Steve 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.
Archive for the ‘Entrepreneurship’ Category
Interview conducted at Rockford University by Stephen Hicks and sponsored by the Center for Ethics and Entrepreneurship.
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?
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?
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.
Hicks: It’s to the social benefit, so it’s win-win all around.
All right, thanks for being with us today. Wonderful talk.
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.
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.
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: 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?
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
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.
“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.
This interview could be subtitled Entrepreneurship from Buenos Aires to Tierra del Fuego to Houston and Bolivia and more.
Billy 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.
For more of our interviews with leading entrepreneurs, see the Kaizen page.
Entrepreneurship in Latin America
Guillermo “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.
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.
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
Kaizen: Why was Ford interested in a graduate student from Argentina?
Yeatts: 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.
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.”
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?
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.
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.
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.
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.
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?
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.”
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?
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.
Here are three of our Kaizen interviews on entrepreneurship and ethics in sports:
Ed Snider, owner of hockey’s Philadelphia Flyers and basketball’s Philadelphia 76ers: “I think when you’re young you’re a bigger risk-taker than when you’re older. And I think when you’re young it’s not the risk as much as it is you have this idea and you feel like it’s going to work. And then you go for it. When I was a kid I was always doing things—selling magazines, I had a paper route. In college I hired all of my fraternity brothers because I had these lots I could get Christmas trees or Easter flowers from. In those days all of the kids in the fraternities would go to work at the post-office for Christmas. So I’d hire them, I’d pay them more and say, ‘We’re going to have Christmas tree lots.’ Stuff like that—I was always looking to do something.”
Jerry Reinsdorf, owner of basketball’s Chicago Bulls and baseball’s Chicago White Sox: “First of all, if you want to be successful, you have to follow basic business principles. The problem in sports that keeps people from doing it is that every move is chronicled by the media. There are so many people who own teams who are afraid to be criticized by the media, so they make stupid decisions just to make the media happy. I, on the other hand, delight in doing what the media doesn’t want me to do. And that’s not a good trait either. You have to make your decisions without regard to what the media thinks. Sometimes they’re right, and sometimes they’re wrong.”
David Checketts, owner of soccer’s Real Salt Lake and hockey’s St. Louis Blues: “I live by a standard that Steve Covey taught me, which is that a person will do more with their bad idea than they will with your good idea. So I try to hire real capable, competent people, put them in place, make sure that they have the right incentives and motivation, and then give them the freedom to do the job. The skill that I had to learn was to hold them accountable, regardless of my personal feelings about them. Because I am somebody who builds friendships and relationships quickly and who really wants people to succeed. So it makes it hard. I stuck with some people too long in some instances.”
The Working Papers in Ethics and Entrepreneurship series has been updated to include Stephen Hicks’s “Educating for Entrepreneurship” working paper.
Previous working papers in the series are “Ethics and Entrepreneurship” (2008), “Entrepreneurial Ethics and Corporate Social Responsibility” (2010), and “Public Policy, Ethics, and Entrepreneurship” (2012).
Educating for Entrepreneurship (Working Paper, June 2014)
Stephen R.C. Hicks
Department of Philosophy and Center for Ethics and Entrepreneurship
Rockford, Illinois, USA
Introduction: Japanese visitors to American schools
Recently a team of Japanese investigators come to the United States to study its school system. Japan is a successful nation — it is prosperous and dynamic in many areas. But the team had a question: Why does our country have so few innovators?
They looked to the United States with its many centers of innovation: Silicon Valley technology, Hollywood movies, New York finance, Broadway theatre, and others. In the business world, they noted the many entrepreneurs such as Steve Jobs, Bill Gates, Andy Grove, and Mark Zuckerberg.
So the Japanese investigators had a question: What are American schools doing so well to generate so many creative, innovative, entrepreneurs? What is their “secret ingredient”?
The question is important, because we live in an era that, for the first time in history, is taking entrepreneurism seriously.
The Business-Employment environment is different in the early twenty-first century. Business professor Steven Rogers has pointed out: “In the 1960s, 1 out of every 4 persons in the United States worked for a Fortune 500 company. Today, only 1 out of every 14 people works for these companies. Employment at Fortune 500 companies peaked at 16.5 million people in 1979 and has steadily declined every year to approximately 10.5 million people today” (Rogers 2002, p. 42). The employment market has shifted from a relatively few large corporations to many smaller entrepreneurial firms.
The Economics literature has been transforming itself into what economists Arnold Kling and Nick Schulz (2011) call “Economics 2.0.” For many generations, economics ignored or downplayed the unpredictable and idiosyncratic entrepreneur and focused on abstracted, impersonal models. Contrarians such as Joseph Schumpeter (1950) and Israel Kirzner (1973) argued the importance of entrepreneurship, but they were lonely voices in economics through most of the twentieth century. Only in the last twenty years has mainstream economics begun the project of recasting itself on the basis of entrepreneurship.
In the Psychology and Ethics literature, we see a movement toward understanding entrepreneurism’s importance as a vehicle for a flourishing life. Not only in one’s work life but in one’s overall life, more psychologists are stressing autonomy, self-directedness, and creative exploration as foundationally positive ingredients in a healthy life (Seligman 2012). And moral philosophers are increasingly making the connections between entrepreneurial character traits and moral virtues in the context of making one’s career an integral part of an overall flourishing life (Hicks 2009).
So in this new, entrepreneurial century, the question for us as educators is: How do we help students prepare for an entrepreneurial economy and an entrepreneurial life?
To return to the Japanese investigators’ question: I think it is important but mis-focused. The “secret ingredient” of entrepreneurism is not in the schools. Most U.S. formal school is government schooling, and most government schools are not good at teaching entrepreneurism. Some schools in prosperous neighborhoods are solid, but most schools are weak, some are poor, and many are terrible.
Consider the common phenomenon of kids who start school when they are five years old — they are full of energy and curiosity and excitement — but after a few years they come to dislike or even hate school. They are bored. They don’t like science and they don’t even like art. If you ask them, as parents do, what their favorite subject is, they will say that it is lunch and recess when they are allowed to go outside and play. And for several decades we have seen a decline in basic-competency test scores and an increase in students graduating with weak reading and math skills, minimal scientific and historical knowledge, and so on.
Yet the U.S. does produce a large number of creative individuals. How is this possible?
In my view, what American culture does well is what is does outside of school. After-school hours are busy with extracurricular activities such as drama and chess clubs and sport and debate teams (Petrelli, 2012). American culture is also characterized by significant parental involvement in music lessons, trips to museums and galleries, sports leagues, summer camps, and travel. And, of course, American culture is prosperous, which means it has much wealth to support all of these informal learning opportunities.
Music education in the U.S. is a good example. Everyone loves music, and American culture has much creativity in music — rock bands, jazz clubs, Broadway musical theatre, symphonies in most cities, and so on. But that musical activity did not come out of music education in schools. Kids naturally love music, but they typically tolerate or dislike their music classes in schools. When it is an elective, most students choose not to take it. Instead, those who become musicians and music enthusiasts are inspired from popular culture, by learning from their friends and families, or by extra-curricular lessons paid for by their parents.
All of this points to a challenge for formal educational reform. Schooling is currently characterized by two problems: (1) It wastes much of its students’ time, as measured by the students’ self-reports of how bored and otherwise disengaged from school they are; and (2) it misses the opportunity to use its considerable resources to develop young adults prepared for entrepreneurial careers and entrepreneurial living.
Steve Jobs — who as a young man disliked school and dropped out of university — perhaps put the entrepreneurial aspiration best: “Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don’t settle.” (Jobs 2005)
So how can we re-focus the schools to enable students to take on that great life challenge? One element must be educating for entrepreneurship.
The entrepreneurial process
Let us start by articulating explicitly the nature of entrepreneurship. Consider the stereotypical entrepreneurial process.
The entrepreneurial process begins with an informed and creative idea for a new product or service. The entrepreneur is ambitious and gutsy and takes the initiative in developing the idea into a new enterprise. Through much perseverance and trial and error, the entrepreneur produces something of value. He or she takes on a leadership role in showing consumers the value of the new product and in showing new employees how to make it. The entrepreneur trades with those customers and employees to win-win results. He or she thus achieves success and then enjoys the fruits of his or her accomplishment.
To expand upon each italicized element in that description:
Entrepreneurs generate business ideas and decide which ones are worth pursuing. In the process of coming up with informed, creative ideas, entrepreneurs speak of vision, “thinking outside the box,” imagination, active-ness of mind, and “light-bulb moments.” Having generated ideas, they speak of exercising judgment: Which ideas are actually good ones? Can the product or service be developed technically? Will it sell? What does the market research show? Entrepreneurs exhibit a commitment to cognitive achievement—intellectual playfulness, research, experimentation, analysis, and judgment. As one venture capitalist put it, “Money does not get the ideas flowing. It is ideas that get the money flowing.”
Ambition is the drive to achieve one’s goals, to be successful, to improve oneself, to be better off, to be the best than one can be. Entrepreneurs feel more than the often-abstracted and idle wishing — “Wouldn’t it be nice if I were rich and independent?” — that many people experience. Ambitious individuals feel strongly the need to achieve their goals.
Entrepreneurship requires initiative. It is one thing to have a good business plan; it is another to turn the plan into reality. Entrepreneurs are self-starters who make the commitment to bring their good ideas into existence.
Yet a new enterprise involves venturing into the unknown, a willingness to take on obstacles — including the possibility of disapproval and mockery — and the possibility of failure. Consequently, entrepreneurial activity takes courage — the willingness to take calculated risks, to be aware of possible downsides while not letting the fear of failure or disapproval dominate one’s decision-making.
Entrepreneurial success is almost never easy and overnight, so it requires sticking with it through the difficulties and over the longer term. That is to say, perseverance is essential. Entrepreneurs must persevere through the technical obstacles in product development, in the face of the naysayers who say that it cannot be done or who are otherwise obstructionist, and in the face of their own self-doubts. Entrepreneurs must be good at short-term discipline and at keeping their long-term motivations present in their thinking.
The development process is almost always a trial and error process, requiring that the entrepreneur make adjustments based on experience. Successful entrepreneurs adjust to real-world feedback, which means being able to admit mistakes and to incorporate newly-discovered facts, rather than pig-headedly ignoring anything that is a threat to their pet ideas.
Productivity: The development process hopefully culminates in a working product. If so, the entrepreneur has added value to the world by creating a new good or service, making it work consistently, producing it in quantity, and continuing to improve the quality.
Those who transact with the entrepreneur, whether as customers or as employees, engage in win-win trade, exchanging value for value. Socially, trade is a process of dealing with others on a peaceful basis according to productive merit. It requires protecting one’s own interests and respecting the other party’s doing the same, exercising one’s skills of negotiation, diplomacy, and, when necessary, toughness in order to achieve a mutually beneficial result.
Entrepreneurs also add value by bringing leadership to the trade. Entrepreneurs are creating something new, so they are the first to go down a new path. Those who go first set an example for others to follow and, especially in the case of a new product or service, they must show new customers the value of the new product and service and they must teach new employees how to produce the new product or service. Accordingly, entrepreneurs must exhibit leadership in showing others the new way, encouraging them through the learning process, and in marketing the new. Part of the trade, then, is that the customer or employee is shown a new opportunity and is enabled to take advantage of it, and in turn the entrepreneur receives compensation for doing so.
Finally, the entrepreneur experiences success and the enjoyment of success. Entrepreneurial success yields both material and psychic rewards—both the goods that financial success can bring and the experience of financial independence and security that go with it. And of course there is the psychological reward of achievement: experiencing enhanced self-respect and the sense of accomplishment in what one has created.
If we put those traits in a table, we get the following:
Implications for Education
Now let us turn to education. If entrepreneurship involves the successful exercise of certain traits, where do those traits come from in the first place? Can formal schooling instill, develop, or at least enhance those characteristics in younger students? If we take entrepreneurism as lens for education, then can we teach creative exploration, courage, initiative, and so on?
If we contrast much of traditional and current schooling, what do we see? We do not see much uniqueness, activity, or experimentalism. Instead, students sit in straight rows of desks. Students do what the teacher and textbook say. Every student does the same thing at the same time in the same way and takes the same standardized tests. That is, we see uniformity, obedience, passivity, and rote learning. This stereotype is perhaps often softened in practice, but it has been the default model for teachers with classes of thirty students and standardized, state-established curricula. So while there is useful knowledge in the curriculum, the embedded lessons students also learn are: Do what the authorities say, Do what everyone else is doing, and The correct answers are pre-set and already known. (And we sometimes wonder why we have so many unmotivated, dependent, and timid students — or students who, out of sheer boredom and the chaotic need to be themselves, rebel in destructive ways.)
So if an explicit goal of education is to cultivate the exploration mindset of entrepreneurship, as a first step let us consider getting the students out of the rows of seats and letting them interact with prepared materials on their own.
I have three suggestions in this direction.
1. Develop formal, age-appropriate exercises in entrepreneurial character-trait development
As educators, we fill in the following table with exercises appropriate for children of different ages.
To develop one example further, let me focus on courage.
Courage is the virtue of acting as one judges best despite fear. Fear comes in many forms — fear of pain, fear of disapproval, fear of feeling like a failure, fear of loss of love, money, and so on. Life involves many risks, and risk is the potential for failure, so having the character resources to be able to handle risk is an important part of success in life. One direct connection to entrepreneurship is the many people who do not attempt it due to fear.
So one thread within entrepreneurial education is to develop formal exercises that embody risk and help the child learn to manage it.
For example, younger children learn skills that involve physical risks: going down a slide, jumping into a swimming pool, learning to ride a bicycle. Such activities and dozens more can be formally identified and introduced in schools as exercises. They can also be scaled up as children age and mature in their skill and character. Eventually, they will be able to handle mixing chemicals, climbing rock-walls, doing bungee-jumps, and driving cars.
Other risks are more psychological. For younger children, these can include greeting and conversing with new adults whom one’s parents have invited for dinner, raising one’s hand to ask the teacher a question in class, or expressing an opinion that differs from one’s classmates’. Again, exercises to model these can be introduced in schools and scaled up as children mature so that eventually they will be able to handle comfortably giving a speech before a large audience, asking someone for a date, and arguing civilly with their teachers about political and religious differences.
Courses in acting and public speaking are natural homes for some of the exercises for developing psychological courage, just as courses in physical education are natural homes for developing physical courage. So building consciously and systematically upon activities already present in those courses and extending them across the curriculum is a good starting point.
And what holds for developing courage also holds for developing initiative, experimentalism, perseverance, and the rest of the success traits.
2. Learn from the Montessori method
My second suggestion is, if one is not already aware of it, to explore the Montessori approach to education. Maria Montessori opened her first school in Rome in 1907, and for over a century her method has spread, mostly as a grassroots phenomenon, all over the world.
The scholarly literature is beginning to study Montessori’s results systematically and to pronounce upon them positively (e.g., Rathunde and Csikszentmihalyi 2005 and Lillard 2007), but for now let me just give two indicators.
Anecdotally, Montessori advocates point out that four of the leading entrepreneurs of our generation — Larry Page and Sergey Brin of Google, Jeff Bezos of Amazon, and Jimmy Wales of Wikipedia — were all Montessori educated (Brin and Page 2004).
More formally, Hal Gregersen reports a striking statistic about the proportionately large number of innovative entrepreneurs who were Montessori-educated. After interviewing a large number of entrepreneurs, identifying their shared characteristics, and investigating how they became innovative, Gregersen notes: “It’s fascinating when we interview these famous entrepreneurs to realise that they grew up in worlds where adults paid attention to these innovation skills. Most often these adults were parents and grandparents, but in about one-third of the cases they were master teachers at Montessori or Montessori-like schools” (Gregersen 2011, italics added).
3. Emulate the Network for Teaching Entrepreneurship and Junior Achievement
A third option is to incorporate methods from currently-supplemental education programs that explicitly tie education to preparation for entrepreneurship. Two examples are the Network for Teaching Entrepreneurship (NFTE) or Junior Achievement (JA), both of which have chapters all over the U.S. and in many other countries.
The methods they use can apply to all children, but as often as not NFTE and JA work with students in failing schools, perhaps because the administrators of such schools are more desperate and so willing to experiment.
Steve Mariotti (2009), the founder of NFTE, began his teaching career at one of the worst of New York City’s public schools. He began by using traditional methods but found that they failed to teach the students anything. Then he realized that children, especially poor kids, are often fascinated with money but know nothing about it or how to make it. So, drawing upon his own entrepreneurial experience, Mariotti changed his methods and explicitly began teaching his students how to start their own businesses. The students’ attitudes toward him and their education altered dramatically. Their profit motive kicked in, and they began to see a realistic potential for independence and a better life. Thinking about business led them to see the need for other skills — reading, writing, math, organizational, and social — and then they also became motivated to learn from their textbooks and their other teachers in math, writing composition, and computers. Students in Junior Achievement programs have achieved similar results (see e.g., Marty 2011).
Closing anecdote: dirt bikes and dads
In the above comments, I have focused on formal education and argued for an increased place for entrepreneurism within it. I would like to conclude, though, by not overlooking the important role that parents play in their children’s education by giving one, hopefully inspiring, example from my own neighborhood. It is an anecdote that I think captures the essence of education.
On my drive home from work I passed regularly some vacant land upon which kids with their bikes had created paths and piles of dirt to jump over. Over time, the kids’ efforts had become more elaborate. They had built some crude ramps with wood (likely stolen from nearby construction sites), dug shallow pits and let them fill with water, and they had extended the criss-crossing network of paths to ride upon. I confess to some envy at the sight of so much fun — being a middle-aged man who wanted again to be a kid out there riding my bike up the ramps and jumping the puddles.
But what really caught my attention was an evening when there was suddenly much more activity at the dirt bike site. The fathers had gotten involved. So I stopped and got out of my truck and went to watch. The ramps were now sturdier and safer, and the activity was organized. Kids with their bikes were lined up at the end of one long stretch of path, and each one would ride his or her bike fast up and over the ramp and fly through the air as far as possible.
That wasn’t all. One of the dads had a radar speed gun that measured how fast each kid’s bike was going when it hit the ramp. Another dad, working with one of the kids, measured the distance of each jump and recorded it in a notebook. And all of the kids were now wearing helmets. But each kid wanted to know how far he had jumped, how to improve his distance, and as the kids waited their turns they were all discussing the best air pressures for the tires, bike speeds and ramp angles, lubrication for their bike’s gears, and so on.
The point for entrepreneurial education is that the kids first showed initiative and pursued their interests. The adults got involved and both encouraged that initiative and facilitated a more structured activity. The kids were learning math and engineering, cooperation and competition, being creative and getting exercise — and they were having a whole lot of fun themselves and with their dads.
That is only one anecdote, though it points to a path for entrepreneurial educators to pursue. What some kids and their dads can do with a vacant lot and some creativity — we professional educators with our training and resources should be able to do even better.
Brin, Sergei and Page, Larry. 2004. “Google Founders Talk Montessori.”
Gregersen, Hal. 2011. The Innovator’s DNA. Harvard Business Review Press.
Hicks, Stephen. 2009. “What Business Ethics Can Learn from Entrepreneurship.” Journal of Private Enterprise, 24(2), 49-57.
Jobs, Steve. 2005. “Commencement Address.” Stanford University.
Kirzner, Israel. 1973. Competition and Entrepreneurship. Chicago: University of Chicago Press.
Kling, Arnold, and Schulz, Nick. 2011. Invisible Wealth: The Hidden Story of How Markets Work. Encounter Books.
Lillard, Angeline. 2007. Montessori: The Science behind the Genius. Oxford University Press.
Marty, Eduardo. 2011. “Entrepreneurship in Argentina.” Kaizen 15.
Mariotti, Steve. 2009. “Entrepreneurship and Education.” Kaizen 9.
Petrelli, Michael J. 2012 (February 23). “Memo to the world: America’s secret sauce isn’t made in our classrooms.”
Rathunde, Kevin and Csikszentmihalyi, Mihaly. 2005 (May). “Middle School Students’ Motivation and Quality of Experience: A Comparison of Montessori and Traditional School Environments.” American Journal of Education 111, 341-371.
Rogers, Steven. 2002. The Entrepreneur’s Guide to Finance and Business. McGraw Hill.
Schumpeter, Joseph. 1950. Capitalism, Socialism and Democracy. 3rd ed. New York: Harper & Brothers. See especially Chapter VII.
Seligman, Martin E.P. 2012. Flourish: A Visionary New Understanding of Happiness and Well-being. Atria Books.
* * *
In this 20-minute “Unleash Your Inner Company” talk, entrepreneur John Chisholm (San Francisco) discusses:
* the values that motivate entrepreneurs;
* the mutually-reinforcing traits of passion and perseverance;
* finding unique customers needs;
* fitting those needs to one’s own uniqueness, strengths, and weakness;
* how entrepreneurs are leaders;
* his own entrepreneurial experiences;
* similarities and differences between major companies such as Apple, H-P, and IBM;
* and the ethics of entrepreneurship in contrast to predation and altruism.
Here also is the STAARRS doc [Word] that Chisholm uses as a self-assessment worksheet.
Chisholm’s talk is part of our Entrepreneurship and Values series. Other lecturers in the series include Alexei Marcoux, William Kline, Terry Noel, Robert Salvino, and me.
Cross-posted at StephenHicks.org.