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Invisible Capital (Preface and Introduction)

Excerpted with permission from the author, Chris Rabb.
Website for the book: http://invisiblecapital.com
Publisher: Berrett-Koehler

Preface

There are any number of “How to succeed in business” books. Even more books tell you how various people have already succeeded in business. But very few books honestly address why some entrepreneurs succeed—and others don’t. Still fewer even challenge the notion of success itself in this context. /system/documents/0000/3318/invisible_capital_cover_small.jpg

Take Donald Trump, perhaps one of the best-known businessmen in modern times. In Trump 101,1 “The Donald,” as he is popularly known, tells readers they can succeed if they “tough it out,” “listen to your gut,” and “take chances.” What he doesn’t tell them is that they will have a better chance to succeed in the real estate business if real estate is the family business, if they work in the family business before venturing out on their own, if they have access to the right connections in that world, and if they know how to look, talk, and act once they start operating in that world.

Success comes easier if you start with capital—not just cold, hard cash, but a kind of hidden capital most people don’t even know they have. Donald Trump spent his first five years in business working with his father, Fred Trump. He learned the art of the deal from his dad. He learned from his father the elements of success that few books can teach you—from what jokes to tell to where he would have the most success with different types of people (in the office, at a restaurant, or on the golf course). The young Donald could get his calls answered just by saying he was Fred Trump’s son. That’s invisible capital.

You and I have invisible capital of all kinds. Our cultural background, occupation, age, gender, educational training, and sexuality give us entree to some social groups—and may make it more difficult for us to enter others. Where you went to school, whether your parents were in business, what neighborhood you lived in as a child—all these factors can either propel you further or hold you back.

I saw the workings of invisible capital when I served as a legislative aide in the U.S. Senate. Each summer, interns would flood our offices, most of them recent college graduates. Among those interns were Congressional fellows who had received stipends to allow them to live and work on Capitol Hill for the summer. These prized fellowship opportunities were few and far between—and the process was therefore highly selective. As a result, they often went to talented college students whose parents or other adults in their lives had strong ties to one or more members of Congress or their senior staffers. These relationships exemplified the mantra of one of my earliest professional mentors, who would often say, “Network or not work!”—and who also, and not so coincidentally, was the benefactor of my very first corporate internship as a college freshman.

These young collegians all had enough invisible capital to secure fellowships to work on the Hill. But when autumn arrived and their stipends ended, they virtually all disappeared when no entry-level jobs in members’ offices were available. Most of them could not find work elsewhere in Washington and were forced to go back where they came from despite their newfound connections, skills, and work experience.

One summer, however, I noticed that an intern who was not affiliated with that fellowship program continued working in our office even though there were no new job openings that fall. I learned later that she came from an upper-middle-class family that was both able and willing to support her while she sought employment on the Hill. In the interim, she continued working diligently as an unpaid intern in our office, building up her skills and connections within and beyond our office—just as the fellows had done, but over a longer period of time. When a job finally became available in our office, she was hired on the spot, even though at that time (during a recession) she was competing with job applicants who had more work experience and formal education than she had.

That is the essence of invisible capital. This young woman had been able to leverage invisible assets. One of those assets was the wealth of her family. But the story goes deeper. Her parents had made the strategic decision to bankroll her through the fall because they knew how the system worked, having gotten the scoop from several colleagues and relatives over the years. Most of the fellows came from high-income households with professional, college-educated parents. But they did not all share the same social networks—networks that when tapped into afforded them specialized knowledge, insights, and opportunities that their parental peers did not benefit from. Both sets of parents had invisible capital, but of a different composition and value based on the needs of the situation at hand.

Clearly, the unpaid intern would not have succeeded if she hadn’t worked hard or was unruly or incompetent. Working hard matters. But what made the difference for her in terms of upward mobility was the interplay of these unseen forces.

It is noteworthy to mention here, for a number of interrelated reasons, that the unpaid intern was White and that her paid summer counterparts were Black and the recipients of Congressional Black Caucus Foundation fellowships. While employment discrimination is still rampant in the labor market,2 in this example based on a very real scenario, race was not a factor—not a direct one, anyway.

Invisible capital is not a euphemism for whiteness or, for that matter, any of the other dominant statuses in society such as maleness, a high income, advanced education, occupational prestige, place of birth, or heterosexuality. However, there is a direct link from invisible capital to the opportunities and advantages that all these factors so often confer.3

The intern in my office did not get the job because she was White, nor because she was necessarily a harder worker or more intelligent than her counterparts in the fellowship program. She got the job because of the kind of invisible capital she acquired through her family. The summer interns did not lack invisible capital. It was not a matter of rich versus poor, or educated versus uneducated. In this situation, the networks that were strong enough to secure these fellows the opportunity to work as interns in Congress were still not enough to compensate for the specialized knowledge of the Capitol Hill job market that so greatly advantaged the unpaid intern. That knowledge was a direct benefit of the networks to which her parents had access, networks that were born of opportunities in environments that until the late 1960s were virtually inaccessible to communities of color and to women.

Nevertheless, the fellowship program is a modestly successful initiative despite its nontrivial structural flaw. It provides consistent summer employment opportunities for African Americans who are still woefully underrepresented at virtually every level of participation on Capitol Hill. However, it is that fundamental design flaw that allows one form of invisible capital to trump the kind that successful fellowship applicants have leveraged to make it to Washington, D.C., though they rarely stay when the summer internship comes to an end.4

The lesson here is that “no good deed goes unpunished”—if it fails to adequately challenge the assumptions inspired by prevailing myths around how to succeed in society. If intelligent, well-intentioned nonprofit managers can fall for this mythology, so can you, as you try to assess what it takes to excel in business. Too many people read “how to-succeed” books and try to start a business without understanding what they really will need to survive and thrive. Like many newly minted (also referred to as “nascent”) entrepreneurs, the young summer interns were quite successful in starting their journey on Capitol Hill, but when it came to expanding their opportunities after the fellowship, they came up short.

If you haven’t surmised it by now, this book is not going to give you a simple recipe for success, nor will it show you how to make a million dollars in thirty days or while working in your pajamas. But if you’ve been paying attention so far, you’ve probably already gleaned some insight into how you must change the framework through which you process how we define, improve, and expand entrepreneurial opportunities for all.

And the “we” here is all of us who believe (or would like to think) that some more enlightened approach to expanding entrepreneurial opportunity will benefit not just ourselves or our loved ones, but entire communities.

This book is about invisible capital, and how invisible capital shapes the entrepreneurial gauntlet and influences the quality of entrepreneurship experienced by new and prospective practitioners who may have the necessary passion and perseverance, but lack the insight and perspective to adequately gauge the terrain they must navigate as entrepreneurs and business owners. Invisible Capital reveals the context in which businesses operate, grow or stagnate, flourish or falter. It shows what it will take to level a playing field that so privileges those with the most invisible capital.

One of the main messages of invisible capital is that entrepreneurs don’t succeed on their own. So Invisible Capital is also for people who care about whether entrepreneurs succeed—and that’s all of us, even those of us who do not consider ourselves entrepreneurial, business savvy, or particularly profit hungry.

What I learned from managing the entrepreneurial programs for a business assistance organization in an inner-city community was that the hardworking residents of these neighborhoods needed help operating on a playing field that does not tilt in their favor. It is a precarious plane not navigable by the faint of heart or those invested primarily in the “rags to riches” mythology. (I refer to the mythology that so many Americans, whether newly immigrated or descendants of multiple generations here, have so deeply internalized through what I describe later in this book as the Entrepreneurial-Industrial Complex.) Our efforts to help poor and working-class people become entrepreneurs fail when we don’t take into account the invisible, often society-wide barriers to success. To create a truly democratic marketplace, we need to understand what invisible capital these folks bring to the table—and what they lack. When we radically improve entrepreneurial literacy, we will be better able to design more comprehensive business assistance programs for the next generation of American entrepreneurs.

Entrepreneurship is about much more than money. Entrepreneurs bring innovation and opportunity to the table. Entrepreneurs build wealth, create jobs, and bring us new products, services, technologies, processes—even new ways of thinking. The businesses they create are not just financially profitable, but offer the possibility for our whole society to profit. When someone starts a hair salon in an inner-city neighborhood and employs local residents to cut hair, the entire neighborhood profits. When an entrepreneur devises a new seat for bicycles so that women can safely bike their children to day care, the whole community—and the environment—profits. Entrepreneurship done well can create profits with principles.

My passion for entrepreneurship is personal. I come from a family of entrepreneurs and have spent my professional life working to understand the impact of entrepreneurship on our economy and society at large. After working in the U.S. Senate, I went on to join the staff of the White House Conference on Small Business as writer, researcher, and trainer, and there I coordinated lively panels of entrepreneurial experts and business owners from all walks of life. The White House Conference was a nonpartisan federal commission tasked by the 103rd Congress to gauge the status and concerns of “Small Business America,” having been inaugurated in 1980 by an act of Congress and resuscitated in 1986, and again, most recently, in 1994.5

For a brief time, I worked for a small, local chamber of commerce in Chicago, and years later ran a nationally acclaimed business incubator in Philadelphia. I also have real-life experience as an entrepreneur. I helped raise a quarter million dollars to fund a high-tech product design firm I founded with my older brother—an inventor, engineer, and gifted computer scientist.

When it comes to entrepreneurship, I’ve been involved in this ecosystem in a range of highly complementary roles that have given me practical, policy, and programmatic perspectives on this important subject. I’ve also advised entrepreneurs as a consultant and served on the board of directors of two family-owned businesses, including one that spans three centuries and five generations—a regional newspaper acquired by one of my great-great-grandfathers in the 1890s.

Invisible Capital reflects all of these experiences. I draw on the latest research on American entrepreneurship, including the Kauffman Firm Survey, the Panel on the Study of Entrepreneurial Development (PSED), and scholarship based on U.S. Census data to show how entrepreneurship really works in this country—who tries, who succeeds, and why broad-based success matters to our nation as a whole.

I offer up fictionalized examples of the real-life issues faced by many entrepreneurs. And I bring to the table my own experience as an entrepreneur and the years of hard work I put into my own business ventures, which give me a practical sense of which assumptions are well founded and which ones aren’t.

The Introduction explains what invisible capital is and how it shapes entrepreneurial failure and success. You will learn why hard work and a great idea are important, but not sufficient, to achieve success, and what you can do about that. In chapter 1, I start with my own tragic assumptions about what I thought it took to start, fund, and grow a business, which leads into a broader description of the challenges that await most prospective business owners. It is essentially an exposition of the difference between the ease of starting a business and the radically harder endeavor of keeping one afloat.

Chapter 2 explores the landscape of modern American enterprise. This chapter will give you a brief overview of the composition and performance of U.S. businesses. What does it take to be an entrepreneur? In chapter 3, I explain how invisible capital operates, using composite cases and other illustrative examples to make these theoretical ideas real. It’s the best chapter to read to truly understand how to assess your own invisible capital: to inventory what you already have, and to learn what you need—or, for that matter, learn what your colleagues, clients, peers, or loved ones need.

Why don’t we know more about invisible capital? In chapter 4, I examine all the different things that explain how and why we seem to know so little about something Americans seem to value so much: striking out on our own in search of greater independence and good fortune. Drawing on numerous scholarly studies, I argue that the very governmental and other programs designed to help entrepreneurs don’t seem to know where to start to level the playing field; as a result they so often come up short by overlooking the unique value of thoughtfully merging democratic opportunity with entrepreneurial advancement.

In chapter 5, I offer solutions. Here are practical steps and measures we can take to systematically enable entrepreneurs to achieve success—starting with reshaping how we define entrepreneurial success, both for ourselves as entrepreneurs and as members of communities in which we are deeply invested.

Chapter 6 shows what those of us who do not self-identify as entrepreneurs can do to support and promote the growth of what I call “commonwealth enterprises” and the new, amazing breed of enlightened entrepreneurs who will be at their helm. I sum up what we must keep in mind as we expose the role of invisible capital and advance the kind of entrepreneurship we so desperately need more of. And though “doing good while doing well” is great, I believe doing good for, with, and in our communities might just help us do well! Quite well, and in ways that matter most to us as interconnected people— not just as individual consumers.

We face a crisis of entrepreneurial illiteracy in our country—not just among the ordinary people who want to become entrepreneurs, but even among the politicians and leaders who promote entrepreneurship. Too many think tanks and business books act as if all it takes to achieve entrepreneurial success is to follow the Yellow Brick Road of hard work. Make it to Oz and, like Dorothy, you will get what you want. That story of entrepreneurship would be great if it were true. But it’s not. It’s time to pull the curtain aside and see how invisible capital really works. Entrepreneurs need this knowledge to build their own success. Moreover, our communities need this knowledge to understand how our fragile economy actually works—and what can help where we need help the most.

Invisibility always protects someone. We also need to draw the curtain aside to make sure that a small group of people do not benefit unfairly by claiming their success came from hard work when it was actually a combination of work and the gift of privilege, be it inborn or acquired. Just by revealing the workings of invisible capital, we make democratizing entrepreneurial opportunity that much more possible and level a playing field that too few of us even realize is not flat. The better we understand the workings of invisible capital, the better we will be able to address equalizing its effects. We have the power to better align our individual and collective goals by promoting community-centered enterprises that draw from and contribute to local economies rather than continuing to reflexively validate a “growth for growth’s sake,” consumption-stunted mind-set.

Chris Rabb

Philadelphia

August 2010

Contents

Preface vii
Introduction 1
1 Dreaming a Difficult Dream 21
2 The Landscape of Modern American Enterprise 37
3 Invisible Capital Exposed 51
4 Democratizing Entrepreneurial Opportunity 83
5 Reframing Entrepreneurial Success . . . and Failure 115
6 Toward Commonwealth Entrepreneurship 133
Notes 153
Acknowledgments 161
Resources 166
Index 167
About the Author 172

Introduction

We Americans today dream a very powerful and exciting dream. In this dream, a young man with a good attitude, a great idea, and a willingness to work hard starts a little business. That business grows and grows until the still-young founder is able to leave the day-to-day operations to his paid staff while he enjoys the good life: big mansions, Caribbean beachside villas, luxury cars, and beautiful companions. We call this story a “dream” because we know in our guts that it’s not real. Very few entrepreneurs will create businesses that are profitable, let alone businesses that will be able to hire employees. Most businesses have no employees, and most of them will never have employees. Many businesses are “side hustles,” glorified hobbies that will never grow. Just over one in four businesses actually brings in enough revenue to hire paid staff,1 which explains why the average number of employees per U.S. firm—with or without a payroll—is just four!2 Just 2 percent of all businesses have employees, with large corporations being overrepresented as private employers of our nation’s massive workforce.

Even among those businesses that do hire employees, only about one in ten hire twenty or more workers. And the average employee count per “employer-firm”? Around twenty.

Depending on what survey you read, at least half of all businesses are home based, and over 70 percent are sole proprietorships. Most of these business owners are working hard every day, often seven days a week. They are their business. Or, to put it another way, they are not out driving around in their Ferraris, as the late-night infomercials would have us believe.

We Don’t Need More Entrepreneurs, We Need Better Entrepreneurs

Too often our media and politicians divide our economic world into “big business” and “small business.” In our culture, we tend to think that the dividing line is drawn between massive businesses like Citicorp or General Motors and little “mom and pop” businesses. The Small Business Administration (SBA), however, generally defines small businesses as any U.S. “nonfarm, for-profit” firm with fewer than 500 employees.3 That means that TiVo, until recently, was a small business, since it fell below this arbitrary employee threshold.

When you close your eyes and think of a small business, does TiVo come to mind? Not likely, yet the company whose name has become an indispensable verb in millions of homes across the country was until recently a “small business” when applying the most generic SBA standard of proof. In fact, by this definition, 99 percent of all businesses in America are technically small businesses. The definition is so large as to be pointless. The real line of demarcation shouldn’t distinguish between big and small, but between those that are sustainable and produce a broad net impact on our society and those that do not. After all, we may operate in an economy composed of markets, but we live in a society made up of communities.

This book is about building those real businesses, businesses that will grow to hire employees but may never have more than twenty paid staff. What matters about these businesses is that they become sustainable and bolster local economies and the communities they operate in.

When pundits say that we need new businesses to create jobs, they are rarely telling the whole story. Creating new businesses is a good idea, but the jobs they create have been historically fleeting and contribute to “job churn”—that all-too-cyclical phenomenon in the workforce where our economy sheds jobs as quickly as it creates them. And the evidence shows that what really creates jobs that last is investing in mature businesses—firms whose management has found ways to keep them afloat—if not thriving—for over twenty-five years.4 That point is profoundly unsexy, I know. But that doesn’t make it any less true. It is equally true, though unpopular to state, that our nation doesn’t need more entrepreneurs: we simply need better-prepared entrepreneurs.

What those of us who care about helping entrepreneurs must do is teach them not just how to start a business, but how to start a business that will be sustainable. It’s sustainable businesses that help create broad value beyond the return to their own shareholders and consumer base and create good jobs that last beyond a quarterly job report from the Department of Labor, or longer than an election cycle.

We don’t often dream about being a mom-and-pop outfit, but these small-scale, community-centered businesses are as key to the sustained vitality of our local economies as are the multinational corporations whose tentacles reach into virtually every neighborhood across the fruited plain.

Many entrepreneurs who have a good attitude, a great idea, and a willingness to work diligently will build businesses that do not survive long. Most may never get beyond the incubation stage, and therefore never generate enough revenues to allow the founders to leave their day jobs, let alone hire employees. Of the millions of businesses that exist in the U.S., most do just that: exist. They neither expand nor contract; they stagnate.

Certainly, I recommend having and maintaining a constructive outlook based on reality. I daresay a good attitude, a great idea, and a willingness to work hard are important things to have, particularly if the entrepreneurial road you have taken is a lonely and a daunting one. That said, a good attitude has not been proven to cause business success. And when one’s optimism is based on wishful thinking that denies the unavoidable negativity entrepreneurs must repeatedly confront, such “positivity” is not only of dubious value, it is noticeably absent from the top predictors of entrepreneurial viability, as is revealed in chapter 4.

Rosalene Glickman makes this point well in her counterintuitive but compelling argument in her book Optimal Thinking:

Many positive thinkers believe that their dreams will be realized by a magical, divine process that is triggered by the intensity of their hopes, wishes, and faith. They approach life with a false sense of security, and are ill prepared for negative consequences. Their positive thinking is often no more than wishful thinking and can be extremely dangerous.

[Instead] acknowledge and respect negativity as an authentic expression of reality. When we notice ourselves finding fault and worrying, we accept our negative viewpoints, seek to understand them, and immediately ask the most constructive questions in order to find the best solution.5

By understanding invisible capital, how it works, and how best to leverage it, we may very well have to accept the inherent negativity in a system that has produced and distributed it so unequally. However, we can choose to be “positive” and ignorant, or realistic and solutions oriented with regard to improving entrepreneurial opportunity for ourselves and others despite the very long odds detailed in this book.

Some research suggests that certain individuals pursuing different forms of entrepreneurship exhibit a particular personality trait that includes a strong “internal locus of control.” In other words, some entrepreneurs believe that much of what positively impacts business outcomes for their new venture is well within their own power to influence. However, while there may be a significant link between entrepreneurs who think this way and their likelihood of starting a new venture, there appears to be no meaningful correlation between the prevalence of this attitude among start-ups and the ultimate viability of those start-ups.

Despite ample research debunking the singular value of mind-set on business viability, whole cottage industries have been created to contradict this evidence in order to better market “secrets to business success” supported by neither research nor reality. (This unsavory phenomenon will be explored in chapter 4 as well.)

In defiance of the long odds of success in business, every year roughly 2 million start-up ventures are founded in the U.S.— slightly fewer than the number of marriages. Generally, most marriages fare better than most businesses. And even in light of the sorry state of matrimony these days, marriages still last longer than businesses.

Those who have not prospered in business—or, as is the case for most would-be entrepreneurs, those who never fully made it out of the starting gate—are not necessarily the people who lacked the psychological resolve, the creativity, or the “sweat equity” (that is, the work hours invested in the venture). They are often the individuals who lacked what I have coined “invisible capital.”

What Is Invisible Capital?

If capital is that form of wealth that when exchanged for a specific purpose produces more wealth,6 then invisible capital is the collection of largely intangible assets that improve the probability that your venture will grow and thrive.

Invisible capital is the toolkit of our skills, knowledge, language, networks, and experiences, along with the set of assets we were born with: our race and gender, our family’s wealth and status, the type of community in which we were raised, and the education we had as children. Some of these assets are fixed—we cannot change who our parents are. Others are in our power to modify. What makes all of them “invisible” is that our society does not acknowledge that entrepreneurial opportunities—and thus entrepreneurial outcomes— are greatly influenced by these assets.

Some of the assets in our invisible capital portfolio are quantifiable, such as work experience and the concrete skills, knowledge, and relationships that come from that job history. For example, we know from the 2008 Kauffman Firm Survey that the businesses that lasted the longest—up to 12 percent longer than their counterparts— were the ones run by people who had started two to three prior businesses.7

Entrepreneurs who have worked in family-owned businesses have an even better chance of success. Those who have wealth or meaningful access to it—through family or other networks—have a leg up, as do those who have managed to obtain a college degree. Choice of industry matters, as do race and gender, though perhaps not in the way we might assume—being a man may prove a disadvantage if you want to start a day care center.

Jocelyn’s parents run a laundry, where she helped out as a child. In college, she created a venture doing laundry for other students. After college, she worked at a bank. When a friend wanted help setting up a dog-grooming business, she asked Jocelyn to be a partner. Jocelyn invested her small savings and helped her friend get a bank loan. Once the business was launched, her friend bought out Jocelyn’s share. With the money, Jocelyn decided to leave her banking job for good and pursue her real passion: flower design. She set up her own business, serving weddings, special events, and flower shops that needed expert advice. Her business now supports Jocelyn and an assistant.

Jocelyn had invisible capital. She was able to use her experience with the family business to set up her own laundry business in college. She then used her college degree to get a job in banking, which helped her learn more about getting loans and also allowed her to save up a little nest egg. She used her newfound knowledge of banking, and her nest egg, to help launch the dog-grooming business, and then used the money she made from that to launch her own successful business. Jocelyn worked hard, but she also had the advantage of invisible capital—some of which she inherited at birth and some of which she acquired through the choices she made. It didn’t matter that Jocelyn didn’t even know what invisible capital was or how it worked to her advantage.

Invisible capital is critical to entrepreneurial success. How many people are stopped in their pursuit of business success just because they have no idea how to apply for a loan? If no one in your family or in your circle of friends has ever applied for a business loan, you may not know that banks offer them, you may not know how to distinguish a good rate from a bad one, and you may not know how to create the kinds of financial statements bankers like to see. There is a whole set of tools that go into the toolkit of getting a bank loan that are readily available to some people—and absolutely invisible to others.

Invisible Capital Shifts the Entrepreneurial Paradigm

It would be nice if all an entrepreneur needed to succeed were to get those missing tools. I’d love to be able to say, “Buy this book, and I will give you all the elements you need for success!” But this book is not about handing you the proverbial keys to the secret kingdom of entrepreneurial fabulousness. Instead, it’s about changing our mindset about entrepreneurship—and learning what makes entrepreneurs more (or less) viable in this often high-stakes pursuit.

It’s a paradigm shift from making a shallow call for increased investment in entrepreneurs and innovation to calling for innovative investment in comprehensive entrepreneurial literacy, and for building a toolkit that fosters broad opportunity for sustainable entrepreneurship toward shared prosperity.

President John F. Kennedy didn’t lay out a detailed plan for exactly how we should send a man to the moon and return him safely back to Earth. Instead, he simply but powerfully extolled the virtues of—and commitment to—doing it because it was well within our collective ability and would yield great results if done in an aggressive, highly collaborative, and timely fashion. In a speech made to a joint session of Congress on May 25, 1961, President Kennedy proclaimed:

I believe we possess all the resources and talents necessary. But the facts of the matter are that we have never made the national decisions or marshaled the national resources required for such leadership. We have never specified long-range goals on an urgent time schedule, or managed our resources and our time so as to insure their fulfillment.

Let it be clear, . . . I am asking the Congress and the country to accept a firm commitment to a new course of action, a course which will last for many years and carry very heavy costs. . . . If we are to go only halfway, or reduce our sights in the face of difficulty, in my judgment it would be better not to go at all.

. . . It is a most important decision that we make as a nation.

This decision demands a major national commitment of scientific and technical manpower . . ., and the possibility of their diversion from other important activities where they are already thinly spread. It means a degree of dedication, organization and discipline which have not always characterized our research and development efforts.

. . . New objectives and new money cannot solve these problems. They could, in fact, aggravate them further—unless every scientist, every engineer, every serviceman, every technician, contractor, and civil servant gives his personal pledge that this nation will move forward, with the full speed of freedom, in the exciting adventure of space.8

Until that moment, most Americans believed that the stars were the realm of heaven, not of humankind. JFK changed all of that with this one bold and visionary speech to a restless nation desperately wanting to spread its wings and fulfill its promise in a fast-changing world. Kennedy’s vision in pursuit of space travel was a paradigm shift of the highest order. It was an otherworldly goal for which we had little point of reference. A half-century later, we have not yet committed to taking such a bold step in a far more earthly and seemingly familiar endeavor of no less consequence than extraterrestrial exploration: entrepreneurship.

We are mired in an ignorance cloaked in a confident, yet unhealthy, view of material success that with each passing generation betrays any collective notion of equality of opportunity, social equity, and shared prosperity—at a time when our most vulnerable communities are in greatest crisis and our middle class is shrinking and increasingly beleaguered. In fact, according to Brandeis University’s Institute on Assets and Social Policy (IASP), the wealth gap between White Americans and African Americans more than quadrupled in the twenty-three years from 1984 to 2007.9

According to acclaimed wealth guru Edward Wolff,

Most people think of family income as a measure of well-being, but family wealth is also a source of well-being, independent of the direct income it provides. There are both narrowly economic and broader reasons for the importance of wealth. Some assets, particularly owner-occupied housing, provide services directly to the owner. This is also true for consumer durables, such as automobiles. Such assets can substitute for financial income in satisfying economic needs.

. . . More important, perhaps, than its role as a source of income is the security that wealth brings to its owners, who know that their consumption can be sustained even if income fluctuates. Most assets can be sold for cash or used as collateral for loans, thus providing for unanticipated consumption needs. In times of economic stress, occasioned by such crises as unemployment, sickness, or family breakup, wealth is an important cushion. The very knowledge that wealth is at hand is a source of comfort for many families.10

This book seeks to raise the value of increased knowledge and insight around the modern entrepreneurial landscape and the forces that shape it. It is as much about addressing the cultural phenomenon of American entrepreneurship as it is a primer for how to improve one’s viability in this perplexing and complex endeavor. While this book can help new and prospective entrepreneurs, its value extends far beyond practitioners to engage the far larger audience of supporters and advocates of entrepreneurship who see in its pursuit economic and social opportunities they themselves may never create, yet are no less stakeholders in helping facilitate.

Many of the things that can build our invisible capital are neither surprising nor unattainable. In fact, some of the things you may read about here are efforts you have already made (or suggested to others) without previously understanding the specific dynamics of invisible capital as it influences entrepreneurial viability.

In certain circumstances, we can help entrepreneurs gain skills and knowledge they did not have before. Would-be entrepreneurs can be taught to know what EBITDA stands for,11 how to dress to meet with a loan officer, and how to act at a cocktail party. You can pursue more formal training, increase your digital literacy, and seek out mentors who already are in the field you aspire to join. In this book, I discuss some of the skills that can be taught and which resources can be accessed. I talk about how you can identify what knowledge you lack and how you can build your personal networks.

However, there are sets of assets that cannot be acquired—we cannot change our race or gender, our native language, our families, or the communities in which we were raised. Nor should we. Certainly, whiteness and maleness are undeniable assets in our culture—and that’s one reason that only about 29 percent of all businesses are female owned, and that Blacks and Latinos own roughly 7 percent and 8 percent of all businesses, respectively.12 And it remains the case that there are male-oriented and female-oriented business pursuits (auto repair versus day care, say). However, invisible capital is not just a proxy for racism, sexism, classism, or heterosexism despite their enduring impact on our society, our democracy, and our economy.

People who are on the receiving end of these “isms” are not powerless, nor are they devoid of invisible capital. The playing field is not level, but each of us can do something to help level it, using the toolkit of our own skills, knowledge, networks, and experiences.

Invisible Capital: A Zero-Sum Game

Invisible capital is a zero-sum game. We can “zero” out the unearned advantages others have by understanding what advantages we ourselves possess. We can learn to play the cards we have been dealt—whether we are White, Latina, or Chinese American, male or female—to develop our own entrepreneurial opportunities. We can level the playing field as entrepreneurs when we understand that invisible capital exists, when we learn what kinds of invisible capital we already have, and when we discover how to use it.

Assuming that you did not grow up in a bubble, you have a network of connections, a family or community that knows you, a set of experiences and skills you bring to the table. You may have a personal connection who would prove critical to setting up your business—but if you don’t know how to network, if you don’t understand what that person could offer, you can’t take advantage of the connection. Understanding what you have—and what you lack—is the key to entrepreneurial opportunity and entrepreneurial success.

Invisible Capital Creates Entrepreneurial Opportunity

Entrepreneurs who succeed leverage invisible capital to create opportunity. Every business, no matter how small, relies on a set of stakeholders who supply start-up capital, skills, and knowledge. Businesses that survive more than five years are not built by just one person, but by a team of people.

Entrepreneurs tend to bring into their projects people who look like themselves, have the same class status, and have the same type of invisible capital. If you happen to be a high-status, wealthy, college-educated man who has experience in a family business, your tendency to bring others like you to your team will probably be an asset. You have the kind of invisible capital that will instantly create opportunities for you.

Edward comes from a well-to-do family. His parents are doctors, but his uncle runs a small manufacturing business where Edward worked every summer. Edward went to the University of Illinois at Urbana-Champaign, where he joined a fraternity. After he graduated with a degree in mechanical engineering, he developed a new type of refrigerator latch. His uncle helped him manufacture a sample part, and he was able to raise $500,000 in start-up funds from his frat buddies. Edward’s business was positioned to take off.

Edward did not need to understand his invisible capital—for him, the invisibility of his capital made his trajectory seem effortless. When Edward needed to take the next step on his entrepreneurial journey, opportunities appeared. Most people who want to manufacture a part would have a very hard time even figuring out whom to call first. Most people who need to raise $500,000 would not be able to raise that money by making fifteen phone calls. That is what I mean by the playing field not being level.

Disparate outcomes often suggest disparate opportunities.

Carlos comes from a poor family. His first language was Spanish, and his education was poor. He basically had to teach himself English by watching English-language TV. He worked his way through two years of community college, took two years off to work at Radio Shack to save up some money, then was able to get a BA in electrical engineering at the state university. While working at Radio Shack Carlos got an idea for an extension cord that would work better with new digital devices. He has made a prototype himself, but he doesn’t know what his next step would be. Now working as the quality control engineer at the local electric company, Carlos has decided to focus on paying off his debts. He never becomes an entrepreneur.

Carlos has far fewer opportunities than Edward. He has almost none of the invisible capital he needs for the kind of enterprise he imagines. What’s more, Carlos does not know what he lacks. Feeling as if he has hit a brick wall, Carlos gives up on his dream.

Most of us are like Carlos. Our playing field is not level. There’s an old axiom that says, “Luck is when preparation meets opportunity.”

Some people come well prepared. The rest of us need to acquire the skills, knowledge, resources, and networks we will need to take advantage of the opportunities that come our way.

Not everyone has the willpower to be an entrepreneur. We know that. What we don’t always recognize is that even if someone has the drive and the will to be an entrepreneur, their lack of invisible capital might prove an impossible barrier. Entrepreneurial success depends upon learning to leverage and develop invisible capital to create opportunity.

Entrepreneurial Success Arises from Opportunity

As an entrepreneur myself, as the director of a business incubator, and as a new-venture advisor, I have had the pleasure of teaching entrepreneurs how to access their invisible capital and create opportunity.

Have the people I worked with achieved the American Dream? Have they been able to build companies with hundreds of employees, leaving themselves the leisure to cruise around the world? No. That’s because, for 99 percent of entrepreneurs, the American Dream never comes true. It’s more likely, in fact, that the American Dream has actually prevented many people from going into business because it sets the bar so intolerably high.

Millions of Americans dream about going into business, but most Americans, like Carlos, don’t start up their enterprises. They don’t incorporate, don’t acquire a federal tax identification number, don’t start generating income. They have an idea, they may even have enough invisible capital to develop that idea into an opportunity, but they can’t imagine that they will be able to achieve multimillionaire success. I believe in dreaming big, but believing that the only measure of success is becoming Donald Trump is going to be a barrier to your personal success.

Even business schools don’t use the Trump model of success. The traditional business school definition of business success is whether a company has revenue, makes a recurring profit, has a highly productive and growing workforce, and operates profitably long enough to satisfy its stockholders’ financial interest (read: maximize shareholder value). For most business schools, success equals viability. More to the point, if your company can make enough money to stay in business and return a profit in sustainable fashion, it’s a success.

Implicitly, our government’s standard for business success skews toward growth over profits because growth is often a proxy for economic prosperity and often correlates highly with low unemployment. In other words, growth equals job creation. And jobs equal happy politicians. So, by this lower standard, new ventures can be deemed successful simply by the fact that they exist and are at least a nominal representation of economic growth. If they hire one or two employees—be they full-time or part-time workers (with or without employee benefits)—it’s worthy of celebration.

Suppose you run a day care center that employs yourself and one child care worker, generates modest revenue, and lasts several years. Even if your venture has never made a profit, you’ve hit three of the four criteria used to measure narrowly defined success. If you run a small construction firm that employs five to ten part-time day laborers, brings in money, and makes a small profit, even if your company is just a year old and cash flow is tight, you are also well within the realm of “success.”

Support a payroll of just two people, and you’ve already beaten the odds—since only one out of four businesses have paid employees (including the “owner”).13 Employ twenty workers and you’ve made it into that rarefied top 3 percent of businesses with payrolls!14

Every entrepreneur wants to beat the odds and create a viable business. But the American Dream tells us that viability isn’t enough—we also need to acquire wealth to be successful. The American Dream tells us that the odds we need to beat are not four to one (the number of businesses with employees), but four hundred to one (the number of businesses that create real wealth for their owners).

Are those the odds you want to book? Is that your idea of success? Any entrepreneur about to embark on what is going to be the hardest work they have ever done in their lives should first ask, How do I measure success? What does success mean for me?

The Richest Success Centers on Community

As Bill McKibben frames it, the richness of community is founded on civic engagement deeply rooted in companionship. He writes:

Increased companionship “yields more happiness in individualistic societies, where it is scarce, than in collectivist societies, where it is abundant.” What this means is: . . . if you live in a suburban American home, buying another coffeemaker adds very little to your quantity of happiness. . . . But since you live two people to an acre, a new friend, a new connection, is a big deal indeed. We have a surplus of individualism and a deficit of companionship, and so the second becomes more valuable.

. . . The math of the various quality-of-life indexes is daunting, but the results are clear: in the rich world, . . . “feelings about people contribute more to subjective well-being than feelings about money, whether spent or saved.”15

Few expressions are more trite than “giving back to the community.” Yet in the best of times and the worst of times, most of us want to give ourselves to—and in turn be accepted by—a community: something that transcends place and centers on shared values, resources, goals, and experiences.

Sure, we may desire fast cars or bigger houses, but the most exhaustive research shows that consumption beyond a certain point has no positive impact on one’s quality of life (in rich nations, anyway).16 I know you may be tempted to say, “Well, let me be the first to disprove that research by trying to pull it off myself!” But sociologists generally agree that one of the biggest contributors to happiness is one’s connection to community.17

Mom-and-pop establishments are most often associated not only with small business but with community-based enterprise. But while

community” has a nice ring to it, the word—like “entrepreneurship”— has become an empty vessel that means whatever any of us want it to mean to suit our purposes at the time.

There’s no better example of this, in the wake of the Great Recession and the public antipathy toward big banks, than the lobbyist-created term “community bank,” which is a misleading term of art for virtually every bank in the United States that’s not among the top nineteen largest financial institutions that Americans just happen to hate the most. So-called community banks are just banks that happen to be located in your community. But that doesn’t make them inherently good (or significantly better) than those big banks whose brands are household names. Call them what you will: if a small, local bank treats you as shoddily as the big boys do, who really cares about its size or location? Or as the Southernism goes, “Kittens in the oven don’t make ’em biscuits!”

Just as we must challenge our assumptions about success, it is no less important to do so about the language we use that may affirm faulty reasoning. When we use the term “family owned and operated,” we feel this label conveys a wholesome sensibility. Most of the time this feeling may be warranted. However, some of the most predatory funeral homes are family owned and community based. It is more an indictment of the “deathcare industry” (as it is known by its practitioners and industry insiders and analysts) than it is about individual families. So, “community based” and “community centered” may overlap, but they are certainly not the same thing. As a positive example, Craigslist is both a community-based enterprise (whose community is virtual) and largely community centered. (It is also worth noting that this industry-changing, multimillion-dollar company employs fewer than fifty people.)

Am I suggesting, with all this discussion about community, that you have to “do good” to succeed? No. But if it’s a genuine interest of yours and can be of strategic benefit to the enterprise, then community-centered entrepreneurship—a subset of what I call “commonwealth enterprise” in chapter 6—can be a viable economic path

to a kind of success most business schools, economists, and public officials too often dismiss or unduly marginalize.

Community-centered enterprises highly overlap with and are outgrowths of social entrepreneurship, which Jeffrey Robinson defines as “a process that includes: the identification of a specific social problem and a specific solution (or set of solutions) to address it; the evaluation of the social impact, the business model and the sustainability of the venture; and the creation of a social mission-oriented for-profit or a business-oriented nonprofit entity that pursues the double (or triple) bottom line.”18

Those more open-minded entrepreneurship boosters have of late been advocating what they call a “triple bottom line,” or the “3 Ps,” by which they mean that all businesses should measure success by how much profit they make, how many people they help, and how their business betters the planet. For example, an ice cream store owner would create a triple bottom line by making money on her ice cream (profit), offering employees a living wage and health benefits (people), and using only organic milk, potato starch spoons, and recyclable cups (planet).

I’m all in favor of businesses that can pull off the triple bottom line, but doing so is not necessarily the same as building commonwealth enterprises whose missions are inherently community centered. Triple-bottom-line businesses are rarely easy to set up and often expensive to operate. They often require entrepreneurs to be highly educated, especially about environmental issues; connected to suppliers who can supply organic and recyclable goods at reasonable prices; skilled at marketing to the small percentage of Americans who are willing to spend more for triple-bottom-line products; and be located or able to relocate in a community of such people. In short, entrepreneurs need a tremendous amount of a very specific type of invisible capital to pull off this kind of business.

An entrepreneur who wants to start an ice cream shop in an inner-city community to serve kids near the local high school may not be able to create a viable business if she tries to make her ice cream “ecologically correct” or tries to pay her employees significantly above the minimum wage. Her product may be too expensive for her intended customers to buy. Yet that ice cream shop owner is creating an immediate, direct benefit for her community. She’s creating jobs for local youth; she’s improving the area with a thriving business; she’s probably creating a safe hangout spot for teens. Her homemade and affordable ice cream has broader impact than the fancy organic ice cream purveyed by the shop with the impressively small eco-footprint that employs people in a more economically stable neighborhood. And the inner-city shop has as its founding stakeholders the local school district, the PTA, the local community development corporation (CDC), and Small Business Development Center (SBDC), all invested in community in concrete ways that not only contribute to that local population, but may very well increase its chances of surviving and thriving.

There is a clear distinction to be made between doing a kind of good that leads to increased business viability and the more popular and no less easy task of doing good while doing well—though these two tasks are not necessarily independent of each other. Indeed, I’m advocating that entrepreneurs define success as building a viable, community-centered business, because being community centered is good for the entrepreneur as well as good for the community. Building a sustainable network within your own community increases your invisible capital while helping your community grow stronger.

Why Invisible Capital Matters to All of Us

Good people with great vision, tenacity, and ingenuity can start businesses that never get off the ground. Millions, in fact. (I like to think that I’ve been among this large contingent once or twice.)

Too often, we see entrepreneurial stumblings as a sign of personal failings rather than the logical result of a lack of the right mix of resources (and a dose of good timing). Such resources are encapsulated in part by invisible capital, which takes into account those things that correlate to the increased preparedness and openness to opportunity that many believe are the key ingredients in luck. Without understanding which tacit assets a particular business requires, would-be entrepreneurs are bound to fail. The high price for this ignorance is paid not only by entrepreneurs themselves, but also by the households and communities that depend on those businesses’ survival. More broadly, America as a whole suffers when each successive generation of entrepreneurs enters this maze without understanding the invisible barriers to their chances of long-term survival.

Understanding the role of invisible capital will enable more Americans to create new business ventures; build wealth; create more jobs; innovate new products, services, technologies, business methods, and processes; increase the tax base; and, ideally, bolster communities— from historic neighborhoods to new digital constituencies.

Invisibility masks and protects certain advantages that should not remain whether or not we know they exist. The conscious act of democratizing entrepreneurial opportunity will help dissolve these disparities, aid those at a disadvantage to flourish, and strengthen the social fabric of our society.

About the Author

Chris Rabb is a writer, consultant, and speaker on the intersection of entrepreneurship, media, civic engagement, and social identity. He is a visiting researcher at Princeton University’s Woodrow Wilson School of Public and International Affairs as well as a Fellow at Demos, a nonpartisan public policy research and advocacy center in New York City. He is also a 2001 American Marshall Memorial Fellowship recipient awarded by the German Marshall Fund of the U.S. and has been a Fellow with the Poynter Institute since 2009.

Mr. Rabb worked in the U.S. Senate as a legislative aide and as a writer, researcher, and trainer for the White House Conference on Small Business. He has worked in and on entrepreneurship from various vantage points, including founding a technology-based product design firm, running a nationally recognized nonprofit-based business incubator in Philadelphia and serving on a century-old family-owned newspaper business in Baltimore founded by an ancestor four generations ago.

Since his foray into the blogosphere in 2004 as one of the first group of bloggers to receive press credentials to cover a national political convention, he has become a regular panelist and speaker at conferences, universities, and corporate events nationwide, discussing such matters as participatory journalism, social media, civic engagement, and social justice.

He has written for various publications including The Nation, The Huffington Post and FastCompany.com, and has been covered by the Wall Street Journal, the New York Times, Philadelphia Inquirer, ColorLines magazine, Mother Jones, the Chicago Tribune, NPR, and BlogHer.

Mr. Rabb is a graduate of Yale College and earned an M.S. in organizational dynamics from the University of Pennsylvania. A native of Chicago and involved resident of the Mt. Airy community in Philadelphia, Chris is also a serial entrepreneur and avid genealogist whose work has been highlighted on National Public Radio and in various other local media outlets across the country since the 1990s.

For a more information on the author, visit www.ChrisRabb.com or email him at [email protected].

DMU Timestamp: March 15, 2012 22:35





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