Some initial thoughts on entrepreneurship, business, wealth and innovation.

Recently, I’ve been teaching a subject at AFTRS on Entrepreneurial Finance. This has been a useful exercise in exploring ideas about what an entrepreneur is and who identifies as an entrepreneur. Before I outline a few ideas which have sprung from that class, I must thank my seven students who have been willing to be dragged in a new direction, as I moved the subject from being purely accounting based, to include looking at stories of entrepreneurship, to thinking about types of finance available and to pitching for finance.  Their contributions have been insightful and informative.

In this subject, we have talked about entrepreneurship, but we’ve also been lucky enough to talk to four creative industries entrepreneurs about their careers and about what they do. This has resulted in an ongoing discussion about the personal attributes of entrepreneurs, such as risk-taking, passion, vision and perseverance. We have been hearing about the relationships between entrepreneurship and other social constructs, which seem to share the same space, like overlapping segments of a Venn diagram.

So, this post is a quick summary of a few thoughts about the interdependent relationships which entrepreneurship has with business, wealth and innovation. The blog equivalent of scribbled reminders on post-it notes.

Entrepreneurship and business

As part of Entrepreneurial Finance, I interviewed a film producer with a string of prominent feature credits to her name. Parallel to a successful producing career, she has also established, grew and sold a film related company. But when asked if she identified as an entrepreneur, she said no because in her view, to be an entrepreneur, you have to be in business.

The job of a film producer seems to me to be all business. It involves a range of tasks which are inherently entrepreneurial: raising finance, negotiating with talent, striking distribution deals and so on. Yet for my interviewee, this storm of production duties required to get a film made doesn’t feel like being in business. Business is not just busy-ness, but doing and something that looks and feels like a permanent, ongoing profit-making activity.

Are entrepreneurship and running a business essential companions? For me, the answer is no. I see entrepreneurship, and the ability to be entrepreneurial, active in a whole range of fields: in the arts, in not-for-profit organisations, in social enterprise. These are fields which may or may not be “in business.” Fields in which the participants (like this film producer) may not identify as being “in business.”

It seems to me like “entrepreneur” and “business person” are different roles. Like the person who has run a service station for thirty years, you can run a business without being an entrepreneur. Like someone who renovates and sells houses for profit, you can be an entrepreneur but not have a business. But there’s a set of implications about being in business – being self-directed, generating profit, financial risk taking, growing a company over time – which seems to sit comfortably alongside business as complementary ideas. They just seem like they go together, but they can and do exist separately.

(I’m grateful to my supervisor Kate Bowles for finding that term entrepreneur has its origins in 19th century France as “the manager or promoter of a theatre production.” Who’d have thought we’d have the creative industries to thank for the term?)

Entrepreneurship and wealth

Over on Radio National’s Big Ideas program, the Class Act podcast has detailed issues about Australia’s class system – insisting on its existence, detailing its complexity and talking about its effect on people and on. In its second episode, ANU’s Frank Bongiorno talks about the image of Australian entrepreneurs that developed in the 1980s. (Relevant section starts at 19 min 26 sec)

Australia became more unequal in the 1980s. Indeed, it was becoming more unequal from the 1970s, with the end of the long post war boom. And many of the long standing economic opportunities that existed within Australia, within industry and manufacturing, within the farm sector were closing off. During the 1980s, as Australia de-industrialised, as farm incomes and the farm economy came under increasing pressure, unemployment was very high, persistently high, much higher than today right through to the 1980s. Home ownership was declining and so, in many ways, that old image of Australia as a workers’ paradise or a working man’s paradise which goes right back to the 19th century… seems to be belied by the ways Australia was being transformed in the 1980s.

And so, you have the emergence of the figure of the entrepreneur, a term which was used in a non-pejorative way for most of the 1980s and then became more pejorative with the corporate collapses of the late 80s/early 90s and the recession. But you had this image really of the entrepreneur as a kind of public benefactor a public hero. Figures such as Alan Bond, for instance, or Robert Holmes à Court, Christopher Skase and they were held up as people to be emulated. The great irony of this, of course, is that it was a period of Labor government and, in many ways, the Hawke government and Paul Keating as treasurer held up these entrepreneurs as models to be emulated. They were new money as distinct from old money. They had a bit of “get up and go” about them. And, in many ways, a different kind of mass in popular culture where such figures, for the first time really in Australian history, I think, are being held up as real heroes. Their conspicuous consumption, their lavish lifestyles, were seen as admirable, because somehow or other we were able to share in them.

It is interesting to consider how our image of the entrepreneur in early 21st century Australia has changed since the time Bongiorno describes. Certainly, I think they are still held up as figures for emulation. We still think they have that bit of “get up and go” and that’s to be admired. But I think the connection to ostentatious displays of wealth is not so strong. The pervading image of an entrepreneur is much more likely to be of startup owners, app developers and hipsters in incubators. Their values seem to be presented as hard work, self-direction and innovation. Their wealth is mostly invisible and mostly presented, I’d suggest, as existing only as a future possibility.

We seem to have extended the definition of entrepreneur beyond the stratified giants of the AFR Rich List. But we’ve retained the idea of heroism and of an entrepreneur’s story being the highs, lows and ultimate triumph of the classic hero’s narrative.

One further thought: linking entrepreneurship and the drive to grow personal wealth is a challenge to the use of the term in the creative industries, where many activities are pursued without the desire to create wealth (in some cases, without the potential to create wealth). As noted previously, there’s a profit/not-for-profit divide within the creative industries and personal wealth creation sits on one side of it. Further, in the field of social entrepreneurship, I suspect it is absent entirely. It’s another example of how the concepts of wealth and entrepreneurship are drifting further apart from each other, through our wider definition of who an entrepreneur is.

Entrepreneurship and innovation

An ongoing conversation in Entrepreneurial Finance was around the role of innovation in entrepreneurship. One of my students, Daniel Punton, works in the startup space and saw innovation as fundamental; to be an entrepreneur, you must be creating something new. My discussion with Daniel and the rest of the class followed the stories told by our guest speakers, but also sprang from this definition of entrepreneurship from Howard Stephenson of Harvard Business School: “entrepreneurship is the pursuit of opportunity beyond resources controlled.” This definition, which doesn’t mention innovation, business or wealth, allows a wide range of activities to be classified as entrepreneurship.

But here’s another definition from Scott Shane and S. Venkataraman: “Entrepreneurship, as a field of business, seeks to understand how opportunities to create something new (e.g., new products or services, new markets, new production processes or raw materials, new ways of organizing existing technologies) arise and are discovered or created by specific individuals, who then use various means to exploit or develop them, thus producing a wide range of effects.” It mentions the word new five times, so they must really mean it.

For these researchers, newness can be explored in lots of different ways (it need not, for example, be a new product) but it is essential to entrepreneurship as a process. But how new is new? To take our aforementioned service station owner as an example, his business is not, a new idea. But the personal challenge of starting a business, the need to raise resources and to execute a strategy, may be a new opportunity for him/her. And if a service station in a new (geographic) market, for instance, could fit within Shane and Venkataraman’s definition, and certainly within Stephenson’s.

If we’re looking for a set formula for entrepreneurship, I don’t think we’ll find one. And, to speculate for a moment, the lack of a clear-cut definition seems to allow personal bias to influence perceptions of what entrepreneurship is. Viewed in this way, the extent to which any one aspect of entrepreneurship (newness, risk-taking, profit-making) is seen as essential, would be subjective, depending on each individual’s personal values. You might think of innovation as being essential to entrepreneurship, if you value innovation highly, and so forth. This allows Stephenson, Shane, Venkataraman and Punton to all be correct – but signals (another) a difficult definitional journey ahead.

Australian Broadcasting Corporation (2018). Part 2: How we got here. [podcast] Class Act. Available at: http://www.abc.net.au/radionational/projects/class-act/ [Accessed 20 May 2018].
Baron, R. and S. Shane (2007). Entrepreneurship: A Process Perspective, Cengage Learning.
Eisenmann, T. (2013). Entrepreneurship: A Working Definition, HBR.org, available at: https://hbr.org/2013/01/what-is-entrepreneurship [Accessed 20 May 2018].
Shane, S., & Venkataraman, S. (2000). The Promise of Entrepreneurship as a Field of Research. The Academy of Management Review, 25(1), 217-226. Retrieved from http://www.jstor.org/stable/259271

 

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What made the creative industries different then, may not be so potent now.

Management consultants tend to come in two types; generalists and industry specialists. I’m the second type. If I was of the first type, I might tell you (as many have told me) that all businesses are essentially the same – you can consult as effectively to a chair maker as you would to an international arms dealer, because all businesses boil down to the creation of profit via a production process of some kind.

I have always maintained that creative industries businesses are different (well, I would, wouldn’t I? I’m an industry specialist). My point is that a creative work constructs value in a very different way. The profit generated by a chair can be traced through the cumulative addition of each of its components, up to completion when it can be sold for an amount which covers the cost of its production and then some. The profit created by, say, a hit song, is a dependent on a far more complicated formula, with many more unpredictable variables.

Richard E. Caves’ (dauntingly brainy but still pleasingly readable) book Creative Industries: Contracts between Art & Commerce starts with tackling this issue of what makes the creative industries different from all the other industries. He takes an economist’s view of this question, dispassionately considering the sellers and buyers of creative transactions and assuming the perfectly rational decision-making process which underlies economic theory. He lists 7 basic economic properties of creative industries, which, I think, describe the unique combination of complexities which influence the production of creative work.

Caves’ basic economic properties of creative industries

Name of property Summary Detail
Nobody Knows Demand is uncertain. It is almost impossible to tell how a creative product will be valued until it is completed, and by then the costs of producing the good have already been met.
Art for Art’s Sake Creative workers care about their product. Creatives are not indifferent to the traits and features of their work. Instead, they are deeply invested in aspects such as originality, technical prowess, resolution and harmony. In short, artistic achievement.
Motley crew Some creative products require diverse skills. A creative work such as a film requires the cooperation of many different collaborators. But unlike some other collaborative endeavours, a creative work is more than just the sum of the efforts of each part of a production line. It has a “multiplicative production function”, where each input must be present and “do its job – if any commercially valuable output is to result.”
Infinite variety Differentiated products. Creative work can be simultaneously vertically differentiated (a buyer will choose between two similar products on perceived quality) and horizontally differentiated (a buyer will choose between two similar products on personal taste). And the array of choice an artist has in producing a work, and the array of creative products a buyer can choose from, making this variety infinite.
A list/B list Vertically differentiated skills. Creative producers are ranked based on quality, reputation and so on – creating a hierarchy of artists.
Time flies Time is of the essence Maximising profitability of a creative product is dependent on it being finished by a certain date.
Ars longa Durable products and durable rents Creative work can continue to generate revenue after its initial production with no additional inputs, through the exploitation of copyright.

 

I can’t recall seeing these characteristics of the creative economy expressed so clearly. I can add one more:

Name of property Summary Detail
Inspiration knows no timetable How long it will take to come up with a creative concept is unknown. Unlike other industries, where the time taken to produce a good can be accurately predicted, creative concepts can emerge quickly or slowly, and you can’t tell which it will be. This matters because the creative concept is often the component of a creative work which consumers value most and increases profitability – but it’s the part of the process which is the least predictable.

 

Meanwhile, I have been prompted by my tutorial class of Management Consulting students to think about startups and their relationship to entrepreneurship. They have been asking about the threat which start-ups might present to bigger, more established companies, and the predilection of some multi-national corporations to acquiring start-ups. I suspect that this conversation, as with so many on this topic, is actually defining “start-ups” as newly established tech companies. It’s that subset of companies which we, as a society, seem particularly enamoured of.

That particular definition, personified in sneaker wearing, tablet wielding, young tech nerds, successfully raising capital to accelerate their SAAS product’s growth, has become an early 21st century archetype. That archetype is a kind of start-up rock star; the version of an entrepreneur where everything has gone right. I worry that the far more common experience of tech start-ups – the long, lonely slog with no money, no angel investors and time rapidly running out before they need to go get a job – is rarely talked about. If there’s a rerun of the 1990s dot com crash, this time starring exhausted start-ups which never accelerated beyond a brief canter, and with investors looking for their money back – what will this do to our current idolisation of entrepreneurship?

But putting that aside, it struck me that when Caves was writing about his economic properties of creative industries, it was in the immediate shadow of that dot com crash. Caves sought – as I have done – to differentiate the creative industries from the non-creative industries, and in 2000 he could clearly do that.

Would it be so easy now? Because if we consider the new breed of tech industry startups, typically pushing an online software product, across multiple platforms but addressing distinct, almost niche, customer needs… don’t all Caves’ properties apply to them? Is it possible that the distinction between creative industries and non-creative industries (the definition of creative industries, as I’ve been describing it) is actually getting harder over time?

If so, the reason why may be that today’s emerging industries look and feel more like creative industries than traditional industries; that the promising, rock star tech industries which we all have such a crush on, actually operate more like creative industries than anything else. In which case, studying what makes creative industries tick may have much wider future use and significance.

Caves, Richard E. Creative Industries: Contracts between Art & Commerce, Cambridge, Mass.: Harvard University Press, 2000.

Mambo and Halfbrick: two versions of Australian creative entrepreneurship

mambofruitnin

Arts programming on ABC TV has long been characterised by one major factor; its ability to be reliably dull. Though lately there seems to be an effort to liven it up. In recent weeks, two documentaries in particular have shown the ups and downs of creative entrepreneurship in Australia.

The first is Mambo: Art Irritates Life (Dir. Paul Clarke, 2016) which tells the story of the famous fashion brand which seemed to be everywhere in the 1990s. Through interviews with the business’s founder, Dare Jennings, and the artists who contributed the brand’s anarchic designs (plastered on t-shirts, board shorts and assorted paraphernalia), it tells the story of how, almost entirely without planning or strategy, the clothing line grew in popularity and cultural significance.

As the company’s financial success accumulates year after year, a handy graphic shows sales revenue climbing like one side of giddyingly steep mountain. Mambo seems to grow through a series of intuitive leaps, celebrity endorsement and cross category infiltration, but if Jennings had a systematic plan which led to the brand’s success, the documentary doesn’t detail it. Instead there are pleasing tales of how the stable of contributing artists benefited from their designs suddenly bringing in truckloads of cash, and how an inter-group rivalry developed which pushed them to deliver edgier and more striking images.

It’s all very nostalgic, not just for a time when everyone was wearing farting dog t-shirts, but for a time when you could build a world-conquering fashion brand in Australia, something that a combination of high production costs and a cash hungry business model seems to have extinguished for good. The documentary’s main point seems to be that Mambo’s crude and brazen designs had an outspoken, rebellious ethos that was the secret of its appeal. That appeal dissipated when the brand went mainstream, which the film pinpoints to when the Mambo creative team provided giant inflatable kangaroos at the opening ceremony of the 2000 Olympics. From then it descended into ‘dadwear’ and forever lost its cool.

It’s this decline that the film shies away from. There’s no handy chart showing the slide down the other side of that mountain. Instead, the brand’s sale to overseas interests and journey onto the clothing racks at Big W goes undocumented. That’s a shame because it feels like we got half the story. But the half we got tells the story of creative entrepreneurship is familiarly Australian terms – outsiders, larrikins, iconoclasts, schoolboy humour.

Then there’s Play to Win (Dirs. Sue Swinburne and Michael Angus, 2016), the story of Brisbane games studio Halfbrick. Halfbrick was a struggling games development company which struck gold in 2010 with Fruit Ninja, a fun, colourful time eater for various iDevices. The game’s success was almost instant and stratospheric. The money started pouring in at rate which makes Mambo’s climb up that mountain look sedate.

The documentary focuses on CEO Shainiel Deo, a smart, personable and highly driven man who worked hard to engender a laidback and fraternal culture at Halfbrick. As the company’s success grows so does Deo’s ambition, and he looks to access the massive games market in China. But his closeknit band of buds at Halfbrick are fracturing. One of the critical issues is an ideological shift; mobile games are moving to a freemium model – free to buy, but requiring in-app purchases to progress through the game. Some of Deo’s compadres yearn for the days when you just paid for a game once and played it to exhaustion.

This is a story about leadership and the pitfalls of switching business models. It’s a truism that companies which are unable to innovate are destined to fail. Deo can see that the business model underlying games is changing, but is unable – as much to his regret as anyone else’s – to bring his key people along with him. Advocates of business model innovation as a road to growth will probably have some sympathy with Deo, rather than his likeable co-workers who want to hang onto the (admittedly pretty recent) past.

The company has trouble replicating the success of Fruit Ninja and its attempts to develop a movie franchise of the title seem to breed only resentment and confusion from those who put the game together in the first place. Deo spends much time overseas and looks enviously while a business colleague lists his company on the NASDAQ. Sadly, his family life suffers as does his surrogate family life at Halfbrick. Senior staff/old friends leave, one after another.

This is a far more personal view of entrepreneurship than the Mambo documentary presented. There, business success was presented as a kind of happy accident, and business decline glossed over. In Deo’s case, business success was his consuming goal and its decline a deeply personal failure. (Even so, this is the polite version of Halfbrick’s troubles. A more scurrilous version is here.)

Mambo’s fall from favour was years ago now (and, it should be said, tempered by a successful exit via trade sale for the founder). Its art is celebrated and exhibited in major public galleries. Its key creative minds look back fondly on wild, heady days. Halfbrick’s journey is not yet over, but its tribulations are raw, the raised voices and angry words still fresh in Deo’s mind. Two distinctly different narratives on creative entrepreneurship; one comfortable and nostalgic, the other raw and painful.

Don’t call me creative.

Not everyone’s happy about creativity. Lucy Kellaway of the Finanical Times is one of them. In fact, she’s cranky about it.

In this blistering piece, she calls creativity a “plague” which has infected management and recruitment processes to an extraordinary and unnecessary degree. Confronted by scores of job ads which include the word “creative”, she says “being polite and co-operative are vital traits for every job I’ve heard of, whereas most companies have no use for real creativity at all.”

Kellaway notes a current trend for “creative worship” which leads to patronising and misleading labels (such as Subway calling its workers sandwich artists) or time wasting team building exercises (such as Lego play sessions for staff). As she goes on, she gets around to talking about creativity’s role in “making things new”. Here she expresses a familiar blurring of the lines between innovation and creativity, the first of which is often seen as essential to business success but without the Lego constructing nonsense associated with creativity. (See also James Dyson’s umbrage with the term “creative industries”, again drawing a defensive line around innovation.)

Kellaway concludes:

To survive, companies need to change from time to time. They need to do things slightly differently from how they were done before – but for that they don’t need creativity. They need people with intelligence and judgment to work out the right variations on existing ideas. More than that they need people with the determination to test those ideas, tweak accordingly and turn them into sales.

Not much to argue with there. But does this mean creativity should be treated with disdain and hostility? There’s also something going on here about identity; Kellaway starts her article with the declaration, “I’m not a creative”. Who is allowed and not allowed to be a creative? Why is it good or bad to be one? And does distinguishing innovation from creativity help  – either with management or with identity?