Roy Nyberg

Entrepreneurship tends to be quite tricky. I think they call it the ‘valley of death’, the first five years of running a business, meaning that is the time when most businesses fail. These failing businesses have been unable to create a stable customer base, to gain the trust of potential clients, and at some point the entrepreneur becomes tired of trying.

Classical economics based analysis of this would explain this by the inability to compete against the incumbents, whether by way of product or price. In other words, either the product was not as good as that of competitors’, or the prices were not low enough, where the supply meets the demand. A side effect of this view that emphasizes superiority of product quality is the assumption of heroism in entrepreneurship – that the successful entrepreneurs that we know, e.g. Steve Jobs, Richard Branson, Anita Roddick and Henry Ford, are superhuman individuals and who somehow were able to accomplish things and win with their incomparable, heroic effort.

Another interpretation from economic sociology would see this differently. The basic assertion of economic sociology is that economic activity is embedded in social relations, meaning that the outcomes in an economic field (i.e. in an industry) are largely depended on its social arrangements. This view relates to the ‘social construction’ -perspectives in sociology, most famously by Berger and Luckmann (1966), where it is recognised that social interaction largely defines and determines how social arrangements turn out. An example, perhaps rather extreme but nevertheless, is mafia: how do you get your idea through within mafia? It is not the best idea, product or even a price that is necessarily the chosen one, but rather the one that has the support of the boss – and any of the challengers to the boss will have to gather enough support among the top echelon to take over. Battles over standards in industries have similar characteristics in that winning is about gathering political support – Neil Fligstein titled one of his papers ‘Markets as Politics’ (1996) to point out this. As I have pointed out in an earlier blog (Innovation – Stop Talking about Ideas), Andrew Hargadon (of UC Davis) calls this ‘the building of permanent networks of relationships between people and products’.

Further work in this area has taken these ideas further and produced a view called ‘system building’: what entrepreneurs do is they establish relations with suppliers, regulators, customers and even competitors that support their products and service arrangements. Thomas Hughes (1983) wrote about system building already in the 1980’s in his analysis of how the railroad systems were built in Europe and the US. But the four entrepreneurs that I mentioned above have similarly been forced to build systems to support their own business offering: they have needed to convince other organisations, such as suppliers of various sorts and related service providers, to go along and to adapt to system builder’s offering. For Steve Jobs it has meant having to create a sub-system for selling apps to phones and to find people to provide those apps, as well as to make arrangements with the likes of Universal Music to provide extensive music library in the iTunes. For Henry Ford is has meant even more extraordinary efforts, since he was bringing automobiles for the masses at a time when there was practically no infrastructure in terms of car mechanics, petrol stations, electricity provision to power the car factories, production of rubber tires in large quantities, etc.

This point about system building is well explained in a TEDxOxbridge talk by Marc Ventresca, an organisation and management scholar at Oxford, whom I have had the privilege to work with. I finish this comment with a very nice video on a presentation of his, on the subject of system building and entrepreneurship:

Marc Ventresca on \’system builders\’

Berger, P. L. and T. Luckmann (1966), The Social Construction of Reality: A Treatise in the Sociology of Knowledge, Garden City, NY: Anchor Books.

Fligstein, Neil (1996), “Markets as politics: a political-cultural approach to market institutions“, American Sociological Review, Vol. 61 (August: 656-673). 1996.

Hughes, Thomas (1983), Networks of Power: Electrification in Western Society, 1880-1930. Baltimore: Johns Hopkins University Press.