Leading Stories

ACT LIKE AN ENTREPRENEUR

For large corporations, responding to uncertain times is a high-wire act. David Molian suggests balance can be achieved with an entrepreneurial mindset.

Some years ago a famous consumer goods business commissioned an equally famous management consultancy to review its fitness to compete in new and emerging markets. 

The overwhelming conclusion of the consultants’ report was that its client needed to become more entrepreneurial.  Accordingly, the business set up a working party to assess and report on being more entrepreneurial.  After which, presumably, that was the job done. 
 

A challenge

The irony of this response was not wholly lost on some of the managers with whom I was working at the time.  Yet while it may be easy to mock, this little anecdote underscores an important truth.  Acting entrepreneurially poses a real challenge for large corporations. 

Big businesses cannot function without complex governance, systems, processes and some managerial hierarchy, all of which run counter to the popular conception of the entrepreneurial business.  On the other hand, a business that ossifies into a bureaucracy will almost certainly perish in the unstable environment that characterises today’s economy.  How, then, do you resolve the paradox of being both big and agile?

If it’s so big, why attempt it?

It seems reasonable to question the imperative for big business to be entrepreneurial.   The essence of entrepreneurship is the ability to spot, capture and exploit new and emerging opportunities.  In a stable and predictable business environment this may not be so important and indeed the first three quarters of the 20th century witnessed the seemingly unstoppable rise of big business and decline of small business. 

In the final 25 years there was a marked reversal.  The numbers of small businesses rose and observers talked of an emerging entrepreneurial economy.   It’s no coincidence that from the mid-1970s the world economy experienced a series of shocks, starting with the OPEC oil crises.    Businesses that were planning confidently with ten year horizons were lowering their sights to five.  Today I know of few companies, big or small, who can commit to firm plans beyond three years.  An unstable environment favours an entrepreneurial mindset.  

Different strokes

We should understand that mindset when we contrast the attitude of entrepreneurs to exploiting opportunity and managing risk with the traditional approach of corporations.  When embarking on something new or innovative, corporate managers in the past typically sought to manage risk by owning the asset base and investing heavily up-front.   Ownership ensures control and significant investment gives the business all the firepower it needs.   But this security comes at the expense of flexibility, and you assume the burden of risk.  

Entrepreneurs will look at an emerging opportunity differently.   To exploit the opportunity, the entrepreneur first needs access to the necessary asset base, not ownership – that may or may not come later.   Access frequently means leveraging the assets of others who have spare or surplus capacity.   This carries with it the benefit of a reduced need for up-front investment: the entrepreneur makes a series of staged investments, putting more money in as and when the project moves on the right trajectory.  If it doesn’t, the canny entrepreneur can cut his or her losses without losing everything, and try again another day.    The entrepreneur seeks to maintain flexibility at the expense of security, and to share the risk wherever possible.

Attitude to risk is one dimension of difference.  A second is the default role of the corporate manager compared with that of the entrepreneur.   A corporate manager is essentially a steward, entrusted with a set of assets and expected to achieve a certain rate of return on the assets.   The entrepreneur is by nature a promoter, who looks to achieve a return calculated in proportion to the risk involved.  The metrics of success are fundamentally different.   

And a third important difference lies in the fruits of success.    The corporate manager who does well ascends the hierarchy and enjoys the rewards of job security, status, salary increases and various perks according to the corporate rule-book.   The entrepreneur who makes it big can do whatever she wants with the cash.

So, do you want your business to be more entrepreneurial?

If you lead a large business and have read this far, I hope this piece has confirmed the value of entrepreneurial approaches and raised questions about how to introduce these into the business.

My work as educator and consultant has been across both large and small businesses and I would offer the following pointers to businesses who feel the need to be more entrepreneurial:

• Embed the idea of ‘bounded slack’.   It’s not a very elegant term, but it’s a useful way of thinking about the way you use your resources, human and other.  If all your resources are used to the maximum in delivering the firm’s strategy, there is no slack in the system to respond to and capture new and emerging opportunity.   

If there is too much slack in the system, then clearly there are inefficiencies that need to be driven out.  3M is well-known for addressing the issue by formally allocating an amount of time during which staff can pursue their own pet projects, in the expectation that new and profitable business will at some point result.  Each organisation needs to find their own balance, but without some spare capacity, the organisation will simply crowd out the ability to respond entrepreneurially.

• Use the right metrics.  There’s no better way to kill a promising entrepreneurial project in a big company than by applying an inappropriate set of measures.   Most often these are financial.  Rates of return and timescales of new ventures are invariably different from those that apply to the core business.  Use the wrong metrics at the outset and the project is almost guaranteed to fail [a point not lost on experienced corporate politicians].

• Don’t punish risk-taking and do reward success.  Doing something new invariably involves a new element of risk, and some trial and error.   If ‘honest’ failure is seen to be punished and stigmatised, people will soon get the message.  Everyone will retreat to the safety zone of doing what they’ve always done, but the organisation as a whole is likely to be the poorer.  

Likewise, employees who have the courage to take on a new kind of risk  should be properly rewarded for doing so, and this may challenge corporate compensation norms.   Some of the most successful entrepreneurs I know are disillusioned ex-corporate executives.  The Bentleys and Ferraris they now drive would never have been tolerated in the executive car park – but they look suitably impressive parked outside their office!

To make the contrast, I have presented the entrepreneur and the corporation as though they were polar opposites.  The reality is not so black and white, but a spectrum. Many large corporations have succeeded in maintaining and fostering an entrepreneurial ethos.   They’re doing what it takes to survive.

David Molian is Director of the Business Growth & Development Programme - BGP, the UK's largest programme for ambitious entrepreneurs. He has been involved with entrepreneurship education at Cranfield since 1998, mentoring numerous fast-growth businesses. With Professor Andrew Burke, David is joint director of the Coutts Private Banking Academy Entrepreneurs Programme.

David trained in consumer goods advertising and has been personally involved in the founding and sale of three businesses. He has served on the faculty of Imperial College and, as visiting faculty, at INSEAD and London Business School. David has published extensively on issues involved in marketing and business start-ups, and is a prolific author of cases. He was educated at the universities of Oxford and Aix-en-Provence, and holds an MBA from Cranfield School of Management. You can contact David at d.molian@cranfield.ac.uk.