Page 132 - ENTREPRENEURSHIP Innovation and entrepreneurship

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Source: New Knowledge 125

and that such universal favorites as Packard or Hupmobile would disap-
pear. No one in the 1870s and 1880s, the period in which the modern
banks were born, could have predicted that Deutsche Bank would swal-
low up dozens of the old commercial banks of Germany and emerge as
the leading bank of the country.
That a certain industry will become important is fairly easy to pre-
dict. There is no case on record where an industry that reached the
explosive phase, the “window” phase, as I called it, has then failed to
become a major industry. The question is, Which of the specific units
in this industry will be its leaders and so survive?

This rhythm—a period of great excitement during which there is
also great speculative ferment, followed by a severe “shakeout”—is
particularly pronounced in the high-tech industries.
In the first place, such industries are in the limelight and thus
attract far more entrants and far more capital than more mundane
areas. Also the expectations are much greater. More people have
probably become rich building such prosaic businesses as a shoe-pol-
ish or a watchmaking company than have become rich through high-
tech businesses. Yet no one expects shoe-polish makers to build a
“billion-dollar business,” nor considers them a failure if all they build
is a sound but modest family company. High tech, by contrast, is a
“high—low game,” in which a middle hand is considered worthless.
And this makes high-tech innovation inherently risky.
But also, high tech is not profitable for a very long time. The
world’s computer industry began in 1947–48. Not until the early
1980s, more than thirty years later, did the industry as a whole reach
break-even point. To be sure, a few companies (practically all of them
American, by the way) began to make money much earlier. And one,
IBM, the leader, began to make a great deal of money earlier still. But
across the industry the profits of those few successful computer mak-
ers were more than offset by the horrendous losses of the rest; the
enormous losses, for instance, which the big international electrical
companies took in their abortive attempts to become computer man-
ufacturers.
And exactly the same thing happened in every earlier “high-tech”
boom—in the railroad booms of the early nineteenth century, in the
electrical apparatus and the automobile booms between 1880 and
1914, in the electric appliance and the radio booms of the 1920s, and
so on.