Are We Enamored With the Wrong Kinds Of Entrepreneurs?

Are we too focused on startups or small businesses as an end in themselves, rather than in those enterprises that grow?

There is nothing wrong with the former, but it is the latter which create wealth, jobs and future prosperity. JL

Roger Martin reports in Harvard Business Review:

We should absolutely revere those individuals who identify an unpleasant equilibrium and innovate to create a way to transform it for those for whom it is a burden, in the process growing a large company and creating sustainable, high-productivity jobs.
Americans adore entrepreneurs. In every poll that I have seen, entrepreneurs are held in high esteem even as big business is generally viewed with disdain. Why?
Americans’ positive feelings about entrepreneurship are related to their positive feelings about small business, with which entrepreneurship is often conflated.
Small business gets its rosy glow partly from the well-propagated claim that the small business sector creates all the jobs in the economy. That is largely true, actually, but it is also an example of the ubiquitous practice of lying with statistics. Generally speaking, businesses less than 100 employees in size create the largest number of jobs every year, compared to medium-sized businesses (101–499) and large businesses (500+). However, small businesses also destroy the most jobs every year. So the small business sector is simply the biggest job churner in the economy — not the biggest net job creator.
And there are a few other not-so-nice things about small business. They have meaningfully lower wages, lower productivity, lower innovation activity, and lower exports than large businesses. Thus an entrepreneur running a small startup shouldn’t be seen as so awesomely meritorious, especially in comparison to corporate executives who maintain the higher-paying, higher-productivity, higher-innovation jobs.But hold on — there’s more to the story. The most valuable companies for the economy are little ones that become big. These companies do create huge numbers of net jobs — and they create jobs that become high-wage, high-productivity, high-innovation, and that drive high exports. The entrepreneurs that create and drive these sorts of companies do deserve the admiration heaped on them.
What exactly do these special entrepreneurs do? They attack an unpleasant equilibrium and transform it into something substantially and sustainably better. For example, in the late 1960s Fred Smith observed an unpleasant equilibrium in package delivery. If you wanted something delivered urgently from Boston to Los Angeles, you needed to contract with a package delivery company in Boston that would send a truck to pick up your package. It would then contract with a common carrier to fly the package from Boston to Los Angeles, as well as with a local delivery company in Los Angeles to pick up the package from the common carrier and deliver it to the destination address.
Smith observed that this system rarely worked efficiently or flawlessly. And when it didn’t, and the customer complained, the trio of providers spent their time blaming one another rather than fixing the problem for the customer. The unpleasant equilibrium, therefore, was: When the package absolutely, positively had to be there, there was no solution. So you shipped and hoped — and told the recipient that you would get it there as fast as possible, at whatever speed that ended up being. Senders and receivers accepted that equilibrium despite its miserable quality.
In 1971 Fred Smith started a small business that was designed to completely transform that equilibrium — when it absolutely, positively had to be there, FedEx would make it happen. Now, 45 years later, “FedEx” is a verb and the company gainfully employs 168,000 high-productivity employees to service the $50 billion per year in revenues its equilibrium transformer generates. Moreover, FedEx has spawned a raft of imitators, which have created additional value and even more jobs.
That sort of entrepreneur is an unalloyed good. They transform unpleasant equilibria and create enormous benefits for the economy. And so I save my definition of “entrepreneur” for the person who accomplishes this.
I still don’t think we should care more for a person who starts a successful business than for a corporate executive who runs a stable, profitable business. But we should absolutely revere those individuals who identify an unpleasant equilibrium and innovate to create a way to transform it for those for whom it is a burden, in the process growing a large company and creating sustainable, high-productivity jobs. They exemplify entrepreneurship as a force for good in the world.