In my work with entrepreneurs, I come across three essential traits that define an entrepreneur: self-confidence, passion and perseverance. All three traits are a necessity for acting upon an idea, facing adversity and doubt, and ultimately bringing the idea to fruition. However, there are two more traits, which I have come across on rare occasions, and which I have come to admire most in entrepreneurs.
The first of these is the ability to recognize when “it’s just not working” or at least when “it’s not going to get much better without a lot more money and risk.” It could be that there is no attractive business model, the competition is intense, the market is too small, or simply that the capital and time required to overcome any of these challenges is simply too much to justify. The ultimate decision may be to wind down operations, to seek a buyer for the business, or to forget about growth and cut costs to keep the existing business alive.
These are all among the most courageous decisions any entrepreneur can make, and actually require more self-confidence than the confidence required to start a company in the first place. Why? This person is in fact so self-confident in his entrepreneurial abilities, that he/she knows that they have more and better ideas just waiting to be realized. He is also wise about his personal economics. An entrepreneur that makes such a decision is essentially saying that a guaranteed dollar today is better than a 50% chance of getting anywhere between zero and two dollars in the future. He/she is also saying they can better spend their time and money on something else, and don’t want to waste other people’s time (employees) or money (investors) more than is necessary.
We all know most start-ups don’t succeed, but ironically, most of those companies only shut their doors once they exhausted all sources of capital. And considering that the high rate of failure among start-ups is not about the lack of capital, but rather about a fundamental problem with the concept, market, or business model, one would expect more entrepreneurs to initiate the winding down of the business on their own. So why is it that more entrepreneurs don’t recognize when things aren’t working, or at least are unwilling to act upon this conclusion?
My belief is that there are actually two strains of self-confidence among entrepreneurs: the first kind is actually self-confidence commandeered by pride, or tainted by arrogance (unfortunately, all too common among both entrepreneurs and VCs). The second strain is a genuine self-confidence, and one that is easily recognizable because it can co-exist with the most beautiful of human traits….humility. So to explain the anomaly of so few entrepreneurs convincing themselves, investors and partners to move on, it is actually the result of certain entrepreneurial traits dominating others. Specifically, perseverance and passion overshadow the self-confidence required to call it quits. A similar argument can be made of investors who don’t know when to recognize an investment gone bad, but I decided to focus on entrepreneurs as they ultimately have more immediate control over the direction of their business.
The second trait that I admire most in an entrepreneur is the ability to recognize one’s own strengths and limitations, along with the ability to build a team that complements and improves on them. Most entrepreneurs bring on co-founders, and many others hire senior executives along the way, but few go as far as they need to. My favorite entrepreneurs explain to me that they hired someone because “he is smarter than me,” or because “I want someone smart to constantly challenge me.” I am not talking about a “technical founder” hiring a “business” partner or vice versa. That is obvious and essential. I am instead referring to the ability to hire someone with overlapping skills, but perhaps a different set of experiences.
The ultimate manifestation of this trait is a strong and successful entrepreneur going to his board and convincing them to hire a more experienced CEO to take the business to the next level (and it doesn’t count if they do this when their failure is already clear to all around). Sometimes, the recommendation is actually to think about hiring a senior executive who is at least capable of taking over the reins as CEO if such a decision makes sense(planning for succession). Either way, similar to the ability to “call it quits”, the ability to hire great people all round you, is a variant of genuine self-confidence. However, the entrepreneurs I have just described possess a great degree of both humility and self-awareness., as they know what they are good at and recognize it’s in their economic interest to bring the best people to the company.
I don’t want to undermine the importance of traits like perseverance, but sometimes I think we suffer from an overabundance of this in Israel. The entrepreneurs who exhibit some of the other incredible traits I mentioned are on the top of my list and are ultimately the entrepreneurs we as VCs want to back again and again, regardless of the outcome. They do not doubt themselves for a moment that if they wanted to, they can start another company and raise capital for it. They may not get the recognition they deserve in the press, but investors, executives and employees all recognize them as among the most brilliant and ultimately successful.
I conclude this post with an apt quote by pianist and comedian, Oscar Levant (1906-1972), who wisely pointed out that “what the world needs is more geniuses with humility, there are so few of us left.”