Much of [US] society believes that start ups are a magic bullet that will transform depressed economic regions, create a lot of jobs, generate innovation and conduct all sorts of other economic wizardry. The reality according to Scott Shane in the Illusions of Entrepreneurship is much different. Start ups create fewer jobs, and generate a lot less growth than most people think. Only a small sliver of new businesses create the new jobs.
Intervention policies lead people to start marginal businesses, that are likely to fail, have little economic impact and generate little employment. The idea that new firms create more jobs than existing firms is a misconception.
The belief that a typical entrepreneur has special powers or abilities that will lead to the creation of the next Apple, Google, Hewlett Packard, Facebook or Amazon, creating jobs, stimulating economic growth, enhancing innovation and enterprise is a myth.
The typical entrepreneur in the USA is a married man in his forties who attended but did not complete college. He lives in a place like Des Moines or Tampa where he was born and has lived most of his life. His new business is a low tech endeavor like construction or an auto repair shop. An industry in which he has worked for many years.
He is a sole proprietor, a start up financed with $25,000 of savings or a bank loan which he guarantees personally. The typical entrepreneur has no plans to employ lots of people, or to make lots of money. He just wants to earn a living and to support his family.
Shane argues, there is a great need to educate would be entrepreneurs about what makes start ups successful. Entrepreneurs need information and advice on finance, marketing administration and controls. They need to be aware that people who have an education, have experience in the industry and have the desire and objective to make money, will have a much better chance of success.
But Shane also argues that a public policy geared simply to increasing the number of start ups in the year is flawed. A policy biased to builders, plasterers, hair dressers and taxi firms is fundamentally flawed. Shane postulates, there is a need to focus on business opportunities that offer innovation with potential to generate real growth, employment and economic value. Only then will the entrepreneurs deliver the economic task.
The illusions of Entrepreneurship: Scott A Shane Yale University Press 2008. Amazon UK.
Scott A. Shane is A. Malachi Mixon III Professor of Entrepreneurial Studies, Weatherhead School of Management, Case Western Reserve University.
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