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Entrepreneurship: relationship of productivity to entrepreneurial success
(A Jug of Wine for a Stack of Bricks)
by H. Randall Goldsmith, Ph.D.

It is not difficult to imagine that somewhere between the Tigris and Euphrates Rivers more than 8,000 years ago a subsistence farmer put his 11 children to work helping him mix straw, clay, sand and water to make sun baked brick. The Sumerian eventually learned he could accelerate the process and improve the quality by slowly heating his brick in an oven. As word spread of his brick making skills, neighbors began to trade the farmer livestock, finished grain products, dried fruits, and skins of wine for his bricks, and the brick maker expanded his operation. He increased the size of his ovens, bought oxen, and wagons and began producing additional inventory in anticipation of the growing demand for his famous bricks. The Sumerian became one of the world’s first entrepreneurial growth companies.

Men and women have been willing to assume the risk of creating and operating a business since the beginning of time. The principles of entrepreneurship have formed the basic foundation of nearly all economies. Without question American entrepreneurs have shaped our world. Businessmen like J.P. Morgan, John Rockefeller, Thomas Edison, Henry Ford, J. Paul Getty, Michael Dell, and Bill Gates represent only a few of the names that will be long remembered as people whose entrepreneurial successes had a global impact on the behavior of man. Millions of Americans have taken the road less traveled to become entrepreneurs. Some took the trip out of necessity, some out of a sense of adventure, others simply evolved into business, and still others out of a sense of determination. Conceiving and assuming the risk for operating a business is an action taken by a minority of society. Regardless of the reasons, there have always been more failures than successes, but in the end the successes have always been of sufficient magnitude to continue to churn the economy with new innovations, new industries, new jobs, and new skill requirements. Of the successes there are a limited number entrepreneurial ventures that ultimately shape the economy such as Wal-Mart, Microsoft, McDonald’s, and Disney. These types of companies are called Entrepreneurial Growth Companies (EGCs).

All companies start out small, require tremendous energy, incur risk, and demonstrate adventurousness by the founder. Big or small they start with limited resources, stimulate the economy, and create jobs. The primary differentiating factors that determine which ventures remain small and which ones evolve into growth companies are a vision for significant growth, an expectation for success, and a plan for execution. Big growth may not be the driving objective of most founders, but huge growth and financial returns form the core motivation of the growth venture opportunity. To create a large, national or multinational company is an integral objective of the business proposition, and the growth period is scheduled into the business plan right from the start. There are four critical characteristics that an EGC must demonstrate to achieve success. It must offer latent productivity, have high growth potential, represent an emerging industry opportunity, and have high potential for return on investment.

The National Commission on Entrepreneurship in an article titled Understanding How Business Start and Grow points to potential productivity gains as the first point of departure that separates an EGC opportunity from a venture destined to remain a small business. The entire production and distribution process as well as the quality of products and services produced per person must be taken into consideration when evaluating productivity. The value added to the end product or service produced is the generally accepted benchmark for productivity. The national average for value added in 2001 was approximately $56,000 compared to $170,000 per person in technology intensive Silicon Valley. Producing a product or service superior to a competitor using the same resources or producing the same product or service with fewer resources offers a productivity gain. Of course offering a superior product or service while using fewer resources results in even greater productivity gains.

The EGC typically launches its venture on the premise that the productivity gains are critical to its business model and are dependent upon achieving sufficient economies as rapidly as possible. Until the productivity gains are realized they are assumed to be latent within the business model but clearly visible to the founder, potential clients, and investors. The productivity gain typically addresses the specific need or problem that the business model is designed to achieve. When the Sumerian traded his first wagonload of bricks for two goats and a jug of blackberry wine, I am sure he knew he had a venture opportunity blessed with latent productivity.