Archive for the ‘Entrepreneurship’ Category

Video Interview with Professor Arielle John — Transcript

Tuesday, February 2nd, 2016

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.

Hicks: I’m Stephen Hicks. Our guest today is professor Arielle John, who is teaching fellow in the Department of Economics at Beloit College. Professor John was here to speak with us on culture and entrepreneurship with special reference to Trinidad, her native country. arielle-john-500-px

In your talk you gave us some striking statistics about the relationship between culture and entrepreneurship. You started with a breakdown by ethnicity, or the various segments of Trinidadian society. And, to contrast to that, with the participation in self-employment and entrepreneurship. What were those numbers like?

John: Trinidad is an interesting country ethnically. The two majority segments of the population are Indians, who are descendants from Indian indentured servants; they comprise 40% of the population. African Trinidadians comprise about 37%, so they are about equal. Beyond that, about a fifth of the country, or 21% of Trinidadians, report themselves to be mixed; usually that implies they are a mix between Indian and African. And there is a small minority of individuals who are European descendants, also Chinese and Syrian-Lebanese and they comprise two percent of the population. They are the smallest group in the population.

Now, when we look at self-employment statistics we find that within that minority group [European, Chinese, and Syrian-Lebanese descendants], about 35%-36% of those individuals are self-employed — they are business owners. The next group with the biggest category of business owners are the Indians. About 25% of those individuals are considered self-employed. Mixed individuals, perhaps about 20% of that group are self-employed, and blacks in Trinidad have a below average self-employed rate at about 16%. So that’s the breakdown.

Hicks: So, your area of investigation is the effects of ethnic culture, and possibly racial culture, on the widely varying self-employed entrepreneurial ranges.

You also spoke about entrepreneurship and entrepreneurship is complicated in some respects, but you broke it down into two basic moments that you call the Kirznerian moment or the Schumpeterian moment. What are those?

John: Obviously, the decision to become an entrepreneur involves many factors over time and place. For Israel Kirzner, the defining moment of being an entrepreneur is the moment when you discover an opportunity, and usually that happens in a surprise fashion. You are going about your way, and suddenly you realize there are needs that people want met and you know exactly how to do that. So for Kirzner the defining moment is identifying the opportunity.

Hicks: He is emphasizing the cognitive elements in entrepreneurship.

John: Absolutely. For Joseph Schumpeter, what defines an entrepreneur is the doing. For Schumpeter, exploiting the opportunity and actually bringing a product to market or changing how a supply chain works or changing some aspect of production — that is what makes you an entrepreneur. So, in doing something creative, destroying the old way of doing things, the doing aspect of entrepreneurship is what Schumpeter focuses on. So there appears to be two moments of entrepreneurship, the moment when you identify the opportunity and the moment when you actually exploit the opportunity.

Hicks: Okay, so the next question is about culture and those two moments of entrepreneurship. So, in trying to figure out how well or not well a culture fosters the identification of opportunities and the exploiting, right, of those opportunities. joseph_schumpeter You also had a definition of culture earlier, an explication of what culture is. What is culture?

John: Culture is one of those words that is ambiguous and hard to make concrete because it’s so abstract. But I think there is a very good definition of culture from the anthropologist Clifford Geertz. He refers to culture as an historically transmitted pattern of meanings, a system of inherited conceptions. So culture is essentially defined as the shared meanings individuals have about the objects and about the people and about the actions in their lives. They share meanings together, and those differ from culture to culture.

Hicks: So one then asks what meaning, so to speak, entrepreneurship has within a group of people, and to what extent there is a history; those will be connections that we want to make.

Coming to Trinidad in particular, you had three hypothesis about the intersection. One was about Kirznerian entrepreneurship — the identification of opportunities and how that is in Trinidadian culture. What is your hypothesis there?

John: Well, my hypothesis there is that Trinidadians across all of the ethnic cultures are fairly prolific in identifying opportunities. I confirm this by doing interviews with Trinidadians, and I sat them down and asked them: Tell me about your job, or your dream job, and instead of people identifying opportunities to be technicians, to be doctors, to be educators, people identified specific entrepreneurial activities. So they saw themselves as being self-employed one day, and not only did they know that they wanted to own trucks and rent trucks, or start restaurants, or start hairstyling businesses, they had actual plans for how they were going to achieve these businesses. They had a diverse number of reasons, but what really struck me was that they were good at discovering gaps where consumers had demands that were not being met. They were very good at identifying opportunities.

Hicks: And that was across all of the different ethnic cultures that you identified earlier?

John: Yes.

Hicks: With respect to Schumpeterian moment in entrepreneurship, what is your hypothesis there for Trinidad?

John: Well, clearly according to the statistics I mentioned earlier, the ethnic cultures are not equal exploiters? According to the data, the white, Chinese, and Syrian-Lebanese Trinidadians are the best exploiters, and the blacks are not necessarily good exploiters. Indians are seen as the emergent business class.

Now there can be several cultural reasons for that. When I looked at the history of the different groups, I realized that there could be some historical, cultural reasons for these disparities. White, Chinese, and Syrian-Lebanese, to some extent, brought their cultures with them, from where they came from, e.g., from China, from Syria. They brought with them their entrepreneurial attitudes.

Not only that, once they arrived in Trinidad they kept close kinship ties and they formed business associations. So, an individual who belongs to that ethnic group has a support system, has a group of people who are aware of what it takes to be a good exploiter. They have technical advice, they keep their kinship network close, and that’s fairly true for Indian Trinidadians as well. But when it comes to black Trinidadians, they don’t have those close kinship ties. They never developed them across their history.

Hicks: Is that because they were largely brought in as slaves?

John: They were.

Hicks: And that destroys kinship connections?

John: That destroys kinship connections. Over the years blacks, as opposed to Indians and Chinese, have given different meanings to certain jobs. Public service, education jobs, and professional jobs are highly valued in the African culture in Trinidad. So an individual who is trying to climb the social ladder or make something out of himself, you know, chases prestige, is not likely to use business to exploit those dreams. They are likely to become more educated and avoid business altogether.

Hicks: Professional jobs in established institutions. You also mentioned some dimensions of dependence versus independence in post-colonial history of Trinidad. Trinidad became a country, you mentioned, in 1962. So this is within a couple of generations that we have a new culture, but nonetheless, dependence and independence are not equally distributed. What are the issues there?

John: I believe that coming out of colonialism, more people started to see business opportunities as something that they could do, they could take charge, they could aspire to be anything they wanted to be, which is why, I think, across cultures, Trinidadians are opportunity identifiers. But they are not necessarily, in terms of the ethnic groups, all equal opportunity exploiters, for these dependence reasons. So blacks and Indians coming out of independence were more dependent on the state, even after Trinidad was not a colony anymore.

There were social programs to try to get them to become businessmen, to take care of them, and I think that decreased their incentive to try to make it on their own. Within those families, living with your family well into adulthood and relying on your parents for money, that is still seem as normal in those ethnic groups. And so, again, that diminishes the incentive to become an entrepreneur and to make one’s own way through life. So, these cultures’ dependence transmits across generations and determine who actually, even though they may have ideas, feels a sort of real need to exploit the opportunities. And those who are more dependent don’t feel that need strongly.

Hicks: They are striking — the statistics on differences in entrepreneurship participation across ethnic groups and racial groups. Also, according to the degree of education.

You also had to break down by sex, and there is a marked difference in the participation between males and females in all ethnic groups and all levels of education. What are your thoughts on the gender or sex differentiation stats?Flag_of_Trinidad_and_Tobago.svg

John: There are gender differences in employment across cultures, across nations, across time, and across jobs, right, so not just self-employed versus employed. Most fields, right, you see that choice gap. And I am not clear what the reason is, but I do think sometimes men have different goals. Sometimes women have more family goals, whereas men may aspire to be businessmen or to be very involved in their jobs. And I think there is a fundamental difference when it comes to the actual choices men and women decide to make on their own.

Hicks: The male/female rates in Trinidad aren’t different from male/female rates in other cultures and places?

John: I don’t think that they are, even here in the USA, I don’t think that they are. Well, there may be a higher percentage of women becoming entrepreneurs in the USA, but women here also generally are more self-sufficient and have a higher income.

Hicks: Okay. Toward the end of your talk, after emphasizing various elements of culture, you said your research shows an importance of institutions of certain sorts in fostering or squelching entrepreneurial participation rates. What do you mean by institutions in the Trinidad context? How does that fit in to your research?

John: When I talk about institutions, I am talking about the formal rules of the game within a society. The rules that tell you what you are allowed to do, where you are allowed to participate and not allowed to participate. I am not really talking about informal rules. I am talking about formal, official rules within Trinidadian society.

Hicks: Would informal rules be on the cultural side? And formal rules would be institutions?

John: Yes, informal rules refer to norms. The formal rules, the institutions operating in Trinidad, certainly apply to everyone. Of all ethnic groups in Trinidad, these are rules that are on the books. They don’t apply to blacks any more than they apply to whites or Indians. So there are institutions in Trinidad and Tobago that I believe, and that I think economic theory would predict, that are beneficial to entrepreneurial identification and exploitation in the first place. In Trinidad and Tobago, private property rights are respected and enforced, so if an individual decides they see an opportunity and they want to follow through with it, they can purchase the piece of land, they can purchase the building, and they don’t have to worry about it being confiscated. Private property rights are perhaps not as strong as in more developed nations, but, still, if individuals want to own properties, they could. Also, in Trinidad, I think the rule of law is respected, so individuals aren’t treated differentially. And so I think in Trinidad, as economic theory predicts, this incentivizes people to be comfortable with coming up with business ideas and going after these ideas because they know that, if they do the face the law in any point in their business dealings, they won’t be treated unfairly or differentially,

Hicks: So the law is noble and consistent, and so people can factor that in and that encourages entrepreneurship?

John: Definitely.

Hicks: All right, a fascinating set of issues. Thanks for being with us today.

John: Thank you, thank you very much. It was great to talk at Rockford University.

[The original video interview with Professor John follows.]

Robert Salvino on entrepreneurship and public policy — transcript of video interview

Wednesday, December 30th, 2015

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.

Hicks: Hi. I’m Stephen Hicks. Our guest today is Professor Robert Salvino, who teaches Economics and Entrepreneurship at Coastal Carolina University in South Carolina. He spoke with us today on entrepreneurship and public policy. robert-salvino

One of your initial themes was the importance of entrepreneurship as a driver of the economy. Innovation, business startups, employment, and so forth. And you were pointing out what we actually do know about entrepreneurship. What are the traits that go into entrepreneurial success?

Salvino: Right. When we think about entrepreneurship, we think of a very positive-oriented type of person’s behavior, somebody who is a problem-solver, who sees obstacles and is already thinking about ways to get around those obstacles and accomplish things in spite of barriers that might seem to be very big for the rest of us.

Hicks: Right. And then the question then is: if we want to encourage entrepreneurial behavior, what kind of institutional framework is going to make that happen — or retard it? In your lecture, you made a distinction between a more active approach to public policy, when government is trying to foster entrepreneurship by picking winners and losers, so to speak, and a more indirect approach, where the government sets very general conditions within which entrepreneurship can flourish. What is the difference between these two approaches?

Salvino: An active public policy approach would be literal programs, if you will, that would maybe subsidize start-ups. If you start a small business, there will be credits that will be given to you or job training will be provided, or these types of things, trying to get people to start things. A passive approach to public policy would simply just to allow things to happen. So, have a very favorable business climate in the first place without somebody having to check the regulations and licenses and requirements and see what kind of things they could do. And maybe if you are in this type of industry, you can get better subsidies or things, so, taking that away and letting things just kind of run their course.

Hicks: So the argument there is: you take away particular types of policies, and you create an environment in which entrepreneurship will flourish. Whereas the other is to have that plus particular programs directed to stimulate entrepreneurship. In your talk you also in passing contrasted some regimes around the world that seem actively to discourage entrepreneurship. North Korea is an example. And then the example of cellphones was very striking. What was that?

Salvino: Just a few years ago, Eric Schmidt with Google and, I believe, Josh Cohen went to over to North Korea. They’ve got a book coming out that talks about technology and its role in the spread of prosperity and the changing of oppressive regimes. Just a few years ago, you were not allowed to have a cellphone in North Korea without some sort of authorization. The majority of population did not have a cellphone. Then, they later allowed a million people in a very large country to have a cellphone, but it was a controlled cellphone.

Hicks: If we try to evaluate, then, the two entrepreneurship-friendly approaches, where we assume that entrepreneurship is a good thing and we want to foster it, how do we evaluate whether a more active hands-on government fostering of entrepreneurship works better than a more relaxed government approach?

Here you took us through some history, asking us to look at some of the great entrepreneurial success stories, Google, Apple, AT&T earlier, Standard Oil, and so forth. What is the lesson that we learn from those examples, on your reading?Steve_Jobs_Headshot_2010-CROP

Salvino: Right. Those companies, those technologies — nobody would ever predicted the emergence of these new industries. Ford Motor Company, you would not have been able to identify a group of people whom might have been more likely to be successful. Try to take a group of people from MIT and put them in a room and say: ‘create the next big thing’. People like Steve Jobs and Bill Gates — nobody would have ever identified them as people likely to create the things that they did.

Hicks: So the argument there is just having a culture in which creative, innovative people can do what they want to do, you’re going to get entrepreneurship. And then on the negative side, you had examples like Solyndra, where active public policy trying to promote certain kinds of entrepreneurship blows up in our faces with a huge price. Stay more with that one.

Salvino: Solyndra was, I believe, awarded about $500 million in subsidies through the federal government because they were in a favored industry working in green technologies. And Solyndra went bankrupt within, I believe, a couple of years of forming. If the company, a start-up, had able to get private investors to back them to the tune of $500 million, it’s very unlikely they would have gone bankrupt in two years. So, the difference is between what went into the development of a company like Solyndra versus a company like Apple.

Hicks: Okay. Are we able to step back and cite statistics and say that here is the more relaxed, entrepreneurial-friendly environment, and in that environment, you get a certain number of entrepreneurial successes — Apple, Google, and so forth — but that we’re also going to have a whole lot of failures?

Salvino: Sure.

Hicks: Contrasting that with a government that is more hands-on and tries to pick entrepreneurial winners and losers, they are going to have a lot of failures, but they also have some winners. Are you able to quantify the relative success rate of those two approaches?

Salvino: I haven’t looked at that in my research, but I think if you look at it just from a theoretical perspective and think about resources that are invested in any and each of those, certainly you are going to have many, many failures in the private market with experimentation. But the difference would be the amount of leverage of that investment and the people who suffered as a result of that. If it truly is a market process, the spread of failure is not going to have the negative impact on all of society that something like many Solyndra-type things would.

Hicks: Okay, so we have one 500 million dollar failure that has to be put against then 500 one-million dollar failures, and so forth.

Salvino: Exactly. It is spread throughout the whole system.

Hicks: Now, you also had one particular example of public policy that seemed more indirect, and that was health insurance, where this is not directly intended to have an impact on entrepreneurship or not. But for various other reasons health insurance is a desirable goal, so the government wants to encourage the greater provision of entrepreneurship. But, nonetheless, indirectly it has an impact on entrepreneurship as the example you presented. How does that work?

Salvino: Okay, if we talk of a different types of entrepreneurs, a self-employed individual as one type. So, employer-provided health care as it emerged over time took years and years to grow and become kind of cemented into our culture as an expectation of a good job were good benefits. And so the rate of self-employment just seems to, over the same period of time, been about cut in half. And so, there is a real cost to acquiring Barack Obama, Chris Gronethealth insurance on your own in this independent market versus when you are with a large company. When you are with a large company that provides the benefit, there are direct policies that make it easier for a large company to provide the benefit to the employee. And so there is a hurdle that is created there, whether it was intended or not.

Hicks: Okay, so the way this works then is health insurance is a desirable thing for individuals. Government creates a policy that encourages employers to provide health insurance for employees. That makes employment with a company that’s providing health insurance more attractive than self-employment, so self-employment rates go down.

Salvino: Right. That’s kind of the idea that I have looked at and to see if there is a causal relationship between the two. Certainly, we can see at least anecdotally this idea that we place a very high premium on benefits. There was a survey done a couple of years ago throughout the world asking adolescents what do they want when they become adults. And most of them said they want a good job with good benefits. So this has been cemented into our culture.

Hicks: Okay, then public policy responds to that directly.

Salvino: And public policy responds and, in some cases, has helped propel that idea, that expectation.

Hicks: Scaling out then: your proposal was that we should have the more indirect, passive approach to public policy by creating general conditions within which entrepreneurs are free to innovate and experiment. What are those general conditions that you think work best?

Salvino: So, for example, just a sound monetary system that allows us to make long-term contracts and have an idea or expectation of what interest rates are going to be, what the rate of inflation might be, and how that affect us. Property rights, so that when we go into an organization, we form a corporation, we conduct business, we know that our rights are protected and that there is a judicial system that is going to help us solve disagreements and such things. Contract enforcement is another example of an institution that helps. When contracts are not going to be enforced, individuals, investors, or entrepreneurs may be very leery of forming partnerships with people that they may not know very well.

Hicks: You gave the example of China, part way through, as a very striking example. One of things we’re interested in is wealth creation. And wealth creation certainly is an important value if we are already comfortable. Nonetheless, we would like to be more prosperous and make sure our kids are more prosperous.

But wealth creation is important when we think about poverty and places in the world that are still ridden with poverty. You mentioned China as a very striking example. In the last generation, something happened that has never happened before in human history, namely, half a billion people were lifted out of dire poverty into a basic minimum standard of living. Can you track China’s success in doing so to public policy changes in China? And if so, what do you think those were?

Salvino: Right. If you go to China a generation ago, we think of China as a communist country. And still today people associate China with communist regime. But it is going in a different direction than many developed countries in the world. It is kind of backing down from that and going from a completely communist institution to state capitalism. Maybe it’s state-directed capitalism with capital ownership, but still it’s a step in the opposite direction, towards allowing markets to flourish more than previously had. And if we think about it from the perspective of our country, many American businesses over the past generation have put operations in China. And over the period of a generation it has become easier for these businesses to operate in China, to maintain their own property rights.

An individual came and spoke to a group of business leaders in South Carolina a couple of years ago and talked about an operation when they first went into China. In order to start their company they had to give away majority ownership of this subsidiary in China, so they were very leery to do that. And over the past few years, that went away to where they were not any longer required to give away that type of ownership of their company. And as more companies have been able to go into China, not having to give up certain of those property rights, more companies will go in there and conduct business. So there are jobs created in China by American companies and other companies throughout the world. And over a generation that has been one factor, I would say, that has helped to alleviate some of their problems.

Hicks: So China is moving in the right direction?

Salvino: Right, they are moving in the right direction.

Hicks: Thank you for being with us today. Interesting material.

Salvino: Thank you.

[The original video interview with Dr. Salvino follows.]

William Kline on entrepreneurship and liberty

Friday, November 20th, 2015

University of Illinois, Springfield Professor William Kline’s 14-minute video lecture on “Entrepreneurship and Liberty.” Professor Kline discusses the relationship between liberty and entrepreneurship. He explains how laws, culture, and economic regulation can infringe upon the freedom of entrepreneurs and inhibit their abilities to be innovative. He stresses the importance of economic liberty in particular in providing the right environment for entrepreneurship to flourish.

Professor Kline’s lecture is part of the ongoing Entrepreneurship and Values series, recorded and produced by the Center for Ethics and Entrepreneurship. Other lecturers in the six-part series include Alexei Marcoux, Stephen Hicks, Terry Noel, and Robert Salvino.

Robert Salvino on entrepreneurship and public policy

Friday, November 6th, 2015

Coastal Carolina University Professor Robert Salvino’s 15-minute video lecture on “Entrepreneurship and Public Policy.” Professor Salvino discusses public policy and its effect on entrepreneurship. He contrasts active public policy methods (e.g., subsidies) and passive public policy methods (e.g., lowering taxes) and hypothesizes that passive approaches to public policy often result in more innovation and entrepreneurship.

Professor Salvino’s lecture is part of the ongoing Entrepreneurship and Values series, recorded and produced by the Center for Ethics and Entrepreneurship. Other lecturers in the six-part series include Alexei Marcoux, Stephen Hicks, William Kline, and Terry Noel.

Steve Mariotti’s new book

Wednesday, September 23rd, 2015

BookCover_AnEntrepreneursManifesto-234x300Steve Mariotti, founder of the Network for Teaching Entrepreneurship (NFTE), has published a new book. An Entrepreneur’s Manifesto makes a convincing case for the power of democracy, ownership, and free markets to combat poverty, terrorism, and totalitarianism.  “There is no more revolutionary act,” Mariotti writes, “than starting a business.” Learn more about Steve’s new book at his website. Also, you can find our interview with him at our website.

Video Interview with Magatte Wade and Michael Strong — Transcript

Tuesday, September 1st, 2015

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.stong-wade_stossel

Hicks: Hi, I’m Stephen Hicks. I am executive director of The Center for Ethics and Entrepreneurship here at Rockford University, and my two guests today spoke at Rockford University on the themes of entrepreneurship and ethics. With me is Michael Strong, who is educated at Harvard, St. John’s College, and at University of Chicago. He is the author of a new book last year called Be the Solution, and the theme there is conscious capitalism and entrepreneurial solutions to major world problems and social problems. My other guest is Magatte Wade, who is a serial entrepreneur, originally from Senegal, Africa. She founded a business there that is quite successful and is now engaged in a new entrepreneurial venture here in the United States.

So, Michael, I will start with you. One of your provocative opening lines was an account of entrepreneurship as a kind of magic, as creating something out of nothing. What do you mean by that?

Strong: Well, you know, Magatte and I went to Rwanda this summer, and Rwanda is all subsistence agriculture, meaning it’s nothing but little tiny patchworks of people growing corn and potatoes, and so forth. In 1800 the whole world was full of basically people who lived in subsistence agriculture. Whenever we walk around the world and we see airports, computers, buildings, and chairs — all that stuff had to come from somewhere, and my point is that science and technology made certain discoveries that contributed to all of the stuff around us. When we walk around, we should be aware of the fact that if it were not for entrepreneurs creating profitable businesses that marketed goods and services that people wanted made from inventions and designs and so forth, we would all still be living at the level of subsistence agriculture. So we need to have some realization that, without the entrepreneurs, we might have scientists in labs, if, you know, maybe the kings could have a few scientists in a lab, and we would have subsistence agriculture, but we would not have the extraordinary life we have. I think we should bow down to the Industrial Revolution every day. This extraordinary life is entirely due to the fact that millions of entrepreneurs for the last two-hundred years have created millions of businesses that provided innovative goods and services, month by month, year by year, and have created and are still creating the world we live in today.

Hicks: Okay. The cultures that have become rich in the last two-hundred years beyond the normal standing point for humans for most of human history, what were they doing differently that hadn’t been done before? I mean, you mention the Industrial Revolution, but what were the components that were there?

Strong: A great question. And there are controversies in this. There is certainly a legal part and there is a cultural and intellectual part, but one thing that is becoming increasingly clear is that the legal structure is crucial. In particular, you need a secure and transferable property rights, you need rule of law, contract enforcement that is reliable and fair, and you need economic freedom, the freedom to create things. In my book I talk about this as the entrepreneur’s toolkit, where just as an artist can’t paint a painting if she doesn’t have a canvas and paints, so too an entrepreneur can’t create if they don’t know what they own, if they can’t exchange what they own if other entrepreneurs or other businesses and finally produce things freely for the market. So economic freedom, property rights, and rule of law are crucial. When you look at countries of economic freedom, every nation with economic freedom is wealthy; every nation without economic freedom is poor. It’s complicated, but in general as countries increase at levels of economic freedom they become wealthier. Hong Kong and Singapore are the two most economically free entities. For the last 50 years, they have been the fastest growing entities; they went from approximately African levels of poverty in the 1960s to now to the wealthiest sovereign entities on Earth. Hong Kong is not quite sovereign, but, still, has higher GDP per capita than Britain. They are both former British colonies.

Hicks: So, if you look at the continuing problem areas, the parts of the world that are still consistently poor, this then will indicate that the problem that needs to be dealt with is the economic freedom issue primarily including the legal component?

Strong: Absolutely. Africa is the most over-regulated region on Earth. It is easier to open a legal business in Denmark than any African country. It’s easier to fire an employee in Denmark than in any African country. Now I just mentioned Denmark because lot of anti-capitalists think of Scandinavia as a socialist haven. What they don’t realize is that Scandinavia is more free-market than the developing world. That’s why regions like Africa are poorer. African entrepreneurs need to be liberated so that they can create legal businesses, create wealth and jobs, and thereby have Africa become as prosperous as the developed world is.

Hicks: You mentioned one anecdote about having documents notarized to make them legal if you want to start a legal business. How expensive, on average, is that for an American entrepreneur compared to, say, a Mexican entrepreneur?

Strong: That’s huge. Mexico has a problem. In general, Mexico is not nearly as free market as the U.S. One of the specific ways in which there are obstacles to legal business creation are the notary publics. In the U.S., most of us can get a document notarized for less than ten dollars, often for free. And if you want to create a legal business, then you need a notarized document. No big deal, we don’t even think about it. In Mexico, notaries charge between 500 to 1000 U.S. dollars. Many business documents that will be required to create a legal business there cost so much money that unless you are already at upper-middle class or wealth Mexican, you don’t stand a chance of creating legal business in Mexico. As a consequence, it’s easier for a poor and uneducated Mexican to cross the border illegally into the U.S., create a legal businesses here, become wealthy, and go back to Mexico. They just don’t have that opportunity in Mexico.

Hicks: Now, I am going to turn to your experience in Senegal. What was your entrepreneurial venture there?

senegal-farming
Wade:
Well, my company basically is a company that is a U.S.-based company, but most of our main providers of the supply that we need are from Senegal. But the problem we had there was it that we had to create an entire supply chain from scratch. So, in a way, it’s already hard enough to start a company, but on top of that, if you have to create your entire supply chain, you can see you have an additional issue there. And what happened is that in Senegal we needed hibiscus because our main flagship drink was the hibiscus drink called Bissap from Senegal. So, there what we really had to fight was this notion that a lot of African women, Senegalese women, had. They had all of these NGOs come and tell them to grow hibiscus, and now it’s rotten in all of these warehouses. And so, by the time I arrived, none of them wanted to get into that anymore. And that’s in a way how the aid business has really tweaked, in the most negative way, a lot on the ground.

Hicks: You mentioned the supply chain issue had also been, in part, due to Coca-Cola coming into the country. You had the traditional drinks that were very popular and successful, but they were replaced by successful soft drinks. How can the smaller businesses in Senegal compete with a large corporation? How did you do that?

Wade: I think what we did is we really benefited from what I call a convergence of trends, but these are all really trends that are here to say. And what it is all about is that around the world we’re going back to a global consciousness. We’re going back to global consciousness meaning that, I think, all of us realized that something is not working, from the way we eat to the way we exercise. Our lifestyles, a lot is not right. And the type of wave that I am riding on is a wave that has to do with people wanting to go back to authentic and indigenous things, whether it is in drinks and foods and beverages or if it’s the type of lifestyle that you try to adopt. And so, a type of demographic I am going after is for us to say, you know, Coke is doing whatever Coke is doing, but we also know that there is a part of the population that is really interested in going back to our cultures and to the roots of a culture. Also, no one is interested in products that are not elaborated or sophisticated. So, if you can use authenticity and indigenous assets as a base foundation of a new brand you are about to build, but you surround that with modernism, you then have a brand new product that a whole group of people are looking for, and that’s where we’re going. And it turns out that that type of trend is actually contagious. Even the classical Coke drinkers are now interested. They are going away from Coke classic towards a drink that we’re creating, and that’s how we’re winning.

Hicks: So part of your solution is a marketing strategy that plays on innovative trends and what people are interested in as consumers. Your big challenge, in part, was destruction of supply chains that had been brought on by foreign competition. But your argument is that if you have a passion for your product as you do, then a supply chain can be rebuilt. That’s good for you and is also good for the indigenous farmers in Senegal. And the little guys, so to speak, can compete against larger corporations. You are now doing a second start-up business here in the United States. Are the entrepreneurial challenges easier or greater for you here?

Wade: I think it’s about different trade-offs. First of all, what happens is a lot of the supply chain, if I wanted to do my businesses and keep it in America, it would be so much easier, let’s be frank. But, if I find a way to get the Senegalese part involved again, it helps me build equity in my brand. And we also have found that if you are able to set up the right type of supply chain, eventually the cost will go down and be actually less than if I were just relying on an existing supply chain here in America. So it’s worth it, but the transition is not an easy one.

Hicks: Toward the end of the talk you were speaking more directly to the students here at Rockford University, and you had asked how many of them were considering being entrepreneurs and very few were. Most are considering a traditional career path, going to work for someone else. And it might be that they just don’t know very much about it or they find it a bit intimidating. Well, how do I become an entrepreneur, so to speak? What is the best advice you can give to young people to get them maybe to think more seriously about entrepreneurship as a career? Why should that be attractive to them? And if they are going to do that, how best should they go about it?Magatte

Wade: What I tell everybody is that entrepreneurship, first of all, is not for everyone, because it should be okay for everyone to know it’s not for everyone. It’s a small percentage of the population that are entrepreneurs, so that’s the number one thing I want to get out there. And then, the next thing now, let’s say you are amongst that small percentage. You have the type of personality that fits it and the type of guts to go with that. And there is nothing right, there is nothing wrong, it’s just who you are. So, if that’s who you are, what I would tell people is, you know, as I was saying earlier, people have to pay attention. We’re in a world in which everything moves so fast, so quick, that people have to pay attention especially to moments of superb enlightenment. Sometimes you’re dreaming of something completely new, but it’s in the world of dreams. That’s something worth writing down, wherever that finds you. Sometimes it is in a plane. Everybody else is sleeping in the cabin, and it happens to me all the time. I mean the plane is flying over the Atlantic, going from one place to another in the globe. I have no idea where I am going, but up there in the altitude while everyone is sleeping around me, I’m dreaming up a better world here or dreaming up new types of this or that. So I write it down. Sometimes something really frustrates you. Why does every seat in a plane have to be this stiff? So, there are also moments to think about what could solve your problem right now. And if you are seeing it systematically everywhere that this doesn’t work for you, if you are feeling that away, chances are most of the people feel that way. What happens is there’s just a small percentage of us who are capable of saying, this is not working or I dreamt of something and go after it. What happens is the masses, the rest of the population, they are going through these frustrations all the time. They are going through these dreams all the time, but never will it cross their minds to act on it. And I feel it is our job to do it, and when we come up with a solution or we make those dreams real, we’re finding that a part of the population are adhering. They are coming to us and then becoming consumers.

Hicks: So, you come up with a really good idea that you get excited about or, by contrast, you have a thing that’s really frustrating, a problem that you think really needs to be solved. Then, what’s that trigger that gets you and other entrepreneurs off the sofa so to speak and actually doing something about it? There must be many people with good ideas, but they don’t follow through. How can you encourage people to take that step?

Wade: That’s why I try to go back to the passion thing. Because, for me, I look at what makes me quit. With my first company, I quit my job, a very comfortable job, to go into this world of unknown. People were like, what are you going to do, a beverage company? You know nothing about beverages. I told them, excuse me, I know a lot about beverages because I am a huge consumer of beverages. It’s my passion. I make these beverages in my kitchen. I know how to tweak them. I know all of that. So that gives me the right to do what I have to do. So I think at some point it is just this attitude. It’s an attitude of criticizing by creating. I think that when Michael first told me that saying from Michelangelo, it just made so much sense. And I think that if people really want to stick to that, it will lead them to the right thing. It will lead to them jumping in. I know that for me it was a feeling that I wasn’t able to express, but it sums up the way I felt. To say, you know what, to heck with this. I am going do it.

Hicks: It strikes me listening to both of you that it’s a perfect teamwork going on here. You are focusing on the entrepreneur as an individual, finding your dream, finding your passion, and doing that makes you come fully alive, who you are. You are emphasizing that to the extent that entrepreneurs follow their dreams and passion, that works out best for all of us.

Strong: Absolutely.

Hicks: It’s to the social benefit, so it’s win-win all around.

All right, thanks for being with us today. Wonderful talk.

Video Interview with John Chisholm — Transcript

Tuesday, August 4th, 2015

Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.

Hicks: Our guest today is John Chisholm. John is a serial entrepreneur in Silicon Valley, now based in San Francisco, involved in a number of ventures. And he was here today talking to the Business and Economic Ethics class about entrepreneurship and, more specifically, about how to think like an entrepreneur. Lots of fascinating material there.chisholm-john-headshot

One of the first things you mentioned was motivation, about why people might consider entrepreneurship as their option as opposed to working for an existing organization. What are the motivating values here?

Chisholm: Well, I can suggest three reasons. One is the freedom to do what you love. Two is security for you and your family. And one thing I remind students is that no one is going to provide for their security except for them. And do not rely on the government, because who knows what could happen there.

Hicks: Because they are young people who are looking 40 years down to the road to retirement.

Chisholm: Yes. And especially today since we have a government shutdown, that might seem particularly relevant

Hicks: Coincidentally, yes.

Chisholm: And third is opportunities that are unique to each and every one of us. Everyone has a unique set of skills, knowledge, relationships, and reputation. And these give each of us the ability to do something or start a business that potentially nobody else can. And so, developing that and taking advantage of that opportunity is one of drivers of entrepreneurship.

Hicks: When we get an entrepreneurship as a career, there are two things that we hear a lot. One is the positive motivation, about passion, about finding something you’re interested in and excited about and trying to pursue a career there. But we also hear that entrepreneurship is very hard work. It can be grueling, sometimes overwhelming, and so perseverance is important. Both passion and perseverance were central to your talk, but an interplay between the two was interesting. How does that work?

Chisholm: I see them as feeding on each other. They don’t necessarily go to together; you can have one without the other. For example, you can have passion without perseverance, and that is not likely to lead anywhere long term. I call it a passing fantasy. Or you can have perseverance without passion, but that’s drudgery and it isn’t likely to be very sustainable. But the combination of the two is very powerful, and they feed on each other. I call that combination flow. Some people call it flourishing. It goes by different names. But examples of passion driving perseverance are when you are so deeply engaged by an activity or a subject that you spend so much time that hours go by like minutes. And there your passion is driving perseverance. It’s making perseverance easy. An alternative example is perseverance driving passion. If you just dedicate yourself to working on or learning about a particular activity so that you start to get good at it and feel good doing it, then that’s an example of perseverance making you or helping you become passionate about something.

Hicks: Right. And in many cases you find out that you are passionate about something that you wouldn’t have become passionate about had you not persevered past a certain threshold.

Chisholm: Exactly.

Hicks: All right, good. The middle part of your talk focused on personal psychology. In many cases people can have self-defeating psychological habits rather than self-empowering psychological habits. One of the things, for example you mentioned was being careful about negative thoughts. How do you deal with negative thoughts? Of course we’re going to have negative thoughts, but what’s their place in the process?

Chisholm: One of things I say is: never say anything negative about yourself. And if you have to, use the past tense. That’s the way I used to be. But it’s not the way I am now, it’s not the way I am going forward, it’s not the direction I am going in. I emphasize that the human brain is like an iceberg, with only 20% of it consciously aware of the messages that come in and 80% unconscious. That unconscious mind is doing a lot of processing of messages, and some of those messages that we repeat to ourselves again and again are accepted as truth, so a negative idea can turn into reality. So, we don’t want to repeat negative thoughts about ourselves that will hold us back. So I suggest that for any negative thought that might creep into your mind, think of a specific incident, no matter how small, where you did the opposite. If it was at a party, you put everybody else at ease. If it was in a game, you were the star. Keep that specific incident in the fourfold of your mind. Think about, maybe write it down, maybe describe it in detail, and maybe tell others about it. And then let that push the negative thoughts out of your mind.

Hicks: How does that work with one’s self-evaluation, where sometimes it is appropriate to recognize that you do have deficiencies, weaknesses, and you make mistakes. And you do have to confront those in order to learn from them? So, we don’t want to get down the road of denying that one has weaknesses or that one has engaged in inappropriate behavior or whatever. So how do you balance what you were just saying with an honest self-evaluation, including evaluation of weaknesses that you have?

Chisholm: Well, as I said, it’s okay in the past tense to say that this is what I’ve done before or this was my performance before. And, maybe you can identify some improvement to that performance even since it happened. If so, great, that’s progress already starting. And then you can talk about the direction you’re going in and what you plan to do in the future.

Hicks: Two more social points: Entrepreneurs often are leaders, so they have to set the tone, so to speak. And so, cultivating the right kind of social, psychological atmosphere in a start-up firm is also important. And there you were also emphasizing the positives. Can you give us some examples of what you mean by that?

Chisholm: Well, one of things I say about culture is that it emerges; it’s emergent. It’s not directly controlled by anyone, even the CEO, although the CEO certainly has more influence over it than any other person because others will look to his or her example and follow that. But it is a combination of the interactions of everybody in the company, and I think two things that are particularly important in driving culture is how decisions are made and how people treat each other. And again, for both of these the CEO can play a very central role, including others in the decisions, delegating decisions, trusting others to make the right decision, and treating others respectfully in the same way that he or she would like to be treated.

Hicks: Including criticism, right? Criticism should be constructive criticism, not blame storming and all of that usual stuff that we hear about?

Chisholm: Something I often say is look for and find the good in the people around you. This is something I look for in other executives and try to work on in myself. And build on that good, no matter how small. So, just as it’s helpful to me to build on the small, good things I’ve done, it’s also really good for others to have me and others recognize the good things that they’ve done, acknowledge them, and build on them.

Hicks: So, an important part of the entrepreneur’s function is going to be selecting people who are in the team, and their psychology and their attitudes that they bring to the table are also going to be adding to the mix. So there might be people who are going to have the technical skill sets, but they might not be the right social mix if they don’t have that same ability to contribute positively, and so forth.chisholm-unleash_your_inner_company

Chisholm: So there is a lot there. On one hand, you want to find people who have a positive mindset, who will have a can-do attitude, and who will contribute to those cultural elements that we talked about, and, at the same time, you don’t want to get everybody identical in the company. Because if everybody is identical, then somebody isn’t necessary. And, there are lots of ways to think about diversity. The way that seems to be most valuable to any team as far as I can tell is cognitive diversity in a business team. So, how do different members of the team think about things? What are some of the ways people can be different? Some people focus on the big picture, some people focus on the individual components, some people are better dealing with relationships and with other people, and some people are more transactional. And having a mix of those different styles, I think, strengthens the team. In fact, Scott Page at the University of Michigan has done tests that find that teams that are diverse cognitively outperform teams that are stronger but less diverse or more homogeneous cognitively.

Hicks: Is there a double-edge sword with cognitive diversity, because then you have cognitive styles and they can clash, as well as being complementary to each other? So, is a part of an additional level of management being able to manage the clash constructively?

Chisholm: Yes, and I do think you can go too far and that there is an optimal middle ground. I think of them as three overlapping circles. Say, if we have a venn diagram, if they’re too overlapping that’s suboptimal, but if they are completely non-overlapping, the members of that team may have trouble working together.

Hicks: Issues of money and funding obviously come up a lot in entrepreneurship at all levels, but, particularly, the entry stage. Young people are often deterred because they don’t think they can raise the funding or they don’t know how to think about the funding process. And you did have advice about seeking funding, but not until you’re ready. What does that mean? When you are ready to seek funding?

Chisholm: Well, I do think there are a finite number of times in a company’s life that are optimal for fundraising, and they are right after the company has achieved a significant milestone that reduces risk to potential investors. And when will those times be? Here are some examples. If you are profitable, that eliminates the risk that you can’t generate revenue. If you can generate revenue, that eliminates the risk that you can’t get customers. If you have customers, that eliminates the risk that your prototype won’t work. And if you have a working prototype, that eliminates the risk that your idea can’t even be made to work in the first place. So, those are examples of milestones that would probably be perceived as significant risk-reducers by prospective investors.

Of course, the key question is how can an entrepreneur get to that point where they have reached one of those milestones. That’s going to perhaps take some funding just to get there, and so I encourage them to look at all of their resources. So we filled out that chart that has lots of different types of assets on it. I may have a spare bedroom. Great, that means that I don’t have to rent an office. I may have some computer equipment and access to the internet. Great, that means I don’t have to buy that equipment. I can find whatever friends and family I have that can provide initial funding. I can be creative about how I engage others to get involved with the company. I can perhaps offer a combination of stock and flexibility in addition to capital and in that way get additional funding.

Hicks: As well as getting people who are enthusiastic about the product or the project so the compensation necessarily will be lower, but they will get more psychological rewards. So being creative in all of those dimensions?

Chisholm: Absolutely.

Hicks: Towards the end you also talked about ethics, which certainly as an ethics professor I found refreshing, and you raised the provocative question of whether entrepreneurship is ethical, particularly since in business ethics we don’t hear a lot about entrepreneurship. So, what were your thoughts there?

Chisholm: Well, I do think it is one of the most ethical career choices you can make, and let me explain why I say that

Hicks: Sure.

Chisholm: First of all, we don’t often hear about entrepreneurship. What do we hear about is corporate philanthropy as being very ethical. We hear about graft and corruption and theft as being unethical. I don’t disagree with either of those, but I don’t think it’s the whole story, and I don’t even think it’s the most important part of the story.

And I think to see the full story it’s helpful to look at the stages of the entrepreneurial process. What does it require for somebody to become an entrepreneur? Well, they have to have an idea, which they have to develop. That takes rationality, creativity, and persistence. They have to have the courage to strike out on their own. That takes courage. They have to have intellectual honesty to reject an idea for which there is no customer demand as I was eventually forced to do with my first company, when I, after six months, finally accepted the fact that there was not customer demand for a cool, new technology called conditional voting. And you have to create win-wins with your employees and with your customers or else they are not going to deal with you. They are going to go somewhere else. So, all of these qualities in an individual that entrepreneurship demands are qualities, I think, we would like to see in the people around us, our neighbors and our co-workers.

Now, consider the social benefits that entrepreneurship generates. It’s impossible to be successful as an entrepreneur without making the world a better place by creating more choice, more innovation, lower cost, or some combination of the above. Because, again, if people don’t feel their world is going to be made better by your product or service, they don’t have to buy it. They are going to go elsewhere. Similarly, all of your stakeholders, employees, shareholders, customers, and partners have to, their worlds have to be made better or else they are going to go elsewhere. So, both individually and socially, I see lots of qualities that we would like in our co-workers and neighbors that entrepreneurship brings out in the people around us and which entrepreneurship demands if a person is going to be successful at it. And if you stand back and look at the tens of millions of entrepreneurs around the world who are all serving customer needs and creating these win-wins and innovating, they are driving improvements in quality of life, standards of living, and economic growth around the world.

Hicks: All of that is deeply ethical, absolutely.

Chisholm: And, incidentally, guess what’s funding most of the philanthropy in the world? Entrepreneurship. So given all of those factors, I rest my case that entrepreneurship is among the most ethical career choices you can make.

Hicks: So, as an individual, entrepreneurship requires certain virtues of character. For a venture to succeed, it has to be a network of win-win relationships that are developed. Those make the world a better place in a number of respects including philanthropy because of all of the extra wealth that it generates. Fascinating.

All right, thanks very much for being with us today. I am sure the students found it very eye-opening.

Chisholm: It has been very fun. Thank you, Stephen.

Stephen Hicks quoted in Wall Street Journal article on entrepreneurial satisfaction

Tuesday, May 26th, 2015

WSJ-name-lg-26May2015In this WSJ article by Charlie Wells on entrepreneurial satisfaction, Stephen Hicks is quoted on the differences between entrepreneurs of opportunity and entrepreneurs of necessity.

“Opportunity entrepreneurs are like artists or musicians …” Here’s a link to the online version. The article also ran in the US print edition.

Source: “Why Some Entrepreneurs Feel Fulfilled — but Others Don’t. Money is only part of the equation.” The Wall Street Journal, May 26, 2015.

WSJ-header-26May2015

Kaizen interview with Argentine entrepreneur Guillermo Yeatts

Saturday, November 29th, 2014

This interview could be subtitled Entrepreneurship from Buenos Aires to Tierra del Fuego to Houston and Bolivia and more.

Yeatts-smBilly Yeatts has had a long and colorful career, working as an analyst for Citibank in New York and an executive for Ford in Detroit and Massey Ferguson in Argentina, before launching his own entrepreneurial businesses in oil and gas.

Along the way he found time to co-found several nonprofit organizations and write ten books on topics ranging from the petroleum industry to the problem of poverty in Latin America.

Here is Billy Yeatts on entrepreneurship in Latin America.

For more of our interviews with leading entrepreneurs, see the Kaizen page.

Interview with Argentine entrepreneur Guillermo Yeatts

Friday, November 28th, 2014

Entrepreneurship in Latin America

Yeatts,GGuillermo “Billy” Yeatts was born in Buenos Aires and studied at New York University and the Harvard Graduate Business School. He has worked as an entrepreneur in SOL Petroleo S.A. (refining and marketing), Diamond Shamrock Boliviana S.A. (Bolivia; exploration and production of crude oil and gas); Cadesa S.A. (Tierra del Fuego; petroleum drilling), Joss S.A. (Buenos Aires; petroleum transportation) and as Chairman of Massey Ferguson Argentina (agriculture machinery), Ford (Dearborn and Buenos Aires), and Citibank (New York). He is also the author of ten books about the petroleum industry and about the causes of poverty in Latin America. He was the recipient of an honorary doctorate in philosophy from Universidad Francisco Marroquín in 2013.

Education

Kaizen: You’ve had a long career as an executive, entrepreneur, and author. But your story starts here in Buenos Aires?

Yeatts: Yes. I finished primary school in the United States in Danville, Virginia. My dad was born and raised there. My parents came to Buenos Aires in the early fifties. I finished my middle school and high school here in Buenos Aires.

I then spent two years in the University of Buenos Aires. Later I decided to go to United States to college.

Kaizen: Where in the U.S. did you first go?

Yeatts: To New York University, where I got a bachelor’s degree (B.S.) in finance and a master’s degree in economics. Later, I was accepted as a Ph.D. candidate in economics, but I never completed it because I accepted a job in Argentina.

Early Career

Kaizen: During your time in New York, you were also working?

Yeatts: Yes, I worked for Citibank in New York at their head office for six years in the commercial credit department, afterwards in the European district covering Italy and Vatican accounts.

Kaizen: What was your master’s work on?

Yeatts: My master’s thesis was on the automotive industry in Latin America, because the strategy in the 1960s was substitution of imports to create jobs and reduce imports from abroad. The effect of this was you had low sales volume and huge costs and therefore the creation of artificial industries that were non-competitive in the world markets.

Kaizen: Why did you pick the automotive industry for your thesis if you were working in banking?

Yeatts: I went on vacation to Argentina and saw about 30 assembly plants that were allowed to import provided they started manufacturing in a closed economy. As a result of this observation I said, “There is no way these will survive,” and in the end only five started manufacturing facilities. This was why I wrote my thesis on the auto industry. Later that year Ford came to interview college graduates, so I asked to be interviewed by them to inquire whether they were looking for college graduates in Argentina

Executive Career

Kaizen: Why was Ford interested in a graduate student from Argentina?

logo-fordYeatts: I was an Argentine married to an Argentine and had lived there, so my potential relocation should be rather simple, and I knew a bit of the industry because I did some research for my master’s thesis.

Kaizen: What did you see as a strategy in Argentina for the growth of an infant industry, and why would Ford be interested?

Yeatts: The thing I found interesting was the strategy of import substitution because you create local employment, reduce import requirements of the balance of payments. As a result, the cost of the vehicles was two or three times higher than in the States. The reason for this was that local content requirements were between 70% and 90% for each vehicle and in many cases you had a one source supplier. This is what constitutes crony entrepreneurs protected from competition with a closed market. Close to the government, far from the market. This strategy was developed by the think tank CEPAL headquarters in Chile and applied throughout Latin America.

Kaizen: Was this the law that required local content and banned imports to allow local manufacturing to prosper?

Yeatts: Yes, this was a law. Under this scenario you create millionaires because there is no competition.

Kaizen: It becomes a seller’s market — the person who has the regulation in their favor.

Yeatts: Correct. It’s like going to the zoo to hunt.

Kaizen: Ford eventually sent you to Buenos Aires. What were you to do for them?

Yeatts: I was named supervisor of cash management and insurance. One of the first things I did was try to reduce our insurance cost. I cancelled 20 insurance policies and started self-insurance. I received a lot of praise for reducing our cost on risks which were self-financing after a period of time.

Three months later on a Saturday, I see hail coming down. I was like, “Oh no!” I had cancelled hail insurance. [Laughs] There were about 1,000 cars out there. I called everyone in to look at what we had left as insurance coverage. We still had thunderstorm insurance, so we tried to understand if the hail caused the damage or the wind which had propelled the hail against the vehicles. We built a case that it was the wind and thunderstorms that caused the damage, not hail. We had a lot of evidence in the district that wind had thrown many trees, lampposts, and advertisement signs.

Kaizen: You were trying to squeeze it under your thunderstorm policy since you didn’t have the hail insurance.

Yeatts: We had the hindsight to keep thunderstorm and wind. We told the pilot insurance company that the damage was coming under thunderstorm policy and it was for them to challenge it; but if they did, they might suffer from a claim of unrealized profits because of the delay in sales of the damaged inventory.

Kaizen: Did the insurance company go for it?

Yeatts: Yes, I had proof of the damage caused by the wind and storm. They accepted our evidence and we got the check for the damage.

I went to see my boss, thrilled with the check. He looked at the check and asked me, “What am I supposed to do with this? Stop the production line and the paint tunnel to get these cars fixed? You better get your act together if you do not want to be a satellite.”

Kaizen: So you were almost back to first base?

Yeatts: Yes, I could not sleep that night, but the next morning I said, “I have the money” — the check was not deposited — and figured out that this represented a 35% discount of the price list for a new Falcon. I saw the marketing director and said “Let’s have a sale with a 35% discount.” The options would be that the dealer or the customer fixes the bumps and they individually negotiated the split of the discount. Let the market work it out. The plan was accepted and it was a success because it increased market share and future sales of the after-market for more vehicles.

Kaizen: So everybody ended up happy. Did you also reinstate the hail insurance?

Yeatts: No. In the previous 30 years there was no hail.

Kaizen: It was a one-off then. How long were you with Ford?

Yeatts: Six years. I went back with Ford to Dearborn Head Office to the Profit Analysis Department for Latin America. That’s the area where the affiliates come up from Latin America to review performance of the past year against the approved budget and submit next year’s budget for approval

Kaizen: Your wife is Argentine?

Yeatts: Yes, and we had four small children. My wife wanted to go back to Argentina. Ford did not want to send me back.

Kaizen: Were you locked in?

Yeatts: No. It’s a free labor market. I sent out about 100 résumés.

Kaizen: To companies here in Argentina?

Yeatts: No, to companies based in the U.S. with operations in Argentina.

I got three job offers, and I finally I took a job with Atlantic Richfield as Overseas Financing Manager, after turning them down twice because I did not like the Vice-President in charge of Personnel. At the time I turned them down, I had two job offers (Massey Ferguson and Xerox). I later called them to tell them I had accepted Atlantic Richfield.

Kaizen: How old were you at this point?

Yeatts: I was 38.

Kaizen: Did you ever see the Vice-President in charge of Personnel?

Yeatts: No, I never did.

Return to Argentina

Kaizen: How did you get back to Argentina?

Yeatts: A year later they called me from Massey Ferguson. MF had bought the company Hanomag Argentina, which we had discussed previously, and they offered me the job of Financial Director and Board member. The salary was 50% of my existing salary. I said I was not interested in the job or the salary. I said I would accept the offer of Chairman of the Board and a salary twice the amount offered, plus a defined performance bonus.logo-massey-ferguson

A month later they agreed with the following conditions: I would go down as Financial Director and Board member at the salary requested, and before six months I would be nominated Chairman or the contract would cease upon payment of one year and expenses incurred to return to New York. I accepted.

Hanomag is a known tractor in Europe — in Germany. They built tanks in the WWII. The company had been getting ready for production, naming dealers and production suppliers throughout the country.

The Argentine Secretary of Industry invited us to visit with him. He told us, “I’ve heard that you’ve started production and everyone is very excited. But you know that you cannot manufacture Massey Ferguson tractors.” The president of MF said “What do you mean?” “There’s a law here that does not allow imports and protects local companies such as Fiat, John Deere, Deutz and Hanomag against competition. The counterpart of this is that you have to source a high percentage of local content in your tractors like the rest of the industry.” The president of MF said, “We bought the shares to build MF tractors.”

Campbell, the president MF, then said to me, “We’ve got to fight the government and build Massey Ferguson tractors.” I said, “We are taking undue risks in building tractors that we cannot sell domestically or export.” Campbell said, “You are with me or against me. If you are against me, I will fire you tomorrow.”

Kaizen: A high-risk choice.

Yeatts: A very high-risk choice. This was about three or four months after I arrived here. I had bought a house and the kids were in school. And he’s telling me, “We are going to build these tractors as fast as we can and put them in front of the fence.” So the market starts to see us building tractors and we started developing supporters among our suppliers and dealers in this same quarrel.

Kaizen: Learned that lesson.

Yeatts: The government comes in; they caught us. We had tractors all over the place. It was the talk of the industry: “What are these guys going to do with the tractors?”

Kaizen: You were just building tractors? Were you waiting for the government to come to you?

Yeatts: Creating pressure. Not only did we have the tractors, but we had the suppliers on board. But we do not build to keep; this is not a museum. We build to sell. So the government says, “You guys are going to go to jail.”

My mind had started to change with all of this government stuff when I saw Falcon cars being sold in Argentina for two to three times more than they were being sold for in the United States—because the government is protecting these one-source suppliers.

Anyway, they said, “You can’t do it. You cannot sell in Argentina and you cannot export. We are the authority here.”
– “Do you believe in private property?”
– “Yeah, sure.”
– “Well, I am on my private property and on my private property I do as I like. And as a matter of fact, we are increasing our production.”
– “You cannot export; you cannot sell.”

The offices in the States, by then, knew that we had a quarrel. It was divided.

Kaizen: So it was head-to-head and who would blink first.

Yeatts: Right. The head office thought that this was a bureaucracy that could be fixed. So they transferred Campbell to a big job in Rome.

Kaizen: Even though this problem in Argentina was not yet resolved?

Yeatts: Not yet resolved. I said, “You can’t leave now!”

Kaizen: You were left holding the bag.

Yeatts: Yes. Campbell said, “I’ll tell you what we are going to do. You are going to go see the head of the Agriculture and Farm Show and say that you want this piece of land at the entrance of the show. They will say it’s not possible. They will refuse. You then give them a signed check by both of us and tell them you will write the price for the lease of 30 days. Tell them that Massey Ferguson is coming to Argentina to change the method that you work the land, and you should be with us. We have a lighter tractor with lighter implements and lower costs. We are bringing state of the arts to the agricultural sector.”

Kaizen: Innovation.

Yeatts: Yes, but not solely innovation — the price! Forty percent of all of our tractors have interchangeable parts. This means less money for us because when we ask for a valve, we can ask more from that valve and get it for a lower price. That means less stock for dealers. It means better service because they have the spare part available.

Kaizen: So the idea is that if you can get into this agriculture show you can demonstrate what you have, the customers will be excited, and you’ll have more pressure on the government?

Yeatts: Yes. If you want to get things done here — who do you have to be close to? The government. Even though the people would say that this tractor is very good, politics will block it.

So we got the piece of land right on the entrance, and in the opening the Minister of Agriculture comes to see a tractor he had not seen before. Pictures were taken of him sitting on a MF tractor. The following day, La Nacion, the most important paper in Argentina, printed a picture of the Minister of Agriculture sitting on a tractor that is not authorized to be manufactured. Well, it did not say that, but all hell broke loose.

Kaizen: Fireworks over policy?

hanomagYeatts: Yes. I’m like, “Look, we are bringing new technology to a closed market. Why don’t you have advances in technology? Because you have price controls! This is what happens.”

So we got the “Okay.” We could build tractors. One qualification: these dummies said, “They must be called Hanomag.” We had in small letters Hanomag and in big letters model Massey Ferguson. We went from the lowest market share of 7% to being leaders with a 35% share in four years.

Kaizen: A success story.

Yeatts: Yes. And all the board was under 35 years old, replacing a board of about 60.

Entrepreneurship

Kaizen: You then decided to become an entrepreneur in oil and gas. How did that decision come about?

Yeatts: After seven years at Massey and seeing all of the big bonuses I thought, “There is so much money to be made out there, and here I am working for a salary.” And if someone called and said, “I need you here in Des Moines, Iowa at 8: 00 a.m. Monday” — I’d have to go. So I said, I want to go out on my own.

I resigned and set up a company, putting in my savings, my personal credit line, and I sold shares to make a down payment for the purchase of German earth-moving equipment. I went into this line of business because front-loaders are similar to tractors. I obtained contracts from the two largest road building construction companies here in Argentina. I planned to discount these contracts with banks to pay the import tariffs for the machinery. In the meantime, the two construction companies went into Chapter 11 because the government was not paying for their road-building contracts.

Kaizen: Oh my.

Yeatts: So the bank says to me, “No money. Both companies are in Chapter 11, and they will not pay you and you will not pay me.”Tierro_Argentina-oil

So I decided after a lot of research to ship them to Tierra del Fuego, where there are no taxes at all.

Kaizen: There are no taxes in southern Argentina?

Yeatts: Yes, there are taxes except in Tierra del Fuego, which is a big island. The capital city is Ushuaia; it’s the southernmost city in the world.

I had never been there before and had no idea of what I might encounter as far as work is concerned. My maximum concern was I had no cash to nationalize the equipment in Argentina.

Kaizen: So be tenacious? Work the system to find the opportunity and push hard to make it happen?

Yeatts: Even in the middle you think it isn’t going to happen, but there is always opportunity. A lot of times you don’t find it, though.

Kaizen: Did you leave construction?

Yeatts: No, I went to Ushuaia (a city 3,010 kilometers south) where 14 pieces of equipment landed. This was in 1979. The whole town was at the dock asking if new roads, a new town, or what was going to be built. In Ushuaia the only thing that existed was deep-sea fishing and a couple of warehouses to assemble Philco radios for export to Argentina.

I decided to visit Rio Grande, in the north of Tierra del Fuego, which is an oil exploration small town. As I drove north I saw many oil pumps and drilling rigs which I had never seen in my life—nor did I know the difference between them. The next week I visited them to try enquire who the owners of the rigs were, who their customers were, where the rigs were bought, how much was invoiced per hour or meter, and how many days they worked during the month. After two days at my hotel, I realized this was a tremendous opportunity to make money, but my first step would have to be earth-moving to open roads and set up camps.

In the next three months I was the main supplier to drilling-rig companies for opening road and setting up camps, since I took a 40% discount to the going rate in Tierra del Fuego. At the end of the year, I was a sole supplier of four companies and “persona non grata” in Rio Grande.

After two years of earth-moving equipment in Tierra del Fuego, I decided I wanted to get into the oil-drilling rig business. So I went to the U.S. and visited 20 rig companies to see if they were interested in working in Argentina. None were interested. One of them had two rigs in Bolivia and they were bringing them back to Texas. I suggested that they leave them in Argentina because the rate here was US$ 30,000 versus US$ 8,000 in the States. They agreed and we (an Argentine friend and I in the oil business) set up Cadesa S.A. oil drilling. They kept the 49% and we held 51%.

Kaizen: They went for the deal?

Yeatts: Yes. We brought them to Tierra del Fuego and started drilling for the state company YPF, and other private companies. The main business came from YPF, and it was supplied by four drilling companies which now become our competitors. We sold the earth-moving equipment, invested in two oil rigs, and entered the government bids for exploration and production wells with 30% discount.

As a result of the collapse in the oil rig market, we decided to buy four oil rigs sold by banks in Texas at 20% of their value and brought them to work in Argentina.

A good friend of mine in the oil rig business said there was an opportunity to buy six horizontal drilling rigs as a package, since the seller was getting out of the business and there was opportunity abroad in countries such as Syria and South Africa, where U.S. companies could not work. We bought those rigs and set up a company abroad to work in the Middle East and Africa with Latin American staff.

Kaizen: What year was this now?

Yeatts: It was in the early 1980s.

In the late 80s I started to investigate why the Argentine subsurface was owned by the federal government and/or the provinces. In the United States, you own the surface and the subsurface. You can sell the subsurface for drilling. We found an Argentine company called Sol that had property rights including subsurface. That company was one of the first companies to find oil in Argentina. They went on the Stock Exchange in 1920 in partnership with the Anglo-Persian Oil Company (today British Petroleum). We started buying shares of Sol and sold the oil drilling companies, which gave us cash to buy 40 percent of Sol in the stock market.Yeatt-Four-Seasons

Kaizen: Who is the “we”?

Yeatts: I had a partner at the time we set up Cadesa, an oilman named José Esteves. Later, when we bought the six horizontal drilling rigs, we took on another partner called Peter Eberly who had extensive experience in finance and oil drilling business. We finally took on a fourth partner, José Estenssoro, who brought to the partnership extensive experience in the worldwide oil business, to buy a controlling interest in Sol. In order to raise cash to buy Sol, we sold both the domestic oil drilling and overseas horizontal drilling companies.

Once we bought Sol, we reach an agreement with ANCAP (Uruguayan State Oil company) to develop 350 service stations with the logo of Sol, acquiring gasoline to supply these stations from their refinery in Montevideo, Uruguay. Sol would issue shares to allow ANCAP to make a capital contribution to acquire 30% of the share capital.

After we bought Sol we knew that we needed to have a dependable supplier for upstream, so we decided to look in the domestic and neighboring countries where we could source energy demands

Kaizen: “Upstream” means?

Yeatts: Exploration and production. Exploring is looking for oil and gas which carries the biggest risks and production in bringing to the surface the oil found in the subsurface.

We heard from one of the partners that a U.S. company, Oxy (Occidental Petroleum Corporation) was getting out of Bolivia since they were not being paid for the gas they delivered to YPFB (the Bolivian state-owned oil company), so we went to talk with them and bought, together with Diamond Shamrock, all their operations in Bolivia 50-50.

We became the largest gas producers in Bolivia. The gas that we delivered to YPFB, the state turned around and sold to Argentina. So we negotiated with the Bolivian government that the gas that we supply to them and they sold to Argentina, we would get paid either by them or Argentina, since we were an Argentine company. The government agreed to pay us, and we operated the company for seven years and sold the Bolivian operation to a Dallas-based company

Kaizen: More political clouds?

Yeatts: We saw economic clouds coming, so that’s the reason we got out of Bolivia and started considering the same for Argentina. We offered the controlling interest in Sol to ANCAP, which held 30% since they had an interest in the Argentine oil market because of Mercosur. We established a price for Sol in year 2000 and offered to transfer our shares plus the board nomination for no down payment. In two years, the amount agreed upon had to be paid to the stockholders or return the company. All value added to the initial price we had agreed upon in 2000 would be theirs. If there was a lower price versus the net worth, we would absorb it, assuming good business practices had been followed during that period.

Kaizen: That was their value-added.

Yeatts: Yes. So we sold the company to them.

Kaizen: By now this is a very large operation; it’s been built up and vertically integrated. So this is a major transaction.

Yeatts: We would never sell a company without down payment and due diligence. We sold it under these conditioFundacion-Atlas-logons because it was ANCAP owned by Uruguay.

Foundation Work and Mentor Advice

Yeatts: So there’s the end. I’ve been involved in foundations since I arrived from the United States in 1972 as president of Massey Ferguson. At the beginning we were a group of eight trying to start free-market foundations. The first was ESEADE in 1978; I was a co-founder, treasurer, board member, and, later, Chairman. Later I joined Junior Achievement Argentina, where I was Chairman and member of the founders committee. In 1998 I was co-founder and chairman of Atlas, which develops ideas of a free-market society.

Kaizen: That’s an impressive organization.

Yeatts: If you are not involved in the general protection of individual rights, you will not have private rights to protect in the future.

Kaizen: Looking back onto your entrepreneurial career, you’ve been in some challenging businesses and had a lot of tough fights to make things happen. Is it part of your personality that you enjoy that rough-and-tumble?

Yeatts: Well, I wouldn’t say I enjoyed it.

Kaizen: But you could have had a successful career in a lot of places in the world, given your talents and abilities. But you did choose to go into Argentina, which is a tough business-government environment. And you chose fields that require a certain amount of tenacity and fighting, so it gets your adrenaline going. Is that just something you had to do, and since you had to do it, you made it work?

Yeatts: Let’s put it this way: The hail problem — it was something I had to do to get out of that, right? Otherwise, they would have kicked me out and I would have never gotten a job again because of making such a gross mistake. Massey Ferguson — the lesson was tenacity to get it through, because the ground rules of government were not logical.

Kaizen: The art of exerting the right kind of political pressure to get the changes so that the market opens up for you?

Yeatts: Yes.

Kaizen: Psychology at work.

Yeatts: Sometimes you get into a situation which you can lose, but if it happens you have a fallback alternative. You take on the challenge. This is what happened in New York where I had two job offers and I could play games. What would have happened if I did not have them? I would have acted differently.

Kaizen: But if the fight is brought to you, you don’t back down.

Yeatts: If I didn’t have a job offer, I would have had a very different personality. But I did have two job offers which would land me in Argentina, and this company was drilling for oil offshore, which is always a potential.

Kaizen: You said that in all of these battles and problems, when you are half-way through—that even when you don’t think it will work, you still fight on.

Yeatts: Yes. There is a saying in Argentina, “Never hang horses in the middle of the river.”

Kaizen: Why?

Yeatts: The trouble is that when I am in these situations, I don’t sleep well — I’m trying to think. The next day I am worse. Like I remember those 48 hours I spent on the goddamned hail. I went to see the general manager of the insurance company, who was also a stockholder, and I almost had the guy up against the wall because you’re telling me that it was the hail and you don’t know what the wind power was? But I had spent 40 hours without sleeping.

Kaizen: Your fighting spirit comes out.

Yeatts: Like when you get an animal in a corner. A cat, for example. Cats are usually very nice, but if you get one in a corner …

Kaizen: Right. Looking back again on the entrepreneurial part of your life, it sounds like you really enjoyed the wheeling-and-dealing, putting deals together, and spotting opportunities and the right people. Why do you find that as attractive as you seem to?

Yeatts: It’s like your brain’s game, you know. Like when the guys from the rigging company said, “We have no partners. We don’t want to deal.” But you have investors, right? What would your investors think when you could be making $30,000 instead of $8,000?

Kaizen: So there is an arbitrage opportunity for them and you spot that opportunity. You also know how to package it so that it is a win for you and also a win for them.

Yeatts: I try always to have a win-win for both. Because if it’s not, I don’t care how solid the contract is, you don’t have a deal — you have a headache.

Kaizen: And some salesmanship for you to put together the whole package.

Yeatts: Right. You need salesmanship and, also, what is the limit — the “deal breaker.”

Kaizen: In your career, you’ve had set-backs and challenges. You’ve also had to make some gutsy decisions; you’re always on the lookout for opportunities, you know how to package things to make connections, and you know how to talk to people and read psychology.

For entrepreneurial young people starting out, can you give them advice about how to best train themselves to be able to put that package together?

Yeatts: I would say Junior Achievement does a good job training youth (16-17 years old) to select a product and go out in the market and compete for the consumer’s dollar. You must be convinced that you are supplying a need or a desire, and then see who your competitor is and what he is offering on price, quality, delivery, assurance, etc.

Kaizen: Small scale.

Yeatts: Yes. You have different groups that are out to get the prize: the employees, the suppliers, the stockholders, the customers, the distributors, and finally, the government. No risk, just opportunity to share your ideas and profit. The entrepreneurship is a balancing act to make sure the ball does not fall.

I remember at NYU we had a course where you had an amount of money given at the start of the semester and you had to invest it in NYSE shares you picked. We would check them every week, at the end of the year, you were a winner or a loser.

Kaizen: So the actual boots on the ground, real-world experience is the best entrepreneurial training? Do you de-emphasize formal, business school education?

Yeatts: No. I would say that business schools should emphasize more courses connected to real-world experiences and help start-ups with mentors (entrepreneurs) to discuss, 15 minutes per month, their strengths, weaknesses, opportunities, vulnerabilities of their business, and receive an experienced opinion of their course of action.

Kaizen: But it has to include practical business education?

Yeatts: Practical. You make decisions and you make mistakes—practical. I remember seeing something like that in CalPoly, California, at an agricultural school there. Students would rent a plot of land and put tomatoes on it, or whatever. You lease land and pay, and when you harvest, if you have a profit you keep it but if you lose you pay. So it is a real-world experience, but very small.

Kaizen: About opportunity-spotting, you’ve been in a wide number of fields in different parts of the world. The cognitive ability to spot opportunities — is that something that can be trained. Or is it a matter of being a people person and talking to a lot of people? Or of reading a lot of stuff?

Yeatts: First, you need to pay attention. Why is this done here and not at home? That is absolutely key because human beings are all alike in the end?

Kaizen: So asking the right questions?

Yeatts: Observation. Yesterday I spent the day with sixteen startup companies. I’m in an organization, so I was seeing what they want to sell, what they are doing, what is their idea.

Kaizen: In a mentoring role or as an investor?

Yeatts: Mainly as a mentor, because they are very small. The first stage is $25,000 to get to the market.

I was talking to a guy from Colombia who had three days here. I asked, “Why did you come here?” He said, “Because the largest truck market in South America is in Brazil and the second largest is in Argentina. The third is Colombia. I don’t want to go into the lion’s mouth, which is Brazil.” I asked, “What’s the deal?” He said, “Twenty-five percent of the trucks in Argentina come back empty from whatever delivery they did. They bring wine from Mendoza and come back empty.” He saw an opportunity just like that and he had only been here for three days.

Kaizen: He wants to do a brokerage service for the return trips that are empty?

Yeatts: Yes, what he wants is to get a commission for getting business for the return trip.

I asked him, “How are you going to find trucks traveling without freight?” He wasn’t sure. I said, “Why don’t you go to the Rural Society in each town because people who have a farm normally have a truck — not their own, but the Chamber of Agriculture’s. So maybe the farmer who seeds corn can bring back an implement or whatever.” The point is that I was trying to test where he was getting his information.

Kaizen: When you are mentoring younger people, is there a piece of advice you find yourself giving to them most often?

Yeatts: Perseverance. And when you have a crisis, always look for the opportunity. But you need perseverance, and you need guts to continue to look when the wave is coming.

Kaizen: There is always an opportunity there?

Yeatts: I don’t know if always. But if you have guts and perseverance when things are about to fall, you find the best opportunities.Yeatts-sm

This interview was conducted for Kaizen by Stephen Hicks. For more information about Guillermo Yeatts please see his website.

Read more Kaizen interviews with leading entrepreneurs.

© 2014 Stephen R. C. Hicks. All rights reserved.