Ideas, passion and heroes — they’re all so overrated
First published in the Sunday Times on 17th July 2016.
There are many myths about success in business. This week I thought I’d tackle a few of them.
• Overrated Ideas — anyone can think up a new product or service, but very few can build a business. I get at least one amazing new food concept suggested to me every week, and the vast majority go nowhere. Often it is not the pioneer who reaps the rewards of innovation, but a latecomer who learns from their predecessor’s mistakes and does it better. In his book Zero to One, Peter Thiel calls this the “last mover advantage”.
Underrated Execution — actually carrying out a plan and delivering on a hypothesis separates the few winners from the many losers. Running a company is a gritty, demanding task, which is why so many fail.
• Overrated Passion — millions of people are passionate about something, but zeal is not sufficient to ensure a profitable business. Do not mistake blind enthusiasm for a practical proposition.
Underrated Commerciality — money makers tend to deliver the goods even if they are dry, unemotional characters. You do not have to be charismatic to be a high-performing entrepreneur.
• Overrated Heroic founders — solo entrepreneurs can be remarkable individuals, but the best returns are usually achieved by teams of capable executives, with each one making a vital contribution to the project. All my best investments have been the consequence of a group of players working together.
Underrated Partners — your chances of making it big in any business endeavour are greatly improved if you take on a partner. I have always had equity partners. Without them I would have accomplished nothing.
• Overrated Genius — this is hard to identify and apply, and often irrelevant in a business context. Most companies make progress not through brilliant breakthroughs, but by many incremental steps and steady graft.
Underrated Luck — few of us like to attribute good fortune to chance, but opportunities are frequently random, as Robert H Frank says in his book Success and Luck, and talent and hard work alone do not account for the distribution of wealth in capitalist societies.
• Overrated Raising lots of capital — sometimes it seems that an entrepreneur has arrived if his start-up has received bountiful funding from venture capitalists, even if it has modest revenues and makes large losses. Too much cash leads to waste and permits poor economic models to persist for much longer than they should.
Underrated Retained earnings — once upon a time this was the chief source of funding for most businesses. Internally generated surpluses were used to finance growth. This means equity does not have to be diluted.
• Overrated Mission — operating a business is not like leading a religious cult. Having an insightful mission statement is fine, but it will not bring customers to your door or repay your overdraft.
Business is about doing the basics well every day, looking after the detail, defining sensible priorities, dealing with admin and motivating staff.
Underrated Control of cash and costs — companies that do not do this tend to go broke. A sound chief executive understands her margins, profitability, cash flow and all the key financial ratios. She knows this is essential to manage the business productively.
• Overrated Having a big success — quite a few entrepreneurs are capable of launching a popular product, or achieving a decent year’s profits, but only a handful translate that into enduring success. They run out of steam, get complacent or get distracted.
Underrated Paranoia — perhaps my favourite business book title is Only the Paranoid Survive, by Andy Grove. He was boss of the tech giant Intel, which rose in value from $4bn to $197bn during his tenure. Grove knew that businesses stay on top only by being constantly aware of competitive threats. None can ever rest on their laurels.
• Overrated Talent — Americans talk endlessly about hiring “smart people”. Of course you want highly intelligent staff for certain roles, but IQ, qualifications and so forth go only so far in the hurly-burly world of commerce. Closing a sale ain’t the same as sitting an exam.
Underrated Loyalty — reliable and devoted staff are more and more valuable in a world where people change jobs ever more frequently. Trustworthiness and resilience are more important than intellect when it comes to selecting partners.
• Overrated Strategy — I’ve known plenty of highly successful enterprises that never had a formal strategy. They stumbled upon their business formula and evolved it to suit market conditions. Strategy consultants would doubtless have mocked such amateurishness but it paid off.
Underrated Culture — some say “culture eats strategy for breakfast” and I tend to agree. If an organisation is sufficiently resourceful it can defeat much bigger competitors. Again, culture develops organically and cannot be imposed artificially.