Editor’s note: Tim Laseter is a Darden School of Business professor and Senior Advisor at strategy+business magazine. Laseter wrote this abridged piece, originally from strategy+business, for SUCCESS.
Experts are calling it the “Second Machine Age”—a major transformation not seen since the rapid industrial and economic growth of the Gilded Age—and this brings two big lessons for entrepreneurs today.
In their book The Second Machine Age, Erik Brynjolfsson and Andrew McAfee of MIT chronicle the advance of Moore’s law (the observation that microprocessor power doubles every 1.5 to two years over the last half-century) as it yields computers that are achieving human tasks that were once thought impossible.
Examining the Gilded Age’s similar rapid period of transformation, I observe two management lessons for the coming disruption:
First, managers must become entrepreneurial again: Number-crunching computers will replace number-crunching managers.
Second, the new generation of managers must address the social challenges of the emerging disruption. Unlike the entrepreneurs of the Gilded Age, they should incorporate a social mission into their definition of business success, rather than making philanthropic gestures following the achievement of success.
Lessons of the Gilded Age
In the Gilded Age, entrepreneurs with no formal education in management used their intuition to build business empires based upon creative ideas. Consider the case of Andrew Carnegie. Born to a working-class Scottish family, Carnegie first worked 12 hours a day in a Pittsburgh cotton factory at age 13, before becoming a telegraph messenger boy at age 15 and a telegraph operator at age 18. He turned his attention to the steel industry in 1864and by the end of the 19th century, Carnegie ran the largest and most efficient steel company in the world.
Carnegie faced a challenge, however. His empire had scaled beyond his personal capacity to manage it. U.S. financier John Pierpont (J.P.) Morgan offered a solution: a transfer of power from owner–entrepreneurs to professionally managed, publicly traded companies. In 1901, Morgan merged Carnegie’s steel empire with other players to form the United States Steel Corporation. Now the world’s richest man, the 66-year-old Carnegie turned his attention full-time to philanthropy. Over the course of his lifetime, Carnegie ultimately gave away $350 million, part of which went to fund more than 2,800 public libraries.
While successful entrepreneurs like Carnegie turned their attention to philanthropy, legions of less talented but professionally trained managers amassed data and depended on analysis to make up for their lack of creative insight. Their numbers-based, yet simplistic, search for “best practices” shut out creativity and ignored the disruptive effects that this impersonal mind-set had on laborers.
The modern lesson: a sole focus on “the numbers” means management will increasingly be subsumed by computers. Future managers will need to use their creativity to challenge the constraints to both commercial success and social welfare.
I see positive signs that the new generation of entrepreneurs—millennials, who are now reaching adulthood—is embracing creativity to build new business models. The “lean startup” movement, spawned from the entrepreneurial culture of Silicon Valley, is an example of this. The lean movement argues that, initially, all an entrepreneur has is a set of untested hypotheses. So then the entrepreneur’s goal should be to produce the minimum viable product to test with real customers and adjust swiftly based on customer feedback.
The lean startup movement has also taken root among social enterprises seeking young management talent. Consider the annual competition for the Hult Prize, initiated in 2010 by the Hult International Business School, which has campuses in Boston, Dubai, London, San Francisco, and Shanghai. The first competition challenged more than 300 business school students to develop business models in support of the “One Laptop per Child” nonprofit. The 2014 Hult Prize sought business plans for social enterprises to reduce chronic illnesses among the urban poor worldwide. It attracted more than 10,000 applicants who competed in teams for six regional prizes of $50,000, and a $1 million grand prize of seed funding for the winning proposed social enterprise.
Most of my students possess a broad worldview and exude both creativity and passion. Having taught these bright minds over the past decade, I have developed both hope for and faith in their future as managers. And I believe they will embrace this sentiment: “The best way to predict the future is to create it.”