, governments and huge businesses will never come close to producing optimum results and solutions. The current conundrum in Washington shows a government that is not only dysfunctional but is mired in a malaise of mediocrity. There are no disruptors coming forward to challenge the party lines and find compromise. Optimum decisions are a pipedream in this environment.

Entrepreneurs make things happen. They are problem solvers. The greater the problem the greater the reward. Regardless we need them at all levels. It is a skill that some are born with but many can learn. We are headed for a tsunami of Big Data that can swamp us. Machines will literally know more than any individual. It’s a scenario that science fiction writers have been portraying for generations. Individual success will be tied to entrepreneurial skills and attitude. Entrepreneurship has never been more important. We live in interesting times.

In theory as Globalization evolves resources will be allocated in the most efficient way possible ensuring that goods will be produced on the lowest cost basis to the benefit of all. In a perfect global system labour will shift around until the transition is complete and the rewards for labour will equalize around the global network. During the transition while wage rates in higher earning countries are frozen or rise slowly as wage rates in other areas catch up, those living in the higher wage countries will benefit from low cost goods during the transition. All of this takes place without impediments or barriers to free and open competition. Entrepreneurs will drive the progress by ferreting out opportunities across the global system.

In practice as we continue to embrace such a global system, the rewards to labour in the low wage countries are lagging while much of the benefit of low cost goods are not reaching the consumer. Instead the rich are becoming the super rich while the middle class is facing the reality of returning to an historical norm with relative rewards well below those achieved in the west for the past sixty years during which consumerism has flourished. In an evolving era of Big Data where the status quo is becoming a moving target while character traits such as adaptability and resilience are becoming more critical, the business behemoths of the world are getting richer by controlling markets. Much of this control stems from branding and creating the allusion that branded goods are inherently superior. At the same time effective marketing has mislead us that these behemoths are so critical that they are ‘too Big to Fail’. Branding has effectively created near monopolies effectively providing barriers to entry for aspiring entrepreneurs in the process by limiting their upside and increasing their challenges

Mammoth organizations operating on ten year plans are not appropriate for our fast paced Global economy. However control over markets allows them to achieve innovation and flexibility through outsourcing and acquisition. Oh these in themselves do create upside for entrepreneurs who can launch a startup and find an eager buyer for their initial success. However the odds against success are greater and fewer of us are likely to get there. It is certainly possible for a limited few to build new brands creating new members of the super rich club. However overall we have abandoned core economic principles such as the Law of Diminishing Returns and the Optimum Size of the firm in favour of uninformed consumerism and market control through brands owned and managed by what are effectively huge bureaucracies. Is there a tipping point ahead? Surely social media and instant communication are a threat to the dominance of brands – OR are they just additional instruments of control?

Globalization has brought large numbers into the global work force, increasing the supply of labour. Technology through robotics and mechanization is reducing the demand for labour. Together these factors create downward pressure on wage rates. Upward mobility for the individual is in decline. Capital is securing the lion’s share of the rewards. Job stability is one of the status quos that is disappearing. For all of these reasons the individual must become his or her own brand. The most important skill you can learn today is the ability to create and manage your career.

With Joseph Rotman at the Creative Destruction Lab

 

Joseph Rotman invested a great deal to improve the future of this country. The Rotman School of Management at the University of Toronto is a lasting legacy showing both his commitment and what we as Canadians are capable of achieving. An important part of  that legacy is the CDL which is really just getting started.

It is both enlightening and alarming to discover that more than 350,000 Canadians live and work in Silicon Valley. More than one percent of our population and a much higher portion of our intellectual capital have left us for the world’s most prestigious and most productive ecosystem. This is both a problem and an opportunity but not one that government can solve or even try to solve. So how do we stem the tide? There is no quick fix. We are producing world class talent and such talent is inevitably attracted to the epicentre of success, achievement but most of all opportunity. It is the opportunity that we need to focus on. The Creative Destruction Lab does that. It creates opportunity here in Canada. The leader and founder Professor Ajay Agrawal is a dynamo.

Ajay is living evidence that entrepreneurship can be taught, an academic with the drive and mindset that can match anyone in the business community. When he approached the Rotman school to start this program he was told ‘you can use the facilities but you must find the funding yourself’. He has worked relentlessly ever since  to do just that in the process bringing in a very accomplished group of proven entrepreneurs to act as mentors. The stated goal of the Lab is to generate equity – specifically to create at least $ 1 billion in equity in the first ten years. After the first two years approximately $ 130 million has been achieved.

Financial targets are how we keep score but the greater purpose is to keep the best and most brilliant we produce here in Canada, helping to build our own world class ecosystem and offering a valuable example to others. Ventures receive the very best of mentorship. It is amazing to see how they evolve in less than one year. Watch for results – they have already started but many significant ones are ahead in the years to come.

As a partner of the Lab and member of the advisory board I am proud to point out that this program is not just another accelerator to help brilliant tech students bring their ideas to market. For me the Lab represents far more and has the opportunity to change and influence this country. We are traditionally small ‘c’ conservatives who let our brash cousins to the south take the outrageous risks and create the startling successes. We don’t lack for success stories but too often those successes happen outside our borders. Now when we are in an era where entrepreneurship is viewed as what I like to call the economic wonder drug of the 21st century, it is absolutely critical that Canadians embrace the mindset of an entrepreneur and become agents of change in a world where ironically change is the one constant. In that sense the Lab can be a leader and help change the narrative for Canada.

For me the Lab has three main purposes. The first as already outlined is to produce successful, scalable ventures flourishing as sustainable businesses right here. The second very unique goal and  achievement  of the Lab stems from the way in which students of the Rotman MBA program are engaged with the ventures and the  mentors. We need these talented business minds creating new businesses and making them succeed in Canada. The Lab immerses them in the startup culture and introduces the potential for success outside the world of investment banking. In this new era of entrepreneurship when every university and college around the world is trying to teach entrepreneurship this may be the most effective way any of these institutions has found to date.

The third and potentially greatest influence of the CDL program is as an example of what can be accomplished in Canada. We are building a pyramid of success. The ventures that go through the full program will be shining examples at the top of that pyramid. But there are many other levels of success below these which can be achieved and make an important contribution to our economy and our society. Not every success story relies on innovation. The potential multiplier of the Lab comes from encouraging all Canadians, at every level to adopt the mindset  that we can make things happen here and to apply innovation to a whole myriad of business solutions and applications. These potential ventures will be the foundation of the pyramid we hope to build and can have rippling effects across our economy for generations to come.

This is exactly what Joseph Rotman hoped to accomplish and thanks to him, it is a real possibility when we sorely need it.

Not long ago countries like Japan and Korea focused on a corporate policy based on loyalty. The concept was that employees stayed with a company for their working life. Companies nurtured this loyalty as a solid foundation to build on. North American companies flirted with this concept looking for ways to understand and replicate the quality assurance programs coming out of their Asian competitors. Enter globalization, the technology revolution and a rate of change that may be unsustainable for humans. In a blink job stability vanished.

Large companies by nature are slower to react than their smaller compatriots but large scale permanent lay-offs have become a fixture of the corporate world. International companies are making record profits pursuing low labour costs around the world while paying those at the top record bonuses. Add the increasing wealth gap and a shrinking middle class in the developed world to the equation and you reveal a growing underpaid work force plagued by uncertainty.

The result is that the most important skill you can develop today is the ability to create and manage your own career. The key to upward mobility is becoming entrepreneurial at any level. Technology is the greatest ally of the would be entrepreneur. It is less expensive to start a business today. Social networking provides an instant support group. Crowdfunding offers a potential source of funds. New careers are being created every year while traditional roles disappear. Entrepreneurs are the problem solvers that create these new opportunities.

The best news: after you’ve done this once; after you made the initial leap of faith and become an entrepreneur, you can and will repeat the process again and again. Change is the one constant we can expect in our lives going forward. Change is the antithesis of stability. Seniors are doing startups out of necessity. Youth are doing startups to get into the work force. Mompreneurs are dealing with the difficulty of re-entering the workforce by creating new careers that encompass their lifestyle needs.Every startup has a multiplier effect through job creation. So the answer for a secure future no longer lies with embracing a career with one strong entity. A secure future can best be secured through the ability to adapt and recreate yourself according to new circumstances. The essence of entrepreneurship is adaptability and resilience – the ability and determination to face new circumstances. We are entering a new era of entrepreneurship.

I am a serial entrepreneur who believes that the free enterprise system is the best alternative for creating upward mobility, a growing middle class, the most efficient allocation of resources and the least costly production of goods and services to the benefit of society as a whole. But free enterprise is based on the principal of a free and open market. Theoretically the ease of communication today should create more opportunity and much greater competition. Free enterprise does not thrive in a monopoly or oligopoly both of which limit competition but in many cases that is what we now have. As a result the middle class in the west is in serious danger of backsliding into the poor class from which it came over the past hundred plus years.

Branding and Brand power are the main tools that are limiting competion, allowing capital to seize a much larger portion of the pie at the expense of labour creating the status of superrich and the growing disparity in the distribution of wealth. These are serious dangers because market control interferes with free enterprise and skews the results. Yes it is still possible to create a new brand but increasingly large organizations block the market and take advantage by acquiring up and coming companies and only then allowing them full market penetration.

On an individual basis it is now critical to become an entrepreneur allowing for self-determination and upward mobility that is in decline for employees. The most important skill anyone can learn today is the ability to create and manage your career. The problem is much bigger for society. We have created a society in the west with very high expectations and a philosophy of entitlement. A large percentage of the population will not put forward the effort and level of determination required to succeed as an entrepreneur – not without first experiencing serious pain and a major economic correction. We are vulnerable but collectively we remain in a state of denial.

The capitalist system which allowed the middle class to flourish in the west is broken. Rather than continuing to create opportunity it has begun to limit it. Rather than spreading the success to the developing world we are in danger of returning to a more rigid class system with the superrich having a disproportionate amount of economic power. Solutions are impossible as long as we remain in a state of denial compounded by governments which have become dysfunctional. A good start could come from consumers by becoming better informed and breaking the power of the brands. This should be happening through social media but it isn’t. Instead brand control of the market is being re-enforced by social media marketing.

I am very concerned that I have lived and worked in an era that has been optimum for the individual but is no longer sustainable. I am very concerned that my grandchildren will be denied the opportunity that my generation has enjoyed. One of the great challenges of capitalism is to moderate the influence of greed. If we don’t find a way to level the playing field it’s difficult to predict how social unrest will manifest itself in a society where expectations cannot be achieved.