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Paradigm shifts and the certainty of failure 12 October 2012

Posted by cooperatoby in social economy.
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The inclusive entrepreneurship industry preaches that we should all take a more open-minded attitude to risk, but is it responsible? The certainty is that if we take enough risks, one day one of them is bound to go sour. If it’s big enough, it will be our last.

It’s a niggling thought that first came to me about 20 years ago when a friend of mine called Dave came back from San Francisco to Leeds and promptly started an internet business. His express objective was to make a lot of money, which I thought simple-minded. (I worked in an equal-pay common ownership co-operative after all.) His attitude to risk seemed to be based on an elementary mathematical error. I thought back to the history of my own father, who had risen from an elementary education through war service to running his own company manufacturing medical electro-acoustics, and made it onto Tomorrow’s World, the BBC television programme on innovation. An achievement, by the way, of which I was insufficiently admiring at the time. Both these innovative business ventures went bust: my parents lost their house and Dave eventually died of a massive heart attack.

You can have two theories of progress through life, as John Naughton points out in a recent article on Thomas Kuhn in the Observer. Following the first model you beaver away solidly at a career, salting away the proceeds in a pension fund and retiring blamelessly and in comfort. By contrast in the second model, you go through a series of uneventful periods broken by massive dislocations or ‘paradigm shifts’.

My professional life involves the promotion of what we have dubbed ‘inclusive entrepreneurship’ – the opening up of access to self-employment and business creation to anyone in society. This starts with promoting positive role models of business in schools, and carries on by removing the benefit trap, offering business advice that is culturally appropriate, training that is easy to access, incubators, microfinance, the Dragon’s Den and so on. The hyper-fashionable idea of social innovation springs from the same meme – that this financial crisis demands that we rethink the way we do things radically.

You must be clackers!

Now, what should our approach be to new ideas? Dad used to comfort himself with the saw that ‘the man who never made a mistake never made anything’ – and venture capitalists are reputed to invest in a man who has a couple of bankruptcies behind him (it’s irrelevant to them who was hurt by the fallout). If your theory is that if you take enough risks then one of them one day is bound to pay off – then statistically the reverse is the case. It’s like swinging a weight on the end of an elastic band like a set of ‘Clackers’ – as the oscillations get larger, the band will eventually snap. As an entrepreneur accumulates experience and resources in successive business ventures, (s)he will be able to take bigger and bigger risks. It starts with swapping marbles in the playground, moves up a notch to trading on eBay, and leads eventually to a fully-fledged stock-market flotation. I know business people who have succeeded, built up a big business and sold out at profit on the back of winning a juicy contract. But what do they do then? They can’t resist having another go. And the sad logic of it is that if you take enough risks, one day one of them will turn sour – and that will be the last risk you take. So you have a 100% chance of failure. This is a mathematical certainty. One day the rubber band will snap.

So we should be very wary of taking a cavalier attitude to bankruptcy, slashing the welfare safety net, and ditching the social economy in favour of social business!

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