Business as Art
Fact: Entrepreneurship is an irrational pursuit. Founding a company--much less one that could "change the world"--entails insane amounts of risk, ridiculously low chances of success and zero work-life balance.
Nevertheless, the value of risk-taking is incalculable, insists Steve Blank, professor of entrepreneurship at Stanford University and the University of California, Berkeley, who pioneered the Lean LaunchPad course that the National Science Foundation adopted for its new incubator boot camp, I-Corps. Blank started a total of eight technology companies--two of them massive failures, one that set him up for life--before turning his attention to the next generation of visionaries, to whom he's been extolling the virtues of embracing his particular brand of irrationality.
Why? Well, Blank says, illogical ideas are how society achieves progress.
Every great entrepreneur, from Richard Branson to the late Steve Jobs, made decisions that seemed crazy to the rest of us. But those decisions did eventually change the world. And almost every great entrepreneur, when asked to share the secret behind such success, chalks some of it up to "gut instinct." (Seriously, check out their quotes.)
"It's a survival trait," says Blank, who believes that entrepreneurs are wired to think differently and to see things most people don't, so they should be encouraged to act on their instincts. In fact, he maintains that a good chunk of what people call gut instinct is really a mesh of experience and a data-driven way of thinking about things. "Entrepreneurial brains are like full-time pattern recognizers," he explains. "People attribute radical decisions to their guts, but there is actually a lot of hard thinking and information processing that goes on subconsciously before there's a pattern match."
Of course, that doesn't mean they always get it right--quite the opposite, in fact. Blank says 90 percent of entrepreneurial ventures fall prey to "noise and hallucination," but the impact of the remaining 10 percent is so valuable that it warrants setting up an environment in which more entrepreneurs can thrive.
"Ultimately, entrepreneurship is more of an art than a science," he declares, comparing the revolutionary beauty of Facebook and Google to Beethoven's Fifth Symphony or Van Gogh's The Starry Night.
Makes sense. Starving artists and budding entrepreneurs always did have a lot in common.
Business as Science
Not so fast, says Kay-Yut Chen, principal scientist at Hewlett-Packard Laboratories. When it comes to starting a business, he proposes taking a more methodical approach.
Trusting your gut sounds great, says Chen, co-author of Secrets of the Money Lab: How Behavioral Economics Can Improve Your Business, but if entrepreneurs are indeed irrational, it stands to reason that their instincts can lead them astray. Chen's proposal: more science. Besides, he says, from a numbers perspective, it's only logical that if enough people are out there pumping resources and energy into entrepreneurial pursuits, good things will happen.
"Think of an investment portfolio," he says. "There are methods of managing risk and increasing efficiency, but you cannot get away from the fundamental fact that you need to diversify for the overall portfolio to win."
If the underlying objective is for entrepreneurs to drive progress in society, then it's important to tweak and test the system to get better results, faster. The prevailing view among behavioral economists like Chen is that if people understood their mental limitations as well as their physical ones, they could design products and companies more efficiently. Indeed, if people are irrational, then instinct can certainly lead them astray.
"There isn't enough emphasis on science and analytics at startups," he says, noting that once entrepreneurs are aware of irrational behavior--theirs or their customers'--they can make smarter decisions in every aspect of business operations.
For instance, you might think customers will appreciate more choices or features. However, Chen says, many studies have shown that when there is too much variety, people become paralyzed by the options, and often walk away without making a purchase. Knowledge like that can have important implications on marketing and product development.
A more scientific approach can even help answer bigger "gut" questions, such as when to call it quits if things aren't going well. Chen notes that entrepreneurs often feel a sense of pride and attachment to their companies, and usually end up wasting money on an obviously sinking ship. But looking through a more rational lens, it becomes apparent far more quickly when to start over, or "pivot," as they say in startup circles.
Applying more analytics to entrepreneurship isn't expensive, but Chen concedes that entrepreneurs have limited resources and attention spans, and there's not a lot of time to learn the science surrounding every decision. Still, it doesn't change the fact that entrepreneurs could benefit from being a bit more cautious. After all, gut instinct may be a survival trait, but so is prudence--and the latter doesn't have a 90 percent failure rate.