We hear it time and again; the qualities of a successful startup business leader or successful entrepreneur: “risk taker” – “not averse to risk” – “takes chances” – “will take a gamble in hopes of winning” – “not fearful of uncertainty”, etc. – so much so - that it is ingrained into our thinking.  Risk-taking is inherently what it takes to succeed when starting one’s own business.  Or is it?  A new perspective plays out several examples of successful business billionaire-entrepreneurs who simply buck that trend with clear markers to the contrary.

 

Malcolm Gladwell is nearly always a provocative if not a fascinating read.  After studying a characteristically stimulating recent piece of his in the January 18, 2010 New Yorker titled “The Sure Thing” I learned something new about successful business people, mainly entrepreneurs.

The facts bear out in Gladwell’s research and research cited by other sources whereby countless examples of entrepreneurs are better at calculating the downside and avoiding risk than they are at diving into it.  In an example Gladwell quotes Ted Turner during the building of his TV Empire: ‘Turner was attracted to the risk of the deal… but just as plausible would have been to say that he was attracted by the deal’s lack of risk.’   Here are some of the examples of how Gladwell’s article’s subjects: Ted Turner, John Paulson (hedge fund billionaire), and Ingvar Kamprad (IKEA Founder), Bernard Arnault (LVMH) and others avoided risks to succeed in their new businesses:

  • Finding money on the books of a company that didn’t know they had it
  • Finding a better way to fund one of the largest costs of doing business
  • Occupying a “structural hole”: a unique perspective which gives him access to a niche or a particular market
  • “…looking for partners to a transaction who do not have the same definition as he of the value of the goods exchanged.. that is, they undervalue what they sell to him, or they overvalue what they buy from him in comparison to his own evaluation…” – quoted from a study by Villette and Vuillermot within the Gladwell article
  • “He is a predator: a predator seeks to incur the least risk possible while hunting.” – also from the V&V study
  • ‘Repeats the good deal over and over again until it closes – and throughout that sequence is hedging bets and minimizing chances of failure’

One of my friends and an entrepreneur Tommy Torres, a renowned architect and businessman in Malibu, CA has said ‘Once you have your business concept carved out, the money will follow.  Never worry about not putting up your own funding; there is always money out there.”  

There is much more to the Gladwell piece which adds colorful stories to the personal vs. professional archetypes who exemplify these traits – so it is worth a quick study in a nice armchair.  And with that I’ll leave you with some of the surprising learnings of what does not work; yet is practiced by most of the heads of unsuccessful startup businesses, according to Gladwell.  

According to the piece, the sure ways to fail are:

  • Start from absolute scratch, rather than buying an existing business
  • Failures tend to chase the same customers that others have chased - this doesn’t work - better is finding consumers that others have missed; 90% of fastest growing companies sell to other businesses (rather than consumers). 
  • Failing to understand the importance of Financial Controls
  • Trying to compete on price.
  • Being undercapitalized
  • Failing to form a corporation: Forming a corporation is the best chance for success
  • Failing to write up a business plan