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Entrepreneurial Dominance in Businesses Large and Small, Past and Present

Published online by Cambridge University Press:  13 December 2011

Harold C. Livesay
Harold C. Livesay
Affiliation:
Harold C. Livesay is Clifford A. Taylor Professor in Liberal Arts at Texas A&M University.
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Abstract

Reiterating and broadening a theme broached by its author over a decade ago, this article seeks to redirect the attention of business historians to the central role of the individual entrepreneur in American economic history. In both giant corporations and small start-up firms, in the late twentieth century and the early nineteenth, it argues, the presence—or absence—of intelligent, organized, and creative entrepreneurs has determined the success or failure of companies much more clearly than has the nature of their organizational charts.

Type
Surveys and Debates–I
Information
Business History Review , Volume 63 , Issue 1: Entrepreneurs in Business History , Spring 1989 , pp. 1 - 21
Copyright
Copyright © The President and Fellows of Harvard College 1989

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References

1 Livesay, Harold C., “Entrepreneurial Persistence through the Bureaucratic Age,” Business History Review 51 (Winter 1977): 415–43CrossRefGoogle Scholar; American Made: Men Who Shaped the American Economy (Boston, 1979); “Entrepreneurial History,” in The Encyclopedia of Entrepreneurship, ed. Kent, Calvin A., et al. (Englewood Cliffs, N.J., 1982), 7–14.Google Scholar

2 I used here in 1977 a loose definition of “entrepreneurs” as growth-oriented, innovative practitioners of aggressive management, and that definition applies throughout the pages that follow. Practicing entrepreneurship does not depend on ownership, but it does depend on control, which in the best-run firms depends on performance. I am aware of the large literature concerned with defining the term, but I am not concerned with lexicography here, rather with a type of behavior and those who exhibit it. Nor do I care whence cometh the entrepreneur and why, though that fascinating question has received considerable attention as well.

3 Livesay, “Entrepreneurial Persistence,” 419.

4 Because of recent events in the arena of finance capitalism, I want to emphasize here that by “galvanic personality” I mean individuals committed to preserving the firm by improving its operating efficiency, not those “raiders” whose only interest lies in manipulating the stock market value of a firm, breaking it up by selling its assets piecemeal, and like activities. These people care nothing for business organizations as such and often destroy decades of painstaking work overnight. They do, however, demonstrate the principle that individuals can conquer structures, even very large ones.

5 Livesay, “Entrepreneurial Persistence,” 419.

6 Including the number one “star” of the Fortune 500 “Return on Equity 1979–1988” list, Liz Claiborne, Inc. See Birch, “Down But Not Out,” INC, May 1988. Birch's group included 1,700 firms with at least ten locations and five hundred employees; 57 percent had more than a thousand employees.

7 And in the chapter, “Lilliputians in Brobdingnag,” that I contributed to Small Business in American Life, ed. Bruchey, Stuart (New York, 1980), 338–51.Google Scholar

Like many other apparently simple terms, “small business” turns out to defy easy definition, particularly historically, as Harold G. Vatter shows in “The Position of Small Business in American Manufacturing, 1870–1890,” in Bruchey, Small Business, 152–68. For the purposes here, small business means a firm with fewer than five hundred employees.

8 Precise quantification of small business's contributions forms the core of an ongoing debate that we need not enter here. For the optimistic case, see Birch, David L., Job Creation in America: How Our Smallest Companies Put the Most People to Work (New York, 1987)Google Scholar; “Small Business's Big Clout,” Dun's Review, March 1980. For a skeptical discussion of Birch's numbers (though not the general case he makes for small business importance), see “The Hyping of Small Firm Job Growth,” Wall Street Journal, 8 Nov. 1988. On innovation see, “Sources of Innovation: A Fresh Perspective on the Role of Big Companies and Small,” INC, June 1989.

I have used conservative figures in each category. For the historian's purposes, even the most cautious estimates loom larger than anything appearing in business history texts on the twentieth century.

9 Louis Galambos, review of Leadership and Innovation: A Biographical Perspective on Entrepreneurs in Government, ed. Doig, Jameson W. and Hargrove, Erwin C., Business History Review 62 (Autumn 1988): 547–49.Google Scholar

10 For a two-part survey of this genre, by Louis Galambos, published in the Business History Review, see “The Emerging Organizational Synthesis in Modern American History” 44 (Autumn 1970): 270–90, and “Technology, Political Economy, and Professionalization: Central Themes of the Organizational Synthesis” 57 (Winter 1983): 471–93.

11 My purpose here is not to survey the truly massive literature on entrepreneurship, either scholarly or popular, that has emerged in recent years; the widespread availability of computerized databases in any case seems to me to render such lists largely superfluous. A fine entry into the work of business scholars is Frontiers of Entrepreneurship Research, the published (and refereed) proceedings of the Babson College Entrepreneurship Research Conference, which has appeared annually since 1981. Popular journals include INC and Venture, as well as a recent spate of publications specializing in black enterpreneurs, women entrepreneurs, and other specific groups. Even Fortune and the Wall Street Journal, those bastions of corporate America, have devoted significant space to the topic, as have Time, Newsweek, and network television.

12 Chair of the History Department at SUNY-Binghamton, 1980–81; head of the Virginia Tech History Department, 1981–87.

13 Tom McCraw wrote of Alfred Chandler, “He knows that from the historical accounts he has written it would have been difficult to predict the severe competitive problems American companies encountered beginning in the 1960s.” See McCraw, Thomas K., ed., The Essential Alfred Chandler (Boston, 1988), 20.Google Scholar

14 The secondary sources revealed, among other things, that as far as understanding the process of marketing innovations goes, the “history of technology” has, as Glenn Porter warned me years ago, about the same value as topology. From economic history, by contrast, we have a masterly understanding of the interactions among science, technology, and business, including a model of the innovation process that inventors themselves validate, in Aitken, Hugh, Syntony and Spark (1976; Princeton, N.J., 1985).CrossRefGoogle Scholar

Profiling the inventors and their technologies falls outside the scope of this paper. For the purposes here it suffices to say that: 1) all of them were independent or small business inventors whose technologies survived a rigorous National Bureau of Standards screening that rejected the technically infeasible and commercially improbable; and 2) only five or six did not fit tidily within the Aitken model in terms of the outlook and qualifications with which they confronted the problem of converting an idea into an innovation. For additional information see Livesay, Harold C. and Rorke, Marcia L., “A Federal Program for Inventors: The Energy-Related Inventions Program,” in Strategies and Practices for Technological Innovation, ed. Gray, Dennis, et al. (Amsterdam, 1986), 221–33.Google Scholar

15 Writing in 1984, Louis Galambos said, “Historians have broken with the … sociological theory of bureaucracy … by bringing the creative individual—the leader of an organization with substantial discretionary power, for instance, or the ‘translators’ who moved across institutional boundaries—back into history.” He offered, however, only three examples of this counterpoint to the “Organizational Synthesis”: Aitken's Syntony and Spark (1976), my “Entrepreneurial Persistence” (1977), and his own America at Middle Age (New York, 1982), small weight indeed to throw on the scale after several dozen citations to the dominant motif. I am, nevertheless, delighted to be counted among the few who broke from so weary a theory (though I was in fact unconscious of having ever followed it).

For my journey through the non-historical literature, James Thomson's “City of Dreadful Night” (especially lines 710–24) might serve as an apt metaphor.

16 I do not mean great revealed truths, or unexpected bolts from the blue, but rather the kind of marginal increments to understanding by which history moves forward, as well as the added perspective gained from a different viewpoint, as one may see new things in a skyline by viewing it from a new vantage point. For Louis Galambos's account of his own frustrated efforts to reconcile the literature of business history with the observable deficiencies of American management, see his “What Have CEOs Been Doing?” Journal of Economic History 47 (June 1988): 243–58. Galambos too found fertile soil in an adjoining field, in his case the literature of antitrust.

17 For a sampler of this sort of discussion, see “Ford Legacy Includes Management Plan: Patriarch's Strategy is Basis of Stability Today,” Wall Street Journal, 30 Sept. 1987; “Donald Peterson: A Humble Hero Drives Ford to the Top,” Fortune, 4 Jan. 1988; “GM's Unlikely Revolutionist” [Roger Smith], Fortune, 19 March 1984; “Is Perot Good for General Motors?” Fortune, 6 Aug. 1984; “General Motors: What Went Wrong?” (which includes a section on “What would Sloan say?”), Business Week, 16 March 1987; “Bumps Ahead for a Car Guy” [Bob Stempel, named GM President in 1987], Fortune, 28 Sept. 1987.

18 Arnold Cooper, “The Entrepreneurship-Small Business Interface,” in Kent, et al., Entrepreneurship, 193–205; Timmons, Jeffrey A., et al., “Opportunity Recognition: The Core of Entrepreneurship,” in Frontiers of Entrepreneurship Research (1987), 109–23Google Scholar; Marcia L. Rorke, et al., “Roles and Responsibilities of the Private Sector in Applied R&D” (Report to the National Science Foundation, 1984); Harold C. Livesay and Marcia L. Rorke, “Private Sector Investment in Applied R&D,” paper presented to the 1985 meeting of the American Association for the Advancement of Science.

One of the venture capitalists I interviewed, pronouncing one of his brethren's articles of faith, said, “I don't give a damn about any particular technology. I'm not in the technology business; I'm in the money business.”

Growth, as used here, usually means growth in sales, profits, and assets. Sometimes, however, as critics such as Richard Barnet, Joyce Kolko, Charles Perrow, David E. Noble, and others suggest, decisions about technology stem from a drive to achieve growth of power, including power over workers, public policy, and governments.

19 The Ford story has been told many times over. For a summary, see “Donald Peterson,” Fortune. Data General information from Kidder, Tracy, The Soul of a New Machine (New York, 1981), 15Google Scholar, and Fortune, 24 April 1989, 364.

20 “Companies That Compete Best,” Fortune, 22 May 1989.

21 “Apple Bites Back,” Fortune, 20 Feb. 1984; “John Sculley Rises in the West,” Fortune, 9 July 1984; “Apple's Pitch to the Fortune 500,” Fortune, 15 April 1985; “Calculated Move: Apple Computer Tries to Achieve Stability But Remain Creative,” Wall Street Journal, 16 July 1987; “America's Most Successful Entrepreneur” [Ken Olsen of Digital Equipment], Fortune, 22 Oct. 1986; “Compaq's Grip on IBM's Slippery Tail,” Fortune, 18 Feb. 1985; “The Hottest Entrepreneur in America …,” INC, Feb. 1986.

22 The distinction between stability and growth orientations in small businesses is crucial and often neglected in the massive literature on small business. Growth-oriented, entrepreneurially managed small enterprises constitute a minority of the total small business population. Most small firms never get beyond the early growth stage: 80 percent have five or fewer employees. Few small business proprietors even want to grow, perhaps as few as one percent. See Cooper, “The Entrepreneurship—Small Business Interface,” 193–205; Jon Stanworth, “Relationships Between the Small Business Sector and the State,” in Australian Small Business and Entrepreneurship Researched. Renfrew, K. M. and Back, R. D. (Newcastle, Australia, 1987), 1–22.Google Scholar

23 Al Shapero and Lisa Sokol, “The Social Dimensions of Entrepreneurship,” in Kent, et al., Entrepreneurship, 72–90. Shapero was William H. Davis Professor of Free Enterprise at Ohio State University and a colleague on the inventors project. For a discussion of the role of such activities in American industrialization, see Livesay, Harold C. and Porter, Glenn, Merchants and Manufacturers (Baltimore, Md., 1970).Google Scholar

24 “Pioneer” is used in Alfred Chandler's sense of the term as in his “Scale, Scope, and Organizational Capabilities,” in McCraw, Chandler, 472–504.

25 Much to the dismay of the inventors themselves, most of whom genuinely believe the Emersonian mousetrap myth. See Brown, Marilyn A., et al., Evaluation of the Energy-Related Inventions Program (Oak Ridge, Tenn., 1987)Google Scholar; Brown, M. A. and Snell, S. A., The Energy-Related Inventions Program: An Assessment of Recent Commercial Progress (Oak Ridge, Terin., 1988).Google Scholar These are reports published for and submitted to the Office of Conservation and Renewable Energy, U.S. Department of Energy, by Oak Ridge National Laboratory. See also Marcia L. Rorke and Harold C. Livesay, “A Longitudinal Study of the Energy-Related Inventions Program,” a report submitted to the program director in December 1986 by Mohawk Research Corp. Copy available from authors.

26 Alfred D. Chandler, Jr., and Fritz Redlich, embracing Werner Sombart, in “Recent Developments in American Business Administration and Their Conceptualization,” in McCraw, Chandler, 127–28 (originally published in the Business History Review 35 (Spring 1961): 1–27.

27 Galambos, “Organizational Synthesis II,” 492, 473. By referring to Galambos's summary of the argument, I do not imply that he endorses it unequivocally; indeed, he has reservations and refinements to bring, both here and in America at Middle Age.

28 See sources in footnote 8. A few business historians have recently turned their attention to the question of big business attempts to “institutionalize innovation.” In general the results support a pessimistic assessment of such firms' abilities to achieve major break-throughs with new products or processes, although there has been fair success making marginal improvements of existing ones. See Graham, Margaret, RCA and the Video Disc: The Business of Research (New York, 1986)Google Scholar; Hounshell, David and Smith, John, Science and Corporate Strategy: Du Pont R&D, 1902–1980 (New York, 1988).Google Scholar Quotations are from Galambos, “Organizational Synthesis II,” 492. This list of course says nothing of the reckless abuse of the natural environment through which many businesses achieved short-run “efficiency” for themselves at a long-run cost yet to be determined but sure to be staggeringly large.

29 An exception is Tiffany's, PaulDecline of American Steel (New York, 1988)Google Scholar, which examines these issues closely with respect to the U.S. steel industry.

30 Quoted in ibid., 175–76.

31 Though this impact has not led to the decline of capitalism in the United States, at least partially for reasons I suggested in “Entrepreneurial Persistence” in 1977, or in the world generally, where it waxeth mighty even at this moment.

32 For two views ofthat power and its potential, see Servan-Schreiber, Jean-Jacques, The American Challenge (New York, 1968)Google Scholar, and Barnet, Richard J. and Muller, Ronald E., Global Beach: The Power of the Multinational Corporations (New York, 1974).Google Scholar For the “Oh wow!” view of American management prowess, a quick perusal of Fortune, Business Week, or Barren's in the late 1950s and early 1960s should suffice.

33 Sloan, Alfred P. Jr, My Hars with General Motors (Garden City, N.Y., 1963)Google Scholar, especially chaps. 23 and 24.

34 “GM's Unlikely Revolutionist,” Fortune, 19 March 1984. The path that led to these and other troubles clearly emerges in the pages of Wright, J. Patrick, On a Clear Day Tou Can See General Motors (Grosse Pointe, Mich., 1979)Google Scholar, and in a series of Fortune articles on the subject. See, for example, the issues of 22 Aug. 1983; 19 March, 6 Aug., and 15 Oct. 1984; 8 July, 28 Oct., and 11 Nov. 1985; 10 Nov. 1986; 28 Sept. 1987; 15 Feb. 1988; 13 Feb. and 13 March 1989. A summary of events appears in “General Motors: What Went Wrong,” in Business Week, 16 March 1987. For a negative assessment by the leading Wall Street analyst of the automobile industry, see Keller, Maryann, Bude Awakening (New York, 1989).Google Scholar The irony is, of course, that Sloan not only did not create a structure that transcended personalities, but worse yet he created one that depended for its vigor on a single personality—his own.

35 Kotkin, Joel, “Folget Lee Iacocca: Soichiro Honda for President,” Washington Post, 23 Nov. 1986Google Scholar; “America's New No. 4 Automaker—Honda,” Fortune, 28 Oct. 1985; “Ford's Drive for Quality,” Fortune, 18 April 1983; “Having a Hard Time with Just- In-Time,” Fortune, 9 June 1986; “The Trouble with Managing Japanese Style,” Fortune, 2 April 1984; “The War on Inventories is Real This Time,” Fortune, 11 June 1984; “Toyota Meets U.S. Autoworkers,” Fortune, 9 July 1984; “Japan's Gung-Ho U.S. Car Plants,” Fortune, 30 Jan. 1989. These citations typify an almost countless array of journalistic outpourings on the subject.

36 Steel's troubles generated press coverage similar to—though less extensive than—Detroit's. See, for example, in the Wall Street Journal, “Big Steel Pushes to Extend Import Quotas” (30 Dec. 1987); “USX's New Chief Calls Jury ‘Out on Steel’” (31 Jan. 1989); “Steel Import Curbs: The Debate Goes On” (6 Feb. 1989); “U.S. Steel Quotas Extended,” (26 July 1989).

37 Iverson quotations from “Steel Man: Ken Iverson,” INC, April 1986; see also “Making Money Making Steel in Texas,” Wall Street Journal, 26 Jan. 1988; “Salvaging Profits from Old Steel Mills,” Fortune, 28 April 1986.

38 The summary of mini-mill management magic came from a Bethlehem Steel division head trying to replicate the trick in his own sphere: quoted in “Salvaging Profits,” Fortune; the quotation about research is from “Making Money Making Steel in Texas,” Wallstreet Journal.

39 Quotations from Gerth, H. H. and Mills, C. Wright, From Max Weber (New York, 1946), 51–54.Google Scholar

40 Galambos, “Organizational Synthesis II,” 492, 493.

41 Aitken, Syntony and Spark, 329.

42 Ibid., 330–31.

43 Ibid., 330. While employed at the Du Pont Experimental Station in Wilmington, Delaware, I often witnessed the gulf between the science and technology subcultures as represented by research chemists and chemical engineers. When I asked the project chemist the difference between himself and an engineer he responded, “it's essentially the differ ence between civilization and barbarism, between poets and plumbers.” To the same question the engineer replied “Three hundred gallons and the difference between a sane person and crazy one.”

For a graphic description of one corporation's struggle to integrate these spheres, see “AT&T's Bell Labs Adjusts to Competitive Era: New Emphasis on Marketable Research Stirring Conflicts,” Wall Street Journal, 13 Aug. 1985.

44 See, for example, “What Welch Has Wrought at G.E.,” Fortune, 7 July 1986; “The Mind of Jack Welch,” Fortune, 27 March 1989; “Iacocca's Time of Trouble,” Fortune, 14 March 1988; “Some Firms Fight Ills of Bigness by Keeping Employee Units Small,” Wall Street Journal, 5 Feb. 1982; “New Chemistry: Bronfmans of Seagrams Take Increasing Role in Du Pont Co. Affairs,” Wall Street Journal, 17 July 1987. Numbers in parentheses are Fortune 500 rankings for 1988. Obviously size confers no immunity.

45 “Reinventing IBM,” Fortune, 14 Aug. 1989.

46 Ibid.