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The "E" word: When Jeffry Timmons refers to the E-Generation and its E-Revolution, E stands for entrepreneurship, the force that drives it all

by Meredith Erlewine

February 2000

Almost every time you read about or listen to Jeffry Timmons, he's talking about an entrepreneurial revolution: "We are in the midst of a silent revolution – a triumph of the creative and entrepreneurial spirit of humankind throughout the world," says Timmons, a professor of entrepreneurship at Babson College in Wellesly, Mass. "I believe its impact on the 21st century will equal or exceed that of the Industrial Revolution on the 19th and 20th."

Ten years ago people may not have agreed but today no one blinks at Timmons' assertion. You need only to scan the NASDAQ or read any business publication to know he's right. But a key question remains. What is it that drives the entrepreneurial process that's causing the revolution? Timmons has been building the answer for decades. In more recent years – recognizing the major economic impact of start-up firms – academics, corporate executives and others have joined him in tracking down the answer.

Timmons' involvement in the entrepreneurial world has ranged from student to professor to CEO. Over the years, he has studied entrepreneurship at Colgate and Harvard universities and has held faculty positions at Babson, Harvard and Northeastern universities. He is a cofounder, investor and advisor of several private companies, including Cellular One in Maine and New Hampshire. He has served, since its inception, on the board of the Center for Entrepreneurial Leadership at the Ewing Marion Kauffman Foundation in Kansas City, Mo.

Babson College provides an excellent backdrop for Timmons' quest to understand what makes entrepreneurs tick. The "E" word pervades everyday life at the college, which U.S. News & World Report listed as the No. 1 undergraduate program in entrepreneurship. U.S. News also rated Babson among the top 50 undergraduate business programs nationwide.

Since 1977, when Timmons published the first edition of New Venture Creation: Entrepreneurship For The 21st Century (now an entrepreneurship classic), there has been a dramatic increase in academia's interest in entrepreneurship. In the 1970s, he says, between 50 and 75 business and engineering schools offered a course on new ventures. By the mid 1980s, the number had grown to about 500. Experts now estimate that as many as 1,400 educational institutions offer courses in entrepreneurship.

Timmons has seen the entrepreneurial IQ of the general U.S. population increase by leaps and bounds over the last two decades. He's also watched corporate giants once thought invincible learn a painful lesson in the value of innovation when a new wave of entrepreneurial ventures matched or beat them at their own game.

NBIA interviewed the man Inc. magazine has called the "Johnny Appleseed of entrepreneurship education" to find out where this ever-changing field is headed as the new millennium begins. Timmons' thoughts on the subject of entrepreneurship range as far and wide as his long involvement in the field.

What has changed in the field of entrepreneurship over the last 25 years?

The fundamentals [of the entrepreneurial process] have not changed. The model that's in the New Venture book (see Timmons' model of entrepreneurship) is still valid and sound. Over the last 25 years researchers have continued to look at that fundamental question, "Who succeeds and why?" They have increasingly put zoom lenses on the various pieces of that puzzle. There has been an enormous amount of research done on teams, for example, as opposed to this lone wolf model of entrepreneurship that had prevailed through the 1960s. Or take our understanding of [business] opportunities, both the creation and recognition process.

The third area where there has been the greatest amount of both growth and research has been around the capital markets component of the entrepreneurial process – the entrepreneurial finance component, the venture capital component – how that works and what it is. That was nonexistent, basically – other than a lick and a promise – 25 years ago.

How has the study of these elements, and the resulting knowledge, changed entrepreneurial quality in this country?

Students coming into our MBA program, and I would say this is true both at Harvard and at Babson, are much more knowledgeable and sophisticated and informed about the models that drive entrepreneurial success and what's under the zoom lenses than MBAs were coming out of these programs 25 years ago.

Venture capitalists are consistently saying they have never seen higher quality entrepreneurs, higher quality teams, more of them, and more good concepts, business proposals, business plans and ideas. Thirty years ago, it was rare for an entrepreneur with a start-up idea, even in the technology arena, to have a business plan or to even know how to begin communicating and articulating his or her business dream to a source of financing. So in those days if you could just get entrepreneurs up that learning curve and over that hurdle you were making a huge contribution to their learning – and to the odds that they could convince somebody about what they were very confident about but was mostly in their head. So that's really a quantum change.

The other thing that's changed dramatically, and most of this has happened in the last 10 years, is we've shifted the concept of entrepreneurship from historically just being about start-ups to a broader concept. Entrepreneurship – because it fundamentally is about the recognition, creation and pursuit of opportunity and is not resource dependent – is holistic and integrative in nature. Therefore entrepreneurship can happen in start-up companies, in early stage companies, in later stage companies, in big companies and small ones, in young ones and old ones, in the public and in the not-for-profit sector. And it can fail to occur in all of those settings.

You stress, in New Venture Creation, that the entrepreneurial process "starts with opportunity, not money, not strategy, not networks, not the team, not the business plan," and that it is imperative to distinguish between an idea and an opportunity. Could you describe what you mean?

I think about [opportunity] as the magnet that draws everything else in (see "Idea or Opportunity" below). The graveyards of new ventures are absolutely jam-packed with companies that started with an obsession with a particular invention or a particular technology or a particularly novel idea. Then it turned out there was never a single customer on the planet that had the same kind of enthusiasm for [the idea] as the innovator or the inventor had. And, in the same vein, the graveyards are full of ventures that had lots of money. Money is often not the problem.

So how does one troubleshoot an idea to discern whether it's a true opportunity?

There's a whole new model of how companies get going today. They may start with very few pieces in place because there are today people like John Doerr [a partner at venture capital firm Kleiner, Perkins, Caulfield & Byers] who can look at just a few pieces of this jigsaw puzzle and quickly see the rest of the pieces. They look at whether it's a really big idea that can change a marketplace forever, can change the way people function, the way they live, the way they work, the way companies do business. Now 25 years ago, unless you showed up in the office of a venture capitalist with most of the pieces of the jigsaw in place, it was very difficult to get funding, because with all the opportunities on their plates they didn't have the time or interest to spend all of their time helping you to put your company together. But today if you've got a really big concept, you can get that kind of help, and that's really quite a change in the way things work.

I've read that sometimes you require your business students to take classes in an unfamiliar field so that they can get used to failure and its lessons. Have you experienced any personal failures that resulted in valuable entrepreneurial lessons?

Well, I continue to experience them.

When I was a graduate student I started a business with another graduate student. It became moderately successful in the first year or so, but then the thing just fell apart. That happened in my 20s, and it was probably some of the most valuable experiences I've ever had because I think it toughened me enormously. This was a business that we got into precipitously as graduate students. We didn't think about it enough. You get an idea in your head, you have a couple more beers and you kind of talk yourself into it. The next thing you know you're doing it and you've committed. You also learn a very painful lesson: Once you get on the train and it's moving, it's not nearly as easy to get off as you think it is. And that happens in this game a lot.

It also taught me a lot about who you pick for partners. With hindsight I realized that the criteria that I had used to decide to go into business with this partner were very inappropriate for a business proposition. Because you like someone, you get along with someone, you work with someone well in a school setting or another setting doesn't necessarily mean that you're going to work together well in a business. And I think the delicate area of people's values and ethics is very, very critical but ...until you're in battle and making decisions, you don't really know what those are. In this case, I discovered that we were substantially different, and my partner was prepared and willing to do things that I just wasn't prepared to do. It was a very painful, acrimonious split and a very painful personal failure experience. Fortunately, that was one of the most valuable parts of my education.

You mention ethics. Where do business ethics fit in today's cutthroat, lightning-fast business world?

I think if you look back historically, the most successful entrepreneurs by and large are basically honest and ethical people. Frankly, you treat your customers shoddily or unethically, and you don't survive. You do not survive and you don't succeed. And you are going to have a lot of competition, so I think fair and square dealing and ethically dealing with customers and employees and suppliers is just very basic and very fundamental to good business. I think it has always been that way. The technology changes and the space changes, but in the longer term [ethical practice will always be a critical success factor].

In any one-time transaction, [such as] a real estate transaction, buying a used car (and not inconceivably I would include taking your company public), I think there is the greatest vulnerability to the incursion of unethical practices by some players. I have concerns, as many other people do, about this shorter time-frame, more helter-skelter world. "Long-term" business relationships, for example, between an entrepreneur and an investor can be less than a year to two or three years. Twenty years ago that would have been considered ridiculous. Those shortened timeframes and those relationships tend to raise the possibility of more self-serving and expedient behavior that clearly would test the outer limits of sanity and reasonability when it comes to ethical practice.

Many of our readers are working to build an entrepreneurial base in emerging, developing and collapsed economies around the world, often with compromised or nonexistent resources in areas such as banking, experts and venture capital, and sometimes without respect for those who make entrepreneurship a career choice. What is it about the business climate in the United States that makes it so ripe for entrepreneurship?

I ran across a piece of data from a survey done last year that said only 8 percent of the Japanese thought starting your own company was a respectable thing to do. That is what you pray your competitors think!

Our country has a long history and a culture of entrepreneurship that goes back to the very first immigrants, back to the Scots who created the first venture capital in this country to bring us railroads and so on. Immigrants tend to be very entrepreneurial because they are going to opportunities as much or more as away from something they don't like. A large number of those people brought a spirit and a culture, and created a new culture in a new country that said, "You know, there are no limits here. It doesn't matter what your family background is, you're starting with a new slate, there are great opportunities – go get them." We're an infant country by most standards, but we've got a good thing going.

Howard Stevenson [a professor of business administration at Harvard University and an expert on entrepreneurship] and I did the very first seminar on entrepreneurship for the Salzburg Seminar back in the summer of 1987, before the wall came down in Berlin. We had a young man there who had been working with Gorbachev on Perestroika. We invited him to come to Babson and Harvard that fall to immerse himself in everything we're doing over here. When he got ready to go back, I asked, "What surprised you the most about what you've learned about business and entrepreneurship and our economy since you've been here?" Without hesitation, he said, "The laws. I'm just amazed that you have laws that enable you to do business, protect both parties in a transaction, provide a basis for a contractual arrangement and protect consumers and the environment simultaneously. We don't have any of that in Russia." And you know, they still don't. It's a disaster. Their security laws are basically nonexistent; the underlying legal structure and framework we have here to enable you to do business and have a reasonable, predictable outcome and to be protected when someone really tries to screw you is nonexistent. That's one of the main reasons there's just chaos over there.

Our educational system in this country really has been way out front in both creating literacy and technology in business. I'm one of those who thinks we are just scratching the surface and have miles to go, but it's all relative, and relative to other countries and to emerging countries, our university system and public school system has really been a remarkable achievement.

What do you think is the role of public schools in entrepreneurial education?

I think the K-12 arena is a huge frontier. I would say that one of the big challenges going forward will be identifying the skills and the know-how students need for the new entrepreneurial economy and the information technology revolution. Particularly, I would say that of middle schools, where we create literacy about the economy, entrepreneurship, business and information technology. You can't talk about entrepreneurship education today without talking about the Digital Divide. And it is a problem, a serious problem, kids coming along that are not IT literate.

I've done a lot of work with tribal colleges around the country in the last six or seven years trying to help them get entrepreneurship in their curricula. We're making some good progress. They're quickly seeing that if they can get their reservations wired and get kids using the Internet, they can leapfrog a lot of things and compensate for the huge distances and isolation of mostly rural Indian reservations. I think the same phenomena exists from rural areas to the inner city where kids are not really computer and information and Internet technology literate, and if they don't have that literacy then they're probably not going to be very literate when it comes to entrepreneurship.

As a final thought, what is the value of innovation to an economy? For instance, if entrepreneurial firms didn't actually create even a single new job, but just redistributed jobs in a zero sum game, would there still be value in innovation and growing new companies?

That's not the case, but even if it were, [innovation] would still be one of the most valuable things that could happen to the economy. Innovation is at the heart of creative commercialization. It really drives all change, improvement, methods and productivity. It proves there's a better and a faster and a safer and a more efficient way to do anything. That's what innovation is all about. It breaks through, it breaks out of the existing and creates a new standard – innovation creates change in everything that we do. The way we live, the way we work, the way we learn and the way we manage. And that has profound consequences and implications. Every innovation defines a new realm of the possible and discards old beliefs about what won't work and what can't work. And that is just so fundamentally central to the entrepreneurial process that it's just terribly important. Innovation is really at the heart of the entrepreneurial process and, as you know, the entrepreneurial process is the ultimate driver of our economy and all the benefits that derive from this entrepreneurial economy, so innovation is an integral and crucial part of all of that.

Jeffry Timmons’ model for entrepreneurship

Entrepreneurship expert Jeffry Timmons' model of entrepreneurship includes three major forces: the opportunity, the team and the resources. Most true opportunities are larger than the talent of the team or the resources available to the team at the outset – imagine a big bubble surrounding the opportunity, with smaller ones around the team and the resources. The role of the lead entrepreneur and his or her team is to juggle all of the elements. "Visually, the process can be appreciated as a constant balancing act, requiring continual assessment, revised strategies and tactics, an experimental approach," he writes. "By addressing the types of questions necessary to shape the opportunity, the resources, and the team, the founder begins to mold the idea into an opportunity, and the opportunity into a business." Rarely, if ever, are the three ingredients in balance. A firm may achieve and maintain balance for a period of time, only to be thrown out of sync by one of the many trials and tribulations businesses face – a weak opportunity that consumes too many resources, sudden growth, etc.

Idea or Opportunity?

According to entrepreneurship expert Jeffry Timmons, successful entrepreneurs and investors know that a good idea doesn't always turn into a good opportunity. "An important skill of an entrepreneur or an investor is to be able to size up quickly whether serious potential exists and to decide how much time and effort to invest," he writes. In his book, New Venture Creation For The 21st Century, Timmons identifies many characteristics of good opportunities. Business opportunities with the greatest potential will have many of the following traits:

  • There is a market niche for the product or service that meets an important customer need and provides high value-added or value-created benefits to customers.
  • Customers are reachable and receptive to the product or service, with no brand loyalties or other loyalties.
  • The potential payback to the user or customer of the given product or service through cost savings or other value-added or value-created properties is one year or less and is identifiable, repeatable, and verifiable.
  • The life of the product or service exists beyond the time needed to recover the investment, plus a profit.
  • The company is able to expand beyond a one-product company.
  • The market size is $100 million in sales or more. Such a market size means it is possible to achieve significant sales by capturing roughly 5 percent.
  • The market is large and growing. An annual growth rate of 30 percent to 50 percent creates new niches for new entrants, and such a market is a thriving and expansive one, rather than a stable or contracting one, where competitors are scrambling for the same niches.
  • The market is at full capacity in a growth situation – in other words, there is a demand that the existing suppliers cannot meet.
  • The potential exists to be a leader in the market and capture at least a 20 percent share of the market.
  • The opportunity has potential for durable profits of at least 10 percent to 15 percent, and often 15 percent to 20 percent or more. High and durable gross margins usually translate into strong and durable after-tax profits.
  • Breakeven and positive cash flow are possible within two years.
  • The opportunity has the potential to yield a return on investment of 25 percent or more per year.
  • The opportunity has the potential for high and durable gross margins (i.e., the unit selling price less all direct and variable costs). Gross margins exceeding 40 percent to 50 percent provide a tremendous built-in cushion that allows for more error and more flexibility to learn from mistakes than do gross margins of 20 percent or less.
  • The opportunity has the potential for being the lowest-cost producer and for having the lowest costs of marketing and distribution.
  • The opportunity has a strong team with proven profit and loss experience in the same technology, market and service area, and members have complementary and compatible skills.

Adapted, with permission, from New Venture Creation: Entrepreneurship For The 21st Century, 1999, Irwin McGraw-Hill, by Jeffry A. Timmons


Myth 1: Entrepreneurs are born, not made.
Reality: While entrepreneurs are born with certain native intelligence, a flair for creating and energy, these talents by themselves are like unmolded clay or an unpainted canvas. The making of an entrepreneur occurs by accumulating the relevant skills, know-how, experiences, and contacts over a period of years and includes large doses of self-development. The creative capacity to envision and then pursue an opportunity is a direct descendent of at least 10 or more years of experience that lead to pattern recognition.

Myth 2: Money is the most important start-up ingredient.
Reality: If the other pieces and talents are there, the money will follow, but it does not follow that an entrepreneur will succeed if he or she has enough money. Money is one of the least important ingredients in new venture success. Money is to the entrepreneur what the paint and brush are to the artist – an inert tool which, in the right hands, can create marvels. Money is also a way of keeping score, rather than just an end in itself. Entrepreneurs thrive on the thrill of the chase; and, time and again, even after an entrepreneur has made a few million dollars or more, he or she will work incessantly on a new vision to build another company.

Myth 3: Entrepreneurs work longer and harder than managers in big companies.
Reality: There is no evidence that all entrepreneurs work more than their corporate counterparts. Some do, some do not. Some actually report that they work less.

Myth 4: Entrepreneurs experience a great deal of stress and pay a high price.
Reality: No doubt about it: Being an entrepreneur is stressful and demanding. But there is no evidence that it is any more stressful than numerous other highly demanding professional roles, and entrepreneurs find their jobs very satisfying. They have a high sense of accomplishment, are healthier, and are much less likely to retire than those who work for others. Three times as many entrepreneurs as corporate managers say they plan to never retire.

Myth 5: Starting a business is risky and often ends in failure.
Reality: Talented and experienced entrepreneurs – because they pursue attractive opportunities and are able to attract the right people and necessary financial and other resources to make the venture work – often head successful ventures. Further, businesses fail, but entrepreneurs do not. Failure is often the fire that tempers the steel of an entrepreneur's learning experience and street savvy.

Myth 6: Entrepreneurs want the whole show to themselves.
Reality: Owning and running the whole show effectively puts a ceiling on growth. Solo entrepreneurs usually make a living. It is extremely difficult to grow a higher potential venture by working single-handedly. Higher potential entrepreneurs build a team, an organization, and a company. Besides, 100 percent of nothing is nothing, so rather than taking a large piece of the pie, they work to make the pie bigger.

Myth 7: Entrepreneurs are gamblers.
Reality: Successful entrepreneurs take very careful, calculated risks. They try to influence the odds, often by getting others to share risk with them and by avoiding or minimizing risks if they have the choice. Often they slice up the risk into smaller, quite digestible pieces; only then do they commit the time or resources to determine if that piece will work. They do not deliberately seek to take more risk or to take unnecessary risk, nor do they shy away from unavoidable risk.

Reprinted, with permission, from New Venture Creation: Entrepreneurship For The 21st Century, 1999, Irwin McGraw-Hill, by Jeffry A. Timmons.

Keywords: research -- entrepreneurship

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