Ireland: Why not a prize for failed entrepreneur of the year? - Part 3
By Michael Hennigan, Finfacts founder and editor
May 15, 2014 - 4:55 PM

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Enda Kenny (l), taoiseach, at the launch of the competition to find Ireland’s Best Young Entrepreneur, Dublin, May 15, 2014.

Enda Kenny, taoiseach/ prime minister, today launched a new competition to find Ireland’s Best Young Entrepreneur, with a total fund of €2m available to invest in winning businesses and entrepreneurs in every county in the country - - this type of initiative is like something produced by a committee comprised of people in need of vision, tasked with finding new ideas - - in 2010, I had an idea myself: A prize for Failed Irish Entrepreneur of the Year?

Last year I had another rhetorical question: Innovation the business buzzword of the decade? -- it is certainly one of them and in the bullshit stakes the word "entrepreneur" must also be in the super league.

In March 2012, Seth Levine, a Boulder, Colorado-based tech investor, wrote a blog post - - "I'm getting sick of the bullshit" - - on the hype in his industry. However, progress will be made only when tech journalists cease being cheerleaders, like their property counterparts were in the good old days.

In Part 1 of this series we said that it's striking how the tech industry has made the terms 'startup,' 'entrepreneurship' and 'innovation' synonymous with itself in public and policy settings in Ireland and elsewhere. In Part 2 we said that it is claimed in Silicon Valley that failure is no impediment to future success but that surely ignores the human toll on individuals and their families of effort and sacrifice going up in smoke, with nothing but debt and more to show for it.

Imbalance in focus on tech and non-tech entrepreneurship in Ireland & elsewhere - Part 1

Up to 90% of US high tech startups fail; System of failure by design? - Part 2

The Uber app economy and disruptive innovation - Part 4

Irish Jobs & Innovation: What should Ireland do? - Part 5

In the 2010 piece we referred to Professor David Storey of Warwick Business School who had written in the FT that it had become commonplace to suggest that failure is good for entrepreneurs.

He said in the UK, the evidence was that novices are neither more nor less likely to have a business that either grows or survives than experienced founders. In Germany, where much more extensive statistical work has been undertaken, it is clear that those whose business had failed had worse-performing businesses if they restarted than did novices.

Success in business depends heavily on luck and  Prof. Storey said that even in the US, research carried out for more than a decade shows that those states with generous bankruptcy laws were the ones where it was most difficult for individuals to obtain bank finance to start a new business.

The Oxford Dictionary of Quotations 2002 edition in its top 101 sayings of the year, included a remark that President George W. Bush was supposed to have made to Tony Blair, then British prime minister: "The problem with the French is that they have no word for 'entrepreneur'" - - the word had  for long been used mainly in the music industry in the Anglo-Saxon world and its present popularity dates from the pro-business orientation of the Reagan Administration when "entrepreneur" was seen as a more positive word for new heroes of free enterprise, than capitalist. As "entrepreneur' "became a business buzzword,  entrepreneurship education courses also grew.

The word entrepreneur was derived from an old French verb entreprendre (undertake) and Richard Cantillon (1680-1734), the Irish-French economist and author of Essai sur la Nature du Commerce en Général, is believed to be the first to use the word 'entrepreneur' in print.

Jean-Baptiste Say (1767-1832), a businessman who was the first professor of political economy in France, also used  the word (’l'entrepreneur d’industrie’). He had bubble-time economist adherents in Ireland for what is known as Say's law: supply creates its own demand.

Modern entrepreneurship is more associated with Say as he was an entrepreneur himself, an admirer of Adam Smith’s ‘Wealth of Nations’ (1776) and was eager to see the English industrial revolution cross the channel.

He defined the boundaries of entrepreneurship that exist today and Joseph Schumpeter (in 1954), famous for his concept of creative destruction, acknowledged that a major part of his own contribution was to tell the Anglo-Saxon community about the world of the entrepreneur as described in the writings of Jean-Baptiste Say.

Geoffrey Nunberg, the American linguist, has said that "entrepreneur" came into "English as a fancy name for a theatrical promoter -- in French, the word just meant somebody who undertakes something, the same as the Italian 'impresario.'"

Prof Nunberg said: "By the 1980's, 'entrepreneur' was more than ten times as common in newspaper articles as it had been in the 1950's."

Alastair Campbell, Tony Blair's press secretary, had denied that President Bush had made the claimed remark about the French, which was supposed to have related to a discussion on France's lagging economy with Jacques Chirac, the French president.

James Surowiecki in The New Yorker writes that "the fundamental characteristic of entrepreneurs isn’t risk-seeking; it’s self-confidence."

In a 2013 paper, Living Forever: Entrepreneurial Overconfidence at Older Ages, economists at the Erasmus University Rotterdam said:

In summary, we find novel evidence for overconfidence among entrepreneurs in a large sample of the US population. Our method overcomes the econometric endogeneity problems that are typical of field studies on overconfidence. Finally, our findings are consistent with the hypothesis that overconfident individuals are more likely to self-select into entrepreneurship in the population studied."

In an article in March we referred to Bart Clarysse, professor of entrepreneurship, at Imperial College London Business School, who in a public lecture in February 2009, exploded the myths surrounding the economic importance of high-technology startups to the Europe.

People think of the big names like Microsoft, Apple, HP, Intel and Xerox as once being new tech-star-ups. Yet most of these highly successful companies did not develop their own ideas. Typically they took existing technologies, developed by pioneering - - and sometimes financially unviable - - companies. They bought other businesses to help them succeed and appear credible."

The development of PCs, software and the web shows that the big names improved on the work of pioneers.

Carl Schramm, a professor at Syracuse University, who until last year was CEO of the Kauffman Foundation, America's leading entrepreneurship think-tank, wrote in The Wall Street Journal last week: "Entrepreneurship is apparently an occupational category now, yet when it comes to judging the value of what they teach, its practitioners are flying blind."

He said that there were 1,957 full-time professors of entrepreneurship in the US, according to 2014 membership data from the Academy of Management and "the teaching approach, cobbled together from strategic-planning and venture-finance insights, is more prescriptive than objective, telling entrepreneurs what they should do instead of teaching business basics."

Prof Schramm said that there is now a narrative about how a new business should begin. Success, it is taught, hinges on writing a business plan. But most of history's exemplary businesses didn't have a plan when they began.

  • "Most guides to entrepreneurship presume new businesses will need venture capital. Yet venture financing is important to a very small percentage of startups;
  • Everyone knows, the textbooks say, that college-aged students are the progenitors of all great startups. (That may explain why it's an undergraduate course.) In reality, the nation's fastest-growing businesses are started by 40-year-olds;
  • Nearly 75% of new entrepreneurs are over 35, according to a 2012 report on entrepreneurial activity by the Kauffman Foundation. And while Silicon Valley gurus believe a startup must begin in California, the same Kauffman Foundation report showed that in 2012 there were more startups per capita in Montana, Vermont and Nevada than all other states."

He concluded that as in the days before evidence-based medicine, "there are no significant data to confirm that graduates of entrepreneurship programs go on to start successful businesses. It is time for an evidence-based revolution."

That would be a good thing in Ireland and this is where the failed entrepreneur is relevant.

The emphasis is on startups but the real challenge is in growing and scaling up - -  for venture capital-backed young Irish tech firms, the usual route is acquisition by a bigger foreign firm.

The Enterprise Department confirmed to Finfacts in 2012 that longitudinal studies that would track firms through success and failure are not done - -  after 60 years of public supports.

The key issue about age is prior experience of working in a business is likely to be useful when developing a business as an entrepreneur.

The delusional goal for Ireland to become the European Silicon Valley with up to 215,000 net new science and technology jobs added in a decade to vault over the original Silicon Valley was dreamt up by the Innovation Taskforce in 2010.

Besides having a small market or none, the required number of startups would have to be on an unprecedented scale.

Irish Innovation: Startup fever and Ireland's dumb enterprise policy

The Department of Jobs, Enterprise and Innovation told Finfacts last December:

Minister Bruton and the Department of Jobs are unashamedly ambitious for the potential of scientific research in Ireland to support economic growth and job-creation in Ireland. In recent years we have improved our ratings for basic research to the point where we are now very competitive internationally - the challenge now is to achieve greater returns in terms of commercial outcomes and jobs from this research."

So they are "unashamedly ambitious for the potential of scientific research in Ireland" and this is effectively the  main enterprise policy. An inflation adjusted €24bn has been spent in the past decade in this area and all they can cite are citations in journals while patent applications are at a 30-year low.

There has been an acknowledgement that entrepreneurship is at a low level but teaching coding to children is no magic formula.

Report on Irish Entrepreneurship: Misguided over-focus on tech sector

Prof Scott Shane of Case Western University said in 2009 in a paper: 'Why encouraging more people to become entrepreneurs is bad': "Policy makers believe a dangerous myth. They think that startup companies are a magic bullet that will transform depressed economic regions, generate innovation, create jobs, and conduct all sorts of other economic wizardry....This is bad public policy"’

Given the priority that is given in Ireland to public funding high tech startups and scientific research, Irish ministers lack necessary data to make informed decisions and are flying blind.

Irish Venture Capital: Call for pension investments; Government provides 40% of annual funding

Prof Dan Breznitz of the University of Toronto wrote in The Economist last Month:

Innovation and entrepreneurship policies built on simplistic assumptions no longer fit the global reality. The obsession in the West with what I once called the “techno-fetishism of novelty” obscures the most important lesson from Joseph Schumpeter: innovation is not invention. Growth does not happen in the lab, it happens in the markets over a long period of time in a slow process of diffusion, improvement, and recombination. For all Americans to enjoy a prosperity based on America’s innovations, the country needs to realise that economic growth does not happen at the moment of invention. Only an innovation policy aiming to maximise activities throughout the innovation cycle will succeed in capturing economic growth that enhance the welfare of all citizens."

In 2007, Dan Breznitz, then a professor at the Georgia Institute of Technology (the Georgia Tech) said on a visit to Ireland to provide advice to Enterprise Ireland, the State's enterprise agency for indigenous firms in the internationally traded sectors, that Ireland's research infrastructure was too narrow in its focus and may not be sustainable. He said Ireland was not creating enough new businesses, and when new businesses are set up, the financial supports were not there to keep them innovating - - this was before the economic crash! Breznitz feared that Irish research was too narrowly focussed on biotech and the ICT (information, communications and technology industries).

Prof Breznitz said that if a country wants sustained economic growth it has to focus on innovation, not only on the research side but on the commercialisation and the growth of productivity.

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