The Good Fight

A World Turned Upside Down

"Revolution," according to Webster's, is a complete or radical change of any kind. Our economy has flirted with radical change. But the drop left us smarting, and craving what's safe.

So what's safe? Previously, we equated safety with corporations and invincibility with largeness. But it took just a week after the terrorist attacks to expose the inherent weakness-the high costs and low margins-in the airline industry. And it's taken just six months to see more faltering giants and massive layoffs.

Still, the federal government clings to its misconceptions, counting on goliaths like IBM and Microsoft to pull America out of its economic funk. Their message is clear, whether it's via defending anticompetition practices or granting bailouts in tidy sums.

"The government is giving out huge awards for inefficiency," says William B. Gartner, the Henry W. Simonsen Chair in Entrepreneurship at the University of Southern California's Marshall School of Business in Los Angeles. "Frankly, government policies are anti-entrepreneurial across many industries."

Despite that formidable obstacle, Gartner has faith "our economy is going to be more, not less, entrepreneurial. The information economy is not based on economies of scale the same way. It's based on what's in your head, your ability to exploit ideas and information. That will continue, and even intensify."

The reality is, entrepreneurs have the potential to fortify the economy as never before. "The need for innovation and new ideas has never been greater, and the problems or challenges of a new economy have always been met by rapid-growth firms that find the key to what the country needs," says Howard H. Stevenson, business professor at Harvard University in Cambridge, Massachusetts.

Today, for example, Stevenson says, "it's unlikely to be Eastman Kodak that delivers the best security devices-it'll be some entrepreneur with an image recognition product. And it'll be an entrepreneur, not Oracle, who delivers the security of neuro-network processing."

We must rely on the passionate smaller businesses to fill gaps in creativity, as large companies retreat, shellshocked by the economy. "Big firms are in survival mode," says Stevenson. "And that's not where innovation occurs."

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In fact, the war on terrorism could turn the economic tide toward, rather than against, small businesses. "Just because we're in a war economy doesn't mean small businesses are dead," says Paul Saffo, director of the Institute for the Future, a Menlo Park, California-based foundation that provides strategic planning and forecasting services to corporations and government agencies. "If that was the case, why has virtually every government agency put out requests for creative ideas? The CIA has a VC arm in Silicon Valley called Incutel, and they're busier than ever. Everyone's going to small companies asking questions."

Even outside the wartime realm, Saffo sees us moving into a new era of innovation. Like microprocessors in the '80s and communications and lasers in the '90s, he considers sensors the opportunity of the 2000s. In this field, Saffo says, "a lot of leading-edge work is being done by small companies."

But with this kind of wide-open innovation, as Saffo points out, "there's lots of space for both large and small companies to play. The assumption during the dotcom bubble was that big was bad. That was patently idiotic at the time. But let's now not make the opposite mistake when people say there's no space for small companies. It's not an either/or."

Without the entrepreneurial passion, however, we may not attain this potential. Let's put it this way: It's a new economy. As Stevenson says, "Do you really trust GM to run it?"

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This article was originally published in the March 2002 print edition of Entrepreneur with the headline: The Good Fight.

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