I came across a series of headscratchers this last week, the kinds of things that you hear, or stories that you read (and then re-read), thinking maybe they’re intended as humor, or that you’ve missed the point.
Failed Entrepreneurs Don’t Learn
First, a new HBS working paper by Sarah Jane Gilbert says that entrepreneurs with a history of success are more likely to succeed in new ventures than those in their first venture, or those who have failed. That all seems perfectly logical. In fact, first-time entrepreneurs have a 22% chance of succeeding (defined in this case as going-public, but private sales work the same way) while experienced entrepreneurs have a 34% chance of succeeding.
Neither odds are particularly high, reminding us just how hard it is to start a successful venture. But, here’s the weird part: Entrepreneurs who have previously failed at a venture have only a 23% of success their second time (up from 22% the first time). As Professor Paul Gompers, one of the study’s authors, says, “for the average entrepreneur who failed, no learning happened.”
Does that make any sense? Do failed entrepreneurs learn nothing? Isn’t the old adage that success comes from experience, and experience comes from failure?
Then I got to thinking—and whenever I have to stretch for an explanation I worry—that perhaps some element of the success of an entrepreneur is determined by an advantage that he or she is born with, some trait imprinted on their DNA that’s not susceptible to experience or learning.
One such trait might be risk.
In the same way some of us like to be outdoors, or like grapenut custard pudding—for no apparent reason other than these things appeal to us—we are also likely born with a “risk quotient” that can’t be changed much by experience. And, it’s possible that successful entrepreneurs, who need to assess risk almost endlessly in a start-up, tend to have the “right stuff”—in other words, not too risk-averse, which misses opportunities, and not too great an appetite for risk, which leads to crash-and-burn. Instead, just the right amount.
Of course, entrepreneurs with a “flawed” sense of risk could carve out wonderful careers in mountain climbing, or, conversely, Sarbanes Oxley.
The same would be true of persistence. Entrepreneurs have to be tenacious, and good entrepreneurs generally wrestle through a very dark time (or two) and substantial set-backs on the road to success. If an entrepreneur is programmed genetically to be less persistent, they might quit early; too persistent, they might run a bad idea into the ground. Perhaps there is also the “right stuff” for persistence, and it’s something that doesn’t improve with experience.
Finally, I wonder if “network” comes into play? Entrepreneurs with good networks—being able to make a call for advice, or to open a door with a marquee potential customer—are successful 22% of the time in their first venture. But, their success inevitably builds their network, sometimes dramatically, so that they have an even stronger support system the second time round. Meanwhile, failure can dampen a network—even drive some of it away, in the case of lost capital—making the second round that much tougher.
I still think this data might eventually be refined, but for now, it appears that entrepreneurs who miss once are just as likely to miss again.
Losing Money on Cash
My second headscratcher came from Sunday’s Parade magazine, which wrote that it cost the U.S. Mint 1.5 cents to make a penny and almost 9 cents to make a nickel. Pennies accounted for a loss of $40 million in 2007. Making pennies out of steel could save $100 million annually. All it requires is an act of Congress.
It Snowed in Chicago in April?
Likewise, Major League Baseball computers scheduled early April opening days in Boston, where a cold rain (surprisingly!) fell, and Chicago, where snow (amazingly!) fell. I am sure this counterproductive, risky scheduling has to do with money, but I suspect any profit is being measured in nickels and pennies.
Anti-Social Entrepreneurs
An article in the Wall Street Journal about MySpace caught my eye. As you know, MySpace and Facebook together have led the revolution in social networking—the new way our children are building so-called community. (“Social” and “community” being, one would hope, the operative words here.)
One of the founders of MySpace is, per the WSJ, a “self-described antisocial person” who has “adopted various online personas using pseudonyms” and who, when he had a disagreement with a coworker, chose not go into the office for a year (until she left). With MySpace, “he created a place where he pretended (and still pretends to this day) to be five years younger than he is.”
In Sarah Lacey’s Once You’re Lucky, Twice You’re Good, we read about a living icon of the Web 2.0 social networking movement (under the chapter “The Return of the King”) who hates to be at conferences, hates to leave his house, hasn’t talked to his family in years and says, “I really don’t like people.”
And, we also find from Lacey that the leader of the most prominent social networking site in the world is “friends with someone only if he thinks that person is smarter than he is in some way. Otherwise he feels friendship is a waste of time.” This is the guy, Lacey writes, whose “visceral gut instinct” is building the online social community for your children.
Does this not strike you as odd, like Henry Ford preferring the bicycle or Ray Kroc hating hamburgers?
I asked a high-schooler the other day the difference between Facebook and MySpace. He said, and I quote, “MySpace is where you go to get laid.”
Nice response. Nice community.
Still, not an entirely surprising kind of community if you realize its creators appear to be socially-challenged 20-something males.
First Mover Disadvantage
My fifth headscratcher occurred at a conference where the speaker challenged the concept of “first mover advantage,” an idea that was so hot (and so costly) during the Internet bubble. Most of us who lived through the bubble worried about this new “business rule” even then.
But then my conference speaker added, “I can only think of one case where first mover advantage was true. Can you think of another?” I’ve tried; I can’t even think of his first case. It’s a headscratcher, for sure.
Few Great Companies
Finally, and we had a taste of this in The Halo Effect, it seems that many great companies (which drive the business press, like Good to Great) might just be figments of our imagination. HBR reports that Professor Rebecca Henderson at MIT’s Sloan School begins her strategic management course by asking all of the students in the room to stand up. They each toss a coin and sit down if tails come up. With 70 students in the class, it takes about 6 or 7 tosses before one student is left standing.
“With the appropriate theatrics,” Henderson says, “’I approach the student and say, How did you do it? Seven heads in a row! Can I interview you in Fortune?’”
The point is, if we don’t separate talent from systemic variation, all we see is “self-evident” talent. In other words, if a company is successful, it must be good. (This is the problem I have in a lot of interviews with prospective managers: When they are unsuccessful, it’s the market, being “ahead of their time,” or investors who “don’t get it.” But, when they are successful, they are talented.)
Researchers Michael E. Raynor, Mumtaz Ahmed, and Andrew D. Henderson ran simulations that evaluated 287 allegedly high-performing companies in 13 major success studies. Of that total, only about 1 in 4 was truly remarkable; the rest differed from mediocre companies only in their luck.
So, the authors concluded, studying good companies can still be valuable, like reading the Tortoise and the Hare is a valuable fable. You’d still never bet on the tortoise, but you’d certainly have a new appreciation for persistence.
Unless, of course, you were a failed entrepreneur trying to start a second venture, in which case, the lesson about persistence may go right over your head.
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