Boldrin and Levine have written an important book decrying intellectual property regimes, and yesterday's post on fail fast fail cheap has been an occasion to reflect further. To wit, entrepreneurs take no risks (following Drucker.)
Let's look at two fundamentals of our system as taught in business schools - bank credit and intellectual property laws.
Borrowing money at interest to finance an enterprise was a criminal act, on both sides of the transaction, until a few hundred years ago, just about everywhere on planet earth. Western states began to allow this, and then protect it, and then develop it to an art form. We went from no loans at interest, to state protected bank loans of money at interest, to fractional reserve (with the non-money fraction being credit) to fractional reserve on credit, to a regime of credit lent at interest.
(Until the change all loans were charitable events. Business was financed by participation in risk, not guarantee of interest.)
There is no rational limit to how much credit can be lent, only to how far people will accept promises to be paid in a currency. The limit may be metaphysical: God said punishment is only to the third and fourth generation, so maybe God lays waste to societies who try to burden a fifth generation with debt formed today. (Who knows, that explanation is superior to any other on offer as to the timing of fiat currency failure.)
But back to the creation of credit way beyond anything needed, beyond the necessary and sufficient credit created among merchants, something for which banks are not needed. How to have this excess credit taken up? Well, by inculturating an idea that businesses take risks, then people normally disinclined to borrow heavily begin to believe it is necessary to borrow heavily to succeed. They begin to believe it is an article of faith, which of course it is in capitalism. So the academy has obliged the bankers to spread the word: entrepreneurs take risks. Eventually, society believes up is down, black is white, entrepreneurs take risks.
The second part is intellectual property laws. In the debate of Church vs King, the state won. The state took over patents from the king and the church, and now uses it to control innovation.
Here again the academy has advanced an internal contradiction as an imperative: the entrepreneur must maintain innovation and secrecy at the same time. The mind boggles! We are to develop a product with no reference to the market in the process? How can you develop something for a market while keeping it secret? Eventually, society believes up is down, black is white, innovation demands secrecy.
Of the some 8 million patents issued in USA since 1789, almost nothing patented has ever turned into a product. Did you know that? Any patent attorney can tell you that. And of the almost zero patents that have led to an actual profit, almost nothing among those examples ever turned a profit. Did you know that a patent is almost a total assurance of failure? Again, any patent attorney can tell you this. My favorite patent attorney does. And if true, would that be important? Well, check it out.
The real path to success is not NDAs and NCAs and patent applications, but getting your ideas in front of your target customer as soon as possible. For the feedback. There is nothing riskier than keeping your idea secret.... and entrepreneurs do not take risks. We eliminate risks, and one way is to fail fast fail cheap (and I just recall that it was Edison who codified this process after going bankrupt once).
So what are the fundamentals as taught by the business schools: borrow more money than you can pay back to finance a secret project that is guaranteed to fail something like 7.9999 million out of 8 million times.
No wonder our economy is a mess.
That would be bad enough, but the IPR regime allows losers to sell their patents to billionaires who then blackmail anyone who tries to innovate.
We have too little innovation and way too much delusional risk.
Our ratio between small innovative and huge price reducing is terminally out of whack.
So compete on design, Advance along plan a or plan b. Fail fast and early and often, but with negligible cost to yourself.
Two reforms:
1. Make interest a nonenforceable contract item, like gambling debts. that will end predatory banking and oblige investors to actually put their money at risk in more local and rational initiatives. More small business start-up.
2. Eliminate IPR laws. This will save our economy.
Either one will buy us time, both will spur a renaissance.
***John Spiers will be offering an all-day seminar on small business international trade start up at Orange Coast College, Los Angeles Area, June 29, 2013. Full info here...***
Feel free to forward this by email to three of your friends
Let's look at two fundamentals of our system as taught in business schools - bank credit and intellectual property laws.
Borrowing money at interest to finance an enterprise was a criminal act, on both sides of the transaction, until a few hundred years ago, just about everywhere on planet earth. Western states began to allow this, and then protect it, and then develop it to an art form. We went from no loans at interest, to state protected bank loans of money at interest, to fractional reserve (with the non-money fraction being credit) to fractional reserve on credit, to a regime of credit lent at interest.
(Until the change all loans were charitable events. Business was financed by participation in risk, not guarantee of interest.)
There is no rational limit to how much credit can be lent, only to how far people will accept promises to be paid in a currency. The limit may be metaphysical: God said punishment is only to the third and fourth generation, so maybe God lays waste to societies who try to burden a fifth generation with debt formed today. (Who knows, that explanation is superior to any other on offer as to the timing of fiat currency failure.)
But back to the creation of credit way beyond anything needed, beyond the necessary and sufficient credit created among merchants, something for which banks are not needed. How to have this excess credit taken up? Well, by inculturating an idea that businesses take risks, then people normally disinclined to borrow heavily begin to believe it is necessary to borrow heavily to succeed. They begin to believe it is an article of faith, which of course it is in capitalism. So the academy has obliged the bankers to spread the word: entrepreneurs take risks. Eventually, society believes up is down, black is white, entrepreneurs take risks.
The second part is intellectual property laws. In the debate of Church vs King, the state won. The state took over patents from the king and the church, and now uses it to control innovation.
Here again the academy has advanced an internal contradiction as an imperative: the entrepreneur must maintain innovation and secrecy at the same time. The mind boggles! We are to develop a product with no reference to the market in the process? How can you develop something for a market while keeping it secret? Eventually, society believes up is down, black is white, innovation demands secrecy.
Of the some 8 million patents issued in USA since 1789, almost nothing patented has ever turned into a product. Did you know that? Any patent attorney can tell you that. And of the almost zero patents that have led to an actual profit, almost nothing among those examples ever turned a profit. Did you know that a patent is almost a total assurance of failure? Again, any patent attorney can tell you this. My favorite patent attorney does. And if true, would that be important? Well, check it out.
The real path to success is not NDAs and NCAs and patent applications, but getting your ideas in front of your target customer as soon as possible. For the feedback. There is nothing riskier than keeping your idea secret.... and entrepreneurs do not take risks. We eliminate risks, and one way is to fail fast fail cheap (and I just recall that it was Edison who codified this process after going bankrupt once).
So what are the fundamentals as taught by the business schools: borrow more money than you can pay back to finance a secret project that is guaranteed to fail something like 7.9999 million out of 8 million times.
No wonder our economy is a mess.
That would be bad enough, but the IPR regime allows losers to sell their patents to billionaires who then blackmail anyone who tries to innovate.
We have too little innovation and way too much delusional risk.
Our ratio between small innovative and huge price reducing is terminally out of whack.
So compete on design, Advance along plan a or plan b. Fail fast and early and often, but with negligible cost to yourself.
Two reforms:
1. Make interest a nonenforceable contract item, like gambling debts. that will end predatory banking and oblige investors to actually put their money at risk in more local and rational initiatives. More small business start-up.
2. Eliminate IPR laws. This will save our economy.
Either one will buy us time, both will spur a renaissance.
***John Spiers will be offering an all-day seminar on small business international trade start up at Orange Coast College, Los Angeles Area, June 29, 2013. Full info here...***
Feel free to forward this by email to three of your friends
2 comments:
John, I bristle whenever I hear the word "start-up". The term has been used to death, and right now in the tech world, success as a start up means getting traded or bought by big companies; no matter if it never brought in profit or is genuinely useful. I'm kind of hoping that you wouldn't use that high-faluting jargon when describing those who are starting up in their business in the method that you describe -- it doesn't do justice to those who have successfully run their business the way it should have been started: customers first. Start-ups think: acquisition & VCs first. Therein lies the problem.
Hey Amy,
Any suggestions for a better word? My problem is the word start-up predates the whole dotcom thing, like me.
I agree with what you describe and its assessment. It is precisely that bad idea that crowds out the right ideas about business start-up. Give me a better term, and I'll use it!
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