MARCUS: Not all business owners are entrepreneurs

April 10, 2010

Many years ago, Winslow Spoon decided he did not want to work for a big company. He did not like taking orders from people who knew less or had less vision than he did about the business. He felt he could do a better job, earn more for his family, and have less hassle in his life if he went out on his own.

Thus, Winslow started his own business with his own money and some borrowed from his parents and an aunt. He worked many hours to build the business, where he now has more than 20 employees. The business has survived the recent economic crisis and looks to be OK for the foreseeable future.

The Spoons live well, but not extravagantly, in southeastern Indiana. They see the Reds and the Bengals in Cincinnati from time to time and get to Indianapolis once or twice a year for shopping and entertainment.

Winslow thinks of himself as an entrepreneur, the rock upon which America is built. He fits the classic definition of an entrepreneur: a person who organizes, operates and takes the risks associated with an enterprise. Nonetheless, some say Winslow stopped being an entrepreneur many years ago. Today, they say, he is just a business owner and no longer an entrepreneur.

Winslow’s critics believe an entrepreneur is one who actively undertakes new efforts, a person who might be called a serial business innovator. The SBI often thrives on getting a business going, making it a success, then selling it off by taking the firm public, or selling it to private investors or to another firm. Often, the SBI turns around and starts another business, enjoying the challenges of a startup activity.

The SBI seeks to expand, to diversify and to accept new risks. The business owner, by contrast, often remains in the same place, doing the same thing year after year. While the SBI seeks new seas and new ports, the business owner lies at anchor, subject to the tides.

Winslow should not be thought of as an inferior person because he doesn’t venture into new businesses. He and other steady business owners are truly the rocks of our economy. We depend on them for our daily services. They provide distinctiveness for our communities. But rocks are fundamentally stable entities. Their importance is unquestioned, but they move and change only when subjected to earth-shaking events or the forces of persistent erosion.

The steady business owner may disregard opportunities and take too few risks. This behavior may deny society important gains. When the business owner shies away from expanding or diversifying, he or she may be under-using the resources, skills and knowledge already resident in the firm. This “prudence” may open the opportunities that SBIs seize.      

Serial business innovators, by contrast, may take too many risks and squander resources. But their failures may provide important information about opportunities and lessons for others to follow. If my attempts to sell stock tips as messages in fortune cookies fail, you might recognize that such an enterprise can easily crumble. Failure is not necessarily without value.

Our economy needs both content business owners (Winslow) and aggressive entrepreneurs. Should we, however, subsidize one or the other, or both? Because the mythology of small business is strong in this country, we have massive programs that aid and favor existing small and startup businesses. But do we have enough factual information to justify this favoritism? Or do we suffer from a Disney syndrome, in which everything small is considered cute and worthy of both our sympathies and protection?•


Marcus taught economics for more than 30 years at Indiana University and is the former director of IU’s Business Research Center. His column appears weekly. He can be reached at mmarcus@ibj.com.


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