This guest post is by Rupert Merson, an adjunct associate professor of strategic and international management and entrepreneurship at London Business School. His next book, “A Guide to Managing Growth,” will be published by The Economist next year.
We all remember the kid who sold sweets to his friends on the school playground. Although it’s difficult to generalize, entrepreneurs do seem to share some traits. But is that enough to say that entrepreneurship is more about your DNA than MBA?
Harvard Business School Professor W.A. Sahlman defines entrepreneurship as “the relentless pursuit of opportunity without regard to tangible resources currently controlled.” Translated into everyday speech, Sahlman’s terminology means that entrepreneurs are those who will say, “I haven’t got the money, the people or the materials you might expect of someone looking to put together a new business — but I’m determined to do it anyway.”
Likewise, there’s something common in entrepreneurs’ attitude toward risk. Experimental evidence suggests that most individuals will rather take a risk to avoid a loss than realize a gain. In other words, most individuals are more likely to worry about last year’s mistake than next year’s opportunity. Entrepreneurs seem to be different. They take risks and capitalize on opportunity — a bit of gambling one might say.
So what are some other common traits that entrepreneurs possess? They look forward rather than backward and they don’t dwell on last year’s disaster. From this perspective, it’s no surprise that entrepreneurs and accountants often struggle to understand each other. Far from being inclined to look forward, accountants are typically trained for years to create complex financial reports that describe the past and are often out of date even before they are published.
But entrepreneurs are not defined by what they are, but by what they do, which is often a product of circumstance. Many businesses have been born when their founders were “let go” in the recession. Under other conditions, many entrepreneurs might not have made the decision on their own. According to Dane Stangler in a report for the Kauffman Foundation, ”good things do grow out of recessions. Hundreds of thousands of individuals do not wait for others to ease their economic pain — they create jobs for themselves and others.”
And in many cases, the recession has spurred entrepreneurs to “take the bull by the horns,” starting up ventures that have thrived well beyond the tough market. For instance, a recent Cambridge University study suggested that high-tech firms were more successful if started in tough times. Looking for further support of this? Cambridge high-tech businesses founded in the recession of the 1990s enjoyed consistently better survival rates than those started in the boom years that followed. Indeed, boom times aren’t necessarily hot-beds of opportunity. In the few years leading up to 2008, when people earned more money from their houses than their salaries, it seemed that businesses in the financial sector could spirit profit out of thin air — into which much of it then disappeared along with the financial products from which they were derived.
So back to the age-old question — are entrepreneurs born or made? At London Business School, we believe that, though some individuals will take to it more naturally than others, entrepreneurial skills can at the very least be much improved in the classroom. Not surprisingly, many of our MBA students come to us after successful careers in big companies. But we know that a significant proportion of them will go on to found successful businesses. And we know for sure that it’s not additional genes they have picked up in the classroom, but new skills and understanding.
As we begin to see new companies emerge from the current down economy, what do you think?