For centuries, entrepreneurship was linked to art and craft and rewarded by personal fulfilment, satisfied customers, and a good life. The term entrepreneur is still associated with giving direction, shape and content to new activities based on personal motivation and skills and thereby creating socially approved value. A description that applies to the self-employed, business entrepreneurs, franchisees or intrapreneurs and includes both commercial, institutional, and artistic activities.
However, there are two problems. Overcoming them opens the way to become a better business.
The plunder of the earth
Nobel laureate Joseph Stiglitz has warned that the creative power of entrepreneurship can easily become destructive. A 'maker' becomes a 'taker' once creating value becomes making money in the first place. Indeed, for centuries, companies have robbed resources around the world, destroyed nature, traded millions of slaves and exploited domestic workers, creating the divide between rich and poor countries.
The creative power of entrepreneurship can also be aimed at sustainable prosperity, for their employees, the country, and the world. In that case, the “purpose” of a company precedes the pursuit of profit. Unfortunately, still a minority of all companies are moving in this direction while others pretending.
The decline of engagement and passion within the workforce
There is more. In developed countries, the blatant exploitation of labour has disappeared. Instead, the majority of employment relegates into low strain jobs. Research by Gallup and Deloite has shown over consecutive years that over 64% of all employees worldwide are not engaged or passionate. Find John Hagel explain this in a short video. The reason is clear. 20th century companies have organized their production according to principles of scalable efficiency and have top-down planning and control. Room for initiative is therefore neither expected nor desired. Moreover, detailed protocols and regulations limit employment for people at a distance from the labour market.
In a rapidly changing world, companies must be adaptive and innovative. They therefore need flexible, interdisciplinary teams with a high degree of self-government and less pay differentials. According to recent research in 17 countries, this type of organizations (8%) outperforms in all respects.
Summarizing, to become a better business requires a double challenge:
· Replacing the dominance of the pursuit of money with a social and environmental purpose.
· Mobilizing the entrepreneurial and other capacities of their whole work force by forms of self-organization and shared leadership.
Why focussing on startups?
As only a limited number of companies meet these conditions, employees consider starting their own business. In the US alone, approximately two million workers give up well-paying jobs every year and become self-employed. 127,000 starters were registered in the Netherlands in 2018. Of them, only a minority will become a startup, which means that they will successfully commercialize a promising technological innovation and grow rapidly on an international level.
Start-ups are potential engines of growth and innovation. In the US, their steady growth is compensating for job losses in the rest of the economy. Dutch startups created 20.000 of jobs in 2018 and 2019. A recent reportoffers excellent documentation of the identity, growth and potential of the 4,311 Dutch startups in 2019, most of which have fewer than 10 employees. 34% of Dutch startups can found in the Amsterdam metropolitan area.
The hope is that start-ups will rise to both challenges by nurturing their social and environmental purpose end fueling the commitment and passion of each employee, and thereby become a better business.
Yet, like any other businesses, startups risk becoming takers rather than makers, trading their social and environmental purpose for the pursuit of money and losing the engagement and passion of their employees. Fortunately, they can prevent this.
Eleven ways to become or stay a better business
1. Embrace self-organization and shared leadership.
2. Involve all employees in the continuous strengthening of the social and environmental purpose of the company.
3. Enable all employees to become shareholders or even better co-owners.
4. Cherish diversity within the employees.
5. Secure shares in a foundation while enabling shareholders to support the purpose of the company.
6. Cap the profit to a level that guarantees the continuity of the company.
7. Ban greed, cancel bonuses, or at most pay a limited and equal allowance to all employees.
8. Place surplus profits in a foundation that spends money in accordance with the purpose of the company.
9. Being a fair taxpayer who refrains from tax avoidance practices.
10.Create a supervisory board to monitor the purpose of the company.
11.Focus the founder/director/CEO role on monitoring the purpose of the company and the commitment of all employees and on fueling the discussion on how to deal with changing external conditions.
Rapid societal changes require a reinventing the concept of entrepreneurship. Because of their flexibility and commitment, startups are apt to embrace the dual ambition of pursuing a social and environmental purpose and of mobilizing all employee’s engagement and passion.
My next post will look at how cities can help start-ups to settle, grow and become better businesses. The history of entrepreneurship, its growing distance from ‘makership’ and its possible revival by start-ups is documented in chapter 4 of my e-book Humane cities. Always humane. Smart if helpful. The English version of this book can be downloaded for free below.