Entrepreneurship, the Possible Dream

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The
dream may not always be big but it is possible, even probable given
the right conditioning, given the right commitment. For in a free
society the spirit of enterprise, the spirit of dynamic boldness,
of business ingenuity, appears to be rather universal, across the
board — part and parcel of human nature.

Thus in one way or another the spirit of enterprise crops up in
every occupation, every craft, every profession, every walk of life,
from a plumber figuring out a new way to fit a pipe bend, to a factory
manager recasting a production layout flow, to a university student
enhancing his human capital by hitting on a new and better study
technique, to a Washington hostess coming up with an innovative
dinner table seating arrangement, to a novelist working out a fresh
plot construction and — to cite perhaps a bigger dream — to a Vietnamese
"boat person" establishing a restaurant in Los Angeles.

All these individuals must shape and reshape their plans to fit
changing conditions and invest in a demanding if not capricious
situation in an uncertain future. All of them reflect entrepreneurial
behavior — the entrepreneurial spirit in action.

Perhaps without knowing it, they are enterprisers all, at least
in degree. Shakespeare sensed this entrepreneurial spirit when he
had Hamlet observe: "Every man hath business and desire, such
as it is." So did Adam Smith sense the spirit of enterprise
when he declared in The
Wealth of Nations
(1776): "In all countries
where there is tolerable Security every man of common understanding
will endeavor to employ whatever stock he can command, in procuring
either present enjoyment or future profit." Colonel Harland
Sanders, founder of Kentucky Fried Chicken, expressed his own streak
of entrepreneurship this way: "I was 66 years old. I still
had to make a living. I looked at my Social Security check of $105
and decided to franchise my chicken recipe. Folks had always, liked
my chicken."

Thus the aspiring enterpriser or entrepreneurial manager might ask
himself:

Are you ready to be an entrepreneur, to be an entrepreneurial manager
(sometimes called an "intrapreneur"), to be a success?
If so, what have you done to merit it? Have you developed a marketable
specialization? Have you developed something fresh and unique that
would be of interest at your workplace or to your customer, real
or potential? Are you fully applying and capitalizing on it? And,
just what have you done to promote your ideas?

The message here, then, is: The spirit of enterprise seems latent
if frequently dormant in human nature. It is a national as well
as an individual resource. It can be nurtured and developed. Above
all, it can be self-applied.

The
Entrepreneurial Choice

Yet enterprise is not a free good. It has a price. It is implied
in the economist’s concept of opportunity cost, the idea that whatever
man seeks he must sacrifice something to obtain it, that he must
give in order to get, deny himself the yield from the investment
of time, effort or capital in options denied, that he must engage
in the calculus of costs and benefits arising from different choices,
that, indeed, he may miscalculate — incur losses, lose his capital
and become a business mortality statistic. Yet, correct choices
can be creative, innovative, beneficial to community and entrepreneur
alike.

Yes, enterprise, success, the possible dream. So I ask: Inside and
outside the world of business, just what is it that ignites the
spark of ingenuity, of creativity, that causes the enterprisers,
whoever and wherever they are, to try something dramatic, dynamic
and bold, that enables them, frequently, to till new ground, see
new horizons, break through once-impenetrable barriers?

Now, what of entrepreneurship, the child of enterprise?

What impels entrepreneurs to scout for new market or production
possibilities, to come up with something novel, daring, risky, even
perilous in terms of losing precious time and accumulated capital?
What makes them try to spot and meet the shifting needs and demands
of the ever-fickle, at times cruelly dictatorial and always most
sovereign consumer?

Whatever the answer, the breakthroughs start in the mind.

Just how did Thomas Alva Edison come up with the idea of an electric
light (apart from literally hundreds of other patented ideas), Willis
Carrier with the concept of an air conditioner, Clarence Birdseye
with the thought of frozen food, Gail Borden with the invention
of condensed milk, Rowland Hussey Macy with the notion of a department
store, Wallace Abbott, M.D., with the idea of "dosimetric granules"
or measured-medicine pills, Gustavus Swift with a vision of "an
ice-box on wheels" to get fresh-dressed beef and pork by refrigerated
fast rail to population centers in the East, Ray Kroc with the thought
of franchised fast-food restaurants, Stephen Jobs with the concept
of a personal computer, Mary Kay Ash with the idea of "beauty
consultants" merchandising Mary Kay Cosmetics, Rocky Aoki with
the scheme of a chain of Benihana Japanese steak houses and more
recently with a line of frozen Oriental packaged food for the home?

Just what is behind the some 600,000 new firms appearing on the
American scene every year, in good times and bad (with bad times
of course raising the business mortality rate)?

Encouraging
New Ideas

In short, how does the entrepreneurial mind work? What makes it
tick? What encourages it, discourages it? How can we nurture enterprise,
productivity, creativity, foresight — entrepreneurial ideas? What
attitudes, values, customs, mores, habits, laws, institutions, traditions,
conditions, and the like give rise to this vital social asset? Just
what prods the entrepreneur to hazard markets with innovative and
frequently untried ideas, to risk failure and the loss of capital,
to overcome conscience which, as Shakespeare’s Hamlet again observed,
"does make cowards of us all"?

These questions are basic to the care and cultivation of entrepreneurship.
The questions are also basic to the character of the economy, for
the entrepreneur, according to a host of economists including Richard
Cantillon, Jean-Baptiste Say, F. Y. Edgeworth, Francis Walker, Joseph
Schumpeter, Frank Knight, Ludwig von Mises and Israel Kirzner, is
the central figure of economic activity.

Whatever the answers, clearly entrepreneurship is a function of
the mind — the conditioned mind, the imaginative mind, the disciplined
mind, the entrepreneurial mind.

Consider the entrepreneur as an individual possessed of perception
and nerve, of vision and gumption. His is, as a rule, a dual personality:

He is a perceiver and a doer. He sees and he acts. He beholds
and he grasps, even when the brass ring eludes him, i.e., when he
is wrong. Still, he remains the personification of mind over matter,
of a dream come true — even if the dream fades away, or even if
the dreamer and the doer are occasionally two different individuals,
with the doer (perhaps in the personage of a partner or a venture
capitalist) the activator of the enterprise, the realizer of the
dream. Nonetheless, as we will see, the entrepreneur, sparked by
an entrepreneurial spirit, dominated by the consumer, conditioned
by his institutional environment, makes things happen; he spurs
supply; he enriches mankind; he is an unsung hero.

Thoreau caught the spirit of enterprise when he wrote in Walden:
"If you have built castles in the air, your work need not
be lost; that is where they should be. Now put the foundations under
them. All men want, not something to do with, but something
to do, or rather something to be."


Item:
Not long ago Seiko, the Japanese watchmaker, developed
a wristwatch that calls Moslems to prayer at the right hour five
times daily. Thus Seiko gently reminds Moslems to face Mecca, their
holy city in Saudi Arabia, and pray, no matter where the Moslems
may be. The time-reminder also comes as a table clock and pocket-watch.
The price of these timepieces runs around $100, and the potential
market is estimated at hundreds of millions of people. This is entrepreneurship
at work, bringing the Seiko people, their dealers and Moslems together
in far-reaching social cooperation, in mutual and peaceful advantage,
in an all-around win-win-win situation.


Item:
Joseph J. Pinola, C.E.O. of his Los Angeles-based First
Interstate Bancorp, long had a vision of a nationwide banking system
under one management. The cloud over such a vision was the uniform
state-banking rule that no bank could operate outside its state
borders. But the entrepreneurial concept of Pinola was to hurdle
state borders via the holding company or affiliation route, i.e.,
to have a First Interstate Bank of California, a First Interstate
Bank of Arizona, a First Interstate Bank of Nevada, and so on. Today
First Interstate services consumers at more than 1,000 banking offices
in 14 states with more than $45 billion in assets. As entrepreneurially-minded
Joseph Pinola wrote on February 19, 1985 in First Interstate’s 1984
annual report:

There’s
a saying that gives a sage admonition: "To the blind, all
things are sudden." Hence, in our view, trying to manage
in today’s environment without any foresight of a framework
for change is pure folly. Our framework is our strategic plan,
which has a clear objective: The development of First Interstate
into a profitable, nationwide supplier of a broad range
of financial services. (Italics added.)


Item:
Sears, the giant department store and mail order house
under the leadership of C.E.O. Edward R. Telling, recently moved
four-square into the financial services business. Long in the auto
and life insurance business with Allstate, Sears recently launched
Discover, a new credit card to compete with Visa and MasterCard.
Sears also bought out the Dean Witter Reynolds stock brokerage firm,
the big California-based nationwide real estate firm of Coldwell
Banker, the Greenwood Trust Company of Delaware and a bank in South
Dakota, thereby enabling Sears to set up its own financial empire
and giving commercial banks like Citicorp, BankAmerica and First
Interstate fears of powerful competition from this so-called "nonbank
bank." Sears’ move into financial markets to better serve their
customers is not without risk. Comments C.E.O. Telling, according
to Time (August 20, 1984): "Taking chances is a fact
of economic life. Business must risk to grow. Fear of what may or
may not happen is no excuse for avoiding challenges."

So we begin to see how entrepreneurship and challenge are practically
one, how entrepreneurship serves as a bridge between producers and
consumers, with consumers as the bridge-tenders, determining which
producers get to cross the bridge and in what strength — i.e., in
what share of the market.

We also see how the role of the consumer is, as noted, sovereign
— central, crucial, pivotal to the success or failure of entrepreneurship.
The entrepreneur has to satisfy King or Queen Consumer, the person
ever looking over the entrepreneur’s shoulder, ever having the final
say. The consumer applauds with profits, punishes with losses, ever
commanding: Do better, do better — or else.

The consumer, in other words, is the master, even a virtual dictator
over the entrepreneur. The consumer holds the almighty power of
the purse. He picks and chooses among competitors. He accepts some
and rejects others. He thereby has every entrepreneur by the jugular,
occasionally withholding patronage, strangling a woebegone entrepreneur
to death. Here is the way that Ludwig von Mises put the entrepreneurial
situation in Human
Action
:

The direction
of all economic affairs is in the market society a task of the
entrepreneurs. Theirs is the control of production. They are at
the helix and steer the ship. A superficial observer would believe
that they are supreme. But they are not. They are bound to obey
unconditionally the captain’s orders. The captain is the consumer.
Neither the entrepreneurs nor the farmers nor the capitalists
determine what has to be produced. The consumers do that. If a
businessman does not strictly obey the orders of the public as
they are conveyed to him by the structure of market prices, he
suffers losses, he goes bankrupt, and is thus removed from his
eminent position at the helm. Other men who did better in satisfying
the demand of the consumers replace him.

So you see that this Captain Consumer — King or Queen Customer —
is rough and tough, and that the entrepreneur knows it. Entrepreneurial
ideas are fine, they may be realized, i.e., brought into being,
if approved over and over again by the sovereign consumer.
So quality or value of product or service, given the level of pricing,
is ever critical. Consumers demand it, expect it, and when it is
missing they take umbrage and may well strike back — do without
or switch support to another vendor — thereby imposing losses on
the offending entrepreneur.

Quality. Value. Worth. The most for the least. These are the simple
parameters of the marketplace. Hence the recent rise of employee
quality control circles in stores and offices, mills and factories
in Japan, North America and Western Europe and now practically around
the world. Perfection becomes the entrepreneurial goal. As father-and-son
Management Professors Michael and Timothy Mescon (respectively at
Georgia State and the University of Miami) noted in SKY Magazine,
September 1984:

Perfection.
When was the last time you observed, experienced, or participated
in an act of perfection? When was the last time you witnessed
a flawless performance, purchased a flawless product, or were
treated with flawless service? Can you recollect receiving excellent
treatment or accurate delivery in the past week, month, or year?
Perfection, flawlessness, excellence, and accuracy are words that
don’t easily come to mind. Indeed, terms like these are difficult
for many of us to vocalize. We have for all too long accepted
the mundane, promoted the average and rewarded the mediocre.

But as the Mescons further note, in our global business market peopled
by sharp, hungry, enterprising competitors, little but perfection
will do the trick. Excellence is not fantasy. Its pursuit is mandatory,
competition demands it. Relatedly, productivity improvement becomes
make-or-break. Hence perfection becomes more and more the norm.
It more and more is rewarded both by the consumer and, increasingly,
by the quality-minded, competition-attuned employer-entrepreneur.


Item:
A recent IBM ad states in a bold headline: If Your
Failure Rate Is One In A Million, What Do You Tell That One Customer?
The ad continues to explore the simple point that controls all
work at IBM: zero-defect performance. Still, concludes the ad, if
an IBM product does somehow need attention, IBM stands ready, willing
and able to furnish error-free and precise service. Perfection,
even for that isolated customer, is the ideal that must be ever
borne in mind, a litany that must be reiterated to employees over
and over again. This, say the Mescons, is the way to keep the concept
of perfection at work.


Item:
Motorola, the global electronics company, has charged
all of its 90,000 employees to pursue excellence, to strive for
product and service quality perfection. Through its Participative
Management Program (PMP) Motorola has forged a system of employee
economic education, including individual worker recognition, aimed
at two-way communications and work perfection. At Motorola’s Mesa,
Arizona plant, for example, PMP employees have established a Perfection
Award — recognition of achieving a 100 per cent explicit unmistakable
standard: perfection. To date more than 3,600 Perfection Awards
have been earned by Motorola employees in Mesa.

Indeed, perfection-minded Motorola does not use the word employees
or workers: They are, according to Motorola, henceforth to be known
as "associates." (Perfection, like entrepreneurship, after
all, is partly a matter of self-image and self-image is enhanced
by being an associate rather than an employee or worker.) Writes
Henry W. Bried, the firm’s PMP director:

Participative
Management at Motorola is a system of management which encompasses
a two-way exchange between and among management and our associates
(being our employees). It is structured to meet the individual
and common production objectives of industry. Since 1974, when
we first implemented it, this system is the most successful and
effective program to improve productivity in industry today.

Participative management and quality circles are variations of entrepreneurship.
They tie in with my theme of enterprise, the possible dream. Yet
perhaps more than a dream, for, again, entrepreneurship is a relatively
unexploited natural resource, embedded in human nature, a vital
strand that weaves in and out of every human psyche, or as Ludwig
Mises put it in Human Action: "In any real and living
economy, every actor is always an entrepreneur and a speculator."

Mises reminded us that man must ever cope with Adam’s curse, with
the inescapable fact of scarcity, with a stomach (or stomachs) to
fill, with the need to get a roof over his head and clothes on his
back, with his therefore having to ever entrepreneurially garner
and commit resources in every action. In a free society, man the
entrepreneur and speculator has to have a purpose in mind, shoot
at a goal, work with his fellow man in a finely-tuned network of
social cooperation.

Human
Action Embodies Entrepreneurship

Entrepreneurship,
then, is ever a matter of choice. Faced with countless alternative
courses of action, man in and out of entrepreneurship must constantly
choose, ever trade off one option for another, opting as a rather
strict rule for the most rewarding, obeying the economic "law"
of Nobel Laureate George Stigler that $2 is better than $1 or, to
put it in a less tongue-in-cheek way, more happiness is better than
less. In any event, man is always his own bottom line, his own profit
center. Profit in this sense is, again, ever psychological and motivational,
value-ridden, allowing for altruism and unselfishness, the mental
calculus of a unique individual, an independent as well as interdependent
being. Profit is the universal spur, then, behind the spirit of
enterprise. It is a force for — as conditioned by ethics, by the
absence of fraud and force — the public interest, the social good.

Enterprise is perforce dynamic. It moves with the ebb and flow of
life, of history, of technology, high and low. It swings with the
tone of politics, with the shape of political institutions. Man,
the innate enterpriser, the potential entrepreneur, realizes that
conditions change, that the world is in a whirl, that, as Heraclitus
noticed, he can never swim in the same river twice, that he lives
in an environment of change, of uncertainty as well as scarcity,
that any one action may fail its mark, that he is inescapably a
speculator. So all human action embodies elements of entrepreneurship
and speculation.

We
are all, then, entrepreneurs and speculators in one degree or another.
Nobody is immune to the opportunities and uncertainties that life
unfolds before us. Entrepreneurship is a normal human capacity.
It can be cultivated and developed. It is a possible dream.

This
article originally appeared in the November 1985 issue of The
Freeman
. It was derived from a research program in entrepreneurship.

William
Peterson [send him mail]
is an adjunct scholar at the Ludwig von Mises Institute and the
2005 Schlarbaum Laureate.

William
H. Peterson Archives

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