Opportunity as friendship

Entrepreneurship is typically defined as the pursuit of opportunities. But what is an opportunity?

Let’s answer this question by trying to construct one. As a basic minimum we need three things: (1) a product or service, (2) one or more agents who consume it, and (3) one or more agents who produce it. But just the simple collection of such agents and artifacts is not enough; the essence of the opportunity lies in the relationships among them. Behind each relationship lies a distinct pattern of interaction, for example exchanging money for the product or exchanging labor for money. In other words, an opportunity is a set of interactions, a social structure.

Friendship is also a social structure. It requires at least two people. But the simple collection of them does not produce friendship; it is their distinct pattern of interaction that does so.

As social structures, opportunities and friendship are emergent phenomena, i.e. they amount to more than the sum of their parts. It is the interaction of these parts that give rise to the structure in question.

Given this, what does it mean to identify, recognize, discover, research, or even create an opportunity? Well, these terms make no sense when applied to friendship, so why should they make sense for opportunities? In a forward looking sense, the relationships that constitute an opportunity or a friendship do not exist; they can be imagined and aspired to. An opportunity or a friendship arises – if at all, that is – only when those relationships are fired up and sustained.

We do not plan our friendships. We take small steps to interact and, if there is a mutual spark, keep the interactions going. Over time, these sustained interactions become friendship.

Let’s revisit the opening definition of entrepreneurship. Entrepreneurship is the taking of many first steps, some of which may give rise to opportunities.

The illusion of understanding entrepreneurial success

Whenever successful entrepreneurs are asked for the secrets of their success, it strikes me that their answers inevitably involve one or all of the following: (1) persist, i.e. do not give up; (2) learn from your mistakes; and (3) give the customers what they want.

I have always found it troublesome that such advice sounds too simple, that there must be someting else, the secret that makes such entrepreneurs special. But perhaps there isn’t. Perhaps entrepreneurial success is indeed built from the iteration of these simple rules.

Why – I hear you ask – isn’t everyone successful then? I see the answer in the fact that entrepreneurial outcomes – huge success, failure and everything in between – are chaotic. The key to understanding the term chaotic is not to confuse it with random. Both chaos and randomness imply unpredictability but in different ways.

Randomness is what creates lottery winners and it is clear to us that there is no secret to becoming a lottery winner. Hence we never invite lottery winners to speak about their success. This is because random outcomes are non-deterministic, i.e. there is no particular reason why they happen; they just do.

Chaotic outcomes, on the other hand, are deterministic but unpredictable. In other words, the rules that generate the outcomes are clear. They can be very simple but iterative, that is applying the rule over and over. Just like persisting, learning and responding to customers. In entrepreneurial settings, such iteration traces non-linear paths, which means that there is no telling where you might end up. Miniscule differences at the outset can end up widely apart. I love the analogy of kneading dough. If you put two chocolate chips next to one another and continue by pressing, stretching and folding – simple, iterative rules – there is no telling where the two chips will end up in the final form.

Many successful entrepreneurs say that entrepreneurship is simple. It indeed is – the action rules are simple. There is just no telling where you will end up.

The Anna Karenina principle in entrepreneurship

The opening sentence of Tolstoy’s Anna Karenina

“Happy families are all alike; every unhappy family is unhappy in its own way”

– has inspired the term “The Anna Karenina” principle. It readily applies to entrepreneurship:

Successful entrepreneurs are all alike; every non-successful entrepreneur fails in his or her own way. Success, then, is not about ensuring positive factors, but avoiding all the negative ones.

Succeeding by avoiding failure may sound like an oxymoron, but if you replace “avoid” with “learning from and adapting to”, then success is all about finding and ironing out the kinks.

Entrepreneurship as educational product

With the proliferation and tremendous popularity of entrepreneurship courses, it is worth pausing to reflect on what it is that they teach. Unlike accounting, finance or even marketing courses  – which offer a set of trade or professional skills with tangible career value – entrepreneurship courses are less susceptible to return-on-investment calculation.
I am not a big fan of rigid, formulaic business plan courses, which can be seen as an attempt to convey more tangible value. To me, the value of entrepreneurship education lies in its embracing of uncertainty, creativity, and logic of emergence. While traditional courses shield the student from uncertainty and enable them to find the best solution on a well defined problem, entrepreneurship courses should expose students to uncertainty and open endedness as core aspects of life and urge them to thread forward without the assuredness of complete knowledge and with the sense that all premises for action are tentative.
It is about awakening and releasing the genie of adventure and possibilities that we lock up as we leave childhood behind.

Is there life after Dragons’ Den?

There you have it. The real-life Dragons have spoken. Your idea has been turned down. What are you to do? It is an emotional rollercoaster.

On the one hand, you can resign and savor life without uncertainty. But then you start thinking about all those cases – too many to be discounted as flukes – where expert opinion suggested that something would not work; but it somehow did. There was widespread skepticism that the concept of Kiva would not be scalable. Banks did not buy into Muhammad Yunus’s idea of lending to the poor. Hewlett Packard twice turned down the opportunity to build the Apple I computer. So did Commodore, Atari, and Don Valentine, the “grandfather of Silicon Valley venture capital” (he did invest a year later). Kodak, General Electric, and IBM all turned down the opportunity to build the original Xerox office copier.

Such inspiring stories can easily tip the scales towards the other extreme, of charging ahead despite the negative feedback. But then again, venture capitalists are often right about rejecting particular ideas; yours might as well be one of those. Can you really afford to ignore the opinion of others (some of whom have seen many entrepreneurs try … and not succeed)?

How can you weigh these two extremes? The bottom line is that you can’t. In the absence of any action to provide some tangible evidence for the merits of your idea, it is simply one opinion against another. The real kicker is that people tend to regret the things they do not do, not the ones they do do. If you do nothing, you will forever agonize about what might have been. But you also don’t want to do too much, for your children will never forgive you the frivolous wasting of their college education fund.

What is left is taking a small step, feeling your way forward, just as you do when the lights suddently go out and it is pitch dark. There is a blessing in rejection. It is the feedback of why others think the idea would not work. It is an assumption that you can test on a small scale. If it works, great; you can go on to the next. If it doesn’t … perhaps you will get new feedback about what might work … which will open a door you would have never known existed.

In search and praise of (well intentioned) failure

To succeed, many things need to go right. To fail, only one of them needs to go wrong.

Economists talk of the paradox of thrift: saving money is good for you, but if everyone saves too much, then we all may be worse off. Curiously, the same logic applies to entrepreneurial failure, but the other way around: failing is bad for you, but if everyone tries (and many fail), we may be better off overall as there will surely be some spectacular successes among us.

This interplay works very well in sports. Big competitions – the Olympics, world championships, etc. – work best when a lot of good athletes compete in them. But for each individual competitor, the odds are normally stacked against winning. Yet, it is being in the competition that is the essence of being an athlete. The title applies to anyone who competes, regardless of whether they actually win. Most amazingly, no one fails in sports; they simply do not win.

Unfortunately, when talking about entrepreneurship, we tend to reserve the title “entrepreneur” only to those who win. Becoming an entrepreneur implies having successfully started a business or other venture with economic or social impact.  And the title stays forever: we say X is an entrepreneur, never X was an entrepreneur.

Entrepreneurship is a competitive endeavor, so why don’t we call anyone who competes in good faith and to the best of their ability “entrepreneur”? Some will succeed, many will wait for the next tournament(s). But all become equally appreciated.

Should we be suspicious of entrepreneurial stories?

A very intriguing TED talk by Tyler Cowen. Let me recap some of his main points:

1. People love stories.

2. No one describes their life as mess. People typically describe it as a journey, battle, novel, race, play, etc.

3. By telling stories, we are imposing order on the mess that we observe. When something is in the form of a story, often we remember it when we shouldn’t.

4. We should be suspicious of stories … and give in instead to “epistemological hovering and messiness and incompleteness … where not everything ties up into a complete bow and you are really not on a journey …  you are here for some messy reason or reasons and you do not know what it is”

We do get excited and inspired by entrepreneurial stories, so where does this leave us? I am personally very wary of extrapolating from individual stories, particularly in the form of “key takeaways” [my favourite are “work hard”, “believe in yourself”, “be persistent”, “challenge the status quo”, “take risks”]. We first need to understand why these things worked in the particular case before blindly applying them to another.

Entrepreneuship as herding Black Swans

If you dig under any entrepreneurial success story, you will inevitably find some trigger events that could not have been anticipated and that are crucial for the unfolding of the story the way it did. Think of Kiva’s being featured on DailyKos on October 27, 2005 or being the subject of a PBS Frontline documentary on October 31, 2006. Both were watershed events for attracting lenders and proving the viability of the concept. Their effects are clearly seen on this exciting visualization of Kiva’s growth.

Or think of Paul Terrell’s placing an order for 100 Apple I computers (worth $50,000) for his Byte Shop Computer Store, having seen Steve Wozniak’s demonstration of the computer at Homebrew Computer Club meetings. Up to that point, Jobs and Wozniak’s business concept had been to sell printed circuitboards to fellow club members.

When thinking of such events, Nassim Taleb’s idea of Black Swans comes to mind. These are rare, unanticipatable events with extreme impact that are relatively easy to explain retrospectively. One of the key examples is that the ten best days account for around half of US stock market returns over the past 50 years.

It seems plausible then to think of (successful) entrepreneurship as herding Black Swans. No matter how skilled or ambitious the herder, without a few of these rare birds in the flock, the entrepreneurial journey may never turn out to be historic or exciting.

Succeeding by being out of control

I have a growing interest in understanding the process through which entrepreneurial opportunities unfold from mere ideas. And it is becoming increasingly clear to me that the logic of process is fundamentally different from the logic of cause and effect, which over the years has become my default mode of thinking. In an unfolding process, current actions and events have meaning only when seen against some eventual outcome, whether success or failure; in the moment the seem uncertain, ambiguous or trivial.

In opening this new frontier, I am currently reading The Innovation Journey by Andrew Van de Ven and colleagues, a summary of the Minnesota Innovation Research Program and one of the rare accounts of innovation processes as they unfold. In their reflection on the program, they make the point that entrepreneurs and managers can control only the odds of innovation success and not its actual realization. To make a point about the existence of control bias, they give the example of Franz Klammer, the 1976 Winter Olympic Champion in Men’s downhill skiing, as told in an 1982 book by Bill McKelvey. Klammer won by skiing “out of control” as this video I found of the event readily attests. Staying “in control” would have guaranteed a loss, while being “out of control” at least offered the possibility of winning.

Where am I going with this? What comes to mind is that a business plan, if taken too seriously, is essentially about being in control of pursuing “the” opportunity that it features. The above logic would suggest that not letting go would almost ensure failure. Thus, the best use of a business plan would be as a learning tool, whereby it follows rather than leads. It keeps me free to explore diverging paths with the glimmer of hope that there might be something big around the corner.

But of course, these are just odds. If I succeed, I will likely write a book about it and people might see prophecy in my taking every path along the way. If I do not succeed … well, I simply join the vast majority who never get to write books. And all those paths would not look shiny at all.