Entrepreneurs Aren't Intellectuals, Until It's Time To Raise Money

Posted: Jan 8 2014, 10:01am CST | by , in News

Entrepreneurs Aren't Intellectuals, Until It's Time To Raise Money
Photo Credit: Forbes

In a conversation I had with the brilliant small business consultant Michael Gerber 10 years ago, he told me, “…the whole entrepreneurial environment is created by an optimistic view, a young view, a youthful view of the world…. So, there is something about the lack of sophistication about entrepreneurship that is an amazing thing. Entrepreneurs are almost never intellectuals. Entrepreneurs are doers. They are imaginers. And their imagination has little to do with creativity but more to do with innovation – finding better ways over and over again. They are incorrigible optimists. There is always a better way to do something. They are doers, doers, doers! They are not thinkers, thinkers, thinkers! So, thinkers end up in a world of thought. Doers end up in a world of action. Economists don’t create economies. Economists stand outside of economies and try to make a science out of what they think about. So economists are self-indulgent. Entrepreneurs are constantly trying to figure out how to do something. Where would you rather live – in a society comprised of economists and intellectuals or in a society where people are constantly trying to improve the impact on our lives or improve things? I would like to be in the latter not the former.”

Michael E. Gerber

While I largely agree with the premise expressed to me last decade by Mr. Gerber – that entrepreneurs are almost never intellectuals while “economists…try to make a science out of what they think about,” and are “self-indulgent” – I’ve also come to recognize the severe limitations which result from what he describes as the non-intellectual nature of the entrepreneurial personality.

Through the inception stage of a business concept to the early formation of a team or organization to help the entrepreneur pursue and execute it, this ‘non-intellectual’ characteristic is an asset.  But once the stage of a significant capital raise is necessary, first time entrepreneurs in particular and small business owners in general seem to have great difficulty accepting the worldview which guides an investor’s decision to fund them or not.  I have found that the most elusive aspect of the investor worldview which escapes the comprehension of entrepreneurs is not how the investor views them personally, or their management structure or business idea. It is understanding the weight an investor gives to factors in the broader political economy.

I think of this whenever I hear the dismissive attitude some express when surmising that because most entrepreneurs don’t consider tax, monetary or regulatory policy when starting a business, these factors don’t impact the ultimate success of the business.  Nothing could be further from the truth when the reality of growth and the sources of risk finance are considered.

The friends and family of an entrepreneur are almost always the first source of capital.  They provide the seed capital needed to get the business off of the ground or give an idea its first thorough test.  This amount can roughly range from $10,000 to $500,000. The motivation for this initial investment is usually trust, rooted in familiarity with the entrepreneur and some form of faith, reciprocity, altruism or desire for ‘psychic income’ derived from a kith or kin relationship. It often has very little to do with the feasibility of the idea and rarely derives from ‘macro-economic’ assessment.

But as the entrepreneur moves through the advanced start-up, early and ‘B’ and ‘C’ rounds of investment, they are often surprised to see how rapidly consideration moves from the assessment of talent and the merit of the business concept toward consideration of corporate and capital gains tax rates; environmental and financial regulations; and measurements of inflation and price elasticity.

These considerations are the domain of the more intellectually-minded economist who may lack an experiential viewpoint in business, having never started or managed an enterprise in their life.  But more importantly they are also the consideration of a well-heeled investor who professionally finances businesses at every stage of their growth and development.  The main difference between investors and entrepreneurs may ultimately be their contrasting views regarding the study of economics.  While both see economists as plagued by a lack of real world understanding, investors rely upon the insights of economists far more often.  In that sense investors are intellectuals too.

It can be a rude awakening and a very foreign and disarming experience for an entrepreneur who has gotten where they are through enormous self-confidence, charisma, instinct and hard work to suddenly have to accept that whether or not they receive another dollar of investment depends upon a decision of a government bureaucrat, central banker or election in a congressional district over 1,000 miles away.  But very often those are exactly the variables receiving scrutiny by the person from whom they are seeking risk capital (with the help of a cadre of paid economists).

This is where the attitude of economics-is-separate-from-political science-is-separate-from-entrepreneurship can become problematic.

This complication seems to only be getting worse these days thanks to the increasingly extremist positions of both political parties now dependent upon a bifurcation and distortion of reality – where the Left equates market activity to greed and the Right equates Government regulation with the loss of personal freedom (neither perspective consistent with how the founding fathers of America debated trade and commerce).

This contributes to schizophrenic activity – where a Democratic entrepreneur is pressured to vote against the same capital gains tax reduction that would attract more risk finance to their nascent enterprise and a Republican small business owner has their good name used to advance the interests of multi-national corporations with whom they compete.  The latter irony can be seen in how companies with 500 employees or more have received the same beneficial ‘small business’ regulatory designations from the Small Business Administration (SBA) as entrepreneurs with a single paid employee.

The root of this problem runs deep – through a public school system where economics and entrepreneurship were routed out of the curriculum over 100 year ago and into the separation of the study of political economy into two separate fields which occurred tree centuries ago.  With our politics and economics divided, the realization of their critical point of intersection is hard for entrepreneurs to find.

The artificial conflict between our politics and economics is no doubt having an impact on the bottom lines of entrepreneurs, perhaps creating inefficiencies in the opportunity costs of decision-making. The uncomfortable and perhaps unnecessary tug-of-war between partisan loyalty and business interests at the entrepreneurial level is evident in this example from July 17, 2008 Cincinnati Enquirer “Nicole Gallagher, a salon owner who lives in West Chester and is president of a black-owned business association, said McCain’s ideas for taxes and business stimulus are why she’s undecided. ‘Emotionally, I’m with Obama, but economically. I’m with McCain,’ she said. ‘I’m kind of torn between them.  A business can’t grow on emotions.’”

The solution to this problem is not Democrats thinking more like Republicans or vice versa but rather Entrepreneurs thinking more like Investors.  This can only happen when greater attention is paid to the business of the political economy.

Source: Forbes

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