What makes a great entrepreneur? Is running a successful business a skill you’re born with, or is it one you can learn? Over the course of three columns, Your Business guest contributors Michael Wade and Mark Arnason will attempt to answer those questions. Part three is about embracing the unexpected:
What makes an entrepreneur tick?
We have argued that the image of the visionary entrepreneur who builds an empire from the seed of a brilliant and fully formed idea is mostly myth.
At the same time, the loose and flexible ideas of an entrepreneur should not be constrained by a business plan.
Given these insights, we believe entrepreneurs need to leverage customers and partners to solve the financing paradox, and to embrace both positive and negative surprises.
Let’s start with the financing paradox. Banks fund assets, not ideas, and venture capitalists fund sales and momentum. So how should entrepreneurs break through the catch-22 of needing funding to survive the early stages, and manage to get to the point where they can raise it externally?
Our experience suggests that when personal-network financing runs out, successful entrepreneurs turn to their customers for additional sources of knowledge and capital. In fact, revenue from early customers has played a significant role in the growth of more than 60 per cent of the high-profile companies we’ve looked at over the past 15 years. In the case of business-to-business companies, the number is closer to 100 per cent.
Toronto-based Guestlogix is a global leader in on-board retailing solutions for the airline industry, and it was No. 9 on last year’s Deloitte Fast 50. A pivotal moment in the company’s history came when it signed its first major customer, American Airlines. The partnership gave Guestlogix a monthly revenue stream, and allowed it to refine its product, which soon attracted the attention of other major U.S. carriers.
Another example is Janna Systems, the Toronto-based software company that was bought by Siebel in 1999, for more than $1.7 billion. Janna got started with a two-year consulting contract for its core team of founders, the proceeds of which were used to fund development of the initial version of its software. Longview Solutions grew in a similar way.
RIM’s launch of the original Blackberry two-way pager was built on the strength of an agreement with Bell South. After years of experimenting with product ideas around telecommunications device design and engineering around power consumption, RIM’s founders finally found the killer app with the Blackberry.
Yet it was the partnership with BellSouth that led to its success, since it validated the offering to other major customers, and gave the company a key source of revenue to fuel future growth.
If given the choice between building a new partnership or improving a product or service, successful entrepreneurs tend to choose the former.
But funds are only beneficial if they can be used to generate growth and sales, and for this to happen, an entrepreneur must leverage surprises. The research from IMD’s professor Stuart Read and his colleagues clearly shows that successful entrepreneurs are masters of managing the unexpected.
This is not what most of us have been taught in business schools. We are told to explicitly avoid surprises, to guard and insure against them, and to manage them out of our businesses. Entrepreneurs, by contrast, are masters at turning unexpected events into sources of advantage.
Guestlogix repositioned its meal-planning software to on-board retailing and shifted into high gear after the airline industry moved to ‘buy-on-board’ models in the wake of 9/11. Janna completely repositioned itself, in part due to an unexpected call from a senior executive at a financial services company, who raved about Janna’s personal contact manager and asked if the company had an enterprise solution.
In the early 1990s, a young entrepreneur added an extra option to his concert and current events phone service – something along the lines of “press ‘1’ for concert listings,” “press ‘2’ for restaurant reviews,” and “press ‘3’ if you want to meet someone.” The next morning, he discovered that more than 90 per cent of the previous evening’s callers had pressed ‘3,’ and so Lavalife was born.
Are successful entrepreneurs born or built?
By examining how they operate, our conclusion is clearly the latter.
Successful entrepreneurs tend to utilize a set of skills and practices that help them navigate the process of shaping and evolving good ideas into winning strategies. They start with the means at their disposal, actively seek and nurture partnerships, and take advantage of unexpected events.
We are not alone in this conclusion. Back in 1985, the great management thinker Peter Drucker famously said: “Most of what you hear about entrepreneurship is wrong. It’s not magic; it’s not mysterious; and it has nothing to do with genes. It’s a discipline and, like any other discipline, it can be learned.”
For most of us, this is good news. It means that with the right knowledge, skills and passion, any of us can became successful entrepreneurs.
Special to The Globe and Mail
Michael Wade is professor of innovation and strategic information management at IMD in Switzerland. Prior to that he was academic director of the Kellogg-Schulich Executive MBA Program at York University in Toronto.
Mark Arnason is senior vice president of product development and strategy at Longview Solutions and he has taught entrepreneurship for the past 15 years as an adjunct professor at the University of Waterloo.