Entrepreneurship’s Wild Ride

image:alumni.hbs.org
culled from:www.hbr.org

Entrepreneurship's rise as a business phenomenon has occurred side-by-side with its emergence as a centerpiece of modern business education. In this conversation with Mike Roberts, Executive Director of Entrepreneurial Studies at HBS, Professor Howard Stevenson reflects on how academic inquiry has affected entrepreneurial practice and how scholars can learn from today's entrepreneurs.

During the last 15 years, entrepreneurship has developed from a marginal, struggling field of inquiry to a dynamic centerpiece of many business schools. As the Sarofim-Rock Professor of Business Administration at Harvard Business School since 1982, Howard Stevenson has played a substantial role in the evolution of the field at HBS. In March, Mike Roberts, executive director of Entrepreneurial Studies at HBS, spoke with Stevenson about entrepreneurship's remarkable rise in importance and popularity.

Q: Howard, I'd like to talk about entrepreneurship, both as a field of inquiry and as a business phenomenon. And any links between the two—has academic inquiry affected practice, or have evolving practices influenced study of the field? Perhaps the best place to start is with your own view of how the field has evolved.

A: The greatest change in the academic field of entrepreneurship has been new vigor in the development of deep intellectual roots. The entrepreneurial research community now has its own division in the Academy of Management, most schools have courses in entrepreneurship, and there are over 150 endowed professorships in the field. Harvard Business School has taken a slightly different approach to research in this area by deciding that entrepreneurship should not be what we study, but rather, the entrepreneurial firm should be where we study.

Q: What have been the main findings of the inquiry that has gone on at HBS for the last two decades?

A: Since 1947, HBS has offered a course in starting new ventures. After 1983, the School began using the working definition of entrepreneurship as the "pursuit of opportunity beyond the resources that you currently control." We identified six attributes of entrepreneurs and entrepreneurial organizations. These attributes are most easily explained in terms of a spectrum, with entrepreneurial firms falling on one side and more bureaucratic firms on the other.

The first attribute is pursuit of opportunity. Strategic orientation is driven either by identifying new opportunities or by the resources you currently control. The second is quick commitment—getting there fast versus developing a yearlong strategic plan. The third is a multistaged commitment process, which is best described as the difference between a fighter bomber and a ballistic missile. The fighter bomber can take evasive action, choose its targets of opportunity, and sometimes just cut and run when the odds are overwhelming. The ballistic missile is carefully aimed to arrive on target; it's going to follow that course even with a Scud missile approaching. The fourth attribute, the use of others' resources, contrasts with the idea that you ought to own or employ everything you need. For example, good entrepreneurial firms often hire the most specialized talent on a temporary basis. The fifth, managing through networked relationships, contrasts with the old paradigm that "management is what you do to the people who work for you." The final attribute is rewards based on value created rather than position in a hierarchy.

Q: When you use this lens to look at the phenomenon of entrepreneurship, what insights does it provide?

A: One insight is that entrepreneurship flourishes in communities where the success of the other members is celebrated rather than derided. For instance, the lowest level of entrepreneurship in the developed world is in Japan, where they say, "the tall poppy is cut off." The message is, don't rise above the group. On the other hand, where I grew up in Utah, people were very proud of J. Willard Marriott. He was a young guy from a farming town who created the Marriott hotel chain. Everybody talked about how wonderful his success was. Also, entrepreneurship is greater in communities that see change as positive and in which successful members reinvest excess capital in the projects of the other members. It also flourishes in communities where resources are mobile.

Q: Does this help explain the phenomenal increase in entrepreneurial activity we have witnessed over the past few years?

A: Changes in the financial and labor markets have increased mobility substantially. More important, improvements in logistics; cross-border flows of labor, capital, and ideas; weakened intellectual property protection; and improved global communication have helped people, money, products, and ideas to disperse throughout the world and to stream to the areas of greatest opportunity. The entrepreneurial community's success has attracted capital on an unprecedented scale. The venture capital market and the market for initial public offerings have gone to unparalleled valuations. Perhaps most interesting, however, is the extent to which successful entrepreneurs have reinvested in venture funds and in angel networks.

Q: How has all of this activity influenced the work of scholars?

A: As it became clear that traditional theories did little to explain the behavior of the most successful companies, the entrepreneurial firm became a very interesting place to look. It's a territory in which there are fantastically compelling problems. And with the excitement generated by e-commerce, people from almost all fields are asking, "What's going on here?" What, for example, is different about human resource practices in firms trying to grow at 100 percent a year? What's different about financing in a world where equity is almost free? Also, traditional theories don't take into account phenomena such as fast-cycle processing and rapid technological innovation. To study these, you don't look at John Hancock where they say, "Life here is one century after another." You research fast-growing, high-tech firms.

Q: What are some of the challenges in the future for entrepreneurship?

A: Technology is enabling firms to project a presence in places that once—in the days of steamship travel—only huge companies could penetrate. Now, the get-big-fast phenomenon means that companies have to go to world-scale very quickly. And in most firms, if you're not a global competitor in a few years, you're never going to get there because somebody will be there ahead of you. So I think cross-border flows of capital will be increasingly important. In addition, understanding how you create durable partnerships—especially across cultures—is a tremendous challenge. And we need to pay solid attention to how you build community. We need to understand these areas if entrepreneurship is going to continue to have an important impact on our society.