As we celebrate our tenth Global Entrepreneurship Week (GEW), Carl Schramm, who was instrumental in the founding of GEW while leading the Kauffman Foundation from 2002 to 2012, gave me an opportunity to review his new book, Burn the Business Plan: What Great Entrepreneurs Really Do. A University Professor at Syracuse, Schramm is a successful entrepreneur, having founded or co-founded five companies; an economist; and, a world leading expert on entrepreneurship, innovation and economic growth.
Over his career Schramm has met and talked with thousands of entrepreneurs, including the most storied founders of our time. While at Kauffman, Schramm kicked off innovative new research into how new firms are created, which produced “a torrent of empirical insights on entrepreneurs.” In Burn the Business Plan, Schramm combines the science of entrepreneurship together with real world, behind-the-scenes experiences from the conversations he has had with entrepreneurs.
The result is a book written by an entrepreneur about entrepreneurs for aspiring entrepreneurs. But, because it is full of eye-opening findings from recent research, everyone in the field will enjoy and benefit from this engaging book.
It consists of nine chapters. The first four chapters speak to the “what” of business startups. In Chapter 2, Schramm sets out 12 things every aspiring entrepreneur should know. One is “starting a company is not for kids.” Schramm points to recent research dispelling what he calls the “Mozart Myth” of entrepreneurship, that most entrepreneurs are young tech-savvy recent college graduates (or dropouts). In fact, he points out that:
- Most entrepreneurs start their companies after they are well along in their careers;
- The average entrepreneur is nearly 40 years old;
- More than 80 percent of all new companies are started by people over 35;
- The average entrepreneur was an employee for almost 15 years before launching a startup;
- More entrepreneurs are between 45 and 55 than any other cohort;
- Entrepreneurs over 55 create more companies than those under 35; and,
- The chances of a new company surviving rises with the age of the entrepreneur.
For entrepreneurship support organizations, these facts may require a shift in focus to more mature, more experienced people. A great many entrepreneurs, Schramm has found, consider starting a company long before they actually take the leap. “It appears that, subliminally, they had been considering for years how to work for themselves or how owning a business could be their right next step.”
This pre-entrepreneurial phase is often overlooked or dismissed because the popular misconception is that “business ideas come on like brainstorms and, once someone has one, they can’t help but charge forward.” Giving people a pre-entrepreneurial chance to meet and talk with entrepreneurs and get a sense of what starting a company would be like is the reason Global Entrepreneurship Week has been so successful and continues to flourish in nearly every country on earth.
The second four chapters are filled with lessons learned by entrepreneurs. A key insight is that “entrepreneurs most often are the creatures of circumstance.” Most of the entrepreneurs Schramm has met and profiled in the book he describes as “accidental” entrepreneurs. Schramm recounts how Richard Branson, who just opened GEW with me a couple of days ago at our new Startup Campus in South Africa, says he became an entrepreneur “by a happy ‘mistake,’ calling his first record company ‘Virgin’ because, he said, he knew nothing about business.” Branson once defined an entrepreneur as, “Someone who jumps off a cliff and builds an airplane on the way down.” While every entrepreneur understands this metaphor in very personal terms, Schramm points out that Branson had worked in the record business for many years observing how the industry worked, and forming views about better ways to make records, pay artists, and market music. Well before he jumped off the cliff, “Branson had developed a comprehensive critique of the industry that he was about to revolutionize.”
In addition to Branson, Schramm has had conversations with many famous entrepreneurs. He notes that when they reflect the “good old days” they invariably say they were anything but, “and that their successes were anything but likely.” Common to the stories he recounts is that most startups, even those that are built on great ideas and successful execution, take a long time to bloom. Howard Head, who founded Head skis and later Prince tennis rackets, told Schramm that that it takes about twice as long for a new product to become accepted by the market as it takes to invent it. It took Head more than ten years after he had developed a better ski before skiers understood what he’d accomplished. Schramm says this basic 2:1 ratio holds true today: “All innovation results from taking a new idea to market, absorbing customer feedback to improve its design, and repeating or iterating the process until the market is receptive.”
In the last chapter Schramm sets out his views of what successful entrepreneurs do to build great new companies that survive and flourish. The ideas are distilled from the experiences of entrepreneurs recounted earlier in the book and reflect his own experiences founding companies, meeting and talking to thousands of entrepreneurs, and the data-derived facts from the large databases like those the Kauffman Foundation has funded to capture the history of thousands of startups. Read the book for the full list, but in brief, Schramm argues that aspiring entrepreneurs should:
- Be ready when your entrepreneurial moment comes;
- Make innovation happen;
- Be realistic about time;
- Build their company as their life;
- Be all in;
- Learn to manage chaos;
- Help their customers like their product;
- Guard their reputation (by delivering what they promise);
- Practice before they start; and,
- Remember there are no rules and they are playing for keeps.
I share Schramm’s emphasis on “practicing before you start.” He argues convincingly that before innovating within an industry or especially before disrupting it, you have to understand it, and the best way to do that is to work within it. Chapter 6 focuses on the many ways that existing companies are “schools for aspiring entrepreneurs.” Noting studies finding that nearly 90 percent of all entrepreneurs have worked for other employers for an average of nearly ten years before starting their own companies, Schramm profiles Art Ciocca, who founded The Wine Group, the second largest wine distributer in the U.S. Similar to Branson, Schramm says, “Ciocca never saw himself becoming an entrepreneur. He was climbing the corporate ladder [at beverage industry leader Coca-Cola] when an unexpected situation changed everything. His experience, however, is more common than you might think. Research shows that mature large companies cradle thousands of spin-out businesses.”
Schramm is dead on. For any aspiring entrepreneur, it is worth keeping in mind that big companies produce more innovation than they can ever absorb and that about ten percent of all new ventures result from their founder’s experience with their last employer. In our GEN communities across the world we see an exponential jump in this regard as more companies who fear being disrupted by new upstart models arising from digital transformation, clamor to avail themselves to communities of innovators and thinkers seeking some navigators to the future. It is one of the reasons GEN’s logo is called the Compass.
Schramm reminds us that “a continuing stream of new businesses is critical to society’s growth and advancement.” He cautions, however, this often leads to the mistaken message of entrepreneurship support organization leaders that the world will welcome them with open arms. In reality, Schramm notes, “the market is seldom happy to see a new company. Many entrepreneurs with great new ideas threaten markets occupied by big incumbent corporations.”
Schramm presents some specific program ideas including a potential paradigm shifting educational model called Challenge-Based Learning (CBL) developed by Apple to address a lack of progress in its educational support efforts. Finding that the most significant impediment was the traditional classroom method in which all students are expected to learn the same thing at the same time, with the teacher controlling the pace, CBL enables individual students to teach themselves through learning-by-doing, which is one of Schramm’s 12 things every entrepreneur should know. CBL has been proven to be highly effective. Students see learning in the context of solving an important question, which contributes to the store of knowledge about the topic he or she chooses to study. It reflects the way that successful entrepreneurs actually learn and plan.
The title of Schramm’s book, Burn the Business Plan, is based on his finding that writing a business plan, with its emphasis on the exit, has “transformed startups into a vehicle for getting to an ASAP payday.” He writes that “the ‘exit strategy’ that is required to be described in every business plan is largely a chimera — happening to a mere fraction (fewer than .005 percent) of all startups.” Related to this, research shows that entrepreneurs do not start companies to sell them as quickly as possible, contradicting a widely held myth that founders seek above all else to become legendary serial entrepreneurs. In fact, most entrepreneurs start one company. If their startups are successful, most work at it for the rest of their lives, like Branson, and Dyson, and Page, and Zuckerburg and thousands of others.
In addition, Schramm suggests that writing business plans has become divorced from starting companies. The rapid growth of pitch contests has created a new type of entrepreneur, he argues, those who seek prize money, rather than revenue from starting and growing a new business. He recounts the story of how a student wrote a business plan for an entrepreneurship course, used it to enter a number of pitch contests, racked up six figures in prize money, but never started a company because the idea lacked validation.
Schramm notes that plans that win pitch competitions often share certain unreal qualities. He suggests that rather than being robust and precise in evaluating whether the proposed product or service would find a market, judges are often partial to socially responsible ideas and prefer plans that offer detailed financial forecasts, no matter how unlikely the proposed rate of market uptake might be.
While I think Schramm is correct in his caution about static business plans being over emphasized and sometimes used for the wrong purposes, they and competitions do have a purpose. Most entrepreneurs I speak with enter these competitions to make connections, gain confidence, test and get insights on their idea or business and use them to help them grow and mature as an entrepreneur. I don’t think they see them as sources of capital. The organizers hold them to build communities, for public relations reasons, to have fun and to encourage their startup communities. Schramm is correct they are not sophisticated accelerators but they serve a role in disciplining the founder in thinking through and articulating their concept or notion. While investors would hardly base their investment decision on a business plan alone which inevitably involves a lot of guesses, there is much to be said for the rigorous use of business planning tools such as the interactive business canvas model.
Schramm offers a plethora of ideas for both entrepreneurs and those of us that support them. Anyone inspired by this week to consider the path of entrepreneurship at some point in their life should absorb its lessons. For everyone either starting companies or working to make the ecosystems around them more efficient should add this important scholarship to their work. It is precise in thought, honest in its assessment and sure to keep us incumbents in the field mindful and on our toes.