Low-Risk Entrepreneurship

8/27/2005 4:36:05 PM

Low-Risk Entrepreneurship

In my post Nation of Entrepreneurs, I lent some support to Paul Graham’s claim that there could potentially be ten times the number of entrepreneurs that there are today.

With increasing infrastructure and education to support entrepreneurship, I raised the possibility that setting up new companies in the future may involve fairly little risk. One reader disagreed…

I agree that it is much easier to start a company these days due to the services and infrastructure that have sprung up with the internet and the business services industry. However, I have to disagree with your desire for "low-risk" entrepreneurship. The whole point of entrepreneurship is risk taking to achieve higher returns on the investment of time and money. There is less risk, and thus less pay, in simply getting a job.

I do think that entrepreneurship is becoming exponentially easier over time alongside advances in technology. If it became easier to make money on one’s own, the risk/reward relationship would still hold. Companies might have to compensate by paying employees more and/or by becoming more of a flatter virtual company, outsourcing non core-work similar to the just-in-time manufacturing practices of companies like Dell and others.

In my HR class, we studied transactional cost economics in which influential economist Ronald Coase wrote a book The Nature of the Firm which asked the question “Why Do Firms Exist”—why do whole organizations form in place of markets, when markets are effective (and should theoretically be efficient) in coordinating economic exchange? His answer was that the costs of renegotiating contracts, inspection, settling of disputes in markets was often greater than the cost of managing economic exchanges with an organization. Firms and markets are complementary ways of conducting business and each co-exists in dynamic equilibrium in which the size of a firm is proportional to the cost of conducting transactions in a market.

Now if the risk/reward equation of entrepreneurship changes, the cost of acquiring compensating people and organizing will increase, leading the business environment to become more market-based. Indeed, large businesses have already begun downsizing and moving to market-based approaches in the 1990s because of globalization and advances in information technology; the cost of labor became more expensive compared to outsourcing and new technology.

Implicit in the commentor’s remark is the assumption that corporations and entrepreneurship maintain a fixed eternal relationship. However, ways of doing business have alway been changing. One should not forget that historically modern corporations are a recent phenomenon. Corporations became legal in all the states in the 19th centuries. The first regulatory agency for interstate commerce in the US was created in 1887 and Sherman Antitrust Act was passed in 1890.

 

Comments

 

Navigation

Categories

About

My name is Wesner Moise. I am a software entrepreneur developing revolutionary AI desktop applications. I worked as a software engineer in Microsoft Excel group for six years during the 1990s. I worked on PivotTables and wrote the most lines of code in Excel 97-- about 10 times the median developer. I have a Harvard BA in applied math/computer science and a UCLA MBA in technology entrepreneurship. I am a member of the Triple Nine Society, a 99.9 percentile high-IQ society.

Social Media