Are you innovating or performing?
On this week’s episode of the Smith Sense Podcast, we discuss a fascinating academic research paper that concludes the cottage industry around entrepreneurship is failing us. The paper articulates many of the fears I have about mistakes entrepreneurs might be making in their journeys.
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The rise of the Veblenian entrepreneur
The paper, “Towards an Untrepreneurial Economy?,” starts with an intriguing question: “What is driving the declining quality of innovation-driven entrepreneurship?”
The authors point to the rise of the “Veblenian entrepreneur” — or “performative entrepreneur” as we call it on the show — as the main culprit. These are want-to-be-entrepreneurs who are in it for the wrong reasons; they pursue it as “conspicuous consumption.” They aren’t innovating as much as pursuing a lifestyle and the status that society bestows on entrepreneurs.
The result, according to the papers authors, is essentially where we are today: “an economy which superficially appears innovation-driven and dynamic, but is actually rife with inefficiencies and unable to generate economically meaningful growth through innovation.”
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The theory of the leisure class
The term is named after Thorstein Bunde Veblen, a 19th century American economist and sociologist and outspoken critic of capitalism who coined the concept of conspicuous consumption and conspicuous leisure in his 1899 bookThe Theory of the Leisure Class.
Veblen writes that the businessmen apply themselves in useless activities that contribute neither to the economy nor to the production of useful goods and services required for the functioning of society, while the middle and working classes apply themselves in productive occupations that support society.
Cottage industry that’s failing us
The rise of the leisure class spurned a cottage industry around selling service to want-to-be entrepreneurs that grew to $13 billion in 2014 and has been growing at a steady clip, 12% a year, for decades.
It’s a cottage industry that I’ve participated in — offering entrepreneurs coaching, courses, and camps to improve their skills — and I’ve seen first-hand how much people buy into it.
The research paper’s authors conclude that some innovative entrepreneurs do get value from these services — but the majority of people do not and, in fact, perform worse than if they’d chosen a different path.
Ideology of entrepreneurship
The paper’s authors argue — and I agree — there’s an ideology of entrepreneurship that’s conveyed to people from “thought leaders” (who are often failed entrepreneurs themselves) proclaiming things like “live your best life!” and “failure is good.”
In this culture failure is a badge of honor. Everyone’s heard that 90% of ventures fail, and somehow that helps motivate more people to try. But if you stop to think about it, if 90% of entrepreneur ventures end in ruin — a failure that you don’t come back from — that is not something to celebrate.
The problem with Gary V
Gary Vaynerchuk is the epitome of this performative culture. Don’t get me wrong. He’s an impressive guy in many ways. However, the impression people walk away with is that they need to be grinding all the time like Gary V and that will somehow make them a successful entrepreneur, or at least give them the appearance of one — which is really the point anyway.
This is what we like to call “hustle porn,” and there’s a lot of it out there. People watch how Gary V acts and them mimic that behavior. That’s Veblenian entrepreneurship.
Seeking status
Partially because of the entrepreneurial industry’s success selling the dream and partially because of poor job prospects, people choose the entrepreneurship route to increase their status within their community.
If your job prospects are Starbuck barista or “business owner,” it’s not hard to see which you’d pick if you were primarily motivated to impress your family and friends.
People don’t realize that most entrepreneurs actually make less than they would at an established company, and that being the owner of a business of any notable size gives you much less freedom.
When you’re an employee, you worry about losing your job. When you’re a business owner, you worry about losing 25 people’s jobs (or however many employees you have) and the impact on their families.
If it’s status you’re after, you might be better off gaining valuable experience at an established company and then leveraging that to book your book tour (it’s a popular model followed by authors like Kim Scott, who wrote Radical Candor).
Opportunity cost
When I was in college, I ran a painting franchise with a group of very intelligent and talented people. I remember thinking, “Man, these people are so smart and capable, why are we painting houses? We could be doing something big and exciting where we could make a difference and make a lot of money.”
There’s an opportunity cost to pursuing entrepreneurship, especially if you’re 90% likely to fail.
What’s the alternative
People fail to see how their alternatives can lead to meaningful work — to that big, exciting, rewarding thing that makes lots of money. But you can find them if you look.
When I was just getting started in my career, I sought out apprenticeships — though that’s not what I called them — with people I felt I could learn a lot from. I wasn’t concerned with how much I made or what my exact contributions might be. I wanted opportunities to learn from smart people, build skills, and figure out how I can contribute.
That’s the path I recommend to many people who are young and thinking of starting a business. Go get some experience first. Build relationships. Then find a problem you’re passionate about solving and start a business.
Identity capital
In her book The Defining Decade, Dr. Meg Jay writes about the concept of “identity capital,” the collection of skills, relationships, and professional resources we build up over our lives.
When you’re in your 20s, she writes, you should focus on building your identity capital. People need to know you're capable and trustworthy and you have a sense of where you can have the most impact and where you should focus. Then, you leverage the benefit of that capital in your 30s.
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