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 Entrepreneurship Insights

May 2014

Welcome to the latest bulletin offering entrepreneurial insights from the Startup Owl. Enjoy and learn. This issue is about getting on with things and not putting off the startup till later.

Press the Button: start now
It's Better Than Later

When is the right time to start a business?Sooner than you'd think. When I first started, the British economy was in crisis: inflation was running at 8.5% and unemployment was at its highest level since the Great Crash.

 

You'd think that it was a bad time to launch a business, but you'd be wrong. The only way to go was up and indeed, by the year end, things were looking a bit better. Microsoft, Apple, Facebook, Twitter and Skype all started in gloomy economic climates.

 

But that's not the point. The time to start a business is now. Why?

  • you are not even a pinprick in the economy as a whole and you will be more by your relative performance, not the absolute;
  • if you've got it right and your business is going to change the world, the sooner you get to market, both for revenue and the feedback from customers that will enable you to further enhance your offer, the greater the chance of your success
  • even if your market is saturated with offers, yours has to find the gap, whether later or now; the sooner you find out if your appraisal of the opportunity is right, the greater the chance you will have to exploit it
  • your learning can only be theoretical until you press the power on button-and it's learning and its application that will provide real market data. Any amount of market research data will not give you answers, but only indicators
  • the future will be more uncertain than the present, and you may lose momentum as you try to decipher forecast trends, rather than getting direct personal answers now
  • at the personal level, the right time will always elude you. If you wait until your kids leave home, you've raised the capital, found the perfect location... someone may have stolen your spot
  •  what matters is who you are, not when you do it; there are so many other factors vital to success. The economy affects us all
  • if things are looking bad, then you have an even greater incentive to consider ways of not speeding money-bootstrapping
  • as Paul Graham says, don't look at threats to business survival in the news, look in the mirror
  • when I started, I did not take another mortgage on the house, offer personal guarantees, max out my credit card, or in other words, do things which would get in the way of getting a job, if the worst happened and business crashed. It's called risk mitigation.
Bricolage: get on with it!
Tinkering: make it work
Buckminster Fuller by Hazel Larson Archer
 
Tinkering is one way of translating the French word
bricolage. Another one is 'Do-It-Yourself'. Tinkerers are people who use what comes to hand to achieve results that go in the general direction desired. 

I have written about tinkering and entrepreneurship. My reflection is that getting into the marketplace early with imperfect offerings is probably the fastest way to learn how to grow a business. Customers will show you what works and what doesn't. This kind of tinkering requires a way of thinking that can quickly apply the results of experience.

That's what the tinkerer, or bricoleur, does-tries things out to see if they work. I experience too many occasions when entrepreneurs tell me that they have first to perfect the prototype, or that they can't really sell until version 1.0 is complete. By then it may be too late.

By the time I opened my first B2B business, we already had three signed clients, with whom we stayed in close touch. They told us regularly what needed improvement. More importantly they provided excellent references for our prospects to consider. "Who have you worked with already?" This was a frequent question easily answered.

Standardized Testing: conclusions risky
Schools spend up to 40% of the year on preparing elementary school students to take tests. This is likely to breed a generation of people for whom innovation and creative thinking is less important than achieving good test scores. The only test score a new business needs is orders, deliveries and paid invoices, not whether it can pass tests.
 
If we produce a generation of people who know only how to pass tests, then innovation and experimentation will wither. Hands-on learning for kids makes more sense. Finding out is going to stand them in better stead, than jumping through hoops and telling them how high. How can we build a new generation of tinkerers?
 
The trouble is that when the powers that be evaluate test results, they take no account of socio-economic factors, nor of any of the many levels of ability of students. We are not all born with the same learning abilities or home conditions.
 
The alternative to test craziness is project-based learning, evaluated against rubrics, or portfolio-based assessment. Processes like these measure performance, rather than the mechanistic ability to take tests. It is likely to foster left and right brain thinking.

Effectual Reasoning: figure out the unknown
Effectual reasoning is in contrast to causal reasoning. Causal reasoning is what we are normally instructed to use in business. Starting with a goal, we then set out to find the best way to achieve it. Effectual reasoning is more like tinkering, in that we use available resources and monitor results.

Saras Sarasvathy, who teaches entrepreneurial thinking and a course on creating new ventures, is an Associate Professor at the Darden School of Business, and a professor at the Indian Institute of Management in Bangalore. Some years ago she set out to answer the question, 'What makes entrepreneurs entrepreneurial?'.  Her conclusion in 2001 was that entrepreneurs tend to use effectual reasoning. To know more see what she wrote.

In describing effectual reasoning, she suggested that, "to the extent that the future is shaped by human action, it is not much use trying to predict it-it is much more useful to understand and work with the people who are in engaged in the decisions and actions that bring it into existence." When a business starts, variables are infinite. We just don't know till we try. 

Effectual reasoning uses the left and right brains that correspond to logic and intuition - both vital for entrepreneurs. The principles of effectual thinking are:
  • Bird in Hand - don't wait for perfect conditions
  • Affordable Loss - is the downside acceptable
  • Lemonade - love surprises, keep flexible
  • Crazy-Quilt - make friends, don't let data fool you.
Making: artisanal entrepreneurship
People in manufacturing are now constantly reading about the Maker Movement. Makers are people who produce small runs and one-offs of products using very small scale techniques. It's like 'do-it-yourself' technology.

The maker culture include engineering-oriented pursuits such as electronics, robotics, 3-D printing, CNC machining, as well as more traditional metalworking, woodworking and arts & crafts. I have a Italian friend in London who has started a crowdfunding platform linked to a 'maker business incubator'. Crowdrooster is for people who make and love new tech products.

However, the origins of the movement go back a long time-even as far as Leonardo da Vinci! Psychologists, especially those concerned with learning, have long demonstrated the power of learning by doing. Piaget, Froebel and Montesosori applied the theory of constuctivism in education in the nineteenth and twentieth centuries. Apart from anything else, the idea was to create polymaths, not specialists.
 
Implications for Startups: learners on the job
What interests entrepreneurs is performance. Is the business working? If not, what do we need to change to get results. We need to be polymaths to get the answers, mainly from our clients. At the start, entrepreneurs need to be capable of doing almost anything.
 
Role differentiation only happens once the business is successful and can afford functional specialists. Hence, if we have trained armies of automatons, we are going to lose that ability to tinker and get things working.
 
When founders recruit partners, we generally need to look for complementary abilities to our own, but we should not be fooled into thinking that a specialist is what we want. Even if we need an engineer, we want that engineer to be capable of holistic thinking, or we'll go up blind alleys of technical irrelevance, ignoring the market imperatives and the feedback of customers.
What Do You Think?
Please write and tell me!

Propelled by a soaring stock market, the median pay package for a CEO rose above eight figures for the first time last year. A chief executive now makes about 257 times the average worker's salary, up sharply from 181 times in 2009.

 

The head of a typical large public company earned a record $10.5 million, an increase of 8.8 percent from $9.6 million in 2012, according to an Associated Press/Equilar pay study published May 27.

 

Last year was the fourth that CEO compensation rose following a decline during the Great Recession. The median CEO pay package climbed more than 50 percent over that stretch. And think about the fact that (in 2006) "senior executives on Wall Street... made 300% more than their counterparts in the real economy." In 2013, the average Wall Street bonus was $164,530 (The Price of Wall Street's Power, HBR June 2014).

 

Interesting to note though, is the fact reported in the new study, that female CEOs had a median pay package worth more than their male counterparts, ($11.7 million). However, there were only 12 female CEOs in the AP/Equilar study compared with 325 male CEOs that were polled.

Thanks for reading this issue of Entrepreneurship Insights. If you have any comments or would like help with your startup, do write to me: will@startupowl.com

Sincerely,
 
Will Keyser
a.k.a. The Startup Owl

In This Issue
 
 
 
 
 
 
 
 
 
 
Telling Startup Stories: Keep the End in Mind
by William Keyser
Kindle ebook Edition
Make your startup pitch the most persuasive by learning how to tell your best story.

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