Entrepreneurship Why Entrepreneurship Is Important

Entrepreneurship

Why Entrepreneurship is Important to the American Economy

The many contributions of entrepreneurs to the growth of the American economy overshadow those from other nations globally by a wide margin, from job creation and innovation to the development of entirely new markets. Entrepreneurship in the United Sates is credited with 70% of overall new job creation (Kuratko, 2007). In addition, American entrepreneurs are credited with creating more social welfare than all of the Federal, State and Local government spending programs combined (Arbaugh, Camp, Cox, 2005). In addition to all these factors the ability to quickly translate innovation into marketable new products and services, often ingeniously designed and package for the convenience of consumers, is well-known and increasing tracked through metrics (Handfield, Petersen, Cousins, Lawson, 2009). What is especially unique about entrepreneurialism in the United States is its direct effect on the broader economy. No other country relies so heavily on entrepreneurs to serve as the fuel of their economic growth over time. This paper evaluates each of the dominant areas where entrepreneurialism in the U.S. makes a major contribution. In addition to the significant contributions to job growth, innovation, and continued investments in knowledge creation, American entrepreneurs pay 54% of all individual income taxes and 60% for corporate tax returns from S-Corporations (Kuratko, 2007). One successful new firm contributes more in terms of Federal, State and Local taxes that three comparably sized firms that have been in business over fifty years (Handfield, Petersen, Cousins, Lawson, 2009). This is because of the intensive investment in innovation and translating new discoveries into salable products. Throughout this report both the qualitative and quantitative contributions of entrepreneurs to the American economy are explored.

Entrepreneurs and New Job Creation

As the success of American entrepreneurs go in terms of creating enterprises that need new employees, so goes the entire U.S. economy. This is a statistically proven fact based on U.S. Census Bureau, Business Dynamics Statistics summary showing that start-ups of between 1 and 4 people contribute the majority of new job growth in the last three years (Sadeghi, 2008). U.S. Census data also indicates that while corporations with over 10,000 employees stabilize their employment and rarely have double-digit increases, the majority of new venture firms up to 500 employees have significant gains in employment over time (Ganco, Agarwal, 2009).

Analyzing the specific data sets from the U.S. Census Bureau using Microsoft Excel also illustrates how recession-resistant new job creation is in start-ups and firms less than ten years old. Entrepreneurs are the basis of this growth and will eventually lead the global economic turnout out of the recession affecting so many nations' economies today. This specific data growth is attributable to the development of more knowledge-intensive businesses (Madsen, Neergaard, Ulhoi, 2008). As has been stated by Dr. Micheal Porter of the Harvard Business School (Porter, 2008) the greatest competitive advantage any nation has is the personal productivity of its workers, and the ability to create entirely new ventures. Dr. Porter often cites how industry after industry in the United States transformed global competition by concentrating on personal productivity as a goal first. He specifically mentions how manufacturing processes for the development of commercial and military jet aircraft at Gulfstream and Boeing are based more on Business Process Management (BPM) workflows that were discovered by each of the aerospace manufacturers' smaller, start-up suppliers (Porter, 2008). Porter argues that in redefining core business process areas through the development of new products and the selective hiring of skilled employees to fine-tune and perfect them, entrepreneurs actually revolutionize entire industries in the process (Hessels, Gelderen, Thurik, 2008).

It is then the ability of entrepreneurs to look at a long-standing process that is shared between suppliers, buyers and manufacturers in B2B-centric industries on the one hand, and between manufacturers and consumers in B2C-centric industries on the other, and creatively define how that process can be streamlined and made more efficient. What the greatest value add of entrepreneurs to this process are is the ability to match the unique skills sets they have, and hire the best possible team that can refine solutions to process-based problems and deliver exceptional value to customers (Audretsch, 2009). The entrepreneur as orchestrator of processes, people, and systems is critical and serves as the catalyst of new job growth. If one considers the most effective American entrepreneurs of the last fifty years, this ability to orchestrate processes, people and systems together to deliver exceptionally high increases in process efficiency or the ability to get exceptional value from minimal costs is apparent. Microsoft's Bill Gates and Paul Allen have revolutionized the many processes each of us uses to communicate both individually as well as when part of a team. Their use of technologies have transformed word processing for individual communication to being able to share concepts in real-time, globally, through collaborative portal technologies including Microsoft SharePoint Server and Microsoft Windows Server operating systems. In attacking the inefficiencies of these process areas, from personal communication to global collaboration, Bill Gates and Paul Allen created an economic ecosystem that thrives on the individual insights, creativity and knowledge of employees. Through the process of commercialization of these products, entire divisions of Microsoft employees were need to design, market, launch, support and plan the next generation of these technologies. It is shortsighted to view the role of these entrepreneurs as only hiring staff for the initial ramp-up of a new products; it is in fact the successful functioning of an entire ecosystem that breeds on creativity and insights from individual contributors. As more customer needs are met, there is the need to scale the ecosystem. When this happens, more employees are added to these areas of growth inside Microsoft. The creation of an ecosystem that is market-driven on the one hand and continually seeks process-related improvement, customer-based value additions, is one of the most powerful catalysts of new job creation any nation has ever experienced (Handfield, Petersen, Cousins, Lawson, 2009). It is an American phenomenon that is often replicated in other parts of the world. Examples abound of how entrepreneurs have found a given process or tasks, from as simple as writing a document to as complex as designing a new bridge, to initially be so complex that attacking the inefficiencies inherent in it can nurture entire new businesses. In attacking these process inefficiencies through the use of teams formed by hiring the best possible experts in these areas, American entrepreneurs have successfully transformed human productivity into a competitive advantage in every industry they compete in (Porter, 2008).

To get an accurate view of job creation by entrepreneurs it is critically important to take a long-term or longitudinal view. When this is done from a strategic level it's clear that job creation in firms between 1 and 4 employees are recession-resilient as are those firms less than ten years of age with up to 500 employees (Sadeghi, 2008). The catalyst of these firms' ability to continue growing new positions and hiring additional staff is entirely dependent on this company's ability to find problems in potential customer bases and aggressively solve them. Often this is from a process-based perspective, as the examples from Microsoft illustrate. For start-ups focused on the B2B arena, their ability to find where potential customers are having the most difficulty translates into the greatest opportunity for any entrepreneur. The same holds true in B2C-based markets as well, as consumers seek greater convenience, greater selection and lower cost. The entrepreneurs who see the potential of creating a value-delivering ecosystem that responds to these needs is one that will deliver exceptional job creation and wealth growth. The ability of entrepreneurs to find these unmet needs and capitalize on them not only once, but over time by creating this ecosystem of value will dictate if they survive or not (Fourie, 2008). The American entrepreneurs continue to be global leaders in this regard, often devising entirely new approaches to delivering value through these ecosystems that quickly scale globally. The rapid growth of salesforce.com, who was launched as a start-up only in 1999 and now has grown to nearly a $1B company in ten years, and is the global leader in providing hosted CRM system applications, exemplifies this value-delivering ecosystem. Salesforce.com has become so efficient at this in fact that they now have created an AppExchange platform specifically for promoting those applications built on top of their own. This is American entrepreneurship at its most potent, focused and valuable. A value-generating ecosystem has been produced first with the hosted CRM applications on Salesforce.com, and second, on the AppExchange. These two ecosystems form the catalyst for thousands of jobs in Salesforce.com and now, in the hundreds of software partners salesforce.com has in each of the industries represented with applications on the AppExchange. No other nation has been able to produce this level of job creation and shared employment growth throughout a partnership ecosystem as rapidly as the United States has in the software industry. Job creation nurtured by entrepreneurs is the result of creating ecosystems that deliver exceptional value and streamline processes over time. While entrepreneurial accomplishment is common across all nations the ability to create and sustain value-based ecosystems as rapidly as American entrepreneurs are unique (Arbaugh, Camp, Cox, 2005).

American Entrepreneurs' Contribution to Global Innovation

Innovation in and of itself is not enough to create entirely new businesses; it is in translating innovation into unique, ingenious products and services that meet unmet needs of both consumers and businesses. The current economic downturn, it has been argued, is an excellent opportunity for entrepreneurs to create disruptive innovations (Christensen, Mangelsdorf, 2009) that completely re-order market dynamics and redefine value chains in the process (Porter, 1986). Disruptive innovation as defined by Clayton Christensen is entirely dependent on small start-up companies to exist then re-order entire industries in the process (Christensen, Mangelsdorf, 2009). What is so noteworthy about the research completely by Dr. Christensen and Mangelsdorf (2009) is that the catalyst of each disruptive innovation as emanated from small, entrepreneurially-run companies. Core to the unique strengths of entrepreneurs is their ability to translate unmet needs in markets and then selectively apply innovation to them in order to create entirely new market segments. This has also been empirically seen in the findings of Dr. Christensen in his book The Innovator's Dilemma. For disruptive and even chaotic innovation to translate into entirely new markets being formed, entrepreneurs must have a government that fosters this process. The United States Government and is support of policies that favor the creation of new innovation is seen in the clustering of technology centers throughout this country (Gittell, Sohl, 2005). No other nation has as many innovation clusters as the United States, and it is the result of pro-government policies with regard to intellectual property growth, investment in education and knowledge institutions, and the development of high-speed computing infrastructure which allows for real-time collaboration. All three of these factors are present in the Boston Area along Route 128, the Research Triangle of North Carolina, and the Silicon Valley of Northern California. The combining of government investment in infrastructure, support for exceptional universities and knowledge creation, and tax incentives for new business growth all favor the start-up of new businesses. These regions of the country are abundant in innovation as they attract entrepreneurs who are capable of translating it into marketable ideas, products and services (Gittell, Sohl, 2005). Creating these zones of entrepreneurial growth is unique to the United States, as are the underlying processes to support these areas have gone on for decades. As is also the case with the value-based ecosystems that lead to exceptional employment growth over time, the same holds true for new venture creation in these regions. It is also noteworthy that these regions are only sporadically located throughout many other European and Pacific Rim nations (Arbaugh, Camp, Cox, 2005).

Entrepreneurship in the United States is further differentiated from an innovation standpoint by the pro-start-up mentality of the country's best universities. Stanford University's Entrepreneurship Center regularly hosted the nations' top achieving entrepreneurs and seeks their guidance specifically in the area of how to create greater opportunities for students to experience what is required in creating a start-up. As Stanford University has graduated the founders of Google, Yahoo, and many other Silicon Valley start-ups that have grown to become multi-billion dollar companies, the university invests heavily in capturing this knowledge and sharing it with students. It is common to find Sergei Brin and Larry Page giving speeches on how to create entrepreneurial cultures that prize innovation while attaining goals for example. Mr. Brin and Page are the two PhD students who while attending Stanford University came up with the idea for the Google PageRank algorithm. There are also examples of how Jerry yang, completing his PhD studies at Stanford in an overflow trailer on the campus, showed his advisors of how he could index the Internet and Yahoo was born. That is the essence, the catalyst of what makes American entrepreneurialism excellent. The ability to capitalize on investments in infrastructure, continued insistence on the value of learning and knowledge, and then combining the unique and highly creative approaches entrepreneurs have in defining and then tailoring technologies to the unique needs of customers. For Sergei Brin, Larry Page and Jerry Yang, the customers were the literally millions of Internet users around the world today. These remarkable achievements would not have been possible in any other nation by the United States. Nowhere else would the investments in infrastructure, so assiduously applied over time, combined with the strong value our nation has for education and academic achievement through knowledge, be pursued with such determination. In combining those factors and with due credit to the entrepreneur who started these great universities including Leland Stanford, founder of a railroad, none of these innovations or companies would exist. It is then the value-based ecosystems that matter most, and it is thankfully foresightful that American federal and state governments have been cognizant enough of these factors to nurture them. Only through these combining of factors, so unique and so indigenous to the United States, that these regions of the country serve as the nurturers of entrepreneurial growth. In these centers is the future of the nation's economy as well.

Great entrepreneurship is also found in how readily disruptive, even chaotic technologies that redefine basic needs are accepted and then turned into a new market standard. Consider the growth of Apple Computer from literally a breadboard with cables and wires on it to arguably the most innovative company in the high tech sector today. Apple's founders, from the very first day, were on a persona mission, a very passionate one in fact, to completely re-order how education was accomplished in the world. The first Apple computers were designed purely for the elementary school student and the hobbyist. Even in 1977 the founders had a very clear vision of exactly what they wanted to accomplish; their vision is what propelled the company through incredibly difficult times, all endured for the sake of the passionate mission to change how the world used computers (Arbaugh, Camp, Cox, 2005). Arguably Apple would have faced much tougher challenges in other nations, as the United States had a large, relatively easily accessible market for their initial systems and other nations did not. In addition, the vast public school system of the United States provided an excellent test bed for future product designs. Apple found partnerships with customers transformed them into fans; they were able to transform them from being merely someone who had bought a product to someone who had bought into the vision of what Apple stood for. Apple's quick dominance of education (less than five years) and today the quality of their operating systems many consider to be equal to or exceed Microsoft, is a testament to how the American framework of supporting entrepreneurs honors nonconformity and even celebrates it. Too often when studies are done of the entrepreneurial framework within the United States and its effectiveness relative to other nations, the tendency to look at only those linear or compliant approaches to growth are considered (Hessels, Gelderen, Thurik, 2008). Paradoxically the greatest strength of entrepreneurship in the United States is the ability to tolerate such wide variations in how start-ups choose to define themselves and then exceed customer expectations. It is truly a fascinating dynamic of the United States to consider how innovation created by entrepreneurs is transformed into lasting customer- and shareholder value.