MORE ABOUT THIS BOOK
Most new businesses fail. Most entrepreneurs fail. Even those who succeed suffer through the process. The jaunty, sunny character who first seizes upon an idea and decides to bring it to market soon becomes grizzled by experience, by the violence of the competition, the disdain of investors, the treachery of employees.
Paul Graham, the founder of Y Combinator, one of the more successful of Silicon Valley’s entrepreneurial incubator programmes, says the underlying reason most start-ups fail is that they become demoralized. Yet another investor turns them down. Yet another client loses interest. Yet another cheque gets bounced by the stiffs at the bank. Each individual adversity could be dealt with if morale was still high. But once it’s gone, so goes hope. ‘If you can just avoid dying,’ Graham says, ‘you get rich.’1
Yet now more than ever, the life of the entrepreneur is celebrated and desired. Incubators and accelerators from Palo Alto to Brooklyn, from East London to Berlin are humming with ambitious entrepreneurs, confident that they can beat the daunting odds. You could spend every week of the year at a conference where successful entrepreneurs roll onstage in their vintage Adidas and designer jeans to talk of the importance of fast failure and pivoting out of disaster. Given how many presentations Sir Richard Branson seems to make before audiences of adoring entrepreneurs, it is a miracle he has time to run his business.
The economist Daniel Kahneman would say that the phenomenon of the start-up hub, the busy cafes of Hoxton Square in London or University Avenue in Palo Alto, lead to an acute case of WYSIATI – What You See Is All There Is. If you are surrounded by others doing the same thing as you, a few successfully but all with a good degree of swagger, you tend to ignore the risks of your undertaking. Your head swims with stories of billion dollar ‘exits’, of acquisitions by technology giants, and before you know it you don’t worry about buying an expensive coffee with an expensive credit card for a meeting that may go nowhere. All those TED talks you watch about risk-taking and abundance, about avoiding a life of quiet desperation and embarking on that entrepreneurial adventure, are a contagious form of ignorance.
The emotional, cognitive and social factors that support exaggerated optimism are a heady brew, which sometimes lead people to take risks that they would avoid if they knew the odds. There is no evidence that risk takers in the economic domain have an unusual appetite for gambles on high stakes; they are merely less aware of risks than more timid people are.
The optimism of entrepreneurs, he says, is ‘widespread, stubborn and costly’.2
If there was any honesty among those who teach and promote entrepreneurship, they would tear down the inspiring quotes pasted up on their office walls and replace them with pictures of people being rejected at cashpoints. They would hand out T-shirts saying: ‘You built a food-delivery app to change the world – and all you got was this lousy eviction notice.’ That would be more consistent with the facts of entrepreneurial risk-taking.
But they don’t because there are countervailing forces at work. There is the profound psychological need which entrepreneurship can satisfy. To succeed as an entrepreneur is a form of heroic achievement in any economy, but particularly a vigorous market economy. To become a multibillionaire through your own endeavour affords you fawning respect, invitations to state dinners, honorary doctorates, Hollywood biopics.
Entrepreneurship offers a way out of corporate life, out of a system of task-and-reward allocation run by others, to one run by you. You get to decide how to work, what to work on, and how to divide the rewards. If you would rather wear your skivvies instead of a suit, forego all meetings and work via Skype from the beach, you can – assuming your investors and employees still trust you to make your business fly. At the very least, when you find yourself hauled out of bed early on a weekend morning, or taking that last, grey flight home on a Friday night, you can know you are doing it for yourself rather than at the whim of another.
But entrepreneurship also allows individuals a shot at the even deeper pleasure of doing work that they cannot do while working for others. It provides a way to innovate, to challenge whatever currently prevails and to let your originality flourish.
If you are a medical researcher and you know a new drug could help thousands of people, but not enough to make commercial sense for the pharmaceutical company you work for, entrepreneurship offers you a path. If you are a chef chafing on the line, yearning to create dishes which exist only in your imagination, finding investors and opening your own restaurant is a way to turn that yearning into action. If you are a young musician struggling to be heard, you can make your own recordings and distribute them yourself. If you are an ambitious politician, an African American, say, who has served only two years in the US Senate but think you have a long-shot at the White House, it takes entrepreneurial thinking to orchestrate a successful campaign.
Entrepreneurship is a powerful means of arranging life to enable one’s fulfilment, and it is this ineffable opportunity which colours people’s view of its risks. Business is often wrongly seen as a set of rational processes. Entrepreneurship gives emotion its proper place.
And before we plunge in, let me offer one more kink in our understanding of entrepreneurial thinking. When Daniel Kahneman wrote that optimism was dangerous for entrepreneurs, he added that it was most dangerous when it came to making the decision to launch a venture. Once the venture was underway, optimists tended to do better than pessimists: ‘Confidence in their future success sustains a positive mood that helps them obtain resources from others, raise the morale of their employees, and enhance the prospects of prevailing. When action is needed, optimism, even of the mildly delusional variety, may be a good thing.’3
A few years ago, an old friend received millions of dollars of venture-capital investment in his new company, which was barely a few weeks old. He was frazzled with anxiety and excitement. As we sat in his car after dinner, he could barely stay still, his fingers drumming the steering wheel, his thoughts racing out ahead of him. He held out his palm, pointed at it and said in an excited whisper: ‘I feel like I’m holding a tiny dragon. All I have to do is not fuck it up.’
To think like an entrepreneur is to journey through this mazy terrain between optimism and despair: optimism engendered by the thrill of self-actualization which occurs when you start and manage a successful enterprise; and despair at the difficulties which this entails and the corpses which litter your path. It is a journey many people are eager to travel and for which this book is intended as a guide.
The most widely accepted modern definition of entrepreneurship was coined by Howard Stevenson, a professor at Harvard Business School. It states that ‘Entrepreneurship is the pursuit of opportunity without regard to resources currently controlled.’ The appeal of this definition is as much in what it leaves out as in what it contains. It does not contain the word ‘risk’ because Stevenson felt that most entrepreneurs do not see themselves as risk-junkies. They are willing to take the risks necessary to achieve their often difficult goals, but they abhor pointless risk. Gustave Flaubert advised that artists should be ‘regular and orderly in your life like a bourgeois, so that you may be violent and original in your work’. He might just as well have been advising entrepreneurs.
Stevenson’s definition also does not limit the practice of entrepreneurship to those who start and grow their own company, because he believed that you do not have to start and grow a company to behave in an entrepreneurial fashion. A corporate manager who finds a novel way to persuade and organize others to create a new product is by Stevenson’s definition practising a kind of entrepreneurship, pursuing opportunity without regard to the resources currently under her control. An artist who explores untested media and collaborations to bring a concept to life is doing the same. An entrepreneur is a person who resists ever feeling stuck because they don’t currently have what it takes to pursue a dream or opportunity. An entrepreneur finds a way to resist the easy default settings of modern life, to pursue a path that is their own.
When Barack Obama considered running for the presidency in 2008, he had few of the necessary resources, only an accumulation of encouraging evidence. As he toured America promoting his book The Audacity of Hope, crowds fizzed with excitement. Old warhorses of the Democratic Party would come to watch him speak, and go away shaking their heads in awe, comparing him to Bobby Kennedy.4 He had been thinking of himself as a leader from the moment he arrived at Harvard Law School and realized that he was comfortable leading within this future political elite. Now his aides began telling him that he needed to prepare, just in case a ‘perfect storm’ of events gave him a shot at victory. He was bored of being a mere senator, bored of the sausage-factory of legislation, and imagined he could be more effective as the country’s top political executive. He had developed such a knack for fundraising from wealthy Democrats that he was nicknamed ‘Money’. His entrepreneurial mind was awhirr.
Some advised him it was too early, just two years since he had been elected to the senate. Others said that the window of opportunity to run for president opened and shut quickly. He would be foolish not to leap through. He was young and considered non-partisan. But he lacked experience and the support of the Democratic Party’s core. He was the hot thing now, but could he cope with the criticism inevitable in a campaign? There was the fact of his being African American. His wife, Michelle, was nervous about the effect on their family, their two young daughters. A few days before he announced his candidacy, his eventual campaign manager, David Axelrod, told him: ‘I think you have ambition, but not that kind of pathological drive’ he would need to win.5
He spent Christmas discussing the decision with his family, then called his advisors: he was in. Like any good entrepreneur, he was chasing his opportunity, weighing his chances and making lists. This was not an entrepreneurial decision in a business sense, but it met Stevenson’s criteria. At the moment Obama decided to pursue the opportunity of the White House, he controlled few of the resources he would need, but trusted he would acquire them.
This is not a book to help you negotiate a term sheet or value a seed-round for a new enterprise. Nor will it lay out the tactics for forcing a new project through layers of corporate bureaucracy. But it will describe the ways in which you will need to think as you decide first whether to be an entrepreneur, then what ideas to pursue and how to survive the inevitable challenges.
Economists can be timid souls, leery of steeping outside their austere mathematical cages. Not so the American Edmund Phelps, who was awarded the Nobel Prize in economics in 2006. Phelps believes that there is a strong link between economies which thrive and grow and societies which give individuals the freedoms to flourish. He has studied the most dynamic economies in recent history, Britain in the 1820s, France in the Roaring 1920s and America in the 1960s, and concluded that:
Understanding the modern economies must start with a modern notion: original ideas born of creativity and grounded on the uniqueness of each person’s private knowledge, information, and imagination. The modern economies were driven by the new ideas of the whole roster of business people mostly unsung: idea men, entrepreneurs, marketers and pioneering end-users.6
Societies during these periods of economic dynamism were not just modern economically, but also socially. Prejudices were shed, social freedoms expanded and more people allowed to participate in political, economic and cultural life. The more people in a society who are happy to be part of it and encouraged to be themselves and to thrive, the more dynamic that society’s economy will be. It can be disconcerting for members of the old order. Societies will often use the excuse of needing to maintain social order to resist what Phelps describes as ‘the topsy-turvy of creation, the frenzy of development, and painful closings when the new things fail to take hold’. But these have been the conditions for the most dynamic growth. These are the conditions in which entrepreneurs have historically done well. Without the seething mass of individuals freed to use their knowledge and talents to propel an economy forward, it will stagnate.
A traditional economy, in Phelps’s distinction, produces ‘known, specified goods’, whereas a modern economy dreams of what it might produce and tries to turn those dreams into reality. That modern economy is where thinking entrepreneurs can run riot, expressing themselves, bending the arc of their own lives and the societies around them.
Another way to think about this is to see modern capitalist societies being yanked tight by two contradictory powers, the corporatist and the individual. Corporatism favours large interest groups, companies, political parties, unions and religions, and the achievement of social consensus. The corporatist goal is not growth or mobility but harmony, with everyone quite happy where they are. The corporatists’ greatest fear is volatility, booms and busts in the economy and social unrest.
Ambitious individuals are more interested in opportunity and change. They want to see people rise and fall on their merits. They don’t want consensus if it is just aspic poured over the existing social order to preserve its shape. They would much prefer turbulence if it provides a path to growth and improvement.
These are not left–right political distinctions. There are corporatists and individualists on both sides. The prim conservative, who sees even the mildest grunt from the economic class directly beneath as a sign of imminent revolution, is as much a corporatist as the union boss who insists his workers’ rights be guaranteed even when his employer has to compete with lower-wage rivals around the world. Both find comfort in being part of a much larger social group, and will wage war to protect their position.
The most important decisions for modern economies, then, revolve around the balance between satisfying the corporatists and the individualists, between those wanting to preserve what exists and divide it up so no one feels too hard done by, and those who want more. Technology has only complicated this balance, as it has created millions of opportunities for self-employment but without the social protections embedded in traditional jobs. Corporatists demand to know if the Uber driver is a contractor or an employee. Individualists say it scarcely matters, provided drivers are happy with the work. When they succeed, entrepreneurs flout this kind of needling discussion as they get on with their economic business.
I mention all of this to explain why thinking like an entrepreneur can so often feel uncomfortable. People with much to protect are not always inclined to support those agitating for change.
Yet to think like an entrepreneur is to be modern. To want change, to search for opportunity and then be willing to pursue it. Those three steps of want, search and pursuit can put the entrepreneurially minded at odds with those around them. Bringing change to an established market, introducing a novel political idea, adopting a new creative technique or changing the expectations of an audience can require a degree of force. Even the nicest entrepreneur must sometimes apply the Chinese burn to achieve the novelty she desires. Their demanding nature can make entrepreneurs easy targets for criticism. Until, of course, they are proved correct, and suddenly they are glorious rebels, the heroes of our capitalist age.
In the early 1990s, a multibillionaire from Kansas City named Ewing Kauffman was looking to establish a foundation, but struggling to find a purpose. He hired advisors and sent them out to study the work of other great American foundations, named after Ford, Rockefeller and Carnegie, which focused on public health, education and world peace. After much consideration, Kauffman decided that his foundation should address the two factors which he felt had transformed his own life: education and entrepreneurship. He had grown up poor and socially disadvantaged. But thanks to a sound education and the opportunity to create his own business he had become one of the most influential men in the American Midwest. He built a pharmaceuticals business named Marion Labs, which he sold for several billion dollars, and owned the Kansas City Royals baseball team. Dozens of his employees became millionaires and they in turn had changed the face of their city, investing in more businesses and donating to schools, hospitals and cultural institutions.
The central question for Kauffman’s foundation became this: how can one expose more people to the transformational opportunities of entrepreneurship? It is a question that requires consideration of regulations and taxation, the availability of credit and education, intellectual property rights and social mobility. But it also requires a basic understanding of people, of those willing to assume an entrepreneurial challenge, and those not. It forces us to ask what in the character of an entrepreneur is born, and what is made, what is nature and what nurture. We need to think about the risks entrepreneurs must manage, and whether these should be mitigated to encourage more people to become entrepreneurs, or accentuated to haze out the likely failures sooner rather than later. We need to work hard to understand what it means to think and act like an entrepreneur, because the word contains multitudes.
Copyright © 2016 by The School of Life