When I heard the news that GE is considering breaking itself up into smaller units, I was overcome with sadness. I started my career at IBM in the early 1980s and saw that company brought low, and now a similar scenario is playing out with another venerable firm.
But wait a second, as a professor of entrepreneurship, don’t I want to see a big conglomerate broken up into smaller, more nimble companies that can be more entrepreneurial?
Not in this case. That kind of thinking illustrates a fundamental mistake people make when they contemplate entrepreneurship and existing corporations.
As an entrepreneurship educator, I teach students the mind-set and skills to help them succeed in bringing new, innovative products to market and new ventures into being. But there is a common misunderstanding that entrepreneurship equals startups and that we are preparing our students to join the Silicon Valley depicted on TV dramas. Not so.
Entrepreneurs create new products that create significant value for their customers. Entrepreneurial types exist in startups, nonprofits, established companies, governments, and even academia. The talk that I don’t like when it comes to GE is about “financial engineering” and about GE “releasing value.” These are not the terms of entrepreneurs, not the language of true value creation.
Startups are an excellent way to create value in a sector like information technology, which is characterized by rapid product-development cycles driven by Moore’s Law. The venture capital model fits well with this world.
However, there are other industries where the time horizon to adopt a new product is much longer — often measured in decades — due to a combination of technological challenges and stringent governmental safety regulations. Think aircraft engines or pharmaceuticals. Resource-constrained startups can get the low-hanging fruit in these industries, but to reach the bigger fruit higher in the innovation tree, we need more patient capital and organizations with long-term assets and staying power.
IBM, under Thomas Watson Jr., used to balance entrepreneurial capability with management focus, and that led to massive success for the organization. But in the 1990s, IBM moved to an unhealthy focus on management at the expense of entrepreneurship. Once the most respected company in the world, the firm’s growth engine has so stalled that it has suffered more than five years of diminishing revenues.
And now GE. For generations, it has been the gold standard for its balance of excellence in leadership (growth) and management (execution). It has invested in its people for the long term in a way that no startup ever has or probably ever will. It could reach the higher-up, and more succulent, fruit that no startup could ever dream of harvesting, even with the most enthusiastic venture capital support.
Former GE CEO Jeff Immelt pursued a bold growth strategy consistent with the legacy of those who came before him. Maybe the execution was subpar, but the strategy was right. Now with investors impatient and using poor execution as a cudgel, GE is considering selling off assets that took over a century to build. It feels like they’re getting ready to wave the white flag.
And that’s indicative of a larger problem. We’ve developed a rigorous body of knowledge about how to create high-quality entrepreneurs for startups, but we don’t have similar know-how for fostering continued entrepreneurial thinking in large companies.
This is an extremely costly vacuum. It is imperative for companies like GE to have high-quality corporate entrepreneurs integrated into their organizations if they are to provide long-term value — and not just for shareholders but also for society at large.Bill Aulet, managing director of the Martin Trust Center for MIT Entrepreneurship, is author of “Disciplined Entrepreneurship: 24 Steps to a Successful Startup” and “Disciplined Entrepreneurship Workbook.”