Outside Economics

Military Lessons for the Entrepreneur

Posted by Wendell Brock, MBA, ChFC on Tue, Oct 21, 2014

What do military generals and entrepreneurs have in common? Are there parallels that can be drawn from military science and building a business? What do warfare strategies and creating a new product have to do with one another? There are many parallels between military science and business. Are there any lessons about entrepreneurship that Sun Tzu's “The Art of War” can teach us? Yes.

At times building a business can feel like outright war. Business by nature is competitive. Many business leaders have studied military strategy in order to enhance their business acumen. One of the foremost texts being Sun Tzu's ancient manuscript, “The Art of War”, written over 2500 years ago. Sun Tzu's thesis is to “win all without fighting,” or to capture the market without falling into a financial blood bath against your competition. Teachings from this book are applicable to an entrepreneurs' wins and losses on the business battlefield – the marketplace.

Sun Tzu says, “If you know the enemy and you know yourself, you need not fear the result of a hundred battles.”

Sun Tzu admonishes us to study our competition in order to ascertain what gaps they are leaving in the marketplace. This is primarily intended to avoid engaging the established competition head-on, which will ultimately lead to a financial blood bath. By keeping a finger on the pulse of technologies and consumer/social changes and shifts, a good business leader can know his competition's weaknesses as well as his own. This can also allow him to focus on his strengths in order to attack the opportunities in the marketplace that are under-served by his competition.

Sun Tzu says, “Victorious warriors win first and then go to war, while defeated warriors go to war and then seek to win it.”

Sun Tzu's words underscore the importance of the lean product development methodology. This methodology focuses on creating a minimal version of the product with core features, test launching that product and the incrementally improving it from early user feedback. This proposed capital- efficient exercise conserves resources and focuses the team's attention on the product itself. Once the product is fine-tuned to a version with features guided by user feedback, then it will be ready for a larger scaled launch. In essence, this is a “win” before going to war.

Sun Tzu says, “Defeated warriors go to war first and then seek to win.” This can be demonstrated with product failures. There are many product failures, but one that comes to mind was the “New Coke” soft drink. Clearly something went drastically wrong with this product.

Sun Tzu says, “Confront them with annihilation, and they will then survive; plunge them into a deadly situation and they will then live. When people fall into danger, they are then able to strive for victory.”

This phrase speaks of intensity and commitment as well as creativity. Small, passionate teams that are dedicated and focused on a common mission are extremely effective and can achieve anything, especially when they are given the lee-way they need to creatively overcome challenges and set-backs. When everyone on the team has bought into an all-or-nothing mentality and given the freedom to create, each is capable of achievement far beyond what they ever thought possible.

Sun Tzu's ideas are timeless principles that entrepreneurs and business leaders can implement in order to have clarity of their mission, their purpose, and their commitment to the success of their team's objectives. While it may feel a bit silly for business owners to liken themselves to ancient warfare generals, Sun Tzu's teachings apply and they are implemented in some manner by today's successful entrepreneurs. What rules do you use in your business to bring about success?

Topics: entrepreneur, Building a Business

The Sour Fruits of Regulations

Posted by Wendell Brock, MBA, ChFC on Fri, Oct 10, 2014

At times you come across an article that really makes sense. I have over the years discussed the issues of how we have too many regulations in many areas of our lives. In deed a book has been written about how every day we are breaking the laws of the land simply because there are so many we don’t know that we are breaking the law.


Many of these regulations/laws have unintended consequences that in the long run cost us as a nation far more than we thought. It seems that Congress is always in a mode of trying to fix things. And their fixes often make things worse, thus requiring another fix! It would be nice if congress only meet for a year every four years, that way the dust could settle and people could have time to learn about the laws that were passed and the economy could have the time to absorb the laws.

The current situation of you have to pass the law in order to read what is in the law, in reference to ObamaCare, is not healthy for anyone. That is like buying a plane ticket without knowing what the destination is going to be or if they will return you to the city where you started! The lack of really understanding the law and what is in it for America, is now coming to haunt us with its many unintended consequences. Stomachs are turning, like what happens after eating sour fruit!

Recently I read an article on the Wall Street Journal’s website Market Watch, by Scott W. Atlas, MD, a professor at Stanford University, he was kind enough to let me share it with you my readers. I know it is a bit long for what I normally publish, but this is worth the read, because in the end it truly affects all of us.

The US Treasury Department is currently working on new regulations to keep companies from leaving the United States, so they pay taxes here instead of other countries where taxes are lower. This is very Stalinistic or you could say, “so much for the land of the free!” Communist countries don’t let their people or companies leave their countries freely, and now it appears that we are following suit, pretty scary if you ask me.

This is simply a free market move, just as you purchase products from other countries because they can manufacture or produce some good or service less expensive, taxes are a business expense and there comes a point that businesses can’t afford to keep passing these expenses on to their customers, something has to give.

It seems to me that if we lowered taxes and competed with other countries we would get more companies that wanted to locate here in the United States, which in return would raise more taxes. But forcing companies to stay here is removing our rights as a people to participate in the free market system. Read on and please offer your opinions in the comments section.


ObamaCare's Anti-Innovation Effect

Socked by new taxes, U.S. health-care technology companies are moving R&D centers and jobs overseas.

Of the many unintended consequences of the Affordable Care Act, perhaps the least noticed is its threat to innovation. Although most discussions center on the law's more immediate effects on hiring, insurance rates and access to doctors and care, attention should also be paid to its impact on U.S. research and development and health-care technology.

The overwhelming majority of the world's health-care innovation occurs in the U.S. This includes ground-breaking drug treatments, surgical procedures, medical devices, patents, diagnostics and much more. Most of the funding for that innovation—about 71% of U.S. R&D investment—comes from private industry. A recent R&D Magazine survey of industry leaders in 63 countries ranked the U.S. No. 1 in the world for health-care innovation.

But that environment is changing. According to R&D Magazine and the research firm Battelle, growth of R&D spending in the U.S. from 2012 to 2014 averaged just 2.1%, down from an average of 6% over the previous 15 years. In that same 15-year period, Malaysia, Thailand, Singapore, South Korea, India and the European Union saw faster R&D spending growth than the U.S. China's grew on average 22% per year.

The recent slowdown in R&D spending in the U.S. is in part caused by weak economic growth since the 2008 financial crisis. But the economy's weakness itself has been exacerbated by the negative impact of new taxes and regulations under ObamaCare. According to Congressional Budget Office estimates, the new health-care law will levy more than $500 billion in new taxes over its first 10 years to help pay for insurance subsidies and Medicaid expansion. These new taxes include significant levies on key health-care industries, such as manufacturers of medical devices and drugs, and their investors.

As a result, small and large U.S. health-care technology companies are moving R&D centers and jobs overseas. The CEO of one of the largest health-care companies in America recently told me that the device tax his company paid last year exceeded his company's entire R&D budget. Already a long list of companies—including Boston Scientific , Stryker and Cook Medical—have announced job cuts and plans to open new centers for R&D, manufacturing and clinical trials overseas.

The bureaucrats at the Food and Drug Administration are also hindering medical-technology and drug development. According to a 2010 survey of more than 200 medical-device companies by medical professor and entrepreneur Josh Makower and his colleagues at Stanford University, delays of approvals for new medical devices are now far longer in the U.S. than in many other developed countries. In the European Union—not exactly known for cutting through red tape—it takes on average seven months to gain approval for low- to moderate-risk devices. In the U.S., FDA approval for similar devices takes on average 31 months.

The 2011 PricewaterhouseCoopers Medical Technology Innovation Scorecard found that "the gap between innovation leaders and emerging economies is rapidly narrowing." And that "although the United States will hold its lead, the country will continue to lose ground during the next decade." It goes on to say that "China, India, and Brazil will experience the strongest gains during the next 10 years."
Since the signing of the Affordable Care Act in 2010, private-equity investment in new U.S. health-care startups has also diminished. Annual capital investment has decreased to $41 billion in 2013 from $61 billion in 2011, according to quarterly reports by the accounting and audit firm McGladrey LLP. Similarly, the Silicon Valley-based law firm Wilson Sonsini Goodrich & Rosati reported in its semiannual Life Sciences Reports decreases from the first half of 2010 through the second half of 2013 in deal closings and capital raised for startups in biopharmaceuticals, medical devices and equipment, and diagnostics, with only a slight uptick in health-information systems investment.

Meanwhile, many of the best and brightest who come to the U.S. to study science, technology, engineering and math—the STEM subjects that are so crucial to innovation—are choosing to return to their home countries upon graduation. In 2008, a survey conducted by Vivek Wadhwa and his team of researchers at Duke, Harvard and the University of California found that only 6% of Indian, 10% of Chinese and 15% of European students expected to make America their permanent home. Much of this is Congress's fault. Lawmakers have been slow to increase limits on H-1B visas for high-skill foreign workers. Pressure has been brought to bear on Congress to take action, but it may be too late for an increase in the visas to have much effect in health care, given the decline in R&D spending that would make use of their talents.
What can be done to reverse these damaging trends? First, strip back the heavy tax burdens that currently inhibit innovation, starting with repealing the Affordable Care Act's $29 billion medical-device excise tax and the $80 billion tax on brand-name drugs. Change the tax code to add incentives for investment in early-stage medical technology and life-science companies, as well as for philanthropic gifts to academic institutions that promote tech entrepreneurs.

And finally, simplify processes for new device and drug approvals, so that the FDA becomes a favorable rather than an obstructionist environment for these life-saving and cost-saving discoveries. It's a tall order, especially in today's Washington. But America's health—and wealth—depend on it.

Dr. Atlas, a physician, is a senior fellow at Stanford University's Hoover Institution.

Topics: Regulations, Health Care

Entrepreneurs, The Life Blood of Freedom

Posted by Wendell Brock, MBA, ChFC on Tue, Oct 07, 2014

The word “entrepreneur” originates from a thirteenth-century French verb, entreprendre, meaning “to do something” or “to undertake.” By the sixteenth century, the noun form, entrepreneur, was being used to refer to someone who undertakes a business venture. The first academic use of the word by an economist was likely in 1730 by Richard Cantillon, who identified the willingness to bear the personal financial risk of a business venture as the defining characteristic of an entrepreneur.entrepreneur-definition-620x300

In the early 1800s, economists Jean-Baptiste Say and John Stuart Mill further popularized the academic usage of the word “entrepreneur.” Say stressed the role of the entrepreneur in creating value by moving resources out of less productive areas and into more productive ones. Mill used the term “entrepreneur” in his popular 1848 book, Principles of Political Economy, to refer to a person who assumes both the risk and the management of a business. In this manner, Mill provided a clearer distinction than Cantillon between an entrepreneur and other business owners (such as shareholders of a corporation) who assume financial risk but do not actively participate in the day-to-day operations or management of the firm.

Successful entrepreneurs expand the size of the economic pie for everyone. Bill Gates, who, as an undergraduate at Harvard developed BASIC for the first microcomputer, went on to help found Microsoft in 1975. During the 1980s, IBM contracted with Gates to provide the operating system for its computers, a system now known as MS-DOS. Gates procured the software from another firm, essentially turning his invention into a multibillion-dollar product. Microsoft’s Office and Windows operating software now run on about 90 percent of the world’s computers. By making software that increases human productivity, Gates expanded our ability to generate output (and income), resulting in a higher standard of living for all.

Sam Walton, the founder of Wal-Mart, was another entrepreneur who touched millions of lives in a positive way. His innovations in distribution warehouse centers and inventory control allowed Wal-Mart to grow, in less than thirty years, from a single store in Arkansas to the nation’s largest retail chain. Shoppers benefit from the low prices and convenient locations that Walton’s Wal-Marts provide. Along with other entrepreneurs such as Ted Turner (CNN), Henry Ford (Ford automobiles), Ray Kroc (McDonald’s franchising), and Fred Smith (FedEx), Walton significantly improved the everyday life of billions of people all over the world.

Economists William Baumol and Peter Boettke popularized the idea that free market capitalism is significantly more productive than alternative forms of economic organization because, under capitalism, entrepreneurial effort is channeled into activities that produce wealth rather than into activities that forcibly take other people’s wealth.

Baumol and Boettke insist that entrepreneurs are present in all societies. In government-controlled societies, entrepreneurial people go into government or lobby government, and much of the government action that results — tariffs, subsidies, and regulations, for example — destroys wealth. In economies with limited governments and rule of law, entrepreneurs produce wealth.

Some entrepreneurs have some serious challenges with their businesses. While I don't condone certain businesses that are legal in our country, that does not mean they don't have specific challenges. The new cannabis  businesses in Colorado for example are having difficulty establishing banking relationships, primarily due to banking regulations. Which many would argue limits an entrepreneur's freedom.

Baumol’s and Boettke’s idea is consistent with the data and research linking economic freedom, which is a measure of the presence of good institutions to both entrepreneurship and economic growth. The recent academic research on entrepreneurship shows that, to promote entrepreneurship, government policy should focus on reforming basic institutions to create an environment in which creative individuals can flourish. That environment is one of well-defined and enforced property rights, low taxes and regulations, sound legal and monetary systems, proper contract enforcement, and limited government intervention.

Research is showing that the public policy that best fosters entrepreneurship is economic freedom. It focuses on the reasons why government programs are likely to fail, and on how improved “rules of the game” (lower and less complex taxes and regulations, more secure property rights, an unbiased judicial system, etc.) promote entrepreneurial activity. Steven Kreft and Russell Sobel (2003) showed entrepreneurial activity to be highly correlated with the “Economic Freedom Index,” a measure of the existence of such pro-market institutions.

Economists find that infusions of venture capital funding do not necessarily foster entrepreneurship. Capital is more mobile than labor, and funding naturally flows to those areas where creative and potentially profitable ideas are being generated. This means that promoting individual entrepreneurs is more important for economic development policy than is attracting venture capital at the initial stages. While funding can increase the odds of new business survival, it does not create new ideas. Funding follows ideas, not vice versa.

There are many entrepreneurship quotes that are relevant and important to every entrepreneur’s journey. Here are a few favorites:

It’s fine to celebrate success but it’s more important to heed the lessons of failure.– Bill Gates

I have not failed. I’ve just found 10,000 ways that won’t work.– Thomas Edison

Success is walking from failure to failure with no loss of enthusiasm.– Winston Churchill

It’s not about the ideas. It’s about making the ideas happen.– Scott Belsky

Ideas are easy. Implementation is hard.– Guy Kawasaki

Timing, perseverance, and 10 years of trying will eventually make you look like an overnight success. — Biz Stone

No more romanticizing about how cool it is to be an entrepreneur. It’s a struggle to save your company’s life – and your own skin – every day of the week.– Spencer Fry

See things in the present, even if they are in the future.– Larry Ellison

All our dreams can come true, if we have the courage to pursue them.– Walt Disney

Failure is simply the opportunity to begin again, this time more intelligently.– Henry Ford

If you want to succeed you should strike out on new paths, rather than travel the worn paths of accepted success. — John D. Rockefeller

Go as far as you can see; when you get there, you’ll be able to see further. — JP Morgan

It is critical that we as a country support the principals of free enterprise and entrepreneurship, the largest breaks on the system is the government and all the regulation it has created. Regulations are typically there to help “protect the people”; but all too often these same regulations impede progress and development of new products which can help people even more. How do regulations slow the progress of your business?

Topics: entrepreneur


Wendell W. Brock, MBA, ChFC

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