Invisible Capital: How Unseen Forces Shape Entrepreneurial Opportunity - Brossura

Rabb, Chris

Brossura

ISBN 10: 1605093076 ISBN 13: 9781605093079

Casa editrice: Berrett-Koehler Publishers, 2010

Riassunto

Nearly seven in ten Americans believe the American dream will be harder for their children to achieve than for themselves. Yet the myths around rugged individualism, meritocracy, and rags-to-riches upward mobility stubbornly persist. As “pro-entrepreneurship” as the United States seems, most Americans aren’t very knowledgeable about how business really works. Millions of newly minted business owners don’t know the importance—or even existence—of invisible capital.

Invisible capital is a complex set of factors—our skills, knowledge, networks, resources, and experiences—that can mean the difference between success and failure. Chris Rabb details how people can identify, grow, and leverage their invisible capital and explains why starting a business with deep community roots increases the chance of success.

Understanding invisible capital will enable more Americans to be better prepared to pursue entrepreneurship and level the playing field—because hard work, a great idea, and a good attitude simply aren’t enough.

Su questo libro

Informazioni sull?autore

Chris Rabb is a writer, consultant, and speaker on the intersection of entrepreneurship, media, civic engagement, and social identity. He is a visiting researcher at the Woodrow Wilson School of Public and International Affairs at Princeton University.

Estratto. © Ristampato con autorizzazione. Tutti i diritti riservati.

Introduction

We Americans today dream a very powerful and exciting dream. In this dream, a young man with a good attitude, a great idea, and a willingness to work hard starts a little business. That business grows and grows until the still-young founder is able to leave the day-to-day operations to his paid staff while he enjoys the good life: big mansions, Caribbean beachside villas, luxury cars, and beautiful companions. We call this story a “dream” because we know in our guts that it’s not real. Very few entrepreneurs will create businesses that are profitable, let alone businesses that will be able to hire employees. Most businesses have no employees, and most of them will never have employees. Many businesses are “side hustles,” glorified hobbies that will never grow. Just over one in four businesses actually brings in enough revenue to hire paid staff,1 which explains why the average number of employees per U.S. firm—with or without a payroll—is just four!2 Just 2 percent of all businesses have employees, with large corporations being overrepresented as private employers of our nation’s massive workforce.

Even among those businesses that do hire employees, only about one in ten hire twenty or more workers. And the average employee count per “employer-firm”? Around twenty.

Depending on what survey you read, at least half of all businesses are home based, and over 70 percent are sole proprietorships. Most of these business owners are working hard every day, often seven days a week. They are their business. Or, to put it another way, they are not out driving around in their Ferraris, as the late-night infomercials would have us believe.

We Don’t Need More Entrepreneurs, We Need Better Entrepreneurs

Too often our media and politicians divide our economic world into “big business” and “small business.” In our culture, we tend to think that the dividing line is drawn between massive businesses like Citicorp or General Motors and little “mom and pop” businesses. The Small Business Administration (SBA), however, generally defines small businesses as any U.S. “nonfarm, for-profit” firm with fewer than 500 employees.3 That means that TiVo, until recently, was a small business, since it fell below this arbitrary employee threshold.

When you close your eyes and think of a small business, does TiVo come to mind? Not likely, yet the company whose name has become an indispensable verb in millions of homes across the country was until recently a “small business” when applying the most generic SBA standard of proof. In fact, by this definition, 99 percent of all businesses in America are technically small businesses. The definition is so large as to be pointless. The real line of demarcation shouldn’t distinguish between big and small, but between those that are sustainable and produce a broad net impact on our society and those that do not. After all, we may operate in an economy composed of markets, but we live in a society made up of communities.

This book is about building those real businesses, businesses that will grow to hire employees but may never have more than twenty paid staff. What matters about these businesses is that they become sustainable and bolster local economies and the communities they operate in.

When pundits say that we need new businesses to create jobs, they are rarely telling the whole story. Creating new businesses is a good idea, but the jobs they create have been historically fleeting and contribute to “job churn”—that all-too-cyclical phenomenon in the workforce where our economy sheds jobs as quickly as it creates them. And the evidence shows that what really creates jobs that last is investing in mature businesses—firms whose management has found ways to keep them afloat—if not thriving—for over twenty-five years.4 That point is profoundly unsexy, I know. But that doesn’t make it any less true. It is equally true, though unpopular to state, that our nation doesn’t need more entrepreneurs: we simply need better-prepared entrepreneurs.

Figure 1
Employment by Firm Size

images

What those of us who care about helping entrepreneurs must do is teach them not just how to start a business, but how to start a business that will be sustainable. It’s sustainable businesses that help create broad value beyond the return to their own shareholders and consumer base and create good jobs that last beyond a quarterly job report from the Department of Labor, or longer than an election cycle.

We don’t often dream about being a mom-and-pop outfit, but these small-scale, community-centered businesses are as key to the sustained vitality of our local economies as are the multinational corporations whose tentacles reach into virtually every neighborhood across the fruited plain.

Many entrepreneurs who have a good attitude, a great idea, and a willingness to work diligently will build businesses that do not survive long. Most may never get beyond the incubation stage, and therefore never generate enough revenues to allow the founders to leave their day jobs, let alone hire employees. Of the millions of businesses that exist in the U.S., most do just that: exist. They neither expand nor contract; they stagnate.

Certainly, I recommend having and maintaining a constructive outlook based on reality. I daresay a good attitude, a great idea, and a willingness to work hard are important things to have, particularly if the entrepreneurial road you have taken is a lonely and a daunting one. That said, a good attitude has not been proven to cause business success. And when one’s optimism is based on wishful thinking that denies the unavoidable negativity entrepreneurs must repeatedly confront, such “positivity” is not only of dubious value, it is noticeably absent from the top predictors of entrepreneurial viability, as is revealed in chapter 4.

Rosalene Glickman makes this point well in her counterintuitive but compelling argument in her book Optimal Thinking:

Many positive thinkers believe that their dreams will be realized by a magical, divine process that is triggered by the intensity of their hopes, wishes, and faith. They approach life with a false sense of security, and are ill prepared for negative consequences. Their positive thinking is often no more than wishful thinking and can be extremely dangerous.

[Instead] acknowledge and respect negativity as an authentic expression of reality. When we notice ourselves finding fault and worrying, we accept our negative viewpoints, seek to understand them, and immediately ask the most constructive questions in order to find the best solution.5

By understanding invisible capital, how it works, and how best to leverage it, we may very well have to accept the inherent negativity in a system that has produced and distributed it so unequally. However, we can choose to be “positive” and ignorant, or realistic and solutions oriented with regard to improving entrepreneurial opportunity for ourselves and others despite the very long odds detailed in this book.

Some research suggests that certain individuals pursuing different forms of entrepreneurship exhibit a particular personality trait that includes a strong “internal locus of control.” In other words, some entrepreneurs believe that much of what positively impacts business outcomes for their new venture is well within their own power to influence. However, while there may be a significant link between entrepreneurs who think this way and their likelihood of starting a new venture, there appears to be no meaningful correlation between the prevalence of this attitude among start-ups and the ultimate viability of those start-ups.

Despite ample research debunking the singular value of mind-set on business viability, whole cottage industries have been created to contradict this evidence in order to better market “secrets to business success” supported by neither research nor reality. (This unsavory phenomenon will be explored in chapter 4 as well.)

In defiance of the long odds of success in business, every year roughly 2 million start-up ventures are founded in the U.S.—slightly fewer than the number of marriages. Generally, most marriages fare better than most businesses. And even in light of the sorry state of matrimony these days, marriages still last longer than businesses.

Those who have not prospered in business—or, as is the case for most would-be entrepreneurs, those who never fully made it out of the starting gate—are not necessarily the people who lacked the psychological resolve, the creativity, or the “sweat equity” (that is, the work hours invested in the venture). They are often the individuals who lacked what I have coined “invisible capital.”

What Is Invisible Capital?

If capital is that form of wealth that when exchanged for a specific purpose produces more wealth,6 then invisible capital is the collection of largely intangible assets that improve the probability that your venture will grow and thrive.

Invisible capital is the toolkit of our skills, knowledge, language, networks, and experiences, along with the set of assets we were born with: our race and gender, our family’s wealth and status, the type of community in which we were raised, and the education we had as children. Some of these assets are fixed—we cannot change who our parents are. Others are in our power to modify. What makes all of them “invisible” is that our society does not acknowledge that entrepreneurial opportunities—and thus entrepreneurial outcomes—are greatly influenced by these assets.

Some of the assets in our invisible capital portfolio are quantifiable, such as work experience and the concrete skills, knowledge, and relationships that come from that job history. For example, we know from the 2008 Kauffman Firm Survey that the businesses that lasted the longest—up to 12 percent longer than their counterparts—were the ones run by people who had started two to three prior businesses.7

Entrepreneurs who have worked in family-owned businesses have an even better chance of success. Those who have wealth or meaningful access to it—through family or other networks—have a leg up, as do those who have managed to obtain a college degree. Choice of industry matters, as do race and gender, though perhaps not in the way we might assume—being a man may prove a disadvantage if you want to start a day care center.

Jocelyn’s parents run a laundry, where she helped out as a child. In college, she created a venture doing laundry for other students. After college, she worked at a bank. When a friend wanted help setting up a dog-grooming business, she asked Jocelyn to be a partner. Jocelyn invested her small savings and helped her friend get a bank loan. Once the business was launched, her friend bought out Jocelyn’s share. With the money, Jocelyn decided to leave her banking job for good and pursue her real passion: flower design. She set up her own business, serving weddings, special events, and flower shops that needed expert advice. Her business now supports Jocelyn and an assistant.

Jocelyn had invisible capital. She was able to use her experience with the family business to set up her own laundry business in college. She then used her college degree to get a job in banking, which helped her learn more about getting loans and also allowed her to save up a little nest egg. She used her newfound knowledge of banking, and her nest egg, to help launch the dog-grooming business, and then used the money she made from that to launch her own successful business. Jocelyn worked hard, but she also had the advantage of invisible capital—some of which she inherited at birth and some of which she acquired through the choices she made. It didn’t matter that Jocelyn didn’t even know what invisible capital was or how it worked to her advantage.

Invisible capital is critical to entrepreneurial success. How many people are stopped in their pursuit of business success just because they have no idea how to apply for a loan? If no one in your family or in your circle of friends has ever applied for a business loan, you may not know that banks offer them, you may not know how to distinguish a good rate from a bad one, and you may not know how to create the kinds of financial statements bankers like to see. There is a whole set of tools that go into the toolkit of getting a bank loan that are readily available to some people—and absolutely invisible to others.

Invisible Capital Shifts the Entrepreneurial Paradigm

It would be nice if all an entrepreneur needed to succeed were to get those missing tools. I’d love to be able to say, “Buy this book, and I will give you all the elements you need for success!” But this book is not about handing you the proverbial keys to the secret kingdom of entrepreneurial fabulousness. Instead, it’s about changing our mindset about entrepreneurship—and learning what makes entrepreneurs more (or less) viable in this often high-stakes pursuit.

It’s a paradigm shift from making a shallow call for increased investment in entrepreneurs and innovation to calling for innovative investment in comprehensive entrepreneurial literacy, and for building a toolkit that fosters broad opportunity for sustainable entrepreneurship toward shared prosperity.

President John F. Kennedy didn’t lay out a detailed plan for exactly how we should send a man to the moon and return him safely back to Earth. Instead, he simply but powerfully extolled the virtues of—and commitment to—doing it because it was well within our collective ability and would yield great results if done in an aggressive, highly collaborative, and timely fashion. In a speech made to a joint session of Congress on May 25, 1961, President Kennedy proclaimed:

I believe we possess all the resources and talents necessary. But the facts of the matter are that we have never made the national decisions or marshaled the national resources required for such leadership. We have never specified long-range goals on an urgent time schedule, or managed our resources and our time so as to insure their fulfillment.

Let it be clear, . . . I am asking the Congress and the country to accept a firm commitment to a new course of action, a course which will last for many years and carry very heavy costs. . . . If we are to go only halfway, or reduce our sights in the face of difficulty, in my judgment it would be better not to go at all.

. . . It is a most important decision that we make as a nation.

This decision demands a major national commitment of scientific and technical manpower . . ., and the possibility of their diversion from other important activities where they are already thinly spread. It means a degree of dedication, organization and discipline which have not always characterized our research and development efforts.

. . . New objectives and new money cannot solve these problems. They could, in fact, aggravate them further—unless every scientist, every engineer, every serviceman, every technician, contractor, and civil servant gives his personal pledge that this nation will move forward, with the full speed of freedom, in the exciting adventure of space.8

Until that moment, most Americans believed that the stars were the realm of heaven, not of humankind. JFK changed all of that with this one bold and visionary speech to a restless nation desperately wanting to spread its wings and fulfill its promise in a fast-changing world. Kennedy’s vision in pursuit of space travel was a paradigm shift of the highest order. It was an otherworldly goal for which we had little point of reference. A half-century later, we have not yet committed to taking such a bold step in a far more earthly and seemingly familiar endeavor of no less consequence than extraterrestrial exploration: entrepreneurship.

We are mired in an ignorance cloaked in a confident, yet unhealthy, view of material success that with each passing generation betrays any collective notion of equality of opportunity, social equity, and shared prosperity—at a time when our most vulnerable communities are in greatest crisis and our middle class is shrinking and increasingly beleaguered. In fact, according to Brandeis University’s Institute on Assets and Social Policy (IASP), the wealth gap between White Americans and African Americans more than quadrupled in the twenty-three years from 1984 to 2007.9

According to acclaimed wealth guru Edward Wolff,

Most people think of family income as a measure of well-being, but family wealth is also a source of well-being, independent of the direct income it provides. There are both narrowly economic and broader reasons for the importance of wealth. Some assets, particularly owner-occupied housing, provide services directly to the owner. This is also true for consumer durables, such as automobiles. Such assets can substitute for financial income in satisfying economic needs.

. . . More important, perhaps, than its role as a source of income is the security that wealth brings to its owners, who know that their consumption can be sustained even if income fluctuates. Most assets can be sold for cash or used as collateral for loans, thus providing for unanticipated consumption needs. In times of economic stress, occasioned by such crises as unemployment, sickness, or family breakup, wealth is an important cushion. The very knowledge that wealth is at hand is a source of comfort for many families.10

This book seeks to raise the value of increased knowledge and insight around the modern entrepreneurial landscape and the forces that shape it. It is as much about addressing the cultural phenomenon of American entrepreneurship as it is a primer for how to improve one’s viability in this perplexing and complex endeavor. While this book can help new and prospective entrepreneurs, its value extends far beyond practitioners to engage the far larger audience of supporters and advocates of entrepreneurship who see in its pursuit economic and social opportunities they themselves may never create, yet are no less stakeholders in helping facilitate.

Many of the things that can build our invisible capital are neither surprising nor unattainable. In fact, some of the things you may read about here are efforts you have already made (or suggested to others) without previously understanding the specific dynamics of invisible capital as it influences entrepreneurial viability.

In certain circumstances, we can help entrepreneurs gain skills and knowledge they did not have before. Would-be entrepreneurs can be taught to know what EBITDA stands for,11 how to dress to meet with a loan officer, and how to act at a cocktail party. You can pursue more formal training, increase your digital literacy, and seek out mentors who already are in the field you aspire to join. In this book, I discuss some of the skills that can be taught and which resources can be accessed. I talk about how you can identify what knowledge you lack and how you can build your personal networks.

Figure 2
Percentage of Middle-Class Households at High Risk of Financial Insecurity, by Category of Risk

images

However, there are sets of assets that cannot be acquired—we cannot change our race or gender, our native language, our families, or the communities in which we were raised. Nor should we. Certainly, whiteness and maleness are undeniable assets in our culture—and that’s one reason that only about 29 percent of all businesses are female owned, and that Blacks and Latinos own roughly 7 percent and 8 percent of all businesses, respectively.12 And it remains the case that there are male-oriented and female-oriented business pursuits (auto repair versus day care, say). However, invisible capital is not just a proxy for racism, sexism, classism, or heterosexism despite their enduring impact on our society, our democracy, and our economy.

People who are on the receiving end of these “isms” are not powerless, nor are they devoid of invisible capital. The playing field is not level, but each of us can do something to help level it, using the toolkit of our own skills, knowledge, networks, and experiences.

Invisible Capital: A Zero-Sum Game

Invisible capital is a zero-sum game. We can “zero” out the unearned advantages others have by understanding what advantages we ourselves possess. We can learn to play the cards we have been dealt—whether we are White, Latina, or Chinese American, male or female—to develop our own entrepreneurial opportunities. We can level the playing field as entrepreneurs when we understand that invisible capital exists, when we learn what kinds of invisible capital we already have, and when we discover how to use it.

Assuming that you did not grow up in a bubble, you have a network of connections, a family or community that knows you, a set of experiences and skills you bring to the table. You may have a personal connection who would prove critical to setting up your business—but if you don’t know how to network, if you don’t understand what that person could offer, you can’t take advantage of the connection. Understanding what you have—and what you lack—is the key to entrepreneurial opportunity and entrepreneurial success.

Invisible Capital Creates Entrepreneurial Opportunity

Entrepreneurs who succeed leverage invisible capital to create opportunity. Every business, no matter how small, relies on a set of stake-holders who supply start-up capital, skills, and knowledge. Businesses that survive more than five years are not built by just one person, but by a team of people.

Entrepreneurs tend to bring into their projects people who look like themselves, have the same class status, and have the same type of invisible capital. If you happen to be a high-status, wealthy, college-educated man who has experience in a family business, your tendency to bring others like you to your team will probably be an asset. You have the kind of invisible capital that will instantly create opportunities for you.

Edward comes from a well-to-do family. His parents are doctors, but his uncle runs a small manufacturing business where Edward worked every summer. Edward went to the University of Illinois at Urbana-Champaign, where he joined a fraternity. After he graduated with a degree in mechanical engineering, he developed a new type of refrigerator latch. His uncle helped him manufacture a sample part, and he was able to raise $500,000 in start-up funds from his frat buddies. Edward’s business was positioned to take off.

Edward did not need to understand his invisible capital—for him, the invisibility of his capital made his trajectory seem effortless. When Edward needed to take the next step on his entrepreneurial journey, opportunities appeared. Most people who want to manufacture a part would have a very hard time even figuring out whom to call first. Most people who need to raise $500,000 would not be able to raise that money by making fifteen phone calls. That is what I mean by the playing field not being level.

Disparate outcomes often suggest disparate opportunities.

Carlos comes from a poor family. His first language was Spanish, and his education was poor. He basically had to teach himself English by watching English-language TV. He worked his way through two years of community college, took two years off to work at Radio Shack to save up some money, then was able to get a BA in electrical engineering at the state university. While working at Radio Shack Carlos got an idea for an extension cord that would work better with new digital devices. He has made a prototype himself, but he doesn’t know what his next step would be. Now working as the quality control engineer at the local electric company, Carlos has decided to focus on paying off his debts. He never becomes an entrepreneur.

Carlos has far fewer opportunities than Edward. He has almost none of the invisible capital he needs for the kind of enterprise he imagines. What’s more, Carlos does not know what he lacks. Feeling as if he has hit a brick wall, Carlos gives up on his dream.

Most of us are like Carlos. Our playing field is not level. There’s an old axiom that says, “Luck is when preparation meets opportunity.” Some people come well prepared. The rest of us need to acquire the skills, knowledge, resources, and networks we will need to take advantage of the opportunities that come our way.

Not everyone has the willpower to be an entrepreneur. We know that. What we don’t always recognize is that even if someone has the drive and the will to be an entrepreneur, their lack of invisible capital might prove an impossible barrier. Entrepreneurial success depends upon learning to leverage and develop invisible capital to create opportunity.

Entrepreneurial Success Arises from Opportunity

As an entrepreneur myself, as the director of a business incubator, and as a new-venture advisor, I have had the pleasure of teaching entrepreneurs how to access their invisible capital and create opportunity.

Have the people I worked with achieved the American Dream? Have they been able to build companies with hundreds of employees, leaving themselves the leisure to cruise around the world? No. That’s because, for 99 percent of entrepreneurs, the American Dream never comes true. It’s more likely, in fact, that the American Dream has actually prevented many people from going into business because it sets the bar so intolerably high.

Millions of Americans dream about going into business, but most Americans, like Carlos, don’t start up their enterprises. They don’t incorporate, don’t acquire a federal tax identification number, don’t start generating income. They have an idea, they may even have enough invisible capital to develop that idea into an opportunity, but they can’t imagine that they will be able to achieve multimillionaire success. I believe in dreaming big, but believing that the only measure of success is becoming Donald Trump is going to be a barrier to your personal success.

Even business schools don’t use the Trump model of success. The traditional business school definition of business success is whether a company has revenue, makes a recurring profit, has a highly productive and growing workforce, and operates profitably long enough to satisfy its stockholders’ financial interest (read: maximize shareholder value). For most business schools, success equals viability. More to the point, if your company can make enough money to stay in business and return a profit in sustainable fashion, it’s a success.

Implicitly, our government’s standard for business success skews toward growth over profits because growth is often a proxy for economic prosperity and often correlates highly with low unemployment. In other words, growth equals job creation. And jobs equal happy politicians. So, by this lower standard, new ventures can be deemed successful simply by the fact that they exist and are at least a nominal representation of economic growth. If they hire one or two employees—be they full-time or part-time workers (with or without employee benefits)—it’s worthy of celebration.

Suppose you run a day care center that employs yourself and one child care worker, generates modest revenue, and lasts several years. Even if your venture has never made a profit, you’ve hit three of the four criteria used to measure narrowly defined success. If you run a small construction firm that employs five to ten part-time day laborers, brings in money, and makes a small profit, even if your company is just a year old and cash flow is tight, you are also well within the realm of “success.”

Support a payroll of just two people, and you’ve already beaten the odds—since only one out of four businesses have paid employees (including the “owner”).13 Employ twenty workers and you’ve made it into that rarefied top 3 percent of businesses with payrolls!14

Every entrepreneur wants to beat the odds and create a viable business. But the American Dream tells us that viability isn’t enough—we also need to acquire wealth to be successful. The American Dream tells us that the odds we need to beat are not four to one (the number of businesses with employees), but four hundred to one (the number of businesses that create real wealth for their owners).

Are those the odds you want to book? Is that your idea of success? Any entrepreneur about to embark on what is going to be the hardest work they have ever done in their lives should first ask, How do I measure success? What does success mean for me?

Dettagli dell'edizione

• Editore: Berrett-Koehler Publishers
• Data di pubblicazione: 2010
• Lingua: Inglese
• ISBN 10: 1605093076
• ISBN 13: 9781605093079
• Rilegatura: Copertina flessibile
• Numero di pagine: 192
• Contatto del produttore: non disponibile
• Persona responsabile: EUComply OÜ, GPSR Europäische Union; hello@eucompliancepartner.com; ; Pärnu mnt 139b-14; Tallinn; 11317; Estonia