The chaos of entrepreneurship

An entrepreneur looks for gaps in the market. Assessing risk and moving with focused determination, the entrepreneur seeks to service that want in a way that can make money for him or her.

An entrepreneur looks for gaps in the market. Assessing risk and moving with focused determination, the entrepreneur seeks to service that want in a way that can make money for him or her.

People take risks when the environment is chaotic. They become entrepreneurs. These were the words of an international expert whose role is to encourage a business mindset amongst farmers in the region.

Echoing a similar sentiment was the senior executive of a highly successful local company.

He said that when people are waiting for “permission to act”, they are not able to exercise the risk-taking that is fundamental to becoming a successful entrepreneur. He was talking about regulations that guide the activities of businesses.

Following the 2008 global financial meltdown, one of the culprits was named, not so much by its presence, but rather, by its absence. By this, I refer to the repealed Glass-Steagall Act, its official name being The Banking Act of 1933.

The regulation came hot on the heels of the 1933 Great Depression. It sought to create walls between the risky investment side of finance and the commercial banking side.

Simply put, the Act stipulated that banks that had customers’ deposits could not also engage in insurance services or dabble in the risky financial business of stocks and bonds. On the other side of the wall, investment banks were barred from taking deposits from customers.

The Act was an attempt to prevent conflict of interest arising from financial transactions. Yet it was repealed in 1999. The Act’s absence, a lack of effective regulation, is what many saw as the root of the 2007-2008 Global Financial Crisis.

Some will say that products like mobile money have been wildly successful because of a lack of a regulatory environment. Mobile money, a cashless system, enables users to, for example, withdraw or transfer money and pay utility bills using a safe and secure platform via mobile phone technology.

M-Pesa, the now world-famous mobile money product, was created in Kenya to service the unbanked masses. When first introduced into the market there was no regulatory instrument in place to protect the public from this financial innovation.

There can be good reasons why government may hesitate to introduce regulations. In the case of a very new and innovative product there may be insufficient regulatory expertise.

To understand what to regulate against may require that the product be in the market a sufficient period of time for its effects to become known.

To regulate or not to regulate?

My favourite analysis of what goes wrong involves a party. Imagine your teenage children are throwing a house party. It gets off to a slow-start but around midnight, your daughter comes and begs you to give them extra time.

You hesitate, but since everyone is behaving really well you are loathe to turn-off the music and spoil the party.

Soon after, a fist fight ensues. There are screams. You walk in and turn on all the lights. There are teenagers on the ground, broken bottles, blood, chaos.

Later, the police and parents want to know why you let the party go on for so long.

The rising price of stocks and accompanying euphoria, pre financial crisis, made some market regulators hesitant to intervene. After all, a rising stock market is taken as an indicator of economic activity; a measure of confidence in the future growth of the economy.

So when is the best time to break-up the stock market party? Too early and you dampen economic activity. Too late and you risk the mess of an economic meltdown. It is the ultimate Goldilocks question. When is it just right?

There have been several characteristics associated with the entrepreneurial personality. I think that entrepreneurs probably don’t spend much time assessing the traits of an entrepreneur before they begin on their business-making venture. However, I like to differentiate entrepreneurs as individuals having a certain “self-trust” in their ability to handle uncertainty and its cousin, risk.

Risk does not equate with reckless undertaking. The risk may simply mean that government has not (yet) put in place the type of regulatory protection needed for its citizenry and investors. Or it may simply mean that the government turns a relatively blind eye to activities that do not strictly meet the laid down standards.

Using children once again, there is the concept of the helicopter parents. These parents tend to hover ceaselessly over their children to ensure that they always remain safe and protected from any and all adverse circumstance.

The question becomes what type of adults do they grow up to be? That, of course, is a topic for the child experts. But we are all likely to jump to our own conclusions.

Currently based in Rwanda, the writer comments about people, organisations and countries whose stories create a chrysalis for ideas.