In term 4 (first term of PGP2) at IIM Ahmedabad, we had a course called ‘Entrepreneurial Mindset’. The emphasis laid during the course as well as in general management education on ‘thinking like an entrepreneur’ made me dig a bit deeper into what factors truly help create entrepreneurs.
Austrian Sociologist and economic historian Joseph Schumpeter believed that history was important to the study of entrepreneurship, but you see little of historical or sociological analyses of business in conventional B-School curriculum. Attending classes on Business History in term 5 gave me a fascinating insight into how the First (1750-1850) and the Second (1860-1920) Industrial revolution changed the way life exists today.
Entrepreneurship isn’t a recent phenomenon and importantly, people did not suddenly wake up one fine day, attend classes on ‘thinking like an entrepreneur’ and start a successful business.
Have we ever really paused to think how the Industrial revolution came to be and why it happened at the time it happened and not earlier? Did we pause to wonder about who the chief architects were and why they did what they did?
Most of our thoughts (if at all any) around the industrial revolution in the 18th and 19th century are around great scientists and inventors but not really around the entrepreneurs who really ensured mass production that made the period famous in history. For eg. Most of us remember James Watt as the inventor of the steam engine but not many would have heard of Mathew Boulton, who helped commercialize the product. But we will tackle the differences between inventors and entrepreneurs some other time; here our focus is purely on understanding the factors surrounding starting a business.
Just like the world today, the Industrial revolution was influenced by technological progress, an increase in productivity and by entrepreneurs willing to take risks and innovate to break new grounds.
Technology, though, doesn’t appear out of the blue. Men (and women) spent several years and even decades of their lives trying to come up with tools and techniques to improve the way things worked.
But we need to remember that starting-up a business is influenced not just by the motivations of the entrepreneur but also by the way society itself is structured and also the key prevailing ideas in that time period. Of course, the presence of a ready market to consume the products play an important role but we would be erring if we do not factor in the influences of the world around these entrepreneurs and the officious norms and mores of the society of that time.
Carlo Cippola (the same person who came up with the Basic laws of Human Stupidity) believed that society played a huge role, over and above the physical inputs and the role of the entrepreneurs themselves, in shaping the increase in productivity and the rise of business in this period. Below, we will analyze a few sociological factors which made the industrial revolution a success and also why it happened in that particular time period.
A conducive environment for business and profit is essential for any start-up to move from ideation to development to growth and it was no different even 300 years earlier.
Medieval Europe, till the mid-16th century was completely under the power of the Church and while there were a few pockets of high standard, secular learning it was elitist and mainly revolving around the arts leading to a severe lack of the scientific temper among the general populace.
Britain as the epi-center
Most important events during the revolution took place in Britain and they gained the maximum from the technological evolution. There is a reason for that. Britain not just had an abundance of coal and iron as well as several colonies to constitute markets for their products but they also understood that they could not forever rest on their political conquests. They were willing to learn from the world around them and put it to good use in making profits. Even their explorers like James Cook played their part in understanding the flora, fauna and the geography in different parts of the world. The Baconian program (more on this later) and The Royal Society played their part in making it an ‘Age of Reason’ in Britain and distinguishing it from the rest of Europe.
Francis Bacon, Former Attorney General and Lord Chancellor of England during the early 17th century was known as the father of the Scientific method. His ideas on experimentation and observation greatly influenced the way research was conducted and slowly the way industry worked as well, methodical and purposive. In fact, so far was the extent of his reach that Rajaram Mohan Roy (1772-1833), referred to Bacon as the dividing line between the old and the new in his petition to start English schools based on scientific method in India.
Other developments in that period
Much later, Frenchman Augustus Comte (1798–1857) come up with the theory of positivism, in support of the scientific method against the prevailing theological and metaphysical approach of the society influenced by the Church.
While the efforts of Bacon, Comte and others helped established the need to think logically, follow inductive reasoning and generally rationalize thought process, Max Weber believed that it was the Protestant Work ethic that made the difference between a society that lived in luxury and couldn’t care less about doing work to one that was forever looking to make more profits and were willing to work hard to achieve it. The Protestant reformation started off in the early-16th century as a mass movement against the Papal supremacy and sought to control the influence of the Church in life and religion. The new sect promoted secular vocations, glorified hard work and advocated an aversion to luxurious living. Weber attributed the Protestant work ethic to the followers of John Calvin (1509-1564). While the Calvinist form of religion was fundamentalist in ideology, it promoted business since it stressed that material success was evidence of God’s grace. Calvin’s puritan movement and its influence spread in England after the English Civil War (mid-17th century) and his ideology became very popular in that period.
We see that societal opinions have been slowly shifting from a pre-16th century ‘Doing onto God’s Will’ ideology of the Church to one of writing your own future.
While the theme of this essay is the sociological influence on entrepreneurship and business, I want to briefly mention a few non-sociological factors of that time that also made an impact in the rise of a number of businesses, big and small, during that period.
Even in those days, Angel Investors and Venture Capitalists were common, albeit without the fancy nomenclature. In the United States, JP Morgan was famous for backing Edison, Ford and several other major entrepreneurs of that time.
While the Rothschilds’ were more well-known for funding the British government in their war efforts, companies like Rio Tinto and De Beers were backed by their capital. The Vanderbilt and the Rockerfeller families were also famous for backing several industrial concerns in that period.
The European colonizers had trade linkages with most parts of the world by this period and they had a ready market, both within their countries and outside, for the mass-produced products which were an outcome of the industrial revolution.
Personality of the Entrepreneur
All this talk of societal influence is not meant to take away the traits and characteristics of the individual but to supplement it by providing a system of support and nurturing to enable the individual’s efforts to come to fruition. In fact, Schumpeter placed the entrepreneur at the nucleus of the economic system. The Schumpeter’s Hero (as he calls the ‘different from the ordinary’ innovator or entrepreneur) is an adaptable person capable of overcoming several difficulties and obstacles.
There were several notable entrepreneurs in this period, who apart from being visionaries, with a sharp eye for the innovation rose above several adversities to mass produce their products. What motivated those inventors and entrepreneurs were the same things that motivate people today- Money, fame and a chance to change the world.
There are interesting stories of some of these individuals and we will hopefully, explore them in a later blog to understand how their personal characteristics and ideologies influenced their entrepreneurial activities.
To conclude, looking at entrepreneurs as individuals in isolation might not be the best way to create more successful entrepreneurs or even to understand the reasons why certain businesses in certain societies were successful. We need to factor in the role played by the society in which we live and make it more conducive to taking and appreciating new ventures.
Business History, Franco Amatori; Andrea Colli, 2011
By Ramdas Kannan
Ramdas Kannan is a PGP-2 student at IIM Ahmedabad.