Why policymakers must separate programs for entrepreneurship and self-employment
By Daniel Isenberg
Posted: 1 April 2011 – 3:19pm
In the 1970s the economist E. F. Schumacher set the scene for environmental sustainability with Small is Beautiful. But small is not beautiful for entrepreneurs: small is a stigma. Small connotes self-employment and stagnation, which is not only different from entrepreneurship; it is fundamentally its opposite. In the words of Abhi Shah, an award-winning entrepreneur from Ahmedabad: “Think big! Thinking small is a crime!”
Entrepreneurship vs. self-employment. A century ago, with his third-grade education and as a World War 1 veteran, my immigrant grandfather became a wallpaper hanger in Philadelphia. He eventually owned a wallpaper store, but he never imagined becoming a Wal-(Paper)-Mart. He did not respond to or create opportunities to grow; to the contrary, for his children he wanted respectable, salaried jobs. Not self-employment.
Three generations later, my son is working 24×7 to set up a novel nightclub concept. He wants to creatively conquer a new market, and another, and another. He will make a good—maybe great—living, but he will not be satisfied. My grandfather was self-employed in a small business; my son is an entrepreneur.
Entrepreneurs have aspiration. Aspiration is the continental divide between the entrepreneur and the self-employed. We have many terms for entrepreneurs; “high impact,” “high potential,” “high aspiration,” “transformational,” “gazelle,” and “opportunity-driven”. But these terms all refer to more or less the same thing: the people creating these ventures are driven to accomplishment. To them, thinking small is indeed a crime.
Entrepreneurs continually respond to opportunity. In the 1930s two young Saudis, Saleh and Sulaiman Abdul Aziz Al-Rajhi, began exchanging Hajj pilgrims’ foreign currency from outdoor canvas mats. Modest in demeanour, but ambitious in scope, these young brothers won the trust of Muslims looking for a safe, sharia-compliant haven for their cash. It soon turned out that the Al-Rajhi brothers were quick decision-makers with a sharp sense of opportunity, and they used their by-then-substantial cash deposits to invest in various ventures. Ultimately the Al-Rajhi Bank was formed, and today the Al-Rajhi’s are one of the wealthiest non-royal Saudi families, and their eponymous institution is the world’s largest Islamic bank.
Even while operating from their canvas mat, the Al-Rajhi brothers were entrepreneurs, not small-business owners. This distinction is an important one for policy makers, who believe, implicitly or otherwise, that some unspecified percentage of self-employed will naturally transform themselves into entrepreneurs. This is a complex issue, but the best research suggests that this transformation is very rare, a conclusion that is supported by realizing the inherent differences between the two: If my grandfather thinks that self-employment is a fate to be avoided, why would he suddenly develop entrepreneurial aspirations?
Entrepreneurs require different resources. To oversimplify a bit, high aspiration entrepreneurs need customers, risk capital, less red-tape, government non-interference, and global access. They thrive in uncertainty and chaos. The self-employed and small business owners require bank credit and micro-loans, skills training, stricter regulation in many cases, and heavier overall government support. They require predictability and stability.
Some policy leaders are getting the message. Canada has recently commissioned a special policy study for high-potential entrepreneurs. Scottish Enterprise has the following on its home page: “We want the companies we work with to be inspired to raise their sights and ambitions and consider their business from a global perspective. Enterprise Ireland has a program for “high potential start-up companies.” Startup Chile is attracting high aspiration entrepreneurs from all over the world. But even in venture-friendly America, the confusion is deeply embedded in the Small Business Administration, which tries, haltingly and confusingly, to capture both entrepreneurship and self-employment in one big net. This is a mistake, and separate organizations are required.
And every non-US government has its “SME” [small and medium enterprise]policy or program. But these terms simply don’t appeal to entrepreneurs, who see themselves as becoming big by impacting their markets. In the language of SMEs, entrepreneurs are “S”s becoming “M”s and “M”s becoming “L”s. The last thing an entrepreneur wants to do is to remain an “S”. So let’s reorganize government policy to support these ambitious, entrepreneurial engines of economic growth.
Daniel Isenberg is professor of management practice and founding executive director of the Babson College Entrepreneurship Ecosystem Project