Has America lost its entrepreneurial edge?

The uncertain economy of the last few years has some wondering if American innovation and ingenuity is in decline, but not Kenneth Harrington and Robert Skandalaris. Harrington, director of the Skandalaris Entrepreneurship Program at the Olin School of Business at Washington University in St. Louis and Skandalaris, founder and Chairman of Noble International Ltd, are collaborating on a book on entrepreneurship and find it alive and well. But in a recent article, they caution that “people, organizations, institutions, and governments that don’t have a strategy to lead in entrepreneurial innovation will be displaced or at serious risk of becoming obsolete.” The Washington University business school launches its 2004 Olin Cup Entrepreneurship Competition this month with special events, speakers, and workshops. Washington University recently received a major grant from the Ewing Marion Kauffman Foundation to expand entrepreneurship education campus-wide. Harrington and Skandalaris are available to comment.

Has America Lost Its Entrepreneurial Edge?

By Robert Skandalaris and Kenneth Harrington

Consider these questions: Have venture-funded failure rates increased? Is investment for start-ups harder to attain? Has the number of people involved in entrepreneurial activity dropped? Is venture capital suffering? Have new company starts declined? The answer to each question is an unequivocal “NO.” Rather, the process of innovation, entrepreneurship, and change is entering a period of dynamic growth, and entrepreneurial activity has stabilized at the level of pre-dot-com euphoria.

Ken Harrington
Ken Harrington

Entrepreneurship has a variety of definitions. In the best sense, an entrepreneur is a champion who sees opportunities and uses limited resources (capital, people, information) to create enormously high value for others (customers, employees, investors). These entrepreneurs frequently serve as the bridge between scientific discovery and commercialization by applying new concepts; however, they also promote defensive and offensive competitive responses that fuel the process of innovation and change. These entrepreneurial individuals are a critical catalyst for economic growth.

Many of the entrepreneurs who failed during the dot-com bust were of a different stripe. They were get-rich-quick participants in a predictable speculative cycle that was similar to other speculative investment bubbles such as the tulip bulb craze, the South Sea Company bubble, and the 1929 stock market crash.

So, why will innovation and entrepreneurship grow? The answer lies in three factors: historical momentum, globalization, and technology multiplier.

Nearly all innovation and change created by mankind has occurred in the last 150 to 200 years. Innovation began in earnest with the inventions and discoveries that spurred the Industrial Revolution in Europe and the United States. With the exception of the printing press developed in 1455, there was little innovation in or before the 1400s. The printing press revolutionized communication, leading to widespread discourse and collaboration around personal freedoms, especially religious choice. Resulting documents include the Bill of Rights (1689), the United States Constitution (1789), and other similar agreements between people and their governments.

The innovative and entrepreneurial cat had been let out of the bag. First, people had the freedom to act, and second, they had the right to retain ownership in their creations and in the wealth that they produced. New capital markets such as Exchange Alley in London in the 1680s allowed capital to flow to individuals and accelerated the pace of change.

It took about 50 years for the newly established rule of law to really impact economic growth; however, by the 1750s the Industrial Revolution was in full swing. Ever since, the innovation and entrepreneurial cycle has continued to accelerate.

Competition, too, has steadily increased. The period of time between the introduction of a new product and the competitive response has gone from 30 years at the beginning of the century to less than five years today. All indications show that this trend will continue to accelerate.

Globalization has increased the number of players in the entrepreneurial game. In his bestseller The Lexus And The Olive Tree, international affairs expert Thomas Friedman stated that, “In 1975 only 8 percent of countries worldwide had liberal, free-market regimes. .By 1997, the number of countries with liberal economic regimes constituted 28 percent.” This shift will continue to spur entrepreneurial activity.

The impact of these new entrepreneurial countries on innovation is evident in patent activity in the United States. Patent filings by foreign entities have increased steadily since 1960 and skyrocketed over the last 30 years. Since the late 1980s, foreign grants have equaled, and in some years even surpassed, U.S. grants. Interestingly, during this same period the U.S. patent grants per million people increased, indicating an increase in innovative growth. Meanwhile, competition has not waned. Rather, more countries and people are “in play” in the entrepreneurship and innovation game. The bottom line: Change is continuing to accelerate on more fronts, and competition is driving everyone to perform at a higher level.

The technology multiplier further increases the rate of innovation and change that spurs entrepreneurship. In just 10 years, technology has allowed resources to be more quickly deployed and redeployed around the world. Technology helps firms to coordinate global activities in real time. It allows competitors to understand and replicate their rivals more quickly. Technology itself has been fertile ground for entrepreneurial activity, also spurring new entrepreneurial opportunities, even in mature industries.

So, despite the three-year blip that caused the enormous dot-com bubble burst (telecom assets are now selling for two cents on the dollar and speculative new-economy Internet companies have all but disappeared) the process of innovation and entrepreneurship will accelerate in the future. The process of creative destruction and renewal will become more real time. Entrepreneurial activity will advance globally, although far from reaching ubiquity, and the process of innovation will grow more competitive as additional countries opt to participate.

The United States is responding accordingly to this new environment; however, with hungry new participants comes increased competition. This rise, as well as advancements in technology and communication, will fuel already accelerating trends. Our message is simple: Hang on. People, organizations, institutions, and governments that don’t have a strategy to lead in entrepreneurial innovation will be displaced or at serious risk of becoming obsolete. As the television chef Emeril says, “Let’s kick it up another notch.”