Courtesy of Robert Weber and the New Yorker
Courtesy of Robert Weber and the New Yorker
Agility and the ability to quickly adapt to changing circumstances or failed plans is one the many common behavioral characteristics I identified over the past year and a half I spent interviewing entrepreneurs and venture capitalists.
For example, when financing for ad-supported social networks abruptly collapsed in 2008, so did David F.’s plan for growing his online youth sports community. Without external funding for extensive outreach, customer acquisition was prohibitively slow. Rather than diverting his limited resources in a (likely futile) attempt to boost marketing, David completely reconsidered his business model. While recruiting at a local event, David learned from a Little League official how outdated and difficult the company’s software was to use. After further inquiry, David recognized that recreational sporting institutions could use his current social networking system to manage their backend customer registration. With a minor product tweak and a major shift in strategy, David emerged from the brink of failure, more profitable than ever.
Balancing initiatives is particularly difficult for start-ups, for which every big decision is interrelated. If seemingly insurmountable challenges arise, entrepreneurs must be willing to make drastic changes to their original plan.
Persistence is a well known but (in my opinion) poorly understood quality of successful entrepreneurs. At its best, persistence is having the will to persevere in spite of whatever obstacles, challenges, or set backs you may encounter. At its worst, persistence is confused with not figuring out a better course of action. Based on what I’ve seen, here are some logical reasons for pushing through the dip, backed by some good ‘old Edison quotes:
1) Most obviously, increased number of wrong attempts = increased learning = better future solutions. Luck plays a large part in a start-up’s success, but entrepreneurship less like the lotto, and more like poker. Studies claim to have proven, that VC-backed entrepreneurs that have failed before have a slightly better chance of succeeding than first timers (23% vs. 22%). As you might expect, entrepreneurs that have succeeded previously are much more likely to succeed in their next venture (33% chance of “success”) not just because of the entrepreneur’s skills but because of reason #2 below.
“I am not discouraged, because every wrong attempt discarded is another step forward.”
2) Signaling dependability and durability reduces the perceived “cost” of your service to current and potential customers, employees, investors, or anyone else that has something to lose if you give up or go out of business. For example, you switch to a new start-up SAAS company because they can do the job cheaper than your old provider, but then they go out of business. Now you are stuck with a platform that is longer updated, is no longer serviced, or even worse, no longer works.Even if your service is free, prospective customers consider the switching costs that they would incur not only to join your service but to switch back to another provider should you fail.
The more persistent you appear, the less risky (and expensive) of an option you are in the eyes of prospective constituents. This reduces the “cost” of trying your products and services, making you more competitive, and thus more likely to succeed. Amar Bhinde covers this topic in his excellent study of the INC 500 companies. Why VCs are especially interested in proven entrepreneurs that have just failed is covered here by Brad Feld. Hunger baby.
“Show me a thoroughly satisfied man, and I will show you a failure.”
3) Not all progress is visible. No one knows the “magic number” of impressions advertisers must achieve before inspiring custmers to purchase Likewise, you don’t always know when you are about to pass the tipping point for traction, score the deal, or get the job. As Paul Allen points out, this is a good reason to measure progress as often as possible.
“Many of life’s failures are men who did not realize how close they were to success when they gave up.”
4) If you stick around long enough, factors beyond your control may change in your favor. It is easy to speculate but impossible to know what goes on behind a customer’s or investor’s walls. You may get turned down by Stefanie the purchasing associate 20 times before one day you call to find Frank on the phone. You and frank hit it off and the order is sealed. Did you do anything differently? No, but you stuck around long enough to reap the reward. Mark Andreessen covers this nicely here.
“Nearly every man who develops an idea works at it up to the point where it looks impossible, and then gets discouraged. That’s not the place to become discouraged.”
Oh, but just in case things don’t seem to be working out. Don’t forget this guy:
“Insanity: doing the same thing over and over again and expecting different results.”
Roger Ehrenberg, ex-banker turned startup investor, wrote a good post a while back discussing the possibility that the collapse of wall street will fan the entrepreneurial flames of ex-wall streeters. I’ve been talking about this since the beginning of the financial crisis and I have an answer: YES. I believe that the financial crisis will lead to positive changes in the lives of many Americans.
As an ex-banker (well, sort of, equity research) turned sailor turned startup grunt turned rock band bassist turned student of startups, I believe that unleashing a herd of hardworking and (relatively) intelligent people will lead to more than a few entrepreneurial success stories. If nothing else, a forced break from the fire-hose of “absolutely critical” business and career will help people to understand that there is more to life than climbing the corporate ladder. Shouldn’t it worry you that spending a sunny weekday on sheep’s meadow nearly drives you crazy? Thoughts on what I call “the river” and “PDA dependency” to come on later posts.
When The Street began to fall apart, I dreamed up a new project: collecting a set of stories about Ex-Wall Streeters who, freed from jobs that they hated, go on to pursue their passions and, most likely, much happier lives. What do you think? I’m not saying that every banker is self-loathing (most of the truly successful ones aren’t), but a lot are. Sadly, people stay in jobs that they hate because their “opportunity cost” is too high to leave. They’d rather pay the price of lifelong self-resentment than pursue fulfillment in, gasp, a potentially less lucrative field.
Why do people who manage risk for their living make such “irrational” decisions you may ask? Their myopia is the result of spending 7 days a week, 51 weeks a year (save a week long “recharge” in an otherwise unused cottage in the Hamptons) in a culture that has but one yardstick, the dollar. The simplicity of a system where every decision can be measured with one simple metric- how much $$$ am I making? – is both distorting and intoxicating.
To bring it home, I believe that Roger’s third factor, risk, will have the most affect on the ex-Wall Streeters. Wall Street was never risky to its participants. It’s probably one of the safest career choices (on an expected value basis) available. No longer be able to tell exhilarating stories about the exorbitant sums they made with Other People’s Money, these people will have to completely re-conceive their personal notion of risk and how it interfaces with their self-image. Drawing spreadsheets for a modest living is a bit harder to sell as exciting and risk taking, even to oneself. Accountants, where you at?
I think, and sincerely hope, that the implosion of “gravy train” will liberate talented ex-Wall Streeters from their myopic fear and enable them to follow their dreams. Value expansion, if only in the personal sense, seems inevitable.
If anyone wants to tell their story or has a friend that wants rap about their new plans, I’d love to talk to you. Thanks and good luck.
The more decisions that must go through the entrepreneur, the more of a bottleneck he becomes.
Just because you are capable of wearing many hats, doesn’t mean you always should. While self-sufficiency enables is critical to getting started, entrepreneurs incapable of delegating tasks inevitably become bottlenecks in their firms’ growth. Routing all info and decisions through one person is expensive- decisions and the information necessary to make them should be pushed down the ranks whenever possible.
I know of two partners at a shipping company that could not figure out how to break through double digit millions in revenue. Despite working harder than ever, the needle refused to budge. A quick look at the firm’s organizational structure revealed the problem instantly. Even with 70 employees working on 8-10 separated projects, every single “scoping” decision ran through the two founders. Without the courage to delegate “core” functions, the founders had inadvertently become the bottlenecks in their own firm’s growth! For a firm to grow, entrepreneurs must hand off their existing responsibilities in order to focus on newer, more value add activities.
How many tasks pending do you have?
What percentage of your to-do list gets completed every week?
What is your average time to respond to internal requests? External ones?
How many direct reports do you have?
What would happen if you fired yourself?