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.