Startup Genome and Harvard Business Review both recently released articles, “Transformational Entrepreneurship: Where Technology Meets Societal Impact” (click the links to read it) on the movements in Technology Entrepreneurship and Social Entrepreneurship.
Social Entrepreneurs are best described by David Bornstein in his book “How to Change the World: Social Entrepreneurs and the Power of New Ideas” as a new wave that is effectively changing some of the toughest global issues, while empowering those in developing countries. It’s full of stories of individuals across the world who are developing technologies and creating businesses that benefit their societies.
Read the Startup Genome’s article below:
The last five years the global economy has been rife with turmoil. Discussion of bankruptcy, bailouts and unemployment have dominated the headlines. On the surface many of our problems stem from giving the financial sector de facto leadership over the global economy, and enabling them to exploit the system to the brink of societal collapse. On the backs of sacrificial taxpayers the economy appears to be regaining stability, but the rumblings aren’t likely to go away for we are at the crossroads of a momentous transition into the information age. To successfully make this transition, much of the socioeconomic fabric of society needs to be reinvented. But most of the world seems lost when searching for the source of reinvention. Industrial manufacturing has long passed its golden age, armies of creative freelancers are too fleeting to create enduring structural change and returning the reins to the financial sector would again tempt economic disaster. The lack of a viable plan isn’t particularly surprising because the people, process and movement that can lead this societal transition have not yet coalesced.
There are early signs however, that the two movements of Technology Entrepreneurship and Social Entrepreneurship are beginning to converge into a promising solution. An increasing number of entrepreneurs are awakening to the possibility of combining the scalable tools and methodology of Technology Entrepreneurship with the world-centric value system of Social Entrepreneurship. Together they create a new type of entrepreneurship that could become our primary source of socioeconomic value creation. What do we call this movement? We propose we call it “Transformational Entrepreneurship.”
The major socioeconomic transition we’re going through needn’t be as tumultuous as its been, but for the last few decades the financial sector has led the economy at breakneck pace into a doomed direction. Economies are based on long-term value creation, but somewhere along way short-term value extractors from the financial sector forced their way atop the economic pantheon. Its supremacy is cancerous for one simple reason: financial products cannot fundamentally create new value, they can only optimize other means of economic value creation.
Financial products are not inherently bad. Their intended purpose is to allocate capital where value can be created to maximize its potential output. But the financial sector was not satisfied in its incredibly lucrative role of financial optimizer. When the sector reached the upper limits of the growth it could create through optimization, insatiable greed propelled the sector to commit some of the most egregious feats of corruption and extortion the world has ever seen.
Exactly how the global economy collapsed is complicated, but the cause is no mystery: exploitative financial institutions on Wall Street. Enough incredibly intelligent young men and women in Generation X lived up to their idol’s famous words that “Greed is good.” Many people in the financial sector seem to behave as if they are playing a game of monopoly, where the securities they trade are not connected to the real world, and other people are merely pawns to be manipulated in pursuit of victory. This disconnect from reality via submission to the ludic fallacy not only creates erroneous models that engender massive overconfidence, it leads to a megalomaniacal worldview devoid of moral principle.
Now all around the country, citizens who are mad as hell and not going to take it any more are storming the streets and camping out in public parks, demanding justice from the economic destroyers on Wall Street and the complicit federal government. But unfortunately reining in the bad guys won’t unleash an economic revival. And pushing naive campaigns like “putting America back to work” won’t solve the crisis either. Economies don’t grow by artificially creating new jobs via governmental legislation, they grow by creating new products and services that create value. Government needs to spend less time talking about job creation and more time working to create the necessary conditions for innovation. The jobs will follow. If a worker no longer has valuable skills, then they need to retrain. Receiving a handout only makes the problem worse.
Industries that were once lucrative are drying up, and jobs that were once stable are vanishing. But growth and prosperity are not disappearing, they are just shifting to new areas of the economy. Since the industrial revolution, the agricultural sector has fed increasingly larger populations with smaller percentages of the workforce. The manufacturing sector went through a similar transition as machinery replaced most manual labor. Now the service sector is poised to do the same as software automates the repetitive intellectual tasks of accountants, clerks, stockbrokers, even doctors and lawyers. When sectors shrink because of the increased efficiency of automation, fear of economic depression is not the right response, for new frontiers of growth are often on the horizon.
Over the last few decades nearly all the economic growth and job growth in the U.S. has come from high-growth technology companies. That growth is driven by companies like Amazon, Google, Salesforce, and VMware (which didn’t even exist 15 years ago), and companies like Facebook, Twitter, Groupon and Zynga (which didn’t even exist 10 years ago). Then of course there’s Apple, which brought itself back from the grave in the beginning of this decade and is now the world’s most valuable public company. Collectively these companies have created almost a trillion dollars in new wealth over the last decade and a half.
All of these companies were created by high growth technology entrepreneurs. As the world has finally started to take notice, the inner workings of entrepreneurship ecosystems like Silicon Valley have been raised to mythical proportions. Over the last 40 years Silicon Valley has evolved a complex ecosystem geared specifically toward the development of high-growth, billion-dollar technology companies. The output is awe inspiring, but the company-creation process is not magic, though neither is it well understood. More than 90% of startups fail, primarily because of self-destruction rather than competition. We at the Startup Genome Project are committed to turning the murky art of innovation into a repeatable science that can be spread to the rest of the world. To date we’ve released two critically acclaimed research reports on the factors that determine startup success and their primary cause of failure, and put our research into a software tool that is now a digital mentor for more than 13,000 startups. Human history is littered with arts that caved into science, and the startup creation process will not remain standing.
Silicon Valley now sits at the pinnacle of this socioeconomic transition, endowed with the potential to establish itself as the new center of the world economy and reignite the flame of inexorable progress. Yet in its current incarnation, it is unfit to do so. Silicon Valley has mastered the art of building high-growth technology companies but iit hasn’t yet developed the moral compass to figure out what companies are worth building. There are simply too many talented entrepreneurs today building meaningless ventures. From advertising products that get people to buy things they don’t need, to social games that are designed to addict people to wasting their time, to “mobile-local-social” products that attempt to leverage the latest technological trends without giving much thought to the importance of the problem being solved. Furthermore, the unquenchable thirst for growth that fuels much of the wealth creation must be carefully watched, for it could easily turn malignant and lead technology entrepreneurs to commit the same kind of economic atrocities as the financial sector.
Silicon Valley is like an immature superhero who has just discovered its superpowers, but are using them largely for self-interested aims. Silicon Valley needs to recognize, in the wise words of Spiderman’s Uncle Ben that “these are the years a man changes into the man he is going to become for the rest of his life” and “with great power comes great responsibility.“
The emergence of “Social Entrepreneurship” attempts to fill this moral void by refocusing energy and resources on important social problems. While Social Entrepreneurship is promising, its impact has been limited to date as its solutions are rarely devised with scalability and true economic sustainability in mind. Furthermore, while the Social Entrepreneurship community is full of bright-eyed young people intent on changing the world, many of their solutions fail to take into account the complexities of the problems they are attempting to solve, which can lead to doing more harm than good. This backfiring is far too common because the community’s propensity to descend into self-congratulation, starves the founders of the critical feedback required for them to find the holes in their vision. The standards must be set higher than good intentions.
To successfully make the transition to the new socioeconomic era of the information age, we need to learn to focus the enormous power and efficiency of capitalism on the world’s most important problems. To do so will require figuring out how to unite the scalable tools of Technology Entrepreneurship with the moral ethos of Social Entrepreneurship. This is the essence of what we at the Startup Genome are calling Transformational Entrepreneurship.
Transformational Entrepreneurs earn their name by creating innovative solutions to the world’s biggest problems that are scalable, sustainable and systematic.
A Deep Dive Into Transformational Entrepreneurship
To ground this idea, we created a matrix that positions Transformational Entrepreneurship, Technology Entrepreneurship and Social Entrepreneurship on the landscape of socioeconomic value creation.
This graph can be further divided into six categories: Exploitative Entrepreneurship, Small Business, Harmful Non Profits, Ineffective Non Profits, High Growth Entrepreneurship, Social Entrepreneurship, Transformational Non Profits and Transformational Entrepreneurship. In the following section we will discuss what factors determine where a business is placed.
The Y Axis: Economic Impact
The Y axis is relatively straightforward. We measure companies based on the economic value they create, using standard financial metrics like revenue, profit, market cap and ROI. The organizations that have the greatest impact have scalable business models that produce products and services millions of people are willing to pay for. We extend the graph in the negative direction to describe organizations that cannot sustainably support themselves like nonprofits and charities. Nonprofits that create a transformational societal impact like Wikipedia often go deeper into the negative direction of economic impact the bigger they get, because it takes more donation dollars to support their growth. There are scalable revenue generating models that some non profits can access but for the most part they have yet to be explored and developed.
The X Axis: Long Term Societal Impact
Where a business falls along the spectrum of long-term societal impact depends on what it is doing to solve one of the world’s biggest problems. There is a subjective element to what one could consider a big problem, but a number of organizations, including The Copenhagen Consensus, Singularity University, The Millennium Project, The UN and The World Economic Forum have done a good job putting structure around the problem space.
The prescriptions from these organizations fall roughly into two categories. Third-world problems that consign billions to poverty and a low quality of life, and first-world problems that if solved could ignite new societal transformations and drive the continued progress of humanity. This is the sustainability / innovation dialectic and both perspectives are necessary for progress. Some people are more drawn to bringing the third world up to the prosperous living standards of the first world, establishing a healthy baseline for our emerging global village. Others want to push the edge of first-world society, extending the story of humanity farther into the realms of possibility.
The Copenhagen Consensus produced the most rigorously evaluated list of grand challenges. They began by convening many of the world’s top economists who were tasked with finding the best ways of advancing global welfare in third-world countries. Their final list ranked solutions by their ability to cost effectively improve life in the developing world. It was ordered as follows:
1. Malnutrition & Hunger 2. Subsidies & Trade Barriers 3. Diseases 4. Education 5. Women Empowerment 6. Global Warming 7. Sanitation & Water 8. Conflicts & War 9. Air Pollution, and 10. Terrorism.
The frameworks for analyzing first-world problems were noticeably weaker. Perhaps this is evidence of the complacent malaise that has swept much of the first world. There seems to be a script running through the minds of many that the future has arrived. There are no major innovations on the horizon and society has reached the end of its evolution. #firstworldproblems are trivial ones like the waiter at the restaurant being too slow or being locked out of your house. All that’s left to do is to give the developing world the same quality of life as the developed world. The fact that we refer to the first world with the past tense verb “developed” is further evidence of how embedded this story of stagnation has become in our cultural consciousness.
But this story couldn’t be further from the truth. We are just at the cusp of a new societal era. Humanity doesn’t see new eras very often, but when they come, every aspect of society yearns for reinvention: Government, Business, Finance, Education, Health, Energy, Technology, Art and Science all need upgrading. The Industrial Revolution was the last great societal transformation, and the scientific enlightenment that ensued gave rise to modernity. With two billion broadband internet users and billions of smartphones entering circulation, the necessary tools and infrastructure are now in place for the information age to burst into full bloom, moving beyond the confines of the technology industry to reinvent all aspects of society.
Defining X Axis of Long Term Societal Impact
Establishing the X axis of long-term societal impact is our call for entrepreneurs and business leaders to turn away from incremental improvements on the status quo and focus on solving problems that will transform the world.
Here are a few guiding principles for where to place a company along the x axis of long-term societal impact and then we will provide a number of examples.
Section 1: Negative Long Term Societal Impact [-5,0]
Persuade people to buy things they don’t need or that harm them long term
Waste people’s time
Make people or the world unhealthy
Give a false sense of satisfaction or accomplishment
Many companies make a profit while making some of the world’s biggest problems worse. They do this by either providing convenient painkillers that hide the problem rather than treating it, or merely shift the problem somewhere else rather than solving it. Examples include McDonalds and Zynga, discussed in more detail in the next section.
Section 2: Marginal Long Term Positive Impact [0,5]
Incrementally improve relatively efficient areas
Make people feel better about themselves
Help people make a living
Most businesses fall in this section.
Section 3: Transformational Societal Impact [5,10]
Approach problems systematically, treating root causes
Teach men to fish rather than giving them fish
Focus on unlocking human potential
Create more value than they capture
Seek to empower people
Improve people’s relationships, their ability to create and ability to learn
They nurture ecosystems and platforms
“We don’t build services to make money; we make money to build better services” – Mark Zuckerberg in Facebook’s IPO Filing letter.
Examples: Mapping Socioeconomic Value Creation
With the basics of the framework defined, here we put it to use to classify a number of markets, product types and companies on our map of socioeconomic value creation.
An appendix which contains examples for how a number of markets and companies were mapped to this matrix of socioeconomic value creation can be found here. Where a market or company falls is not set in stone, but is in fact a very important debate. This matrix is intended to provide structure for having the conversation about the value we, as a society, are creating and what opportunities we should be directing our attention and energy towards.
The Startup Genome As A Transformational Company
I would be remiss not to include a personal story describing the transformational philosophy guiding the direction of the Startup Genome, the company I founded last year with Bjoern Herrmann and Ertan Dogrultan. A few years ago when I was immersed in the futurist community, I learned about Moore’s Law and the more expansive accelerating pace of technological change. The implications for the future of society were immense and I was struck with an impulse to find a way to contribute to the revolution on the horizon. My search process led me to conclude that one of the biggest leverage points for socioeconomic evolution would be to find a way to increase the success rate of startups. Startups are the primary carrier and distributor of technological innovation but 90% of them are failing, mostly due to self-destruction rather than competition. We set out to find a scalable solution to this problem and arrived at the Startup Genome. We conducted research with leading thinkers in the field on the primary causes of startup failure and released our findings to the world. This research formed the basis for intelligent technology tools that will enable businesses small and large to be more innovative and scale faster to success. We believe this can accelerate the pace of innovation all around the world, and together with a new generation of transformational entrepreneurs, unleash a socioeconomic revolution.
The opportunity to reinvent society is within our power, but the future doesn’t invent itself. We must create a culture that encourages and empowers transformational entrepreneurs and celebrates little else. Anything less is selling short ourselves, our ancestors, and the future of the human race. That may feel like hyperbole, but the latent socioeconomic revolution that now lurches beneath the surface has only arisen four other times in human history. Revolutions are dangerous transition periods that can cause a societal slide into turmoil just as easily as a rise into transformation. It’s up to transformational entrepreneurs to rise to the occasion of the present moment.
We encourage everyone to look within themselves and around their environment and seek out opportunities for transformational change. Ask the entrepreneurs you know how the company they are starting is transformational. Ask students and job seekers what transformational problem they want to solve. Ask everyone else what transformational ideas, projects and companies they are excited about. Get people talking, reading, writing, researching and creating in the spirit of transformation — because it is our best hope for reviving socioeconomic progress.