Harvard Business Review on Succeeding as an Entrepreneur: A book review by Bob Morris

Harvard Business Review on Succeeding as an Entrepreneur
Various Contributors
Harvard Business Review Press (2011)

How to create new businesses and new markets by managing risks effectively

This is one of the volumes in a series of anthologies of articles that first appeared in Harvard Business Review. Having read all of them when they were published individually, I can personally attest to the high quality of their authors’ (or co-authors’) insights as well as the eloquence with which they are expressed. This collection has two substantial value-added benefits that should also be noted: If all of the articles were purchased separately as reprints, the total cost would be at least $60-75; also, they are now conveniently bound in a single volume for a fraction of that cost.

Those who need best practices and ideas for launching new ventures will find the material in this HBR book invaluable. It is one of the volumes in a series of anthologies of articles that first appeared in Harvard Business Review. Authors of the nine articles focus on one or more components of a process by which to zero in on the most promising prospects, set a clear direction for a start-up, test and revise assumptions along the way, tackle risks that could sabotage efforts, carve out opportunities in emerging markets, launch a start-up within an existent organization, and hand over the reins once the enterprise is established.

In several of the articles, the power and value of asking the right questions is stressed, occasionally demonstrated. I now provide two brief excerpts that are representative of the high quality of all nine articles. In both, asking the right questions is demonstrated:

In “Finding Competitive Advantage in Adversity,” Bhaskar Chakravorti suggests that these five questions be asked when the objective is to “unearth the competitive advantage that adversity can offer”:

1. What under lying needs in your market are being curtailed by adversity? Have new needs emerged because of the adverse circumstances?

2. Look broadly across your business and in completely unrelated areas. What resources – products, people, materials, technologies, or intellectual property – are being displaced or underutilized because of the adversity?

3. Can you see a way to use resources from your answers to question 2 to fulfill a need you identified in question 1?

4. What is the minimum change that customers or your value chain require to adopt your offering? Then, what subsequent changes are likely, and how far could the adoption spread?

5. Can you repeat you success with questions 1 to 4 in additional markets, such as new customers or new products?

In “The Questions Every Entrepreneur Must Answer,” Amar Bhidé notes that of the hundreds of thousands of business ventures launched each year, many never get off the ground. Others fizzle after spectacular rocket starts.

“Why such dismal odds? Entrepreneurs — with their bias for action – often ignore ingredients essential to business success. These include a clear strategy, the right workforce talent, and organizational controls that spur performance without stifling employees’ initiative.

“Moreover, no two ventures take the same path. Thus entrepreneurs can’t look to formulas to navigate the myriad choices arising as their enterprise evolves. A decision that’s right for one venture may prove disastrous for another.

How to chart a successful course for your venture? Bhidé recommends asking yourself these questions:

Where do I want to go?
How will I get there?
Can I do it?

Improvisation takes a venture only so far. Successful entrepreneurs keep asking tough questions about where they want to go – and whether the track they’re on will take them there.

Other articles in this anthology I especially enjoyed include: Noam Wasserman’s “The Founder’s Dilemma,” John Ham’s “Why Entrepreneurs Don’t Scale,” and David A. Garvin and Lynn C. Levesque’s “Meeting the Challenge of Corporate Entrepreneurship.”

SUGGESTED  READINGS

American Entrepreneur: The Fascinating Stories of the People Who Defined Business in the United States
Larry Schweikart and Lynne-Pierson-Doti

In Their Time: The Greatest Business Leaders Of The Twentieth Century
Anthony Mayo and Nitin Nohria

Paths to Power: How Insiders and Outsiders Shaped American Business Leadership
Anthony Mayo, Nitin Nohria, and Laura G. Singleton

What is a “catallaxy”?

Friedrich Hayek

In his 1945 essay, The Use of Knowledge in Society, the Austrian economist Friedrich Hayek (1889-1992), a Nobel laureate, argues that creating a rational economic order “is a problem of the utilization of knowledge which is not given to individuals to possess.” He preferred the term catallaxy to the word economy, explaining it as “the order brought about by the mutual adjustment of many individual economies in a market.”

The word catallaxy is derived from the Geek word katallasso that means not only “to change barter” but also “to admit into the
community” and “to change from enemy into friend.” Hayek specifies three rules:

1. Agents work in their own interests to obtain income,

2. They subjectively weigh and choose preferred alternatives, and
3. They have open access to markets.

As Larry Schweikart and Lynne Pierson Doti suggest in American Entrepreneur (2009), “In many ways, the idea of a catallaxy is an apt way to view the new world inside the Internet: a free-market economy in which millions of self-organized, self-interested entities exchange a rich variety of information, goods, and services; sometimes the entities compete, sometimes they collaborate, often they do both simultaneously…To paraphrase an observation of [Alexis] de Tocqueville’s on America, there seems to be more associations on the Internet than there are people. The dynamic catallaxy that is the emerging Internet makes organic group formation easy, and we are already seeing a rich and diverse collection of communities springing up around the globe.”

Contrary to popular opinion….

Horatio Alger, Jr.

Contrary to popular opinion, Horatio Alger, Jr. (1832-1899) disliked capitalists and the most frequent villain in his stories (e.g. Ragged Dick and Luck and Pluck) was a mill owner. True, he was the son of a Unitarian minister and received a superb formal education. However, also contrary to popular opinion, seldom in his stories did hard work result in riches; usually his characters achieved middle-class status; and his heroes seldom advanced through traditional capitalist enterprise but rather through luck and connections. “Thus, while criticized as perpetuating the rags-to-riches myth of American business,” Larry Schweikart and Lynne Pierson Doti point out in American Entrepreneur, “Horatio Alger’s message was the opposite of the values later associated with him: achievement through capitalism, effort, and working one’s way up the ladder. At best, Alger fashioned a formula for modern capitalism that ‘could be used by a diverse class of audiences to make sense of, participate in, and even protest against and rectify abuses of modern capitalism.’ [Carol Nackenoff, The Fictional Republic, 1994]”

It is indeed ironic that Alger, who is widely associated with achieving business success and consequent wealth, despite having written and published 110 books, would indeed go from “riches to rags” and die a pauper.

A Swift response to pollution

Gustavus Swift (1839-1903)

Here is a brief excerpt from American Entrepreneur: The Fascinating Stories of the People Who Defined Business in the United States in which Larry Schweikart and Lynne Pierson Doti focus on Gustavus Swift who was alarmed by fat content in Chicago’s Bubbly Creek into which the remains of animal carcasses were discarded after processing within his slaughterhouse.

“Swift was convinced that any fat in the water meant that too much of the animal carcass was discarded. Thus, for economic, and not environmental, motivations, Swift cleaned up the water by finding ways to use virtually all parts of beef and pig carcasses. He developed a series of by-products that included glue, soap, fertilizers, beef extract, and bone products, joining the many uses for other [parts of the animals – leather shows, gloves, baseball covers, even red paint made from animal blood – already in place.

“A century later, the process that Swift started reached almost 100 percent efficiency, but even during his time Swift accurately could boast that ‘we use all of the hog but the grunt.’”

Westinghouse versus Edison: Shocking and Revolting Competition

Here is a brief excerpt from American Entrepreneur: The Fascinating Stories of the People Who Defined Business in the United States in which Larry Schweikart and Lynne Pierson Doti examine an especially nasty competition in the 1880s between George Westinghouse (not yet 30 and already a millionaire) and the legendary Thomas Edison. Westinghouse had developed alternating current (AC) electrical systems, a superior alternative to the direct current (DC) systems then in use, used by Edison’s various devices. “Westinghouse founded Westinghouse Electric Company in 1886 to build the equipment needed to control AC, developing a system of transformers and generators…Edison’s company enthusiastically publicized accidents from AC voltage, to the point of conducting experiments in which cats were electrocuted to show its dangers. Newspapers cooperated with stories whose headlines read ‘Electric Wire Slaughter” and “Another Lineman Roasted to Death.’ After the State of New York adopted electrocution (using AC) as its means of capital punishment, Edison officials referred to it as ‘Westinghousing’ the condemned.”

Then in 1892, Westinghouse’s company won the competition to provide the lighting for the Chicago Columbian Exposition, “proving to the world the safety and efficiency of AC power. That was the break that Westinghouse needed, and contracts to provide electricity to homes and businesses flooded Westinghouse Electric.” Years later, the ailing inventor’s insatiable curiosity remained as active as ever. “He spent his last year working on an electric wheelchair.”