Job Growth Malarkey: Avoid the Mermaid Strategy

10/22/12

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the emerging clean energy cluster in Colorado, or the digital business cluster in London’s TechCity “Silicon Roundabout” area, or defense startups in Israel.

Of course, there are many challenges involved in creating a global business based on a new technology. These companies are highly risky. Still, they hold out the possibility of becoming the next Akamai or Kiva Systems, creating hundreds of exciting high-skilled jobs, many thousands of jobs requiring less skill, and in many instances, a range of manufacturing jobs as well. Here at MIT, we have seen the impact that innovation-driven enterprises can make. MIT students start companies at an astounding rate. MIT alumni have started over 26,000 companies that together employ over three million people and have aggregate annual revenues of around $2 trillion.

Yet as the recent presidential debate made clear, politicians and policy makers often fail to make a distinction between jobs created by “mom and pop” SME entrepreneurship and by IDE entrepreneurship. It is a critical mistake. Treating the two types in similar ways, with the same policies and the same programs – run by the same people, just won’t work. We call that a “mermaid strategy,” because a mermaid is neither fish nor human and is not effective at being either.

We have seen organizations around the world fail to achieve the results they desire precisely because they try to address both SME and IDE entrepreneurship through a singular organization. They start programs, hire people, and move forward, but often the people lack entrepreneurial experience, and so their programs lump SME and IDE together as simply “entrepreneurship.”

Despite their enthusiasm, these organizations are just not set up with the focus necessary to succeed. It is better for an individual organization to choose one focus and perform well, rather than choose both, leaving the organization unfocused and less successful.

Furthermore, an organization designed to address both types of entrepreneurs tends to focus disproportionately on short-term job creation, which does little to address long-term strategies for economic growth. Investment in supporting small business is attractive because it can be geographically targeted and allows for quick wins, so a politician can more easily and directly support his local constituents.

As a result, organizations that combine both kinds of businesses tend to allocate more resources to small enterprise at the expense of innovation. While innovation entrepreneurship is more challenging, it offers a much greater potential upside in the long term.

Both SMEs and IDEs create jobs, but in different ways, so governments looking to foster job creation through entrepreneurship need to distinguish between them while supporting both. A state such as Michigan not only needs an approach to building small businesses in the short term to get people back to work, but also needs to build innovation-driven companies to really spur growth and revitalization in the long term. Therefore, these two types businesses call for two separate support structures, with different personnel, programs, mindsets and metrics for success.

A “mermaid strategy” for job creation through entrepreneurship using the same policies and programs for two fundamentally different types of businesses, will end up promoting neither with any great success.

Bill Aulet is Managing Director at the Martin Trust Center for MIT Entrepreneurship and Senior Lecturer at the MIT Sloan School of Management. He can be reached at aulet@mit.edu. Fiona Murray is Faculty Director of the Martin Trust Center for MIT Entrepreneurship and David Sarnoff Professor of Management of Technology at the MIT Sloan School of Management. She can be reached at fmurray@mit.edu. Follow @

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  • http://www.facebook.com/lazowska Ed Lazowska

    AMEN!!!!! Rich guys who want to keep it all for themselves use the phrase “small business” to consciously mislead. They want you to think of your neighborhood dry cleaner. Two key points: (1) It’s *new* businesses, not *small* businesses, that drive growth – my neighborhood dry cleaner employs the same number of people that it did 30 years ago; and (2) The “small businesses” that would be affected by higher tax rates are the 5% of “small businesses” that are S-Corps and LLCs clearing millions of dollars per year, who could well afford to pay their fair share.

  • http://twitter.com/LevelUPgrowth Randy Albert

    There is one more distinction I’d like to point out. The lion’s share of innovation-based companies are not venture fundable, will never become global businesses, and aren’t necessarily technology driven. It’s not uncommon for the ones who grow past startup into a sustainable business with 10-100 employees to get stuck even though they have further growth potential. In my opinion, government policy and support for venture funded companies is adequate. It’s the second stage entrepreneurs who need a boost.

    Randy Albert
    levelUPbreakthrough.com

  • maxkava

    But, in the end, what’s the exact definition of IDE? Just ‘targeting a global market’? So, is McDonald’s an IDE?