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Entrepreneurship Ascendant: Americans Are Starting More Businesses Than Ever Before.

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Hardship can bring out truly extraordinary abilities in people. Director James Cameron wrote The Terminator while living in his car, a movie that would later make $77 million worldwide. Arianna Huffington became a well-known writer and founded HuffPost despite her second book being rejected by 36 publishers. Steve Jobs founded the massively successful Pixar Animation Studios after being forced out of his post at Apple.

Their trials were atypical, but due to the broad economic trauma brought on by Covid-19 and government-imposed lockdowns, a vast portion of the population will be similarly forced to forge a new path forward. Thankfully, there are already signs that many Americans are turning to innovation and entrepreneurship despite the devastation of the past 12 months.

Even faced with a monumentally bad economy, Americans are starting more businesses than ever before. From July to September 2020, the Census Bureau recorded 1,500,000 business applications, compared to a quarterly average of around 800,000. Etsy shops are buzzing, with 80 million active product listings now on the site––a 20 percent increase from last year. Online retail has been the fastest-moving sector for small business creation, with ample opportunities in residential remodeling, education technology, and virtual health care.

History tells us that one, a dozen, or a hundred of those businesses could become household names as they grow. General Electric, which had the longest listing in the Dow Jones Industrial Average since the index’s establishment (1896 to 2018), was started during the Panic of 1873. Revlon, a drugstore cosmetics staple, was founded during the Great Depression and eventually became the second-largest cosmetics producer in the U.S. During the 1973-1975 recession, Bill Gates and Paul Allen were hard at work launching Microsoft from a garage. Github, Airbnb, Slack, Uber, WhatsApp, and Venmo were all founded during the Great Recession.

Though few business owners, consumers, and potential entrepreneurs would choose to endure another round of lockdowns, they’ve all been forced to consider clever solutions to novel problems. Indeed, lockdowns have made us reconsider what work itself looks like. The current state of employment is location-flexible and remote-friendly, and with an abundance of Americans out of a job, small businesses have access to an applicant pool ready to get back to work. An ability to roll with those changes is critical.

That flexibility allows innovators and entrepreneurs to identify needs that are unfilled and markets that are unexplored. The winds of change don’t steer these people off course, but rather, they point them to new and lucrative opportunities. Every groundbreaking product and service, every improvement to familiar products and services, and often the means by which we first notice and acquire them come about thanks to commercial visionaries. And although they tend to appear as if out of thin air, at times their productive output comes to fruition under intimidating personal circumstances.

Innovation is further driven by the natural curiosity that many people possess. Faced with challenges within their communities and disruptions of the largest scale, there will always be problem-solvers looking to offer solutions. These days they aren’t so much mechanical, tinker-in-a-garage types, but never-before-seen technological minds who process the world in ways that don’t come naturally to many. They pay attention to the details that most of us miss. Those who are naturally curious––but were previously limited by more traditional desk jobs where they had few opportunities for creativity––may now be taking the plunge and exploring their abilities. And part of their value stems from the fact that they remain productive despite, and perhaps even because of, stress.

And, it goes without saying: Perseverance is key. For the same reason that a suspiciously high number of people think they’re excellent drivers (a claim that annual statistics do not validate), most individuals think they have perseverance until they find themselves in a trying situation. Those who truly know how to persevere will be rewarded for their efforts during these chaotic times. Plenty of people will, understandably, choose less risky endeavors. But withstanding adverse conditions, first and foremost, requires acknowledging that quitting is simply not an option.

Finally, even though it’s impossible to fully prepare for all that could go wrong, successful innovators take lessons from “preppers” nonetheless. Many preppers––often in an all-consuming manner––go to great lengths to acquire supplies in anticipation of natural disasters, civil unrest, or other existential threats. In a more subtle way, entrepreneurs go to great lengths to stay psychologically flexible, attuned to the ways the business environment might go wrong. Disaster might hit at any time in any number of ways. The problem-solvers who will emerge most triumphantly from these dark times will be the ones who stayed flexible and kept their ears to the ground.

Hundreds of thousands of businesses are being started. Many will fail, some will thrive, and a scant few will be wildly successful. To this end, we propose the following: Five years from now, there will be at least one S&P 500 index member that was founded during the Covid-19 pandemic and associated lockdowns (say, between March 16 and December 31, 2020).

Under current definitions, that would mean that at least one firm which started within the most daunting, uncertain economic circumstances in 90 years will grow to a market capitalization of over $5 billion, will have reported positive earnings in recent quarters, and will likely employ tens of thousands of people (the current average headcount among S&P 500 firms is roughly 51,000).

We’re living through an age that will leave deep scars on every aspect of American society. The trauma might linger, but so will the efforts of the people who are presently choosing to innovate and persevere in the face of adversity. Though many of them are doing so in the shadows, there are entrepreneurs everywhere who are setting to work to solve the most pressing problems of our present and our future. The businesses those innovators introduce to the world will be all the more significant for the hurdles they surpassed.

Entrepreneurs Always Challenge The Status Quo – In Business, Politics, Regulation and Institutions.

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Entrepreneurs refuse to accept the status quo. Their function is to create new economic value for their customers, and thereby to profit for themselves, both financially and psychically. They do this by introducing new products and services to the marketplace, designing and implementing new processes, adding value to others’ inventions by turning them into market-wide innovations, and offering new pleasures and satisfactions and solutions that no-one knew of or imagined.

The pursuit of new is a refusal to accept the status quo. That includes any and all existing market conditions and structures, any monopolistic incumbent firms, any regulatory barriers, any capital shortages, any “it can’t be done” pessimism.

We think of entrepreneurs in economic terms, market movers dealing in goods and services, taking dollars and cents in exchange. But the entrepreneurial mindset and the entrepreneurial process can be applied in many more contexts where the status quo requires a challenge and change is called for. Functional entrepreneurship is a process that can be described as a series of steps:

  • Development of entrepreneurial belief. An entrepreneur develops and continually adapts and polishes a belief about the status quo that no-one else holds. The belief is that the status quo is inadequate, wrong, or susceptible to improvement. For whom? For customers – i.e. not for the entrepreneur herself but for others. The status quo is under-serving others, and the entrepreneur is determined to fix that error. The entrepreneur, of course, expects to get something back in return, which could be psychic fulfillment (a sense of purpose and meaning from being the status quo buster) as well as profit (which is the financial signal to the entrepreneur to keep going). It all starts with dissatisfaction and the belief in the possibility of eliminating it.
  • Alignment with customers: As the entrepreneur develops the belief, she or he continuously aligns with (potential) customers. Am I getting this right? Does what I believe align with your preferences? If I change things in the way I am thinking, will you endorse the change? You are the customer, and you are my guide. You have the final decision.
  • Implementation: Given supportive feedback from customers (“the market”), the entrepreneur moves ahead with the new initiative – designing, building, and marketing it. It’s offered to the market as a value proposition (“I think you might like this – here’s why”). The market (i.e. customers) responds yes, no or conditionally (“I’d like it better if………). The entrepreneur receives the feedback, reshapes the value proposition and re-offers it until the customer confirms “Yes! That’s it!”

This mindset and the BAI process – Belief, Alignment, Implementation – can be applied not only in business but in any context or setting where there is dissatisfaction with the status quo on which an entrepreneur can build a belief and a customer can express a preference. As a result, we can imagine a wide range of fields in which the entrepreneurial mindset can be applied to society’s benefit.

Institutional Entrepreneurship

Many of the institutions in our society have reached all time lows of disrespect. Representative democracy is being widely questioned, and the institution of Congress has a very low approval rating (18% job approval – and moving lower – according to Gallup Poll in mid 2020). Also in the Gallup Poll, half of Americans revealed “somewhat negative” or “very negative” ratings of the federal government. We are losing confidence in our money, and the Federal Reserve, the institution charged with preserving its integrity and value, yet does the opposite. Similarly, we re losing respect for educational institutions that prefer to indoctrinate our children rather than educate them.

In all these instances, there are entrepreneurs who have developed the belief that they can bring improvements to a corroded status quo. Even democracy can be innovated. Or, alternatively, we could re-think the entire founding of the US. Entrepreneurs are the ones who initiate these changes.

Regulatory Entrepreneurship

Regulation is the context in which entrepreneurs work. The more thoughtful entrepreneurs question whether the context is unchangeable, and they find innovative ways to make change. Uber and AirBnB are recent multi-billion dollar examples of what’s possible. Uber is what contracted automobile transportation looks like when entrepreneurs question the regulation that keeps the restrictive taxi monopoly in place. According to Josh Johnston Airbnb is just what hotels look like without hotel regulations. Entrepreneurs can out-think regulators.

Social entrepreneurship

Social entrepreneurship is a term that is often misused to mean entrepreneurial initiatives that are conducted without a profit motive, aiming for a higher target of good for society that entrepreneurial capitalism can’t achieve. The true case is that all entrepreneurship is for social good, because society is simply another word for entrepreneurs’ customers, and entrepreneurs want them to do well. Entrepreneurs offer society more and more good things, while trying to use less and less of society’s resources (i.e. lower costs), thereby freeing them up for other social uses.

A great example of profit-directed social entrepreneurship is the initiative called Entrepreneur Zones, the brainchild of Dale Caldwell of Fairleigh Dickinson University’s Rothman Institute of Innovation and Entrepreneurship. With Entrepreneur Zones, Dr. Caldwell aims to solve problems of urban poverty, family instability and academic underachievement by establishing an environment where local residents can start and grow businesses and make them thrive, in n environment of shared purpose, supportive investment, training, mentoring and relaxed regulation. The goal is to improve society by making a profit, generating jobs, and creating the social environment in which families can pay their bills and their kids can do well in school.

Cultural Entrepreneurship

In November 2020, Frank Newport of Gallup wrote A Letter to Elected Representatives, From the Average American, based on what average Americans had told Gallup in surveys. One of the statements is this: “I have lost faith in many of our culture’s institutions in recent years”. The term cultural institutions can include many things from religion to the healthcare system. Gallup reports that Congress has by far the lowest confidence of all institutions, of course, but confidence in many of our other institutions is redoing too. The next lowest after Congress is big business followed by the news media (TV and Newspapers), the criminal justice system, and organized labor, then banks and public schools.

We can see entrepreneurial improvements emerging for all these institutions. Home schooling and private schools; fintech replacing many bank functions; reformers trying to change the criminal justice system; internet news outlets offering alternatives to mainstream news media. Consumers get to choose which of these innovations they’ll support. Entrepreneurs will continue trying to secure that support through integrity, earning trust, and giving great service, which is where so many of our institutions fail.

Entrepreneurs and entrepreneurship are society’s resources for continuous improvement of the status quo.

Economics For Entrepreneurs: Entrepreneurs Change The World For The Better By Thinking Exclusively About How To Offer New Value To Consumers.

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Politics is hardly an effective force for bringing about positive change in society. Instead, real change, and especially such that changes people’s lives for the better, comes from elsewhere. It comes from business, and specifically from innovators, entrepreneurs, and pioneers in the market. And very often it does so despite politics and the state — or even in direct conflict with it.

While technology often gets the credit for achievements of the market place, this is too much of a simplification. It is not technology per se that produces the changes and improvements; it is but a common (and eye-catching) means. The real change is brought about through entrepreneurship, specifically through what Ludwig von Mises called the entrepreneur-promoters: the pioneers, the disrupters, the creative destroyers.

These innovative and trailblazing entrepreneurs are often thought of as creators of something new. For example, it is easy to see the immense change brought to the market for personal transportation by new and innovative players like Uber and Lyft. By providing a new type of transportation — ride-sharing — these entrepreneurial firms placed themselves outside of the existing regulatory framework for taxi cabs. And thus they broke new ground and forced deregulation of the often guild-like taxi industry.

Ride-sharing is an obvious and important example of the enormous change that entrepreneurship can have on society — for the better, by providing new goods and services, and thus improving people’s lives. This is the power of the market. But that is too limiting a definition of disruptive entrepreneurship. Such change can also be brought about by incumbent business firms who pursue new and innovative business models.

A Membership-Based Auto Industry

An example of such is the recently advertised change in how automobile manufacturer Volvo intends to do business. While other automobile manufacturers are stuck, partly due to protective regulation, with producing automobiles sold through a vast dealership network, Volvo intends to stop selling automobiles. Yes, you heard that right.

The new program, Care by Volvo, is a flat-rate membership in which you are provided access to your automobile — with maintenance, service, and even insurance included. While this seems like an interesting twist on the face of it, it is a new business model that has the potential to revolutionize the automobile industry. Drivers no longer need to own their cars, and they also, as a result, do not need to worry about anything with the usage of their car. There is an immense convenience gain.

But think one step further. If a Volvo membership, rather than owning an automobile, means you have the right to a vehicle, this could change everything. Imagine going out of town, and being provided with an identical (or, if you prefer, different) Volvo when you arrive at your destination airport. The Care by Volvo program is effectively competing with the rental car business.

Further imagine that “your” Volvo is a self-driving car, as automobiles will soon be, and your leaving town means not only that you can be picked up at the airport by your preferred car, but also that the car in your driveway, or which dropped you off at the airport, can be used by others.

The future that Volvo likely envisions is one in which there is no need for ownership of automobiles because they can provide the transportation service without hassle everywhere and always. The gain is not only that resources become better utilized as automobiles no longer are parked for long stretches of time in one’s driveway or garage, but also that consumers no longer have to make capital-intensive investments in something as banal as personal transportation.

With much more efficient use of transportation resources, one can imagine how automobile manufacturers such as Volvo not only take on rental car agencies and taxi cabs, but also (out)compete public transportation systems like buses, trains, and subways.

Rather than automobile manufacturing being a stagnated industry “of the past,” and under threat from the anti-oil movement, Volvo’s business model innovation can completely change the playing field and revolutionize the entire transportation sector of the economy. (And I haven’t even mentioned how Volvo also envisions soon offering only electric vehicles .)

The driving force here is obvious: entrepreneurship. But the disruption is not from a new player, but from a player thinking anew. The step for Volvo going from a lease-or-sell model to membership is not a huge one in terms of the production or distribution process. The difference lies in how they imagine best serving their customers, and by thinking of their customers first – or the actual value of what they do – they realized they should think differently about their business. Their dealership locations become member care facilities.

By explicitly thinking of and making consumer value the purpose and goal of their business, Volvo has recreated themselves. As a result, they could disrupt the automobile industry. And in the process, they may erase the boundary between different industries involved in providing the value of personal transportation: automobile manufacturing, car rentals, taxi cabs, public transportation.

This is an entirely predictable evolution. The only reason these are considered different industries in the first place is that they started out offering different types of services based on the technology of the day. But what they really do is not to provide technological solutions to consumers, but to provide value. By recognizing this simple but often forgotten fact, artificial boundaries dissolve and more value is attainable for both businesses and consumers. Herein lies the power of business and entrepreneurship to change the world: by serving the rest of us.

Per Bylund is assistant professor of entrepreneurship & Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship at Oklahoma State University. Website: PerBylund.com.

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