The Age of Big Entrepreneurship 2: Innovation is a Sausage?

I remember years ago seeing the survey results from a church where members were asked a variety of questions about their faith. One query, “Do you consider yourself a Christian?” elicited a 100 percent affirmative response. This made sense, I thought, since this was a survey of Christians. But to the question “Do you believe Jesus is the Son of God?” only about 45% were definite. Some 20 or 25 percent were sure he was not. And to the question “Do you believe in God?” some 10 or 15 percent said they were notcertain or certainly did not.

I am tempted to say this was an Episcopal congregation where, the old joke goes, people are such lousy singers because they are reading ahead in the hymnal to see if they agree. But that would be hitting too close to home.

These results did suggest to me that there are “Christians” and there are “christians” and they all hang out in the same place on Sunday, though whether some eventually get into Heaven and others into heaven remains to be seen. It also indicates that the word “Christian” has come to encompass a greater variety of humankind than perhaps originally intended.

“Dynasty” is another word that is often used with a great deal of latitude. Boston Globe columnist Bob Ryan exploded last month when the term was applied to the San Francisco Giants after having won three World Series in five years. “You want a dynasty?” Ryan wrote. “Try the Romanovs, who ruled Russia from 1613 until the revolution you may have heard something about in 1917—304 years. That’s a dynasty.”

Keying off the Merriam-Webster definition of “a succession of rulers” and “a powerful group that maintains its position for a considerable time,” Ryan concluded that there are been exactly two dynasties in North American professional sport: the New York Yankees (29 pennants from 1921 to 1964) and the Montreal Canadiens (20 Stanley Cups from 1930 to 1979). Not the Celtics, who won 11 titles but all with Bill Russell and Red Auerbach (no succession there) and not the 49ers, Packers, Steelers, Patriots, UCLA Bruins, North Carolina women’s soccer or Trinity squash—all of whom get high-fives but were “dynastic” with some of the same leaders or players. The only other team that comes close—and this must have killed Ryan, given his allegiance to the Celtics—is the L.A. Lakers who since 1980 had won 10 championships amidst a complete turnover of players.

The point is this: there are Dynasties and there are dynasties, Christians and christians, but the language of the times obscures the authentic from the posers.

Which brings me to “innovation,” the meaning of which came to a head in my last post about whether Victoria Beckham was an entrepreneur or not. Is something as ephemeral as a new, high-end seasonal fashion line an “innovation,” I wondered?

If by “innovation” we simply mean a “new combination” brought to market then the answer, according to economist Joseph Schumpeter, is yes. And Schumpeter would know, since he is responsible for setting the key terms—entrepreneur, creative destruction and innovation—which have become the lingua franca of Big Entrepreneurship.

Reading Schumpeter

Some time ago I concluded that in order to understand entrepreneurs and innovation, I was going to have to read Schumpeter. Reading aboutSchumpeter in Thomas McCraw’s Prophet of Innovation[1] and Richard Swedberg’s 1988 essay[2]was great fun; Schumpeter was brilliant and yet foisted theories on his peers that economist Paul Samuelson said “began to smack of Pythagorean moonshine”^{^[3]}; he championed mathematical economics despite himself not being very good at math; he blithely characterized the inner psyche of entrepreneurs before he’d met many; he was a frustrated competitor of John Maynard Keynes, whose basic theories Schumpeter may not have grasped; and he was a man nearly forgotten in the great stagflation of the 1970s only to become the patron saint of entrepreneurs today. One German economist wondered by 1984 if we had entered the “Age of Schumpeter.”[4]

However, actually readingSchumpeter is a bit less fun. Still, I labored on with my appointed task, making my way through a book of his essays before reaching my final reward. In 1947, Schumpeter’s “The Creative Response in Economic History” posited that the entrepreneur and his function were not difficult to understand: “The defining characteristic is simply the doing of new things or the doing of things that are already being done in a new way (innovation). . .

It should be observed at once that the ‘new thing’ need not be spectacular or of historical importance. It need not be Bessemer steel or the explosion motor. It can be the Deerfoot sausage."[5]

I don’t mind telling you I had to look this up. The Deerfoot sausage came to market in 1870not far from where I sit, in Southborough, Massachusetts, and was something of a sensation. An ad in a 1920 cookbook (see above) suggested it was made from the tenderest, leanest parts of the pig and had a “distinctive taste.” This, then, was enough “new combination” for the entrepreneurial North Star: distinctive taste.

Make no mistake, when Schumpeter wrote in earnest about innovation he featured cotton textiles, railroads, steel, automobiles and electric power while emphasizing the rise of the factory, corporation and modern financial system. He saw the growth of big business and the merger movement as among the major innovations of the 20^th century.^{^[6]} Professor McCraw concluded that “Schumpeter’s signature legacy is his insight that innovation in the form of creative destruction is the driving force not only of capitalism but of material progress in general.”[7]

Yet for Joseph Schumpeter, a sausage he might have enjoyed at the Harvard Business School commissary that morning was also enough to qualify as an innovation. Applied broadly, that makes Victoria Beckham an entrepreneur, the San Francisco Giants a dynasty, and some of my very good Christian friends (possibly to their surprise) on the fast track to Heaven.

Apple contributed to this conflation of big and small ideas. You may recall the famous 1997 commercial, “Think Different,” which was a kind of comeback celebration for prodigal son Steve Jobs after his return to the company he founded. (It’s here if you need a reminder.) “Here’s to the Crazy Ones,” Richard Dreyfus intoned, and before us flashed everyone from Albert Einstein to Bob Dylan, the Reverend Martin Luther King, Jr. to Richard Branson. It was, you might say, a mix of creative destruction ranging from Bessemer steel to the Deerfoot sausage.

Benjamin Anastas wrote, “If the only measure of greatness is how big an iconoclast you are, then there really is no difference between coming up with the theory of relativity, plugging in an electric guitar, leading a civil rights movement, or spending great gobs of your own money to fly a balloon across the Atlantic.”[8]

The Language of Black Olives

And therein lies the problem. If virtually everybody innovates, and therefore everyone turns out to be an entrepreneur—no matter how powerful or trivial their idea—then how do we decide what’s valuable and what’s not?

Shouldn’t we have a series of terms for innovation in the same way we grade, say, the lowly black olive? For olives we have whole, pitted, halved, segmented, sliced, chopped, and broken pitted. We have small, medium, large, extra large, jumbo, extra jumbo, giant, colossal, super colossal, mammoth and super mammoth.

Isn’t a new clothing line or distinctive tasting pork sausage something akin to a chopped small black olive, and the electric grid or Internet more like its whole, super mammoth cousin?

I have never been to a Black Olive Convention, but I am imagining there is the Super Mammoth clique with big engraved name badges hung with ribbons who drink bourbon at one end of the bar, and the Small Chopped attendees whose badges are smudged sticky notes that say “Hello My Name Is” followed by blue magic marker who dine together at the local iHop. A black olive is not just a black olive, after all, and that’s made clear to everyone walking the convention floor.

And yet, attend any conference of entrepreneurs and everyone is an entrepreneur. Of course, there are way-super-colossal celebrity Entrepreneurs, and there’s no mistaking the upper one percent whole super mammoth Disruptors, but an entrepreneur is an entrepreneur, and an innovation is an innovation is an innovation. You might well have bitten into one at breakfast.

A Modest Proposal: Not All Innovations Are Created Equal

In prior posts, I’ve mentioned the single best thing that I read in 2013 was Benjamin Wallace-Well’s “The Blip” in New York Magazine. It’s about the work of Northwestern economist Robert Gordon, and there’s no way to read it and not conclude that our ability to consistently raise the standard of living is the essential lever on which all civilization rests; when we stagnate, bad things happen economically, and when bad things happen economically we become less civilized. We are always just a few GNP growth points away from barbarism, or at least the latest version of the Know-Nothings or Tea Partiers. (If you haven’t read “The Blip” see here. It truly underscores Warren Buffet’s contention that being born in America in the 20^th century was like hitting the lottery.)

Given this connection, I would suggest a simple characterization of innovation: Any new combination that raises the standard of living is classified as a capital-I Innovation. In this regard, the electrical grid is its own industrial revolution (as Schumpeter pointed out in his writings), and the railroad, Bessemer steel and the automobile all rate.

One step back, and often in lockstep with innovation that raises the world’s standard of living is that which improves the general quality of life. That’s where we might place television, and perhaps modern social media, making us happier but not always more productive. This class of new combinations I would classify as small-I innovation.

So, if an innovation broadly raises the standard of living or generally improves the quality of life, it is (by definition) the product of a true entrepreneur. These are the meaningful innovations, the innovations that keep us healthy and civilized.

And then—well then, there’s everything else. New fashion lines and sausages. Almost everything that comes out of a “Disrupt” conference or Y Combinator style machinery. The last 900,000 apps written. The last twelve “smart” bike locks, file-sharing, reservation-booking and ride-sharing services.

These all rise to the level of innovation in Schumpeter’s work but fail to leave much of a footprint on the landscape. They are novelties. They are variations on a theme. They are the shavings of a lathe that occasionally yields an Airbnb, Stripe or Dropbox. They are the byproduct of Big Entrepreneurship, which—like the California Gold Rush—enriches those selling the picks and shovels far more than it enriches the miners. (See The Big Winner from Y Combinator’s Success.)

But these fleeting and often trivial products, with all due respect to Joseph Schumpeter, do not denote an entrepreneur any more than three world series in five years denote a dynasty. This is, in part, the point Dan Isenberg makes in Worthless, Impossible and Stupid when he defines entrepreneurship as the “contrarian perception, creation, and capture of extra ordinary value.”[9] Extra ordinary value. In other words, super colossal and super mammoth value. It's the innovations down at the end of the bar drinking bourbon that really matter.

A Suessian view of Big Entrepreneurship.

I make this distinction in the kinds and types of innovation not because I care especially about the language used, but because I believe wantapreneurs make important choices along the way. Easy, fast, convenient choices, those leveraging small ideas and underdeveloped skillsets, tend to create novelty and empty entrepreneurship—at best, the distinctive taste of a Deerfoot sausage. Harder, more informed, more patient choices (often with bigger risks) built around real experience and skill-building can lead to genuine innovation. Not everyone will or can be a Super Mammoth Entrepreneur—we are often shaped more by our opportunities than we shape them--but everyone should understand that the opportunity to try might appear along the way.

There is also the belief--supported by both Schumpeter and observation--that Big Business can yield far more, and far more impressive innovation than Big Entrepreneurship. In a very real sense, Silicon Valley and other centers of innovation attempt to replicate the community and resources that are already resident in a well-run corporation.

If it turns out that the single greatest innovation of Big Entrepreneurship was Big Entrepreneurship itself, there are going to be a lot of young entrepreneurs who were told they could make sausage but found, looking back, that they were actually the sausage being made. That may be the innovation in Joseph Schumpeter’s breakfast, but I’m not buying.

[1] Thomas K. McCraw, Prophet of Innovation: Joseph Schumpeter and Creative Destruction, Cambridge, MA: The Belknap Press of Harvard University Press, 2007.

[2] Richard Swedberg, “Introduction to the Transaction Edition,” Essays on Entrepreneurs, Innovations, Business Cycles, and the Revolution of Capitalism, Richard V. Clemence, ed., New Brunswick, NJ: Transaction Publishers, 2000 [rpt: 1951], vii-xxxix.

[3] Thomas K. McCraw, “Schumpeter’s Business Cycles as Business History,” Business History Review80 (Summer 2006), Boston: The President and Fellows of Harvard College, 2006, 231-261.

[4] Herbert Giersch, “The Age of Schumpeter,” The American Economic Review,” Vol. 74, No. 2, Papers and Proceedings of the Ninety-Sixth Annual Meeting of the American Economic Association, American Economic Association, May 1984, http://www.herbert-giersch-stiftung.de/Portals/0/dokumente/herbert_giersch/werk/3_Struktur-und-Wachstum/3_13_The-Age-of-Schumpeter.pdf, pp. 103-109.

[5] Joseph A. Schumpeter, “The Creative Response in Economic History,” Essays on Entrepreneurs, Innovations, Business Cycles, and the Revolution of Capitalism, Richard V. Clemence, ed., New Brunswick, NJ: Transaction Publishers, 2000 [rpt: 1951], 223.

[6] Thomas K. McCraw, “Schumpeter’s Business Cycles as Business History,” Business History Review 80 (Summer 2006), Boston: The President and Fellows of Harvard College, 2006, 231-261.

[7] Thomas K. McCraw, Prophet of Innovation: Joseph Schumpeter and Creative Destruction, Cambridge, MA: The Belknap Press of Harvard University Press, 2007, 495.

[8] Benjamin Anastas, “The Foul Reign of Self-Reliance,” The New York Times Magazine, December 4, 2011.

[9] Daniel Isenberg, Worthless, Impossible, and Stupid: How Contrarian Entrepreneurs Create and Capture Extraordinary Value, Boston: Harvard Business Review Press, 2013, 3.

Posted by Entrepreneur Generations