Tuesday, July 2, 2013

Is America’s Aversion to Risk Threatening Entrepreneurship?

America is a nation that was born by people willing to take extraordinary risks.  The settlers who came here put their lives on the line and many paid the ultimate price.  Those who headed west did the same, creating the cowboy image of tough, independent, hard working people who lived a life of risk. While most took the precautions that they could reasonably take, they nonetheless threw caution to the wind against the daunting odds of achieving their goal. They took these huge risks seeking a better life, a better world.  It is those same spirits that caused the earliest American entrepreneurs to quit their job and go out on their own. To hang a shingle selling their own goods or services because they thought they could do it better and bring themselves a better life even though it exposed them to personal financial risk.  While American entrepreneurship is still the envy of much of the world, our nation’s growing intolerance for risk as evidenced in how we address safety in sports, in the emotional coddling of our children and in the need to protect people from their own decisions may put the very foundation of our entrepreneurship at risk. 

With respect to sports, all sports have inherent risks of injury – some more than others. While it certainly makes sense to seek better forms of protection and prevention to reduce the potential for injury, there has been a growing willingness to change the very essence of games simply to reduce the risk of injury. The NFL has grown so concerned over lawsuits from former players who made their own choice to be paid to play the game that major changes to rules have been made with the objective of reducing the potential for injury and with a growing willingness to do so even though some of these rule changes have fundamentally changed the game.
Even our President chimed in with his risk averse mindset publicly stating that if he had a son he might not allow him to play football.  I wonder if this means he would also prevent his child from the risk of being an astronaut, scuba diver or a rodeo star?  Risk averse leadership like this encourages the public to follow suit or at least to find in favor of a suit like when football helmet maker, Riddell, was ordered to pay damages, not because their product was defective, but simply because they didn’t warn users of their helmet about the dangers of concussions that the very helmets were purchased to protect.  I suspect next will be seat belt manufacturers getting sued because they didn’t inform you that driving a car could be dangerous and PC manufacturers because they didn’t warn you that typing can cause carpal tunnel syndrome.  Can you imagine what is going to happen to boxing soon? I’m envisioning 3-pound gloves and rules prohibiting hitting your opponent more than twice in a row!
There is a fundamental difference between improving preventative measures and changing the nature of a game. The former is why NASA had lots of tests and backup plans when they went to the moon. The latter would be equivalent to changing the goal of landing a man on the moon to that of landing a monkey there. 
Let’s move on to emotions. Yes, personal feelings. The world can be a tough place. The events, efforts and activities of life have the potential to lead to personal disappointment. In addition, people can be cruel and hurt another person’s feelings on purpose. It used to be that we endeavored to teach our children how to deal with disappointment and with bullies while also teaching them not to be emotionally cruel to others. Now we see youth sports leagues where they don’t keep score because we want to shield children from the disappointment of losing. We have schools eliminating academic honors so as to not hurt the feelings of those who did not achieve them. We see schools that have banned the simple act of declaring someone as your “best friend” because other kids that don’t have one might be hurt.  Other schools have banned the ability for students to invite children to their birthday party because those that don’t get invited might feel bad. If we protect our children against such every day emotional challenges, how can we even hope for them to grow up into entrepreneurs who will need to endure extraordinary emotional challenges in the course of trying to build a business?

Last, we have the risks created by individual decisions. The very essence of entrepreneurship and business itself is that of making decisions that result in significant risk. Yet, we have our nation’s largest city banning large soft drink cups to protect people from what Big Brother views as their own bad decisions.  San Francisco banned the inclusion of toys in the famous McDonald’s happy meal because apparently parents aren’t capable of deciding whether or not to feed their kids the meal when they beg for it because of the toy. While you may feel that organic raw milk is natural, California will confiscate it from your home. And the long-time entrepreneurial tradition of kids setting up a lemonade stand is under attack in many states. If we allow our children to grow up in a “nanny-state” then we are teaching them to look to the government for decision-making around risky behavior rather than learning how to weigh information and take informed risks like good entrepreneurs do. 
Life is filled with risks. People will always make some bad decisions.  If our nation is going to strive to protect people against the risks associated with their own decisions, protect them against having hurt feelings and tell them they shouldn’t play a sport because they might get hurt, we may soon be looking at a nation of followers rather than leaders and risk takers. And that will mean a decline in the number of entrepreneurs that have created much of the economic growth that our nation has enjoyed. In fact, it appears it may already be happening. In the last 30 years, the percentage of all U.S. businesses that were startups has declined fairly steadily and overall has dropped by about 35%.  
At Access Venture Partners our logo is a cowboy riding a bucking bronco. Riding a bronco is not for everyone. But the cowboy knew the risks and the rewards before he got on the horse and he chose to take the risk anyway -- just like the initial settlers and those that headed west. Just like entrepreneurs who risk their financial livelihoods.  As a society, we should continue to celebrate risk takers rather than worrying about protecting them from their own choices.      

Thursday, May 23, 2013

Improve Your Entrepreneurship: Find Your Inner Child

            Anyone who has been a parent knows that if we pay attention, we can learn a lot from our children. After years of being both a father and an entrepreneur, it dawned on me that most kids are born entrepreneurial by nature. Young children exhibit many of the characteristics that are the essence of great entrepreneurs. So, good news: If you act a little bit more like a child, you might just become a better entrepreneur!

Think Without Boundaries
            When my son, Kelly, was about seven, I was having a conversation with a neighbor while he was standing nearby listening. In the course of the discussion, I used the old metaphor about how one
can’t tell if a glass filled half way is half full or half empty. My son interrupted and said, “Dad, I can tell if it’s half full or half empty.” My neighbor and I looked at him and then I asked him to explain how. He said, “Well, Dad, if you were filling the glass then it is half full and if you were emptying it then it is half empty.” We were stunned in silence and awe at his elegant solution to this adult paradox.  The clarity that comes from thinking without boundaries—without the limitations that others have taught you are reality, just like a young child—is powerful. Some of the best entrepreneurial ideas and innovations come from disregarding what is generally accepted as the way things have to work, and looking at problems through clear eyes.

Fail Fast, Try Again Faster and Don’t Be Embarrassed
            Oftentimes, entrepreneurship is all about trying things for the first time. One of the reasons that it is harder for adults to learn new things is that we feel embarrassed when we fail. So we plot carefully before we attempt something new. A child learning to speak is unfettered by their grammatical errors
and vocabulary limitations. They don’t hold back and they fail often and quickly. But they also try again almost without hesitation. An adult learning a language holds back on what they will say and tries to avoid embarrassment. When they make a mistake, they often act with even more caution. All of these factors limit the pace at which adults learn. Great entrepreneurs aren’t afraid of, nor embarrassed by, failure. They focus on understanding what they learned from each failure, and they figure out how to improve the next time around. 

Ask “Why” Frequently
            My youngest son, Kyle, used to drive me nuts. His response to so many every day statements or thoughts was, “Why?” Not because he was trying to be obnoxious, but
because he really didn’t understand. I remember once when I joked with my dad that you “can’t teach old dogs new tricks” in reference to him learning something on the computer, my son asked his usual, “Why?” And, to tell you the truth, I really didn’t have an answer for why you can’t teach old dogs new tricks. So, I told him it was just an expression, because it must be harder to train an old dog than a young dog. And he responded, “But we aren’t dogs, are we?” And lo and behold, we are not. Asking, “Why?” and challenging what is generally accepted as the norm or an obvious solution is a key way that entrepreneurs disrupt industries. They do things that the smart people with a long history in an industry have been trained to presume can’t be done. 

About the only thing as tough as being an entrepreneur is being a parent. For those entrepreneurs that have their own children, pay close attention and you might just re-learn something that can help you be more successful. For those who don’t have kids, now you have one more reason to borrow your nieces and nephews or friends’ kids. Plus, you might win some brownie points for taking the kids off their parents’ hands for a while, which is a real entrepreneurial win-win!  

Tuesday, March 5, 2013

Becoming CEO of a Venture Backed Company: Are You Ready for Combat?

            Years ago when I was much younger and contemplating starting my own dot com company, I sat down with a successful and experienced entrepreneur who had built more than one business from scratch. This particular entrepreneur was also a former Marine, so he had earned his grey hairs and steely look in more than one way. I shared my ideas with him and he gave me constructive feedback and asked thought provoking questions. Then, when we were wrapping up, he paused, looked into my eyes and said, “David, if you’re going to try to do this, I can’t predict what the outcome will be. But I can tell you something for certain. Being the CEO of a venture-backed company will be exciting like combat. The highs will be really f**ing high. The lows will be depressingly low… and you’ll be scared much of the time.”
            It all seems so easy on the surface: You find a cool technology, raise money, hire great people, market and sell your product and—Voila!—you instantly have a fast-growing company that gets bought for big bucks or goes public. Being CEO of a company that is going to raise capital and attempt to grow at extraordinary rates seems so sleek and sexy, like becoming a Jedi Knight. Yet the process of achieving that success is tough, gut-wrenching, extraordinarily hard work.  It is war and wars are not won by individuals but by teams with great leaders.  And great leaders don’t do it only for the glory or the rewards they do it because of the challenge of proving to themselves and to the world that they can do it. 
            The reality is that most venture capital backed companies never see great success.  Many successful CEOs often have had failures or flirted with failure more than once along their journey to success.  And just like war, even with the smartest, hardest working people and the best leader, it still takes at least some luck to have truly wild success.  The CEO’s job is always an uphill battle.
            On top of this, what makes the job of a CEO so utterly challenging is that, unlike most jobs, which come with one boss to please, CEOs not only have multiple bosses (i.e., board members) but also have multiple constituencies. CEOs must think not only about their board members, but also their shareholders, creditors, employees and customers. Frequently the demands of those various groups are not completely aligned. They must balance those demands like a plate juggler in the circus—and they need to be running forward at full speed while doing so. Aspiring entrepreneurs and first time CEOs rarely understand or often do not think about the challenges of pulling off that balancing act.
            The result is that CEOs often feel like the rope in a multi-directional tug-of-war between their various constituencies. Being that rope is stressful and even though people who want their time and attention surround the CEO -- it is a lonely as well. Everyone else is pulling on the rope, and while they may think they know what it is like to be the rope -- well, only the rope really knows how that feels and the last thing the CEO wants to do is show anyone the strain that they are feeling.  As a VC who has been the rope, and now is someone pulling on the rope, at least I can empathize with the CEO’s tough job. While that is mostly a positive thing, it does make things more painful when it becomes necessary to let go of that rope and find a different one.
            I have never been in combat, but I can’t recall speaking with any veteran who told me they were never scared. Fear is the normal response when faced with the risk of harm to yourself or someone you care about. The bravest people and the most heroic people feel fear--only the callous and insane do not. When faced with the prospect of losing your investor’s money, having to lay off your employees, creating unhappy customers or being publicly labeled as a failure, it is only natural to feel some fear. And the adrenalin rush that comes with it is part of the thrill of being a CEO.
            So, if you’re dreaming of being CEO of a venture-backed company, just remember that being a Jedi Knight is a difficult path that only looks sexy from the outside.  It will be lonely, brutal and gut wrenching and you’ll need the best team with you and some luck to succeed.  And if you don’t believe you will be scared, like Yoda wisely said: “You will be… You WILL be!” 

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