entrepreneurship

A friend of mine posted a Facebook entry saying his 30,000+ person company is encouraging people to be entrepreneurial. I replied with a remark that I couldn’t imagine a less likely place to find entrepreneurial behavior.

Much to my surprise, he was surprised that I was surprised. But that’s not surprising. It turns out that at his consulting company, they are encouraged to come up with ideas for new products and find new customers. That fits his definition of “entrepreneurial.”

It didn’t fit mine, and I took this as an opportunity to try to define why I had my reaction. Here’s my thinking about what constitutes “entrepreneurial.” Please chime in.

I think we have different definitions of “entrepreneurial.” I hear a lot of corporations use the word “entrepreneurial” as a synonym for “we’re letting you think for yourself and propose creative solutions.” While I applaud that impulse, in my mind, it should be a standard mode of engagement in business and not considered anything to be given a special name.

For me, what you’ve described is being given license to propose new product lines. It fits my definition of “new business development,” and it may or may not be entrepreneurial.

In my definition of entrepreneurship, entrepreneurs (a) are free to change their business offerings, (b) have control over their business model, (c) must raise their own resources and enjoy a corresponding participation in the upside, (d) create an organization, organization structure, and its attendant policies and procedures.

Furthermore, often, entrepreneurs operate in unknowable or cutting-edge spaces. They are introducing new products without the knowledge of whether markets exist.

In essence, an entrepreneur’s product is an organization and business model.

If you can go out to Staples and propose a joint venture where you provide flat-rate actuarial consulting to any insurance company that buys more than $1000 worth of office supplies, with you (personally) pocketing 10% of the revenues, that would be entrepreneurial, in my mind.

If you had the ability to acquire smaller consultancies and attempt a “roll-up,” (without needing corporate approval) that would be entrepreneurial.

If you were to discover that restaurant consulting were more lucrative than actuarial consulting and decide to reposition your job to target restaurants based on your theories/dreams/data about the business model, that would be entrepreneurial.

If your business model is limited (e.g. hourly charging with X% overhead charged back to the parent company), if your ability to raise funds and build an organization is limited (e.g. hiring six people with completely different policies, procedures, dress codes, health plan, etc.), and if your upside is limited (e.g. you can’t create a multinational division and then take home the bulk of the profit as your own bonus), then I would consider you to be in a creative business development capacity, but not entrepreneurial.

Similarly, some people consider franchise owners as entrepreneurial. While they take a risk and share in the upside, I would call them “small business people” and not “entrepreneurs.” They generally don’t have control over their processes, capital structure, organizational structure, or brand/marketing/etc. so while they certainly do start a business with their own funds, they’re sufficiently constrained that they’re essentially employees who shoulder the risk and receive a bonus based on profits.

I don’t think there’s any one agreed-upon definition of entrepreneurship, but in the entrepreneurship circles where I travel, resource scarcity and control over structure, process, and business model are key elements separating entrepreneurial environments from corporate environments.

You know, I just can’t help feeling outrage, depression, and cynicism at the Big Three auto companies asking for a taxpayer bailout. Twenty years ago, we read cases in business school about how American auto manufacturers had already fallen behind foreign imports in production capability, cost structure, and market responsiveness. At the time, this was not new information.

And now, the Detroit top brass are showing up to Congress, hats in hand, for mega-billion-dollar cash flow loans that they project will last them … oh, a few months. And they’ll do what, exactly, in those few months? Why in the world should we believe that the same people who willfully ignored their competitive situation for two generations have any relevant skills, abilities or motivation to fix any of the problems? Aren’t they exactly the people we know won’t solve the problem?

Yeah, they’re saying they’ll reduce their salary to $1 until the mess is cleaned up. How generous of them. Are they taking huge stock grants instead (Iacocca did, back when he reduced his salary to $1 when saving Chrysler. That part of the story doesn’t sound as noble, so it’s often glossed over)?

Even if they’re genuinely giving up their compensation, they’ve taken home seven- or eight-figure salaries for years. They’re way, way past the point of needing another dime as long as they live. What a sacrifice, to reduce their salaries. I say they’re not going nearly far enough. How about giving back a big chunk of what they’ve been paid over the last twenty years, since it’s now apparent they did a piss-poor job at CEOing.

Startups can’t afford the luxury of incompetent, overpaid CEOs

In the startup world, we don’t have much money to pay CEOs. So we look for CEOs who are passionately committed to the success of our idea, our customers, and our company. We give them stock options, sure, but honestly, that’s not what we count on to motivate them. We count on them loving what they do enough to go the extra mile. And not in a private jet. In fact, founder-CEOs often put in their own money to fund the company and work for free until the company is proven viable.

So here’s my proposal…

I’m happy to have taxpayers bail out Detroit, but with a condition: we auction off the CEO jobs at Ford, Chrysler, and GM. The highest bidder gets the job. They receive a total compensation package equivalent to a shift supervisor at one of their plants. No stock, no options, and no bonuses. If they want better health insurance, for example, they pay for it themselves. Why would anyone take this job? Simple. It’s the chance of a lifetime to do something that almost no one in the world will ever have the chance to do: reshape an industry.

It’s pretty clear to me that the logic of “pay the CEO big money” isn’t getting competent, committed people into the position. It’s getting incompetent leeches whose main interest seems to be in feeling self-important while relieving the company of the burden of millions of dollars of vaule.

By having people ante up real money to take the position, we would quickly narrow the playing field to people who genuinely care, are excited by the opportunity, and who are being driven by the challenge or the love of the industry, not by personal greed. And remember, this isn’t the string bean industry, it’s the auto industry. There are many superbly successful businesspeople in the world who are passionate about cars as an industry. I’ll bet we would be surprised at the number of excellent candidates who stepped forth.

I’ve had enough with this absurd logic that says, “you can’t motivate people unless you pay them.” That’s bull pucky. It may be true for assembly line workers, because those jobs are mind-and-body-numbingly dehumanizing, but when it comes to C-suite jobs, I’ve met hundreds of people in those jobs whose motivations have everything to do with passion, challenge, creating, and doing a job well-done. Most of them are already rich enough that they don’t need to work, anyway.

In fact, even Warren Buffett acknowledges this. He points out that the CEOs of Berkshire Hathaway subsidiaries are extremely successful, already independently-wealthy people. They don’t need money and aren’t motivated by it. That’s why they do such a good job.

The least we can do is take Buffett’s example and get CEOs motivated by passion, superb skill, and challenge to turn around an industry that’s had none of the above for a long time.