According to The Economist, , new businesses are being start- ed in the United States every year now—about seven times as many as were started in each of the boom years of the fifties and sixties. Of the 40 million-plus jobs created since in the economy, high technology did not contribute more than 5 or 6 million. All the additional jobs in the economy were generated elsewhere. Three hundred years of technology came to an end after World War II.
During those three centuries the model for technology was a mechanical one: the events that go on inside a star such as the sun. They ended when we replicated in the nuclear explosion the events inside a star. For these three centuries advance in technology meant—as it does in mechanical process- es—more speed, higher temperatures, higher pressures.
They are organized around informa- tion. There is no doubt that high tech, whether in the form of comput- ers or telecommunication, robots on the factory floor or office automation, biogenetics or bioengineering, is of immeasurable quali- tative importance.
High tech provides the excitement and the head- lines. It creates the vision for entrepreneurship and innovation in the community, and the receptivity for them. High tech also probably stimulated the astonishing transformation of the American capital market from near-absence of venture capital as recently as the mid-sixties to near-surplus in the mid-eighties. High tech is thus what the logicians used to call the ratio cognoscendi, the reason why we perceive and understand a phenomenon rather than the explanation of its emergence and the cause of its existence.
Quantitatively, as has already been said, high tech is quite small still, accounting for not much more than one-eighth of the new jobs. Nor will it become much more important in terms of new jobs with- in the near future. Between now and the year , no more than one- sixth of the jobs we can expect to create in the American economy will be high-tech jobs in all likelihood.
In fact, if high tech were, as most people think, the entrepreneurial sector of the U. Every fifty years, so Kondratieff asserted, a long technological wave crests. For the last twenty years of this cycle, the growth industries of the last techno- logical advance seem to be doing exceptionally well. But what look like record profits are actually repayments of capital which is no longer needed in industries that have ceased to grow.
There follow twenty years of stagnation, during which the new, emerging technologies cannot gener- ate enough jobs to make the economy itself grow again—and no one, least of all government, can do much about this. Technologically, all of them go back to the fourth quarter of the nineteenth century or, at the very latest, to before World War I.
In none of them has there been a significant breakthrough since the s, whether in technology or in business concepts. When the economic growth began after World War II, they were all thoroughly mature industries. The indus- tries were corroding from within. They did not become stagnant or decline slowly. Within a few years they went from record profits to near-bankruptcy. As soon became abundantly clear, they will not be able to return to their earlier employment levels for a long time, if ever.
As Kondratieff had predicted, they have so far not been able to generate more jobs than the old industries have been losing. All projections indicate that they will not do much more for long years to come, at least for the rest of the cen- tury. In fact, petroleum ceased to be a growth industry around Since then the incremental unit of petroleum needed for an additional unit of output, whether in manufacturing, in transportation, or in heating and air conditioning, has been falling—slowly at first but rapidly since But the Kondratieff theory fails totally to account for the 40 million jobs which the American economy actually did create.
Western Europe, to be sure, has so far been following the Kondratieff script. But not the United States, and perhaps not Japan either.
Nor does it appear at all likely that we have simply postponed the Kondratieff cycle. For in the next twenty years the need to cre- ate new jobs in the U. And with the labor force participation of women under fifty already equal to that of men, additions to the number of women available for paid jobs will from now on be lim- ited to natural growth, which means that they will also be down by about 30 percent.
For all their tremendous qualitative importance as vision makers and pacesetters, quantitatively the high- tech industries represent tomorrow rather than today, especially as creators of jobs. They are the makers of the future rather than the makers of the present. But as a theory of the American economy that can explain its behavior and predict its direction, Kondratieff can be considered dis- proven and discredited. The 40 million new jobs created in the U. Quite the contrary.
A major shift in the technological foundations of the economy such as we are experiencing in the closing quarter of the twentieth century surely presents tremendous problems, econom- ic, social, and political. We are also in the throes of a major political crisis, the crisis of that great twentieth-century success the Welfare State, with the attendant danger of an uncontrolled and seemingly uncontrollable but highly inflationary deficit.
And then there is the frighten- ing specter of the runaway armaments race. But at least one of the fears abroad these days, that of a Kondratieff stagnation, can be con- sidered more a figment of the imagination than reality for the United States. There we have a new, an entrepreneurial economy. It is still too early to say whether the entrepreneurial economy will remain primarily an American phenomenon or whether it will emerge in other industrially developed countries.
In Japan, there is good rea- son to believe that it is emerging, albeit in its own, Japanese form. But whether the same shift to an entrepreneurial economy will occur in western Europe, no one can yet say. Equally, the shift to much longer years of schooling started in western Europe some ten years later than in the United States or in Japan; and in Great Britain it has barely started yet. If, as is quite like- ly, demographics has been a factor in the emergence of the entrepre- neurial economy in the United States, we could well see a similar development in Europe by or But this is speculation.
So far, the entrepreneurial economy is purely an American phenomenon. III Where did all the new jobs come from? The answer is from anywhere and nowhere; in other words, from no one single source. The magazine Inc. High tech is fashionable. Other new ventures, as a rule, can go public only after long years of seasoning, and of showing profits for a good deal more than five years.
New York had as many of these fast-growing, young, publicly owned companies as California or Texas. And Pennsylvania, New Jersey, and Massachusetts—while supposedly dying, if not already dead—also had as many as California or Texas, and as many as New York.
Snowy, Minnesota, had seven. The Inc. In , the first and second companies on another Inc. Any inquiry among venture capitalists yields the same pattern. Indeed, in their portfolios, high tech is usually even less promi- nent. The portfolio of one of the most successful venture capital investors does include several high-tech companies: a new com- puter software producer, a new venture in medical technology, and so on.
But the most profitable investment in this portfolio, the new company that has been growing the fastest in both revenues and profitability during the three years —83, is that most mundane and least high-tech of businesses, a chain of barbershops. Among the businesses I know personally, the one that has created the most jobs during the five years —84, and has also grown the fastest in revenues and profits, is a financial services firm.
Within five years this firm alone has created two thousand new jobs, most of them exceedingly well paid. Though a member of the New York Stock Exchange, only about one-eighth of its business is in stocks.
The most revealing source of information about the growth sectors of the U. The Fortune have been los- ing jobs steadily since But these mid-sized growth companies added jobs between and at three times the rate of job growth in the entire U. Even in the depression years —82 when jobs in U.
The companies span the economic spectrum. There are high-tech ones among them, to be sure. Cavenaugh and Donald K. Clifford, Jr. To make things more confusing still, the growth sector of the U. The most visi- ble of these are, of course, in the health-care field. The traditional American community hospital is in deep trouble these days. The public schools are shrinking in almost every American com- munity.
In the small California city in which I live, a neighborhood babysitting cooper- ative, founded around by a few mothers for their own children, had by grown into a school with two hundred students going on into the fourth grade. Continuing education of all kinds, whether in the form of executive manage- ment programs for mid-career managers or refresher courses for doctors, engineers, lawyers, and physical therapists, is booming; even during the severe —83 recession, such programs suffered only a short setback.
The city of Lincoln, Nebraska, has been a pioneer in this area since Helen Boosalis was first elected mayor in —the same Lincoln, Nebraska, where a hundred years ago the Populists and William Jennings Bryan first started us on the road to municipal ownership of public services. Control Data Corporation, a leading computer manufacturer also in Minneapolis, is building public- private partnerships in education and even in the management and reha- bilitation of prisoners. IV Is there anything at all that these growth enterprises have in common other than growth and defiance of the Kondratieff stagnation?
Once this is seen, then the astonishing job growth of the American economy during the last twenty, and especially the last ten years can be explained. It can even be reconciled with the Kondratieff theory. The first Kondratieff cycle, based on the railway boom, came to an end with the crash of the Vienna Stock Exchange in , a crash that brought down stock exchanges worldwide and ushered in a severe depression.
But this did not happen in the United States or in Germany, or indeed in Austria, despite the traumatic impact of the Viennese stock market crash from which Austrian politics never quite recovered. These countries were severely jolted at first. Five years later they had pulled out of the slump and were growing again, fast. What explains their different economic behavior was one factor, and one factor only: the entrepreneur. In Germany, for instance, the single most important economic event in the years between and was surely the creation of the Universal Bank.
In the economic history of the United States the entrepreneurial bankers such as J. Morgan in New York played a similar role. Today, something very similar seems to be happening in the United States and perhaps also to some extent in Japan. There are, of course, plenty of exceptions, high-tech companies that know well how to manage entrepreneurship and innovation. But then there were exceptions during the nineteenth century, too.
There was the German, Werner Siemens, who founded and built the com- pany that still bears his name. There was George Westinghouse, the American, a great inventor but also a great business builder, who left behind two companies that still bear his name, one a leader in the field of transportation, the other a major force in the electrical appa- ratus industry.
His real ambition, however, was to be a business builder and to become Georg Siemens and the Universal Bank, see Chapter 9. Yet he so totally mismanaged the businesses he started that he had to be removed from every one of them to save it.
Most of Silicon Valley—but most of the new biological high-tech companies as well—are still inventors rather than innovators, still speculators rather than entrepreneurs. And this, too, perhaps explains why high tech so far conforms to the Kondratieff prediction and does not generate enough jobs to make the whole economy grow again. V Of all the major modern economists only Joseph Schumpeter con- cerned himself with the entrepreneur and his impact on the economy. Every economist knows that the entrepreneur is important and has impact.
And so too, for economists, is technology. Economists do not, in other words, have any explanation as to why entrepreneurship emerged as it did in the late nineteenth century and as it seems to be doing again today, nor why it is limited to one country or to one culture.
Indeed, the events that explain why entrepreneurship becomes effective are probably not in themselves economic events. The causes are likely to lie in changes in values, perception, and attitude, changes perhaps in demographics, in institu- tions such as the creation of entrepreneurial banks in Germany and the United States around , perhaps changes in education as well.
Something, surely, has happened to young Americans—and to fair- ly large numbers of them—to their attitudes, their values, their ambi- tions, in the last twenty to twenty-five years.
Only it is clearly not what anyone looking at the young Americans of the late s could possibly have predicted. Whatever the explanation, it does not fit in with what all the soothsayers of the last thirty years—David Riesman in The Lonely Crowd, William H. Surely the emergence of the entrepreneurial economy is as much a cultural and psychological as it is an economic or technological event. Yet whatever the causes, the effects are above all economic ones.
Its early shoots came up in the mids. But management as a discipline originated during and right after World War II. It then rapidly became a discipline rather than the hit-or-miss practice of a few isolated true believers.
It may not be solely or even primarily responsible for the fact that society in every single developed country has become since World War II a society of organizations. But the fundamentals are reasonably well known by now. Indeed, what was an esoteric cult only forty years ago, when most executives even in large companies did not in fact realize that they practiced manage- ment, now has become commonplace. This twenty-five-year trend toward building bigger organizations in every social sphere—business, labor union, hospital, school, uni- versity, and so on—had many causes.
But the belief that we knew how to manage bigness and did not really know how to manage small enterprises was surely a major factor. It had, for instance, a great deal to do with the rush toward the very large consolidated American high school.
For almost fifty years, ever since the s, it was widely believed in the United States and in western Europe too that the hospital was the best place for anyone not quite well, let alone for anyone seriously sick. In the last few years, we have been reversing this trend. We now increasingly believe that the longer we can keep patients away from the hospital and the sooner we can get them out, the better.
Surely this reversal has little to do with either health care or with management. To take a specific example, hamburger stands have been around in the United States since the nineteenth century; after World War II they sprang up on big-city street corners. All of which is management, and fairly advanced management at that. Management is the new technology rather than any specific new science or invention that is making the American economy into an entrepreneurial economy.
It is also about to make America into an entrepreneurial society. Indeed, there may be greater scope in the United States—and in developed societies generally—for social innovation in education, health care, government, and politics than there is in business and the economy.
This means that the time has now come to do for entrepreneurship and innovation what we first did for management in general some thirty years ago: to develop the principles, the practice, and the disci- pline.
It is capable of being presented as a discipline, capa- ble of being learned, capable of being practiced. Entrepreneurs need to search purposefully for the sources of innovation, the changes and their symptoms that indicate opportunities for successful innovation. And they need to know and to apply the principles of successful inno- vation. But not every new small business is entrepreneurial or represents entrepreneurship.
The husband and wife who open another delicatessen store or another Mexican restaurant in the American suburb surely take a risk. But are they entrepreneurs? All they do is what has been done many times before. They gamble on the increasing popularity of eating out in their area, but create neither a new satisfaction nor new consumer demand. Seen under this perspective they are surely not entrepreneurs even though theirs is a new venture. It did not invent anything, to be sure. Its final product was what any decent American restaurant had produced years ago.
This is entrepreneurship. The science needed is well known; indeed, the company does little that has not been done before. But in the first place the founders systematized the technical information: they can now punch the performance specifications into their computer and get an immediate printout of the treatment required. Secondly, the founders systematized the process. Few orders run to more than half a dozen pieces of the same dimension, the same metallic composition, the same weight, and the same performance specifications.
Yet the castings are being produced in what is, in effect, a flow process rather than in batches, with computer-controlled machines and ovens adjusting them- selves. Precision castings of this kind used to have a rejection rate of 30 to 40 percent; in this new foundry, 90 percent or more are flawless when they come off the line.
And the costs are less than two-thirds of those of the cheapest competitor a Korean shipyard , even though the Midwestern foundry pays full American union wages and benefits. Admittedly, all new small businesses have many factors in com- mon. But to be entrepreneurial, an enterprise has to have special char- acteristics over and above being new and small.
Indeed, entrepreneurs are a minority among new businesses. They create something new, something different; they change or transmute values. An enterprise also does not need to be small and new to be an entrepreneur.
Indeed, entrepreneurship is being practiced by large and often old enterprises. The General Electric Company G. And G. Its financing arm, G. Credit Corporation, in large measure triggered the upheaval that is transforming the American financial system and is now spreading rapidly to Great Britain and western Europe as well. Credit in the sixties ran around the Maginot Line of the financial world when it discovered that commercial paper could be used to finance indus- try.
Marks and Spencer, the very large British retailer, has probably been more entrepreneurial and innovative than any other company in western Europe these last fifty years, and may have had greater impact on the British economy and even on British society, than any other change agent in Britain, and arguably more than government or laws. Again, G. Finally, entrepreneurship is by no means confined solely to eco- nomic institutions.
No better text for a History of Entrepreneurship could be found than the creation and development of the modern university, and espe- cially the modern American university. The modern university as we know it started out as the invention of a German diplomat and civil ser- vant, Wilhelm von Humboldt, who in conceived and founded the University of Berlin with two clear objectives: to take intellectual and scientific leadership away from the French and give it to the Germans; and to capture the energies released by the French Revolution and turn them against the French themselves, especially Napoleon.
In , the United States had no more than half the college students it had had in , even though the population had nearly tripled. They have constituted a major growth sector in American higher education in the last thirty years. Most of these new schools seem to differ little from the older institutions in their curriculum. They represent entrepreneurship. And the minority that is still has all the characteristics, all the problems, all the identifying marks of the service institution.
Whereas English speakers identify entrepreneurship with the new, small business, the Germans identify it with power and property, which is even more misleading.
But the first attempts to create systematic entrepreneurship— the entrepreneurial bank founded in France in by the Brothers Pereire in their Credit Mobilier, then perfected in across the Rhine by Georg Siemens in his Deutsche Bank, and brought across the Atlantic to New York at about the same time by the young J.
Morgan—did not aim at ownership. The earlier bankers, the Rothschilds, for example, became own- ers. Whenever they built a railroad, they financed it with their own money. The entrepreneurial banker, by contrast, never want- ed to be an owner. He made his money by selling to the general public the shares of the enterprises he had financed in their infan- cy. And he got the money for his ventures by borrowing from the general public.
Nor are entrepreneurs capitalists, although of course they need capital as do all economic and most noneconomic activities. They are not investors, either. They take risks, of course, but so does anyone engaged in any kind of economic activity. The essence of economic activity is the commitment of present resources to future expectations, and that means to uncertainty and risk.
The entrepreneur is also not an employer, but can be, and often is, an employee—or someone who works alone and entirely by himself or herself. Entrepreneurship is thus a distinct feature whether of an individual or of an institution.
It is not a personality trait; in thirty years I have seen people of the most diverse personalities and temperaments perform Management Tasks, Responsibilities, Practices, but also Chapter 14 of this book, Entrepreneurship in the Service Institution. To be sure, people who need certain- ty are unlikely to make good entrepreneurs. But such people are unlike- ly to do well in a host of other activities as well—in politics, for instance, or in command positions in a military service, or as the captain of an ocean liner.
In all such pursuits decisions have to be made, and the essence of any decision is uncertainty. But everyone who can face up to decision making can learn to be an entrepreneur and to behave entrepreneurially.
Entrepreneurship, then, is behavior rather than personality trait. And its foundation lies in concept and theory rather than in intuition. II Every practice rests on theory, even if the practitioners themselves are unaware of it. Entrepreneurship rests on a theory of economy and society.
The theory sees change as normal and indeed as healthy. And it sees the major task in society—and especially in the econo- my—as doing something different rather than doing better what is already being done. This is basically what Say, two hundred years ago, meant when he coined the term entrepreneur. It was intended as a manifesto and as a declaration of dissent: the entrepreneur upsets and disorganizes. But his own contribution to eco- nomic thought, the concept of the entrepreneur and of entrepreneur- ship, is independent of classical economics and indeed incompatible with it.
Classical economics optimizes what already exists, as does mainstream economic theory to this day, including the Keynesians, the Friedmanites, and the Supply-siders. It focuses on getting the most out of existing resources and aims at establishing equilibrium. But they are not part of his world, not accounted for in his model, his equa- tions, or his predictions. Joseph Schumpeter was the first major economist to go back to Say. In his classic Die Theorie der Wirtschaftlichen Entwicklung The Theory of Economic Dynamics , published in , Schumpeter broke with traditional economics—far more radically than John Maynard Keynes was to do twenty years later.
Say was primarily concerned with the economic sphere. But the resources of education are, of course, economic. They are in fact identical with those used for the most unambiguously economic purpose such as making soap for sale.
Hence entrepreneurship is by no means limited to the economic sphere although the term originated there. The entrepreneur in education and the entrepreneur in health care—both have been fertile fields—do very much the same things, use very much the same tools, and encounter very much the same problems as the entrepreneur in a business or a labor union. Entrepreneurs see change as the norm and as healthy. Usually, they do not bring about the change themselves.
III Entrepreneurship, it is commonly believed, is enormously risky. And, indeed, in such highly visible areas of innovation as high tech—micro- computers, for instance, or biogenetics—the casualty rate is high and the chances of success or even of survival seem to be quite low. But why should this be so? Entrepreneurs, by definition, shift resources from areas of low productivity and yield to areas of higher productivity and yield.
Of course, there is a risk they may not suc- ceed. But if they are even moderately successful, the returns should be more than adequate to offset whatever risk there might be. One should thus expect entrepreneurship to be considerably less risky than optimization. Indeed, nothing could be as risky as optimizing resources in areas where the proper and profitable course is innova- tion, that is, where the opportunities for innovation already exist.
Theoretically, entrepreneurship should be the least risky rather than the most risky course. In fact, there are plenty of entrepreneurial organizations around whose batting average is so high as to give the lie to the all but uni- versal belief in the high risk of entrepreneurship and innovation.
For more than seventy years— from the design of the first automatic switchboard around until the design of the optical fiber cable around , including the inven- tion of transistor and semiconductor, but also basic theoretical and engineering work on the computer—Bell Lab produced one winner after another. The Bell Lab record would indicate that even in the high-tech field, entrepreneurship and innovation can be low-risk. This is only a small sample of the entrepreneurs who somehow innovate at low risk.
Surely there are far too many of them for low-risk entrepre- neurship to be a fluke, a special dispensation of the gods, an accident, or mere chance. There are also enough individual entrepreneurs around whose bat- ting average in starting new ventures is so high as to disprove the pop- ular belief of the high risk of entrepreneurship.
They lack the methodology. They violate elementary and well-known rules. It uses cases, but primarily to exemplify a point, a rule, or a warning, rather than as success stories. The work thus differs, in both intention and execu- tion, from many of the books and articles on innovation and entre- preneurship that are being published today. It shares with them the belief in the importance of innovation and entrepreneurship.
Indeed, it considers the emergence of a truly entrepreneurial economy in the United States during the last ten to fifteen years the most significant and hopeful event to have occurred in recent economic and social his- tory.
Part I on the Practice of Innovation presents innovation alike as purposeful and as a discipline. It shows first where and how the entre- preneur searches for innovative opportunities. The volume addresses such questions as: From an institutional perspective, how do economic crisis conditions affect different types of entrepreneurs and entrepreneurship?
How can management be developed to create the greatest wealth for society as a whole? This is the question Peter Drucker sets out to answer in Innovation and Entrepreneurship. He argues that what defines an entrepreneur is their.
Developed notably for undergraduate school college students, Innovation and Entrepreneurship is an accessible, introductory textual content material written primarily for these studying business and administration however as well as engineering and science ranges with administration packages. The book choices trendy functions harking back to suppliers public and private , innovation for sustainability, social entrepreneurship, innovation for enchancment, and creating and capturing value from innovation and entrepreneurship.
On this second model, the authors develop an particular course of model of entrepreneurship with clearer hyperlinks between innovation and entrepreneurship. The second model moreover choices an in depth assortment of web-based provides, along with: tools to assist innovation and entrepreneurship, audio and video situations, choices information, testbank, additional case analysis and image archive.
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