Course "Blitzscaling" Lecture 3.1. Michael Dearing. A bit of the history of entrepreneurship and management

This is the introductory part of the synopsis of the 3 lectures of the Stanford University course “Blitzscaling”, which is given by Reid Hoffman, John Lilly, Chris Yeh, Allen Blue and others.

This lecture was read by Michael Daring from Harrison Metal, who was also one of the first members of the eBay team.

Lecture 1: Introduction
Lecture 2.1: Stages of growth of a startup, "family stage"
Lecture 2.2: Stages of growth startup, "family stage"
Lecture 3.1. Michael Dearing. A bit of the history of entrepreneurship and management
Lecture 3.2. Michael Dearing. Questions and Answers with Reid Hoffman
Lecture 3.3. Michael Dearing. Questions and Answers with Reid Hoffman
Lecture 4.1. Ann Mura-Ko: The Thunder Lizard Theory. Author value
Lecture 4.2. Ann Mura-Ko: The Thunder Lizard Theory. Product, corporate and categorical value.
Lecture 4.3. Ann Mura-Ko: Questions and Answers with John Lilly

I. History of a thousand years on one graph

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This table shows the level of GDP (gross domestic product) per capita for 1000 years (based on a constant dollar rate throughout the scale). A more detailed explanation of data sources is available here.

From 1000 to 1800, the level of GDP per capita practically did not increase. After that, the productivity and volume of products increased significantly throughout the world. The turning point on this chart was the Industrial Revolution.

Why did such a growth happen at this particular moment of time, and not earlier? There are several theories that the Industrial Revolution occurred precisely then for the following reasons:

• Population density: more and more people lived in cities closer to each other.
• Cheap energy: mainly in the form of coal.
• Mobility: in view of the cheap energy and especially the creation of the railway network, people have the opportunity to travel.
• Exchange of ideas: such mobility has led to the intensification of mutual enrichment of ideas.

Ii. Creative destruction and revolution governing

One of the philosophers and thinkers who wrote about this period of history was Joseph Schumpeter, who wrote the book Capitalism, Socialism and Democracy. In this book, he introduced the concept of “creative destruction”, which is as follows:

The innovative contribution of entrepreneurs was the force that strengthened long-term economic growth, even though it destroyed the value of well-established companies that had some degree of monopoly power.

In simple terms, entrepreneurs create products that completely change the order in which people do something and ruin existing systems. Examples of such damage include typewriters and computers, CDs and iPods, rental of videotapes and Netflix.

Due to the presence of all these forces described above (cheap energy, the ability to move actively, population density), entrepreneurs during this period had more opportunities to expand their activities, and the scale of companies established during this period of time was much larger than ever before. Examples of such companies include Carnegie Steel, Standard Oil, New York Central Railroad System and JP Morgan.

Another notable philosopher of the time was Alfred D. Chandler, who wrote the book Visible Hand: The Managerial Revolution in American Business. Chandler agreed with Schumpeter that entrepreneurs played an important role in the creation of new companies, but also claimed that managers played an equally important role in the development of the ideas of the entrepreneurs themselves.

Simultaneously with the Industrial Revolution and capitalism, a new science was born - management.

Iii. Using capitalism to solve social problems

The key topic that Michael Daring promoted throughout the lecture was that growth and wealth creation throughout such an entrepreneurial process gives entrepreneurs the opportunity to solve our social problems.

Despite the fact that the Industrial Revolution brought us problems of uneven creation of material goods, pollution, environmental destruction, at the same time, it gave us the opportunity to create a shared education, improve health, increase life expectancy, and the ability to solve our other problems. This suggests that such growth (even with subsequent problems) is better than no growth.

We must chant the entrepreneurial ideas of Schumpeter, accept managerial capitalism, and use the proceeds to improve the condition of humanity.

Iv. Transport revolution

Let's go back to our scale of GDP growth per capita and take a closer look at the 1820s, when the railway industry appeared and developed.

Railways became the main startup of the time, and entrepreneurs created and expanded their railway companies to enormous proportions. One such entrepreneur was Daniel McCallum, who worked on the New York and Erie Railroad line.

Daniel McCallum began as a self-taught carpenter who specialized in the construction of railway bridges, then became the curator of all bridges, patented his own kind of bridge and became the superintendent of the whole company - and all this in just over 10 years.

The key moment in his life was that when he worked on a small railway line, the work was pleasant, interesting and easy. However, when he began to manage the whole production, he experienced only pain and suffering, trying to manage a huge railway line.

The main problem of McCallum was cost per mile. Current expenses grew at the same rate as the size of the railway. Where the company had to see an increase in productivity (reducing the cost per mile), she saw the opposite. Communication, coordination, operations, sales - everything became more complicated as the railway grew.

When McCallum was at the top of his career, he was still trying to come up with a management model. Remember that in 1855 there were still no business schools and books for teapots. There was no internship with the general manager. McCallum learned to design and build bridges, not to manage thousands of people scattered across half a continent.

V. Key management objectives at this level

• What McCallum liked about running a small railway line:
• Personal communication with his immediate subordinates and employees
• The ability to check whether everything is done by looking with my own eyes
• The ability to see how trains move, and how the system works
• The ability to show respect for each other through personal communication

When he tried to drive a 5,000-mile railway line, all of these points disappeared. All that McCallum tried to do was to return all that he liked in a small line to the management of a large line.

He experimented using telegraph systems to transmit information, creating the first modern organizational schemes, and developing various management principles based on the experience gained.

Surprisingly, all these questions that were asked in 1855 are still relevant today, and none of the main tasks in managing large-scale companies has been solved.

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