Failure as an Element of Entrepreneurial Success
Larry Schweikart, University of Dayton
When William Russell looked at a map of the western United States in 1859 and pondered mail delivery, two factors stood out to him: the land trails from Missouri to Sacramento both had severe disadvantages, and the water routes were too long and costly. A joke of the day said events were forgotten on the East Coast before they were reported on the West Coast. Russell’s map showed a northern route that ran from St. Joseph across Nebraska, then through Colorado to Salt Lake City, then over the mountain passes to Sacramento—but this route was nearly impassible to stagecoaches during winter months. A man on a horse, however, might have a chance. And the southern route? It was certainly open all year long, running south through Texas to Mesilla/Las Cruces, then to Tucson, then on to San Diego and up the California coast. No snow there, but then again, the route was hundreds of miles longer, forcing a coach to retrace its route north and south. Russell knew the Mongols had used single riders to deliver mail across China’s rugged terrain. Might that not be feasible across the “Great American Desert?”1
Russell, William Waddell, and Alexander Majors created the Pony Express in January 1860, an ambitious mail network to deliver letters only across the 1,966-mile route from St. Joseph to Sacramento. Contrary to popular notions of a rider covering the entire distance, the route was divided into circuits organized around the 119 stations.
Individual riders usually covered about 75-100 miles, changed horses every 10-15 miles, and rested at the end of the route,before then returning to their point of origin. Ads encouraging people to apply for employment stated flatly that the Pony Express wanted only young men, willing to “risk death daily,” with “orphans preferred.”2 Modern affirmative action rules would not have applied at all: the Express wanted light and “skinny” fellows—and many of them were 100 pounds or less—with an unwritten preference for Mormons, as it was assumed by Russell and Waddell that Mormons had special relations with the Ute Indians over whose land the routes crossed (although it’s unclear how the Utes would have known certain riders were Mormons, unless they wore white shirts and ties and rode in pairs). The weekly pay of $25 lured plenty of applicants, and the Express provided plenty of fresh horses at its stations. Then, it abruptly ended on October 24, 1861 when the telegraph lines were connected, tying the nation together and making obsolete the need for rapid letter-only delivery. Literally overnight, the Pony Express was out of business and its employees terminated, with the entire experiment a financial flop. Yet was it? We have learned through the research of Raymond and Mary Settle, that the temporarily unemployed riders soon found work elsewhere, and virtually all those whom the Settles were able to locate (and that was most of the riders) ended up with better jobs.3 Failure did not seem to harm the employees of the Pony Express. William Russell, who seems to have always thrived prior to his partnership with Waddell and Alexander, struggled thereafter. Perhaps the immediate investors thought their operation a failure. The essential question is, how many Pony Expresses followed? None. The failure of the Pony Express once its niche evaporated was a clear warning to others that the Express’s particular service was no longer profitable. Subsequent entrepreneurs—even those engaged in light, rapid mail delivery—remembered the lessons of the Pony Express.
Thanks to the Pony Express, and thousands upon thousands of other failed businesses, the market has benefitted from information. Measuring the specific contributions of the failures of entrepreneurs is likely impossible, but we can identify the resulting climate of risk-taking that it has produced, and the subsequent wealth that it has created. Sociologist Jack Goldstone has argued that, among other factors, the West’s tolerance of failure accounted for its rapid spring past all other cultures in the early modern world, and Rodney Stark, reinforcing Goldstone’s thesis, noted that the willingness to permit failure was an inherently Christian trait, stemming from a theology that allowed forgiveness of sin.4 The key, though, was that through failure one gained critical knowledge—and if astute enough, used it to one’s advantage, and if not, it was a certainty that someone else would benefit from that knowledge. And if there was a common experience among America’s greatest entrepreneurs, it was one of failure before success.
Gail Borden, for example, tried just about everything—teaching school, surveying, editing a newspaper, selling real estate—but was eternally an “idea man,” inventing such gizmos as a “terrapin wagon,” an amphibious sailing covered wagon, and the unappealing-sounding “meat biscuit.” Borden learned from his failures in other ventures that he needed to stick to inventing, and from his failures in inventing, to find a product that people wanted. His breakthrough came on a trip back to the U.S. from London, where, ironically, he received a gold medal at the 1851 Crystal Palace Exhibition for the “meat biscuit” that no one wanted. On board a ship, Borden learned that four children died from drinking contaminated milk, and he used his experience with failure—the dehydration process of the “meat biscuit”—to remove the water from milk and thereby condense it in a vacuum process that removed 75% of the water.5 Borden, whose first milk business failed, tried again with more financing, and succeeded, to the point that his Brewster, New York factory was turning out 20,000 quarts of condensed milk a day. Failure not only taught Borden what he was not good at, but it provided some of the building blocks by which he succeeded with what he was good at, inventing. Samuel Colt, after patenting a design for his pistol in 1836, found that the War Department thought his revolver was too prone to malfunctions. His first factory closed in 1842, in debt, and to stay afloat, Colt toured the country selling whiffs of nitrous oxide—laughing gas—at county fairs. It looked as though he might never make another pistol in his life, when the Texas Rangers, armed with Colts, outfought a larger number of Indians, and returned to sing the praises of the Colt revolver. Shortly thereafter, the Mexican War broke out, and the War Department placed large orders for the re-designed Colt pistol. Yet even then, it was 1849 before Sam Colt refined and improved his manufacturing processes to the point that he could make a profit. Failure had not only taught him that he needed to improve his pistol design, but it also instructed him on the profitable management of his company.6
One of the misunderstandings about the rich is that the presence of money makes it easier to succeed in business. William Miller, examining 200 corporate leaders in the 20th century, found that only 3%started as immigrants or farm boys, and C. Wright Mills, using biographical entries from the Dictionary of American Biography, concluded that business elites almost always came from money.7 The Dictionary of American Biography, however, is not comprehensive, and writers (usually sympathetic to their subjects) are likely to leave out failures if pressed for space. Even so, it is irrelevant, as the issue is not that money provides an easier start—which few would argue with—but that it protects people from experiencing failure along the way which makes them more competitive and knowledgeable for future endeavors.
It’s true that not all great entrepreneurs have experienced failure—Jonas Chickering, the piano manufacturer, combined a talent for mechanics with an ear for music to produce a quality piano, all along a nearly uninterrupted career path, while Atlee Burpee, who obediently attended a year of medical school to please his father, enlisted sufficient investors to start his mail-order seed business.8 Willis Carrier, after working for Buffalo Forge Company, convinced that firm to back a subsidiary that just made air conditioners, and when the company later decided to return to its “manufacturing roots” and close the subsidiary, Carrier and other investors started Carrier Engineering Corporation in 1915.9 Dave Green, founder of Hobby Lobby, did not fail, but came close in 1985 when a bust in the Texas oil industry caused consumer spending to dry up. Green’s business lost almost a million dollars, his first year of red ink and a loss greater than any two year’s worth of profits for Hobby Lobby. Green immediately assessed where the company had gone wrong, went “back to basics,” and returned to the black.10
Some experienced failure in one aspect of their life, which drove them to success in another. Mel Farr, a running back for the Detroit Lions and rookie of the year in 1967, saw his promising career plagued by injuries. He immediately looked ahead to his non-playing days, and took an off-season job with Ford in dealer-development, even though Ford offered him a much better paying position in public relations. Farr wanted to own an auto empire some day, and in 1974, he “took every penny he had saved during his playing career ($40,000) and invested it into a twice-bankrupt Ford dealership in Oak Park, Michigan.”11 In 1998—24 years after he retired from the National Football League—Farr’s business had 817 employees and $596 million in revenues, and was the largest black-owned business in the United States. Farr frequently appeared in his own ads wearing a “Superman” cape with his business suit, aptly capturing his remarkable achievements off the field. Similarly, C.W. Post, nearly broke from a land-investment scheme and in failing health, checked into Dr. John Harvey Kellogg’s Seventh-Day Adventist Sanitarium in Battle Creek Michigan. Kellogg would become the father of a giant cereal industry, but Post’s health deteriorated under Kellogg’s care, and he checked out, only to enter a Christian Scientist home for treatment. There, his health recovered and, in the process of starting his own sanitarium, La Vita Inn, he developed a coffee substitute made of bran and wheat berries, which he called “Postum.” By 1893, the once-struggling Post had monthly revenues of $3,000, and had created another product, a cereal of yeast, whole wheat, barley, and malted flour called “Grape Nuts,” which had neither grapes nor nuts, but which had a nutty texture and tasted like grapes!12
Others never exactly failed, but their “success” redefined patience. King Gillette, inventor of the safety razor, survived only by convincing a second group of investors to pour $60,000 into his firm after an initial group had used up all their money.13 Jeff Bezos at Amazon.com suffered through years of agonizing annual reports filled with red ink, absorbing the lessons of little failures, such as the fact that his original plan of ordering books from other suppliers was too slow, and his customers wanted faster service.14 The whole time, however, Bezos was acquiring market share that soon only Amazon and Barnes & Noble online would share, having staked out a position through the sacrifice of years of losses. Some entrepreneurs failed at a number of tasks before finding their niche: Leon L. Bean, the retail merchant, drifted through a number of business ventures that included soap sales to working in a creamery before taking over his brother’s Freeport, Maine retail store and carving out a niche in the direct-mail sporting goods market.
Due to capital constraints, most small business failures are fatal, and at least half of all startups fail in the first three years. Accurate numbers are nearly impossible to come by, as the essence of a small business failure is local, and sometimes even its presence as a real business is concealed for tax and regulatory purposes. Indeed, this was the driving force in the late 1990s behind the rise of the “micro-business,” a firm with five employees or fewer (many family members).15 By 2002, an astounding 95% of the nation’s businesses had fewer than 10 employees, and 90% had less than five!16 Micro-businesses were far more likely to disappear forever if they failed—but because of their inherent flexibility and nimbleness, they could adapt and adjust more easily than large corporations. Apple Computer’s “Newton,” the first true hand-held computer, although hailed as a technical breakthrough, was a market flop. A market for hand-helds simply did not yet exist, nor could Apple create one at the time. But Apple could absorb the loss, whereas a smaller firm, whose sole product was a “Newton,” could not. Clayton Christensen summarized the problem that big and small firms face: “Markets that do not exist cannot be analyzed: suppliers and customers must discover them together.”17 It is precisely that discovery process that entails failure, and lots of it, most never recorded in the annals of history.
Some “failure” can be as painless and innocent as a misplaced phone call. In 1990, Steve James, hoping to pitch a new company he wanted to start, was attempting to call an investment company, “CSC,” but by accident called “CFC,” a company owned by Larry Shpiner. To James’s surprise, Shpiner actually listened to the pitch and suggested they talk further. They brought in a third investor, Jim Gose, to create “TransWave,” a firm that developed a computer sensor to analyze the condition of the protective coating on buried pipes. A local energy company, Dayton Power and Light, allowed the team to experiment on its own pipeline, in the process receiving a free check-out. TransWave placed microprocessors at specific points along a pipeline, then used the Internet to receive and analyze the data—all from a failed phone call.18
For other entrepreneurs, failure can entail a cold dose of reality. Henry Heinz, whose father owned a brickyard, already had a career ahead of him in masonry, and had even invested a little money in the family business. However, his side business—a horseradish and pickle company—absorbed his attention, and, ultimately his money. When it went bankrupt, Heinz was only 25, yet found himself arrested twice for fraud related to the business. Cleared both times, the defiant Heinz abandoned bricks for canned goods. Borrowing a little money from his family, he focused on pickles, and at the 1892 Columbian Exposition in Chicago, had the poor fortune to draw a booth at the very back of the world’s fair. How could he get people to the back of the park to sample his products? Heinz had a local printer make thousands of small white cards that offered a free pickle to anyone presenting the card at his booth, which was on the second floor of one of the exhibition halls. Before long, crowds cashing in cards for pickles threatened to collapse the gallery floor, causing the fair’s officials to race in and strengthen the supports. Part of Heinz’s genius was his ability to sell. He created a slogan, “57 Varieties,” (even though he had more than 60, which was not as catchy), which proved an excellent marketing tool, and which would later become the basis for his popular “57 Sauce.” When he set up his huge industrial complex in Pittsburgh in 1900, Heinz erected one of the first fully electric billboards in the nation, a monster that cost the then-astronomical sum of $90 a night to illuminate. To Heinz—by then called the “pickle king”—it was just one more way to put his pickles in front of the public.19
Failure’s timing can be critical. If it comes early enough in one’s career, it can inform. If it comes too late, it can destroy. Andrew Jackson Higgins, the famed World War II landing-craft builder, had survived the Great Depression with his pleasure craft boat business and gone on to become, in Gen. Dwight D. Eisenhower’s words, “The Man Who Won the War” for his creation of the irreplaceable landing LSIs (Landing Ship Infantry) and LSTs (Landing Ship Tank).20 Actually, Higgins’s boat represented the perfect fusion of private industry and government necessity: although he already had an advanced design, Higgins lacked a ramp at the bow, a detail that was added by Marine General Victor “Brute” Krulak after watching the Japanese use it. (Krulak concluded it was the brainchild of “some nut out in China,” but he forwarded the suggestion to Higgins, who applied American know-how to make the best landing craft in the world.21 Higgins’s shipyards turned out 92% of the 14,000 landing craft used during the war, as well as another 8,000 vessels of other types, and at peak production, his builders knocked out 7,000 ships a month. Higgins joked that when he died, his coffin “should be in the shape of a landing craft.”22 Even Adolf Hitler was amazed, calling this Nebraska-born boat-builder the “new Noah.”23
A Roosevelt man, Higgins nevertheless chafed at the wartime and New Deal labor policies that FDR put in place, and after the war, he found that the unions had new powers that he despised. He shut down his plants and liquidated his company rather than give in to union coercion: organized labor had done what the Axis powers could not do—put Higgins out of business. It would be a mistake, though, to blame government for Higgins’s ultimate failure. He had failed to adapt to the new political landscape, and folded voluntarily rather than comply with its demands. Ironically, another rebel briefly worked under Higgins: Preston Tucker, whose Tucker Aviation Company of Detroit Higgins acquired in 1942. Inevitably, the two headstrong men could not get along, and Tucker, after making ball turrets during the war, would go on to invent and attempt to build his revolutionary automobile, the “Tucker Torpedo.” Like fellow visionary Howard Hughes, Tucker came under continued investigation and harassment from the government after the war, and no doubt Tucker was a terrible businessman who never mastered the details of balancing his books or meticulously complying with regulations.24 Hughes suffered from different problems. He insisted that wooden airplanes were still viable, and he crashed the XF-11 attempting to prove it. Had it only been the XF-11, Hughes would have avoided any Congressional scrutiny, but he had cost overruns in virtually all of his programs—like Tucker, he was far too much of a dreamer/designer and not enough of a manager—with the worst being the HK-1 Hercules. Known as the “Spruce Goose,” the all-wooden airplane was the largest aircraft ever built. Its propellers alone were 17 feet in diameter, and the hull 30 feet tall. At the time it was completed, the Hercules was also one of the most expensive airplanes ever. It soaked up all the government’s investment plus $7 million of Hughes Aircraft Company money. Still, Hughes’s radical laminating process was staggering in its accomplishment if one notes that the airplane (again, all wood) weighed 400,000 pounds.
Although free-market advocates tend to dismiss any evidence from World War II as irrelevant, because of wage and price controls and the fact that Uncle Sam was the sole buyer, there are great lessons to be learned from the private sector power that was unleashed between 1942 and 1945. Most remarkable is the fact that U.S. production doubled the output of all three of its Axis enemies combined. Likewise, if one adds all the wartime production of Germany, Italy, Japan, Britain, France, and the USSR, the U.S. came within a hair’s breadth of outproducing the entire world.25 This is significant because while all of the nations of the world who were then at war were under some form of “command” economy, the U.S. still retained the most freedom for its inventors, entrepreneurs, and builders. (The same was true in the Civil War, where Richard Bensel has concluded that the essential free-market systems of the North gave it a dominant advantage over the more command-oriented, top-down structure in the South.)26 Put another way, on any somewhat level playing field, the more open economy will usually win. And so it was in World War II, where the U.S. outproduced the Japanese 17:1 (!) in “attack” aircraft carriers in just four years of war; where American aircraft manufacturers buried the Nazis under a blanket of bombers, building some 211,000 planes and absorbing an astonishing 30% of Germany’s entire wartime effort just to counter the bombing runs.27
What this revealed was not just that the United States had incredible industrial muscle for war, but that even the failures played a role in success. No one positively knew that wood laminates were too expensive until Howard Hughes—and his cost overruns—proved it. Nor, 80 years earlier, did anyone know that Christopher Spencer’s repeater, which failed in its original tests due to excessive jamming, could be improved so as to be reliable and to deliver a more rapid rate of fire than anyone dreamed. Failure forced both the entrepreneur himself and all of his current and future competitors to explore different paths and alternative approaches. Preston Tucker’s car was not just ahead of its time by virtue of its engineering: it was ahead of its time in the understanding of auto companies’ public relations departments to appreciate the value of safety as a sales device—something that Volvo would later discover.
The examples of individuals or firms who failed at least once before achieving great success includes the names of Henry Ford, Sam Walton, and P.T. Barnum, who lost everything at middle age before starting his famous circus. Howard Hughes, of course, lost a fortune in motion pictures, but had the good sense not to interfere with his golden goose, the Hughes Tool and Die Company. A. P. Giannini was thrown out of his own company, the Bank of Italy, only to mount a massive successful campaign to take it back. Charles Darrow failed so much, in so many ways, that he created a game about his life—“Monopoly,” the most popular board game ever! Failure provides its own feedback loop about what works and what doesn’t: no one knows the first person to attempt to start a “Radio Shack” in Amish country, but someone did; and no one remembers the name of the man or woman who opened a video game arcade in an assisted living community, but you can bet it was tried . . . once.
Business creation has reached astonishing levels in the United States, leaping from 200,000 per year in the 1970s to over a million per year by 1999.28 Using slightly different methodology, William Dennis, Jr., discovered from 1996 to 2000, new business launches averaged between 2.3 million and 3.5 million per year.29 Yet many of these are the “economy’s guinea pigs”—firms that are testing new ideas, services, processes, or products and which will fail, allowing someone else to learn their lessons and reap their rewards.30 No one knew that Fred Smith could succeed with rapid air-mail delivery with Federal Express, any more than anyone knew the Pony Express would fail with essentially the same concept 100 years earlier. The co-founder of Adobe Systems, John Warnock, recalled “Those of us who started the desktop computer and software revolution of almost 20 years ago had no idea what an impact our ideas would have on the economy and society.”31 Warnock said Adobe optimistically expected to employ, if successful, 40 people: by 2000, it was the third largest PC software company in the United States with a workforce of 2,600. Who are the failed Adobes? We don’t know most of them. They are relegated to the dust bin of history, yet their contributions live on in the successes. Other entrepreneurs learned the lessons and applied them.
One of the largest business shake-outs of all time occurred in the late 1990s with the so-called “dot-com bust, when hundreds of internet companies failed because they lacked a sufficient profit model. William Tucker, a writer who had socked away earnings from co-authoring Newt Gingrich’s To Renew America, sought to invest $25,000 in a business he could put in the Internet. His concept, called “The Elevator,” was a place where, for a small fee, entrepreneurs could make a pitch to potential investors. Each aspect of the pitch would be more detailed as one ascended “the elevator.” (He called it “www.TheElevator.com”), but no sooner had he registered than he found a much better capitalized competitor, “www.Garage.com,” already had the concept in development. Forging ahead, Tucker brought in designers and artists to develop his site, and to his surprise, he had a number of people registering (i.e., paying) to submit their plans. Tucker learned that his comparative advantage over Garage.com was his fee: The Elevator’s $150 vs. Garage.com’s $10,000. Moreover, Tucker—applying his skills as a writer—had placed some stories with electronics/computers-oriented magazines, including one picked up by The Industry Standard, a California-based industry magazine. However, the Industry Standard gave the site’s address as “Elevator.com” rather than “TheElevator.com,” and interested entrepreneurs found themselves at the official site of Otis Elevator! Then Tucker learned he had started the process with an error in his original e-mail, and lost potentially hundreds of responses. After that, Tucker then found that entrepreneurs were revolting against the notion of paying to list a pitch, and he agreed to allow the Elevator pitches to be posted free. Within months, he had 100 pitches a day coming in, but had yet to match up a single entrepreneur with an investor. Between his initial $150 registration and new services (including re-writing poorly written pitches) Tucker managed to raise his revenue to a paltry $10,000 a year—barely enough to pay expenses—and was in the same boat as 90% of the dot.com busts in Silicon Valley: he had failed to develop a reasonable business model.32
The failure of some business models, however, always proves attractive to other entrepreneurs who think they see a silver lining around that cloud. Such was the case in the 1980s, when the first of two acquisitions waves swept the nation, as corporate raiders snapped up company after company. Media analysts predicted doom, complaining that corporate America was “overloaded with debt,” at the very time that corporate equity in the United States exceeded debt by $1 trillion! During the so-called decade of debt, the 1980s, corporate equity rose by some $160 billion., with the total value of the 50 largest mergers and acquisitions alone reaching $94 billion. Acquisitions included Philip Morris buying General Foods; General Motors purchasing Hughes Aircraft, Chevron buying Gulf Oil; and General Electric acquiring RCA. T. Boone Pickens, Saul Steinberg, and Carl Icahn struck fear into the hearts of the boards of directors at underperforming companies, enforcing strict accountability on management by the stockholders (the raiders). Virtually all of the criticisms of the raiders were disproven—that firms spent so much money fighting off such attempts they could not invest in Research and Development (a notion destroyed by Michael Jenson, who determined that one-fourth of the companies in his study invested more in physical plant and R&D than traditional margins demanded); or that acquisitions faced an artificial high cost of capital.33 In the second takeover wave that followed during the 1990s, boards, for the first time in decades, began to demand that Chief Executive Officers be held responsible for company performance, and board revolts occurred at GM, Compaq Computer, Kodak, Westinghouse, American Express, and IBM.
These revolts coincided with another “failure” of sorts that the market absorbed in a general sense, but had only acknowledged in a scattered, partial way. For 140 years, managers had dominated business in the United States. Alfred Chandler’s famous “Managerial Revolution” had re-shaped American firms, from soap to soup, from guns to granola, and in the process had created the structure of the most powerful economy on the planet.34 Massive layoffs in the 1990s, however, for the first time hit the white-collar sector of industry, and suddenly Newsweek blared “Corporate Killers” on its cover, recounting the layoffs by the heads of AT&T, IBM, and other companies.35 Of course, Newsweek—and many academics—missed the fact that between 1991 and 1995, employment in the United States soared by 7.2 million, and that was the Labor Department survey, not the more accurate “Household Survey,” which not only records those working for someone else but entrepreneurs and self-employed. So why were the Newsweek jobs so alarming? They seemed different because for the first time there were large numbers of people in management being cut—not just laborers—and this had to mean a major economic downturn, didn’t it?
In reality, Chandler’s theory was coming to an end, and the “Managerial Revolution” had just about run out of steam. When managerial hierarchies replaced owner-operated firms, the rise of large-scale businesses that crossed state lines and vast geographic areas, and which required orders-of-magnitude larger capital, were too substantial for an individual (or even a small corporate office) to handle. The lack of communication, combined with the relative absence of educated employees, meant that managers were transmitters of information. They listened to CEOs and boards of directors explain the strategic vision, sorted out what the next layer of managers needed to do their job, and then pass the information along. Each level of management sifted through the long-term goals and distilled it to more practical instructions for the shop floor or the railroad scheduler. As human “conduits,” managers were relatively inexpensive, and George Gilder’s law says that industry wastes cheap resources to conserve more dear resources. In this case, the scarce resource was a work force, or the “switches” who had to make the right decisions in the factory. This model not only proved adequate, but over time, dominated, even spreading to Europe, where it similarly dominated there.36
Then came the computer—but not just any computer. Chandler’s management model still worked as long as massive IBM and Cray mainframe monsters constituted the typical business computing machines. Once prices fell and personal computer networks abounded, a transformation occurred, especially after companies decided to “tie together” their employees in a “web” of information. To send information, one must open certain channels to receive information. More important, it their zeal to make employees feel like part of a family, companies began to put more and more of their data on-line, where any employee could read it. Before long, the strategic plan and company vision were no longer the sacred text, protected and translated to flunkies by management, but rather they were open documents available to any line worker, secretary, or janitor who got on-line. Suddenly companies realized that they could save paper and time by putting instructions on a web site, allowing employees to apply for parking or health care over their computers, or deliver briefings and memos by e-mail. Just as suddenly, the managers found entire hunks of their job descriptions “outsourced” to the ethersphere.
Corporations seldom really understood the dynamic of what was happening: to CEOs, the managers were “not productive” any more. But why were they not productive? Simply put, their role as transmitters of information not only had disappeared, but whenever humans had to relay information that was already available on the web (if clearly written!), the managers actually became bottlenecks for information transmission. They still had oversight and motivation functions, but their primary task since the 1850s no longer existed. It had been replaced by silicon, combined with a computer-savvy and more highly-educated and better-skilled work force. It is for this reason that the old media journalists could focus obsessively with immediate “job destruction” (failure) and fail to see the titan in front of their snouts, the success of job creation.37 Not surprisingly, as of 2007, the only two sectors where this transformation had not taken hold was in education and government.
With all of this failure abounding, one would think it might have a depressing effect on American employees and entrepreneurs. In fact, it has been quite the opposite. The proportion of Americans starting new businesses remained far higher in the U.S. than in Europe (8.5% of the American adult population compared to just 3.3% of Britons or 1.8% of French).38 American workers continue to work longer hours, and achieve more, than any industrialized competitors, so apparently the majority of employees in the United States have avoided the attempts by Newsweek to depress the workforce.39 Polls in the late 1980s showed Americans—to the tune of 90%—agreed with the statement that it was important to work, and those answering “yes” to the question, “If you received enough money to live comfortably . . . for the rest of your life, would you continue to work?” the number answering “yes” has risen steadily over time, to 85% in 1988.40 America’s sick-leave/absentee rates remain among the lowest in the world, while surveys asking about “worker pride” indicated that over 80% said they took “a great deal” of pride in their work, contrasted with only 36% of Japanese.41 Mobility from one income quintile to the next has remained strong and consistent since the 1980s, indicating entrepreneurship works, and Americans who do become entrepreneurs tend to own a substantial share of all household wealth and income, and save more than non-entrepreneurial households.42
This constant churning, the movement of one group up and others, downward, results in a widespread perception that opportunity exists, and temporary setbacks are not permanent obstacles. Our very bankruptcy laws have (occasionally too leniently) permitted people to escape the crushing debt of a single business mistake. In 1999, just 11 of the top 25 U.S. firms by market capitalization still remained from 10 years earlier, and newcomers such as Oracle, Dell, and Microsoft all were led by hard-charging entrepreneurs who had become some of America’s wealthiest people. Most of those entrepreneurs were in the Internet/high-tech field, which itself made entrepreneurship even easier by providing vast amounts of scientific, technological, and economic data, not to mention, as we saw with William Tucker, points of contact. Yet the dot.com bust shook Silicon Valley and other high-tech areas, and reminded even the “geeks” that no product stands above Adam Smith’s dictum that one must serve one’s fellow man. Even the “New Economy” proved to be much like the old economy in that a business had to produce a profit, after all, and that expectations did not equal income.
Those realities reaffirmed the central relationship of failure and success in American entrepreneurial history: bankrupt businesses, in their death, provide critical information for those still living. Indeed, one might even term their deaths “sacrifices” that advance society through knowledge. Success follows these Schumpeterian sacrifices, setting the stage for new rounds of expansion, failure, and success. (Cue Elton John singing “The Circle of Life.”) It is, nevertheless, true that the lifeblood of American business is entrepreneurship, and failure plays its role by continually purging and purifying capitalism’s bloodstream, leaving survivors stronger and smarter.
Notes
1. Raymond and Mary Lund Settle, Saddles and Spurs: The Pony Express Saga (Lincoln: University of Nebraska Press, 1955); Fred Reinfeld, Pony Express (Lincoln: University of Nebraska Press, 1966); Larry Schweikart,The Entrepreneurial Adventure: A History of Business in the United States (Ft. Worth, TX: Harcourt, 2000), 125-126.
2. http://gorp.away.com/gorp/publishers/fulcrum/pony-exp.htm
3. Settle and Settle, Saddles and Spurs, 92-112.
4. Jack A. Goldstone, “Cultural Orthodoxy, Risk, and Innovation: The Divergence of East and West in the Early Modern World,” Sociological Theory, Fall 1987, 119-135; Rodney Stark, The Victory of Reason: How Freedom Led to Freedom, Capitalism, and Western Success (New York: Random House, 2005). Also see Joel Mokyr, The Lever of Riches(New York: Oxford, 1990); David Landes, The Unbound Prometheus: Technical Change and Industrial Development in Western Europe from 1750 to the Present (Cambridge: Cambridge University Press, 1969); and Nathan Rosenberg and L. E. Birdzell, How the West Grew Rich: the Economic Transformation of the Industrial World (New York: Basic Books, 1969).
5. Joseph J. Fucini and Suzy Fucini, Entrepreneurs: The Men and Women Behind Famous Brand Names and How They Made It (Boston: G.K. Hall, 1985), 13-16.
6. William B. Edwards, The Story of Colt’s Revolver: The Biography of Col. Samuel Colt (Harrisonburg, PA: Stackpole Co., 1953); Henry Barnard, Armsmear: the Home, the Arm, and the Armory of Samuel Colt, a Memorial (New York: C. A. Alvord, 1866); and William Hosley, Colt: The Making of an American Legend (Amherst: University of Massachusetts Press, 1996).
7. William Miller, “American Historians and the Business Elite: A Collective Portrait,” in William Miller, ed., Men in Business: Essays on the Historical Role of the Entrepreneur (New York: Harper and Row, 1962), 110-139; C. Wright Mills, “The American Business Elite: A Collective Portrait,” in Irving Horowitz, ed., Power, Politics and People: The Collected Essays of C. Wright Mills (New York: Oxford University Press, 1962).
8. Schweikart, Entrepreneurial Adventure, 294-295; Fucini and Fucini, Entrepreneurs, 5-8; Ken Kraft, Garden to Order (Garden City, NY: Doubleday, 1963).
9. Margaret Ingels, Willis Haviland Carrier, Father of Air Conditioning (Louisville, KY: Fetter Printing Co., 1991). Thanks to research from Jennifer Keller and her paper, “Willis Carrier, Founder of Carrier,” April 2000, in author’s possession.
10. Dave Green with Dean Merrill, More Than a Hobby (Nashville: Nelson, 2005), 26-27.
11. Kevin Terrell, “Whatever Happened to . . . Mel Farr?” NFL Insider, 1 (1999), 174-175.
12. Frank Rowsome, Jr., They Laughed When I Sat Down (New York: McGraw-Hill, 1959); Nettie L. Major, C. W. Post: The Hour and the Man (Washington, D.C.: privately published, 1963).
13. Russel B. Adams, Jr., King C. Gillette: The Man and His Wonderful Shaving Device (Boston: Little Brown, 1978); Robert Sobel and David B. Sicilia, The Entrepreneurs: An American Adventure (Boston: Houghton-Mifflin, 1986), 65-71.
14. Chris Edwards, Entrepreneurs Creating the New Economy, Joint Economic Committee Staff Report (Washington, D.C.: Government Printing Office, November 2000), 26.
15. California, which in 2001 included “micro-businesses” as a separate section of its tax code, defined the firm as 25 or fewer employees and/or annual gross receipts of $2.5 million over the previous three years.
16. Dawn Rivers Parker, “The Microbusiness Way of Growth,” June 2005, http://64.233.167.104/search?q=cache:R3lOiFDrlJsJ:www.microenterprisejournal.com/cgi-bin/dl/dl.pl%3Fmif/dl.mif,Micro.pdf+Micro-business+growth+statistics&hl=en&gl=us&ct=clnk&cd=4, 8.
17. Clayton Christensen, The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail (Boston: Harvard Business School Press, 1997), 147, 160.
18. Jennifer Keller, “TransWave,” April 2000, paper in author’s possession; Laura A. Bischoff, “TransWave’s Circling the Globe,” Dayton Daily News, January 4, 2000.
19. Fucini and Fucini, Entrepreneurs, 102-105.
20. Quoted in John A. Heitmann, “The Man Who Won the War: Andrew Jackson Higgins,” Louisiana Historical Quarterly, 34 (1993), 35-40; Jerry E. Strahan, Andrew Jackson Higgins and the Boats that Won World War II(Baton Rouge: Louisiana State University Press, 1994).
21. Larry Schweikart, America’s Victories: Why the U.S. Wins Wars and Will Win the War on Terror (New York: Sentinel, 2006), 157-159; Victor H. Krulak, First to Fight: An Inside View of the U.S. Marine Corps (Annapolis: United States Naval Institute, 1984), 90-91.
22. Strahan, Andrew Jackson Higgins, 1.
23. Strahan, Andrew Jackson Higgins, 3.
24. Charles T. Pearson, The Indomitable Tin Goose: The True Story of Preston Tucker and His Car (London: Abelard-Schuman, 1960).
25. Richard Overy, Why the Allies Won (New York: W. W. Norton, 1995), 182, 411; Larry Schweikart and Michael Allen, A Patriot’s History of the United States (New York: Sentinel, 2004), 600-602.
26. Richard Bensel, Yankee Leviathan: The Origins of Central Authority in America, 1859-1877 (New York: Cambridge, 1990).
27. Schweikart, America’s Victories, 153-156.
28. Jeffrey Timmons, New Venture Creation: Entrepreneurship for the 21st Century (New York: Irwin/McGraw-Hill, 1999), 5.
29. William Dennis, Jr., Business Starts and Stops, Wells Fargo/National Federation of Independent Business, January 2000.
30. Edwards, Entrepreneurs Creating the New Economy, 27.
31. Testimony of John Warnock before the U.S. Senate Joint Economic Committee, June 6, 2000, cited in Edwards, Entrepreneurs, 14.
32. William Tucker, “On the Internet No One Knows You’re a Dog,” The American Spectator, May 2000, 38-45.
33. Michael Jensen, “The Modern Industrial Revolution: Exit and Failure of Internal Control Systems,” Journal of Finance, 48 (July 1993), 831-880; Michael Jensen, “Eclipse of the Public Corporation,” Harvard Business Review, September-October, 1989, 61-74; Carliss Y. Baldwin and Kim B. Clark, “Capital-Budgeting Systems and Capabilities Investments in U.S. Companies after the Second World War,” Business History Review, 68 (Spring 1994), 73-109.
34. Alfred Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, MA: Belknap Press, 1977) and his Strategy and Structure: Chapters in the History of American Industrial Enterprise(Cambridge, MA: M.I.T. Press, 1962).
35. “Corporate Killers,” Newsweek, February 26, 1996. The New York Times obediently ran a similar multi-part story: “The Downsizing of America,” March 3-9, 1996, with the first article titled, “ On the Battlefields of Business, Thousands of Casualties,” likening being fired to death in combat.
36. Alfred D. Chandler, Jr., and Herman Daems, eds., Managerial Hierarchies: Comparative Perspectives on the Rise of the Modern Industrial Enterprise (Cambridge: Harvard University Press, 1980).
37. James K. Glassman, “Thank You American Businessmen,” The American Enterprise, March 2000, 26-28.
38. Julia Flynn, “Gap Exists Between Entrepreneurship in Europe, North America, Study Shows,” Wall Street Journal, July 2, 1999; http://www.ncpa.org/pi/internat/intdex9.html.
39. Timothy Burn, “U.S. Employees Work Longer, Achieve More,” Washington Times, September 7, 1999.
40. Schweikart, Entrepreneurial Adventure, 540.
41. Ben Wattenberg, The First Universal Nation (New York: Free Press, 1991), 370.
42. William M. Gentry and R. Glenn Hubbard, “Entrepreneurship and Household Saving,” July 2000, draft in author’s possession.