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Inside the mind of the entrepreneur
Wouldn’t it be nice to know what makes entrepreneurs tick?
What goes on in their minds?
How do they become successful by the actions they take?
Do they have a method of launching their new ventures?
We know entrepreneurs have a different mindset from the average person. They have different cognitive abilities which leads to different outcomes. Entrepreneurs tend to be calculated risk takers. They don’t just take risks but they look at how they can minimise said risks.
Entrepreneurs also are very creative and innovative. Entrepreneurs also know how to deal with uncertainty, a certainty when it comes to starting a new business. Many of us are terrified about ambiguity but entrepreneurs have a way to deal with fuzziness.
Entrepreneurs are also tenacious. They find new ways around seemly unsolvable problems. They invest their cognitive resources to figure things out. They are also very resourceful and can turn nothing into something. This seems illogical but have you ever seen an entrepreneur buy an abandoned property and turn it into a vibrant business; entrepreneurs who turn waste into valuable compost.
Power of theories
To understand how to explain the puzzle above, we need to have a theory.
Like the hard sciences, the management discipline uses theories to explain phenomena.
In physics, scientists use the atomic theory to harness the power of the atom.
In astrophysics, we have the big bang theory which explains the origin of the universe.
The universe starts as a small dot and explodes, giving rise to galaxies and hopefully planets.
Theories have their limits and they cannot explain all things. The big bang theory cannot explain what happens before the big bang nor God.
We love theories as we need to have explanations of the world around us. Our brains prefer explanations rather than puzzles. But puzzles and problems are food for entrepreneurs. Problems mean possibilities, possibilities mean ideas and ideas can mean innovative products, new processes or business models.
Of course, not all theories are popular, the theory of human evolution (natural selection) is not widely accepted. Despite the fossil evidence and recently the genetic proof, many still “believe” otherwise. There is no other valid explanation of why primates have close to 95 per cent of our genes.
In the field of entrepreneurship, we have theories too.
Professor Saras Sarasvathy, a cognitive neuroscientist, and others came up with the theory of effectuation. This provides a fascinating explanation of how entrepreneurs do what they do. How entrepreneurs use existing resources and are not trying to predict the world but instead trying to control it.
Why try to predict something that is unknowable? Why try to predict the unpredictable? Entrepreneurs try to create a future or at least shape it.
This, in some instance, gives rise to new industries.
Sarasvathy studied 27 people she called expert entrepreneurs; those who started ventures from US$200million to US$6.5billion.
The research showed that entrepreneurs use five principles to start their businesses: bird-in-hand, affordable loss, lemonade, crazy quilt and pilot on the plane.
Entrepreneurs ask: what do I know and who do I know?
Why do the opposite and dream about what you could have (resources) to achieve your goal?
The average person believes in more resources to solve a problem which frequently leads to inaction.
Entrepreneurs always turn to trusted others to develop their ideas. After all, knowledge resources can come free from friends and close associates. So, start with what you have and then proceed.
Affordable loss principle
Entrepreneurs know they are trying something new and ask what is the upside but accept that the chances of failure are there.
So, instead of betting on their homes, they will take small actions and get feedback. If they have an idea to sell a healthy version of our beloved doubles, the entrepreneur would probably start selling outside their home or operate under the radar, where it is cheap. As a result, they often belong to the shadow economy and so we seldom see these heroic efforts at the early stage. So, at this stage, fail cheap, but fail quickly.
This principle means that when things go wrong, learn from them, failures are part of the process.
When entrepreneurs test their ideas, they are conducting a business experiment and the world is their laboratory.
Unfortunately, there are many uncontrollable variables in the real world and it could become difficult to assess what is contributing to the unexpected. While a scientist will be unhappy with the outcome, an entrepreneur will ask: is there a use for this failure (unexpected)?
When a 3M scientist accidentally invented the glue that will not stick, he was able to connect the dots and found a hit product when he saw his fellow churchgoers putting paper notes inside their bibles. This was the birth of 3M’s Post It Notes.
The creation of Viagra was done by accident. The ingredient, sildenafil, did not achieve increasing blood flow to the heart (angina), which caused chest pains. Viagra is now a top seller for erectile dysfunction.
Crazy quilt principle
Entrepreneurs network with selected stakeholders to gain support for their new ideas. Not everyone will fall for it, but getting early support for their prototype will help build out their proposed venture. Entrepreneurs at this stage know that buyers are at different stages of the adoption cycle, so don’t focus on the laggards.
Pilot on the plane principle
Having tested their prototype, entrepreneurs may now look for what markets exist or could exist with their creation. The entrepreneur is at the controls, as Columbus was. However, while Columbus was expecting to get to India, he and the Spanish royals found value in the New World territories. This is frequently the case of expecting A and getting to B. When you get B, is there something you can do with it?
Market research failure
Entrepreneurs do not like traditional market research. It does not work for them. Trying to find out what customers want for something new is very difficult to do. Can you research a world that does not exist?
The scientific method here offers little help. There are no data to collect if people would want this new form of innovation. The only way is to use the effectual method—since management is viewed as only science—could kill the idea.
The rise of the MBA as the gold standard in business education only makes trying new things more difficult. They want analysis with hard data and this will not exist. Notice successful entrepreneurs are frequently not MBA graduates.
Sajjad Hamid is an SME and family business adviser.