What makes a good entrepreneur?

Well first don't be good, always be great--if you can't be great, be lucky--and if you can't be lucky then get out of the kitchen and let someone great cook instead!

A few years ago I pitched an IPO to a large institutional investor--now many people say that bankers are dumb--actually they aren’t, they just like looking at things simply. In fact really good operational CEOs succeed because they can break complex problems down into simple forms and make clear decisions. This is a lot like good bankers--which is not to say that there aren’t some dumb bankers, in fact I have a list in my head, but it might look a lot like a list of people who said “no” ;-)

So great entrepreneurs have the following characteristics (as distinct from great CEOs, BTW):

1. They make money for everyone around them.

2. You can’t do it alone--they understand the value of partners: business partners, channel partners, people who shared a common vision and a drive for a common goal.

3. Deep domain expertise in the market they are attacking--clear understanding of the customer and their problem and often invented the solution out of sheer frustration with what was, and could clearly see what should/could be.

4. Shift happens--Understand the mechanics of change, and adapt quickly to market shifts, change plans and be flexible in order to achieve their objectives.

5. Comfortable with ambiguity--as distinct from CEOs who want to make a clear and final decision, entrepreneurs like to leave their options open and remain flexible to optimize their outcome. If not done correctly this can also be a fatal flaw.

6. Integrity--entrepreneurs are not game show hosts or promoters (there is another name for these people). True entrepreneurs are open, direct, honest (albeit with a great flair to see the good in any situation and spin any event). Honesty in pitching does not usually get you funded this time, but it has a way of getting you funded next time ...

7. LUCK, LUCK, and more LUCK. Don’t underestimate the power of luck. Most great entrepreneurs have this X-factor in abundance, and instead of ego, they have luck, and luck is better at turning lead into gold than any business alchemy.

Now in other countries entrepreneurs are spurned, and sometimes despised--many bankers who act as early stage investors end up suing the entrepreneurs because they “lied.” At best they may destroy their reputations and ensure they can never raise money again. Generally this is because the investor's ego is bruised and they want to prove that they were in fact not wrong in investing, they were misled. Perhaps they also want to claw back some of their money. Creating massive penalties for failure is bad for any ecosystem, clearly if someone lies and misleads investors deliberately there should be penalties to discourage such behavior (I'm thinking Enron here)--but most times what is clear in hindsight was by no means obvious at the time. When an entrepreneur plans to change an industry with a revolutionary new idea, chances are overwhelmingly high that they will fail. Change is difficult and very very risky, which is why the rewards of success are so massive (Google). Because they are so rare, 1 in 10 VC investments are winners, and these are by people who focus entirely on this high risk area, not bankers or angels.

To many bankers when an entrepreneur presents a financial plan, it's etched in stone and when they miss it’s a grave sin. Missing numbers is of course a sin, but when you are creating a new market the financial analyst approach is to work out your production capacity and determine how many products you can produce, then validate that against comparable companies and their sales capability to see if you can meet the expected market needs, thereby defining the boundary conditions for revenue. This approach works in a commodity business, if you are selling fish from a fish farm--there is a defined market for all commodities, a production cost and a market price--but if you are creating something new or different, none of this works--the market has to buy into the vision, your technology has to work in the way the customer wants it to, and you have to be lucky. Did I mention luck?

Any CEO who has had a great success will then face a bifurcation point--his ego will try to dominate his humility. If he keeps ego in check and credits the power of his team and luck, he will likely succeed again. If he lets ego dominate, he is unlikely to be a good repeat CEO ... perhaps he will become a VC instead or something that rhymes with banker ... ;-) Being the least experienced investor in the group, I thought I’d opine on the market ;-)