Carl Schramm - IA de Investigación especializada en el MIT

Carl Schramm

University Entrepreneurship
May Be Failing Its Market Test

One of the abiding ironies of business education is the now decades-old teaching
of industry “best practices” to improve the performance of any organization,
including how to improve the innovative capacity of a profit-seeking firm. Para el
uninitiated, this concept is as simple as its name suggests. To improve your com-
pany’s performance, you look for the organization that does something better than
everyone else and then copy it. If Procter & Gamble runs its packing line better
than you do, by all means, copy its practice.

Such thinking may be a reason we are concerned about the slowing rate of
innovation in America. If today’s best practice is the standard for emulating, hacer
any firms feel comfortable out on some “better than best” frontier? The very notion
of “best practices” suggests the acceptance of a grand average. Except, por supuesto, para
those firms that are deemed the best practitioners of “innovation.” In a recent
libro, Inside Real Innovation, Gene Fitzgerald and Andreas Wankerl and I argue
that most older and larger firms forget how to innovate,1 a finding suggested long
ago by Max Weber.2

Perhaps this is why we have, over the last three decades, intuitively embraced
entrepreneurship as a way to bring more innovation to our economy. En efecto, as I
have detailed elsewhere, it was the resurgence of entrepreneurial capitalism in the
1980s that got us out of the prolonged recession that characterized the Carter
years.3

But the word “entrepreneurship” is beginning to sound a little like the concept
of best practices—a phrase that is valued for its inchoate sense of being logical and
a self-evidently valuable pursuit. What we mean when we speak of entrepreneur-
ship appears to evade definition. Por supuesto, entrepreneurship is connected to cre-
ating new profit-seeking firms. That’s what might be called the conventional or

Carl Schramm is a University Professor at Syracuse University. His newest book, con
Robert Litán, Better Capitalism, is just out from Yale University Press. His current
course is “Building Real Businesses—An Empirical Examination of What We Know
about Entrepreneurship.” A founder or cofounder of five businesses, he served for ten
years as CEO of the Kauffman Foundation. He is a visiting scientist at MIT and a fel-
low at the Darden Graduate School of Business, University of Virginia. Schramm &
Co. is an investor in numerous start-ups.

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Carl Schramm

“economic” meaning. But common usage permits non-profits to claim that they
are entrepreneurial (en efecto, many college students want to be “social entrepre-
neurs”); faculty members doing research self-proclaim that they are “intellectual
empresarios," y, my favorite, “bureaucratic entrepreneurs,” is a classification
for innovative public employees thinking up new programs that cost taxpayers

mas dinero.

The risk in all this is that when
everything is entrepreneurial
perhaps nothing is. Is it time to
speak with a new term? Maybe
those who undertake the risks
of starting a new for-profit
company are really in the
business of “firm formation.”

The risk in all this is that
when everything is entrepre-
neurial perhaps nothing is. Es
it time to speak with a new
those who
term? Maybe
undertake the risks of starting
a new for-profit company are
really in the business of “firm
formation.” After all, as Daniel
Spulber suggests, real entre-
preneurs know the special
skill of objectifying an idea
into the productive realm of
commerce.4 They can bring
forth a new concept in a man-
ner so concrete that it can be
tested in a market context — people will pay for it in a pecuniary exchange? El
business of firm formation is not for scaredy cats. There is no gloss of higher
motive that many social entrepreneurs implicitly seek as they go about seeking
donative funding—a market test of an entirely different nature.

The promiscuous use of the terms “entrepreneur” and “entrepreneurship” in
the face of unsettled questions relating to the critical experience of creating new
firms seems hardly to bother experts who are absolutely certain that they know just
how to teach people to start them. Among this population are government policy-
fabricantes, venture and angel investors, a plethora of mentor/investors who run new
business “incubators” all over the country, and many academics who profess with
certainty how the process unfolds as if starting a businesses yields to a prescribed
and predictable path.

The typical university course introducing students to entrepreneurship is
taught as if it were a settled, path-specific process, one that might parallel a sur-
geon’s knowledge of how best to resect an appendix. De hecho, there really is no set-
tled knowledge of how firms are formed and become successful and achieve what
Robert Litan and I call “scale growth.”5 Notwithstanding the fact that at least six
thousand professors teach and do research in the field, there is no fully developed
canon of actionable insight.

A process that is essentially creative should be considered in, decir, the model of
how we teach musical composition. It cannot be done apart from writing music.
Entrepreneurship just does not yield to being a static body of knowledge. To know

innovaciones / Youth and Economic Opportunities

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University Entrepreneurship May Be Failing Its Market Test

it and to teach it requires engaging in practice. Entrepreneurship must be taught
much as medicine is taught, in a clinical setting. The academic places where the
creation of new businesses appears to happen with ease and great frequency are
engineering schools, where the invention of companies to exploit ideas emerging
from basic research strongly suggests the logic of a practice-based approach.
Engineering professors involved in new businesses have often done it before.
While many professors of entrepreneurship have never attempted to start a firm!
Discontent with the prevailing academic approach to understanding firm for-
mation and seeking to build more effective ways to recruit and support talented
empresarios, a large amount of practical innovation is emerging all over the
country focused on increasing the number of new firms being formed. (It is a good
thing too as business starts have fallen precipitously in the last three years.6)
Perhaps the most interesting university-based programs attempting to birth an
alternative model to the prevailing classroom-incubator model is the University of
Miami’s Launch Pad. A non-academic effort, it is a child of the realities of the cur-
rent labor market that many graduates confront. Located in the placement office
(not the business school), this program supports students as they invent compa-
nies against a standard not of business plan competitions but of whether they will
provide a living for the about-to-be graduate. Happily, with support from the
Blackstone Foundation, the program is spreading to other campuses.

Stanford and Berkeley are exploring some fundamental theories of how new
businesses might be conceptualized. A shared adjunct, Steve Blank has extensive
personal experience as a successful entrepreneur that drove him to search for a bet-
ter conceptual frame of what a new firm is and does. His articulation of the firm
as a social/economic entity formed to search for scale opportunity has helped crys-
talize a new way to help students along. His insight has largely knocked out the
core of introductory entrepreneurship courses, the writing of a formal business
plan. In its stead, as is emerging at the University of Virginia, are competitions that
test actual ideas in market situations, not essays about would-be businesses.

Outside the collegiate world, interesting new approaches to helping students
get familiar with business formation are emerging. None has experienced the mar-
ket ratification of Start Up Weekend, a 54-hour program in which participants
actually make new businesses. Entirely experiential and often sponsored by uni-
versities in off-campus venues, this year’s weekend events will be held in nearly 500
American locations and in over 50 countries. Por supuesto, Peter Thiel’s well-known
prize for dropping out of college to start a business under his tutelage has gathered
both attention and predictable condemnation. Either way, it is an attempt at an
alternative model of teaching and, de alguna manera, a means of forming a considered
vida. Similarmente, Jeff Sandefer’s invention of Acton Business School, an intentionally
non accredited but course-based program that makes the creation of a successful
business the focus of graduating, is premised on entrepreneurship as a vocation
decidedly infused with moral content and meaning. No student starts in this pro-
gram without knowing that, to come out, a new business must be in hand.

innovaciones / volumen 8, number 1/2

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Carl Schramm

A different approach to evolving practical training is well underway in several
formal experiments in recruiting and supporting entrepreneurs as they develop
businesses in what might be thought of as hothouse environments. Perhaps the one
with the widest reach is TechStars, founded by a serial entrepreneur, Brad Feld,
OMS, like Sandefer, became interested in improving the chances of new firms by
developing better ways of
providing practical support
and advice. TechStars selects
groups of potential entre-
preneurs from a highly
A
competitive
increase what might be
thought of as the traction of
the experience, successful
entrants to the program are
promised $118,000 in seed
funding to support a new
negocio, if they can develop
an idea judged to have the
crecer.
potencial
Participants have
ready
access to seasoned founders
as well as venture capital
and angel funders who are

pool.

part of what might be legitimately called a credentialed mentor system.

Por supuesto, there are other efforts to recruit and to help entrepreneurs along.
One celebrated example is Y-Combinator. This organization, which has helped
encima 700 new firms, tends to look more like older and somewhat smaller models
created by venture capital firms 20 years ago. The older generation was birthed to
provide venture capital firms unique investment opportunities, usually one or two
at a time. These organizations consciously seek to be places in which new insights
can be gathered as to how newly formed firms might be brought along. De hecho, él
is in the later examples, TechStars and venture-backed accelerators, with their par-
ticular focus on achieving scale, where some of the most important evidence might
be accumulating.

In some ways, what is emerging is a Janus-faced system of building insight into
the way in which entrepreneurs form successful firms. The preponderance of the
formalized literature, the basis for curriculum in university course work, reflects
qualitative studies of individual companies. It is not clear that this approach to
assembling knowledge can actually lead to systemic insight critical to increasing
the number of firms that become successful and achieve scale growth. If this
approach had produced a body of such actionable insight, it might be argued that
it is unlikely there would be such an apparent need for new institutional experi-
ments in practical ways to start companies. At the very least, the new organization-

innovaciones / Youth and Economic Opportunities

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University Entrepreneurship May Be Failing Its Market Test

al structures such as Start Up Weekend and TechStars cannot be said to have
descended from a need first identified in academic research.

Happily, many of the newly emerging institutional structures aimed at helping
firm formation proceed profess a strong interest in establishing empirical bases for
improving their efficiency and effectiveness as organizations. Their intellectual
curiosity is linked, por supuesto, to having more new companies in which to invest.
(Before there is too much tut-tutting, it should be understood that many universi-
ties have captive venture funds in place to pursue just such ends.) From the per-
spective of a national entrepreneurial ecosystem, all this activity is mostly very
bien. While there are confused motives in many instances, if in the end, por
respectful watching of each other’s experience and results, the academic and the
institutional experimenters will be able to tell us more that will help new compa-
nies succeed in higher numbers from the day of their formation onwards, Lo haremos
all be better off.

The reality of which we must all be mindful is that we are at the very beginning
of understanding in any systematized way just who entrepreneurs are, how they
create successful new start-ups, and how they grow them to scale. This is a critical
intellectual pursuit. Starting a new firm is the beginning of the never-ending
process of renewing or refreshing economic activity. New firms hurry innovation,
create all the net new jobs in our economy, and generate all the new marginal
wealth so necessary for the expansion of human welfare. We are many years from
having an actionable thesis leading to policy that will produce more of them. En
hecho, the tension between the incumbent knowledge producers (universidades) y
the new institutional firms that exist to help bring new companies into being and
develop a new corpus of knowledge might be seen as part of the larger economic
dynamic. Mao Zedong, hardly an epigrapher to be admired by those committed to
entrepreneurial capitalism, did offer one admonition of use, a saber, “Let a thou-
sand flowers bloom.” Entrepreneurship can be made better if all appreciate the
importance of building a core of actionable insights that will help real people to
pursue lives of real value in newly formed businesses.

1. Gene Fitzgerald, Andreas Wankerl, and Carl Schramm, Inside Real Innovation: How the Right
Approach Can Move Ideas From R&D to Market—And Get the Economy Moving, Singapur: Mundo
Scientific Press, 2011.

2. Max Weber, The Theory of Social and Economic Organization (translated by A M Henderson and

Talcott Parsons), Nueva York: Free Press, 1947.

3. Carl Schramm, The Entrepreneurial Imperative, 2006
4. Daniel F.. Spulber, The Theory of the Firm: Microeconomics with Endogenous Entrepreneurs, Firms,

Markets, and Organizations. Princeton, Nueva Jersey: Prensa de la Universidad de Princeton, 2009.

5. Robert Litan and Carl Schramm, Better Capitalism. nuevo refugio, CT: Prensa de la Universidad de Yale, 2012.
6. E.J. Reedy and Robert E. Litan, “Starting Smaller, Staying Smaller, the Slow Leak in Jobs Creation.”

Kauffman Foundation, 2011.

innovaciones / volumen 8, number 1/2

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