(Third in a 3 part installment)
A Google alert steered me to an article called “Beating the Odds When You Launch a New Venture” that had just come out in the May issue of Harvard Business Review, authored by Clark G. Gilbert and Matthew J. Eyring. It was one of the best pieces Iʼve ever read about entrepreneurs, their attitudes, and management of risk. They said that entrepreneurs arenʼt cowboys—theyʼre methodical managers of risk.
I thought their concepts applied equally to small and big business. I contacted one of the authors, Clark Gilbert, to discuss his ideas and decided I wanted to share his thoughts with my small business friends. The result is my interview (below) with Clark.
My comments follow his answers and are primarily addressed to small business owners.
Clark Gilbert (email@example.com) is the president and CEO of Deseret Digital Media and was formerly a professor at Harvard Business School.
10.BR: What advice can you give a resource challenged new Entrepreneur on where to get advice or the process of going about resolving the ventureʼs risks that he has correctly identified?
CG: Learn from others. Get a group of people around you who are willing to tell you where you are wrong. Do not reinvest until you have learned and adjusted to the market.
BR: You can learn from others by utilizing mentors, a board of advisors, or the free advice of organizations like SCORE, SBDC, and incubators whose missions are to help small businesses start and grow.
11.BR: Why arenʼt experiments good for confirming that your initial ideas are correct as well as to redirect a venture?
CG: Too many people run a test to “prove” they are right, rather than to adjust and learn. The power of experiments is to learn. Thatʼs why I keep coming back to the theme of scarce capital. It forces you to adjust and prevents you from perpetuating a pattern that is not working.
BR: We ran our tests to determine whether we were right or wrong, and the result dictated our next moves regardless of prior beliefs.
12.BR: Do you find managers reluctant to shut down their venture when the evidence shows it wonʼt succeed?
CG: Hope springs eternal for good entrepreneurs. That is a good thing, but it needs to be tempered with forcing mechanisms that help you adapt. You might hold on for pride/ego, because of financial commitments you have made, or from sheer cognitive blindness. Thatʼs why structured experiments and staged capital can be such powerful forcing mechanisms. They enable you to step-back and adjust.
BR: Many managers get a false sense of their products worthiness because they fall in love with their idea instead of in like. They rely too heavily on opinions of family, friends, or employees, who usually are overly supportive and reluctant to express negativity, even if itʼs called for. Often their ego interferes with their objectivity. Better to change course and admit you were wrong, than fail.
13.BR: Could you compare a New Ventures Development between a large company and a bootstrapping entrepreneur, based on their financial resources?
CG: Two things probably stand out. First many large company settings donʼt really treat resources as scarce, and the venture managers receive more resources on average. Second, the resources are not the venture managers, but the corporations so some individuals in large companies donʼt treat the resources with the same sensitivity.
BR: There truly is a difference when itʼs your money or someone elseʼs. The bootstrappers with their money at stake are more dedicated to taking less risks and managing those that they do to reduce or eliminate them.
14.BR: Is it safe to say that from reading your article that you believe that risks do not produce the intended rewards?
CG: Risks in themselves do not produce rewards, risk reduction does. Those who are better at this skill are better at generating returns.
BR: This should put to rest, the publicʼs perception that good entrepreneurs love and seek risk.
BR: Some additional thoughts on risk:
Risk is not absolute. Two people in identical circumstances can have dramatically opposing risks. The one with the experience in running a company with industry knowledge, with a good and experienced team, and a strong rolodex is facing minor risks compared to the person with little industry knowledge, experience, and relationships whose risk may be too much. The former is an insider and the latter an outsider. Risk is a little like beauty—it varies in the eyes of the beholder. The insider sees more beauty than the outsider. No matter which camp you fall into, your assessments and managing of risk must be analyzed and prioritized in light of your assets. Sometimes the best decision one can make is deciding to abort the venture because the deal killer risk canʼt be successfully managed.