03 September 2015

The Popularization of Entrepreneurship Continues: Google Becomes Alphabet and Entrepreneurship at Record Levels

In The Fourth Economy, I argue that last century we popularized knowledge work and now we will popularize entrepreneurship. Google's recent announcement that they are restructuring the company to become Alphabet and the new Global Entrepreneurship Monitor (GEM) Report offer more evidence that we're making progress in the creation of a new, entrepreneurial economy.

The popularization of business entrepreneurship will play out in two ways. One is that we'll see more entrepreneurship as normally conceived: more people starting more businesses. The other is that within companies, more employees will become more entrepreneurial. Last year, both kinds of entrepreneurship rose.

Yesterday, researchers at Babson and Baruch Colleges released their annual GEM Report. This is as important as the jobs report released each month by the BLS that is (rightfully) tracked and analyzed by an entire industry of analysts and pundits. The jobs report tracks how many new jobs have been created. GEM tracks entrepreneurial activity, which tells us how many jobs will be created.

Levels of entrepreneurship are their highest since the report began in 1999 and are rising within organizations as well. Here are a few key findings.
  • Entre­preneurship levels among the U.S. working age popu­lation edged upward to 14 percent in 2014 (an estimated 24 million Americans) - reaching the highest level recorded in the 16 years GEM has assessed entre­preneurial activity.
  • Optimism is at the highest recorded level. More than half the U.S. population (51 percent) believes there are good opportunities for starting businesses.
  • 6.5 percent are starting businesses within organizations; an indication that entrepreneurial initiatives within a larger corporate environment coexist alongside independent startups.
Tomorrow, bls.gov will announce another month of job creation. This will make 59 months in a row, breaking the old record of uninterrupted job creation by 11 months. (A record set in the late 1980s.) This GEM Report suggests that this streak could easily continue for years. Years. As if breaking the old record of 4 years by a year is not extraordinary enough.

But this last bullet about the millions of Americans who are starting businesses from within organizations ties to Google CEO Larry Page's announcement that Google will become Alphabet. This is just as promising. Obviously, Google is a search engine that sifts through petabits of information and brings back cash. Less obviously, it is a giant incubator that could give us the first self-driving cars and innovative medical products like glucose-sensing contact lenses, unleash an army of service and delivery drones, and extend the human lifespan. Founders Larry Page and Sergei Brin now plan to create a parent company called Alphabet that will have beneath it various companies, the most obvious of which is Google itself. I think it's a brilliant idea because it offers a new model of the corporation, a sort of conglomerate / incubator hybrid. It is a great example of social invention, the necessary partner to technological invention in the dance of progress.

Venture capitalist Marc Andreessen pointed out in a recent interview that CEOs have become very conservative, with really small investment horizons. This year, the Fortune 500 will give back a trillion dollars to investors through buy-backs. Rather than invest profits into new ventures, they will send the cash back to investors. These investors - who have communicated to CEOs that they want returns now - then take this money into private ventures and tell those founding CEOs, don't worry about profits yet: we want to build a business.

There are some advantages to this. It suggests a division of labor between established companies and startups. But it is fraught with waste as well, assuming as it does that really smart, driven young people who often don't know how to operationalize the difference between, say, design and performance qualifications should get investment dollars to create the next generation of products rather than employees within a company. A startup has to create so much from scratch whereas an established company has so much knowledge about the important nuance of customers, products, process and technology. A model that makes more employees more entrepreneurial could tap into that knowledge and may even do it more efficiently and effectively.

Fortunately, the GEM Report confirms that millions of entrepreneurs are working within organizations and Alphabet suggests a way such entrepreneurship could be institutionalized. Years before Larry Page announced that Google was becoming Alphabet, I wrote this in The Fourth Economy. 

One compelling example of a company that does blur the boundary between running the business and creating a new business is Google. Google has a curious rule that allows them to promote entrepreneurship from within the company: they ask programmers and engineers to devote about one day per week - on average - to pursuing a project of their own. This is not the classic R&D that managers approve and fund centrally. These are projects conceived and pursued by individuals without going through central boards for approval. This is Google management showing the same kind of confidence in individual initiative as do capitalist governments. Gmail and Google Earth are among the initiatives that began as individual projects.
One of the fascinating things about this is that Google is treating the resource of knowledge workers like venture capitalists do money. That is, Google is using a scarce resource - its programmers and engineers - and investing a portion of their time into new ventures that have a very high probability of failure. This seems like a silly short-term policy. Odds are good that they are just diverting precious attention into projects that will not pay back. Long term, however, this seems brilliant. They need only one spectacular success every five to ten years in order to maintain a growth trajectory that even corporate giants like GM and Microsoft have been unable to sustain. And in truth, Google may not pull this off. Yet if this meme catches on and many companies try this, we will have more entrepreneurial ventures and as a result will have more products, services, jobs, and wealth. It seems a fact that any one venture like this is destined to fail and any larger community that regularly invests in such ventures is destined to thrive.
The important question in the eighteenth and nineteenth century was “how do we create and attract more capital and make it more productive?” At that stage of development, all other advances followed from smart and creative answers to that question.
The important question in the twentieth century was “how do we create and attract more knowledge workers and make them more productive?” At that stage of development, all other advances followed.
Now the question ought to be, “how do we create and attract more entrepreneurs and help them to be more successful?” At this new stage of development, all other advances will follow.
It's a beautiful thing when people as sharp as the ones at Alphabet (nee Google) are asking that question because you can bet that theirs will be creative answers that could help in the transformation of work and business. And that is the business of the fourth economy.

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