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Posted: June 29, 2009

Entrepreneurship’s evolution

The emergence of empires of one, business colonies and seed capitalists

Thomas Frey and Raymond Alvarez

The importance of stimulating entrepreneurship has not been lost on Asian nations. Communist Youth League of China will set up a fund to help young people establish their own businesses, as part of efforts to ease employment pressures, particularly among graduates, reported in February.

According to figures from the Chinese Academy of Social Sciences, 1.5 million college graduates may have failed to secure jobs by the end of last year. A further 5.92 million new graduates will enter the job market in 2009.

Local governments are also offering favorable policies to boost employment prospects. For example, Hangzhou offers college graduates guaranteed loans of 50,000 to 200,000 yuan ($75,000 to $300,000) to help them start up their own firms.

Another Asia story

The U.S. is the oft-cited leading nation for startups. Forbes notes that some $30 billion goes to 4,000 investments. Sounds impressive until a would-be entrepreneur strikes out seeking cash for start up in this tight-money economy.

Risk aversion seems a common and frustrating theme among nations that would like to emulate the U.S. Japan has been feeling the pressure of a decades-long recession but still has not found the magic formula to entice investment. It has found the business climate too resistant to invest in startups.

Empire of One business model

An Empire of One business is a one-person operation (though, sometimes a married couple) with far reaching spheres of influence. Typically the Empire business outsources most of its functions: Information products are marketed and sold online, coaching and consulting operations and products are manufactured in China or India and then sent to a distribution center in the U.S., with customers in the U.K. and Brazil. Manufacturing, marketing, bookkeeping, accounting, legal needs and operations are all outsourced to other businesses around the world.

In addition to product-based businesses, other Empire models will include coaching and consulting businesses, freelancers, Internet-based businesses, solo practitioners and many more.

These are not novel concepts. The difference is mostly size. Street savvy may have once dictated asking often and asking for a lot of investment money. But this advice fit a different time.

Investors and government should take another look at the one-person operation that has been able to take advantage of many new tools. With the aid of software and the Internet, individuals are well equipped to serve off-shore markets and profit, with time for family, too. An acumen for leveraging talent, moving products across borders, as well as maintaining control of a vast and virtual empire will be the important measures of this group. The Empire of One business model, too, is attracting former corporate executives, who possess these skills and wish to extricate themselves from dealing with employees.

Over 80 percent of all new startups will be created by what I am calling a lifestyle entrepreneur -- people who've gone into business to take more control over their own lives and to build a lifestyle that suits them. Increasingly these are women, a trend the BBC notes will tip the scale of the wealthy, with female entrepreneurs representing 60 percent of the U.K.'s wealthiest by 2025.

Ironically, the driving force behind this aspect of entrepreneurship will not be money. Health and happiness have replaced wealth as the new mantra of the mid-life professional. Fifty-seven percent of the work force now insists they will not take on extra stress associated with greater responsibility even if it means more money. But we can wager none will turn down a bigger income that comes with greater freedom and quality time.

Business colonies

Business will become more fluid. Talent and projects will converge for short periods of time around temporary assignments. Imitating the movie industry, where a single movie project attracts diverse workers ranging from camera operators to actors and script writers, the Empire of One will attract various independent contractors for temporary assignment. Once a project is complete, team members disband and form around new projects. One-person operations involve numerous challenges that not all individuals are equipped to handle. Seeking support for their growing numbers, business colonies will begin to form around such diverse industrial sectors as photonics, nanotech, biotech, IT niches and many more.

Colonies also will form to support large corporate players in specific industries. As an example, companies like Sony, Microsoft and Nintendo could easily spawn gamer colonies as a way to drive the development of new games for their consoles.

Over the next few years, experimental colonies will proliferate, testing a variety of operational and support systems. Individual members of the colonies will be drawn to the prospects of steady project flow. Project leads will be attracted to the available talent pools. And host cities will be most interested in generating jobs and employment for their constituencies.

Seed capitalists

Current funding mechanisms have left a gaping hole in the availability of money for early stage startups. This is an area considered too risky for institutional money, for banks and generally for venture capitalists as well.

It appears very few people are interested in this level of highly speculative investment.

To fill this gap, I propose the creation of a new profession: the seed capitalist. Unlike a venture capitalist, the seed capitalist will focus on an entirely new spectrum of risk-taking.

Since most startups involve an idea and a person, the seed capitalist will need to be skilled in assessing the overall quality of the initial business model as well as the caliber and capabilities of the individual.

The size of investments made by seed capitalist will be relatively small, most often under $100,000. For many startups, this is enough money to prove a concept and begin selling product.

Entrepreneurs have different requirements for capital and have to be underwritten with fewer expectations of profit and, sometimes, expectation of loss. High-risk money is needed to support a seed capitalist. Yet, even with a mere 75 percent payback rate, the overall value of the companies to the national economy translates to benefit, which is jobs and money turning over in the economy. Ultimately, such a funding program would bring returns that far exceed initial losses.

In broadest terms, the benefits will be seen in the transformation of the work force to a more efficient and wealthy generation of entrepreneurs who will grow industries and revitalize commerce.

The economy's greatest hope may be the flourishing entrepreneurs.

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Thomas Frey is the executive director and senior futurist at the DaVinci Institute and currently Google’s top-rated futurist speaker.  At the Institute, he has developed original research studies, enabling him to speak on unusual topics, translating trends into unique opportunities.Before launching the DaVinci Institute, Tom spent 15 years at IBM as an engineer and designer where he received over 270 awards, more than any other IBM engineer.

Raymond Alvarez is a journalist, microblogger and emerging expert in social media. He is president and owner of Nextwave Communications, which provides cutting edge communication services to the Colorado business community. The Boulder County firm offers research, writing, strategic planning and analysis.

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