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Entrepreneurs Among the Bankrupt?

posted by Bob Lawless

I spent the past few days at the Law & Entrepreneurship Retreat that Gordon Smith put together at the University of Wisconsin Law School. Gordon also blogged about the retreat on The Conglomerate blog, complete with pictures. It was a great event, and I learned a lot. The other attendees were very gracious in putting up with my skepticism about entrepreneurial studies. The day's exchanges helped me think a lot about the topic and left me with the following.

One concept of entrepreneurial studies might be that it defines a group of scholars with cross-disciplinary interests in what might loosely be called "emerging businesses." Under this concept, entrepreneurial studies is a label that helps a set of scholars identify papers, conferences, and other opportunities for scholarly exchange. Thus, entrepreneurial studies can be seen as a flag around which a group of scholars have rallied. This loose social organization facilitates the accumulation of knowledge because these scholars otherwise would have stayed within their own intellectual silos, and the information that each knew would not have been shared with the larger scholarly community. That is a useful role for entrepreneurial studies.

There is a stronger claim, however, about entrepreneurial studies on which I remain a strong skeptic. That claim is that there exists a phenomenon called the "entrepreneur" and that we would agree on who is an entrepreneur such that the phenomenon can be the subject of scholarly study. My skepticism is not people do not start business, for they obviously do. Are all business startups entrepreneurial? If so, then is entrepreneurial studies just the study of business startups? Could I continue with more rhetorical questions to illustrate the point? I am not the first person to think about these questions, and my comments here probably will show my lack of knowledge about the literature. But I think my interest in bankruptcy gives me a slightly different way to get a handle on the question.

I got interested in these questions when we discovered that about one in seven persons in bankruptcy were there with a small business. (See here if you are not tired of me mentioning that topic and want more details.) We have people in our database that are working as consultants, perhaps for a company for whom they used to work and have a few other clients. They clearly have a business, but my experience suggests that people are reluctant to label such a person as an entrepreneur.

Rather, when you hear people define entrepreneurs, you hear words such as "action," "creation," "innovation," or "visionary." A classic definition of entrepreneurship is Joseph Shumpeter's idea of "creative destruction." These terms define winners--entrepreneurs are winners, not bankrupts. Within these definitions, bankrupt business owners are worth studying to learn to avoid the mistakes they made so we can have successful entrepreneurs. Are entrepreneurial studies then just the study of what makes a successful business? Maybe, but are not the business schools full of people studying what makes for a successful business? In its most cynical and fortunately rare form, entrepreneurial studies is a thinly veiled antiregulatory agenda on the theory that regulation hinders businesses from being successful.

I am not skeptical about studying what makes businesses successful, about studying business startups, or about studying many other things that fall within the umbrella of entrepreneurial studies. All of these inquiries can contribute to the fund of knowledge. Rather, what I wonder about is whether entrepreneurial studies is anything more than a term scholars use to identify themselves to other scholars and to form groups with a common interest. Group formation is valuable in and of itself. I just wonder whether we are trying to make entrepreneurial studies do more than it can. Contrary views are welcome. Laudatory comments are welcome also.


Not directly responsive to your concerns, but one small observation I would make has to do with the way you describe Schumpeter’s concept of entrepreneurship. Although “creative destruction” is probably the most catchy and familiar two-word summary of Schumpeter’s ideas, I think that Professor Miner’s claim that Schumpeter spoke of entrepreneurship as a “novel combination” is a more useful starting point for those interested in law and entrepreneurship. This characterization may not provide any additional insight into whether a small consulting business with several clients is entrepreneurial. But characterizing entrepreneurship as involving novel combinations at least more directly requires a consideration of the role that law plays in facilitating or deterring such activities.

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.