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Malcom Gladwell lays down the laws of entrepreneurship . . .

Bill Gates
Malcom Gladwell explains the puzzling failure of Bill Gates and his promising startup company.

Malcom Gladwell has in the last few years become one of the favorite “elevator” intellectuals in the world of business and entrepreneurship. If you’ve ever been involved in a start-up, you’re intimately familiar with the “elevator speech,” the 30 second “kernel idea” of your business concept that you can deliver to any stranger on an average elevator ride. Gladwell, for his part, has become the expert at “elevator intellectualism,” reducing complex phenomena to elevator-ride-sized concepts. In a series of groundbreaking books such as The Tipping Point, Blink, and now Outliers, he marshalls impressive scholarship and more than a little cherry-picking case studies in support of, well, 30-second concepts. He is, to say the least, a fabulously brilliant man who deserves every ounce of his success, but it’s frequently at the expense of laying down simplistic “laws” against the pressure of innumerable exceptions.

So, as the most quotable quiptificator in the business world, it’s only suitable that Gladwell should turn to entrepreneurship in his latest, quite excellent (and quite the opposite) piece in The New Yorker about how successful entrepreneurs are essentially risk-averse rather than bold, damn-the-burritos risk-takers. However, by severely limiting his perspective to what he calls “predatory entrepreneurs,” such as Ted Turner and John Paulson, is he really saying anything useful about entrepreneurship and entrepreneurial success? For a subject as complex and variegated as entrepreneurship and business success, can Gladwell . . . or anyone else for that matter . . . cherry-pick their way to immutable laws governing entrepreneurial success?

Let’s start with a few exceptions
The first, and most important, question to ask Gladwell’s simplification is what constitutes entrepreneurial success. For Gladwell, and the authors he quotes, equates entrepreneurial success with making tons and tons of money and building a billion-dollar-a-year company. If we accept this extraordinary formulation of success, then, indeed, most “successful” entrepreneurs are, in Gladwell’s formulation, highly analytical, careful, and more willing to risk other people’s money than their own, as hewing more to the risk avoidance category rather than the risk taker category. In our view they look like risk-takers, but since they have done their homework, they see the “risk” as more of a sure thing.

If we limit our discussion only to Gladwell’s definition of success (building a billion dollar company) — and believe me, I do not accept that definition — what about the Glen Bell’s of the world (Mr. Bell passed away yesterday, alas), the McDonald’s brothers, the Ray Krocs, the Larry Page’s and Sergey Brin’s of the world? In what sense was Glen Bell risk averse in the same way as Ted Turner or John Paulson?

Let’s just consider some of the unbreakable “rules” that all successful entrepreneurs must follow (or they will fail): incorporation (leaving Microsoft out of the running since it took them six years to incorporate), a business plan (there goes Hewlett-Packard), sufficient capitalization at startup (which is why Apple Computer, Ben and Jerry’s, and Nike failed so miserably), capital drawn mainly from other people’s money (another insightful reason explaining the tragic failure of Ben and Jerry’s), risk analysis rather than risk-taking (which is why Facebook, though a good idea, went belly up), purchasing an ongoing business rather than starting a new one (aha! that’s why Taco Bell and Microsoft never made it past the startup stage), and tons of marketing (which is why Movable Type failed to move any product).

What I find particularly useful about Gladwell’s unbreakable rules is that they explain for the first time — and in one coherent theory — the total and abject failure of Bill Gates as an entrepeneur. Not only did he make the mistake of starting his own business, he did so without a business plan, on his own money, bootstrapped the early growth years (to multimillion dollar revenues), in a very informal business structure that coalesced into a general partnership (incorporation came in 1981 after the company was going gangbusters), and without a business plan. Of course, some revisionist historians will argue that the lack of any focused or committed business plan may actually have worked to Gates’ advantage if . . . and this is a big if . . . he had readily and quickly scrapped his initial business model of focusing on programming languages and had instead gone into the operating system business when the opportunity, and IBM, came knocking at his door one fine November afternoon. These revisionist historians argue that if Bill Gates, when asked by IBM, had agreed on the spot to provide a personal computer operating system to IBM without subjecting the whole thing to months of business analysis — if he had, in fact, been a risk-taker rather than a risk analyzer — the entire history of his failed Arizona startup might have gone differently. But that is the Microsoft that might have been . . .

Take a little peek at 12 Amazing Successes of Unlikely Entrepreneurs on BusinessPundit.com and you’ll find not a one that fits Gladwell’s neat but simplistic formulation (though we’re not talking about people who have made a billion dollars). You’ll see some analytical, risk-averse thinking (Ben Cohen and Jerry Greenfield did their research and opened their ice cream store in the only college town without an ice cream store), but most are taking big risks with their own money (or credit cards), sometimes without a plan (Movable Type), and woefully undercapitalized. Is anybody on this list a “failed entrepreneur”? Isn’t this list better titled, “Twelve Reasons Malcom Gladwell is Full of Shit?”

So what is success?
So let’s go back to that word, “success.” In Gladwell’s formulation, there are only two kinds of entrepreneurship, “successful” and “failed.” Successful entrepreneurs include Ted Turner and John Paulson, who have made billions of dollars, and similar folks like Sam Walton. What, then, is a “failed” entrepreneur? We can probably all agree that someone who loses their business and all their money has failed, but what about someone who has only become a millionaire off their business? What about someone who is running their own business, making a profit, paying their bills on time, putting their kids through college, and buying off their house each month? Since Gladwell does point out that entrepreneurs are worlds happier in their jobs than employees, doesn’t “making a living” constitute entrepreneurial success since the alternative is “having a job”?

What about entrepreneurs that avoid investors and debt for the same reason that Gladwell claims entrepreneurs avoid risk — that is, to avoid the agita that comes with having investors or being in debt (see the little write-up on Juicy Couture on the 12 Amazing Success stories article). I have in my time worked with dozens of entrepreneurs who risk their money simply to make their life easier. And I’ve watched dozens others lose their sleep and sanity plagued by fidgety investors at every turn.

What about entrepreneurs who want more than just money and a business? A life, for instance? Who aren’t looking for the billion dollar payoff, but want to pay the bills, have fun doing it, and have time for family and friends? These are people who see no payday, no matter how large, as worth the cost of missing their children’s lives or the best years of their own. I have in my travels met literally thousands of entrepreneurs who are successful beyond any measure of success, but who aren’t pulling down the million dollar paydays.

We have, in other words, the wrong idea of what entrepreneurial success is and, for that matter, what entrepreneurship is. Entrepreneurship involves one and only one component: the ownership of your own work, your own ideas, and your own creativity. What distinguishes entrepreneurs from hobbyists, who also own their work, ideas, and creativity, is that entrepreneurs put their work, ideas, and creativity into the open market. They attempt, in other words, to extract value from their work and ideas. That’s it. And what makes entrepreneurship “successful” is, quite literally, not having to work for someone else. That is what Gladwell misses.

And what about analytical thinking?
The core of Gladwell’s thesis is that successful entrepeneurs are analytical thinkers. Nerds rather than high-divers. There’s a certain amount of truth to this. Managing risk is more often a formula for success than taking risks indiscriminately. But this, unfortunately, feeds into the larger myth of what I call MBA-think, to which we all subscribe at some level (I do, after all, because I have one). MBA-think posits that business success is the result of the careful application of analysis and knowledge to business risks. But does entrepreneurial success really require MBA skills and analysis? Again, for every “analytical type” business success story, I can quote you dozens of fly-by-your-pants entrepreneurs whose only depth of analysis was “sounds good to me.”

Business is a game of probabilities
Where Gladwell goes wrong is evidenced in the title of the piece itself, “The Sure Thing.” He argues that successful entrepreneurs are not real risk-takers, but good analyzers who correctly and dispassionately identify a “sure thing” where everyone else sees a “big risk.” But the only “sure thing” is “sure” in hindsight only. If it were possible to do away with all the uncertainties in business, as Gladwell seems to claim, then you could, indeed, come up with immutable rules for success.

Business, in fact, is a game of uncertainty. No amount of analysis and no amount of self-confidence can make you “certain.” You can, however, improve the odds. Analysis, knowledge, experience, computer algorithms, and an MBA can improve your odds. A business plan, sufficient capitalization, incorporation, tons of marketing . . . they improve your odds. But they never, ever make a business endeavor a “sure thing.” Which is why some folks out there succeed wildly at business by flying by the seat of their pants into the most threatening of storms and why some of the best laid business plans go flaming to the ground.

In another New Yorker article, The Players, from 2005, the world-class poker player, Erik Lindgren (considered by many to be the best poker player alive), has a wonderful quote: “You can beat me at poker, but you can never play better than me.”

Now, Erik Lindgren is a multi-millionaire not because he’s lucky at poker, but because he brings a level of analysis to the game that allows him to beat the odds more often than not. But that doesn’t mean that the most inexperienced player in the world can’t wipe the floor with him.

That, to my mind, best sums up what the role of analysis and planning in business. Business is an enormously complex affair with numerous moving parts, a mostly unreadable customer base, and a million unpredictables. Planning, analysis, risk management — all these things make you a better business “player,” but they don’t necessarily mean you’ll win every game. They simply improve your odds. You are often better with these skills at your back than without them.

But that is a far cry from a “sure thing.”

If there is such a thing as a “science” of business, it is the science of making the right decisions. It’s clear that two things are required: being “right” and making a “decision.” Lots of people are “right,” but can’t pull the trigger when the target presents itself. Lots of other people can “decide,” even when there’s no reason to do so, but “right” perpetually eludes them, so they’re just shooting blank air. But a “sure thing”? Unfortunately, arriving at certainty often means being right after the opportunity has passed away. Too often, “sure thing” means being right when everyone else has arrived at the same place . . . thus reducing or even eliminating outright the value of the decision, since everyone is shooting at the same target.

No matter how you slice the problem, successful entrepreneurs made the right decisions when they, no matter what they believe, had incomplete information about a volatile and relatively unpredictable situation. Reducing this decision-making to a few coherent laws may help explain a few paths to business success, but not necessarily paths that are retraceable or reproducible. We are, as Nietzsche says, responsible for our own path right or wrong.

If you want a sure thing, folks, get a job. Well, maybe not . . .

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