Next-Generation Entrepreneur (Mike Smith Jr. Commentary)

The late French economist J.B. Say coined the term entrepreneur about 200 years ago, saying, “The entrepreneur shifts economic resources out of an area of lower and into an area of higher productivity and greater yield.”

These days we often define the entrepreneur as one who starts his own new and, many times, small business. However, not all new small businesses are entrepreneurial or represent entrepreneurship. For example, the latest tenant on a corner in downtown Little Rock may not necessarily be an example of entrepreneurship.

Entrepreneurship, as Peter Drucker defines it, “drastically upgrades the yield from resources and creates a new market and a new customer.”

Entrepreneurship has been good to Arkansas’ past. Sam Walton created what is now the largest retail company in the world, but he did not invent anything. The products sold in Wal-Mart were no different than those sold in other competing retail stores, but Mr. Sam brought value retailing to the small town and applied innovative management concepts and techniques. Don Tyson did not invent the chicken, but he knew how to enhance the value of chicken. Fred Smith started FedEx in Arkansas and needed $30 million to fund his vision for overnight freight. Unfortunately, we let FedEx get away from Arkansas, but there are numerous other examples of entrepreneurship in Arkansas in that era. These businesses created new markets and new customers and are great sources of Arkansas pride since they helped build the economy of our state. Sam Walton and Don Tyson were successful entrepreneurs who built industry-leading companies, yet they are a generation past.

What is our generation doing for entrepreneurship in the state of Arkansas? As the next generation, are we sitting on the success of our entrepreneurial past or are we taking that foundation and building on it? The typical cycle of a second generation that follows a successful first generation is to rest on the success of the predecessor. It is certainly less comfortable, and actually unnatural, to continue to innovate and think of new ways to reach out to a changing entrepreneurial culture.

The next generation of entrepreneur has different needs than Sam Walton did. The last generation of leading Arkansas companies is beginning to spin out risk takers from Wal-Mart, Alltel, Acxiom, J.B. Hunt and other companies. David Glass once said that Sam Walton “was less afraid of being wrong than anyone else he ever knew,” and to me that means there is a culture of risk taking that has spawned from Mr. Sam. Hundreds of millions of dollars are spent on research and development through the University of Arkansas system — all geared toward discovering new technologies to form new businesses. When the next FedEx idea comes along and it needs $30 million to reach profitability, will we be in a position to support it? Are we supporting and nurturing this entrepreneurial culture in Arkansas to develop the next generation of entrepreneurs?

An entrepreneurial culture needs entrepreneurs, service providers and capital that work together toward a goal for a better Arkansas. In recent years, several organizations such as the Arkansas Venture Forum, Accelerate Arkansas, the Arkansas Institutional Fund, the Don Reynolds Governor’s Cup, Techpreneur, Fund for Arkansas’ Future and other groups have stepped to the front to address the needs of the next generation’s entrepreneur.

Entrepreneurship, innovation and new venture formation are too important to the economic development climate to be overlooked. Venture-backed companies drive demand for skilled, knowledge-based workers, improve per-capita income and sustain technology progress. The future of Arkansas’ economy can no longer rely solely on the growth of the last generation’s great companies and attempts to attract new industry to our state. Attracting industry is highly competitive and many of our existing manufacturing businesses are closing or moving overseas, making it increasingly more difficult to attain net gains in new industry employment. As the Arkansas economy continuously renews itself, venture formation and a strong entrepreneurial culture can be our ally. The state economy needs more of our own “home grown” entrepreneurs to enable the reshuffling of workers to new and different activities and to remain competitive with other states from an economic development standpoint. To do so, purposeful planning, preparation, strategy and leadership must be encouraged and supported.

(Mike Smith Jr., managing member of MS Partners LLC of Little Rock, is chairman of the 2005 Arkansas Venture Conference. E-mail him at mikersmithjr@mspartners.net.)