Book Review: Carl Schramm's 'Burn the Business Plan'
In the early, leaner days of DreamWorks SKG, Steven Spielberg was asked why he didn’t produce and direct a blockbuster film in order to more fully capitalize the nascent studio. It was a logical question considering Spielberg’s nearly incomparable track record. That’s why his answer was perhaps so surprising.
Spielberg responded that blockbusters were far from a sure thing. As opposed to phenomena that the person most synonymous with booming box office could plan, blockbusters were like “kismet.” Try as he might, even Spielberg never pretended to be in possession of a magic formula for moviemaking that would result in packed theaters.
Spielberg’s answer came to mind while reading Carl J. Schramm’s essential new book, Burn the Business Plan. While Schramm is one of the world’s foremost advocates of entrepreneurialism, he doesn’t hide from the basic truth that most entrepreneurs fail. There’s no “magic formula” as it were when it comes to startup success. Or as Schramm puts it toward book’s end, “There is no time-tested body of knowledge that will improve the probability that a startup will be successful.” That Schramm doesn’t hide from the reality about innovators regularly tasting failure speaks to why his book is so valuable.
To be clear, the author doesn’t pretend. Other than a few basic suggestions near the book's conclusion, there’s no step-by-step plan in Burn that entrepreneurs can follow on the way to youthful retirement.
Crucial about all this is that Schramm isn’t writing from the proverbial Ivory Tower. Though he is one of seventeen University Professors in the history of Syracuse University, Schramm is not writing about entrepreneurialism in theory. Not only did he run the leading institution in support of entrepreneurship (Ewing Marion Kauffman Foundation) for ten years, Schramm is an entrepreneur himself. He’s founded or co-founded five companies.
And while he plainly always had the itch to go out on his own and start something, Schramm’s first venture came about somewhat by accident. Having researched hospital operations ahead of a planned research report (at the time he was a Johns Hopkins University professor), his work very much opened his eyes. The data “showed that hospitals could cut costs and, at the same time, improve the quality of care.” Schramm faced a big decision. He could either write an academic paper that would reveal his findings to a very small number, or he could “design and implement the actual mechanics and systems” to enhance patient care in concert with lower costs. Schramm chose to start a business, but did so uneasily.
All of the above rates mention to underscore how very much Schramm has not written some academic book about entrepreneurialism. He’s lived it. He’s endured the uncertainty and terror that can be found in any innovator’s memoir. As he described his thinking ahead of his first entrepreneurial leap:
“…not only would I be leaving a great university, but I’d be stepping away from a steady, if not exactly copious, financial sinecure. If I took the leap, I’d have to look to my fragile little startup not only to fund itself but to pay my salary as well. To make the decision even more difficult, just as this quandary began to unfold, my wife and I had bought a new house and become first-time parents. For the next few years, I would have very few good nights’ sleep….”
In short, Schramm speaks from experience. When he lauds the doings of the intrepid, he does so with firsthand knowledge of what they go through. Better yet, Schramm doesn’t romanticize what is difficult, nor does he reduce it to the expected. If anything, Burn exposes most assumptions about entrepreneurialism as false. As he sees it, entrepreneurs “are too valuable a national resource to be subjected to a potpourri of unsubstantiated aphorisms dressed up as a good business advice.” And so Schramm sets about slaying myths.
While most like to think of entrepreneurs as “college dropouts who became billionaires before thirty,” Schramm reports that the Gates, Jobs and Zuckerberg narratives “hold very few actionable lessons for the more than ninety-five percent of entrepreneurs” eager to start all manner of different businesses. Better yet, “the romanticized narrative” of “young, mostly male, high-tech wizard accounts for the smallest constellation in the universe of entrepreneurs – only about five to seven percent.”
More realistically, “Most entrepreneurs never went to college, and most did not start their companies until they were well along in their careers.” Schramm goes on to report that the “average entrepreneur is nearly forty years old when he launches, and more than eighty percent of all new companies are started by people over thirty-five.”
What about business plans? Schramm is serious that they’re unnecessary. He channels Von Moltke in stressing that no business plan survives commercial realities. So burn the plans. They’re realistically born of academic theorizing about writing what amounts to an exit strategy in order pique the interest of venture capital investors. Schramm laughs all of this off. Most successful ventures flourish without VC backing. Even more eye-opening is his assertion that great companies like Amex, Disney, GE and Xerox all “started without plans.” And for the skeptics who think that it’s different out in Silicon Valley, Schramm points out that “Wozniak and Jobs never wrote a plan for Apple,” nor did “the founders of Cisco, Hewlett-Packard, Google, Nike, Oracle and Walmart” get started after writing it all down.
When you stop and think about it, what Schramm’s saying makes much logical sense. The problem is that common sense is hard to find when it comes to business writing. Schramm is an exception. Thinking out loud as it were, the five-year plans of governments have always failed for countless reasons, including that human action is impossible to map. Just the same, the commercial future is logically unknowable. For an entrepreneur to write a plan is for that same person to naively presume certainty about what’s ahead where there is none. No wonder Schramm finds that fewer companies result from the “business plan” model. The very notion of a plan, particularly one closely followed, is the path to failure inside or outside government.
Thankfully, Schramm also lays waste to the taxpayer funded false concept of entrepreneurialism. Getting into specifics, he finds that “only one of the 236 local publicly supported venture funds established over the last twenty years has produced a positive return to its taxpayer investors.” The author entertainingly ridicules the idea that entrepreneurs can only prosper if they live in lofts, and are “surrounded by art galleries and craft breweries.” When city mayors promise the latter as the path to capitalistic creativity, and worse, say taxpayer funds will be necessary to create a youthful nirvana, they’re lying.
Schramm isn’t. His book is blunt. He comes from the Ewing Kauffman school of entrepreneurialism. In Kauffman’s case, he argued that “You have to start a company to learn how to start a company.” Yes. There’s no manual to this mainly because entrepreneurs are by their descriptor doing something different. How could there be a winning plan for something that almost by definition is going to be dismissed by a majority, at least at first. Schramm believes that people should learn by doing. After that, he happily offers more bluntness. As he puts it, “If you are not starting a business to make money, go home.” Were he alive, it’s a fair bet that Kauffman would agree.
From there, Burn is full of interesting stories of commercial creativity. There are blockbusters, minor successes, and failures too. Schramm never retreats from the high failure rate that defines life for those prone to take the proverbial road not taken. Still, the stories are great. There’s a Fisherman’s Wharf busker who became a music mogul, there’s a “skinny gorilla on skis” by the name of Howard Head who transformed skiing by making all of us look better on the slopes thanks to his aluminum skis (before Head, they were wood). After selling his ski company, Head turned his attention to tennis in the form of the Prince raquet. And then there’s Ewing Kauffman himself. A remarkable salesman, he built a pharmaceutical company that minted hundreds of employee millionaires when it went public.
There weren’t disagreements with Schramm as much as there were minor quibbles, and questions. He writes early on that VC investors very much have the “short-term” in mind, and that their interests tend toward business plans that quickly lead to a “liquidity event.” No doubt they do want an eventual exit, but as evidenced by how many of VC-backed start-ups fail, this crowd is fairly patient.
Schramm writes that young companies “less than five years old create about eighty percent of all new jobs.” It would be interesting to ask him about this. The previous statistic is well known, but it’s arguably been mangled? Figure that big companies are not only size employers of people, but the greater truth is that small companies invariably cluster around them. Do small businesses create most jobs, or are they positioned to employ lots of people precisely because they’re clustered around the big?
And then about a third of the way through Burn, Schramm writes that “[T]he Defense Advanced Research Projects Agency (DARPA) has cradled innumerable innovations, and the companies that grew from them, to produce widespread benefits that have infused life on earth.” He goes on to suggest that the internet, GPS technology, and voice recognition technology were all incubated in government. My take is that Schramm knows this isn’t true.
And he knows it’s not true precisely because of his immense knowledge of entrepreneurs. What they do is relentlessly search for ways to meet the needs of more and more people. That the latter is a statement of the obvious tells us that absent endless federal waste, we would have happened on the internet, GPS, and voice recognition long before we did. We would have because entrepreneurs grow rich by virtue of expanding the number served, and the number worked with. Government spending slowed our natural evolution simply because market discipline doesn’t inform it. The bad lasts forever at the expense of good replacements.
Applying all of the above to the technologies mentioned, the feds used taxpayer dollars to create wholly primitive versions of all three technologies that had no market applications. Lest we forget, the Air Force’s GPS advances were so stone age that, when released to a private entrepreneur, this same entrepreneur was rejected no less than 80 times in his pursuit of VC money for GPS gadgetry that would eventually serve us civilians. With government spending it’s always about the unseen. How much progress have we never experienced thanks to all the waste? Who knows, but absent DARPA and the rest we’d have long since left the internet, GPS and voice recognition of the day in the rearview mirror thanks to the entrepreneurs whom Schramm talks about in his excellent book. Entrepreneurs are only limited by capital availability, and governments are the ultimate capital destroyers.
Despite the freedom that comes with going one’s own way, not to mention the potential monetary rewards, Schramm notes how little entrepreneurialism is taught on campus. As he writes, “very few business schools teach even one course about franchising.” To that, my guess is that Schramm would nod along, only to say “Of course.” From the reality school of business whereby “You have to start a company to learn how to start a company,” Schramm is logically a skeptic that this can be taught. That’s once again why Burn is such a valuable read. Rather than pursue platitudes and how-tos, Schramm explodes the myths so that the courageous can pursue what is great with open eyes. Thank goodness for Schramm’s truths and for his book.