Entrepreneurs and the Cult of Failure

Gladwell wrote a piece last year that suggested the most successful entrepreneurs come out ahead by finding clever ways to avoid risk. Forgive the long excerpt, but it really is good.

"In a recent study, "From Predators to Icons," the French scholars Michel Villette and Catherine Vuillermot set out to discover what successful entrepreneurs have in common. They present case histories of businessmen who built their own empires—ranging from Sam Walton, of Wal-Mart, to Bernard Arnault, of the luxury-goods conglomerate L.V.M.H.—and chart what they consider the typical course of a successful entrepreneur's career. There is almost always, they conclude, a moment of great capital accumulation—a particular transaction that catapults him into prominence. The entrepreneur has access to that deal by virtue of occupying a "structural hole," a niche that gives him a unique perspective on a particular market. Villette and Vuillermot go on, "The businessman looks for partners to a transaction who do not have the same definition as he of the value of the goods exchanged, that is, who undervalue what they sell to him or overvalue what they buy from him in comparison to his own evaluation." He moves decisively. He repeats the good deal over and over again, until the opportunity closes, and—most crucially—his focus throughout that sequence is on hedging his bets and minimizing his chances of failure. The truly successful businessman, in Villette and Vuillermot's telling, is anything but a risk-taker. He is a predator, and predators seek to incur the least risk possible while hunting. "

http://www.gladwell.com/2010/2010_01_18_a_surething.html

Good post!!

At the risk of being simplistic, I have long believed that in the world of business there are two types of people -- those who use and enjoy risk and those who are risk averse. Often those who are risk averse become employees, even academics. Those who enjoy risk become business owners, usually preferring the process of start up. This is why, if you are a risk taker, you don't really enjoy being an employee.

The government employees who try to encourage start ups belong to the second category and cannot for the life of them understand the risk takers. So, they are more likely to view success as a lack of failure.

Most bankers (Who recently forced a rewrite of the bankruptcy code to benefit their business.) have little or no use for risk. They are of the "employee" mentality. (not all, but it is common) As the article points out, this reduces the number of start ups.

His recommendations make a lot of sense: accept that failure is a natural part of doing business, remove structural obstacles to reduce the objective risks of a failed venture, turn failure into fodder. But his overall framing seems to be that entrepreneurs should be heavily driven by fear of failure. That works well for some people but not others -- for many (including me), fear leads to stress and increases the likelihood of irrational reactions.