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Replicators,
Innovators, and Bill Gates - by
Vivek Wadhwa on Mar 6, 2010
My last post triggered some interesting debates in the
blogosphere about whether entrepreneurs were a product of
nature or could be nurtured. It’s not black or white. People
are a product of their upbringing and education. Average
humans can achieve extraordinary feats when they really try.
I’ll concede that, like some great athletes, some great
entrepreneurs may have something different about them that
gives them a special advantage (this is a topic that I am
presently researching). But not every entrepreneur needs to
reap the same fortune as Bill Gates or Mark Zuckerberg to
qualify as a success. You can build a good lifestyle
business that pays the bills, or that does good for the
world, and be considered a successful entrepreneur. (And
you’ll probably be happier and gain more respect than most
billionaires do.) Entrepreneurship isn’t all about the IPO.
I hold steadfast to my belief — based on my experience in
building two great technology companies and in mentoring
around 200 entrepreneurs over some years and on what I’ve
learned from my academic research into the background and
motivations of entrepreneurs — that entrepreneurs can be
made. People born into entrepreneurial families may have the
advantage of knowing the ups and downs of business, and, all
else being equal, people from entrepreneurial families are
certainly more likely to become entrepreneurs than others
are. But the skills required to build, manage, and grow a
business can be learned, and this education can level the
playing field. VCs who judge entrepreneurs based on age,
sex, ethnicity, or family background are doing their limited
partners, and society, a great disservice.
There was one criticism of my last post that caused me to do
serious introspection. The question: was Bill Gates’s dad an
entrepreneur? I cited Gates Jr. as an example of an
entrepreneur who didn’t come from an entrepreneurial family.
A number of readers, including Jason Calacanis, pointed, out
that Gates Sr. was a partner in a law firm, and so an
entrepreneur, arguing that my citation was therefore faulty.
I’ve debated and written about this issue before. The
broader question is whether anyone who starts a business,
whether it is a law practice, a computer consulting firm, or
a dry-cleaning store, is an entrepreneur. Management guru
Peter Drucker would have answered with a definitive No. He
wrote, “Not every new small business is entrepreneurial or
represents entrepreneurship… entrepreneurs innovate.
Innovation is the specific instrument of entrepreneurship.”
Drucker didn’t mince words.
When I told this to some of my friends, I heard loud
protests. Murali Bashyam, who started an immigration-law
practice, insisted he was as much an entrepreneur as Bill
Gates and his dad. Murali threatened, “if you decide that
I’m not an entrepreneur, I might decide that the daily
stress of growing and running a business, financial risks
involved, and all the other headaches that come with
creating something out of nothing is just not worth it.
Maybe I’ll close up and go work for someone, where I can
earn a steady and high salary and go home at 5 pm”.
Similarly, Sue Drakeford, who was Miss Nebraska 2001, had
started a production company to host its own pageants and
teach other African American women like her to gain the
confidence and skills to compete in the real world. She
wanted to provide a wholesome alternative to what she called
the “cold-blooded cutthroat world of modeling and beauty
pageants”. But Sue was working full-time at a bank and ran
this business on the side. Was she an entrepreneur? Sue
insisted she was.
After agonizing over this for weeks, I went to my friends at
the Kauffman Foundation, and they referred me to their book
titled “Good Capitalism, Bad Capitalism”. Carl Schramm and
Bob Litan wrote that all who take the risk are
entrepreneurs, but that there are two types of
entrepreneurs: “Replicative entrepreneurs”, who constitute
the vast majority of small businesses (such as restaurants
and dry cleaners), and “innovative entrepreneurs” — the rare
few who bring new products/services to market or who pioneer
new production methods (such as Walmart, eBay, and Dell).
Under the Kauffman definition, Sue would qualify as an
“innovative entrepreneur”, because she is developing new
services and pioneering new methods. In contrast, Murali
would be a “replicative entrepreneur”, because he delivers a
standardized service in a field that charges primarily by
the hour for its time. Murali could well end up running a
huge law firm and be worth many millions, but that doesn’t
make him particularly innovative in his business model.
So Bill Gates Sr. was a “replicative entrepreneur”, and
Gates Jr. was an “innovative entrepreneur” — whom Silicon
Valley calls an “entrepreneur”. TechCrunch founder, Mike
Arrington, who used to be a lawyer for Wilson Sonsini
Goodrich & Rosati, would qualify as an “innovative
entrepreneur”, because he created a new product (a blogging
site) and was a pioneer in the new-media world.
You can bring innovation to “replicative” fields as
Arrington did. Take the example of SunRun. The company
installs solar cells — which is as mundane or “replicative”
a business as you can get. But its CEO, Edward Fenster,
developed a new business model under which his company
installs solar panels on a customer’s house for little to no
upfront cost and only charges for the power that customers
use. SunRun also insures, maintains, repairs, and monitors
the system, and provides a money-back guarantee on the
system’s energy production. This has made solar power
available to the masses at an affordable cost and the
company has become largest residential solar company in the
country, operating in five states, and growing at more than
400% per year.
Another great example I’ve seen of an entrepreneur who has
innovated in a replicative industry is Nand Kishore
Chaudhary. He brought automation, supply-chain
management, and professional business practices to the
mundane process of carpet weaving and distribution in the
desert state of Rajasthan, India. By implementing modern
production practices and ERP technology, he was able to grow
a small business, Jaipur Rugs, that he’d run from his
home into a world-class production and distribution company,
which employed 40,000 workers and generated $21 million in
revenue in 2008. This is in a land where PCs were, until
recently, as scarce as rainwater.
What’s the moral of the story? Don’t listen to the naysayers
who are simply defending their informed views and biases by
telling you that it’s nature or some special DNA that makes
entrepreneurs or leads to entrepreneurial success. Don’t
even be discouraged if you’re in a mundane, replicative
industry. You can learn the skills needed to become a
successful entrepreneur, and you can innovate.
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