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Entrepreneurial Studies

posted by Elizabeth Warren

Last week Bob Lawless posted Entrepreneurs Among the Bankrupt.  As his co-author (or co-conspirator) on a study of bankrupts who are self-employed, I paid particularly close attention to what he had to say.  My first thought was that publishing his doubting remarks about whether there is a coherent (even if incipient) field of entrepreneurial studies will probably not get him invited to more conferences on entrepreneurial studies.  My second thought was that he is probably right.

I was first struck by how loose is the definitiion of "entrepreneurial studies" when I talked with Stuart Gilson at Harvard Business School about our doing a joint study of failed entrepreneurs.  Stuart loved the topic, and over lunch we agreed that we should study only "small start-ups."  Just as the waitress brought the Gaucho Chicken with fries, Stuart asked, "Should we limit our sample to $5 to 10 million inital capitalization, or go to something like $50 million?"  When I explained that median debt (a good measure of size in bankruptcy) was about $153,430 in 1994 business bankruptcy cases, we just stared at each other.  While Stuart talked about angel investing and venture capital, I speculated that a lot of the failed entrepreneurs in bankruptices we financed on credit cards and the spouse's job at an insurance office.  We drifted apart.

The Consumer Bankruptcy Project has lots of variation, from the unemployed 25 year old to the widow on social security and the couple making over $100,000.  But the Business Bankruptcy Project multiplied the variations.  Tina's Tax Preparation and Tanning Salon (a real business in our sample) had just as fancy a corporate charter as Memorex (also in our sample), and both were in Chapter 11.  If there is this much variety in failure, I suspect there is even more within the range of starting up businesses and where they eventually end up.

Of course, variation by itself doesn't make something not a field.  But it does intensify questions about what is the phenomenon to be studied.


"We drifted apart." Boy, that says it all.

Here's a little sampling of recent ventures gone bad from South Texas. A couple buys a nursery (plants) business from its original owner, planning to expand and grow bigger, bigger, bigger. They borrow about $1.5 million from a bank on a loan guaranteed by the Dept. of Agric. It doesn't work, an investor shows up willing to finance operations very short term while he fashions a buyout via 363. Everyone takes a haircut, including the entrepreneur -- though he does come out with a "consulting" position (the investor doesn't want to get his hands dirty).

Here's another. The son of the fellow who bought Pig Stands (one of the first drive in restaurants in America, goes their claim) does a lousy job of managing what was given him by his dad (who rose from dishwasher to owner back in the 40's), and can't keep up with the times. He loses all of his investment -- even loses the rights to the name (which he had to "sell" to a landlord to guaranty the leases). There's still a big pig over the original Pig Stand in South San, but not much of a future beyond that. The store locations have either been sold or abandoned and no one even wants the name any more.

A lady the other day had a business renting out the rooms in her house to disabled folks, who paid "rent" with their SSI checks. The city (one of the smaller towns around here) wanted to shut her down. Seems there were about 15 people living in a house of about 2000 sq. ft. She cooked their meals, gave them a bed, and kept the gates locked to be sure they didn't wander off. It was her life. She desperately fought off attempts to kill her chapter 13 plan, by a creditor with a lien on one of her other properties, which formerly housed a car wash and a taqueria.

The common thread in all of these cases is their hopelessness -- and their owner's optimism. In the practice, my old law partner used to call the phenomenom "terminal euphoria."

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