Lies an Entrepreneur Told Meby Dr. Paul Kedrosky
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Most of what you read about entrepreneurship and innovation is a lie.
Not an outright lienothing 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
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.cornif 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 succeedand 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.
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 housein 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
companyyour 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 moneyimmense
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-Martyou 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
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