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Lies an Entrepreneur Told Me

by  Dr. Paul Kedrosky

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Afterword

The romantic view of the wealthy entrpreneur has been a popular imagine in the 20th century. However, Dr. Paul Hedroksky would argue that being your own salesman is not as easy as it may first appear. This photo of a sink attachment salesman was taken in Lethbridge in 1955.Most of what you read about entrepreneurship and innovation is a lie. Not an outright lie—nothing Enron-ian in its evil, or Blodget-esque in its mealy-mouthed duplicitousness— but a lie, nevertheless.

The trouble with the lie is that would-be entrepreneurs don't know what they're getting into, as you've seen in the profiles in this book. Before letting you in on the lie, however, let me explain my view of entrepreneurship and innovation. Because as a business professor, entrepreneur, sometime venture capitalist, and regular speaker on these subjects, I have many people tell me that they want to be entrepreneurs. I tell them that they don't want to be entrepreneurs. They say they do. I say they don't. And so it goes.

Why don't they? Well, for starters, entrepreneurs' hours are appalling. Think retail hours are bad? These schedules bring a whole new dimension of bad to the word "badness." Because entrepreneurs' hours are worse than retail. Way worse.

Consider: If you think there is any glamour in the CEO title, see how you feel after spending four days commuting up and down the U.S. seaboard (if this is Tuesday, this must be Jersey City) hawking your software to largely uninterested corporate buyers. And then heading to Las Vegas, Atlanta, or New York, doing the tradeshow junket, flogging QVC-style from dawn to late-night, telling bored attendees and punk analysts that your products are 20 per cent better for 20 per cent less money than the Other Product That They Know Better.

Indeed, you will learn such magnificent about-faces as the one you do when you find out that a much larger competitor has introduced a more or less identical product ("it validates our market"), but that is nowhere near enough to compensate for the time yanked out of your short life and left in airport check-in queues, taxis, and hotel rooms. Just try to live a normal life around this schedule: four flights a week, regular friskings, early morning marketing meetings, all-day technology strategy sessions, late-night customer dinners, and so little exercise as to be hardly worth the word.

So here is Lie #1:

Being an entrepreneur is fun. It's not. It is hard work. Some people make it look easy and fun, but some people make being a fugu chef look easy and fun. And as anyone who has eaten poorly prepared fugu would tell you if they could, fun doesn't enter into it.

Most entrepreneurs fail. Statistics don't lie on this one, so trust me: Assuming you are thinking of creating a company, or maybe you already have a small one, your company will almost certainly fail. Present company in this book excluded, most entrepreneurs' businesses will assuredly go the way of Pets.corn—if they're lucky. Why lucky? Because at least Pets.com had a chance: It raised money and got to rip around the block a few times funded by complete strangers' money. And there are few pastimes more fun than spending someone else's money with abandon.

But I digress. Because the danger with a book like this is that there is a sampling problem. You are talking to people who succeeded. Or at least to people who learned something useful. They make for great stories. Heartwarming and life-affirming stories. But the truth is, most entrepreneurs don't succeed—and most don't learn a darn thing from their flop. I still see business plans from entrepreneurs who haven't learned to do a search-and-replace on the phrase "business-to-consumer e-commerce."

Finance academics have heart attacks about this sort of thing; they call it a survivorship bias. That is a fancy way of saying that when you study only successes your results will be exceedingly biased. An analogy: Imagine Janus creates 20 mutual funds, eighteen of which do somewhere between lousy and middling, so Janus cans them; but two funds are standouts. Can we then reasonably use their performance as predictors of mutual funds in general? Of course not. But that's what we're doing when we just study successes.

So here is Lie #2: Entrepreneurs succeed. Most don't. 'Nuff said.

No matter how good a product is, an entrepreneur will always have to consider the threats that come with competition. 'Stop worrying, gentlemen ... I still say ours is the better and simpler method ...' Published in the Vancouver Sun, 1958.By the way, know what you should do if you want to impress a venture capitalist? Do what most entrepreneurs you read about here and elsewhere do: quit your day job, max out your credit card, and take a second mortgage on the house—in other words, do what you have to do to get your company going. Ready, fire, aim. That sort of thing. It is one of the founding notions of entrepreneurship, that the most successful entrepreneurs are risk-loving sorts, the kinds of people who take flyers, embrace chaos, and generally prefer living on the edge to living in the dull security of a normal job.

But that's wrong. As most anyone who's candid will tell you (and that set only intermittently intersects with that of venture capitalists) there are few dumber things than getting yourself deep into debt for a company—your own, or anyone else's. Why? Because debt messes you up. This happened recently to Bernie Ebbers (former CEO of near-defunct telco Worldcom) when he debt-financed purchases of oodles of company stock. A lot of debt will cross your eyes, make your stomach buzz, and generally cause you to spend way too much time worrying about what you can do to get the debt monkey off your back. And as Bernie will tell you, what is good for you and what is good for your company are not always the same thing when debt is involved.

What's more, outright quitting your job to make a Business 2.0-style splash isn't a very smart idea. Despite the garage-band stories, most entrepreneurs muddled their way into what they were doing while hanging into their normal jobs. Steve Jobs worked at Atari and HP while incubating Apple. Jim Clark taught undergraduates at Stanford while messing with the graphics technology that would become Silicon Graphics. The idea of quitting your day job to make your company work is a fatuous presumption foisted on naive twenty-somethings by journalists, and by venture capitalist fat-cats soaking in 2.5 per cent management fees from billion-dollar funds. Easy for them to say.

More extreme sorts, real fans of this risk-taking mentality, take an even stronger view. They see a willingness to lose your income and Go For It as a sign that you're really out there, that you're a mean mother risk-taker. It reminds me of one of my favorite Kafka short stories, "The Hunger Artist." In it a fellow tries to make a living starving to death in a zoo. For a while the crowds are huge, but eventually the novelty wears off and people discover the nifty black leopard next door. So much for the hunger artist's sacrifices. Entrepreneurial sacrifices are of the same order: They are interesting at first, and good story-fodder in retrospect, but that's about it.

So here is Lie #3: You should, quit your day job and start your company now. A word of advice: Don't.

The next lie about entrepreneurship is that you need a lot of money. In particular, so this lie goes, you need a particular kind of money—immense amounts of venture capital (IAVC). The proof: an unholy number of business stories over the last decade started with the hook that Company X had received IAVC. The implicit assumption? That receiving IAVC was a little like being anointed by holy water, or economically equivalent to a purchase order from Wal-Mart—you had arrived.

But the truth is, as so many companies found out to their chagrin in the late 1990s, IAVC is not required. Matter of fact, IAVC is arguably a Bad Thing. It skews perceptions, confuses financial milestones with corporate ones, and generally makes life irritatingly complicated for companies just when they'd rather, all else being equal, be simplifying things, thanks very much. IAVC is a point mass, and like point masses in Einsteinian physics, it distorts space and time, making it difficult to remember just what was so important about getting things done so quickly, and about doing it out of a garage. Why bother, if you have IAVC?

And there is a deeper lie. Not only is IAVC a distorting force, plain old venture capital itself isn't necessary to run a successful business. Many businesses can be funded from cash flow, or from bank debt; venture capital (and the corresponding oversight) can be more irritant than assistant.

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