I have been talking to, studying and writing about entrepreneurs for 30 years. (Want to know how deeply immersed I am in the subject? I’m married to one. )
Here are the three things I’ve learned.
1. They hate risk. There’s a reason that seasoned entrepreneurs don’t think of themselves as risk takers, even though everyone else does. They have developed terrific ways to limit potential losses as they start a new venture. They don’t like risk. They accept it as part of the game and then work extremely hard to reduce it to a minimum.
People who have started one or more ventures will tell you: You need to know how much you are willing to lose before you even start thinking about starting something new. And you need to do everything possible to make sure you don’t exceed that figure.
Successful serial entrepreneurs adhere to the basic principles of risk management: If you’re going to play in a game with uncertain outcomes, 1) don’t pay/bet more than what you can expect as a return, and 2) don’t pay/bet more than you can afford to lose. Both of those ideas can be summed up with the phrase “Acceptable Loss,” a concept where you consider the potential downside of whatever risk you are about to take—such as starting a new company or some other venture that is going to consume a lot of your time, capital, or other assets—and put on the line no more than you find it acceptable to lose should it not turn out the way you want.
How could this concept work for the rest of us? As you prepare to take action, you need to ask two questions to make sure you stay within the bounds of your Acceptable Loss.
- What can I afford to pay to take the next step, and
- What am I willing to pay to take the next step?
2. They don’t over-think. If they are facing a situation they have seen before, or one where data is readily available, entrepreneurs rely on what has happened in the past. But when they are facing an unknown future—will their new product or service be a success; is their community going to accept their non-profit idea—they don’t spend a lot of time thinking. When they can’t predict the future, they act.
Specifically, they take a small (inexpensive) step toward their goal. They pause to see what they learn from taking that step. And then, if it makes sense, they build off what they have learned and take another small step. They follow this Act, Learn, Build model until they achieve what they want; decide it can’t be done, or choose to do something else.
3. They let the market decide. One of the smartest entrepreneurs I ever met, followed that Act Build Repeat model convinced he had a huge hit on his hands. Just to triple-check (he, too, hated risk) he subjected his idea to extensive focus grouping. The outcome: The market didn’t look big enough, or as he put it “when the dogs don’t like the dog food, it’s bad dog food. Period.” He went on to try something else.
As I have written about before, I am the world’s most reluctant entrepreneur. But I am constantly trying to learn from those who do it well.