Musings on Entrepreneurship and Innovation
Tuesday, April 26, 2005Revenge of the Nerds?
When it comes to entrepreneurial success, what counts for more: a street smart, can do attitude or an advanced academic degree? Are you sure? Under what conditions?
Biologist Richard Dawkins calls it the tyranny of the discontinuous mind: the tendency to think in binary terms. In a world that is more or less unchanging, a binary perspective can be good enough. However, in a fast-paced environment of relentless change, discontinous thinking can be harmful. That is because the way we frame the world in our minds impacts how we behave and, consequently, influences outcomes.
Consider the world of the entrepreneur who choreographs the development of a promising startup. It's a world fraught with change and uncertainty. Nevertheless, there is a tendency to think of such entrepreneurs in binary terms. We often imply that people are thinkers or do-ers. Or, we say that execution is what matters most. But, do such binary proclamations make sense?
To recall a quote I posted a week or so ago, "A thought which does not result in an action is nothing much, and an action which does not proceed from a thought is nothing at all." Flawless execution of a vacuous idea yields little; pathetic execution of a dramatically different idea yields nothing (or worse). In other words, business success requires thinking and doing; invention and innovation; bridging and building.
I was a little startled to learn that 31% of the CEOs of the 2004 class of the Inc. 500 hold postgraduate degrees, while, nationwide, only 9.4% of the adult population has achieved similar levels of educational attainment. Holding in suspense the question of causality, there seems to be a clear correlation between educational achievement and entrepreneurial success. But, doesn't that contradict the popular dichotomy that divides the world into pointy headed, academic dreamers, on the one hand, and street smart, action-oriented entrepreneurs on the other? Maybe, but only if we buy into a binomial view of the world.
A couple of years ago, some fellow Pioneer Entrepreneurs and I spoke with George Gendron regarding his 20 years at the helm of Inc. magazine:
Gendron shared how Inc. polled current and former Inc. 500 CEOs who had MBAs about the value of their business education...Roughly 80% to 90% of the CEOs reported that the skills derived from their MBA training started to become valuable once the viability of their businesses was no longer an issue (often around $10 million in sales). That same proportion routinely said their MBA was "almost valueless in the early stages" of the business. Specifically, an MBA "does very little, if anything, to prepare them for the psychological challenges" of starting a business. Nevertheless, the influx of MBA-trained executives into the entrepreneurial ranks has corresponded with what Gendron called the "single biggest change in 20 years at Inc.," the end of the "era of entrepreneurial novelty."
Here's what I think might be happening:
Per my friend Don Greer,
Productivity = Mindset x Skillset x Toolset
That is, the ability to achieve a desired outcome is a function of the product of one's attitude and propensity to act, the availability of good tools, and one's skills in applying such tools. If any of these three factors are zero, then the level of the other two factors is irrelevant. Great ideas and intellect don't matter much unless one is willing to get down to work. As I have discussed recently, promising startups are characterized by conditions in which a propensity to act in the face of ambiguity is a critical advantage. So, in terms of entrepreneurial productivity at startup, mindset seems to be a critical point of leverage.
Now, incorporate the element of time into the previous equation. In a slow-moving environment a novel idea combined with the right mindset can be enough to get a business started. Furthermore, if the novelty of the idea can be maintained, then there can be time to develop complementary skills and tools. I suspect that this was the case in the early years of Inc.'s annual survey: A good enough idea was sufficient to overcome initially poor business tools and skills.
However, consider what happens when the information content of products and services increases (from Adaptive Enterprise):
Because the informational component of products can change faster, it will change faster. Because information can be rapidly disseminated, it will be rapidly acquired by others. As a result, product life cycles will continue to shrink, and the pace of change will continue to accelerate.
This dynamic has at least two important implications. First of all, it's increasingly difficult to offer a truly novel product or service for any length of time. Today's great idea is sure to be copied tomorrow. If novelty can't be maintained, one cannot count on having time to develop complementary and competitive tools and skills. With the death of entrepreneurial novelty comes an obligation to bring tools and skills to the party. A gung ho attitude and willingness to work hard and learn on the job are no longer enough.
An increase in the informational component of products and services causes an increase in the velocity of business. As the velocity of business increases, there is a corresponding increase in uncertainty that, by definition, makes prediction more difficult. As a consequence, there is great value in having a distinctive ability to perceive patterns, draw useful analogies, and respond quickly:
People who have the aptitude, ambition, and discipline to develop such capabilties can improve their chances for entrepreneurial success. And, by the way, they also tend to improve their chances of academic success. So, in fast-moving, information-intensive business environments, we shouldn't be surprised to see a strong correlation between entrepreneurial and academic achievement, even if it's not clear that there is any direct cause-and-effect relationship between the two. If it turns out that the distribution of Inc. 500 CEOs with postgraduate degrees is skewed toward the high-tech sector, we shouldn't be surprised. After all, those are the sectors that, by definition, have the highest informational content imbedded in products and services and that, consequently, are evolving the fastest.
What may surprise people is how quickly information is being imbedded into the products and services in all industires. Given that trend, it shouldn't be that surprising if entrepreneurial CEOs with graduate degrees were becoming more common across the board. The pace of change and increasing global competition are raising the bar for entrepreneurship. During the 18th and 19th centuries, amateur scientists made major contributions to their fields. That ended by the middle of the 20th century. I can imagine that the early part of the 21st century will see the decline of the amateur entrepreneur for many of the same reasons.
Is this a case of the revenge of the nerds? No. As I said above, I doubt that educational achievement causes entrepreneurial success. Rather, those two outcomes are simultaneously caused by an increase in the value of abstract thinking and pattern recognition. Rather, the entrepreneurial arms race is on, and it's a bad idea to bring a knife to a gunfight.
