Wednesday, April 23, 2014

Entrepreneurship = Work

As long ago as 1984, management guru Peter Drucker predicted a profound shift in the United States from a "managerial" to an "entrepreneurial" economy. He was a visionary and his prediction, like so many others, was correct. Today's economy is deeply tilted toward entrepreneurship over manufacturing, toward knowledge over labor-intensive production.

The Kauffman Foundation reports that, from 1980-2005, small firms less than five years old accounted for all net job growth in the United States.  Entrepreneurship curricula on college campuses is burgeoning. Entrepreneurs of all types and business sizes are repeatedly in the news. The wretched excess of the financial industry in the last two decades was a manifestation of zealous and innovative, one might say entrepreneurial, scheming untrammeled by professional ethics or appropriate regulation.

Having just reread Drucker's book, Innovation and Entrepreneurship, I suggest it to others for classic background. It is less clever entertainment - a la today's business books - than a jam-packed, fast-moving information blast that goes beyond conventional wisdom about entrepreneurship. Based on research and vast experience, Drucker concludes that entrepreneurship can be taught and systematically applied to build a successful innovative business. He makes a persuasive argument. Here are some highlights.

Successful entrepreneurs are not simply "Eureka moment," risk-takers hit by one bright idea. They may show elements of that behavior but, more than anything, when sparked with an innovative idea, they do their homework. They become purposeful and systematic about creating, designing, manufacturing, marketing, and selling their product or service. They work hard to adhere to well-known, critical business practices. They research their market deeply and from the field. They persist - and they adapt to their market when products are used in a different way than originally intended. Further, ongoing innovation and internal entrepreneurship are critical for any company's durability (e.g. DuPont and 3M) and not just typical of skunk works.

Drucker identifies several drivers of innovation. The "super-star," as he calls the most familiar, is knowledge-based innovation, whether scientific, technical, or social. It is also the most demanding to bring to life. On the other hand, one of the least commonly mined stimulants is seizing "the unexpected." Both new and well-established businesses must avoid the inertia that can lead to overlooking unexpected successes or trying to correct unexpected failures when each might reveal great opportunities for growth.

Bloomingdale's has had an ever-changing self-presentation since the '50s. In those years, appliance sales began to top fashion sales. Bloomie's responded by full-steam creation of a housewares department and reshaped fashion lines, while Macy's, its major (and stagnant) competitor fell behind. Similarly, an entrepreneur with an unexpected failure in sales goals might discover that the market for a given product has begun to split itself in two - pointing the observant entrepreneur toward a new second product. 

Drucker provides rules of thumb for new businesses concerning their market focus, financial foresight, and management team. These emphasize that entrepreneurs must and can learn management practices specific to start-ups and innovative businesses. The growing wealth of on-line and in-class entrepreneur curricula proves his point. Learning is a life-long process. What we know now will be virtually obsolete five to ten years from now, so businesses must stay on top of new ideas, new skills, new data, new knowledge.

Drucker emphasizes that "entrepreneurship is not natural; it is not creative. It is work. Entrepreneurship and innovation can be achieved by any business.  The practices can be learned and require effort."  In praise of entrepreneurs, Drucker adds, "Entrepreneurial businesses treat entrepreneurship as a duty. They are disciplined about it...they work at it...and they practice it." Great advice!

Tuesday, April 8, 2014

Really, A Rational Economy? 

Since the 2007 financial crisis, bookstores have been flush with information about finance, money, banking, democracy, government and other critical analyses of the state of our economy. Michael Lewis has covered The Big Short and Neil Barofsky has reported on TARP's corruption in Bailout. Lawrence Lessig takes on finance reform in Republic, Lost while Jeffrey D. Sachs examines The Price of Civilization, to name just a few standouts. 
How we structure our economy, the expectations we have of it, and what it actually delivers to support democratic principles is something citizens should understand on a basic level, if only for their own improved economic station. Economics is called "the dull science" but it's not a science - it's a set of theoretical assumptions accompanied by theory-justifying graphs. The above writers address the reasons for, the power of, and the handling of money in the real context of human behavior. Here are a few of their salient points.     

The dominant U.S. economic theory for the past half century has asserted an "efficient market theory." This theory says that money in a free-market economy flows to its most productive uses because human beings, with access to full information, will rationally choose to use their money in ways that are beneficial to them. There will be winners and losers spread randomly throughout the economy, but the market is always “efficient,” i.e. no one individual can always win. 

But is this well-founded theory? Does it sound reasonable to you on the practical face of it. Might the theory be too abstract? Do you see possible problems?  Are the assumptions based on common sense and how people actually behave?   Consider this Q&A about the theory's claims:

Q. Do we all have access to complete information in our financial dealings? 

A.  No. Even in the financial markets, most investors don’t know or understand what is going on. Information is often overly complex or only benefits insiders.  The false hopes and market manipulations of the recession prove that. On a simpler level, consider your monthly bank statement, carefully written in arcane, circular, legalistic language offered as “information” to fulfill your “right to know.”

Q.  Are we all always rational in our behavior? 

A.  No. You and I know that from the get-go. We have seen and perhaps participated in herd-like thinking and mass emotional responses ranging from paralyzed fear to Greenspan's "irrational exuberance." But economists are only beginning to understand this phenomenon. Led by MIT's Amos Tversky and Daniel Kahneman, the field of behavioral economics takes on the vast complexities of human nature and responses to economic issues. 

Q.  Do human beings act out of altruism (my benefits = your benefits) or out of a more narrow self-interest?

A.  The human race tends toward narrow self-interest. This is not just a Darwinian notion, i.e. humans are genetically programmed to protect only themselves and their kin when push comes to shove. It is also a cultural fact in the way our society permits the pursuit of selfish power and greed over justice, honesty, and fairness. 

While the efficient markets theory made sense to the Chicago School of Economics that developed it, we all know a rigid and simplistic view of the world can befall professors committed over the years to an idea. In fact, it is the “quants,” (academic numbers gurus) who largely facilitated the U.S. fall into a 3-year-and-counting recession, producing market algorithms that investors didn’t bother to, or couldn’t, fathom.

Niall Ferguson shows in his book, “The Ascent of Money,” that financial history never has been, and never will be smooth. Instead, he describes it as a “roller-coaster ride of ups and downs, bubbles and busts, manias and panics, shocks and crashes.” We can calculate and work with risk, looking back at the frequency of known, recurring events, but we cannot measure, predict, and bet on the unknown future. It lies before us, preparing mysteriously to unfold in who-knows-what directions.   

Finally, from Ferguson, “(F)inancial markets are like the mirror of mankind, revealing every hour of every working day the way we value ourselves and the resources of the world around us.”  Do we like what we see in that mirror or is it time for a facelift?

Thursday, April 3, 2014

Boulder White-Clouds Monument Debate (L)

Tensions have emerged in recent months among conservationists responding to efforts by the Idaho Conservation League and The Wilderness Society to have roughly 600,000 acres of the Boulder and White Cloud Mountains declared a National Monument.  The proposed Monument would include a substantial portion of the 40-year-old Sawtooth National Recreation Area (SNRA).
Not that a national monument isn’t a good idea.  But, as many involved in the debate have said, “the devil is in the details.”

Tensions began when the Stanley-based Sawtooth Society, advocate and watchdog for the SNRA, found it had been left out of the early stages of a Conservation League and Wilderness Society initiative for a Boulder-White Clouds monument. Despite requests, Paul Hill, the Society’s President, said the Society was initially unable to get answers about the proposed details under monument designation.   

Since the majority of the Boulder-White Clouds is already inside the SNRA, “it’s imperative that a proposed National Monument preserves the primacy of SNRA law and regulations,” Hill has said, calling for “open, transparent, and collaborative discussion by all legitimate stakeholders to form a consensus about goals for the Boulder White Clouds area.”

Hill’s words have been heard.  More and more stakeholders have asked for collaboration among all interested parties; they are listening to each other and trying to work toward a consensus on goals for the area based on its high-quality territory and types of usage.
Congress created the Sawtooth National Recreation Area (SNRA) in 1972 under Idaho Senator Frank Church’s leadership to preserve its wild and scenic lands. A large portion of the western side of the SNRA was also designated Wilderness, the highest protection for public lands. Another 300,000 or so acres in the Boulder-White Clouds, lying east and outside of the SNRA (north of Ketchum along Route 75), remained largely unprotected, however, and subject to opportunistic incursions by mining interests and motorized vehicles. 

Conservationists next set their sights on the Boulder-White Clouds for greater protection. With its world-class wildlife habitat, headwaters of the East Fork of the Salmon, and fragile, roadless environment, it met the criteria for Wilderness designation. Working with Rep. Mike Simpson, R-Idaho, conservationists helped shape the Central Idaho Economic Development and Recreation Act (CIEDRA). Its centerpiece was Wilderness designation for that portion of the Boulder-White Clouds lying in the eastern SNRA.  Simpson submitted the bill to Congress in 2005 but it has stalled there since, partly due to opposition by Governor Butch Otter and Senator Jim Risch, R-Idaho.

Last May, the Idaho Conservation League (ICL), working with The Wilderness Society, began lobbying Washington to protect 600,000 acres of the Boulder-White Clouds through National Monument status. The proposed boundaries (see map) include much of the already protected eastern SNRA (including CIEDRA’s 300,000 proposed Wilderness acres), the East Fork of the Salmon, Jerry Peak, and Herd Peak.  Monument status would simply require President Obama’s signature on a proclamation according to the 1906 Antiquities Act.

Monuments come with their own set of regulations, however. And so, for 40 years, has the SNRA. Therein lies the rub: how to handle the conjunctive management of the largest area of roadless lands in the lower 48 states. The answer is still up in the air.

Rob Mason, Central Idaho Representative for the Wilderness Society, understands how tensions arose, saying, “The idea got out and it sounded like monument declaration was imminent.  People got anxious.” Rick Johnson, Executive Director of ICL, agrees, “We started out fast without much stakeholder input, but now we’re listening to individuals and interest groups to learn what they want in a national monument.”
Public meetings have been held in Stanley and Blaine County and are planned for Challis. Private meetings continue.  Sportsmen, mountain bikers, and hikers are stating their goals and concerns.  At this point, all stakeholders appear to support the primacy of SNRA regulations whether encompassed by or bordering a Boulder-White Clouds National Monument.  They also call for preserving the Boulder-White Clouds prize fishing and hunting habitat, proper funding, and controlling human impacts in a fragile environment. A cohesive management plan is also important since, in addition to SNRA regulations, Boulder White Clouds lands are run by the Bureau of Land Management, and two national forests.

The prospects for monument designation, while not certain, seem positive. Sally Jewell, Secretary of the Interior, has called for presidential action if Congress fails to move on proposed land protection legislation. Agriculture Secretary Tom Vilsack, has said, “The Obama administration would work to evaluate the Boulder-White Clouds area as a possible national monument.” Mason adds that the high recreation value of the area and long-term CIEDRA efforts by Rep. Mike Simpson have laid significant ground work. “Everyone in Washington knows about the Boulder-White Clouds,” he says. 

If President Obama actively considers monument status for the area, Mason says stakeholders would have the opportunity to express their views to Administration officials both before and after a Proclamation.  He points out that proclamations usually happen toward the end of a president’s term, but says, “There’s a chance we might get some action on this by next summer.”

Mason urges interested parties to become involved in the debate. “It’s important that stakeholders weigh in sooner than later,” he says, and suggests people contact the involved nonprofits or Agriculture Secretary, Tom Vilsack.