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The 7 Principles Of Successful Entrepreneurship

It’s fair to observe that many big, established organizations tend not to think or act in a very

entrepreneurial way. Of course, those of you who manage large organizations (or hold their stock

in your portfolio) are probably thinking, “Yes, and it’s a good thing that executives don’t behave

like crazy entrepreneurs.” After all, managers of established enterprises are accountable to their

shareholders, customers and employees first and foremost to successfully maintain and operate

the going concern – and only secondarily to grow it and improve on it.

Indeed, Hippocrates’ famous dictum to physicians seems to apply equally well to big-company

executives: “First, do no harm.”

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But, fully accepting the corporation’s first priority of protecting and maintaining that which it

already has, some useful wisdom is demonstrated by the behavior of entrepreneurs – wisdom that

can be successfully applied to large organizations. Not only can such entrepreneurial thinking

help executives run their mainstream lines of business, but also help to instill greater creativity

when planning and launching new businesses or market initiatives from under the corporate

umbrella.

This post provides some thoughts as to how executives can work smarter and more effectively by

emulating entrepreneurs. I call these “The Seven Principles of Entrepreneurship”:

• Ski with your knees bent.

• Refine the skill of falling down.

• Get comfortable with “close enough.”

• Be happy with a “conditional yes.”

• Remember that business model innovation is often as important as tech innovation.

• Think small.

• Strive to understand and mitigate risk.

Let’s examine these principles in detail:

Ski with your knees bent

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Those of you who enjoy downhill skiing know that one of the first principles of survival is to

keep your knees bent and flexible and your center of gravity low. This style enables you to adjust

to change – on the slope, in surface conditions or with obstacles or other skiers – and still

achieve your goal of gracefully traversing the hill. Conversely, skiing with locked knees, a rigid

posture and a fixed gaze is a formula for disaster.

It’s too easy, when working in an established organization, to develop a certain rigidity in how

one approaches decision-making and day-to-day operations. Most times, you can get away with

it, standing upright, knees locked, eyes trained straight ahead. Why? Because established

businesses necessarily develop standard operating procedures, and oftentimes little changes day-

to-day. The rigidity can creep up on you. Sameness and predictability are comforting, and it’s

human nature to embrace and standardize behavior that succeeded in the past.

By contrast, entrepreneurship is, metaphorically, a bit like skiing moguls (big, scary,

unpredictable bumps) ... blindfolded. If you’re an entrepreneur, you have to keep your knees

bent. You have to stay loose. You know full well that things will change, probably dramatically,

and that you’ll experience dramatic shocks; you just don’t know exactly what those shocks will

be, where they’ll come from or when they’ll occur.

Keeping loose and with a low center of gravity helps business managers absorb change and keep

the business on its feet. Entrepreneurs have always operated this way as a matter of course. And

this sort of flexibility and adjustability can be a crucial advantage for corporate executives as

well, whether in accommodating change in existing markets or tackling new business initiatives.

Refine the skill of falling down.

To continue the skiing metaphor, one of the first things a ski instructor teaches novices is how to

fall. Why? Because it’s an inevitable part of the sport, and it’s the primary way of getting hurt,

but good skiers fall gracefully and bounce back quickly.

Similarly, successful entrepreneurship requires getting comfortable with the idea of falling down

repeatedly and springing back up each time. Startup business is all about expecting, gracefully

accommodating and learning from failure. After all, even with the best-thought-through venture,

it’s reasonable to expect that 50 percent of the original business plan will prove to be wrong.

Worse yet, you won’t know which 50 percent until you get into it – until you point your skis

down the hill and go.

Understanding this phenomenon is why venture investors often prefer to invest in entrepreneurs

who’ve experienced failure. It’s also why many startups prefer to hire, as key managers,

individuals who have experienced the good and the bad of a previous startup or two. A previous

fall or two is not considered a scarlet letter of failure on a person’s career, but rather an

indication of maturity and a willingness to take calculated risks.

For established organizations to successfully grow through innovation, they must delve into less

certain and more ambiguous environments. Therefore, they need to take more calculated risks

without being paralyzed by fear of failure. They need to refine the skill of falling down.

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Get comfortable with “close enough.”

The vast majority of corporate innovations never see the light of day because they’re “killed in

committee.” Why do so many die that way? Because innovative ventures and business initiatives

almost always have too many unknowns for many people’s comfort, and the powers that be in

established companies – often groups or committees – possess the power to say “No” based on

that uncertainty. Just as, in the old days, IT executives knew they’d never get fired by buying

IBM, with corporate innovation it’s nearly always a safer bet to say “No” to something new.

Meanwhile, successful entrepreneurship – or corporate venturing and new-business-development

– requires operating in a highly uncertain, ambiguous environment. It’s a bit like trying to solve

an algebraic equation with seven variables and six unknowns. Technically, it can’t be done, so

the “correct” answer is, “We can’t do it.” The equation can’t be solved without taking intelligent

guesses and trying out different combinations based on inadequate information, approximations

and instinct.

But the perfect is often the enemy of the good. Remember, in entrepreneurship: The best

decision is the perfect decision (which you’ll never have sufficient information or time to

divine). The next best decision is “close enough” and get moving – you can always adjust course

as you go (i.e., ski with your knees bent). And the worst decision of all is to continue to study, or

form a committee (which so often translates to the “safe no,” and therefore doing nothing).

The entrepreneurial approach accepts “close enough”: Roll up your sleeves and work with

customers from the start. Get something in customers’ hands, even if it’s not finished.

Experiment, and don’t be afraid to adjust, occasionally fall down and get back up. Do it, try it,

fix it ... and repeat.

Be happy with a “conditional yes.”

The tendency in big organizations is to seek budget approval for an entire multiyear project

upfront. After all, nobody wants to launch into building, say, a $275-million plant when they

only have corporate funding approved for the first $30 million for planning and site prep.

The problem is when we see corporate new-business-development folks trying to apply this

upfront approval formula to venturing.

In the entrepreneurial world, nobody expects to receive 100 percent funding upfront; it just

doesn’t work that way. With independent ventures, investors believe in “milestone investing,”

progressively meting out capital sufficient to fund the next 9 to 18 months of activity and the

achievement of the next crucial value-building milestones. For instance, it’s not uncommon for a

venture requiring a total of $15 million in investment capital in order to reach self-sustaining

profitability to seek seed funding of only a million dollars or less to build a prototype and do

some preliminary testing. A subsequent “A” round may be for just a few million dollars to

enable the venture to build a team, productize the technology and sign up the first few customers.

And so on. Typically, early-stage investors are keenly interested in continuing to participate in

subsequent rounds; they just like to see incremental progress along the way.

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Internal corporate ventures – and here we’re referring to risky ones entailing new technologies,

new business models and/or new markets, not capacity-expansion projects and the like – should

approach funding with the same venture-funding mentality. Remember the principle we

mentioned in our last issue: that 50 percent of a new venture’s business plan will inevitably

prove to be wrong, you just don’t know which 50. If that holds true, it only makes sense for the

parent company (playing the role of venture capitalist) and the internal startup team to agree on

funding increments and associated milestones rather than the all-in approach. Less capital is

committed, inevitable mistakes or discoveries are less costly and more easily accommodated, and

the new business remains nimble.

Remember that business model innovation is often as important as tech innovation.

We’ve never seen any statistics or studies in this regard, but it sure seems that the majority of

shareholder value created over the last half century had a lot more to do with companies

innovating around their business model than around technology. Think of eBay with online

auctions. Store brands and generic drugs. Amazon cutting out the retail middleman.

Manufacturers asking suppliers to co-locate. Dell building PCs to order. Social networking

typified by sites such as MySpace and Facebook. The way HMOs and PPOs fused insurance and

healthcare delivery. Sure, in many cases, technology was involved, but technology was not the

strategic driver that created shareholder value. Instead, it was creativity applied to the business

model (product/service mix, value proposition, channels, pricing) that made the difference. This

kind of thinking needs to be applied not only by entrepreneurs but by corporate new-business

professionals as well.

Think small.

An executive in a tech startup, recently hired away from a Fortune 500 company, unfortunately

brought his big-company thinking with him. Inheriting management responsibility for a

professional services operation of about 50 people growing at over 50 percent annually, he saw a

crying need for more coherent project management. His solution? Call in the vendor who’d

provided similar software and services to his last employer, and get a quote. The result? A half-

million-dollar expense where cloud- or PC-based project management software and rigorous

management communication would have sufficed nicely; worse yet, the expensive “solution”

never worked. The manager was fired and the system scrapped for a simpler approach.

Too often, we see established organizations trying to innovate and getting caught in this big-

company, go-big-or-go-home mentality. I observed one internal corporate venture of a

multinational tech company spend millions on PR – because “That’s how we do things at XYZ

Corp.” – before they’d even fully defined their product, value proposition, positioning and go-to-

market strategy. Bizarre. Entrepreneurship, even if it’s taking place under the corporate umbrella,

calls for small, inexpensive, rapid-turnaround experiments and trials. “Thinking small” doesn’t

mean that you don’t have big aspirations for your new venture. (Indeed, I tend not to think of

startup ventures as small businesses; we think of them as global enterprises that happen to be

young.) But by iteratively discovering what works and what doesn’t, you’d be surprised how far

you can get on how little capital.

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Strive to understand and mitigate risk.

Contrary to popular belief, entrepreneurs and venture investors are not risk-seeking nuts, the

business equivalent of helmet-free bungee jumpers. In fact, the best ones are remarkably risk-

averse, skilled at identifying and mitigating venture risk. Whether they do it intuitively or

explicitly, A-list venture folks are constantly working to wring risk – whether it’s product risk or

risk of a market, financial or management nature – out of their startups. There’s a method to their

madness that corporate startups need to apply.

“The Seven Principles of Entrepreneurship” are enumerated here to stimulate and challenge the

thinking of corporate managers. In many cases, entrepreneurial behaviors that may, on the

surface, seem to be inappropriately risky turn out, on closer examination, to be worth emulating

if done in a thoughtful manner. And emulating certain entrepreneurial behavior can help

corporate executives excel, particularly when it comes to launching new initiatives or product

lines, trying out new business models or entering new markets.

This note was prepared by James D. Price, Adjunct Lecturer of Entrepreneurial Studies at the

Zell Lurie Institute at The University of Michigan Ross School of Business. ©2012, James D.

Price.

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