This is of course a tragedy for the man (whom we’re told survived and is in relatively good health considering the circumstances). But it is nevertheless an event that raises a number of questions about the responsibility of entrepreneurs. These questions were immediately bypassed (pun intended) and an “obvious” answer assumed as politicians, government agencies, and lobbying groups supposedly looking after our health call out for regulation. But for the not-so-quick-to-jump-the-gun when something happens, the questions still need answering. Regulation of what?

In this particular case, the guest to the restaurant ordered the “heart stopper” despite its name (“triple-bypass burger” – and the fries are called “flatline fries”) as well as signs on the door saying the food is hazardous to your health. Does the entrepreneur’s responsibility go further than declaring what he’s selling (and selling what he’s declaring)? And if it does, how far does this responsibility go? And what is the responsibility of the authorities?

But these questions lead back to the implied yet fundamental question that must first be answered: what is the responsibility of the consumer? If, as in this case, the consumer is fully informed (as in economic models) yet suffers adverse effects from his choice. Do we have a right to take this freedom and responsibility away from him (whether for his own good or not)?

From a scientific point of view, the important question is what are the effects on the functioning of the market. If we transfer responsibility for actions to someone who is not the actor – what are some far-reaching economic consequences? And this raises the question: how is entrepreneurship (using whatever definition) affected? Regulating “bypass” burgers could very well bypass entrepreneurship, and the consequences in terms of economic growth may be devastating. This means: devastating to people’s health, since without innovation, invention, and new approaches – that is, entrepreneurship – we may not make the advances in health or health care that we otherwise would.

The problem, of course, that we cannot see these effects. We cannot even imagine them, since what the future brings is what entrepreneurs themselves imagine. So how can we tell? Do we dare to regulate?

via Russ Coff’s Facebook post

Johns offers a Grand Idea for how to solve the problem: a centralized labor market maker, “a team that proactively manages supply and demand.” While this may intuitively seem like supplying a force of which the market seems short, it is quite a Soviet-style solution. And it completely disregards the question of why the labor market isn’t functioning, and what we may learn from the “strange” present state of it. In other words, to solve the problem, shouldn’t we first ask why there is too much supply and too much demand at the same time?

So why doesn’t Johns ask this question? We don’t know. But we can answer it. Rather than appointing a “maker” to force supply and demand to equilibrium (a point toward which one would expect market forces to lead), it can easily be shown that the problem in the market is due to the boom-bust cycle. The available, employable labor is educated according to the misguided structures of production during the boom – which in retrospect were unsustainable. We are therefore currently in a situation where we know that there is a huge social malinvestment in skill and education.

This is actually what also happened during the Great Depression. While we read about very high unemployment during the depression, what we do not often hear is that unemployment was very high for some and not at all high for others. They experienced then what we experience now: a structural malinvestment in skill that comes crushing down in need of correction as the true market demand for products and services is finally revealed.

Nobody is interested in hiring coachmen in the age of automobiles. But this is in itself not a problem, since society doesn’t instantaneously shift from horse-and-carriage to automobiles. The shift is gradual, so while there is unemployment for some individuals it is not a structural problem. And we wouldn’t expect a whole generation to seek apprenticeships to be coachmen while society is tending toward automobiles. We have a structural problem if, for whatever reason, supply of coachmen is artificially kept way above the market rate.

Johns’s is here to, when the problem becomes apparent, institute a resourceful (and omniscient?) government team to reeducate the apprentices and make everybody into automobile mechanics. But is this a prudent solution? It doesn’t address the cause but only attempts to do away with the symptom, and who knows what problems we might face after driving a whole generation into becoming Ford Model T mechanics? Perhaps we find ourselves in a situation where we have further progress and innovation so that the Model T is replaced with a new car – with a whole generation of Model T mechanics but nobody to deal with the new types of automobiles.

A “labor market maker” is but a kind of theoretical political entrepreneurship that amounts to nothing less than social engineering. And there is much evidence that the current problem in the labor market is not a problem of the market – but of politics and social engineering. Is more of the same thing really a solution to the problem? Probably not. To solve the problem we must understand what caused it, which means we must turn to economic theories of what caused the boom – and what caused the bust.

The obvious question that follows is: why don’t companies take their customers seriously? Perhaps because it may be costly to deal with customers, and we may need to prioritize some over others. Or perhaps choose not to deal with some of them even though it is not immediately intuitive that there may be cost reasons not to take customers serious. Or, as Ms. Hicks hints in the article, companies may not know who their customers are.

Furthermore, they may not have established relationships with customers or offer means for customers to communicate feedback directly to them. Or they may not have initiated or encouraged a dialogue with customers and are therefore left unaware of how their products are received in the market. But this only brings us back to the question: why don’t the companies take their customers seriously?

Naturally, the question may be phrased the wrong way and could therefore fail to capture the real issues. The alternative seems odd: Could these problems amount to an entrepreneurial opportunity for above-normal profits – through taking customers seriously?

There has been plenty of research trying to map out what are the “entrepreneurial traits” and the psychological characteristics of successful entrepreneurs. This type of research can undoubtedly help us understand people and humanity, but I am not convinced it is helpful in terms of entrepreneurship research. After all, entrepreneurship is primarily a market function, and as such the mental or physical state of the person exercising entrepreneurship is at best of secondary importance.

This said, a great many successful innovator-entrepreneurs seem to be overly (annoyingly?) energetic, crazily risk-loving (or -unaffected), and perhaps with lacking rationality in terms of the consequences of one’s actions. That Blackledge seems to have identified that the “hyper-creatives” are also those who would be diagnosed with and treated for ADD, is hardly surprising. Who would expect the not-so-energetic, dull, and in-the-box-thinking to be successful and innovative entrepreneurs?

From a political or social-engineering point of view, it may seem beneficial to categorize and identify the would-be entrepreneurs and, perhaps, give them a push to start companies or produce art. The problem, of course, is that if the would-be entrepreneurs are identified and we aim to “make the most” out of this, then we face two major problems: we have a situation where (1) government has already created two classes of citizens and would tend to favor one over the other, and (2) in order to incentivize this class to become “real” entrepreneurs, government would need to redistribute resources and wealth (broadly defined) from already existing successful entrepreneurs. I can see all kinds of not-so-very-nice problems coming from both of these points.

The other side of the coin, however, is to learn from what is revealed in this interview about the hyper-creatives. And the perhaps most revealing is the question, “so everyone’s on Adderall these days?” Diagnosing and treating the hyper-creatives as though there is something wrong with them simply because they are hyper might not be a very productive approach. If they are indeed an important part of what is the entrepreneurial function, perhaps we shouldn’t medicate them en masse and virtually put the market process to a halt…?

Call for Papers: 
Special Issue of Managerial and Decision Economics

EFFECTS OF ALTERNATIVE INVESTMENTS
ON ENTREPRENEURSHIP, INNOVATION, AND GROWTH

Submission Due Date: June 15, 2012
Special Issue Conference: October 29, 2012

Guest Editors:
Peter Klein, University of Missouri
Donald Siegel, University at Albany, SUNY
Nick Wilson, Leeds University Business School
Mike Wright, Imperial College Business School

Special Issue Conference sponsored by
School of Business, University at Albany, SUNY
Centre for Private Equity Research, Imperial College Business School
McQuinn Center for Entrepreneurial Leadership, University of Missouri

Introduction

The past decade has brought rapid growth in a variety of specialist alternative investment vehicles, including venture capital, business angel funds, later-stage private equity, hedge funds, sovereign wealth funds, infrastructure funds, and real estate funds. The importance of venture capital and angel investment for new firms, particularly in high-growth, high-technology sectors, is well known. But alternative investments span a wide range of company types, from small, early-stage ventures with high growth rates but little cash flow to large firms in mature industries that generate substantial cash flow.

Alternative investment vehicles introduce new forms of financing with different objectives and diverse forms of involvement by investors in portfolio firms. Alternative investors differ widely in skills, goals, experience, and investment time horizons. They often invest across a variety of institutional environments, transferring standard investment approaches from one sector or country to another. Because these alternative equity stakes are generally less liquid than shares in publicly traded enterprises, their growth raises a host of important issues for the organization and governance of portfolio companies, for the structure of industries heavily dependent on alternative investment pools, and for entrepreneurship, innovation, and economic growth more generally.

This special issue of Managerial and Decision Economics focuses on the effects of alternative investments on entrepreneurship, innovation, and economic growth. These issues are especially timely given current debates about the role of alternative investments in stimulating economic outcomes and the need for diverse sources of capital to stimulate economic growth in conditions of severe recession. We welcome theoretical papers, large scale quantitative analyses, and focused case studies.

Research Questions

Research questions that contributors to the special issue might address include:

• How does the nature of deals vary by different types of alternative investor? What factors are influential in determining these differences?
• What are the relationships between financial structuring of deals and the nature and extent of entrepreneurship and innovation in portfolio firms?
• How does financial structure affect entrepreneurial alertness, judgment, and innovation not only in new firms, but in established organizations as well?
• To what extent do alternative investors engage in funding both restructuring and innovative activities? What are the effects of alternative investments on growth at the level of the firm, sector, region, and economy?
• How do buyout firms attempt to increase innovation within public companies that are taken private?
• How have the roles of alternative investment vehicles changed over time, as in the changing roles of venture capital firms and business angels in Silicon Valley?
• How do venture capital and angel investors organize themselves into networks? How do these affect venture performance?
• What is the nature of the contractual relationships between alternative investors and founders or operators of startup companies?
• What explains the clustering of alternative investments across industries? Across time and place?
• To what extent can alternative investors, as “active” participants in their portfolio companies, themselves be modeled as entrepreneurs?

Papers on related issues not explicitly listed above are also welcome.

Submission and Review Process

Submissions must be made on or before June 15, 2012. All papers will be externally reviewed according to standard policies of Managerial and Decision Economics.

Conference Details and Time Line

To aid in the development of papers, a special issue conference will be held at the SUNY Global Center in Midtown Manhattan October 29, 2012.

Accommodation and meals will be provided for all authors and discussants attending the conference. Financial support is provided by the School of Business and the Center for Institutional Investment Management at the University at Albany, SUNY, the Centre for Private Equity Research at Nottingham University Business School, and the McQuinn Center for Entrepreneurial Leadership at the University of Missouri.

Key dates:
June 15, 2012: Deadline for electronic submission of papers to the conference and special issues
August 15, 2012: Notification to authors regarding acceptance for conference
October 29, 2012 : Special Issue Conference at the SUNY Global Center

More Information

For additional information, please contact the special issue editors:
Peter Klein, University of Missouri, pklein@missouri.edu
Donald Siegel, University at Albany, SUNY, dsiegel@uamail.albany.edu
Mike Wright, Imperial College, London, mike.wright@imperial.ac.uk
Nick Wilson, Leeds University Business School, nw@lubs.leeds.ac.uk

Charles Dickens, Capitalist

Perceptions of Opportunities – Part 1

Finance and the Nature of the Firm

• Wake up early
• Avoid distractions
• Work three to five hours a day and then enjoy the rest of the day
• Be as perfectionist as you can, knowing that imperfection will still rule
• Have the confidence to be magical and stretch the boundaries of your medium.
• Combine the tools of the medium itself with the message you want to convey
• Don’t get stuck in the same rut – move forward, experiment, but with the confidence built up over experience.

Not sure about the third, but these are all worth pondering. See James Altucher’s analysis here.