Jonathan Ortmans

Building One Global Entrepreneurial Ecosystem

Month: April 2009

The First 100 Days

During the Presidential race, then candidate Barack Obama promised to support entrepreneurs and innovation. The Obama Administration is now coming up on the end of the first 100 days.  It is of course too early to be definitive about any new administration, but it is a popular milestone worthy of marking with a longer than normal post at some early indicators as to how entrepreneurs and job creators will fare under this President and Congress.

President Obama clearly understands the importance of science and technology in an innovation economy. During his campaign, he promised incentives for the information technology sector, $150 billion to fund energy R&D and technology implementation, and $50 billion for an energy venture fund, among other initiatives to foster innovation.

In his speeches, he also talked up entrepreneurship.  At the Democratic Convention, Obama said “We measure the strength of our economy not by the number of billionaires we have or the profits of the Fortune 500, but by whether someone with a good idea can take a risk and start a new business.” And on February 24, during the state of the nation address, he expressed his confidence in entrepreneurs getting us out the crisis when he said: “The weight of this crisis will not determine the destiny of this nation. The answers to our problems don’t lie beyond our reach. They exist in our laboratories and our universities, in our fields and our factories, in the imaginations of our entrepreneurs and the pride of the hardest-working people on Earth.”

Once in office, the new Administration of course faced a major distraction – the economic crisis.  While the distraction of putting out fires might excuse the absence of many proposals and actions around stimulating new entrepreneurship, the Administration has been able to take some steps. The $800 billion stimulus includes large investments in innovation in areas such as energy technology and broadband. The $22.5 billion for R&D funding in the American Recovery & Reinvestment Act (ARRA) is biggest increase in science funding since Sputnik. This funding will support projects and programs under the supervision of the NASA (1 billion), the National Science Foundation (3 billion), the Department of Energy (5.5 billion), the National Institutes of Health (10 billion), among other government agencies. It hopes to ensure we benefit from more low-carbon coal technologies (DOE), cancer research (NIH), global climate change monitoring (NASA), and from beneficiary programs in other high-priority areas.

Of note though is that most of this funding is expected to benefit shovel-ready projects. This means that the innovations these funds will support are already in the innovation pipeline. This is largely because funds must be obligated quickly (approximately 1 to 2 years) in order to jumpstart our economy in the short-term. While this might be of concern to traditional basic research, it is clearly an opportunity for savvy entrepreneurs who can take these innovations to the market. Entrepreneurs are the ones who can help ensure that this new shovel ready “R&D” funding thrust has a positive long-term impact on the economy and the labor market by ferreting out opportunities. Clearly the test will be whether there are policies and programs that adequately support start-ups and early-stage financing to help entrepreneurs make this happen.

Even though much of the Stimulus money impacts innovation already in the pipeline, basic science under the Obama Administration will fare well. This year’s budget allocations for DOE, NSF, and other agencies responsible for R&D already saw a boost. NSF received a 7% budget increase from last year and is expected to receive funding in FY2010 that is 16% over that in FY08. This helps break the trend of declining federal funding for R&D. For example, federal spending on energy R&D is about half what it was in 1980.  This is good for future science-based entrepreneurship.

We have not seen signs though of any emphasis on science education. I would hope that support for the STEM fields (Science, Technology, Engineering and Math) in higher education will receive a more attention. Only through a boost in these areas, can we hope to push for a great science advance. With high-technology sectors such as energy technology being increasingly seen as areas for “jobs of the future,” we need to ensure that we nurture the talent these areas are attracting.

Beyond science, there are some signs that entrepreneurship and the “job creation” it fosters is emerging as potentially a higher priority than initially thought. A pressing challenge these days is of course financing for start-ups. The Obama administration announced in March that the 21 largest banks receiving government money must report monthly on how much lending they do to small businesses. Even banks that are not receiving government funds have been told by the Administration to make an extra effort to increase small business lending. President Barack Obama and Treasury Secretary Timothy Geithner also unveiled last month a package aimed at small businesses, which includes reduced small-business lending fees and an increase on the guarantee to some Small Business Administration loans.

Congress is also looking to small firms, particularly to small high-tech firms to develop the new products and technologies that can rejuvenate our economy. The House Committee on Science and Technology has been examining programs that encourage innovation at small high-tech firms. Just last Thursday (04/23/2009), its Subcommittee on Technology and Innovation held a hearing on the Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs.  Both of these programs were created over 25 years ago to support and encourage small high-tech entrepreneurial firms. The authorization for SBIR and STTR expires at the end of July. The Committee is working toward a reauthorization that will structure these programs to reflect the current environment and the international competitive market American high-tech firms face.

Congress and the new Administration clearly understand that investments in science and technology foster economic growth, create millions of high-wage jobs, increase our competitiveness, and improve the quality of life for Americans. The innovations that we need can fix old problems, like the growing environmental pressures, as well as create new productivity-enhancing technologies that we do not even know we need yet. The challenge ahead for the new Administration now is coupling sustained investments in innovation with entrepreneurship.

The appointment of Karen Mills as SBA Administrator is clearly an indication that the President intends to include high growth entrepreneurs in his Administration’s job creation strategy.  We are likely, I hope, to see an SBA that embraces the needs of these job creators in addition to its traditional small business constituency.  I only hope that the creativity of exploring new ways to support our growth entrepreneurs does not get distracted by smaller debates around such issues as whether to allow equity backed start-ups access to SBIR programs.  We have yet to see what Mills will propose, but the time is ripe for statesmanlike leadership in presenting initiatives that look beyond the venture capital focused views as to how to enable great American pioneers to create jobs and help recover our economy.

After the inauguration, President Obama made clear that “the entrepreneurial spirit that is the key to our competitiveness” needs to be nurtured (2/12/2009 Address on Lincoln’s 200th Birthday).  As the Administration catches it breath, we offer a few ideas here on Entrepreneurship.org that can help create that enabling environment for tomorrow’s job creators.

Comments are welcome as always.

In Good Times & Bad, Innovation Can’t Wait

Every day—while building roads, giving inoculations, sitting at computer screens—individuals are quietly thinking:  “I know a better way to do this.”  Or:  “I could create something new that would make this easier for everyone.”

And then they go back to work, never transforming their thoughts into action.  Why does this happen, and how can we unleash these hidden ideas?

Especially in times of crisis and uncertainty, innovation can be stifled by hesitancy to risk.  People are tempted to hunker down in their cubicles until the storm passes. Yet that could be the most dangerous course.

As entrepreneurs know, timing matters in launching a new business, or improving an existing one.  If you wait too long, your great idea may become irrelevant.

Yet many workers wait until a worst-case scenario—such as a layoff or corporate bankruptcy—leaves little choice but to finally take a risk. Anecdotes abound of people who say losing their jobs was “the best thing that ever happened to me” because they finally had the impetus to follow their dreams.

But that’s an impetus no one should wait for.  Innovation is the engine that powers cultural development and economic growth—and when an idea sits stagnant, that engine stalls.

To get it moving again means fixing a number of paralyzing misperceptions.  The Kauffman Foundation’s 2008 Economic Crisis Survey reports that seventy-one percent of Americans believe the economic crisis has made it more difficult to become an entrepreneur.  While half of respondents saw a market for their ideas, only a quarter would consider starting a business within the next five years; even taking into account the economic crisis, this may be an excess of caution.

“The study shows a gulf between opportunities and those willing to seize them,” the survey reports.  Ironically, in this same survey, the majority said they trusted entrepreneurial leadership to be the force for economic revitalization and survival.

To transform economic crisis into success requires more ordinary citizens seeing the world the way entrepreneurs do:  perceiving the opportunity in the risk.  In a World Bank study in China, for instance, entrepreneurs saw economic instability as far less of a problem than did non-entrepreneurs; the former were more worried about tax law.

Of course, great opportunity does not necessarily require huge risk.  “American entrepreneurs work progressively; Russian entrepreneurs look for a breakthrough,” observed Sergey Borisov, president of a Russian public organization of entrepreneurs, during a Russian-American entrepreneurial forum.  Regardless of nationality, countless entrepreneurs have found that relatively small risks and incremental progress can yield large results. Many successful entrepreneurs got where they are today by doing so; they innovated based on processes and science they are familiar with. I encourage you too read some of the profiles on our website of entrepreneurs who started during economic downturns.

Now more than ever, it is vital to support entrepreneurial innovators who are willing to take risks with the resources and connections to make it happen.  Striking out on your own does not have to mean going it alone.  Despite the stereotype of long hours spent working solo, entrepreneurs often find they network more, not less, as they create new businesses.  Many form international alliances in which they can share strategies, get inspiration and learn smart ways to manage risk.

One of these new communities, www.unleashingideas.org, connects entrepreneurs at all levels from around the world.  It is being launched as part of Global Entrepreneurship Week, held annually the third week of November in more than 75 countries.  A visit here or with other like-minded innovators is a way of making that first move out of the cubicle to turn a great idea into a reality.

And there is no better time than now – especially if you’re already employed.  In its research study, “The Entrepreneur Next Door,” the Kauffman Foundation reported that people in the United States who already hold full- or part-time jobs are actually more likely to venture into entrepreneurship.  Many find opportunities to work within their current position to make their ideas happen, transforming and strengthening their places of employment, as the Japanese corporate model has taught.

In uncertain times like these, we need to redefine notions of risk and opportunity, and we must embrace insecurity as a necessary pathway to a brighter future.  After all, in today’s economic climate, a secure position is a relative term.  Our global economy needs massive infusions of new ideas and entrepreneurs with the discipline to develop them.  Innovators who are already employed and are willing to dare will be the ones who lead the way out of economic danger and toward greater prosperity for all of us.

In the words of Goethe, “The dangers of life are infinite; among them is safety.”

Succeeding Through Failure

“Lizard King” John Bello describes his first entrepreneurial venture as a miserable failure. Bello launched South Beach Beverage Co. in 1995. Despite the popularity of other geo-based drink brands such as Nantucket Nectars and AriZona iced tea, South Beach didn’t resonate with consumers, not even in the upscale Florida community that shared its name. Within two months, Bello knew the $2 million startup investment was heading, well, south.

Rather than retreat, Bello opted to examine the reasons behind his failure, discovering a lackluster label and uninventive flavors among the chief culprits. Armed with this knowledge, he mortgaged his house and went back to the drawing board. He reemerged with SoBe: a beverage boasting herb-infused formulas and an energetic brand complete with athlete endorsements. In 2000, Bello sold his development—with its now-famous reptilian icon—to PepsiCo for $370 million.

Bello represents entrepreneurialism at its best. His and countless other stories illustrate the central role failure plays in the entrepreneurial process. Indeed, the ideal environment for innovation not only celebrates success, but also accepts—if not encourages—failure.

The United States enjoys a longstanding belief that failure is merely a pit stop on the way to success. Thomas Edison conducted more than 10,000 failed experiments before turning on the first incandescent light bulb. Milton Hershey faced three unsuccessful starts before satisfying the American sweet tooth. Even Steven Jobs confronted failure when Apple fired him from the company he created—only to welcome him back to transform the marketplace once again, this time with the iPod and iPhone.

Unfortunately, similar stories are far too infrequent around the world. Failure—and the economic growth that its lessons stimulate—is not an option in every culture.

In Japan, a severe stigma surrounding failure thwarts entrepreneurialism, as does a cultural bias against individual over group behavior, plus a host of economic and trade policies. The country’s best and brightest don’t dare risk their careers on a small startup, according to the MIT Entrepreneurship Center. Instead, they seek security in the government and at big, mature companies—neither of which are known as hotbeds of innovation.

In many parts of Europe, would-be entrepreneurs face a double whammy—a stigma for both failure and success. As in Japan, cultures that do not accept failure breed an aversion to risk. Even worse, a zero-sum belief in distributed wealth suggests that if one person gets richer, someone else must have grown poorer. Many successful European entrepreneurs either hide their wealth or relocate to more entrepreneur-friendly countries.

Countries that do not accept failure risk missing out on significant benefits to grow their economies and improve the livelihoods of their citizens. Their “failure is not an option” mindset stands in distinct contrast to that of those providing risk capital who have reaped big rewards from putting their fears aside. Research shows that angel investors for example often have a tolerant, open-minded attitude toward failure. Previous failed startups have minimal, if any, negative effect on their decision to invest in an entrepreneurial venture.

In fact, evidence suggests venture capitalists often see failure as an asset—not a liability—in an entrepreneur’s record. Why? Because failure suggests a tolerance for risk, a perseverance to succeed and, most important, a passion to push the envelope.

In terms of ROI, failure can imply hard-fought lessons likely to pay off in the future. And for many entrepreneurs, the next opportunity lies just around the corner. These “serial entrepreneurs” start one company after another. If one venture fails, they know when to call it quits, learn from their mistakes and move on. If another beats the odds, they stick around and grow the company—at least until the culture turns corporate.

During Global Entrepreneurship Week, November 16–22, young entrepreneurs from all over the world will have the chance to share the lessons of failure and find inspiration in experience. Visiting unelashingideas.org will help them realize that learning to fall is an important part of learning to stand.

A true entrepreneurial economy can thrive only in a culture that allows people to make mistakes, learn and try anew. As Henry Ford once said: “Failure is simply the opportunity to begin again, this time more intelligently.”

Entrepreneurship in Education

Last week, I argued in favor more high-skilled immigration to bring additional entrepreneurial talent into the country for the near future.Today, I want to focus on an urgent policy issue that needs to be addressed to produce results over the long-run. Improvements in education are essential to equipping American citizens with entrepreneurial skills. Creative thinking and prudent risk-taking are no different than any other skills people are born with; they are likely to be useless unless the skill is developed through education and experience.
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