PROFESSOR OF MANAGEMENT, LONDON BUSINESS SCHOOL
We ALL remember the kid who sold sweets to his friends in the school playground (though my sons tell me it’s now more likely to be mobile phones).
Although it’s difficult to generalise, entrepreneurs do seem to share some traits. Harvard Business School professor W. A. Sahlman defined entrepreneurship as “the relentless pursuit of opportunity without regard to tangible resources currently controlled” and “the continuous development of intangible resources to pursue opportunity.” Translated into everyday speech Sahlman’s accounting terminology means that entrepreneurs are those who will say: “I haven’t got the money, the people or indeed any other of the things you might expect of someone looking to put together a new business – but I’m determined to do it anyway.” Likewise there’s something common to entrepreneurs in their attitude to risk.
BE A BIT OF A GAMBLER
Experimental evidence suggests that most individuals will rather take a risk to avoid a loss than realise a gain. In other words, most individuals are more likely to worry about last year’s mistake than next year’s opportunity. Entrepreneurs seem to be different. “You’ve got to be a bit of a gambler,” Julian Metcalfe, co-founder of Pret a Manger told an audience. “My partner’s way of assessing risk is to work out that if we can afford to lose money it will not be a problem. Mine is to do it anyway, because if you feel passionately about something it’s probably going to work.”
Entrepreneurs look forwards rather than backwards. They don’t worry about last year’s disaster. It’s no surprise that entrepreneurs and accountants often struggle to understand each other. Far from being inclined to look forwards, accountants are trained for at least three years to create complex financial reports that describe the past and are often out of date even before they are published.
But entrepreneurs are not defined by what they are but by what they do, which is often a product of circumstance. Many businesses have been born when their founders were let go in the recession. Many of these “entrepreneurs” would not have taken the decision on their own. “Good things do grow out of recessions,” argues Dane Stangler in a report for the Kauffman Foundation. “Hundreds of thousands of individuals do not wait for others to ease their economic pain – they create jobs for themselves and others.” A Cambridge University study published in January 2009 suggested that high tech firms were more successful if started in tough times. Indeed, Cambridge high tech businesses founded in the recession of the 1990s enjoyed consistently better survival rates than those started in the boom years that followed. So boom times aren’t necessarily hot-beds of opportunity.
ENTREPRENEURS CAN BE TAUGHT
At London Business School we believe that, though some individuals will take to it more naturally than others, entrepreneurial skills can be much improved in the classroom. Unsurprisingly, many of our MBA students come to us after successful careers in big companies. But we know that a significant proportion of them will go on to found successful businesses. And we know for sure that it’s not additional genes they have picked up in the classroom, but new skills and understanding.
Rupert Merson is adjunct associate professor of strategic and international management and entrepreneurship at London Business School. His next book, A Guide to Managing Growth, will be published by The Economist next year.