An Examination of a Few Ingenious Concepts by Former CEOs

Entrepreneurial Spirit and Innovation: A Brief Analysis of Some New Ideas from Dead CEO's Throughout history there have been numerous examples of people who think outside the boundaries created by academia, culture, and the logic of the time. These individuals have sought to change the world for the better and eliminate inefficiencies whenever possible. This is especially true in the context of entrepreneurship, where innovation and increasing mutual benefit are the bedrock on which it stands. Through the examination of historically successful entrepreneurs including A.P. Giannini, Akio Morita, and Sam Walton, a better understanding of these foundational principals can be ascertained.

In addition, the evaluation of a couple of modern day entrepreneurs, Matt and Jessica Flannery, will show that these entrepreneurial strategies are not just limited to the past and don't necessarily need to be for-profit. The record for these successful businesspeople is very clear and overlapping. The ability to find untapped markets, adapt and innovate based on previous failures, develop an understanding of what customers really desire, and recognize the importance of brand name are all characteristics found in each of these famous CEO's. A brief analysis of the separate stories of these entrepreneurs will prove to be indicative of this fact.

The son of Italian immigrant farmers in California, A.P. Giannini understood the value of hard work. At a young age, his father was murdered and his mother quickly remarried. After a few years of schooling A.P. decided to go work for his step-father at L. Scatena & Company. It was here that Giannini learned what it took to be in business and he was excelling greatly at it. At age 31 he found himself to restless to manage the mature business so his step-father bought out his share of the company for a $100,000 equivalent to over one million in today's dollars. Giannini then set out on a career in banking.

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Unlike most banks of the time, Giannini's Bank of Italy, now Bank of America, didn't want to lend to the wealthy. A.P. found that middle class American's were just as good at paying back loans and being profitable bank customers as the rich elite of the time. He could have a working-class customer base for two reasons. First, he expanded the collateral that his bank would accept from the tangible brick and mortar assets of the day to cows, clothing, automobiles, apricot crop and even motion pictures. By expanding the collateral, he would accept for a loan it subsequently heightened the amount of loans he could give out, allowing him to further grow his market share with the middle class.

Second, he used 'sweat equity' to weed out the bad customers who would default on their loans from the good customers who would pay them back. By charging lower interest rates, only those who were bargain hunters and had the characteristics of someone who was intelligent and industrious would search hard enough to make an informed decision as to why they should bank with him. This use of 'sweat equity' insured that his blue- collar customer base would always make good on their loans.

In addition to taking on customers that most banks of the time wouldn't, he completely restructured the function and public perception of banking. Bank of Italy took down its metal bars that separated the customer from the bank teller. This changed the public perception of a bank to a friendlier and more trustworthy lender. This was important when the Bank of Italy started to adopt branch banking to expand even further, allowing them to have customers from across California.

By using branch banking, if one branch failed because of some sort of economic disaster that affected the local community, Giannini could use his others branches to help supplement that bank and remain stable. Most crucial of all to the making of Giannini as a successful entrepreneur however was the simple fact that he never sold out for the big man and he always tried to represent the working class in his business practices. This ultimately allowed him to corner a market that was previously untapped and change the way banking was viewed entirely.

Japanese-born Akio Morita faced many challenges growing up in Imperial Japan during WWII. After being relieved of his post as a physicist in the Japanese army he had to deal with being a tech-savvy entrepreneur in a world that was transitioning from shogun to modernity. It took many trial and error periods for Morita to understand this.

After he and his post-WWII team created a tape recorder that weighed in at over 100 pounds for the public that went almost completely unsold, he recognized that the amount of time he took developing it was not necessarily a function of how much his customers desired his product and were willing to pay for it. This forced Morita to really understand what his customers wanted and put himself in their shoes and led to the creation of the Walkman and other pocketable devices that made life more convenient for his customers.

Branding was also quite important to Morita. By picking the name Sony, people across every continent could pronounce it which would play a later role in its ability to be a successful multi-national company. In addition, Morita had a chance to secure his company's survival by signing a deal with Bulova watches while compromising Sony's brand name. Morita, not wanting to tarnish the Sony name, defied his board of directors' orders and did not sign the deal.

As a result, Sony became more well known in later years than Bulova ever did, ranking only second in name-brand power behind Coca-Cola. Morita did this because he believed there was strong positive relationship between quality and brand name, and he always wanted to preserve the two. The concepts of branding and understanding the desires of the customer truly made Morita a stand out contender within the field of entrepreneurship.

Sam Walton, founder of Wal-Mart, was very innovative and knew how to learn from his mistakes. After his first experience owning a small franchised Ben Franklin general store and facing many setbacks he changed his entire business model and sought to sell customers the same goods that other companies were selling, but for cheaper. He did this using a couple of methods. The first was the adoption of the scissors economy in which he would cut out the middle man and buy goods whole sale from manufacturers, this slashed costs by 25-50%. Second, he recognized that his business relied on selling so much stuff and rapidly turning it over so he inspected every link of the supply chain and started to use vertical integration to take over multiple parts of the production process to cut costs and eliminate errors.

This was especially the case when it came to transportation of goods and store placement. Instead of contracting out to different trucking companies, he bought his own trucks to eliminate error and inefficiency. When it came to store placement, Walton would build a warehouse and then plant stores around the warehouse. In addition, instead of building stores in big cities, he would build them on the outskirts of urban development projects in smaller towns, betting that the populations would eventually push out to him.

Walton also took advantage of new technological advances, leading the charge into UPC scanners and bar codes, centralized temperature control and satellites to connect him to all of his stores. The McKinsey Company estimated that innovations at Wal-Mart alone contributed over 10 percent of the productivity burst in the 1990's. Ultimately, through vertical integration, Walton's obsession with supply chain management, technological innovation, tapping into the market of small towns instead of large cities and cutting out the middle man through the scissors economy made Walton one of the most successful entrepreneurs to ever walk the earth.

When it comes to business, people almost always assume that to be a great businessperson you must make a profit. With the recent surge in non-profit NGO's, this is no longer the case. Matt and Jessica Flannery and their multi-national micro-financing organization Kiva are a perfect example of this new phenomena. Kiva is a person-to-person microcredit lending platform which allows an individual in the world to be banker to the poor.

It does this by connecting the working poor with microloans from anyone in the third world (Kiva.org). Matt and Jessica saw a huge problem in developing nations, their banking system was not suited to lower income farmers and women who needed loans. Like A.P. Giannini, the couple sought to expand banking to this underrepresented portion of the credit market by connecting individuals from around the world with those in poor developing countries that need the loans.

Kiva, not being for-profit, gives 100% of every dollar you lend to funding loans. Kiva covers costs primarily though optional donations, as well as through support from grants and sponsors (Stanford). Kiva partners with microfinance institutions in other countries that vet and approve loan applications from low-income entrepreneurs and to date has a 97.1% repayment rate, 1.6 million lenders, 2.2 million borrowers, and $926.7 million in total lent through Kiva (Kiva.org). Kiva has also expanded through Kiva Zip to include poor borrowers who don't have high credit scores and can't post collateral for the loan. Instead, Zip uses a system of trustees, who vouch for the borrowers. Zip trustees can be local non-profits, service organizations, businesses, faith organizations or community leaders (PhilanthropyNewsDigest).

Although it may not seem like Matt and Jessica Flannery represent the entrepreneurial spirit because of the non-profit structure of their business, this is not case. Matt and Jessica have still found an untapped market in which to provide a much-desired service, they have adapted and created new programs like Kiva Zip based on what they believe customers want and they understand the importance of branding which is why they have worked hard to keep their default rate lower than 3% in order to incentivize more loans from individuals. Ultimately, regardless of whether an individual is trying to gain profit or not, as long as his/her principals are rooted in sound business strategy like Giannini, Morita, Walton, and the Flannery couple, they are truly entrepreneurs.

References

1. Garrard, Alice. "Interview with Jessica Flannery, Co-Founder of Kiva International" Philanthropy News Digest. Foundation Center. May 8th 2008. Web. October 23rd 2016.
2. "Kiva by the Numbers: Loan Data and Statistics" About Kiva. Kiva International. Updated 2016. Web. October 23rd 2016.
3. Min, Lui "Mathew and Jessica Flannery, Founders of Kiva.org" Unofficial Stanford University
4. Blog. Stanford University. August 7th 2008. Web. October 23rd 2016.

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