Burn the Business Plan
How can real, practical information help potential entrepreneurs? I have started companies, managed small and large entities, been a venture investor, consulted with big firms and governments on innovation, and spent time as a professor. For ten years, I was privileged to run the Kauffman Foundation, the “Foundation of Entrepreneurship” in Kansas City. Along the way, I was lucky enough to spend time with many successful entrepreneurs, aspiring entrepreneurs, investors, and business visionaries.
These experiences made me realize that many of the popularly held ideas about how, when, and why people start companies probably are wrong. As an economist, I began to look skeptically at the powerful underlying memes—the largely unexamined but widely accepted ideas that shape our view of the world—especially those applicable to new business success. The entrepreneurship memes seemed to be little more than an assortment of stories and case histories that had crystallized into a rubric.
So, in 2002, I embraced the opportunity to direct the Kauffman Foundation. The Foundation was a nearly $2 billion endowment established by Ewing Marion Kauffman, an innovative Kansas City pharmaceutical company founder, and was the world’s largest philanthropy dedicated to promoting entrepreneurship. This was an irresistible challenge: I knew that a continuing stream of new businesses was critical to society’s growth and advancement, and that what entrepreneurs really do is too important to be described by glittering narratives that are not based on evidence. After all, innovative businesses bring us unimagined products and services,
create most of the new jobs in our economy, and are the most important force driving growth and creating expanding welfare. Entrepreneurs are too valuable a national resource to be subjected to a potpourri of unsubstantiated aphorisms dressed up as good business advice.
The Kauffman Foundation provided the platform to recruit a small army of brilliant economists to initiate serious research on how new businesses really get started and grow. The team extended the work of Joseph Schumpeter1
and William Baumol,2
two influential economists who had examined entrepreneurship well before almost anyone knew how to spell it, much less what it meant. Research inside Kauffman and scholarship supported by the Foundation produced a torrent of empirical research on entrepreneurs, which resulted in insights that people now seem to think that we’ve always known. For example, it was not previously well understood that young firms create more than eighty percent of all new jobs in our economy, or that new business formation plays such a significant role in economic expansion. Now, happily, entrepreneurship is embedded in every discussion about economic growth. The Kauffman team was the first to inject intellectual, empirical rigor into research about how new firms are created. Because of this work, we know much more about how businesses are formed and how they grow and what is likely to improve your chances for success.
This book seeks to translate many of these findings, and the experiences of some of the thousands of entrepreneurs whom I’ve met, into practical guidance and lessons. It is intended to illustrate
how businesses really start, grow, and prosper. The first four chapters speak to the “what” of business startups, the following four to lessons learned by those who have gone before you, and the last section is devoted to data-derived facts, not myths, and realistic guidance from successful entrepreneurs.