Carl Schramm – Straight Talk on Entrepreneurship

Carl Schramm, past President and CEO of the Ewing Marion Kauffman Foundation, shared straight talk on entrepreneurship, his eloquent vision and deep insight on entrepreneurship in general, how to spot entrepreneurs around us, and associated economic implications. Carl also dug into the question (and serious problem) of why only 5% of people become entrepreneurs.

Carl Schramm was the invited guest of Paul Magelli, former Dean and present Senior Director of the Academy of Entrepreneurial Leadership at the University of Illinois in Champaign Urbana. The event was held at the Illini Center on Saturday 14 April 2012 to talk to a group of prospective and graduating MBA candidates.

The opportunity to listen to Carl’s message, and ask questions is a rare treat as he is in great demand, sits on boards and manages his personal angel investments. From the few stories we had time for that day, it was clear that Carl Schramm had many lifetimes of experience in his arsenal of wisdom, and was building up more. What follows are some interesting points that I took away.

Economist’s Big Flaw in Studying Economics

Carl is a PhD economist. He shared the epiphany he had when he realized that he “was an entrepreneur.” It happened without intent. It happened without a business plan. And when it happened, it caused him to look into why there aren’t more than 5% of the population starting firms, when these new firms are responsible for the majority of annual GDP growth. Carl shared numbers I couldn’t write fast enough (he indicated that there was a new book coming). Through his empirical evidence, I can believe the conclusion.

So, what’s wrong with the study of economics? Carl pointed out that there is near zero study of “New Firm Creation.” In other words, the study and practice of economics by economists, is all around how existing firms operate, create value, destroy value, and decay at a snail’s pace. And, as he shared 70% of the top firms that were driving the majority of GDP 10 years ago, no longer exist in the top list, if at all.

Clearly this is an issue! If we knew more about firm creation, how it is done, what it takes (no, it’s not a business plan), and who are the types of people that have high propensity to do it, Carl postulates that we could bump the number from 5% to 7%, or 8%, and rapidly experience growth and recovery.

Imagine if we knew more about how to accelerate the creation of firms like Microsoft, Google and Facebook.  These firms have replaced traditional manufacturing companies, both in terms of value, momentum, and total growth generated in a much shorter amount of time. The scale, scope and affect these new firms have on the economy cannot compare with automakers, healthcare, insurance, and other aging industries which dominate the attention of economists (and the press).

Business Plans

Rarely does it make sense to write a business plan, nor does it make sense to manage from them. Carl shared that so many academic institutions, business books and training programs whose titles indicate they will teach you how to start and build a business, are largely just information on how to perfect “business plan writing.”

Carl’s point is it is never the case that the formal path mapped out in a business plan is the real path that a business takes to success. As soon as the plan is done, it is out of date. So, why write business plans at all? Stick to the minimal – what is the product, who’s going to buy it, why need it, and how you are going to build and deliver it based on what you know. It only needs to be one page.

Instead of spending time writing a business plan, get on with making the business. Carl shared that in all the investments in start-ups he’s made, he has not read a single business plan. For Carl, to invest in a new business, his measure is the person, not the business plan.

Characteristics of an Entrepreneur

Carl shared insight about what are the primary characteristics of an Entrepreneur. I didn’t get them all down, but these few are perhaps the most relevant.

1. They are an outsider, they ask the hard questions, and press leaders on the “why” around status quo.
2. They think in terms of disruption, and are often thought to be disruptive by the change-averse.
3. They see things differently, considering untraditional forces that others didn’t see.
4. They are often competent in a completely different field than the field they are working in.
5. They are very widely read, and know lots of facts and information that makes thinking richer.
6. They have worked in multiple places in the world.
7. They have worked in a startup.
8. They have worked in a job they didn’t like.
9. They have worked in multiple industries.

Carl noted that the term “intra-preneurship,” used to describe entrepreneurism inside corporate organizations doesn’t make sense. If it is all the same, then why the different term?

Life’s Wisdom

Carl noted that the definition of life’s wisdom for entrepreneurs is that they must be discontent with the Status quo, and hence look for ways to be better.

Something further to Ponder

I may have some of the numbers wrong in my notes. But, the conclusions are not difficult to understand. Economists need to study “new firm creation,” if that is the solution to our current economic downturn, and like Carl Schramm and Paul Magelli, I too believe it is. The kind of quantum growth that is required is just not going to come from the Automotive Industry, or any other traditional space barely making single digit growth. The deficit is too big for the GDP to catch up – we need massive influx of new firms creating new value.

A number of times Carl suggested that the culture in corporate America crushes the spirit that sparks growth. Some examples like: HR managers blindly shaming idea people labeling them “bad.” Or managers that want their agenda to be fulfilled when all indicators say to change course which kills potential breakthroughs and disruptive change.  Desperately needed and good ideas, innovation and resulting growth is missed as we conform to traditional norms in the corporate workplace.

What will we say to our kids as they become college grads and rotate in and out of 6 jobs before they are 30? HR will think this is “job hopping.” Parents will think this is failure. But in terms of developing the DNA required to successfully create a new firm, this diversity is good and should produce more.

What do you think? How would you ignite new firm growth? How do we get more academic research going on new firm creation? How do we create more entrepreneurs?

Leave a comment, and share your thoughts.