UP TO 90 PERCENT of new businesses fail within a few years of inception. And yet each year more than six million people decide to become entrepreneurs. They’re literally buying into the notion of “Financial Dreams Inc.,” convinced that it’s a magic bullet providing quick riches and a better life.
I can’t think of another career or life path where a 90 percent failure rate would be acceptable. Can you imagine if 90 percent of doctors failed within a few years? How about if nine in ten policemen failed? Obviously something is way out of whack here. Why would so many people risk their time, money, and effort in a journey with such low odds of success? And why does the belief that entrepreneurship fits all persist?
It seems that people believe entrepreneurship is a virtual birthright in our country. My theory is that this belief is an extension of the concept of the “American Dream”—the ideals that shape what we do, particularly in the realm of our quest for financial prosperity.
Everyone has their own definition or connotation of what the American Dream is and means to them. Most people don’t know where the term “American Dream” came from or its original context. I know that I didn’t until I looked it up while writing this book.
The phrase “The American Dream” was coined by historian and writer James Truslow Adams in 1931 in his book The Epic of America. He said:
The American Dream is that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement. It is a difficult dream for the European upper classes to interpret adequately, and too many of us ourselves have grown weary and mistrustful of it. It is not a dream of motor cars and high wages merely, but a dream of social order in which each man and each woman shall be able to attain to the fullest stature of which they are innately capable, and be recognized by others for what they are, regardless of the fortuitous circumstances of birth or position.
In simple terms, it is the ability to achieve prosperity (financial or otherwise) through your own actions and free will rather than your family’s status.
The idea of creating your own destiny with your talents and energy, mixed with America’s capitalist system, often translates the American Dream into business ownership. Everyone has heard the stories of the family from _____ (insert the name of your favorite foreign country here) that came to the United States with nothing but a dream and a few dollars (or pounds/shekels/yen/rupees) in their pockets. That family then started its own ______ business (insert the name of some local business here—dry cleaner, restaurant, barbershop, etc.). Now, decades later, this family is flourishing, financially and otherwise. The family is living its very own American Dream, complete with a fantastic house, two (or more) cars, and yearly trips to Walt Disney World. These rags-to-riches stories have shaped our collective thoughts on what the American Dream is and how to attain it. Now, this is not just an American phenomenon. Many countries have adapted the American Dream to create their own brand of reliance on business and entrepreneurship.
However, we are in a different era now. With multiple decades’ worth of millions of people pursuing their own American Dream in the form of entrepreneurship, the business environment has changed significantly and rapidly.
When the term “American Dream” was coined in 1931, the business landscape was vastly different. In America, our economy was nothing like it is today. There was no such thing as globalization. We were a farming- and manufacturing-oriented economy that produced products and shipped them locally, regionally, and nationally. Consumers didn’t own televisions (let alone computers)—think about the differences in advertising! By the end of the 1930s, about 15 percent of the college-age population attended college (around 1.5 million people).1 Moreover, there were fewer corporate career opportunities available because billion-dollar companies (and major employers) like Walmart, McDonald’s, Microsoft, Nike, and CVS didn’t even exist at that time.
Since the coining of the term “the American Dream,” we have had exponential progress and changes as a society. Our economy is now global, sourcing products from and selling products to every corner of the world. We have moved away from being a society based primarily on farming and manufacturing to one based in large part upon providing services and outsourcing manufactured goods. Media platforms like cable television (with its hundreds of channels) and the far-reaching internet have changed the face of business and interaction. During this changeover, there were a lot of opportunities to start business enterprises, grow rapidly and make large sums of money. Major corporations were founded and thrived, providing significant opportunities for career-seeking individuals. The U.S. Bureau of Labor Statistics suggests that today about 50 percent of the college-age population attends college, putting them on a faster track to those corporate opportunities.
This evolution has gotten us to a point where there are actually too many goods and services today (and probably too many businesses). Think of any business you can conceive of, from banking to hair salons to restaurants to gift-basket companies; the number of choices you have are staggering. There are so many businesses with goods and services competing for our attention that we are bombarded with advertising to the point of virtually ignoring most of it (if they even reach us in the first place). We are now faced with an ultra-competitive business environment where it is incredibly difficult to make a mark in the world. With so many goods and services trying to reach a fixed population that has only so much money, time, and needs, it is harder and harder for a company to make a profit, let alone a worthwhile profit that justifies the risks taken on when starting up a business.
However, in the wake of this over-competitive environment, the media darlings—the businesses that have generated great successes despite the odds and the changed landscape—are always the exceptions to the rule. Especially bad is the false light in which they are portrayed, with Hollywoodesque backstories that make for great human-interest pieces, rather than the more boring and routine reality of business.
The media touts Pierre Omidyar, the founder of eBay, as a programmer and hobbyist who, in the process of creating a small trading website for his girlfriend who collected Pez dispensers, “accidentally” created the largest trading marketplace. That story was exposed as a PR sham years ago. He knew exactly what he was doing and had a successful career as a programmer behind him.
The YouTube founding myth—that Steve Chen and Chad Hurley created the company while unsuccessfully trying to upload video footage from a dinner party—has also been discredited. By the way, Chen and Hurley both cut their teeth as employees at PayPal (Hurley was one of the first and he also happens to be the son-in-law of James Clark, who founded Silicon Graphics and Netscape).
Or how about the “overnight sensation” of Midwest electronics retailer ABT, which sells more electronics out of a relatively new location than any other single location in the entire United States? That may sound amazing, but what you may not hear about is that while the current location is only a few years old, the business has in fact been around for seventy-two years.
So, armed with misinformation about the American Dream—yet ignoring how the landscape has changed and dreaming of becoming the next eBay—sharp and talented Americans who have all types of career and investment options available for them to enjoy financial prosperity without having to be born a nobleman, are instead turning to business ownership as their means of achieving the American Dream. They spend an incredible amount of time, energy, and money to launch their businesses, and yet the payoff is grim—most of these starry-eyed entrepreneurs fail altogether or just fail to succeed.
The problem, I say, with buying into the notion of the American Dream is two-fold:
Now that you have an idea of what’s changed in the business playing field, it’s time to address the issue of why there historically hasn’t been a screening process for entrepreneurship (a process that you will undertake when you build your Entrepreneur Equation).
1. William H. Young and Nancy K. Young, The 1930s, (Santa Barbara, CA: Greenwood, 2008) 18.