Smart People Should Build Things: an MP Star Financial Book Review

Is America’s entrepreneurial spirit dead, wounded, or just resting?

With the economy still lurching through a weak recovery, that’s a question worth asking. Business start-up rates have remained steady in recent years, but failure rates are staggeringly high, with 95% of new ventures not surviving through five years, according to Small Business Trends.

The primary reasons for business failures – deficient leadership, poor cash flow management, inadequate capital structure, operational weaknesses – are well documented. But perhaps the real problems associated with the lack of sustainable great companies can be found at a deeper level. Specifically, are the right people participating in start-ups? Even more specifically, are our “best and brightest” participating in start-ups?

The answer according to many is, “no.” And that’s problematic.

The Wrong Track

According to Andrew Yang, the author of Smart People Should Build Things: How to Restore Our Culture, Build a Path for Entrepreneurs, and Create New Jobs in America (Harper Collins, 2014), societal pressures and financial incentives have, for the better half of a century, steered young, bright, capable people into professional service oriented careers – namely management consulting, the law, and investment banking.

And that means other needs are not being met. “American companies,” Yang writes, “need smart people who can manage, operate, innovate and improve them.”

Yang, the founder of Venture for America, a national nonprofit organization which recruits and trains promising college graduates to work in start-ups, expresses concern that as an economy we are “hyper-allocating” the bulk of top graduates to the financial and legal sectors in cities like New York, Boston, Chicago, and Washington DC, and leaving promising companies across the country woefully under-resourced and in desperate need of talent.

That’s not an entirely new concern. Years ago, people lamenting America’s dwindling manufacturing base used to casually state, but with a sense of authority, that the U.S. education system turned out 10 lawyers for every one engineer, and that the ratio in Japan was almost exactly reversed.

That was probably never accurate, but it tells you that some people sensed a problem long before Yang’s book made the case. And there’s also not much question that genuine innovation, value and wealth creation stem from industries like energy, biotech, transportation, and health care, as opposed to the support industries that tend to attract the most promising grads. Something’s out of whack.

Yang uses readily available data to construct a compelling argument. In recent years, up to 45% of Harvard graduates pursued careers in law, banking, or consulting. At Duke, the figure nudges up to 46%. Graduates from Yale, Stanford, Dartmouth and Georgetown, and other national universities are pursuing these career paths in similar percentages.

Good for them. But Yang would ask if that’s what we want so many of our most impressive minds doing. (Obvious examples: Bill Gates (Microsoft) and Jeff Bezos (Amazon) are undoubtedly smart enough and motivated enough to have carved-out stellar careers in management consulting or investment banking, but we’re all inarguably better off that they didn’t.)

A Lack of Vision

A large part of the problem, according to Yang, is that the paths to the structured, lucrative, “prestige” careers are well-defined and mostly free of risk, so not a lot of vision or creativity is required.

A very bright student from a supportive family takes the right high school curriculum, takes the right standardized tests, enrolls in the right university, and can be fairly certain that he or she will achieve a certain level of success. There’s no anxiety about the choices being made because the route is so well defined. The “path location” costs, as Yang calls them, are low.

There’s no road map – at least not one with three or four generations of proven results to support it – for would-be entrepreneurs.

But Where’s the Prescription?

Most of Yang’s book focuses on his own experiences and describes how he put together Venture for America. VFA is a group to root for, with a presence in eight U.S. cities, and plans for expansion in at least six more this year.

If Smart People Should Build Things is missing anything, it’s a prescription for how the long-term problem of talent-hoarding can be corrected. Is it via changes in academic curriculum? Entrepreneurship concentrations are available at nearly every major business school. What are they lacking?

The author doesn’t really layout a cure. But that might be unfair, in that it’s criticizing Yang for not writing a book he may have never intended to write.

In any case, Smart People Should Build Things makes for inspiring, encouraging reading for entrepreneurs, and should be on every soon-to-be college graduate’s gift list.

MP Star Financial can help you get a better handle on your company’s cash flow management. Call for more information. (800) 833-3765, extension 150.

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