New Model vs. Old Model
The traditional model of calculating the value of entrepreneurship is by its economic impact. In a research paper titled, What is the Value of Entrepreneurship; A Review of Recent Research, by C. Mirjam van Pragg and Peter H. Versloot (Pragg and Versloot), data is examined from 1995 – 2007. Their findings show that firms have traditionally been valued as a product of their economic impact. Three measures (Pragg and Versloot) recognize are rate of employment, productivity and utility. Employment is a statistic measured by the number of people on payroll for a given firm. It is sometimes categorized by industry or NCIS code, as in the Census Bureau statistics. Many entrepreneurs start out as sole-proprietorships which by definition have no employees. Here, the economic impact of firms, for this measure is not applicable.
Productivity is another measure which is quantified in Gross receipts or income for the business. Sole proprietors are ranked on a list with all firms in operation including ones which employ thousands of workers. The relative impact of these sole-proprietorships compared to the overall revenue of all other firms is negligible. As we noted, this number is $991.8 million compared to $30.7 billion.
The research by (Pragg and Versloot) also ranked the value of entrepreneurship by utility. Utility is broken down in to “remuneration” or the expected income of its employees, risk which is a “negative” factor and job satisfaction which is not exclusively an economic variable. In (Chief Gadd) article titled, What is the real value of entrepreneurship, the author conveys the point that there is value beyond economics. Gadd uses current statistics about the “success” of entrepreneurs to start his argument.
- the first year failure rate of small businesses is 85% (according to this article on startupbusinesshub.com)
- 57% of these businesses generate less than $25,000/year (that is revenue…not profit)
“If these figures are even remotely accurate, then the actual impact to the larger economy is not really moving the meter.” (Gadd)
The analysis of Porter’s Value Chain, on mindtoools.com examines the primary and secondary activities said to influence business.
Primary activities relate directly to the physical creation, sale, maintenance and support of a product or service.
- Inbound logistics – Processes related to receiving, storing, and distributing inputs internally. Supplier relationships create value.
- Operations – Activities that change inputs into outputs that are sold to customers. Here, operational systems create value.
- Outbound logistics – These activities deliver a product or service to the customer. These are things like collection, storage, and distribution systems, and they may be internal or external to your organization.
- Marketing and sales – These are the processes used to persuade clients away from competitors. The benefits offered, and how well its communicate, are sources of value here.
- Service – Activities related to maintaining the value of a product or service to customers, once it’s been purchased. (mindtools.com)
Support activities can play a role to support each primary activity. For example tech. development can support the value created by operations, logistics, marketing and service.
- Procurement (purchasing) – This is what the organization does to get the resources it needs to operate. This includes finding vendors and negotiating best prices.
- Human resource management – This is how well a company recruits, hires, trains, motivates, rewards, and retains its workers. People are a significant source of value, so businesses can create a clear advantage with good HR practices.
- Technological development – These activities relate to managing and processing information, as well as protecting a company’s knowledge base. Minimizing information technology costs, staying current with technological advances, and maintaining technical excellence are sources of value creation.
- Infrastructure – These are a company’s support systems, and the functions that allow it to maintain daily operations. Accounting, legal, administrative, and general management are examples of necessary. (mindtools)
As (Gadd) eluded earlier, there is another aspect to the value created by entrepreneurs. He states, “What is imperative for our future is that we are encouraging, fostering and teaching how to work with an entrepreneurial spirit.” He goes on to state that it’s not the act of entrepreneurship itself that creates value but the change in mentality of those who “took initiative, accepted the risk of failure, and had an internal locus of control.” Gadd feels that “we would all be better off,” if the idea of entrepreneurship was more pervasive in society. This idea of value in society other than profit begins to take shape here. Gadd argues that there is value beyond just the purely economic that is created by an entrepreneur. This value is created by the example alone, which serves as inspiration for others. Hip Hop over time has come to exemplify “the self-made man” and rely heavily on this idea of entrepreneurship.
The Gospel of Hip Hop by KRSONE defines entrepreneurialism as, “1. The readiness to engage in the creation of a business venture that brings about grassroots business practices… focuses upon the motivating Spirit to be self-employed, inventive, creative and self-educated.
- It is this Spirit; the Spirit of self-creation, the urge to create and sell one’s own talents, discoveries and inventions that is encouraged by these teachings. Its practitioners are known as hustlers and self-starters. (An) entrepreneur is a self-motivated creative person who undertakes a commercial venture.” Here the desire to be self-employed is equated to a “spirit” similar to what was once considered “the pioneer spirit” to go West in early American culture. Hip Hop entrepreneurialism re-energizes that concept for the 21st century.
Michael E. Porter introduces the concept of Shared Value into the value chain. He states, “All value is not equal. Profit involving shared value enables society to advance and companies to grow faster.” He contends that social or societal value addresses the needs of the environment, safety, health, education, nutrition, housing, and financial security. All these factors contribute to the productivity, growth and sustainability of a company. Porter argues that company growth and community growth can develop together as means of increasing the benefit to both more efficiently. He also asserts that healthy and thriving businesses need healthy and thriving communities to support them or else they are unsustainable.
Porter distinguishes Corporate Shared Value (CSV) from Corporate Social Responsibility (CSR) with certain distinctions. CSR is more associated with philanthropy, complying with community standards and obeying the law. This responsibility is externally driven by societal standards and practices and is a part of a discretionary budget concerned with the company’s corporate footprint. CSV is an internally motivated, business specific agenda that mobilizes a company’s budget by transforming procurement to increase societal and business growth. This agenda is specific to the company and therefore determined internally rather than by compliance to standards. This can be seen in the notion of “cluster development” (Porter).
A cluster is the area of the community surrounding a business. This area or cluster may contain related businesses or house the people who work for the company. The infrastructure of the community will therefore affect the housing and businesses which use them. A business must then be concerned with the water quality and land use around its facility because of its maintenance and the quality of life for its workers. Porter cites the example of the sports arena to illustrate the use of local suppliers and support of local business to open up new opportunities, or enhance the local cluster.
To increase value, the local sports organization can
- Achieve wider participation in their sport through sponsorship and support of local teams.
- Encourage fitness, health, wellness and personal development
- Redefine productivity by
- Increasing energy efficiency
- Reducing waste
- Developing the local workforce
- Using the local supplier base for concessions and souvenirs
- Encourage economic growth around the stadium
- Anchor other entertainments and real estate development
- Support local infrastructure to assist transportation to the venue.
Micahel E. Porter, a professor of at Harvard Business School, presented his paper, The Role of Business in Society: Creating Shared Value, to the Babson Entrepreneurship Forum in Boston, MA, on November 13, 2011. In it, he referred to the current state of the economy as the “post-crisis era.” He listed the set-backs to the image of business as;
- Companies have adopted a narrow, conventional model to suit the needs of conventional consumers
- Profit through downsizing, outsourcing, relocating, globalizing
- Emphasis on capital creation instead of real value creation
- Driving revenue through acquisitions instead of new business creation
- Societal issues treated as outside the scope of business
Due to the financial meltdown of 2008, the real-estate bubble, and things like the BP oil spill, people have come to view business as the enemy of society. Porter contends that the “Next major transformation” of business includes societal issues into management’s strategy thinking. (ex.. water, employment, economic development, education). Porter calls this the “Next evolution of capitalism.” He says that in order for companies to maintain a competitive edge they will need to address the needs of consumers concerned with the prosperity of their community. He also says that because of the traditional model of addressing the consumer, societal needs go unmet, while growth and innovation suffer.
Porter says, we must redefine business around
- Unsolved customer problems or concerns
- Think in terms of improving lives not juts meeting consumer needs
- Identify customer groups poorly served or overlooked by industry products
- Start with no preconceived notions about product attributes, channel configuration, or economic model for business
Hip Hop entrepreneurialism can address all of these aspects of the new economy. A Hip Hop centered curriculum can be used to foster innovation and uncover new markets and/or methods of distribution by revealing unmet consumer needs. Groups formerly underserved by the mainstream market can benefit from growth in services and workforce development. Hip Hop centered product research and development can increase innovation for new technology just as the Hip Hop deejay known as Grand Master Flash created a low-tech version of a high end crossfader that most deejays couldn’t afford. His invention of techniques like the ‘backspin’, ‘beat juggling’ – repeating the ‘break’ of a record, ‘punch phrasing’ – isolating short parts of a record and inserting it over another beat, and ‘clock theory’ – matching the tempo of different songs to seamlessly mix them, became popular at the start of hip-hop product development in the late 1970s. These innovations and Flash’s ability to market them thru Hip Hop Kulture, lead to the use of turn-tables as a musical instrument and the deejay as a recognized career by individuals not formerly on the radio.
Hiphop consciousness is defined in the Gospel of Hip Hop as “a lifestyle and as an awareness. That Hiphop is a unique and empowering identity that has developed into an international community/culture of specialized people.” KRSONE continues by saying, “Hiphop is all about producing health, love, awareness, and wealth for Hiphoppas. Hiphop is not even a material thing. Hiphop creates products and inspires artists, ministers, politicians, comedians and professors of all styles, but Hip Hop (in and of itself) is not a material thing. It is a shared idea, a feeling, an awareness.”