Inc. Magazine wrote a piece entitled “How Great Entrepreneurs Think” a few years back and it starts out asking “What distinguishes great entrepreneurs?” A question we believe we know something about, too.
From the Inc. article:
The piece highlights the work of Saras Sarasvathy, a professor at the University of Virginia’s Darden School of Business, set out to determine how expert entrepreneurs think, with the goal of transferring that knowledge to aspiring founders. Sarasvathy identified 245 U.S. entrepreneurs who met her criteria, and 45 of them agreed to participate. Revenue at the subjects’ companies—all run by the founders at that time—ranged from $200 million to $6.5 billion, in industries as diverse as toys and railroads. “I always live by the motto of ‘Ready, fire, aim.’ I think if you spend too much time doing ‘Ready, aim, aim, aim,’ you’re never going to see all the good things that would happen if you actually started doing it.”
On ready, fire, aim, I have to say interesting. There is a big difference between quantitative research and qualitative research however. We call it a market-driven baseline and it is more qualitative than quantitative. Any company can and should do such a baseline assessment. It focuses on in-depth customer engagement – from a sales perspective. We are not just sizing markets (quantitative); we are trying to develop those HOT (high odds target) customer profiles. By talking to them (qualitative).
This is where a lot of startups fail (and even larger companies with new product initiatives). You have to engage with the customer base. So I think there is a risk here of taking the implied “analysis paralysis” message above and over stating it. While I agree that you can’t let yourself get caught in ready, aim, aim, aim and ever get anywhere, Sarasvathy did not ask or was not able to ask questions that took her deeper than a surface answer.
What an early stage company does need to do is quickly figure out the customer profile that can give them the best results in the shortest period of time. Yes you have to think about it, so at some level it is theoretical, but the real results come from hands on engagement with paying customers, and finding out what the product or service really does for their business or life. These successful entrepreneurs did not succeed by shooting from the hip, they learned and adapted. A market-driven baseline approach helps you figure out that customer profile.
More from Sarasvathy
“I would like to get from them…by meeting with them or getting their input on what they think of the limitation of existing programs….just kind of sit and listen to them telling me…what new features they’d like. And I’d just listen to them talk, talk, talk and then be thinking and develop something between what they want and what’s possible technically.”
Sarasvathy says executives rely less on firsthand insights, because they can afford to place bets on multiple segments and product versions. “Entrepreneurs don’t have that luxury,” she says.
I have to agree here. Basically she is saying here that the value of deep interaction with early customers is key. These CEOs understand what the first real customers do for the business. At some stage though the CEO cannot be the only person that talks to these valued customer/partners. The CEO has many other things to deal with as the company starts to scale. What is important is that the initial sales team is capable of that level of engagement (not just closing the deal) and can feed the critical information back to the rest of the team. What is working for the customer what is not? Has this customer provided insight that gives you a better idea of what the next customer is going to look for or need? Just as the product may need to be honed, the ideal customer profile will evolve in these first few engagements.
Sweat competitors later
Entrepreneurs fret less about competitors, Sarasvathy explains, because they see themselves not in the thick of a market but on the fringe of one, or as creating a new market entirely. “They are like farmers, planting a seed and nurturing it,” she says. “What they care about is their own little patch of ground.”
Agree wholeheartedly with this one. It is not about market share until you become much larger. What stops most startups is execution, not competition. Most startups are not late entrants into a crowded space. They are innovators entering new spaces or new ways of doing business. They need to get to a significant size before established companies take notice, and those companies probably have too much inertia to react quickly anyway.
The faster the startup can secure customers and define their own market the more likely they are to end up being the dominant player in the (new) segment. The time to start looking at competition is later in the life cycle. That does not mean they don’t need to do their homework though. Knowing who else is out there that may be a threat is important, but execution at early stage pays way more dividends than deep competitive analysis and defensive strategy.
Don’t limit yourself
Corporate managers believe that to the extent they can predict the future, they can control it. Entrepreneurs believe that to the extent they can control the future, they don’t need to predict it. That may sound like monumental hubris, but Sarasvathy sees it differently, as an expression of entrepreneurs’ confidence in their ability to recognize, respond to, and reshape opportunities as they develop. Entrepreneurs thrive on contingency. The best ones improvise their way to an outcome that in retrospect feels ordained.
This is a tricky one. The entrepreneurial CEO is a great source of ideas, and needs to recognize opportunities that are possibly outside the original plan for the product. However where these CEOs stand out, is in balancing the possible with the execution.
In the example above, “It’s easy to see how within an hour you could name 10 products that would each address huge markets, like all employees in Fortune 500 companies, who are rich enough to pay $100 for it.” I cannot believe that the successful entrepreneur would advocate going after all 10 products at once. The startup CEO that succeeds will pick the product most likely to succeed and run with it, ignoring the other 9.
Yes, they stay adaptable, and are ready to change if they need to, but clear instruction and leadership is more important than a new idea every day. Too many companies fail because they thrash between the old direction and the new. There is a fine line that the successful startup needs to walk between myopia (not changing enough) and chaos (changing strategy too much).
Overall, I would say this article has some useful insights and data, but only scratched the surface. We want to keep following Sarasvathy’s work and wait for her to continue peeling back the onion layers, as the saying goes. There are some great second level questions behind some of these answers that these CEOs shared and we’re eager to hear the next phase results.
Read the entire Inc. article by Leigh Buchanan here.
Author: Steve Dearden, Strategic Partner