The Middle Class of Business: Building Enduring Ventures

Silicon Valley exhorts entrepreneurs to supersize their dreams: Have a crackerjack idea with disruptive potential, raise lots of funding from investors, scale up rapidly and hit a billion-dollar valuation.

Awash in stories of “unicorns” and “gazelles” — the rare high-tech high-growth firms that capture the headlines — many founders chase the dream of launching the next Stripe or Instacart.

“But is that the only dream worth having?” asks Darden Professor Saras Sarasvathy, a leading expert on the cognitive basis for high-performance entrepreneurship and the 2022 winner of the Global Award for Entrepreneurship Research from the Swedish Entrepreneurship Forum.

“In a business school,” says Sarasvathy, “we shouldn’t just be teaching high-growth, high-technology entrepreneurship. We should be teaching students how to build a middle class of business — companies that last long enough to give an entrepreneur a good life but also create jobs, foster robust communities and create value for multiple stakeholders.”

Defining the Middle Class of Business

Sarasvathy has coined the term “middle class of business” to describe companies that grow and endure over time but don’t grow very large in size.

In her paper “The Middle Class of Business: Endurance as a Dependent Variable in Entrepreneurship,” published in Entrepreneurship Theory and Practice, Sarasvathy defines the category as ventures that have between five and 300 employees and profitably survive for at least 16 years.

Even though firms that endure for 16 years or more have slower growth than younger firms, they actually employ the most people, studies show.

“If we aim to spur job creation and economic development,” says Sarasvathy, “endurance over time is a better predictor than size. That’s one reason we should foster the development of a middle class of business.”

The question is how.

Teaching Entrepreneurship Like We Teach Science

Sarasvathy, along with Professor Sankaran Venkataraman, has long believed in teaching entrepreneurship the way we teach science — to everyone who has access to education. As she puts it, “Today, we teach the scientific method not only to potential scientists in professional schools but to everyone, starting at an early age, as an essential mindset and skill.”

According to Sarasvathy, teaching science to everyone who had access to education spurred technological progress, which increased productivity. “For the first time in history, a large swath of society was able to earn enough money to escape poverty,” says Sarasvathy. “This led to the emergence of the middle class, defined by income.”

In her paper, Sarasvathy draws a historical parallel. She argues that, just as the introduction of science education to all fostered the rise of the middle class, the introduction of entrepreneurship education to all would spur the rise of a middle class of businesses.

“When we start teaching entrepreneurship to everyone as a necessary skill,” argues Sarasvathy, “people will be more entrepreneurial — not only in starting companies but also in solving problems in their lives and in the world. People won’t be necessarily starting more companies; they’ll be building better ones that endure for longer than average periods of time and create more value.”

Developing the Entrepreneurial Method

But can entrepreneurship be taught? If you ask Sarasvathy, who’s been teaching it at Darden since 2004, the answer is a resounding yes.

In fact, Sarasvathy pioneered the framing of entrepreneurship as a method à la the scientific method in her groundbreaking book Effectuation: Elements of Entrepreneurial Expertise. She further developed the concept in “Entrepreneurship as Method: Open Questions for an Entrepreneurial Future,” a 2011 article co-authored with Venkataraman and published in Entrepreneurship Theory and Practice.

The cornerstone of the entrepreneurial method is effectuation — the unique logic expert entrepreneurs use to build successful companies. Sarasvathy discovered this logic, which she distilled into teachable principles, in the late 1990s as a result of in-depth studies of how expert entrepreneurs think, act and make decisions in the initial stages of venture creation.

Effectuation is rooted in nonpredictive control. “Instead of trying to predict the future in order to control it, which is thinking causally,” says Sarasvathy, “expert entrepreneurs know from experience that if they control certain things in the present, they can create the future. That is thinking effectually.”

Unleashing the Human Potential

The Silicon Valley model of entrepreneurship has captured the imagination of the public, and many founders want to emulate it, despite the fact that it reflects only a sliver of startups.

“Most startups are not VC-backed, high-growth ventures,” says Sarasvathy, who encourages her students to build enduring businesses instead. She also encourages them to have a more expansive view of entrepreneurship and its possibilities.

“Entrepreneurship is not just coming up with an idea and starting a business,” says Sarasvathy. “It’s much more than that. Entrepreneurship itself is a method to build not just companies but also a better world. It’s a method to unleash the human potential to create new ends and the means to attain them.”

This article was developed with the support of Darden’s Batten Institute, at which Gosia Glinska is associate director of thought leadership.