Musings on Entrepreneurship and Innovation
Monday, June 21, 2004Wealth Creation in the 21st Century
Reagan didn't defeat communism, but he did help put it out of its misery.
Rather, the knowledge economy set a pace that make-and-sell central planning simply couldn't maintain. As a direct and indirect consequence of the failure of the Soviet Union, half the world's population has joined the global economy at, not coincidentally, the moment in history when information technology has become newly affordable for hundreds of millions of people.
This, more or less (that is, less the caveat about Reagan), is the essence of what Rich Karlgaard calls the "cheap revolution." It bodes well for the world. As Rich noted in his speech tonight in Bozeman, the middle class in China is already 300 million strong. Add in the emerging middle class in Eastern Europe and India, and it seems clear that we're likely at the beginning of an era of wealth creation unprecedented in scope and, possibly, scale.
But, some places - and people - will be advantaged.
Rich makes the point that differentials in the cost of living between the U.S. urban coast and the heartland have increased while the sophistication gap has closed. He argues that speed to profitability trumps speed to IPO. College towns offering a good quality of life and a modest cost of living have a leg up.
True, but I suspect there is another cost and another dynamic at play here. The opportunity trap is strongest for people and places with high opportunity costs. People with something to lose tend to become conservative and less adaptive. If you ask me, it seems a very, very bad time to play it safe.
Life is good here in our little corner of the economic frontier. It's quite possible that we are positioned to benefit from unprecedented economic opportunities.
So why is it that I think I hear footsteps?
The Big Opportunity Trap
In the forward to Adaptive Enterprise by Stephan Haeckel, Adrian Slywotzky writes:
One of the major obstacles to effective new business building by large companies is the "Big Opportunity" trap. To varying degrees, we are all caught in it. It works like this: "We're a $20BB company. If the new business proposal is not a $1BB opportunity, we don't have time to pursue it.
The consequence of falling into this trap? Dozens of good, profitable but apparently "small" new business ideas are killed. The silent assumption underlying their execution: We know what the size of the opportunity will be. But, in reality, we are clueless. Another reality: Many of these dozens of discards go unrecognized as bridges to the next opportunities in a constantly unfolding marketplace.
Replace "large companies" with "economic development organizations," and you get an idea of why, despite good intentions and considerable resources, so many economic development initiatives fail. Large corporations and democratic governments pay an appropriate price for their privileged access to financial capital: accountability and transparency. Consequently, and understandably, these organizations have a bias toward projects that are subject to analysis. Too often, though, the analysis is limited to linear thinking in regard to cause and effect, which leads to a focus that is too narrow and short-term.
This kind of thinking is manifested in too much relative emphasis placed upon business recruiting and on venture-backable companies. In the process, 99% of business opportunities are neglected. That's too bad, because investment in small, but promising, ventures can payoff in a variety of ways:
- A community's entrepreneurial capacity is increased
- Failed ventures help clarify areas of opportunity as well as the business models required to take advantage of those opportunities
- Some small companies grow
A key is a change in mindset from being a "stock picker" to being a manager of a portfolio of real options. Encouragingly, some economic development-oriented organizations are assuming this role. Karen Goldner at The adVenture Fund comes to mind.