Book Review: The Illusions of Entrepreneurship, Scott A. Shane, 2008, Yale University.

Reviewed by Cheryl Kernot

UK social entrepreneurship and social innovation pioneer, (currently CEO of NESTA), Geoff Mulgan recommended this book as a useful and interesting read. I wanted to see whether the same “illusions” might apply equally to social entrepreneurs.

Specifically written for the diverse audience of entrepreneurs, investors and policy makers Shane’s motivation in writing is to challenge the repeated and unhelpful myths surrounding entrepreneurship discourse: how so many  “penniless dropouts become multimillionaires” , how “entrepreneurs are a rare breed” “a kind of genius who is born, not made”. Social entrepreneurship discourse has also often been quick to embrace the notion of the “charismatic hero leader” such as Muhammad Yunus.

Shane also says that the myths 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” have led to (poor) government policy choices in favour of all sorts of concessions, subsidies and exemptions to people who start businesses.  “Any businesses.”

He challenges these myths by compiling and analysing data: “good data”! In fact there are thirty-three pages of notes about the data at the end of the book. 

Chapters cover such topics as: Who becomes an Entrepreneur? How Well Does the Typical Entrepreneur Do? Why Don’t Women Start More Companies? Why is Black Entrepreneurship So Rare?

Some interesting findings include:

  • The U.S. isn’t a very entrepreneurial country; Peruvians and Ugandans are three-and-a-half times as likely as Americans to start their own businesses;
  • The typical start-up isn’t innovative, has no plans to grow, has one employee and generates less than $100,000 in revenue;
  • The typical start-up is capitalised with $25,000, taken primarily from the founder’s savings; (very similar to social enterprise start-ups.) Studies show though that the size of a business’s start-up capital enhances new business survival;
  • The outcomes are worse for businesses started by women and blacks;
  • Knowing your industry/sector matters; working in an industry/sector before starting a business in it will improve your odds of success.

The chapter on what makes some entrepreneurs more successful than others has great applicability to social entrepreneurs if they are to avoid making decisions that actually reduce their chances of success.

Crucial to that success is the importance of financial controls, of focussing activities on a single product service or market when first starting out, and avoiding the folly of competing on price when it might be better to compete on service or quality, or in the case of social enterprises, unique local knowledge and presence.

The book’s conclusions are as challenging as the myths!

Shane argues that rather than believe that we will be better off both as individuals and as a society simply if more people become entrepreneurs, we need to change our basic assumptions: it is naive to believe that all entrepreneurship is good; only a select few entrepreneurs will create the businesses that will take people out of poverty, encourage innovation, create jobs, reduce unemployment and address market failure/competitiveness.

It would be better, he argues, to identify the select few new businesses, out of the multitude of start-ups created each year that are more productive than existing companies and invest in them – as entrepreneurs, as investors, and as a society. I would contend that when we add the measuring of Social Return on Investment to the initial selection criteria we will see more public policy support for social entrepreneurs. He’s not against entrepreneurship; he wants to create better entrepreneurs and public policy through a better understanding of what needs to be done.

Time to challenge the entrenched orthodoxy of not “picking winners!” [Ed]

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