Entrepreneurs market ‘bloody brands’

Recently I ran across this fascinating article published in the Economist –

http://www.economist.com/blogs/schumpeter/2013/08/bloody-brands?fsrc=scn/tw_ec/dictating_the_market

where entrepreneurs in Asia and elsewhere are marketing products based on “boldly offensive” images and iconic people. For example, Vini Nostalgici, an Italian drinks company, sells about 45,000 bottles of Adolf Hitler wine each year. Vintages named after Mussolini, Lenin and Stalin are also popular. What is just as interesting is that the quality of the product is often irrelevant. Have these small businesses found some untapped, albeit deranged, market or is there something else going on here?

Entrepreneurship scholars talk a lot about how individuals need to build legitimacy for their products and services, that is, get them to be seen as acceptable and appropriate. With such blatantly illegitimate merchandise such as “boldly offensive” products, how does legitimacy concepts square with this reality?

Its an interesting question. One explanation is that it is legitimate according to some sub-culture of people that have very little connection to the reality of these offensive images and ideas. However, this doesn’t explain how the offensive products could be successfully marketed in a country like Italy. Another explanation is that the products ARE illegitimate in mainstream thinking, and that majority opinion is attractive to people who wish identify themselves are counter-culture. The illegitimate is legitimate. Given that “boldly offensive” products are easily transportable and private rather than a immobile and public, it may be the case that entrepreneurs have create and found a market of deviance.  It would be more shocking and interesting, I suppose, to see “bloody offensive” clothing labels.

Whatever the reasons, it will be interesting to see if “bloody offensive” brands continue to gain a market footing, or whether this is part of long list of temporary fashions.

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Three suggestions for ambitious entrepreneurs

1.  Be a market driver, not market-driven: Really innovative entrepreneurship is all about pushing the boundaries of what is socially accepted. Economists and other social scientists typically emphasize current prices, capital, and labor conditions to evaluate market opportunities – hence they see people as market-driven. This overlooks the fact that markets are fluid and dynamic with conditions today not necessarily having a bearing on what is possible tomorrow. Entrepreneurs that try to sell new products, like biomass alternatives to fossil fuel energy, seek to alter the current market relationships rather than ‘discover’  a new one.  Entrepreneurs may well be able to create demand through media campaigns, which at first seem far-fetched or deviant. Realizing that role models can also help create new markets, entrepreneurs may enlist well-known people to promote ideas, try to join public discourse in media, and deliver a clear message.  Gradually, through relational work, a system of producing and distributing new products can be created and legitimated.

2. Look for unconventional partners: When we think about partners for building a sustainable business sometimes the last people on your mind can be essential. For instance, while working on food science and technology in Indonesia, Ashoka Fellow F.G. Winarno saw that the country’s thriving street food culture offered an opportunity. With support from the World Bank, he designed the Street Food Project, which trained 300 street food vendors over two years on nutrition and hygiene. Vendors had been victimized by authorities in the past, but designating them as channels for improving nutrition raised their status along with the quality of street foods. Through creating a system where the vendors were invested in improving nutrition, his model has been replicated in Beijing, Bangkok as well as many cities in Latin America. Entrepreneurs can find key partners in unlikely places, the unorganized and informal economy sector or among other social entrepreneurs. Using new social mediums is a fast and inexpensive way to come into contact with unlikely partners.

3. Keep a daily journal: This suggestion may seem a bit out of place, but research has shown that this simple task may make or break entrepreneurial ventures. Writing in a daily journal is a fundamental way, though not the only way, to make sense of the fast paced life of entrepreneurship. The act of writing forces a period of reflection and promotes pragmatic learning, which overlooked can compromise a venture by creating message-drift – the decoupling of message and potential stakeholders expectations. Writing helps stimulates reflection about how stakeholders think, the incentives they are working with, and their obligations to their stakeholders. This helps bring messages more in line with stakeholder expectations. Hence, writing in a daily journal, or any other platform, promotes  systemic-thinking rather than specific-thinking. Too often entrepreneurs are focused on day-to-day activities of getting the start-up running (e.g. programming code or experimenting with a technology). While these are necessary, the key source of survival for the venture lies in the founders’ ability to build sustainable channels of acquiring resources. Building these channels by definition involves other people, who have developed a variety of ways of making sense of and acting in their world. Reflecting on their motivations and incentives through writing is a timeless virtue.

On modernity and the concealment of fire

Neil Aaron Thompson

I’ve always been interested in the elements. Not the periodical table per se, but our ancestral understanding of the elements: earth, wind, water, and fire. Scientists tell us that earth is made up of a complex mixture of elements each with their own mass, which translates into rocks, dirt, and mountains. Fire, we are told, is nothing but a chemical process where elements re-configure and release energy in the form of heat. Looking culturally however over the past 100 years we’ve drastically changed our relationship and thus our shared sense of meaning around ‘fire’. This renegotiation of fire may explain some of the debates around climate change and the future of energy.

fire

Fire to our ancestors seemed to have an intrinsic power to devour physical material, but also provide life-giving heat. Its no wonder that complex cultural practices then (just as  now – think bbq), revolved around fire. For example…

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Cultural entrepreneurship in the renewable energy sector: The case of Bill McKibben and 350org

One of the most interesting observations I have read about recently, which provides an interesting perspective of the role of culture and entrepreneurship in the energy sector, is that most renewable energy across the world is produced in places that don’t necessarily have the best natural resources. For instance, Germany is a global leader in solar energy production though it is not as blessed with sunshine as some of its southern neighbors. Moreover, looking at USGS surveys of the most windy locations across the USA that are feasible to develop are not the location of the most wind production in the country. How can this be?

Wesley Sine and Brandon Lee in their 2009 article, ‘Tilting at Windmills?: The Environmental Movement and the Emergence of the U.S. Wind Energy Sector’ argue that the reason why this exists is that entrepreneurship is enabled, and not only constrained, by community and government involvement in establishing markets. Social movements that emerge to champion a particular cause, in this case independent renewable energy, may be able to change the political perspective of citizens, communities, and political leaders. The resulting movement may create new formal rules, a demand for renewable energy, thus a sustainable market of those willing to buy such a product, and government support for the installation, competitiveness, and appropriateness of these new organizations.

Entrepreneurs identifying these changes in cultural understanding of energy, take action to build new organizations, value chains and offer a product at competitive prices. Therefore, driven by social movements and entrepreneurs, new markets are created and value added by replacing polluting fossil fuels. Indeed, we can see this same situation play out when we look at many markets that we now take for granted.

What is interesting then are entrepreneurial individuals that act not to build new organizations and offer new products, but champion cultural change through stigmatizing the status quo. The (in)direct positive interaction between these cultural entrepreneurs and market entrepreneurs provides a fascinating insight into cultural transmission and change.

The Case of Bill McKibben and 350org

Perhaps one of the most important and influential, although perhaps unlikely, cultural entrepreneurs at the moment is Bill McKibben, the founder of 350org. Mr. McKibben founded 350org based on climate scientist James Hansen’s argument that any atmospheric concentration of CO2 above 350 parts per million will lead to dramatic climate change. Today, the organization has offices and organizers in North America, Europe, Asia, Africa and South America. Using coordinated demonstrations and creative  internet tools, it has been called the largest ever global environmental movement of any kind.

One of the more significant campaigns of Mr. McKibben and 350org is its push for divestment in fossil fuel company holdings. This campaign is organized to persuade global investors to take their money out of the fossil fuel sector. And its growing faster than any previous divestment campaign and could cause significant damage to coal, oil and gas companies.

According to a new Oxford report,  the current fossil fuel divestment campaign, which has attracted 41 institutions since 2010, is modeled after campaigns against tobacco, apartheid in South Africa, armaments, gambling and pornography. An article in the Guardian newspaper reports that the direct financial impact of such campaigns on share prices or the ability to raise funds is small but the reputational damage can still have major financial consequences. “Stigmatisation poses a far-reaching threat to fossil fuel companies – any direct impacts of divestment pale in comparison,” said Ben Caldecott, a research fellow at the University of Oxford’s Smith School of Enterprise and the Environment, and an author of the report. “In every case we reviewed, divestment campaigns were successful in lobbying for restrictive legislation.”

These types of social movements, and the cultural entrepreneurs that create them, may just lead to new sources of legitimacy for market entrepreneurs. Rather than government policy intervention leading to social costs, in this case increased prices of energy, new entrepreneurs create new value by offering new products and services that have both a economic and environmental benefit. When investors value more than financial return and the status quo, a tipping point may be reached where investment in renewable energy projects benefits from a positive feedback cycle. However, going against the status quo is always a challenge as sanctions, punishment, and failure are a very real outcome. Moreover, real challenges exist in reforming the energy grid to make it more flexible to renewable energy sources. Cultural entrepreneurs play a significant role in pushing the boundaries of taken-for-granted legitimate practices and beliefs and replacing them with new understandings, theories, and symbols that allows us to invest passion. And passion is key for entrepreneurship.

http://www.smithschool.ox.ac.uk/research/stranded-assets/SAP-divestment-report-final.pdf

Cultural entrepreneurship: stories, legitimacy, and the acquisition of resources

Gaining influence through cultural manipulation

Cultural Entrepreneurship News

An interesting article by Michael Lounsbury & Mary Ann Glynn in the Strategic Management Journal (Volume 22, Issue 6-7, pages 545–564, June – July 2001) talks about Cultural Entrepreneurship and the acquisition of resources.

strategicmgmtcoverIt can be found in this Journal’s Special Issue: Strategic Entrepreneurship: Entrepreneurial Strategies for Wealth Creation. Below you can find an abstract and the link to the Journal article can be found here (Wiley Online Library).

“Abstract

We define cultural entrepreneurship as the process of storytelling that mediates between extant stocks of entrepreneurial resources and subsequent capital acquisition and wealth creation. We propose a framework that focuses on how entrepreneurial stories facilitate the crafting of a new venture identity that serves as a touchstone upon which legitimacy may be conferred by investors, competitors, and consumers, opening up access to new capital and market opportunities. Stories help create competitive advantage for entrepreneurs through focal content shaped by…

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Great Gatsby! What income inequality and immobility means for entrepreneurship

The ‘Great Gatsby’  curve has been making news again – one of my favorite terms in economics right now. A recent article in the Economist magazine argues that that the so-called Great Gatsby curve, which shows that countries with higher income inequality also have lower income mobility, is particularly worrying.

The problem, as the Economist explains, is that people who want to defend gross inequalities of income in countries like America often argue that income inequality is okay as long as you have income mobility: if today’s burger-flipper can become tomorrow’s prosperous Richard Branson with a little grit and hard work, society is still fair. The problem with this thesis is the Great Gatsby curve. It shows that the greater the distance in a country between rich and poor, the harder it is to go from poor to rich or vice versa. Countries don’t compensate for income inequality through income mobility; they tend to be either fair or unfair on both metrics at the same time.

While, on the face of it, one would assume that this problem would be immediately seized upon and become part of a larger debate on the economic and political structures exasperating income inequality and immobility, that is not necessarily the case. For one, the relationship between inequality and immobility with entrepreneurship is not immediately apparent . In this post, I’ll review some negative effects the Great Gatsby curve can have on entrepreneurship.

As I have illustrated in another blog post, entrepreneurship has three faces: productive, unproductive, and destructive. Productive entrepreneurship is the identification, evaluation and exploitation of opportunities to provides new value to society and an economy as a whole. It can take the form of one-off-trade, sustained small business entrepreneurship, or even within larger (non- and for-profit) organizations. Unproductive entrepreneurship, on the other hand, is the exploitation of opportunities that have benefits for only a single party, while detracting from society and the economy as a whole. Ubiquitous examples are bribery, excessive lobbying, insurance fraud, etc. , which is called ‘rent’ seeking by many economists. Destructive entrepreneurship is the exploitation of opportunities that have socially negative consequences typically associated with black markets. The international drug trade, human trafficking, and poaching are all forms of entrepreneurship that have severe negative effect to society and the economy as a whole. Of course, what one calls ‘productive, unproductive, and destructive’ is open to debate, with proponents wanting to argue with stories and images why their form of entrepreneurship is ‘valuable’ and not ‘valueless’.

Typically in the past, economists have tried to tease out the relationships between entrepreneurship (i.e. only small business entrepreneurship) and innovation or income equality or mobility or economic growth. Turning the causality the other way, however, and defining entrepreneurship in its three types, brings up some worrying insights.

First, high income inequality and immobility is shown to have a negative impact on society as a whole. Richard Wilkinson, Professor Emeritus of Social Epidemiology at the University of Nottingham, charts the hard data on economic inequality, and shows what gets worse when rich and poor are too far apart: real effects on health, lifespan, even such basic values as trust. As these basics decline to the majority, health, lifespan, and trust diminish as well as productive forms of entrepreneurship . Why? Productive forms of entrepreneurship require a certain amount of basic social needs to be met, and those needs are roughly health, lifespan, and trust. Productive entrepreneurship is about taking on some amount of risk to offer new products and services that will greatly improve the living standard of society as a whole, which also creates real economic growth. If they fail, they need to know they will not be stigmatized and dignity ruined. However, if an individual perceives her health, education and distrustful community and culture as high, there is no belief that one should take on risk to offer anything of new value to these other people. Instead, a more reliable option is to act (unproductively or destructively) entrepreneurially on the black market to benefit yourself and family members. Those with economic power in these conditions also have little belief that their actions should be directed for the good of society as a whole. Instead, setting up a system that rewards themselves through bribes leads to an increase in unproductive entrepreneurship. The institutionalization of inequality through captured laws and regulations, the awful legacy of colonialism, or stereotypes creates cycles of distrust, income inequality and immobility. This again reduces the chances of the next generation of potential productive entrepreneurs to identify opportunities and act upon them.

Second, high income inequality and immobility stymies productive entrepreneurship because it inhibits fair competition and reduces overall demand. Productive entrepreneurs identify gaps in supply and demand by responding to the needs of the people. When income and mobility are unequal, monopolist engage in supply side economics to raise prices, protect their position, and thus become less efficient. Moreover, they may engage in unproductive entrepreneurship by capturing regulators and policymakers to bend laws in their favor. Innovation and creativity is thwarted because income inequality and immobility offers less access to capital for productive entrepreneurs. As monopolists have an increased power to act entrepreneurially in their own interests, they reduce the overall incentives for potential productive entrepreneurs and their new value becomes unrealized.

Contrastingly, some prominent thinkers argue that monopolists create new jobs since they have command over a larger amount of resource and therefore should be left alone to do so. Inevitably examples like Cornelius Vanderbilt and Jay Gould, who became wealthy through railroad ownerships in the 19th century, are said to have led to a railway unification of the USA. Without these few rich and visionary people we would not have had the expansion of railways an exponential economic growth. History shows however that Congress created the Interstate Commerce Commission (ICC) in 1887 to indirectly control the business activities of the railroads through issuance of extensive regulations. Congress also enacted antitrust legislation to prevent railroad monopolies, beginning with the Sherman Antitrust Act in 1890. The reason Congress took these actions is that monopolists were harming competition, exploiting labor (Chinese, minorities), and creating unfair prospects for potential entrepreneurs.

Increased income inequality and immobility also reduces overall demand in an economy since fewer people have the economic power to buy new products and services. The lack of purchasing power by the majority translates into little possibility for productive entrepreneurship to be successful. On the other hand, the monopolistic few however can only sleep in one, albeit glorious, bed at a time and ride in one luxurious car at a time. Instead, the economy is skewed so that cycles of disadvantage get more acute and desperate for the many, which promotes unproductive (insurance fraud, bribery, etc.) and destructive (gang membership and crime).

Ultimately, the effect of rising inequality and immobility is that people view ‘control’ differently. Social psychologists like Sheena Iyengar show us that mental health of humans and non-human animals is highly linked to independent choice based on a perception of control. While chance is always a factor, when potential productive entrepreneurs view choice being reduced due to lack of markets and capital, their perception of control is thwarted. A ‘locus of control’ has been found by psychologists as a key element of all entrepreneurship. However, as individual perceive their situation as limited in choice, so too they see productive entrepreneurship as less of a viable option. The overt lack of control reduces happiness, resources availability, and perception of making a difference in a community or society. Instead, disenfranchisement and marginalization take hold, which promotes unproductive and destructive forms of entrepreneurship.

I believe there are two ways in which societies can direct people into productive entrepreneurship rather than unproductive or destructive. First, is to reduce income inequality by supporting a minimum wage increase, reduce health care costs, and capping high incomes through redistributive tax system. Finding the right balance between support and competition is never easy, but the Gatsy Curve is good evidence that society should reduce run away inequality and immobility. Equality begins with a comprehensive system of fair taxation and health care readily available. The second is to boost mobility by providing better access to affordable education, reduce the degree of  institutionalized marginalization of racialized or sexualized groups (minority and sexual orientation) through progressive laws, and to encourage more stable early childhood experiences by allowing parents flexible work spaces. In the United States, the recent overturning of DoMA provides some clear progress in reducing stereotypes but the Travyon Martin case underscores the countries continued problems of offering equal access to minority groups. Flexible work spaces, allowing working from home or 4 day work days, creates space for parents to spend time with their children and a build a sensitive and caring new generation.  For it is the next generation that will transform society and the economy through productive entrepreneurship.

See Articles

Baumol, W. J. (1990). Entrepreneurship: Productive, unproductive, and destructive. Journal of Political Economy, 98(5), 893-921. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=9103252727&site=bsi-live

Baumol, W. J., Litan, R. E., & Schramm, C. J. (2007). Good capitalism, bad capitalism and economics of growth and prosperity. New Haven, Conn. and London: Yale University Press.

Honig, B., & Dana, L. P. (2008). Communities of disentrepreneurship. Journal of Enterprising Communities: People and Places in the Global Economy, 2(1), 5-20. doi: 10.1108/17506200810861221

Schumpeter, J. A. (1994). Capitalism, Socialism, and Democracy. London, England: Routledge.

http://www.economist.com/blogs/democracyinamerica/2013/07/great-gatsby-curve?fsrc=scn/tw/te/bl/dontworryoldsport

http://hbswk.hbs.edu/item/6903.html

 http://www.forbes.com/sites/realspin/2013/03/05/want-to-reduce-income-inequality-lower-the-barriers-to-talented-immigrants/

 http://repository.library.georgetown.edu/handle/10822/558603