This week's digested read: Business Cycles by Joseph Schumpeter
Each week, London Strategy Unit's Matt Boffey reads one of the most influential books from the world of innovation, marketing or creativity so you don't have to. In today's digest, he tells us why he's plucked out a dusty copy of Joseph Schumpeter 1939 tome Business Cycles.
Joseph Schumpeter
Because we’re living in an age of entrepreneurs that Schumpeter predicted way back in 1939. While Business Cycles praises the prescience of entrepreneurs that took silk stockings from royal luxuries to everyday commodities in three centuries, today’s tech is accelerating markets at a supercharged rate.
In 20 years mobile phones have gone from playthings of the rich to tools in the pockets of three-quarters of the world’s population. As innovation accelerates, Schumpeter's argument that economic health hinges on entrepreneurial disruption becomes ever more relevant.
What’s the original thought or argument?
Economic growth, Schumpeter argues, is the result of the continuous influence of individuals that innovate both inside and outside of organisations. It follows on that in order to ensure continued progress, governments should be very careful not to blunt the profit motive that leads entrepreneurs to take risks and innovate.
If you want to look smart, just read
A heavily abridged version. Business Cycles was originally published in two volumes that ran to more than one thousand pages. One term to pocket for later reference, however, is “the gale of creative destruction” – Schumpeter’s metaphor for how innovative companies supplant the slow-moving organisations of yesterday.
You might want to skip
The summary of the ‘long wave’ between 1786 and 1842. Schumpeter’s analysis of the past is nowhere near as interesting as what he implies for the future, which he saw as being characterised by ever-quickening cycles of disruption. This rings particularly true for today’s CEOs, who have seen their average tenure fall from eleven years to five in the last decade alone.
Why trust this author?
One of the most influential economists of the 20th century, Schumpeter served a brief stint as Finance Minister of Austria in 1919 before seeing out his career teaching at Harvard. He was the first economist to publish works on entrepreneurship and innovation - something The Economist paid homage to by naming a column after him.
Once you’ve read this you don’t need to read
Anything else from Schumpeter’s back catalogue, which runs to some 20 books and countless journals and articles.
Why should this stay on your bookshelf?
Because the pace of disruption shows no signs of slowing down. In 1937 the average lifespan of a company in Standard & Poor’s 500 was 75 years – today it’s less than 11. Business Cycles is a reminder that complacency is the riskiest state of mind for any organisation.
What’s the one thing you should do differently after reading this book?
Instead of looking at the sales chart for ways to arrest a decline in profits, consider whether your company’s purpose has become obsolete. Microsoft’s found itself in this situation a few years back when it realised its mission of ‘putting a computer on every desk and in every home’ had been fulfilled. Finding a fresher, more relevant purpose is often the first step to turning around a business in decline.
Best quote in the whole book?
“Most new firms are founded with an idea and for a definite purpose. The life goes out of them when that idea or purpose has been fulfilled or has become obsolete. That is the fundamental reason why firms do not exist forever.”
Matt Boffey is the founder of London Strategy Unit, which you can follow on Twitter @LSUsocial