This is not exactly a secret, at least not to those people who live with entrepreneurs.
And in our moments of clarity, we admit it to ourselves.
We entrepreneurs tend to do a lot of risky, not-quite-rational things that could qualify us as crazy.
But did you know that this has been scientifically proven?
The curious habits of entrepreneurs is one of the many fascinating areas of research explored by Daniel Kahneman, winner of the Nobel Prize for Economics, in his book Thinking, Fast and Slow.
He quotes piles of research on the decision-making patterns of entrepreneurs. He concludes that we are irrational, overly optimistic risk-takers, who make the same mistakes over and over, and won’t pay attention to the facts.
He didn’t go so far as to call us meshugganers. I guess that’s not the scientific term .
And Now for the Stats
As someone who has run my own business for close to 10 years (and my entrepreneurial readers can understand the roller-coaster ride that entails), I found myself chuckling and sheepishly nodding my head as I read.
Here are some selected gems from this highly quotable book:
The chances that a small business will survive for five years in the United States are about 35%. But the individuals who open such businesses do not believe that the statistics apply to them… Fully 81% of entrepreneurs put their personal odds of success at 7 out of 10 or higher, and 33% said their chance of failing was zero.
Been there, Done that!
What makes us dreamers so over-confident that our fantabulous ideas will succeed, against all odds? Is it lack of objective information about the viability of our ideas?
One study looked at a large group of would-be inventors whose ideas were professionally evaluated, based on 37 objective criteria, to determine their chance of success. However, of the inventors whose ideas got rock-bottom grades,
47% of them continued development efforts even after being told that their project was hopeless
Can you guess what was the fate of this optimistic lot? Perhaps among them were some folks named Jobs, Einstein or Zuckerberg? We all love those stories of dreamers who stuck it to the naysayers and achieved phenomenal success.
The forecasts of failure were remarkably accurate: only 5 of the 411 projects that were given the lowest grade reached commercialization, and none was successful.
Sobering stuff, right? You should definitely take it into account before investing your days, your nights, your savings and your sanity in your next big project.
I, on the other hand, am different. I am working on something really special and I just know it’s gonna be HUGE!
Who Holds the Keys to Business Success?
But just as you are conceding that the viability of your idea and your ability to realistically implement it should be objectively evaluated, the plot thickens. It turns out that your success in business has a lot to do with factors outside your control.
As Kahneman writes:
I have had several occasions to ask the founders and participants in innovative start-ups a question: To what extent will the outcome of your effort depend on what you do in your firm? This is evidently an easy question; the answer comes quickly and in my small sample it has never been less than 80%. Even when they are not sure they will succeed, these bold people think their own fate is entirely in their own hands. They are surely wrong: the outcome of a start-up depends as much on the achievements of its competitors and on changes in the market as on its own efforts.
In fact, Kahneman says that success in business has more to do with “luck” than anything else.
Here’s a juicy example:
Kahneman describes the meteoric rise of Google, the brainchild of two grad students that became one of the largest companies in the world within a few short years. The founders of Google made a lot of very smart moves in the early years and all entrepreneurs would do well to learn from their story, right?
Unfortunately, there is good reason to believe that your sense of understanding and learning from the Google story is largely illusory… Of course there was a great deal of skill in the Google story, but luck played a more important role in the actual event than it does in the telling of it. And the more luck was involved, the less there is to be learned.
For example, a year after founding Google, Sergei Brin and Larry Page felt that it was taking too much time away from their academic pursuits. In 1999, they tried to sell the company, but their asking price was considered too high by potential buyers.
Their asking price was less than a million.
The company is now worth over $70 billion.
Brin and Page wanted to sell Google for a hunk of cash, but they were “lucky” enough to be “unlucky” in finding a buyer that had any brains at all (or so it seems in hindsight).
Due to their rotten luck, they missed out on becoming academic researchers at Stanford University and instead joined the ranks of the richest men alive, who have more control over the lives of billions of people than is comfortable to admit.
Kahneman’s research has found that this kind of “luck” plays a major role in our success and our failure in business.
Of course, as a believing Jew, I call “luck” by a different name: Bracha (blessing).
Hope for Us Meshugganers
Kahneman’s statistics are sometimes grim and can tend to be depressing, though the overall tone of the book is upbeat. I heard Kahneman speak recently at the Israeli President’s Conference where he presented his view on the probability of peace in the Middle East, based on his research on human thinking. He was fascinating, despite the fact that he didn’t sound very optimistic.
Meanwhile, down the hall at the President’s Conference, a man who is the embodiment of Kahneman’s statements on the eccentricities of entrepreneurs, rose to the podium to address us.
It was none other than Shai Agassi, the founder of billion-dollar bankruptcy disaster Better Place. Agassi’s high-profile electric car company went belly-up just a few months ago, having failed to live up to its vision of making electric cars a viable reality for regular people.
Yet Agassi got up on stage and talked to us about how alternative power sources will inevitably take over from petroleum and coal power over the next decade – and how electric cars are the future.
Better Place was not mentioned.
I just had to admire him for his guts. And I believe that if he is still so committed to his cause, even after such a public failure and humiliation, he will succeed in the end.
In terms of what they have to teach us, there is no difference between the humiliating flop, Better Place, and the spectacular success, Google.
But maybe that’s just the meshuggah entrepreneur in me speaking.
The part of me that still wants to believe, against every rational proof to the contrary.
While I feel it’s only responsible for me to consider the lessons of Kahneman’s research, I’m not interested in letting the meshuggah entrepreneur in me die, quelled by statistics and scientific proof, not to mention the vultures who like to pick you apart when you fail.
Let’s be honest. There is no formula – neither a scientific formula, nor a magic formula – for success in business.
The odds are against us.
And if we fail, people will say were were idiots.
And if we succeed, people will say we were geniuses.
Either way, they are ignorant.
Discussion topic: Have you done research into the statistics regarding success and failure in your niche? If not, confess! If yes, how have your findings affected your business plans? Please leave your comments below.