On Entrepreneurship: Pablo Martin de Holan

How is entrepreneurship an important tool in the business world? Pablo Martin de Holan is best placed to give us this insight as the Chairman of the Entrepreneurial Management Department at IE Business School where he also teaches Strategic Management. He regularly visits INCAE (Costa Rica) where he has been Professor of Strategy and Organization since 1998 and is also Adjunct Professor at MIT’s Master in Supply Chain Management in Saragossa, Spain.

In the corporate world, what does entrepreneurship mean and why is it important?

It means something different to what it means in real life; in real life, entrepreneurship usually means a man or woman who has an idea, creates a new business and goes on their merry way. In the corporate world, companies don't want you to quit if you have a good idea. There are also legal issues; if you have a good idea while you work for a corporation, part of the idea may be owned by that corporation. In that respect, corporations want people who have initiatives. That's what they call entrepreneurship. They want people to be able to see the opportunities and to transform these opportunities into reasonable ideas; to transform these ideas into viable business models and then to implement them and create new units of the corporation. We have seen today that companies are asking students not just whether they are able to do marketing, accounting, finance or operations, but also whether they are able to detect and transform opportunities. The world is more and more dynamic, I would even say unpredictable, and as such, you need to be sensitive to opportunities. In the corporate world, entrepreneurship means people who are able to detect and transform opportunities that are good for them and the companies that they work for. Why it is important? Well, for a variety of reasons. First, because it's important for companies to renew or transform themselves, and you can only do that through opportunities in the market. But also because, if new opportunities are truly unpredictable, we don't know what kind of companies these opportunities are going to construct. Therefore, people are able to go little by little with those opportunities and eventually transform the company. Take Google today, or Yahoo or Microsoft; they are very different companies to what they were 5 years ago. These transformations were created by opportunities. When established companies cannot detect new opportunities, they leave the space open for new opportunities, for new entrepreneurial companies. Big companies don't want to lose out to the small ones which is why they ask people to demonstrate entrepreneurial initiative.

Do you think that entrepreneurship can be taught?

It depends what you mean by taught. The answer would be: yes and no. If we couldn't teach anything, we wouldn't have entrepreneurship classes and people studying and teaching entrepreneurship. On the other hand, we don't do brain transplants; if you come without entrepreneurial initiative, we cannot transform you into a  Richard Branson. The point is not whether it can be taught or not; it's not a reasonable question. The idea is not to teach entrepreneurship to someone who doesn't have any entrepreneurial drive, but rather to increase the degree of entrepreneurship that a person may have and their exposure to entrepreneurship. Science shows that entrepreneurship is not associated with a gene; it's not something you are born with. You have a propensity for entrepreneurship and, depending on your life situation and how you evolve, you are more or less likely to be inclined to take entrepreneurial initiative. The idea here is more to expose you, and to give you the ability to detect opportunities; and that can be taught, absolutely.

Everything is in the definitions. If entrepreneurship is creating a successful company and launching an idea, then obviously entrepreneurship is for a small minority; if entrepreneurship is about mobilizing resources to take advantage of an opportunity in any market, then we all do it all the time.

Entrepreneurship has the commercial dimension that most people see, but there can also be social entrepreneurship whereby  people create new things out of nothing but not with commercial gain as their primary goal. Is that not entrepreneurship? Of course it is. If you take a broader definition of entrepreneurship, you will see that it's intrinsic to human beings. Most of us, when we don't like a situation as it is, try to find a new situation; well, that's entrepreneurship. Creating something that doesn't exist, that's intrinsically human nature.

How does your Executive MBA program face that challenge of entrepreneurship?

We have created a program around entrepreneurship, and what we do there is take the student through four different stages. The first stage is idea generation; you need to be able to create an idea which works in commercial terms. Then you move from the idea to business model creation to decide whether the idea is going to be commercially viable or not. Next, you move to the resources you need and finally you end up with a business plan and an implementation plan. By forcing them to pass through all of these stages, they learn the processes by which ideas are transformed, and this makes them much more inclined to see the opportunities when they go to companies. Entrepreneurship is not really a theory, entrepreneurship is not a science and it is not an art. It is a practice, and like any practice, well, you get better with practice. And that exactly what we do: we force participants to jump through all the hoops and stages that a normal entrepreneur will go through, evaluating and coaching them throughout this process.

Talking a little bit more about your program, do you use any simulation based learning in acquiring entrepreneurial skills?

Yes, we do. Simulation is a big word for a variety of tools and we use them all. Like any tool it really depends on what you want to teach, so we try to understand what content we want to convey and then we choose a tool that is appropriate for that. As entrepreneurship is, for most of us, a practice that you can only improve at through practice itself, simulations are a very good way to practice at a low cost. Clearly, making a mistake when you really start a firm is fairly costly. When you do a simulation, the cost is reduced; it's good learning at low cost.

Still talking about your program specifically, what are the values you try to instil in the participants, so that they are not only better future entrepreneurs, or 'intrepreneurs', but also responsible future entrepreneurs?

Management is a practice; like entrepreneurship, it's not a science nor an art. It's a practice that is a part of what we do as human beings. We are not just managers who exist in the commercial world and therefore, we do have to accept some responsibility. It is no longer acceptable to say, "anything goes to make money." You should be open to and aware of the consequences of what you do. Entrepreneurship is a way to take new opportunities and create transformation in an economy but that can only happen if people are aware of the true consequences of their actions. Younger students are really sensitive to the problems of today – for example the environment, and the food crisis emerging around the world. You know that money is not the only master; you have other goals in life.  You don't confuse a business with a charity; a real firm needs to make money, but on the other hand, you cannot go through life ignoring all consequences; you cannot just dump your chemicals in the river saying, "Well, they'll vanish and it's not my problem." You need to be a good citizen, to use a French term, an 'Honnête homme', which means a decent person, a good citizen; that requires understanding the consequences, especially commercial ones, of your actions.

Working in Latin America, Europe and North America, I find that people see the world in different ways. In some parts of the world people think that firms are there just to give them jobs which is not the only, or certainly the most important, goal. On the other hand, in other parts of the world people say, without blushing, that the first objective of the firm is to make money. Of course, firms need to make money, but that's not the main objective, it's rather a consequence of something that you do right. You make money when you sell something to someone who wants to buy it. The idea is to find some moderation in that perspective. Firms needs to be sustainable, commercially viable, but without wrecking the environment or poisoning its workers. Firms need to be fair, in the sense that you give people what they deserve for what they have contributed there. It's a combination. What we are trying to do in entrepreneurship is essentially make better people; not simply more successful managers or entrepreneurs, but better human beings. People who, at the end of the day, are happy that they did a good job, employed a group of people and made their world a little bit better.

Consider this example: Entrepreneurship is usually thought of as someone who creates some multinational firm that is worth many billion dollars; that is only a small fraction of entrepreneurship. As part of a recent program at IE working with African women, we had the case of a woman in Senegal who received a 'microloan' of literally 30 or 40 euros (essentially less than 50 dollars), which is a really insignificant sum of money for people in the developed world. She used that money to buy a washing machine and she also bought a set of wheels. She was going around the village with her washing machine on wheels, from house to house, renting out the washer. For her customers, her neighbours in fact, that was a good proposition because using this service meant that they didn't have to go to the river to wash their clothes. For those two hours, they could do much more interesting activities than washing their clothes, so she was also contributing to the general well-being of the community. That is entrepreneurship. When we interviewed this woman, she was happy because she had found a job for herself; her family was wealthier and she had more money to buy things; her kids were healthier and they had shoes. But she was also happier because people in her community were happy - they were saving two hours of unpleasant work and were able to do something else. You have a small intervention and a big outcome. This woman was happy, not only because she making money, but also because she was helping to build and benefit her community. That's what entrepreneurship can give you - not just money so you can drive your own Ferrari, but also the feeling that you are creating jobs for people, that you making a good product people want to buy or that people are happy using whatever you are selling. All these things make us feel better.

What a fantastic story. Are you actually involved in micro-financing projects at IE?

We are, but we do not finance the projects ourselves; that's not how we contribute. What we do is essentially a continuation of what we do with students. We teach these people who have ideas, or people who already have businesses, how to create a business plan that allows them to implement their idea or to grow their business. Currently in July 2008, we are working with 25 African women who have very promising businesses, but they don't really know how to expand these businesses into something bigger and go to the next stage. We fly them over from the five countries in Africa – Rwanda, Liberia, Senegal, RBC (which is the Congo), and South Africa. They fly to Madrid and get intensive training in entrepreneurship, learning how to transform their idea into something bigger, and how to present the idea to potential investors.

On a lighter note, let's talk about clichés:  Do you think that women are better entrepreneurs than men?

Clearly women are different from men; they do things differently and they see the world in different ways. It all depends what you mean by "being better entrepreneurs." Academic research considers that question in three ways. Firstly, are women more likely to engage in entrepreneurial activities than men? The answer is: yes and no. The second question is whether, when they do engage, do they have higher, similar, or lower rates of return for the investment? The third aspect, in spite of rates of return, is do their firms last longer, just as long, or do they die quicker? Regarding the first question, we know that there are two drivers of entrepreneurial activities: in developed economies, people tend to get into entrepreneurial activities because they see an opportunity.

In poor countries, people tend to go into entrepreneurial activities simply out of necessity. If you don't have a job, you have to do something otherwise you starve: you start selling sliced fruit on the side of the street, you cook, or like the woman I mentioned before, you go with a portable washing machine from door-to-door. That is called 'entrepreneurship of necessity'. Men tend to be more inclined to engage in entrepreneurial activities that are motivated by opportunity, but women tend to be more inclined to enter commercial areas related to necessity. In Africa or South America, if you are a woman in charge of your two kids because you have no one to support your family, you need to do something. Necessity is the mother of all inventions, though it's not exactly necessity (on the part of the community) but rather desperation (on the part of the 'inventor'). So it's a different story in the developed world.

This leads to the second point: the rate of return of the firms. Due to the conditions I just mentioned, this tends to be lower for women than for men; that's not because they're women, but rather that the type of opportunities they take are different. Clearly, the return of this woman who rented the washing machine is going to be lower than some invention for Google. It's not genetic or related to gender; it's about the type of opportunities you seize which is related to your personal situation. The last question is the long lasting firms. If the nature of entrepreneurship is sustainability, you don't want to create a firm that fails every year or so. Because of prudence and necessity, firms created by women tend to last longer; they tend to be much smaller and they tend to be more organized for the community.

This is just a hypothesis, but I feel that in the developed world, the more equal men and women are, the more likely we are to see similar results for them. Society is, to a large extent, still quite unfair to women. We are looking at something and making a wrong cause of attribution saying that women have less entrepreneurial drive than men when we should be saying that they 'do' less entrepreneurship because they are not in the same situation. Another example that is very telling can be seen if you take the idea of a traditional family - mum, dad and two kids. If dad spends every single hour of the day creating a successful firm, he will be a great entrepreneur, even if his family time suffers. The day still only has 24 hours and if you spend 12 hours a day paying attention to your business, your customers, the prototypes, the financiers, you may make the cover page of the Fortune500 but you're not spending time with your family. If you're a woman and you 'neglect' your kids, send them to day-care and don't take care of them, you are considered a bad human being. I'm not saying either one is ideal; just that the standards are different and because of that we cannot conclude that it is an even playing field. When researchers do simulations in which there are no kids, and men are women are in similar conditions, we don't see significant differences, which suggests that differences observed when children do enter into the equation are probably not genetic.