Cycles of Entrepreneurship

I was at an entrepreneurship workshop conducted by Peter B. Zaboji. Peter was a professor at Insead and also a corporate restructuring expert. He turned around a loss-making company with 10,000 people taking Tenovis to management case books. Peter’s aim was to implant the entrepreneurship fire in his audience and assist entrepreneurs with a road map towards private equity. Peter came with an elite list of speakers. Piroska Zoli (a silicon entrepreneur) and Imre Hild (a financial innovator from Hungary) were two of the speakers.
Ideas and cases
Coming from an economic background I could relate more to Imre’s idea. He found an opportunity selling LARE (Life Annuity for Real Estate) to a selected Hungarian audience. LARE is part of OTP (Hungarian Bank). Imre saw the opportunity, a need for a financial instrument for war widows, who had no one to hand over their real estate assets and hence the need to commoditize it in their life. For a fixed annuity, the widows would sell their land to the bank. The idea pushed Imre in the list of successful financial innovators for the region.
Peter consistently emphasized on looking at the glass half full rather than the half empty highlighting the marketing genius of Dietrich Mateschitz, an Austrian entrepreneur. During his visit to Thailand in 1982 he discovered that Krating Daeng (a local drink) that helped to cure his jet lag.  Red Bull was born.
Apart from the ability to eye an opportunity, bias for action, overcoming the fear of failure, one of the ideas which were clearly quantified by Zoli as a means to create value was that of creative destruction. He talked about small startups (economic value generators) destroying conventional marketplace, destroying inefficiency, causing innovation and hence creating value. Creating destruction is at the heart of human innovation. Creating a substitute destroys the conventional demand for the product and recreates the market place. So the question to be asked is what kind of markets do you want to destroy or disrupt today? Of course some of the today’s institutions might be accused of self-destruction, but that’s another story.
Cycles of creative destruction
Entrepreneurism like many other aspects of nature and markets is rarely linked with cyclicality. The conference missed time totally. Creative destruction, the idea was introduced as early as 1913 by Werner Sombart. His formulation of the concept was influenced by Friedrich Nietzsche, who was influenced by Eastern mysticism, specifically the image of the Hindu god Shiva, who is presented in the paradoxical aspect of simultaneous destroyer and creator.
It might look strange but what are we speaking about here, a cycle of innovation. An entrepreneur eyes an opportunity, creates and markets a product, demand leads to a market place, market place becomes bigger, competitors come in, margins become thin, organization becomes large from small, it loses nimbleness. This is when startups start chewing at the large organizations flanks. The cycle of entrepreneurship starts all over again.
Creating a new market place is what entrepreneurship is about.  And since we don’t have access to alien spaces, the new market will always have to be created from the existing market so an entrepreneur has to destroy somebody’s market to create his space there. Capitalism was always a zero sum game. Theodore Modis’s S curve talks about how society is mathematically oriented to find replacements and substitutes. From horses to coal to oil to natural gas, to hydrogen, the society keeps finding new sources for powering the societal needs.
Stock Markets, exponentiality, and entrepreneurs
Entrepreneurship talks about company life cycle and human life cycle, but not about time cycles or performance cycles. Entrepreneurship is also about lasting, surviving an economic cycle. No wonder they say tough time does not last tough entrepreneurs do. We talk about networking effect in everything from telephone usage in minutes and critical mass, but not about the exponential nature of markets and consumption a key aspect for any business. We talk about how outperformance is visible in a sector downturn, but not about cycles of performance.
Why are stock markets not entrepreneurial when private equity is also about taking the startup to IPO stage? We talk about the psychology of the entrepreneurs, but not about investment psychology. How different is it? Entrepreneurs today must know basics of economics, finance, and behavioral finance. And now that behavioralists proved that humans have a distorted risk – return equation, should entrepreneurs (who are humans too) not take note that it is not just about the eye for opportunity, but more about when to and when not to take risk? How can entrepreneurs be about everything else but not timing the risk?
Conclusion
Performance cycles we have been speaking about are not only for a year or two but also for larger time frames. To understand emerging areas and entrepreneur needs to know whether we are in a commodity up cycle or down cycle? Where are we on smaller 3.3 year Joseph Kitchin cycle and larger 30-year cycle Brian Berry cycle? How will water shortages change us as a society? Will that world be different from the web 2.0 world we know today? Are we in times of rising prosperity or falling prosperity? Can credit cycles help us understand consumption? Yes. Rising credit cycles are about increasing consumption and vice versa. A great innovation can last a generation, but, unfortunately, an entrepreneur has just a lifetime.