ENTREPRENEURSHIP
AND THE CONCEPT OF
CREATIVE DESTRUCTION
Kofi Bentil
IMANI SEMINAR SERIES
CREATIVE DESTRUCTION
Joseph Schumpeter
– The
concept
of
Creative
destruction was Introduced in 1942
by the economist Joseph Schumpeter.
– It
describes
the
process
of
transformation
that
accompanies
radical innovation which brings about
development.
– In Schumpeter's vision of capitalism,
innovative entry by entrepreneurs
was the force that sustained longterm economic growth, even as it
disrupted or destroyed established
companies and systems.
Joseph Schumpeter
ENTREPRENEURSHIP AND CREATIVE DESTRUCTION
IT IS ABOUT DEVELOPMENT, MOVING STEADLY FROM ONE
POINT OF CIVILISATION TO THE OTHER
IT REQUIRES MOVEMENT = LEAVING THE PAST BEHIND AND
EMBRACING THE FUTURE
– PEOPLE ARE AVERSE TO UNCERTAINTLY AND CHANGE
– VISIONARIES EMBRACE THE FUTURE
– AFRICANS ARE NOTORIOUS FOR CLINGING TO THE PAST
DEVELOPMENT REQUIRES NEWNESS
“The fundamental impulse that sets and keeps the capitalist
engine [DEVELOPMENT] in motion comes from the new
consumers’ goods, the new methods of production or
transportation, the new markets, the new forms of industrial
organization
that
capitalist
enterprise
creates.”
[AND
DEVELOPMENT REQUIRES]
The opening up of new markets, foreign or domestic, and the
organizational development from the craft shop and factory…illustrate the
same process of industrial mutation…that incessantly revolutionizes the
economic structure from within, incessantly destroying the old one,
incessantly creating a new one.
This process of creative destruction is the
essential fact of capitalism [DEVELOPMENT]. It
is…what every capitalist DEVELOPMENT concern
has got to live in.”
TO CHANGE OR NOT TO CHANGE
“A railroad through new country, i.e., a country
not yet served by railroads, as soon as it gets into
working order upsets all conditions of location, all
cost calculations, all production functions within its
radius of influence; and hardly any ‘ways of doing
things’ which have been optimal before remain so
afterward.”
Question: is it a good thing to disrupt life and the
status quo?
If that brings a better life and future.. YES!!! There is
no virtue in owing allegiance to the status quo if there
are better options or even a chance thereof
RESPONSES
Globalization and the emergence of Chinese and
Indian and other new competition is “creative
destruction” writ large.
We cannot hide from it. We can only rise to the
occasion, channel it and adapt in order to benefit
from it, rather than succumb to it.
In other words GLOBALISATION IS A GOOD THING!
If you are smart enough to take advantage of it, if
you don’t, it will eat you up.
REACTIONS
Creative destruction can hurt. “Layoffs of workers with obsolete working
skills can be one price of new innovations valued by consumers. Though a
continually innovating economy generates new opportunities for workers
to participate in more creative and productive enterprises (provided they
can acquire the necessary skills), creative destruction can cause severe
hardship in the short term”.R Fisher
The China Effect on Europe and America. Requires that they retrain and
move from manufacturing towards the higher end of the value chain,
(Conception and Design) in order to survive. In the long run it is good for
them.
African has to also leapfrog the industrial revolution and insert ourselves
straight into the information age in order to compete and develop.
We also have to more carefully manage the effects of Creative Destruction
because our people are vulnerable and not so easily retrained or
economically mobile. The best innoculation against the negatives of
Creative Destruction is higher education.
CD REQUIRES LIMITED GOVT WITH SPECIFIC ROLES
– Less regulation frees ingenuity and people come up with imaginative ways to
solve problems
Thomas Kuhn
basically posited that there is no one clear organised process of evolution by which
human thought and knowledge progresses, rather it happens through “paradigm
shifts” which have a tendency to upset the staus quo and change things such that the
old is rendered mostly useless or in many cases entirely obsolete.
Kuhn said In general, knowledge comes about through 3 distinct stages.
– Prescience, which lacks a central paradigm, comes first. Here the scientist dreams in an
unstructured way and baed on certain internal leanings and beliefs, is convinced that his
feelings are right and thus pursues them and seeks to prove them. This leads to the next
step KUHN called.
–
Normal science when scientists attempt to enlarge the central paradigm by "puzzle-solving".
So the dreamer seeks scienific justification for his beliefs or dream, and may well get it, then
all of us will believe it until it is proven wrong by another. Accordig to KUHN, the failure of a
result to conform to the paradigm is seen not as refuting the paradigm, but as the mistake of
the researcher.
–
Revolutionary science, As anomalous results build up, science reaches a crisis, at which
point a new paradigm, which subsumes the old results along with the anomalous results into
one framework, is accepted.
In my view KUHN’s wok simply underscores Schumpeter’s in that there is no real
ordered process, in other words nobody can tell what the next big thing will be and
therefore the lesson is….
GO AHEAD AND BELIEVE IN WHAT YOU ARE DOING, BECAUSE HIPPIES
INVENTED THE MODERN AGE NOT NECESSARILY PROFESSORS,
POLITICIANS OR RICH MEN!!
How wrong experts can be…
"I think there's a world market for maybe five computers."
(Thomas Watson, chairman of IBM, 1943.)
"But what is it good for?"
(Engineer at the Advanced Computing Systems
Division of IBM, commenting on the micro chip, 1968)
"There is no reason why anyone would want to have a
computer in their home." (Ken Olson, president, chairman and founder of
Digital Equipment Corp, 1977.)
"This 'telephone' has too many shortcomings to be seriously
considered as a means of communication. The device is
inherently of no value to us." (Western Union memo, 1876.)
"The wireless music box has no imaginable commercial
value. Who would pay for a message sent to nobody in
particular?" (David Sarnoff's associates in response to his urgings for
investment in the radio in the 1920's.)
"Who the hell wants to hear actors talk?"
Bros, 1927.)
(HM Warner, Warner
How wrong experts can be…
"We don't like their sound, and guitar music is on the way out."
(Decca Recording Company rejecting the Beatles, 1962.)
"Heavier than air flying machines are impossible."
president, Royal Society, 1895.)
(Lord Kelvin,
"If I had thought about it, I wouldn't have done the experiment.
The literature was full of examples that said you can't do this."
(Spencer Silver on the work that led to the unique adhesives for 3M PostIt
Notepads.)
"So we went to Atari and said, 'We've got this amazing thing,
even built with some of your parts and what do you think about
funding us? Or we'll give it to you. We just want to do it. Pay our
salary, we'll come work for you.' They said 'No'. Then we went to
Hewlett-Packard; they said, 'We don't need you. You haven't got
through college yet'." (Apple Computer founder Steve Jobs on attempts to get
Atari and HP interested in his and Steve Wozniak's personal computer.)
"Drill for oil? You mean drill into the ground to try and find oil?
You're crazy." (Drillers whom Edwin L Drake tried to enlist to his project to drill
for oil, 1859.)
"Airplanes are interesting toys but of no military value".
Ferdinand Foch, Professor of Strategy, Ecole Superieure de Guerre.)
(Marechal
How wrong experts can be…
"Everything that can be invented has been
invented." (Charles H Duell, Commissioner, US Office of Patents, 1899.)
"Louis Pasteur's theory of germs is
ridiculous fiction." (Pierre Pachet, Professor of Physiology at
Toulouse, 1872.)
"The abdomen, the chest, and the brain
will forever be shut from the intrusion of
the surgeon." (Sir John Eric Ericksen, British surgeon, appointed
Surgeon Extraordinary to Queen Victoria, 1873.)
"640K ought to be enough for anybody."
(Bill Gates of Microsoft, 1981.)
Passion for an idea
Edwin Laurentine Drake
On August 27, 1859, a well that Drake drilled struck oil.
in the late 1840’s Edwin Drake was hired to investigate suspected oil
deposits in Pennsylvania. The oil company chose the retired railway man
partly because he had free use of the rail.
Drake decided that the best way to find oil was to dig for it. He had limited
success, but was only able to extract a maximum of 10 barrels per day. This
was not enough to make a commercial yield sustainable. When attempts to
dig huge shafts in the ground failed due to water seepage,
Drake decided to drill in the manner of salt well drillers. He purchased a
steam engine to power the drill.
It took some time for the drillers to get through the layers of gravel. At 16
feet (5 m) the sides of the hole began to collapse. Those helping him began
to despair. But not Drake.
It was at this point that he devised the idea of a drive pipe. The going, however, was slow. Progress
was made at the rate of just three feet (1 m) per day.
After initial difficulty locating the necessary parts to build the well, which resulted in his well
being nicknamed "Drake's Folly," Drake proved successful.
Meanwhile crowds of people began to gather to jeer at the apparently unproductive operation. Drake
was also running out of money.
Amazingly the Oil Company abandoned their man and Drake had to rely on friends to back the
enterprise.
On August 27th 1859 Drake had persevered and his drill bit had reached a total depth of 69.5 feet
(21 m). At that point the bit hit a crevice. The men packed up for the day. The next morning Drake’s
driller, Billy Smith, looked into the hole in preparation for another day’s work. He was surprised and
delighted to see crude oil rising up. Drake was summoned and the oil was brought to the surface
with a hand pitcher pump. The oil was collected in a bath tub.
Within a day of Drake's striking oil, Drake’s methods were being imitated by others along Oil
Creek and in the immediate area. This culminated with the establishment of several oil boom towns
along the creek, and by 1865 nearby Pithole City was producing oil.
Drake set up a stock company to extract and market the oil. But, while his pioneering work led to
the growth of an oil industry that made many people fabulously rich, for Drake riches proved
elusive. Drake did not possess good business acumen.
THE ENTREPRENUER
Entrepreneurship
Entrepreneurship is a process of innovation and new-venture creation as a result
of the interaction of individual and societal/environmental factors.
It is primarily driven by the initiator (s) (Entrepreneur), who take major decisions
that ultimately lead to success or failure of the effort, whatever the outcome, it
usually affects the initiators directly, and society as a whole by extension.
The whole process is aided by collaborative interaction of various networks in
government, education, and institutions that provide support and guidance.
Entrepreneur
The entrepreneur is a catalyst for (economic) change who by the generation
of ideas, purposeful searching, careful planning, and bold judgment
organizes resources and capabilities to create incremental wealth through
the solution of problems, or the provision of life enhancing services. Uniquely
optimistic and committed, the entrepreneur works creatively to achieve set
goals, all for a particular purpose, which is usually to create wealth, as an
end or a means to other ends.
The Soul of the Entrepreneur
It's not the critic who counts, nor the observer who watches from a safe distance.
Wealth is created only by doers in the arena who are marred with dirt, dust, blood,
and sweat.
These are producers who strike out on their own, who know high highs and low
lows, great devotions, and who overextend themselves for worthwhile causes.
Without exception, they fail more than they succeed and appreciate this reality
even before venturing out on their own. But when these producers of wealth
fail, they at least fail with style and grace, and their gut soon recognizes that
failure is only a resting place, not a place in which to spend a lifetime.
Their places will never be with those nameless souls who know neither victory nor
defeat, who receive weekly paychecks regardless of their week's performance,
who are hired hands in the labor in someone else's garden.
These doers are producers and no matter what their lot is at any given moment,
they'll never take a place beside the takers, for theirs is a unique place, alone,
under the sun.
They are entrepreneurs.
Joseph R. Mancuso
Center for Entrepreneurial Management
CHARACTERISTICS ATTRIBUTED TO ENTREPRENEURS
1. Total commitment determination and perseverance
2. Drive to achieve and grow
3. Opportunity and goal orientation
4. Taking initiative and personal responsibility
5. Persistent problem solving
6. Realism and a sense of humor
7. Seeking and using feedback
8. Internal locus of control
9. Calculated risk seeking and risk taking
10. Low need for status and power
11. Integrity and reliability
12. Creativity
13. Optimism
14. Ability to influence others
15. Flexibility
MYTHS
OF
ENTREPRENEURSHIP
THEY ARE DOERS NOT THINKERS
Because they become rich and famous through their deeds, people underestimate the
thinking behind the doing. Entrepreneurs usually think more than they do, but they
are go-getters, who don’t stop until they achieve their goals.
THEY ARE BORN NOT “MADE”
Based on the romantic stereotype of a super person with special gifts. Drucker directly
attacked this notion when he said “entrepreneurship can be learnt”. It has process,
and various models which can be studied and the knowledge acquired.
THEY ARE ALWAYS INVENTORS
Few are, most are not, rather they are superb visionaries and organizers, who usually
benefit by improving on other peoples ideas.
THEY ARE ACADEMIC AND SOCIAL MISFITS
This romantic view of the entrepreneur as an antiestablishment person is anecdotal. Most
get their ideas from belonging to the system and all business is about contributing
to the system. A few may achieve success in unorthodox ways, but most are
mainstream.
THEY MUST ALWAYS FIT THE “PROFILE”
over time a stereotype “romantic” view of the entrepreneur has emerged and people
assume one must fit it in order to make it as an entrepreneur.
ALL THEY NEED IS MONEY
Money is never at any time the most important resource, good strategy is. Money is
always critical for implementing plans, but more of it does not guarantee
success.
ALL THEY NEED / HAVE IS LUCK
Luck is always a major factor in success, but it is always the best prepared who
seem luckiest, entrepreneurs prepare for the big break, that is their luck.
IGNORANCE IS BLISS
False, most entrepreneurs are meticulous analyzers, and they seek and use
information better than others, but they are also not risk averse, they know
the risks, but take their chances. They however avoid P.D.A.
THEY FAIL A LOT
Many try a number of times before they make it, once done, many survive
especially if they follow proven principles. It is not a totally uncertain world.
THEY ARE EXTREME RISK TAKERS
Risk taking is important in entrepreneurship, but most entrepreneurs take only
calculated risks with theoretically proven chances of success which are better
than possibility of failure. The plan must work on paper.
Screening
and
Consultation
SAFETY
FINE TUNING
IMPROVEMENT, ADDITIONS
INITIAL REALITY TESTING
WHY
WHO
FRIENDS
INDUSTRY PUNDITS OR OPINION LEADERS
ACADEMICS AND INTELLIGENTSIA
FAMILY
HANDLING CONSULTATIONS
LISTEN
INTERACT BUT DON’T DISRUPT
NOTE EVERYTHING
PONDER EVERYTHING
RULE OUT
SHORTLIST
PONDER SPECIFIC OPTIONS
REFER TO YOUR ORIGINAL DREAM AND DETERMINE WHICH ISSUES ARE KEY
DETERMINE RESPONSES TO KEY ISSUES
CONSULT SOME MORE WITH KEY PEOPLE IF NEEDED
AVOID PARALYSIS DUE TO ANALYSIS
STOP AT SOME POINT AND ACT!
Innovation
Principles of Innovation
Action orientation
Simplicity and functionality
Customer orientation/focus
Start small
Aim high
Try - test - revise
Learn from everything good or bad
Set milestones and Measure progress
Encourage ideas. reward heroics, tolerate failure
Work work work
The Innovation Process
TYPES OF INNOVATION
– Invention [supportive or disruptive innovations]
Totally new products or services Wright /Edison /Bell
– Extension
New use or different application of an existing product or
service - McDonalds /Atari/Baking Soda
– Duplication
Creative replication of an existing product or service –
Ipod/iphone /Walmart /Easyjet
– Synthesis
Combinations of existing concepts and factors into new
things or services for different or better use - Federal
Express/Unique Trust
Developing Creativity
Recognizing relationships
– See things in a new light, new uses, new approaches
Developing a functional perspective
– Be a pragmatic problem solver
Using both of your brains
– Left for calculations, right for creativity
Eliminate muddling mindsets
– Either/or
– Security seeking
– Stereotyping
– Probability thinking
– Don’t fear ambiguity
Creative problem solving
Adaptor
1. Disciplined and precise
Innovator
1. Approaches tasks from unusual
angles
2. Solves rather than finds
problems
2. Finds problems and avenues of
solution
3. Refines existing processes
3. Questions basic assumptions
related to current practices
4. Is means oriented
4. Has little regard for means,
focuses on ends
5. Is capable of extended detail
work
5. Has little tolerance for routine
6. Sensitive to group cohesion
and cooperation
6. Only seeks ends and cares little or
nothing for consensus.
Funding Sources
Personal savings
Family
Friends
Venture capital
Types of Funding
Debt
Equity
Loans
I.P.O.s
Private Floatation
Grants
THE ENTREPRENEURIAL CYCLE
1.
IDEAS
Creative thinking; Systematic logical process, Innovations
2.
SCREENING AND CONSULTATIONS
Seek guidance, and then go off into the deep
3.
BUSINESS PLANNING
Plan to succeed and then face the odds
4.
FUND RAISING
Know how and where to raise money
5.
GROWTH
Don’t stagnate, you will die

VALUATION OF BUSINESS
Think business-like always!
1.
EXIT STRATEGY
It is all about the purpose. Death gives meaning to life.
God
Be with you.
May your life
make other people’s lives
better.