"We're raising sheep in our educational system, not independent thinkers and doers."
- Paul Orfalea, Founder, Kinkos
Have you ever wondered why so many successful entrepreneurs didn't get the best grades in school? Even in the technology industry, where education is paramount, many of the best known entrepreneurs were college drop-outs (i.e. Bill Gates, Steve Jobs, Larry Ellison and Michael Dell). Maybe there's some truth to the saying - the A students work for the B students, the C students run the companies, and the D students (or dropouts) dedicate the buildings.
I don't want to diss the best students because we need them. They become our engineers, doctors or lawyers (OK, maybe we don't need any more of that last category). Overall, the conventionally successful will do quite well. Last year, I heard Eric Schmidt talk about "the premium for competence" as he described how Google was able to access top talent they could not attract when they were small. He explained that some people are so competent that they don't have to settle. They can wait to see the data (look for the sure thing) rather join a risky start-up. Good for them.
On the business track, the most popular (and highest paying) jobs graduates of top MBA programs pursue are in management consulting (McKinsey, Bain, and BCG are the most prestigious), investment banking (Goldman Sachs and Morgan Stanley are tops), private equity (just about any firm), and, these days, the most coveted jobs are at giant hedge funds (how depressing).
In school, there are discrete tests with answers that determine the grades. The real world is more complicated. Fundamental tenants such as "be honest" or "work hard" are too simple (and overlooked) to be useful. Good advice can even sound contradictory like "get the facts, do the analysis" versus "trust your gut." The real world is full of apparent paradoxes. There are no black and white answers, just shades of grey, and even being right may not be good enough.
In the business world, the cold reality is that being good - or even great - may not be good enough. The key to winning is differentiation. Great entrepreneurs have an edge - but it doesn't come from higher IQs or greater imagination. The best entrepreneurs might even be considered simple minded (see the post on Foxes and Hedgehogs.) However, they do possess special qualities. They think and act differently. They don't go along with the crowd. Peer pressure is not their thing. Not only are they willing to be different, they ARE different.
Nature versus nurture?
In some cases, there could be biological differences. For example, dyslexia, a neurological condition which causes difficulty reading and writing, is a learning disability which afflicted entrepreneurs such as Paul Orfalea (Kinkos), Richard Branson (Virgin), Ingvar Kamprad (IKEA), Craig McCaw (McCaw Cellular) and Charles Schwab. Perhaps, as a side-effect of their condition, they were forced to work harder, see things differently, and do things in unorthodox ways.
Whatever the cause, most of the time, there is no scientific proof of biological differences - but let me try to characterize these very special people who turn out to be extraordinary entrepreneurs.
This great country was founded by people who possess characteristics inherent in great entrepreneurs. Such people are rebels at heart. They are willing to fight for what they believe in. They have the courage to stand up and say that the emperor has no clothes. They never use the excuse "everybody else is doing it." Throw out convention! They can be brash and stubborn. They don't pine to be popular. One might say that they just don't give a damn what others think.
They are skeptics at heart. They won't take your word for it - they always ask probing questions. They are incessantly curious. They look beyond the surface. They dig deeper. They don't fear the truth or the unknown. They don't fear change, they crave it. They strive forward, relentlessly, toward an expansive future, not with uncertainty and doubt but with faith and optimism. In fact, one of their most special qualities is that rare combination of forward looking idealism with a skeptic's realism.
However, contrary to what you might think, they are not driven by the desire to stand out or the courage to be different. They're driven by the courage to be true to themselves - it takes self-awareness and integrity. They are 100% genuine - the real thing - authentic, original, and refreshingly unique.
The willingness to go down an unconventional path requires CONVICTION. As investors, something we have in common with entrepreneurs is this - to win BIG you must have conviction (great fortunes are made through concentrated portfolios, while a diversified portfolio makes it easier to keep). Of course, in the investing world, it takes judgment to decide when a deal makes real sense. (Confused people tend to rely on stock charts or "comps" rather than fundamentals and valuations).
My wife likes to say that I have "an incredibly high tolerance for risk" (she prefers a much bigger safety net). But what I consider to be extremely conservative might appear risky to people who don't see what I see. That's exactly how entrepreneurs feel! They don't feel that they're taking incredible risk. When Bill Gates dropped out of college, he did not see himself as taking tremendous risk (although his "parents were very concerned"). If entrepreneurs don't believe in what they're doing, they shouldn't be doing it in the first place.
It's fascinating to observe people who possess that rare combination of conviction and open-mindedness. Conviction keeps them charging ahead while their questioning nature allows them to constantly learn and adapt. Balancing these paradoxical qualities is one of the keys to entrepreneurial success.
Qualities such as intelligence or the ability to "think out of the box" are over-rated. You don't need to be smarter or more creative, but you must have your own point of view. This is NOT the same as being contrarian, which can be just as mindless as being conventional (just the mindless opposite).
The crowd is not always wrong. In fact, under the right circumstances, the crowd can be more wise than even the smartest individuals. According to "The Wisdom of Crowds," three conditions must be met for crowds to be smart - 1) diversity of opinions, 2) independent thinkers, and 3) decentralization. Ironically, Surowiecki's book contains many examples of the stupidity of crowds (when such conditions are not met). More examples can be found in "Extraordinary Popular Delusions and Madness of Crowds."
Sand Hill Road is full of people who got the best grades from the best schools (VC and private equity shops are full of Harvard and Stanford MBAs). It's a small, tight knit community (the "old boys club" as some might say). They graze the same grounds and talk about the same stuff - big markets, passionate entrepreneurs, connections, relationships, proprietary deal flow, experience, adding value, home-runs, and being part of the "top quartile" (the last point is important because average VC returns have been less than impressive).
The VC industry is full of rules of thumbs and conventional wisdom. The industry moves in herds. Variations of the theme epitomized by the classic (outdated) phrase "you don't get fired for buying IBM" seem to be the mottos most people live by. These days, the most popular deals involve social networking, user generated content, wireless, China and India. Look, I'd never short a tidal wave (like China or the Internet) but the herd mentality (and the lack of originality and depth) is real.
As Yogi Berra says, it feels like deja vu all over again. The conferences and cocktail parties are buzzing from Shanghai to Silicon Valley (see comments from last month's post). Just don't expect to meet the best entrepreneurs at such events. They are too busy to attend. The real entrepreneurs are out there doing their own thing.
At first, what great entrepreneurs do might appear uninteresting, mundane, strange, unimportant or too early (or too late). In the beginning, companies like Southwest Airlines, eBay and Craigslist seemed strange. HP, Wal-Mart and Intuit probably seemed unimportant. RIMM, Qualcomm, and Pixar looked too early. Cisco, Dell and Google were thought to be too late.
In Silicon Valley, the heroes are the technologists ("the suits" are thought of as necessary evils). Unfortunately, in the real world, entrepreneurs must have a nose for business. The great ones always figure out how to make money (even as teenagers, they often have track records - from running newspaper routes, writing code, buying stocks or selling stuff).
Entrepreneurs like Sam Walton, Bill Hewlett, David Packard, and Herb Kelleher didn't care about what investors wanted (or about changing the world or their industries). In the case of Kelleher, a middle-aged lawyer who sketched out his plan on a cocktail napkin, Southwest Airlines operated in the fringes, in small, under-served markets. No one took them seriously for years. They just kept plugging along, posting 34 consecutive years of profitability in a volatile, cyclical industry marred by enormous losses and bankruptcies. (Southwest also outperformed ALL public companies in stock market performance over the 30 year period starting in 1972).
One of the paradoxical qualities of great entrepreneurs is that they are actually conservative at heart. They say "show me the money" - in some ways, they might have more in common with those frugal, skeptical farmers from Missouri than most entrepreneurs and VCs running around Sand Hill Road. Our Venture Lotto article contained this characterization of entrepreneurs:
"The best ones we know are much more risk-averse than conventional wisdom might suggest. They don't take foolish chances. They spend money as if it were their own. They observe, listen and adapt; but fundamentally, they strive to control their own destinies, which is best done by generating profits. They do need a little capital, but they want help and advice even more. Being an entrepreneur is, at times, a very lonely endeavor."
However, this talk about profits should not take away from the most special quality of great entrepreneurs - they inspire others. Don't think of them as shrewd opportunists who read the fine print on every contract, looking to take advantage of every deal. Such people might do well (for themselves), but they won't build wonderful and enduring companies. Great entrepreneurs bring others along. They grow the pie, rather fight for a bigger piece (or the crumbs).
To go back to the example of the founding of this country, problems (like taxation without representation) may stir the pot (like inciting riots or unrest) but revolutions are ultimately inspired by values and ideals (like life, liberty and the pursuit of happiness). In the business world, a problem may lead to an invention or a new company...but exceptional companies are built on a foundation of core values and dreams of entrepreneurs.
If you want to be an entrepreneur, just remember this - follow a different path - your own path. The most successful entrepreneurs win with or without VC funding - they go out and just do it. Forget about the cocktail parties, the hot sectors, hot deals, or what's popular with investors or anyone else - think for yourself. If you do, you just might come up with something that you will pursue with all your heart and soul. Conviction, rather than convention, is the key.