Investing in entrepreneurs who have “no chance” at success squanders resources and “misdirects human capital,” said Thomas Duening, El Pomar Chair for Business and Entrepreneurship in the College of Business at the University of Colorado at Colorado Springs.
For instance, “an unemployed worker who has been downsized, starts a low-growth company and struggles for two years and fails — he or she could have spent that two years retraining for a better position,” Duening said.
Being an entrepreneur takes far more than capital, a few ideas and courage. And for those who believe that it’s all about the bottom line and profit — that’s an upside-down perspective.
“The pathway to wealth is inherently ethical — it’s not about creating profit, but creating value,” Duening said. This value is what uplifts a society because economics is the driver of culture. “At the end of the day, you can’t do good if people are hungry. And, I believe in education as an economic driver. You provide value to a region by bringing them up to a certain level of education.”
And the best economic development occurs between those who have the capital and those who have the ideas — they have symmetrical goals, he said.
As for ideas, any service or activity has to be market driven. And age doesn’t hurt, either.
“Most 18- to 22-year-olds are not prepared to run a company,” he said. “The average age of a first-time technology entrepreneur is 39.”
Although technology start-ups have been especially in vogue this century, a successful company requires leadership and “logic that differs from traditional causal logic.”
The premise of causal logic is that if people set clear goals and follow specific steps — they will be successful. Most people use this logic and it works fabulously — for things such as saving money, losing weight and quitting bad habits, etc.
But technology leaders, such as Meg Whitman, former CEO of eBay, Steve Jobs, co-founder of Apple, and Bill Gates, co-founder of Microsoft, were entrepreneurs earlier in life, and their “future was uncertain, goals unclear and the path to success littered with ambiguity,” Duening said.
Their logic was not causal — it was “effectuation logic,” which is based on the notion that “multiple alternative goals can be achieved — any one of which would constitute a successful outcome,” Duening said.
Each of them started a company with the idea of changing the world — and each likely exceeded his or her own expectations.
But what matters — to leaders who are creating the future — is which resources are available, and how they can be deployed profitably.
As Gates, Whitman and Jobs “struggled each day to create a better future,” they didn’t envision the global impact their companies would have.
But as technology leaders, they were “comfortable with pursuing an unknown and unknowable future,” Duening said. “They were not averse to uncertainty and ambiguity.”
People who psychologically need a steady paycheck or a “prescribed future,” don’t exactly fit the parameters of an entrepreneur.
However, would-be entrepreneurs, who are undeterred after reading this column, can learn effectuation logic.
Here are five of the underlying principles of effectuation logic, which Duening espouses.
“Affordable loss principle — invest only what you can afford to lose; bird-in-hand principle — start with what you have, who you are and whom you know; crazy quilt principle — build networks of self-selected, committed individuals; lemonade principle — embrace and leverage ambiguity and change; pilot-in-the-plane principle — the future is created by what people do.”
For those aspiring to entrepreneurial leadership, ask yourselves Duening’s questions: “Given who you are, what you know and whom you know — what types of economic and/or social artifacts can you, should you, create? What types of ideas and opportunities should you (emphasis on “you,” not your colleague or friend) pursue?”
And, contrary to the popular belief of entitlement — wealth has to be created.
Entrepreneurs are “constrained in a productive way by free market economics. You only find out what’s right and true by going out in this world and sticking your beak out,” Duening said.
“When a society is so fat that it thinks we can just reallocate wealth instead of creating value — then we die.”
Rebecca Tonn covers banking and finance for the Colorado Springs Business Journal.