Nathan Furr, Jul. 8 2011 – 10:30 am
Does it seem strange to suggest that business schools struggle to teach entrepreneurship? Many business schools today have entrepreneurship programs that are growing every year. So how can I claim that business schools struggle to teach entrepreneurship? Take a peek back at history and you will see why I can make this claim and what it means for how we teach entrepreneurship.
Do You Know Where Business Schools Come From?
Just for fun, ask yourself, when were the first large businesses formed? When was the first business school founded? Why was it founded? Although it may seem strange today, the world economy was not always dominated by large corporations. In fact, large corporations didn’t even exist until the 1600s when the East India Trading company was chartered. Other than this large firm, the rest of the economy was composed mostly of small, local businesses (usually no larger than thirty employees at most). Then the industrial revolution came along in the 1700s and the introduction of technology fundamentally transformed the world economy, replacing the many small businesses with large firms that produced anything from textiles to autos. This new form of business required many things but in particular they demanded a new type of person: the manager. And they demanded these “managers” in droves; so many in fact that by 1850 the president of Harvard University observed that over half of their graduates were going into business.
So when was the first business school formed? Not until the 1880s (Wharton was the first business school), a few hundred years after the formation of the first large corporations and long after these firms were recruiting over half the class at Harvard to be managers. Indeed the first MBA wasn’t offered until 1908! Although it may seem shocking, it took quite some time for the education system to adjust to what the market really needed.
Business Schools Were Founded to Train Managers, Not Entrepreneurs
Once business schools were formed, what did was taught at business school and who taught it? Of course b-schools taught management: meaning, how to coordinate, how to plan, how to increase efficiency, and how to optimize. Ultimately, the challenge was to train people how to manage a large organization attempting to execute on a largely knownproblem, like making more textiles or autos. Initially practicing managers and observers produced the ideas taught in business schools, people like Chester Barnard who was a practicing executive or Frederick Taylor, who became famous for his studies on how to increase the efficiency of labor using a stopwatch and optimization tools. As “management” became more established, gradually ideas from other academic disciplines like economics and sociology were also applied to the study of management, particularly after the Carnegie and Ford reports criticized business schools for lacking academic rigor. Gradually, business schools became even better at training managers and became a fundamental fixture of business life. But remember, business schools were founded to train managers, not entrepreneurs
Where Does Entrepreneurship Fit In?
Entrepreneurship was not really a topic in business schools at all until recently. Just as entrepreneurship wasn’t a serious topic in mainstream economics and sociology until the last few years, entrepreneurship only emerged in business schools recently after a resurgence in rates of entrepreneurial founding and a burst in technical innovation. Indeed, entrepreneurship didn’t really exist in business schools until the 1980s and only recently has become a mainstream topic. Not surprisingly, the emergence of entrepreneurship in business schools has followed a similar pattern to the emergence of business schools themselves. Indeed, after being ignored so long in business schools, the natural question became, when we teach entrepreneurship, what do we teach? The answer provded surprisingly simple.
How Large Firm Theories Became Theories of Entrepreneurship
To keep it short, perhaps unintentionally, many people assumed that entrepreneurial firms are simply smaller versions of large firms—a context in which our existing idea apply, perhaps with some modification. That meant that many of our ideas about how to manage large firms spilled into our ideas about how to be an entrepreneur. So for example, strategic planning for the large corporation became business planning for the small business. The divisionalized corporate management team structure (consisting of a VP of Sales, a VP of marketing and so forth) became the defacto structure for a new venture. The product development model in a large business became the model for new business development. Corporate marketing with its emphasis on segmentation and expensive advertising channels became the intuitive approach to launching a new venture (just take a look at the advertising budgets of the dot com era startups if you don’t believe me). In short, most of our ideas about how to be and teach entrepreneurship were subtly borrowed from how we manage large firms. (If you are interested, I can share my three generations of entrepreneurship education presentation which elaborates on this).
Where the Paradigm Breaks
But remember, as I suggested in earlier posts, entrepreneurial firms and entrepreneurial problems are about something very different than management. Entrepreneurship is about tackling unknown problems or solutions, whereas management is about tackling known problems. As a result, rather than managing for execution, startups manage for radicalexploration and that means the process to do this, even the people to do it, are radically different than for managing known problems. It is only in recent years that the entrepreneurial community woke up and began to argue that the paradigm is broken. When you are tackling something fundamentally unknown, you can’t “plan” your way to success—doing so leads you to be overconfident in your guesses. Similarly, building out a team with VPs and CXOs of different flavors just wastes money and creates politics. And what can traditional marketing tell you about a market that may not exist? Yet millions of startups have fallen into the traps of acting like they were executing on known problems and they have failed as a result.
By now, I hope this post and prior posts convince you that there is a reason why what we have done in the past doesn’t work—a reason that runs deep in our education, media, and mentoring systems as well as in our collective psyche. I think I’ve done enough motivation and from here on out I will focus on describing the solution in detail.