TEDxMidAtlantic 2010 - Saras Sarasvathy - 11/5/10

if I'm standing before you today it's because I went to college and I could go to college because one of the oldest entrepreneurial companies in India created a foundation the Tata Foundation that paid for my college tuition ever since then I began noticing that we live in a world created by entrepreneurs in in inly so but we don't quite understand how they do it in fact the entrepreneurs themselves if you ask them don't always provide a coherent story of how they did it let me give you a few examples we wake up in the morning

switch on the bedside lamp we know Edison the inventor had something to do with that but how about Edison the entrepreneur and what it took to create G the inventor was a genius an entrepreneur not quite the same thing so as we pour a cup of coffee in the morning we might think about Starbucks what a cool idea but if we go back to the 1980s and look at the original Founders and their little shop in Pike Place Market or even when Howard shuls came in later and came up with the idea of the coffee

shops we will have to notice that 20 years in a row coffee consumption had been declining in the United States as we lace up our running shoes and reach for the MP3 player we may not know that um Nike started as a Distribution Company fil night sold shoes out of the trunk of his car uh or that Sony was one of the first products Sony made was rice cookers because some of their customers at that time would pay them with rice as they run out of the driveway into the street we might notice the garbage

truck pull up the waste management giant Browning Ferris was started by an accountant Tom fjo worked for a top six accounting firm in Houston and his homeowners association would complain over and over about the garbage problems that they had in the development and finally somebody challenged Tom to go out and buy a garbage truck so he wake up at 4: in the morning morning go out and haul his neighbor's uh garbage come back shower wear a suit go off and do his client's taxes can you imagine the day he came home and announced to his

family honey I'm quitting accounting going full-time into the garbage business all these companies and thousands like them that are actually all around us like the air we breathe we take them for granted they all have have amazing intricate patterns and stories in their Origins that just cries out for researchers to come along and pull together into some kind of a unifying explanation we have some explanations there the great man thesis that entrepreneurs are somehow very different from the rest of us maybe they are Risk Takers or if you want to put the negative spin maybe

they are overconfident maybe they are you heroic they persevere in the face of adversity and of course maybe it's in their genes there's also the luck hypothesis always a good one to have on your side and the situation matters too whether it's the macroeconomic environment in which entrepreneurship happens or the family background of the entrepreneur but for those of us who teach entrepreneurship these explanations are quite not quite satisfying in the classroom but wait we have been here before in the 16th century we had very similar explanations for science some men can read the signs

of nature there was always Providence and situation mattered particularly because a lot of the scientists then were wealthy gentlemen Bor Born Into the upper classes both in the case of the entrepreneurial method and in the case of the scientific method these things are true even today they're valid they're important explanations but we are not we leave entrepreneurship only to those explanations whereas with science we are able to go out and teach millions of people the scientific method sometimes even fifth graders as a result of of that we have set in motion an explosion in the

products of Science in the knowledge that they create in many fields and in the production of scientists Derek price estimates that roughly once in 15 years the number of scientists in the world doubled it's very tempting to go back to the early stages and ask what set the ball rolling up that hill and we find the picture of Francis Bacon who wrote a book called Noom organm where he described his Insight that there exists a systematic way for us to understand nature and put its forces to work to achieve our purposes now bacon hadn't worked

out all the details of the scientific method then but his book kind of inspired a lot of people to fill out the details to such an extent that now we can teach millions of people and I don't have to go into the amazing benefits that we have found by using the scientific method whether it's cure for disease or a better communication faster travel and so on other Ted speakers have done a very good job of that if you want to learn more about that so let's fast forward to the 20th century the man on the

right is Herbert Simon 1978 no no prize in economics but herb Simon was more than a economist he was a quintessential scientist he transformed many fields from political science to management psychology and computer science when I was a doctorate student in carnegi melan University I got to work with him to design a study to look at how export entrepreneurs think decide and act about 30 export entrepreneurs people with enormous amounts of experience building companies including failures successes did an experiment where I gave them a 17-page problem set with typical decisions that happen in a startup

and I had them think aloud continuously as they solve the problem since then about a dozen researchers have beg looking at how entrepreneurs build Ventures some of them have helped replicate the original study with other groups but also they've designed their own experimental non-experimental methods all different kinds of studies so we beginning to map out what we think may be at the core of something that we would like to call the entrepreneurial method the first thing we noticed in the data was that expert entrepreneurs hate market research when we started going in and looking at

it in Greater detail we found it's not just that they don't like market research they actually are suspicious of predictive information of any kind in fact if that is a way to make a decision without using predictive information they would do that so here's a first Insight many of us invest in prediction because we believe that to the extent that we can predict the future we can control it the expert entrepreneurs kind of flip that belief on its head when you look at how they act and we look at the histories of the companies they

create it looks like they're saying to the extent we can control the future we don't need to predict it kind of neat huh until you ask the next question how do you control a future you cannot predict so as we begin to tackle this kind of fascinating question let's remember some of the stories that I started out with in those stories I tried to make a case that expert entrepreneurs don't really start with some brilliant ideas or some extraordinary Insight or foresight about the future they start like you or I might do they start with

who they are what they know and whom they know even Edison the genius right he had the bul but going from the bulb to GV is the story that I'm talking about here so they start with who they are what they know and whom they know and they start doing the things that they can do things that they think are doable and worth doing they don't spend enormous amounts of money or time on it they only spend what they can afford to lose and since they don't like market research they go out and immediately start

talking to people even before there is a product or a prototype or something and what they're trying to do as you might expect is they're trying to get people to commit to their venture to get people to come on board their Venture sounds good enough let's try to do this with a little toy example example I like this pen here so let's say that this is our idea we are going to make a venture of this pen this is just a toy example bear with me here uh and this doesn't exist yet right this is

just a gleam in our eye it's kind of golden beige beautiful heavy um and we go and start talking to people we know let's say the first person we talk to or the third is Jean a an old friend and she works in retail and he go ask Jean you know here's what we are thinking of doing Jean what do you think do you think you would buy this chances s Jean is not going to jump out of the chair and say wow that sounds incredible I would pay 10 bucks for this and here's a

purchase order for 100,000 pieces ain't going to happen chances are she's going to look at this and say you know what if it was green you know Green is in these days or we could go talk to Tom the technologist here who happens to be sitting next to us on the airplane and then Tom says you know what would be cool if you could put a heart monitor in it you see I just lost my mom to a heart attack last year and I've been looking to develop some product that would have helped her what

do we do now what would the expert entrepreneur do now one thing we could do is of course the standard model which is persist right this is our dream it is beig it's golden it's not green and we want to do what we want to do so we might go back and try to sell gene on why this is such a good pen and why she should actually buy this or we could say well Gene doesn't get it so I'm going to go find all these other people I know in my gut that the world

is going to love this thing they're waiting for this and that's what I'm going to do or we could do the opposite we could say hm customer wants green let's make a green pen oh I didn't have that on there so you could just go off and make the green pen a third option would be to say customer wants green a different color maybe there is a market out there for all kinds of different colored pens you know yellow and red and blue let's go out and map that market do some competitive analysis do some

segmentation analysis and then come up with a Target segment and then build a business plan now let's take the Insight that we got from the research and put a framework on all these possible responses what do we get well if you truly believe that you could the future is highly predictable and highly controllable you would persist in your vision if you didn't believe that you would adapt or you might just be sensible and say I'm going to try to predict the future the best I can but I'm not going to assume that I have control

over it however the entrepreneurs that we study the expert entrepreneurs they don't like to predict the future but they do like control they like to work with things within their control all the time and they also like control over their outcomes so what the expert entrepreneur would do is to go back to Jean go back to Tom and ask them what would it be worth it to you to make it green what you what would you be willing to commit to put the heart monitor into it notice what they're doing they're not trying to sell

them to come on board they're actually allowing Tom and allowing Jean to sell us on their vision of our idea and in the process the expert entrepreneurs begin figuring out ways to co-create the venture to co-create the product to co-create the business model to co-create the World by having stakeholders who care about it come on board and self- select into the process let's go back to the process diagram for a second so every time somebody comes on board we get a bunch of new means and we set in motion an expanding cycle of resources now

Jean might know somebody a buyer at a departmental store and she might be willing to give us their number or give them a call or maybe even come with us to make the sales pitch to the buyer at Nordstrom or someplace Tom might be able to mock us a prototype with a slot for some kind of an RFID chip or something where we could put a heart monitor a pedometer or something remember we still not making the thing yet but we are bringing the people on board and depending on who makes what commitment We Begin

re shaping our idea which means the idea also changes there are some kind of constraints that get put on it now we may be going out and pitching the green pen or the heart monitor pen or something else or both maybe so over a period of time if this Cycle Works itself out long enough and if enough people come on board we get not only new Ventures but very often we end up with new markets that virtually nobody in that process actually anticipated and notice here that each stakeholder is investing only what he or she

can afford to lose and we are not telling them how much to commit and we not telling them whether they should be a supplier or they should be a customer or they should be an investor but we are allowing them we building the corridors so they can come in the the way they want into the process okay enough for the toy example let's look at a real Venture the story of the gramine bank in the early 1970s Professor Muhammad yunice was a was teaching economics in chagang University in Bangladesh he began noticing that villagers around

him were suffering greatly from indebtedness from money lenders so much so that after a famine or a flood they couldn't restart their livelihoods so he did what economics professors might do he sent out a grad student to count the misery she came back with a number 42 there were about 42 people in the village and they needed a total of $27 to be able to restart their livelihoods so unas did what you or might I might have done he gave them the $27 surprisingly a lot of them came back and not only returned the money

but they seem to be doing better than they were doing before the famine happened now that really got yunus thinking and he started talking to a whole bunch of people including Bankers saying why don't we lend this money in a largest scale across Villages and that's when he became an entrepreneur as he started talking though as you can imagine he got a lot of push back the bankers would say things like the poor are unbankable and that you know the loans amounts are so small that the transaction fees the bank fees to process those loans

are larger so it can be done well but Unis just work with whoever would come on board and he kept doing it enough so that one of the banks was willing to give some extra money to scale up the operation as he suggested but with his personal guarantee but that did allow the cycle to expand a little bit and as the people who were involved with Unis and Unis himself went out and started building gramine bank they began learning a lot they learned that it was better to lend to women because the money was more

likely to be put to productive uses and it would come back they learned that it was more efficient to lend to a group of four or five people than to an individual and they started working out the constraints they started working out tightening up the business model on how lending to the poor would actually work and as they were doing this a bigger bank got into the picture and now they were willing to lend them money without a personal guarantee and slowly Unice also started you know like any entrepreneur you do something something things work

something don't work something works and then you push it and then you push it it is that pushing to The Next Step that makes someone truly a great entrepreneur so he started pushing it and he started asking why don't we make gramine a real bank but remember till now this is not a bank yet this is just an organization that lending money to the poor so he started pushing for making it a bank and you know how easy it is to change banking law but it turned out that one of Eunice's old acquaintances his name

is muhit was at a conference and he happened to be the finance Secretary of Bangladesh at the time and they were at this conference and that day there was a coup and they were kind of cooped up in this building in this cafeteria the whole day and they talked about Grammy and a lot of other things and a few days later muhit was named by the general who took over the country Finance Minister and muhit started pushing for changing in the banking law and eventually gramine became a bank many of you might know this story

so this story is not just about how gramine became a bank it's also a story about how the microc credit industry got created because while this process was going on and they were figuring out what would work other people began learning from it they would replicate it they would modify it on other in other places and all kinds of micro finance and micro credit institutions began to come up Jessica jackley who founded Kaa said in her Ted Talk how she was inspired by the gramine model so there are all kinds of models out there but

the story is not even about that the most important piece of the story to me is that thousands of gramian workers go out and knock on doors as part of this process in villages all around Bangladesh and this is a country where even today the parda system prevails and Pera doesn't allow women to touch money but 97% of gramine borrowers are women how did that happen it was not a big law that was passed it was not the cultural revolution it was gramine workers going and knocking on doors Husband by husband wife by wife Village

by Village those of the villagers who wanted to commit to a different world to a different way of doing things to achieve some kind of financial self- sustainability kind of signed on and they co-created this Venture and this industry a gramine worker took this photograph of a woman touching money for the very first time in her life and called it very aptly the moment of change today there are over 7 million women entrepreneurs in one of the poorest countries in the world as you can see at the heart of it the entrepreneurial method has just

a few simple principles and a doable process just like the scientific method the scientific method also has a very few principles at the heart of it and a process that people have figured out how to use but the scientific method allows us to do very profound things not just Technologies and cures for diseases but it allows us to Think Through the difference between reality and myth to choose between a and not a to choose between better and worse solutions for specific problems that involve nature the entrepreneurial method also consists of very simple principles and a

very simple process as I have showed you but it allows to do allows us to do something very profound it allows us to transform the world as it is today whats and all we not waiting for Utopia here you know whats and all it allows us to take today and transform it into something new something a little bit different but in a way that the stakeholders who commit to it care about the philosopher Nelson Goodman captured the profundity in very beautifully when he said this we have come to think of the actual as one among

many possible worlds we need to repaint that picture all possible worlds lie within the actual one now when you hear the words actual World especially since you've just been listening to Matt Mountain you probably think of a globe spinning on its axis you know revolving around the Sun or the pale blue dot that Carl Sean talked about but for just a minute here work with me and let's imagine that the world is actually shaped like this pen so this is the world the pen world the actual world now what can we do with this world

we can write but for that we need paper so does the possibility of paper exist within this pen world do you think let's see it does well what other possible worlds lie within this actual world do you think we don't know we can't can't even predict it but we don't need to because all we need to do is to commit to a new world that we care about I have here my commitment to the pen world and here's an invitation for all of us to participate in the unlimited possibilities of the pen world in the

pen world we will teach entrepreneurship not only to potential entrepreneurs but to everybody the way we teach science to anybody who has access to a decent education more than that in the pen World we'll teach entrepreneurship not only in classrooms but by actually committing to co-create the kinds of Ventures that we care about either as entrepreneurs ourselves or as early stakeholders to entrepreneurial Ventures finally in the pen world we will teach entrepreneurship not as a subset of business but as a way a method to put business to work to create the kinds of new possible

worlds that you and I want to live in thank you