The Defining Characteristics of Successful Entrepreneurs

We all love stories of originality and innovation. Who isn’t inspired by the entrepreneur who was willing to risk it all and, against all odds, succeeded? We all want to hear about the person with strong convictions who swam against the tide, and we want to copy the characteristics of such successful entrepreneurs. But there’s a real danger to pursuing unique ideas. What may appear original or ingenious in hindsight often looks strange or foolish at the time, especially if it fails. As Stanford professor William P. Barnett puts it: ¹ “The fear of being a fool is stronger than the hope of being a genius. So we tend to shy away from non-consensus moves, because we understand the world will look at our errors as if we’re a complete idiot.” The Allure of Groupthink One of the main tenets of behavioral economics teaches us that we are much more motivated not to lose what we already have than we are motivated to gain something new. This “loss aversion” is powerful, and it explains why few people are willing to take big risks. Loss aversion coupled with another behavioral bias known as “anchoring” will lead toward groupthink. We see this all the time in terms of market and economic predictions. Economists and market strategists notoriously cluster around certain conservative ranges of outcomes. For instance, in January 2008, the governors of the Federal Reserve gave their range of forecasts for economic growth in 2009. They all predicted positive growth between 2.1% and 2.7%. The actual outcome was a decline of 2.8%. Few of us like to go out on a limb for fear of being humiliated or fired if we’re wrong. The Road Less Traveled Successful entrepreneurs are different. They are willing to risk humiliation and failure by doing things that are counter-intuitive and contrarian. In the tech industry in the early 2000’s, everyone “knew” that you need to do focus groups before creating a new product. In order to determine which products to develop and invest in, you need to ask customers what they want. Steve Jobs disagreed. He pushed back against conventional wisdom and said people don’t know what they want until you show it to them. Of course, he was right. It was ten years ago that the initial iPhone was unveiled. Before that time, it wasn’t as if people were clamoring for a touchscreen device with a digital camera, GPS, high speed internet, and millions of different apps they could potentially utilize. Smartphones were not conceivable to the vast majority of people a decade ago; now we can’t live without them. Because it’s become the norm, it’s easy to forget just how far from the norm the initial concept of the smartphone had strayed. It’s also mostly forgotten that Apple released its initial handheld devise back in the mid 1990’s. The Apple Newton, as it was called, was widely mocked and berated. Yet, instead of giving up on designing a powerful handheld device, they learned from the failure and changed their strategy. Ready… Fire… Aim This brings us to the second distinguishing characteristic of successful entrepreneurs. According to a study by William Barnett from Stanford and Elizabeth Pontikes of the University of Chicago², adaptability is a key differentiator for entrepreneurial success. They found that entrepreneurs who were willing to adapt their vision and products to find the right market often did the best. Barnett concluded that, “It’s almost always the case that the greatest firms are discovered and not planned.”  This is consistent with the findings of Saras Sarasvathy, a professor at the University of Virginia business school. In order to find out how expert entrepreneurs think, she interviewed 245 of them.³ Instead of doing market research, many of these entrepreneurs just went out and tried to sell something, immersing themselves in the field and then adjusting to whatever they learned. “I always live by the motto of ‘Ready, fire, aim,’” one of them told her. They learn by doing. Sarasvathy concluded that successful entrepreneurs rely on what she calls “effectual reasoning.” These business owners usually don’t start out with concrete goals or extensive business plans. Instead, they constantly assess how to use their personal strengths and whatever resources they have at hand to develop goals on the fly, while creatively reacting to contingencies. By contrast, corporate executives generally use “causal reasoning.” They set a precise goal in advance and diligently seek the best ways to achieve it. Think of causal reasoning as being focused on developing a very specific recipe. Then, you go shopping and buy everything you need to make the meal. Effectual reasoning, on the other hand, is akin to looking in the pantry to collect the finest ingredients you already have and then figuring out a way to put those together to make a great meal. Directional Accuracy Vs. Precision If you’ve ever watched the show Top Chef, you’ll know there is always a twist to the competition. The contestants may find out that they have to cook outside on little hibachi grills instead of in the gourmet kitchen. Or they are told at the last minute they are required to prepare four courses instead of just three. The best entrepreneurs would say that business works that way as well. Surprises are the norm rather than the exception, and that’s why meticulous business plans can be futile. Instead they believe the determinant of success is the creativity with which they can adapt and capitalize on the unexpected. It would be an oversimplification to say that the best entrepreneurs don’t set goals. It’s just that the types of goals they tend to set are ‘directional’ (i.e., general and concerned mostly with where they are going) rather than ‘process-oriented’ (i.e., precise and focused on how to approach the problem). All new businesses experience failure in some ways even if they ultimately succeed. The best entrepreneurs are distinguished by how they interact with failure. They are more willing to do things differently and take risks. When it doesn’t work out, they learn from their failures and adapt their plans accordingly rather than stubbornly sticking to the initial plan.     Sources: ¹ Smith, Martin, J. “The Risk of an Unwavering Vision,” Stanford Business. 3/28/17. ² Pontikes, Elizabeth & Barnett, William P. “The Non-Consensus Entrepreneur,” Stanford Business. 3/1/17. ³ Buchanan, Leigh. “How Great Entrepreneurs Think,” Inc. 2/1/11.