Interview: Andrew Burke
Modern Perspectives on Entrepreneurship
Steve Macaulay
Hello, this is Steve Macaulay from the Learning Services Team at Cranfield
School of Management. I am here today to talk to Andrew Burke about a
book that he has edited, Modern Perspectives on Entrepreneurship.
Andrew, I would like to start off with getting some insight from you about
why you put the book together in the first place?
Andrew Burke
Well basically, there was a need for a book like this in the marketplace.
Entrepreneurship as a field of research and an academic discipline is
relatively new. The area really has only been in business schools, or most
business schools for the last ten to fifteen years and indeed one of the
motivations for the book was the fact that a lot of the research on
entrepreneurship, a lot of it doesn’t actually make its way into the
marketplace and the reason for that is that people in academia are often
specialists and a lot of these professors are mainly specialised on research
side and therefore some of their ideas are hived away in academic
journals and don’t actually make their way down to the level of practice.
So, one of the motivations for the book was to put together a single
source that contained most of these insights. The reason this is important
is that the area of entrepreneurship is a relatively new area in business
schools. If you were to take a look at any MBA programme in some of the
top business schools across the world, from about twenty years ago you
would find that most of it would be focused on the internal efficiency of
running an organisation – so in looking at linear programming,
input/output models, but the main challenge being in terms of how do
you fine tune an organisation in terms of its smooth running and its
efficiency? Whereas, today twenty years on, you find that the main focus
of MBAs is on the external environment, the main challenge is not so
much in terms of running an internal organisation, although that is
obviously very important, but a huge challenge is making sure that the
organisation is focused on the right segment of the market. So the
challenge for managers is to be entrepreneurial and therefore you see
subjects such as marketing, strategy and entrepreneurship becoming
more and more important.
Steve Macaulay
Entrepreneurship seems to have a kind of mystique about it, it’s a kind of
glamour that people kind of say you have either got it or you haven’t.
Now, presumably you wouldn’t go along with that?
Andrew Burke
Well no, I mean it’s definitely a mix of the two. There has been a debate
on whether entrepreneurs are born or made and I think the research now
has pretty much identified that it is a mix of the two – that there are
attributes that are very important in terms of psychological profile and so
on that help make people successful entrepreneurs, but likewise there are
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Professor Andrew Burke
a whole array of skills that can be learnt as well. And the interesting thing
about the psychological profile is that the right profile varies depending
on the business sector in which the venture is operating in and also the
stage of development of the venture, so in other words, what is the right
sort of profile for a business start up operating in a very uncertain
environment, compared to a venture that is growing incredibly fast, needs
to raise external finance, needs to open up six international branches in
an eighteen month period, versus an organisation that has had one
successful product and needs to now innovate at a company-wide level
and how do you restructure a company like that – how do you manage a
company like that.
What you can see is that the profile of the ideal manager changes quite
dramatically and of course you can see that in well known companies too.
You see companies like Ryanair starting out with Tony Ryan who is good
at the start up level, handing over to someone like Michael O'Leary who is
very good at the fast growth phase and so on. You see it in companies like
Microsoft where Bill Gates leads the company to the first wave of
innovation, but then in terms of running the company when the
innovation has to be company-wide level you see Bill Gates stepping back
into the more R+D role and letting another manager take on the leading
role. So, when people ask what is the ingredients of successful
entrepreneurship really we have to fire that question back and say what
type of organisation are you talking about?
Yeah, I mean one of the things that concerns us is that, particularly in the
media, is that you see a lot of desire for people to have rules of thumb,
they would like to know the six qualities of successful entrepreneurs and
in fact if people are looking for that they are automatically on the wrong
path because one of the things that we have unearthed on the research
side is that there aren’t six simple characteristics and you really need to
diagnose the business from that basis and decide what the right team
looks like and what the right strategy is. And indeed a lot of this is really
behind the motivation of the book. Most – I should say that in the early
days of entrepreneurship at universities, the terms small business and
entrepreneurship are used interchangeably, now the discipline has grown
quite a lot and there has been a lot of focus on ventures with high growth
potential and ventures which have had a massive impacts on markets,
now these terms are dislocating and finding that although most
businesses at start up are small, and have many common challenges with
other small business, the key challenges for managing ventures depends
on the ambition and potential of venture.
So this book is really focused on the entrepreneurship side, so the book is
really aimed at business managers who are starting up companies who
are ambitious business managers, who are starting companies with high
growth potential and are therefore facing a much more complex array of
challenges than your average small business owner.
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Professor Andrew Burke
Steve Macaulay
Now one of the things that I thought you usefully did in your introduction
was take people through in a step by step way, the viability of a new
venture, developing a strategic vision, looking at a checklist of tasks and
decisions to be undertaken. I wonder if you could take us through that
because, I think, in a way it kind of captures the more disciplined
approach that you were suggesting.
Andrew Burke
Yes, first of all, I think, as a point of contrast to maybe just explain what
the challenges might be for somebody who is running a very basic small
business without growth potential, it's not very innovative and so on, and
contrast this with the framework that we have been looking at for the
more ambitious venture. The main difference between the two can be
categorised into three areas. The first is really in terms of the opportunity
– does the opportunity have growth potential and if it does have growth
potential then what are the challenges in terms of resourcing of the
venture, what are the challenges in terms of taking the venture through
different phases of development, and so on?
The second area is, well, if the venture has growth potential – and very
often you find that these are ventures that are in markets that are very
dynamic – so you can expect a lot of other firms to be entering, a lot of
other firms to be exiting during the early phases of development of the
company, you are going to find a lot of merger and acquisition activity
going on and basically a very uncertain environment where it is unclear
what the dominant strategy is.
And then the third area in terms of the finance is that firms operating in
these type of environments, where there are high risk environments, and
therefore there is a huge amount of challenge in terms of entrepreneurs
de-risking the venture and what we find is that entrepreneurs far from
being slapdash, trawling the house of the venture from day one are
actually quite astute, quite cautious. So adopt a trial and error where they
invest a little bit, see if there is something there. If there is they get
encouraged to go further, if not they go back and think again, they might
move on to another venture, so you find entrepreneurs operating as serial
entrepreneurs. Their investment style is more like a portfolio manager
and indeed somebody operating a hedge fund – that kind of heads I win,
tails I don’t lose very much approach as one of the contributors in the
book put it.
So we are really focusing on that latter side, on the entrepreneurial
venture and in relation to that we have put together a framework. Now,
there are two ways of looking at the framework – I am not a big fan of
frameworks in general and you can either use them in one or other
fashion. In one fashion I say to people, look, just use it as a checklist, to
tick the boxes before you put the aeroplane in the sky, basically, so you
don’t have to work through the framework from the top end right down
to the bottom, but after you have finished making your decisions and so
on before you actually start to put them into place, just take a quick look
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Professor Andrew Burke
through and make sure you have considered all these areas.
The alternative process is to actually use the framework head on and
what the framework basically does is starts off looking at the business
opportunity and the two main challenges at the start of the business
opportunity – in other words, is there a market gap there? If there is,
what is the potential of the market gap? Two risks, one is in terms of
information and in terms of the market research and the framework
encourages people to yes, to do the traditional stuff in terms of going out
and talking to people and so on, but a huge part of the emphasis is on a
pilot launch. So, for example, if we were to get together and start a
consultancy firm, rather than us starting up renting an office with the
green glass and all the rest of it, all we would basically do is we would trial
out, we could print up a few business cards, maybe get a very basic
website put up, we might hire a virtual office such as Regus so we have
phone number and somebody answers the phone with our company
name and then we go out and try and sell. And based on that experience
then, we then either adapt our service offering but basically because its
better information, derisks the venture and then at that point it maybe
gives us the courage to actually go ahead and put in the investment.
So, a huge amount on market information and the second part then is in
terms of analysing the market – what is the right strategy, how is the
market going to evolve, and so on. And then at the end of that sort of
phase of development, you have got an idea of what the unique selling
points of the product or service are, what the revenue potential is in
terms of number of units sold, what the price ought to be and so on. And
if you have got that sorted out then you are in an immediate position to
move onto the resourcing, in other words, if you know what the unique
selling points are, the volume of business then it tells you the resource in
terms of who you need on board, where you need to locate, what
technologies you need to use and so on.
But of course all this is in a dynamic context, we don’t want to be thinking
about just resourcing and operating for the next year one or year two, we
want to look at the potential and therefore we have got to start thinking
about taking the company through phases of growth and so on, and
indeed some of the cases in the book address that challenge – MP3 is a
great example of a company that really had its eye on building the
company from day one and therefore was putting in place resources that
were necessary for the flotation, even though they were unnecessary
given what they were actually doing at the time of start up. And then of
course, the next phase of the framework is on the financing – so if we
know the revenues and we know the resources, from the resources we
know the costs, we put those together and we have got the cashflow
position, we have also identified in both of the two earlier stages the
phases of development of the company, so now we are in a position to
look at phasing the financing, what type of financing is suitable and
ultimately looking onto the harvest and exit.
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Professor Andrew Burke
So the framework ends by looking at the harvest and exit and of course,
not all venturists will have a sale or a float on the market, so you also look
at this from the perspective of somebody who wants to generate a cash
cow and use it from that basis. Bit of a mouthful, but ...
Steve Macaulay
That’s interesting. I think that does illustrate the kind of approach you are
taking. I mean, you mentioned the MP3 story and I know that as part of
the book that you have written that up. I would be very interested to hear
a bit more about that and how that fits with some of the kind of things
you are saying and how that illustrates what we are talking about.
Andrew Burke
The MP3 is a very interesting case because first of all the case starts ten
years ago now, back in about ’97 and the founder of the company,
Michael Robinson had this idea to set up a website which would distribute
music on line and this idea was based on the fact that it was the MP3
compression technology which allowed digital files to be compressed and
he realised this could be used for music and hence the idea. But the thing
that makes this case interesting is that Michael Robinson was one of
among tens of thousands of people with the same idea at the same time
and therefore the key interesting aspect of this case is what made this
company different.
How was it that this individual was able to inspire Sequoia Capital to put
in a huge tranche of money, how was it that it became the biggest dot
com float? And it wasn’t just a rattle of the dice that among the tens of
thousands of companies that started up, one of them had to break. The
interesting thing about this case which fits into this entrepreneurial
framework is that there was a whole array of different strategies that
firms could adopt in terms of setting up the website and what was unique
about MP3.com was that they weren’t trying to be the record company,
they realised that the on line distribution of music would allow artists to
bypass the record companies and get direct access to consumers and
therefore they decided to offer a service which could be as much used by
artists as it could indeed by record companies. And he pulled together a
very good team of people at the early stages and that, combined with his
vision inspired Sequoia Capital to come on board and Sequoia Capital
realised that Michael Robinson had the right strategy, what he hadn’t
factored in was that the market in which they were operating in was quite
a dynamic market and has these snowballing effects. In other words if you
or me go and visit a music website, well we want to get the music that we
want to hear on the website, so if we go on a website with only a small
proportion that we want hear it's going to be less attractive than one with
more music. And the snowballing effect basically revolves around the idea
that artists and record companies want access to a website that has got a
lot of consumers on it.
Meanwhile consumers want access to a website that has got a lot of
artists and content on the site, so what happens in markets like this is that
it starts out with a lot of small companies with small amounts of content
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Professor Andrew Burke
but then gradually some companies get the lead in terms of attracting
more content, which allows them to attract more consumers, which
allows them to attract more content and very quickly they start to
snowball and in the process there is usually a merger wave and mergers
and acquisitions wave. So at the early stages of this process you find that
the market is dominated by a lot of small companies, each with relatively
small amounts of content and small customer bases, but what happens in
the process is that companies get an edge in terms of getting more
customers or more content, and are able to attract in turn more content
and more customers, and if you get more customers you get more
content and gradually a snowballing effect takes place and gradually the
market shrinks.
What basically happens is that these companies gradually push the others
out of the market and you end up with a few large websites with pretty
much all the content. So the interesting thing about Sequoia Capital in
their role in terms of this, is that they did the type of analysis we are
talking about here. They looked at the market, realised that this was the
process and realised the winning strategy was to go for a rapid growth
strategy and therefore they were keen, they resourced the company up
with senior executives that would be more characteristic of a company
floated on the financial markets, they injected a huge amount of money
into the company, got the strategy off the ground, they attracted a whole
bunch of netscape engineers to join the company to implement it and
then floated the company on the stock market, selling this story and
ultimately the growth of the company took place in that regard and
became an acquisition target for Universal who ultimately bought the
company out.
Steve Macaulay
Fascinating. If you look at all the different stories that are told in this
book, the perspectives and so on, I guess you would probably say for a
practitioner they wouldn’t read the book cover to cover. How would you
recommend they tackle this?
Andrew Burke
Well first of all I think it is fair to say who the book isn’t for. I mean, if you
are setting up a newsagent in an area where there is only scope for one
newsagent then you don’t need to buy this book. The books on small
business management out there would cover all the aspects you need to
know. If you are setting up a venture in a market where it is pretty
uncertain as to what is going to happen, if you are setting up a venture
where your business is going to grow rapidly, but it's going to go through
phases of growth and so on, that it is going to raise substantial amounts of
finance – maybe not substantial amounts of finance today, but if it's to
achieve its ambition in maybe year two it certainly is going to, then this
book would be useful for you because in a sense what the book does is
covers the entrepreneurship side which is often neglected in the small
business management book – so in that respect a business manager can
dip into the book in terms of where their needs lie basically.
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Professor Andrew Burke
However, I would say that if you have got somebody who is in the
company for the long haul and requires all those different areas then you
might find that over a period of time they might go through a lot of the
book. But basically in terms of where the book is used, we use the book
on the MBA programme and we use basically two books – we use a
standard small business management book which deals with … it operates
as the manual, the nuts and bolts of starting a company up and then this
book here covers the more complex issues and most of the issues in terms
of figuring out how markets are likely to change and I suppose really
helping entrepreneurs develop their ideas, so thinking in much more the
bigger picture. So if you put those two together it pretty much covers all
the aspects you need to know.
Steve Macaulay
So if you were to leave people with a key message that you would like
people to take out of this book, what would it be?
Andrew Burke
I think the key message is the one that I have just gone through. I think
that see if the book fits your venture. Well, actually, there is a number of
different audiences – there are people who invest in ventures, people
who advise new ventures, well for that community I think this book is a
must because they are meant to be contributing expert advice, they are
meant to be looking at ventures, raising certain terms of what is going to
happen. Investors by definition are looking for businesses that are going
to grow and advisors are meant to know a lot and so for those
communities I think the book is a must. In terms of the small business
manager, I think really the key comes down to what the ambition of your
business is and what is the complexity of the market and the amount of
finance that you need and if all of those areas show growth, changing
market and major finance needs, then this book will be useful. I think
maybe the final thing I will just say is that I have talked about a framework
– it's important to say that this framework is a very flexible framework.
This book is not very prescriptive in terms of what we do is give people an
insight into how the processes work and so on, and so it highlights that
entrepreneurship is as much an art as it is a science and it is important to
remember that even after reading the best books and doing the most
rigorous research you are not going to find a definitive answer to
entrepreneurship, entrepreneurship by definition will always involve an
area of creativity, always involve an area of risk taking. What this book
helps you do is helps you to eliminate unnecessary risk – to de-risk the
venture – and it helps you in that creative process, but it doesn’t provide
the magic answers.
Steve Macaulay
That’s fascinating – that’s very helpful.
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