Since China entered a new era of allowing private businesses I see a pattern that has emerged and the motivations that have shaped it.  The drought and starvation of the 1950's is still in the collective memory of the population and in the real memories of some.  Moreover, just two decades ago, China was an agrarian country.  Then, there is guanxi, the local form of the old-boys-network, which, here, means the old boys in government since the government is in control of everything.

Thus, the first to become successful entrepreneurs, as is true in any political system, from monarchy to democracy, were people with government connections.  Thereafter, envy was created.

Now, as I live in China and see businesses start, in my neighborhood, and fail within a few months; as I deal with people in market situations, from the seafood market to the art market; and as I also watch what happens even to Ayu, my Chinese associate, in all types of transaction situations, I understand even more about the mentality of people trying to capture the entrepreneurial dream.

The fear and envy, first, lead many people to want to start their own businesses.  They see successful people with their own businesses plus the sugar-coated version of business that private business owners sometimes tell of their own businesses, and they simply equate having a business with instant success.  The next mistake that this leads them to is thinking that if the build it they will come.  They seldom think that startup costs for business should include both padding to get through the developmental stages and for marketing.  Indeed, many do not even realize that marketing of some sort, even as simple as handing out business cards or fliers to announce that a new business has opened, is necessary.  They just assume that when they open their doors, they will automatically get rich quick.

The other common ingredient that I have seen, in businesses, here, from the local vegetable market to manufacturing firms, is greed, which manifests two additional business mistakes.  Often, people charge too high a price because they figure the higher the price that they can get for their product, the faster they will get rich.  Even basic economics, before we even get to finance, says that there is a price that will maximize profits: both higher and lower prices will result in lower profits.  In many situations that I have been in, here, there are no prices on goods, and, especially, because I am a foreigner, and Chinese think that all foreigners are rich (this is a misunderstanding of the mis-priced Yuan: see the In Country Analysis page of our website for more about that), they will quote me a price that they believe will seem cheap to me, in terms of my foreign money, even though th price is as much as ten times or more what it should be.  Worse yet, is that the same thing happens to Ayu who is Chinese, and it leads me to my original hypothesis that they believe that the higher the price, the sooner they will be rich.  The second mistake is that people who are actually able to get rich through such means neglect the future.  If we consider, in addition to economics theory, the theory of finance, business people should seek to maximize present value of their future cash flows.  That takes the focus off of the present and getting rich quick and puts it on creating a good product and purchase experience that will result in good word-of-mouth free advertising and growth of the future.