Entrepreneurship Conference Report

I've been traveling more than usual recently and blogging even less. Here's a report on one event that I attended recently: a conference titled "Technology Entrepreneurship and Institutions: Contemporary and International Research" at the University of Wisconsin-Madison, sponsored by the Initiative for Studies in Technology Entrepreneurship (INSITE) at the Business School there.

This was an academic conference, with lots of interesting empirical research on what makes entrepreneurs and their projects tick. My colleague Gordon Smith, who is a law professor at BYU (and who used to teach at Wisconsin) captured the flavor of the conference here:

Anne Miner 's central point [Anne is the head of INSITE and a UW faculty member] . . . is that entrepreneurship scholarship of the sort she is interested in promoting is not like car repair. The point of entrepreneurship scholarship of this sort is not to produce a how-to manual, but to understand the forces that drive entrepreneurial behavior. Of course, causal theories are nice, and as we develop them, society will benefit. But we shouldn't expect to find a "secret sauce" that can turn any region into the next Silicon Valley. Indeed, Anne asserts that there is no secret sauce.

At this thematic level, I didn't hear much that I hadn't heard before. There was a panel with a Wisconsin politician, the head of WARF (Wisconsin's tech transfer operation), and a successful faculty entrepreneur, all of whom trotted out themes that Pittsburghers have heard before: There are lots of good ideas here; local investors are too risk averse; failure is a badge of dishonor; it's difficult to recruit management talent -- despite an attractive community and a low cost of living -- because of the relative absence of second-chance startup opportunities (if you fail at company one, is company two waiting to offer you a position?).

Nonetheless, lots of interesting data got presented, including a study that suggests that universities do more "technology transfer" in their regions via faculty consulting than via formal "tech transfer office" operation. Since most tech transfer offices barely break even, perhaps some bold university should consider abolishing theirs -- and transferring those resources to an office that helps place faculty with interested consulting opportunities.

Among the pieces of the puzzle that was not among the presentations: causes and cures for structural conflict among regional economic development interests. As anyone who works in entrepreneurial sectors in Pittsburgh can attest, not everyone is always on board the entrepreneurial train. Ox get gored along the way, and to prevent being gored, those ox (mixing my metaphors) can throw sand in the entrepreneurial gears -- and they do. Can anything be done to mitigate the impact of sand-throwing, egomania, and plain old fear and resentment?

My friend Jeff Lipshaw, who is a law professor at Suffolk University in Boston (and who spent many years as a corporate lawyer) adds an interesting note that extends the "no secret sauce" point beyond economic structures to individual entrepreneurs -- and to the service professionals who work with them:

I've been intrigued by some empirical data on this subject, particularly
that gathered by Professor Saras Sarasvathy at Virginia's Darden School about
what she thinks might be the derivable and teachable micro secret sauce, at
least for the entrepreneurs . . . .

Professor Sarasvathy wrote a paper called "What Makes Entrepreneurs Entrepreneurial?" based on research she undertook with thirty successful entrepreneurs (their companies ranged from $30 million to $6.5 billion in sales), giving them each an identical seventeen-page business problem to solve. Her conclusion was that there was a teachable set of principles involved:

"This set of principles, when put together, rested on a coherent logic that clearly established the existence of a distinct form of rationality that we have all long recognized intuitively as “entrepreneurial”. For reasons that will become clear in the next section, I have termed this type of rationality “effectual reasoning”. * * *

The word “effectual” is the inverse of “causal”. In general, in MBA programs across the world, students are taught causal or predictive reasoning – in every functional area of business. Causal rationality begins with a pre-determined goal and a given set of means, and seeks to identify the optimal – fastest, cheapest, most efficient, etc. –
alternative to achieve the given goal. The make-vs.-buy decision in production,
or choosing the target market with the highest potential return in marketing, or picking a portfolio with the lowest risk in finance, or even hiring the best person for the job in human resources management, are all examples of problems of causal reasoning. A more interesting variation of causal reasoning involves the creation of additional alternatives to achieve the given goal. This form of creative causal reasoning is often used in strategic thinking.

Effectual reasoning, however, does not begin with a specific goal. Instead, it begins with a given set of means and allows goals to emerge contingently over time from the varied imagination and diverse aspirations of the founders and the people they
interact with. While causal thinkers are like great generals seeking to conquer fertile lands (Genghis Khan conquering two thirds of the known world), effectual thinkers are like explorers setting out on voyages into uncharted waters (Columbus discovering the new world). It is important to point out though that the same person can use both causal and effectual reasoning at different times depending on what the circumstances call for. In fact, the best entrepreneurs are capable ofboth and do use both modes well. But they prefer effectual reasoning over causal reasoning in the early stages of a new venture, and arguably, most entrepreneurs do not transition well into latter stages requiring more causal reasoning."

[Jeff again] If what MBAs normally do is causal reasoning, then what lawyers do is causal reasoning par excellence. This particular comparison struck home: "While causal reasoning urges the exploitation of pre-existing knowledge and prediction, effectual reasoning stresses the leveraging of contingencies." In short, the usual business
lawyer's job is to use past circumstances to predict and minimize the risk in a contingent future; the entrepreneur views that very contingency as stock in trade.