It’s widely agreed that we need more entrepreneurship for economic growth and a higher standard of living. But more is not always better.
In fact, there can be too much of a good thing, in entrepreneurship as in so many other things. The reason is that economic growth comes from successful entrepreneurship that is also productive. And not all entrepreneurs who earn profits contribute to economic growth if they have unproductive — or, worse, destructive — effects on the economy.
Unfortunately, many entrepreneurs fail to consider what it is that they’re contributing to the economy, and for that reason don’t always end up being productive. Sure, you don’t have to be productive to make money. And to the degree that “success” is a matter of getting big figures at the end of your P&L statement and being “in the black,” you can succeed as an entrepreneur without contributing much to the economy or society.
Many entrepreneurs, however, are not in it simply for the money; on the contrary, they don’t actually make more than they would through regular employment. And they’re not involved in entrepreneurship simply because they don’t want to work for someone else. Instead, they want to change the world (though this doesn’t necessarily require their staying away from making money).
There is also a time and place for social entrepreneurship — doing good by spending money. And there is similarly a time and place for social business, or doing good while making ends meet. But the emphasis on such projects is often exaggerated. Rather, productive entrepreneurship means making a positive difference in the world without requiring that entrepreneurs sacrifice their and their families’ future.
The simple and inspiring truth is that there is no contradiction between making money and making a difference. In fact, you can do well from doing good. But to do so, you must consider the following simple but often overlooked ideas of what a truly “productive” business is:
1. It is not just about you.
Starting your business is a personal choice, and may be tied to a choice of the kind of life you want to live; but the impact and success of the business is not all “personal.” In fact it is not all about you, the product or service you provide, or the opportunities you recognize. It is about the value you create. And the value of what you offer is determined by those you offer it to.
Simply put, you are always at the mercy of how your customers see you and what you offer them. So, don’t fight their valuation, because you can’t. Instead, seek it. Think of how you can offer as much value as possible to your customer — on his or her terms. How do you serve others best? That’s how you can also serve yourself.
2. It is not just about what people say they want.
Henry Ford never actually said the famous phrase, “If I had asked people what they wanted, they would have said faster horses.” But that phrase does capture what the late Steve Jobs likely intended when he said that, “People don’t know what they want until you show it to them.” That’s because people may know the value they can get out of things, but they don’t necessarily know how to satisfy the “wants” they have. If they did, they already would have satisfied them.
Your job as an entrepreneur is to determine what those unsatisfied wants are and help people satisfy them. That, in a nutshell, is the definition of “value.” You can do this either by offering something new or offering something old in a new way. Alternately, you can tell a different story that excites your customers and makes them realize the value that they can attain.
3. It is not just about your competition.
We often think of business opportunities and competition in terms of market niches and the positioning of relative competitors: what’s often called someone’s competitive advantage. Certainly it’s important to maintain a competitive edge in an already mature industry, or to escape the low-margin, dog-eat-dog reality of “red ocean” business, through differentiation. But those factors shouldn’t be the primary objective for entrepreneurs.
To successful entrepreneurs, the positioning of relative competitors should be a secondary concern. What should come first is providing a specific customer segment, whether or not it is already served by others, with the utmost value — on those customers’ terms. If, in the eyes of customers, your business offers greater value (than do your competitors’ businesses), what competitors do is of little importance.
Successful and productive entrepreneurship is simple.
I bet you never considered as “simple” your entrepreneurial undertaking, and the constant struggle to make ends meet that comes with the territory. Yet simple is exactly what it is. To be a successful entrepreneur and also make a positive change in the world, all you need to do is two things. First, provide customers with value on their terms. Second, do so in an economic manner.
Unfortunately, this is simple in theory but hard in practice. But the truth is that many times the reason it is hard to make ends meet is that entrepreneurs think about their businesses backwards. When considering starting a business, they begin with what they want to do, then consider what customers say and what competitors in that market space already do. This is in effect placing the cart before the horse — by considering costs first and value second.
An entrepreneur cannot and should not ever rely on the cost-plus method for pricing. Instead, consider the value-minus method to make sure your customers get as much value as possible on top of the price they pay you. Then make sure you keep production costs below that price.
Thinking about entrepreneurship in “value” terms helps ensure you truly make a difference in the world. That kind of thinking also keeps you on the right path, where the obvious truth is that you serve yourself by serving others.