In the airport on the way back from this conference, I picked up a copy of the current issue of Inc. magazine for the cover story on "How Great Entrepreneurs Think." The article relates the results of a study by UVA Darden School professor Saras Sarsvathy of 45 top entrepreneurs. All were presented with a case study of a hypothetical start-up and then quizzed about how they would run it. Interestingly, she later conducted the same exercise with managers at large corporations. The differences in thinking and decision-making style are instructive:
Sarasvathy likes to compare expert entrepreneurs to Iron Chefs: at their best when presented with an assortment of motley ingredients and challenged to whip up whatever dish expediency and imagination suggest. Corporate leaders, by contrast, decide they are going to make Swedish meatballs. They then proceed to shop, measure, mix, and cook Swedish meatballs in the most efficient, cost-effective manner possible.
So, for example, when one entrepreneur was asked about what market research would be needed, he replied:
"I don't believe in market research. Somebody once told me that the only thing you need is a customer. Instead of asking all the questions, I'd try and make some sales. I'd learn a lot, you know: which people, what were the obstacles, what were the questions, which prices work better."
Here's another quote along similar lines:
"I always live by the motto of 'Ready, fire, aim.' I think if you spend too much time doing 'Ready, aim, aim, aim,' you're never going to see all the good things that would happen if you actually started doing it. I think business plans are interesting, but they have no real meaning, because you can't put in all the positive things that will occur...."
Generalizing from these kinds of attitudes, Sarasvathy concludes that entrepreneurs
do not believe in predictions of any kind. "If you give them data that has to do with the future, they just dismiss it," she says. "They don't believe the future is predictable ... or they don't want to be in a space that is very predictable."
Which means -- segueing now from practice to theory -- that entrepreneurs grasp intuitively the central insight of the great economist F. A. Hayek: that capitalism is a process of discovery. Hayek saw that socialist central planning, then at the height of intellectual fashion, was doomed to founder on the unpredictability of the future. Capitalism, at the time derided for its chaotic duplicativeness, worked precisely because of its messiness: its decentralized process of trial-and-error experimentation is the only viable response to the ineradicable uncertainties of economic life.
Entrepreneurs are Hayekians at the micro level. They don't want to sit back and plan, they want to dive in and discover and learn. They want to experiment: to see what works and what doesn't, to build on the successes and leave the failures behind. Which is exactly what how the larger market order works at the macro level.
None of this is to say that planning is unnecessary. On the contrary, it's vital -- after you've discovered a good idea. To take that idea to scale and execute it efficiently -- in other words, to pump out those Swedish meatballs -- you need planning and lots of it. Which is why successful start-ups turn into big corporations run by professional managers.
Here's Sarasvathy's full case study.
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