Why middle-class businesses deserve more attention from entrepreneurs – Darden Report Online

Silicon Valley encourages entrepreneurs to super-size their dreams: take a great, potentially disruptive idea, raise a ton of money from investors, scale rapidly, and reach a billion-dollar valuation.

We’re filled with stories of those rare tech booming companies – “unicorns” and “gazelles” – that make the headlines, with many founders chasing dreams of building the next Stripe or Instacart.

“But is it the only dream worth having?” asks Sarath Sarasvati, a professor at Darden University. Leading He is an expert on the cognitive foundations of high-performance entrepreneurship and a 2022 recipient of the award. global Entrepreneurship Research Award From the Swedish Entrepreneurs Forum.

“Business schools shouldn’t just teach high-growth, high-tech entrepreneurship,” Sarasvathy says, “they should be teaching students how to build middle-class businesses — companies that last long enough to foster strong communities, create value for stakeholders, create jobs, and give entrepreneurs a good living.”

Alumni light the way

Sarasvathy is quick to point out that many Darden alumni have started or are in the process of starting such companies.

Take Manoj Sinha (MBA ’09), co-founder and CEO of Husk Power Systems. Sinha founded Husk in 2008 to solve a hard-to-solve problem that affects three billion people around the world: lack of access to reliable, affordable electricity. Today, Husk is It will power 50,000 homes, small businesses and factories in India, Nigeria and Tanzania through decentralised mini-grids powered by renewable energy.

But Husk is not just supplying electricity to remote areas. time magazine’s list of the 100 most influential climate change leaders in business, according to the company’s estimates. 20,000 work.

““When we install mini-grids in communities, we look at what this can bring as a set of entrepreneurial activities that can help people use electricity more productively and generate new sources of income. That’s why our business model has been successful,” says Sinha.

Another notable middle-class venture launched by a Darden alumnus is 501 Auctions. Co-founded in 2011 by John Carrier (MBA ’12) and Teddy Jones (MBA ’12), the company developed a fundraising platform for nonprofits, changing the way charity events are run.

“501 Auction is a for-profit company that funds the growth of non-profit organizations,” Sarasvathy said.More than $500 million was raised in charitable donations. It’s a business that creates value in many different ways.”

Hiama Beauty, founded by Allison Shimamoto (MBA ’19), is poised to be the next midstream company founded by Darden, according to Sarasvathy. In her words, “Allison is solving a real problem by providing non-toxic products for Type 4 curly hair.”

Shimamoto uses ethically sourced plant-based ingredients from South America and chooses to partner with female suppliers who employ workers from local villages.

Sarasvathy points out that Darden’s founders didn’t start the company chasing venture capital or unicorns — instead, they were focused on tackling real problems and building not just great companies but a better world.

Defining the business middle class

Sarasvathy coined the term “middle-class businesses” to describe companies that grow and survive over time, but don’t get very big.

Her paper, “The Business Middle Class: Perseverance as a Dependent Variable in Entrepreneurship,” Entrepreneurship Theory and PracticeSarasvathy defines the category as ventures with between five and 300 employees that have been profitably in existence for at least 16 years.

Research has found that businesses that have been in business for 16 years or more actually employ the most people, even though they grow slower than younger companies. “If we’re looking to spur job creation and economic development, longevity is a better predictor than size, which is one reason we should nurture middle-class businesses,” Sarasvathy says.

The question is, how?

Darden Professor Sarath Sarasvathy is known worldwide for his work on effectuation, the unique logic entrepreneurs use to build new companies and markets.

Teaching entrepreneurship the same way we teach science

Sarasvati and Professor Sankaran Venkataraman have long believed that entrepreneurship should be taught to everyone with an education, just like science. “Today, we’re not just teaching future scientists in colleges and universities, we’re teaching the scientific method to everyone from an early age as a required mindset and skill,” Sarasvati said.

But science wasn’t always thought of as something that could be taught. Before Francis Bacon began to spell out the key elements of the scientific method, science was the exalted domain of those with wealth, time, and a spark of divine inspiration.

According to Saraswati, democratizing this knowledge and making it widely accessible Technological progress accelerated, boosting productivity. “For the first time in history, broad swaths of society were able to earn enough money to lift themselves out of poverty,” Sarasvati says. “This led to the emergence of a middle class defined by income.”

In her essay, “The Business Middle Class,” Sarasvati draws historical parallels. She argues that: just Introducing science education to all will help the rise of the middle class, and introducing entrepreneurship education to all will help the rise of middle-class businesses.

“When we start teaching entrepreneurship to everyone as a necessary skill, people will become more entrepreneurial not just in starting companies, but in solving problems in life and in the world,” Sarasvathy argues. “People won’t necessarily start more companies, but they’ll build better companies that last longer than average and create more value.”

Developing Entrepreneurial Methods

But can entrepreneurship be taught? If you ask Sarasvathy, who has been teaching entrepreneurship at Darden since 2004, the answer is a resounding yes.

In fact, Saraswati pioneered the scientific approach to entrepreneurship with his groundbreaking book, A Scientific Framework for Entrepreneurship. Effectuation: Elements of entrepreneurial expertiseShe developed this concept further in a 2011 book with Venkataraman: Entrepreneurship Theory and Practice.

Central to the entrepreneurial methodology is effectuation, the unique logic that seasoned entrepreneurs use to build successful companies. Sarasvathy discovered this logic in the late 1990s after extensive study of how seasoned entrepreneurs think, act and make decisions during the early stages of a venture and distilled it into five easy-to-teach principles:

Effectuation is rooted in non-predictive control. “Instead of trying to predict and control the future, you think causally,” Sarasvati says. “Skilled entrepreneurs “I know from experience that if you can control what you have now, you can create your future. That’s effective thinking.”

Effective entrepreneurs start with what’s readily available to them — themselves, what they know, and who they know — to come up with a viable venture idea. They limit their downside by only investing what they can afford to lose. They work with stakeholders of their own choosing who are willing to commit resources to their fledgling venture.

“The goal is not to predict the future, but to co-create it,” Sarasvati says, and the results are often surprising.

For Shimamoto, the results were unexpected: She developed a hair cream for curly hair, and she was surprised to see that customers with a variety of hair types were buying her products.

Sarasvathy said, “Allison developed this niche product to try to solve a problem for people with Type 4 hair texture. It turns out her solution can be applied to a much broader demographic.”

Chasing a worthy dream

The Silicon Valley model of entrepreneurship has captured the hearts of many, and even though it only applies to a small percentage of startups, many founders want to emulate it.

“Most startups are not venture-backed, hyper-growth companies,” says Sarasvathy, encouraging students to build enduring businesses. “What if you could build a company that lasts 15 or 30 years and earn twice the salary of what you would make in an MBA? Let’s say you make $500,000 a year as a founder for the next 30 years and at the end you sell your company for $30 to $60 million? Isn’t that a dream worth having?” she asks.

That dream worked for Carrier and Jones, and they grew 501 Auctions into a company with more than 100 employees without seeking outside investment.

When Carrier and Jones started the business as Darden University students, they never expected that five years later they’d be inundated with offers from potential buyers. Eventually, they found they could sell on their own terms, so they did.

501 Auctions has changed its name and continues to create value for nonprofits, but the sale gave Carrier the freedom to choose what’s worth pursuing. “After the sale, I had a lot of freedom to choose the next phase of my career. I’m a successful entrepreneur and I picked up a lot of tech and startup skills at 501 Auctions,” Carrier says.

Naturally, Carrier decided to put those skills to use to start another venture: REI Hub. He enjoys the freedom of running his own business. “It’s challenging and rewarding,” he says. “I can’t imagine doing anything else.”

Support for entrepreneurship research through the Batten Institute

This article was produced by the Batten Institute for Entrepreneurship, Innovation and Technology, of which Professor Saraswati is Academic Director.

Through the Batten Faculty Fellows program, the Batten Institute supports Saraswati’s research and the entrepreneurship curriculum taught by Saraswati and other faculty members, including courses such as “Effective Entrepreneurship,” “Starting New Ventures” and “Venture Velocity.” The Batten Institute also helps disseminate Saraswati’s influential research on the cognitive foundations of high-performance entrepreneurship through the Effective Thinking and Action Initiative.

Founded in 1999, the Batten Institute helps Darden students realize their full entrepreneurial potential through transformative learning experiences and groundbreaking research in the focus areas of startup creation, venture capital, acquisition entrepreneurship, technology and corporate innovation.