Leo D'Angelo Fisher Columnist

Leo covers management and leadership issues, business trends and corporate strategy. He is a former senior business writer at The Bulletin and a former host of The Business Hour on 3AW.

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Entrepreneurs make and shake economy

Published 12 December 2012 15:22, Updated 13 December 2012 06:15

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Entrepreneurs make and shake economy

Thinker: Henry Ford with one of his first prototypes. Photo: Getty Images

It’s one of the world’s oldest clubs. Its membership is eclectic, eccentric and leading edge. Anyone can join but it’s only the remarkable few who enter its pantheon. A breed as old as commerce itself, and some might argue the essence of it, but somehow apart. Brash, vibrant and non-conformist – think Richard Branson – they are the entrepreneurs.

Entrepreneurs are a constant in history but they tend to be seen almost exclusively in a contemporary context. Successful entrepreneurs are a modern media staple and their autobiographies and how-to books regularly make the bestseller lists. They are fully fledged celebrities, not just business people. Carolyn Creswell is a household name.

Focusing on today’s wealth-makers is understandable but it short-changes the many pioneering entrepreneurs who over centuries have challenged the economic status quo and have helped shape today’s economy. They are historical figures but in their day they too enjoyed celebrity.

Englishman Jethro Tull is recognised as the “father of mechanised farming”. In 1701 he invented a horse-drawn mechanical seed drill, which replaced “broadcasting” seeds by hand. He also invented the horse-drawn hoe for clearing weeds, redesigned the plough to its modern form and pioneered soil-cultivation techniques, all of which revolutionised agriculture and dramatically improved farm productivity.

Entrepreneurs are game-changers. Until they challenge conventional wisdom, the old way is entrenched. It seems extraordinary that it was a matter of controversy when Tull advocated the use of horses over oxen for agriculture, in 1731, in the, well, ground-breaking treatise The New Horse Houghing Husbandry.

Etched in history as a founding father of the United States, immortalised in popular culture as the man in a frock coat flying a kite with a key attached in an electrical storm, Benjamin Franklin is also regarded as America’s first entrepreneur – in a country now considered the spiritual home of entrepreneurialism.

Franklin commercialised several of his own inventions – including bifocals, the lightning rod and the Franklin stove – and was a serial entrepreneur long before the expression was coined. He was a printer, newspaper publisher (including a German-language newspaper), franchisor (of his printing business), insurance company founder and property developer.

From his base in Philadelphia, Franklin was possibly the original social entrepreneur as well, starting the nation’s first free subscription library (1731), a volunteer fire department (1736), a public hospital (1751) and the American Philosophical Society (1743) to “cultivate the finer arts and improve the common stock of knowledge”.

Thirteenth century Venetian merchant and traveller Marco Polo is considered by some economic historians as one of the earliest archetypes of the modern entrepreneur because many of his expeditions to establish trade routes in Asia were backed by wealthy investors in return for a share of profit.

Like many of today’s entrepreneurs, Polo wrote a bestselling book about his exploits, The Description of the World. Also in common with some modern day entrepreneurial authors, Polo was accused of embellishing some of his claims about his travels but he insisted: “I have not told half of what I saw.”

Irish banker and economist Richard Cantillon , “the father of economic theory”, is widely credited with developing the first theory of entrepreneurship and its role in the economy in his 1755 work, An Essay on Economic Theory. In it he explains that the entrepreneur buys at a certain price in the present and sells at an uncertain price in the future, thus placing risk and uncertainty at the heart of entrepreneurial activity.

A former lecturer in entrepreneurship at Melbourne’s Swinburne University, Chris Brown , says Cantillon developed “an important and in many ways wholly modern theory of entrepreneurship”, where consumption and demand are the prime drivers of the economy but “it is the entrepreneur who actually moves resources and goods”.

More than a creator of wealth and economic activity, the entrepreneur’s appetite for risk through the centuries has pushed boundaries and opened up new markets. Although economic thinkers since Cantillon have probed the nature and role of entrepreneurialism, it was not until the 1940s and 50s that US business historians saw entrepreneurship as an academic field of study.

The Austrian economics professor who migrated to the US in 1932 and became a celebrated economic thinker at Harvard University, Joseph Schumpeter , wrote the landmark book Capitalism, Socialism and Democracy (1942). In it he wrote about the critical relationship between capitalism and entrepreneurialism.

This was the book that coined the phrase “creative destruction”. Entrepreneurs, he argued, not only innovate new products and services, they also create new organisational structures, systems and processes to bring those products and services to market. “Creative destruction is the essential fact about capitalism,” Schumpeter wrote, and entrepreneurs, by driving change at the enterprise level, improve productivity, create economic growth and enhance standards of living.

Harvard Business School professor of business history Geoffrey Jones, and University of the Pacific professor of entrepreneurship, Dan Wadhwani, explain in their 2006 paper Entrepreneurship and Business History that Schumpeter highlighted the role of “entrepreneurs as agents of historical change ... Schumpeter argued that the essence of entrepreneurial activity lay in the creation of ‘new combinations’ that disrupted the competitive equilibrium of existing markets, products, processes and organisations,” the authors write. “The creation of such new combinations … was a constant source of change within markets, industries and national economies.”

Understanding entrepreneurs as agents of economic and social change creates the common thread that links the disparate activities, personalities and societies of business innovators through the centuries.

American Eli Whitney’s invention of the cotton gin (the name derived from “engine”) in 1792 – his machine automated the separation of cottonseed from raw cotton fibres – revolutionised the cotton industry in the US, making a previously labour-intensive process cheaper and more productive. The invention provided a huge economic boon for the recently independent US and led to a huge increase in cotton farming, which had the unintended consequence of expanding and entrenching slavery in the southern states.

Whitney learnt a valuable lesson that continues to resonate with entrepreneurs 220 years later: A poorly written patent meant his invention was easily replicated by others and he was never to earn the wealth to which he was entitled from the cotton gin.

US inventor Thomas Edison invented the phonograph (his favourite invention) and the carbon telephone transmitter in 1877, the electric light bulb in 1879, an electricity distribution system (he opened a commercial electric station in New York in 1882) and the Kinetograph motion picture camera in 1891 – in all, he successfully filed 1093 patents. As well as being a prolific inventor, he was an unstoppable entrepreneur, creating numerous corporate entities to commercialise his inventions.

It is difficult to counter the oft-made claim that Edison was “more responsible than anyone else for creating the modern world”.

Ford Motor Company founder Henry Ford introduced assembly line production in 1913 to keep up with demand for his popular Model T Ford. In the process, he revolutionised manufacturing and made possible mass production on a previously unimagined scale. From his point of view, the new manufacturing system ensured greater and more consistent output at much less cost.

But the impact of his innovation was profound. As well as giving birth to modern manufacturing and the automotive industry as we know it – even as both find themselves experiencing massive structural change – Ford’s influence in making cheaper cars more widely available changed the face of urban communities.

Personal computer pioneer Michael Dell, who started PC manufacturer Dell in 1984, broke all the rules of retailing by selling direct to his customers rather than through retailers. When Dell started selling its computers over the new-fangled internet in 1996 – achieving a 12.8 per cent share of the global market by 2001 – Michael Dell not only consolidated his innovative, less expensive channel for selling his product but presaged the online retail revolution to follow much later.

Australia has a rich history of innovation and entrepreneurship, which may be said to have begun with European settlement in 1788 (see “A rum deal”). For the isolated convict settlement and earliest free settlers it was a spirit of entrepreneurialism – part opportunistic, sometimes shady but ultimately a matter of survival – that enabled the struggling antipodean colony to take root.

This may explain Australians’ love-hate relationship with entrepreneurs and the emergence of the peculiarly Australian tall-poppy syndrome – that nagging sense that successful entrepreneurs are “not like the rest of us” and play by their own rules, which is mostly true.

Mention “entrepreneur” and people of a certain vintage will think of Alan Bond, Christopher Skase and the hedonism of the swashbuckling 1980s.

Canadian businessman Dean Lindal was an executive with the global Entrepreneurs’ Organisation when he was sent to Australia in 1996 to set up local EO chapters. He was surprised when a Perth businessman said it wasn’t a good time to start EO in Australia.

“Dean, the word entrepreneur has a kind of negative slant here, are you sure this is a good idea?” he says he was told.

Lindal set up chapters in Melbourne, Sydney, Brisbane, Adelaide and Perth and during a recent visit expressed his delight that entrepreneurs are back in favour, noting the success of Ruslan Kogan, Matt Barrie and Ryan Trainor. “This is a great time to be an entrepreneur in Australia,” he said.

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