The Illusions of Entrepreneurship

The Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live By

Scott A. Shane
Copyright Date: 2008
Published by: Yale University Press
Pages: 224
https://www.jstor.org/stable/j.ctt1nprkt
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  • Book Info
    The Illusions of Entrepreneurship
    Book Description:

    There are far more entrepreneurs than most people realize. But the failure rate of new businesses is disappointingly high, and the economic impact of most of them disappointingly low, suggesting that enthusiastic would-be entrepreneurs and their investors all too often operate under a false set of assumptions.

    This book shows that the reality of entrepreneurship is decidedly different from the myths that have come to surround it. Scott Shane, a leading expert in entrepreneurial activity in the United States and other countries, draws on the data from extensive research to provide accurate, useful information about who becomes an entrepreneur and why, how businesses are started, which factors lead to success, and which predict a likely failure.

    The Illusions of Entrepreneurshipis an essential resource for everyone who has dreamed of starting a new business, for investors in start-ups, for policy makers attempting to facilitate the formation and survival of new businesses, and for researchers interested in the economic impact of entrepreneurial activity. Scott Shane offers research-based answers to these questions and many others:

    · Why do people start businesses?

    · What industries are popular for start-ups?

    · How many jobs do new businesses create?

    · How do entrepreneurs finance their start-ups?

    · What makes some locations and some countries more entrepreneurial than others?

    · What are the characteristics of the typical entrepreneur?

    · How well does the typical start-up perform?

    · What strategies contribute to the survival and profitability of new businesses over time?

    eISBN: 978-0-300-15006-3
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Acknowledgments
    (pp. ix-xii)
  4. Introduction
    (pp. 1-8)

    Entrepreneurship is one of the most popular topics of our time. If you type the wordentrepreneurinto the Google search engine, you will get more than 37,000,000 hits. That’s more than you can read in a lifetime. Clearly there is a lot of information out there about entrepreneurship. Yet, here I am, adding another book to the mix. Why?

    The reason is that we are surrounded by myths about entrepreneurship. When I say myths, you probably know what I mean: there’s the story about the penniless high-school dropout who comes to America with $10 in his pocket and starts...

  5. 1 America: Land of Entrepreneurship in an Entrepreneurial Era?
    (pp. 9-29)

    Suppose you’re a policy maker interested in encouraging more people to become entrepreneurs, or you’re thinking of becoming an entrepreneur yourself, or you’re just an interested citizen who thinks start-ups are a good thing. You might want to understand some basic facts about entrepreneurship in America. Things like: Do Americans start a lot of companies? Are more people starting companies than used to? Why do some places have more start-ups than others? The answers to these questions will tell you where and when new companies are created and what factors affect their formation.

    You soon realize that finding answers to...

  6. 2 What Are Today’s Entrepreneurial Industries?
    (pp. 30-39)

    Reading newspapers or popular magazines might lead you to think that most entrepreneurs start sexy new companies in high-growth, technology-intensive, industries. It turns out, though, that those are just the kinds of start-ups that reporters like to write about. Most new businesses are in pretty mundane, run-of-the-mill industries, like construction or retail trade. In fact, every year only about 7 percent of new companies in the United States are started in industries that the government defines as high technology,¹ and only about 3 percent of business founders consider their new businesses to be “technologically sophisticated.”²

    Why am I pointing out...

  7. 3 Who Becomes an Entrepreneur?
    (pp. 40-63)

    If you asked the average American to describe an entrepreneur, what would she say? She would probably describe Bill Gates or Steve Jobs or Larry Ellison or some highly successful founder of a technology start-up who has taken his company public and built a financial empire. After all, conventional wisdom tells us that entrepreneurs are very special people. They are heroes who stand alone and overcome great odds to build companies through superhuman efforts.

    The description of an entrepreneur offered by the average American might resemble the one provided by the Office of Public Affairs at the Federal Reserve Bank...

  8. 4 What Does the Typical Start-Up Look Like?
    (pp. 64-78)

    If you were to ask a random person on the street to describe what she thought of as a typical start-up company, what would she say? Many would likely describe a small, growing business, one that was generating a couple million dollars in sales and employing 10 or so people, and that was organized as a corporation by a team of entrepreneurs who were developing an innovative new product or service with the intent of challenging existing businesses through the deft exploitation of a competitive advantage. After all, that’s the description put forth in most newspaper and magazine articles about...

  9. 5 How Are New Businesses Financed?
    (pp. 79-96)

    Think about the typical start-up for a minute. How do you think it is financed? How much capital does it require? Where does that money come from? Does it come in the form of debt or equity?

    Many people think that the typical new business requires hundreds of thousands of dollars to start. Much of this money, they believe, comes from an outside investor—a venture capitalist, a business angel, a friend, or a family member—who gives the founder money in return for an equity stake in the business. This view is shared by a wide range of people:...

  10. 6 How Well Does the Typical Entrepreneur Do?
    (pp. 97-110)

    How successful is the typical entrepreneur? If you read the popular press, you might get the impression that most entrepreneurs make a lot of money. Statements like this—“Self-employed people are four times more likely to be millionaires than those who work for others”¹—give the impression that people who start businesses tend to be very successful and make good money. But this perception is inaccurate. In reality, the typical entrepreneur starts a company that goes under. Even the atypical entrepreneur, one whose business manages to survive over time, makes less money than he would have made if he had...

  11. 7 What Makes Some Entrepreneurs More Successful Than Others?
    (pp. 111-124)

    There is no shortage of answers to the question “What makes an entrepreneur successful?” In fact, there may be more answers to this question than there are entrepreneurs to look at them. According to the large number of experts who have offered their expertise in books or articles, or who have posted their insights on the Internet, the key to success as an entrepreneur is to:

    never start a business alone

    never start a business with anyone else

    keep things simple

    come up with a complex idea that no one can copy start with good people; they’ll know what to...

  12. 8 Why Don’t Women Start More Companies?
    (pp. 125-134)

    Forget about all of the psychological tests that predict who is an entrepreneur and who is not. None of them are as accurate as this simple test. Go to your nearest mall and stand outside of the restrooms for an hour. If you don’t get arrested first, keep a tally of the number of people who go into the men’s room and the ladies’ room. Using only the criterion of which bathroom people enter, you will be more likely to accurately identify which people are entrepreneurs and which ones are not than if you administer all of the available psychological...

  13. 9 Why Is Black Entrepreneurship So Rare?
    (pp. 135-145)

    No myths about entrepreneurship are more pervasive than those about black entrepreneurs. One stubborn tall tale maintains that because blacks face a glass ceiling in corporate America, entrepreneurship among them is very common.¹ The ostensive high rate of start-ups in the black community is evidenced by such statements as:

    “We are now in an era when the educated members of the African American community are going into the business world.”²

    “A wave of black entrepreneurs is forming businesses at a record clip.”³

    “The most active group of entrepreneurs in American [sic] is black men and women.”4

    Although many of us...

  14. 10 How Valuable Is the Average Start-Up?
    (pp. 146-159)

    Many people believe that entrepreneurs are an unbelievable resource. Entrepreneurs are thought to take people out of poverty, encourage innovations, create jobs, reduce unemployment, make markets more competitive, and enhance economic growth.¹ As Steve Case, a columnist forInc.magazine, wrote, “Start-ups take the place of companies that shut down. They replenish the business population and sow the seeds of growth. They provide jobs, income, and hope for the future. Often, they create new markets, just by nosing their way into niches no one knew were there. . . . When a region booms, part of the reason is always...

  15. Conclusion
    (pp. 160-166)

    We need to change the way we think about entrepreneurship. Our collective belief that the typical entrepreneur is a hero with special powers that lead him to build a great company, which innovates, creates jobs, makes markets more competitive, and enhances economic growth, is a myth. And our sense that the typical new business provides a great deal of benefit for its founder, his employees and customers, and society at large is also wrong. Our myths about entrepreneurship, and the policies we have developed in response to them, are leading too many people to become entrepreneurs, causing financial hardship for...

  16. Notes
    (pp. 167-200)
  17. Index
    (pp. 201-208)