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.

The pull of the null

At a dinner last year, I met a partner at a major European VC firm. Upon finding out what I did, he drew me into an ongoing conversation about whether entrepreneurship could be taught and asked me for my opinion on the subject. The consensus opinion in the group was that entrepreneurs were essentially born; I stated that my belief had evolved to be that anyone could be entrepreneur given the right circumstances. This statement was met with disbelief and the VC became agitated by its absurdity. He forcefully made the case about the efforts his firm made in selecting entrepreneurs with the right skills and of the right calibre. I was naturally inclined to play devil’s advocate and noted that many of the carefully selected entrepreneurs still would not succeed, thereby refuting the case for an outright profile of success. Although our conversation ended at that point, it made me think about the merits of my statement.

Aside from the fact that VC firms look for high-caliber entrepreneurial leaders  who can build multi-million-dollar companies, the broader question comes down to this. Where does the burden of proof lie in stating who can and can’t be an entrepreneur? Do we have to prove that entrepreneurs are special or that they are not? The consensus seems to be that because we are more inclined to perceive successful entrepreneurs as special, anyone claiming the contrary has to bear the burden of proof.

But is it that successful entrepreneurs are special because they are successful or that they are successful because they are special? The logic and convention of scientific inference would dictate that we cannot prove but only disprove the statement that entrepreneurs are not special. Until this is done, however, it remains a plausible null hypothesis. To reject it beyond reasonable doubt means that we have to find certain characteristics that widely and consistently show up to underpin successful performance. But after seeing countless studies and diverse cases of entrepreneurship, it seems to me that this is not obvious.

Not only do different skills work in different situation, but also humans have the capacity to prove those who doubt them wrong, overcoming great odds in the face of adversity or lack of necessary knowledge or skill. Thus, it is a question of people’s finding the situations that galvanize their stamina and enkindle their passion. For some this can be the building of a commercial empire; for other running a corner shop. Which of course is another way of saying that anyone can be an entrepreneur given the right circumstances.

Sticking with the good ideas; abandoning the bad ones

Entrepreneurship is exciting: it makes life dynamic and, when used to harness inventions and new technologies, changes both its daily nature and quality. But in becoming an entrepreneur one is humbled by the impossibility of knowing whether the business idea at hand is the “right one”. It just does not have the aura of inevitability that one senses in the stylized retrospective accounts of others’ successes. It is one thing to explain the past, but another to anticipate and embrace the future.  So, what is one to do? On the one hand, going forward is fraught with irreducible doubt about the chosen path. On the other hand, turning away is marred by counterfactual regret; what if … The balance perhaps lies in taking manageable steps forward, while staying alert to the evolving signals about the market feasibility and economic viability of the pursued opportunity.  Judging the merits of the opportunity is not a one-time exercise, but a continuous process.

In a recent study, I examined what happens to people – nascent entrepreneurs – who set out to pursue their business ideas. The data came from the Panel Study of Entrepreneurial Dynamics (PSED), the largest and most representative study of this most elusive part of the entrepreneurial process. The results show that the entrepreneur’s confidence in the opportunity at hand occupies centre stage in the process: where confidence is strong a viable venture is more likely to emerge; where it is undermined entrepreneurs are more likely to call it quits. More importantly, factors that are typically perceived as instrumental for entrepreneurial success, such as prior experience and proper planning, matter inasmuch as they help the entrepreneur learn about the opportunity at hand. Active exploration of the merits of the opportunity can provide a basis for more informed judgment and timely termination of venturing efforts with poor prospects.  In this sense, planning can be an important learning tool for the nascent entrepreneur.

Even the most skilled and knowledgeable individuals can run after “bad” ideas; it is just that they may be able to realize the futility of their efforts more quickly and efficiently. Arguably, every idea deserves a chance when first articulated and this is what makes entrepreneurship both exciting and difficult to manage as a rational decision process. That many ideas would ultimately fail should be considered an instrumental feature of the process. As A.G. Lafley, former CEO of Proctor & Gamble, says, “the key is to fail early, fail cheaply, and don’t make the same mistake twice”. In other words, we need to recognize and celebrate both the successes and the well intentioned failures.