Smart People Should Build Things - Book Summary

Dive headfirst into the dynamic world of entrepreneurship and its profound impact on our society in this chapter of "Smart People Should Build Things." What exactly fuels the engine of the U.S. economy? Is it the towering titans of the Fortune 500? Perhaps the power-wielding financial institutions? Or the pervasive multinationals?

Venture into the pages of "Smart People Should Build Things" and you'll uncover a refreshingly divergent view. Here, the lifeblood of the American economy springs from the wellspring of innovation—start-ups and entrepreneurial ventures. Given this, we ought to pause and reevaluate when we see a consistent exodus of top-tier university graduates towards the glossy allure of professional services like law firms and consulting agencies. The impact on the nation's economy could be rather bleak.

Take this journey with us as we explore why these high-achieving graduates are drawn like moths to the flame of professional services—and what can be done to reroute this path. Along the way, we'll delve into the inimitable lessons entrepreneurship has to offer and uncover how anyone—even you—can embrace the entrepreneurial spirit.

Ready to embark? Let's find out together how people can become trapped in gilded cages by hefty salaries, why your friends could very well be your most treasured assets, how one company turned the tide by purchasing a defunct yogurt factory, and why you should never look a gift horse in the mouth—even if the gift is a ticket to an Economist conference.

The allure of the familiar: Why top-notch students gravitate towards traditional professional services like law and finance

As the specter of graduation looms large, every university student is faced with the question — "What's next?" The query, seemingly simple, can spark a whirlpool of confusion and anxiety. Where should the journey begin? What should the first rung of the professional ladder look like?

For students at the hallowed halls of Ivy League institutions, the answer often lies in one direction — prestigious professional services firms. Management consultancies, banks, law firms become their career launchpads.

The statistics paint a clear picture. Consider Princeton, where on an average, 40 percent of graduates are drawn to finance or consulting, while close to 13 percent find themselves marching down the corridors of law schools. This trend holds true for Harvard too, with 29 percent of the graduating class of 2011 stepping into finance or consulting, while 19 percent pursued legal studies.

What is the siren song that calls out to these Ivy League students from professional service companies? The answer isn't shrouded in mystery. It's the promise of a healthy paycheck and a stimulating work environment that holds a potent allure.

Moreover, these students are well-prepared to tackle the stringent, formal application processes characteristic of these firms. It mirrors the admissions gauntlet they ran to secure their seats in their elite institutions — a series of formidable and highly selective procedures.

Peer influence also plays a crucial role in this trend. Youth, synonymous with uncertainties about the future, often turns to their peers for direction. This results in an almost herding behavior, with students flocking to the same careers, year after year.

A student aptly encapsulated this sentiment, "It feels as though everyone around you is constantly engaged in banking interviews. This steady drumbeat eventually seeps into your psyche, influencing your own decisions."

The big catch: Understanding the magnetism of professional service firms for budding graduates

The decision-making process of students regarding their career path is not solely influenced by their peers. It's also significantly shaped by the tactics of professional service firms that are keen on attracting the cream of the crop.

These industry behemoths engage in a fierce competition for the brightest minds, investing heavily in recruitment strategies. Picture an intense talent tug-of-war, unraveling at numerous universities each year.

Take Goldman Sachs, for instance. This finance giant maintains a dedicated room in Columbia University's career services office, reportedly investing an eye-watering fifty thousand dollars for each new recruit. When you extrapolate this figure to encompass the overall recruitment expenditures of professional service firms, the total could reach into the dizzying heights of hundreds of millions of dollars annually.

Given the limited pool of talent — after all, the number of students is finite — these firms resort to this big-budget battle to ensure they secure their future workforce.

Adding to the allure of these firms for students is the promise of unmatched opportunities for personal and professional development.

Their marketing messages amplify this appeal. Join us for a couple of years, they say, and you'll gather a wealth of knowledge and experience that can serve as a launchpad for success in any industry. Specific roles come with their unique selling propositions. For instance, a stint in management consulting, they claim, equips you with critical skills, enhancing your employability in fields like lobbying or investment banking.

The question arises — how does one acquire these skills? The answer lies in the focus on delivering "high-quality work," a defining trait of these elite companies. Be it a model, a report, or a presentation, each output is expected to be sophisticated and faultless. These skills, it's emphasized, are transferable and applicable in a variety of roles.

For students grappling with uncertainty about their career trajectory, professional service companies provide an enticing proposition. Start with them, learn essential skills, and then, when ready, transition to their desired field.

Locked in by luster: The challenges of transitioning out of professional service careers

The process of seeking a job is often filled with hopeful imaginations — envisioning the nature of work, the office culture, the expectations. Yet, how often do these dreams perfectly align with the job's reality?

The world of professional service firms is no exception. Not every recruit fits comfortably into the mold.

Working in these firms often entails grueling hours, regular travel, and a high-pressure environment. It's little wonder then that attrition rates in top consulting firms can soar beyond 30 percent annually.

Such a revolving door of colleagues can take an emotional toll, leading to increased stress and dissatisfaction.

Transitioning from a large, prestigious firm to a smaller company is fraught with challenges, too. Golden handcuffs — the allure of lucrative salaries — often make it difficult for individuals to sever ties with their old roles. A step down from a high-paying job means adjusting to a more modest lifestyle, impacting everything from vacation choices to car models to relationships. As time ticks on, the perceived risk of switching career paths seems to amplify.

Moreover, the skills demanded by small and medium-sized enterprises differ from those honed in large professional service companies. Smaller firms value practical, action-oriented skills more than the analytical and theoretical approach prevalent in professional services.

To add to this, the hiring needs of smaller organizations are different. They might need a single finance person, not an army of them. Engaging a consultant or a banker only becomes sensible once they scale up considerably.

Lastly, start-ups tend to hire within their own networks or recruit from other start-ups. They don't usually seek talent from the banking, consultancy, or legal sectors. This further amplifies the challenge of transitioning out of a career in professional services once you've stepped into that world.

The drivers of dynamism: Unveiling the pivotal role of start-ups in fueling the US economy

Thus far, we've been exploring professional service firms from an individual's viewpoint. But how do these firms impact the broader economy? Is an abundance of high-caliber consultants necessarily beneficial for a nation's economic health? Evidence suggests it's not quite so straightforward.

Instead, start-ups emerge as the real torchbearers of national economic growth. A compelling testament to this comes from a study by the Kauffman Foundation, which found that all net job growth in the US from 1997 to 2005 was generated by new firms.

Adding to the case for smaller firms, those with fewer than 500 employees in the US produced thirteen times more patents per employee than their larger counterparts.

On the other hand, the economic contributions of larger firms, particularly those in the finance sector, are far more nebulous.

Take Goldman Sachs, for example. In 2010, a hefty 63 percent of the company's revenue was derived from trading. However, trading isn't necessarily a boon for the economy; it's a zero-sum game where one party's gain is another's loss, suggesting a large chunk of their revenue was at the expense of other economic sectors.

Innovation, however, is a potent driver of national economic development. Yet, indicators suggest the American economy is drifting in the opposite direction. Consider this:

In 1982, nearly half of all US companies were less than five years old. By 2011, this ratio had dwindled to just over a third.

In a historic first in 2008, the majority of US workers were employed by firms with 500 or more employees.

These patterns aren't inconsequential. With the most productive segments of the economy being overlooked, Bloomberg Businessweek predicts a surplus of 176,000 unemployed or underemployed law school graduates by 2020.

By now, you should have a clearer grasp of the critical role that innovation and small companies play in our economy. As we delve deeper, we'll explore some practical tips on becoming part of this dynamic landscape.

Steadfastness and groundwork: The bedrock of entrepreneurial triumph

Let's presume you decide to contribute to innovation by establishing your own venture. What strategic steps could you employ to optimize your chances of success?

Primarily, the decision to launch a company should be underpinned by thorough preparation. Picture starting a business like nurturing a child: an initial burst of profound inspiration swiftly gives way to months of relentless effort, disrupted sleep, and moments of vexation.

To equip yourself for this journey, consider these three preparatory steps before you quit your day job:

Probe your idea: Assess the market size, converse with potential customers, identify prospective competitors.

Secure a website URL, design your website, and establish company email accounts.

Get your friends, colleagues, and trusted connections enthused about your idea to win over co-founders, staff, investors, and advisors.

With a strong foundation laid through preparation, you'll inevitably confront an array of hurdles.

The most formidable challenge for entrepreneurs often lies in securing the initial funding to kickstart their enterprise. Navigating the labyrinth of product development can be equally daunting — even when you've enlisted someone for the task, it's wise to anticipate it to take twice as long and cost double than you budgeted.

Adding to these challenges, assembling a team of proficient partners and employees can be a time-consuming and unpredictable endeavor.

As you grapple with these hurdles, remember that success is often borne out of long periods of failure. This principle holds true even in the tech industry, where it seems as though blockbuster apps materialize out of thin air and instantly vault to fame. Take, for instance, Rovio’s Angry Birds — often seen as an “overnight sensation,” the company had been in existence for six years and had undergone layoffs before the game became a global hit.

Instead of feeling disheartened by the unavoidable trials of entrepreneurship, heed the wisdom of LinkedIn's founder Reid Hoffman: “Remarkable careers are unlikely to advance in a straightforward, linear fashion.” In simpler terms, brace yourself for the roller coaster ride.

Framing your success: The importance of network and location for entrepreneurs

Stepping into the world of entrepreneurship as a solitary player can be immensely challenging. Reflect on the journey of eminent entrepreneurs, such as Apple's Steve Jobs and Steve Wozniak — they commenced their venture as a collective.

Your existing network can be a treasure trove of potential funding sources and prospective employees. To illustrate this, let's take a look at the author's own experience while founding Venture for America (VFA), a non-profit dedicated to helping gifted students acquire start-up experience.

His entrepreneurial journey took flight when a friend gifted him a pass to an Economist conference they couldn't attend. At the conference, he connected with Tony Hsieh, CEO of Zappos, and Jeff Weiner, CEO of LinkedIn. These connections later proved invaluable to the growth of VFA — Hsieh invested a million dollars, and Weiner joined as an advisor.

However, in the blueprint for a successful start-up, connecting with the right people is only half the story. The other half involves identifying the most suitable location. Each region has its unique focal points and you need to find one that aligns with your vision.

For instance, consider the Cincinnati-based General Nano. This firm manufactures carbon nanotube material used to fortify planes against lightning strikes. Their strategic location in Cincinnati provides them easy access to military contacts in the city, potential clients for their products.

But the significance of location goes beyond merely forging contracts. It also impacts your budget. Undoubtedly, renting office space in New York City is pricier compared to smaller cities such as New Orleans. But being based in a "nontraditional" — and by extension, affordable — city does not spell doom. Case in point: Zappos.com thrives in Las Vegas and Under Armour is based in Baltimore — both companies have enjoyed immense success.

An early bird's flight: The potential windfall of joining a promising start-up at its inception

Do you recall the seventh employee hired by Google back in 1999? Chances are, you don't. At that time, Google wasn't the tech titan it is today. However, this individual likely reaped substantial benefits both in terms of experience and wealth. This illustrates a powerful alternative to starting your own enterprise: joining a budding start-up.

Coming onboard a start-up before it attains the "cool" status could potentially lead to financial windfall. In the nascent stages of a start-up, you can land a role with substantial responsibility, where your contributions could tip the scales between the venture soaring high or remaining grounded.

Furthermore, when a company skyrockets to fame to become a household name, typically a select few early employees have their careers shaped by this success. It's more advantageous to be among this exclusive group than joining the bandwagon when the start-up has already struck gold.

Take for instance, the yogurt giant, Chobani. The company began its journey by acquiring a defunct yogurt plant in New York in 2005. Fast forward to now, they rake in over a billion dollars in revenue with an employee strength exceeding 1,000. However, the early decision-makers are the ones who bask in the limelight.

Moreover, if your entrepreneurial journey faces bumps, there's a high likelihood of bouncing back. This resilience stems from the habit of creating and accomplishing tasks—skills more readily honed in a start-up than in the professional services industry—equipping you to weather the storms of entrepreneurship.

When the tech bubble burst in 2001, the industry was littered with jobless techies. A friend of the author, whose company was a casualty of this crash, simply bounced back by launching another company that was later absorbed by Zynga, demonstrating an impressive recovery.

So, if you're scouting for new avenues to shape your career trajectory, consider exploring promising start-ups in your vicinity and apply!

By now, you should have a robust understanding of the focal points for your first entrepreneurial venture. But remember, there's strength in numbers! The upcoming section will explore strategies to attract college graduates to the allure of entrepreneurship.

Igniting the entrepreneurial spark in the younger generation: Strategies to boost entrepreneurial fervor among top students

Having delved into the pitfalls promising students stumble into early in their careers and the immense gains of fanning their entrepreneurial flame, the conundrum that remains is: how can we stoke their enthusiasm for entrepreneurship?

First, we need to present them with appropriate role models: the builders. There are multiple paths to achieve this. Universities, media companies, and public figures could play a pivotal role in endorsing start-up entrepreneurs as role models and orchestrating platforms for them to share their exhilarating journeys with students.

Furthermore, every university could introduce an "entrepreneurial hour," akin to the University of Michigan's initiative, where seasoned entrepreneurs engage with hundreds of students, sharing their stories and career trajectories.

Following this, we should rope in entrepreneurs to don the hat of mentors. One way to implement this would be for universities, business schools, and law schools to curate a list of alumnus entrepreneurs who are open to dispensing advice to aspiring minds or even hiring paid apprentices.

This isn't a novel concept. A case in point is the Yale Entrepreneurial Institute, a commendable effort by the university to recruit experienced entrepreneurs as mentors for current students.

Finally, we need to enhance and invest in entrepreneurial education. Such a program would be more action-based and grounded in real-world scenarios compared to existing business programs. As it stands, entrepreneurial studies are overly theoretical and often conclude abruptly post-graduation when students are ushered into "real jobs."

A truly effective entrepreneurial program would be action-fueled, cultivating actual businesses and contributors.

If the United States aims to retain its stature as an economic behemoth, it needs to nurture a robust entrepreneurial ethos. It must ensure students have easy access to entrepreneurial mentorship or a goal-oriented entrepreneurial education to jumpstart innovation and fuel the economy.

Wrapping it up

The central premise of this book:

In the United States, the crème de la crème of students from premier universities largely gravitate towards professional service firms, particularly consultancies. Contrarily, it is the start-ups that act as catalysts for job creation and innovation. To spur innovation and propel the economy, we need to infuse a potent entrepreneurial spirit into our exceptional students.