When it comes to enterprise, take it slow and steady

The following article has appeared in the latest edition (Spring) of the
RSA Journal, the house magazine of the RSA.

Slow and Steady . . .

Robert Kelsey argues that, far from being restricted to the privileged few, entrepreneurial opportunities abound in all walks of life

The coalition government believes that private-sector employment can replace the jobs being lost in the public sector, with start-up businesses being hailed as crucial contributors in this respect. At a time of continued economic uncertainty, however, can we really expect people from all social groups to embrace enterprise? Indeed, couldn’t it be considered socially irresponsible to encourage economically vulnerable people to bet their meagre life savings on a venture?

Yet for those facing social exclusion, entrepreneurship is potentially a liberating career choice. Surveys of UK entrepreneurs, such as recent research by data analysts Experian, show that ethnic minorities (including the Irish) and those with learning difficulties such as dyslexia are over-represented. This suggests that entrepreneurship is a naturally effective equal-opportunities arena, perhaps even counterbalancing ingrained prejudice in more formal working environments.

“The wish to overcome prejudice is a key reason why many people start out on their own,” says RSA Fellowship Council member Emma Jones, head of small-business support initiative Enterprise Nation. “Running your own business is fantastically meritocratic. It is also flexible in ways that employment simply cannot be, hence the large number of young mums starting businesses.”

Exclusion concerns do, of course, exist among budding entrepreneurs but they go beyond ethnic, gender, age and ability divides. This is creating a new kind of social gap: between people with high fear of failure (whom I call ‘High-FFs’) and their opposites, those with high achievement motivation (‘High-AMs’).

Fear of failure is a condition from which millions suffer, irrespective of gender, class, ethnicity or age. High-FFs approach tasks expecting failure and dreading the potential for public humiliation that such failure brings. This leads them to employ avoidance techniques that, ultimately, confirm their negative predictions. While many would love to start a business – often because they feel overlooked or belittled in their current situation – they are afraid of the risks involved, making fear of failure both a debilitating and self-fulfilling affliction.

TV programmes such as BBC’s Dragons’ Den don’t help. This is behind-the-sofa viewing for most High-FF would-be entrepreneurs, whose resolve to start a business is likely to be eroded with every public roasting from a ‘Dragon’. The steely traits that form the public image of the Dragons are a long way from those of the typical High-FF.

Like the Dragons, successful entrepreneurs create their own mythology. For instance, in his book The Beermat Entrepreneur, start-up guru Mike Southon writes: “Entrepreneurs are confident. They are born optimists: they simply know they can do it. Entrepreneurs are also charismatic. They inspire people…they have optimism to spare. Entrepreneurs are also arrogant. They know they are good.”

Yet entrepreneurialism has nothing to do with hardwired personality traits. Like so many other celebrity entrepreneurs, Southon is describing himself, while conveying an image of entrepreneurship that is overly aggressive, short-sighted and unfair, not least because it alienates – and therefore excludes – so many potential entrepreneurs.

A recent survey, presented at the UK launch of Global Entrepreneurship Week, revealed that about 50% of the UK population are considering becoming their own boss, yet only 5% are doing something about it. So what’s stopping the other 45%? Partly fear of the risks and costs associated with starting a new business, and partly fear that they do not fit the stereotype of the ‘maverick’ entrepreneur.

Emma Jones points out that most budding entrepreneurs are simply looking for freedom and flexibility in their working life. The typical small-business owner, she says, is a “mum who starts a business to earn extra money for the household while still being able to do the school run”. She adds: “This is a long way from the defy-all-odds swashbuckling heroes who are most associated with entrepreneurship.”

So what can be done? Support mechanisms such as Enterprise Nation are a start, but what about funding? Fear of the financial consequences of failure is a key barrier, making the reintroduction of the Thatcher-era Enterprise Allowance Scheme for the unemployed a strong move.

Yet many people overestimate the financial requirements for a start-up enterprise. Jones says that the best way to start a business is modestly: through cautious planning and by sticking to a strict budget, perhaps while working from home or, at least at first, continuing with the day job.

This is a crucial message. In some ways, too much funding can actually disadvantage entrepreneurs in the early stages of their venture. Grants, for instance, can create unnecessary and potentially fear-inducing liabilities, such as forcing a start-up to operate at a higher level than its income comfortably allows, thereby saddling it with unaffordable costs once the grant has been spent.

An effective alternative is self-financing, and especially ‘bootstrapping’, which involves entrepreneurs – especially nervous ones – starting small and staying within their means. Fred DeLuca, founder of sandwich chain Subway, began with an investment of US$1,000 (£750) and bootstrapped his way to a fortune. He relied on cash flow to expand and never over-extended himself through debt or equity, both of which bring external obligations that can increase both the risk and the fear.

“Just because it is small doesn’t mean the business can’t grow,” writes DeLuca in his book Start Small, Finish Big. “And, while it is small, you will have the time to learn the lessons that are essential to your future success.”

Such sentiments certainly undermine any notions of inequality when it comes to succeeding as an entrepreneur: quite the opposite. Indeed, fearful people of modest means are just as well suited to entrepreneurship as their bolder, more affluent counterparts. They may even be more so, given the need for start-ups to be grounded and sustainable, rather than overnight sensations.

Entrepreneurship can be isolating, however, which can compound fears, erode resolve and increase the failure rate. At Metrocube (an early noughties incubator for dotcom start-ups where I was CEO), our aim was to get would-be entrepreneurs out of their bedrooms and into a community environment where they could swap ideas and favours with a network of like-minded individuals. Fostering camaraderie is also one of the goals at the heart of Enterprise Nation and other collegiate initiatives such as the Institute of Entrepreneurs, run by RSA chairman Luke Johnson.

Networks offer more than just advice and resources. While these are helpful, it is the shared concerns and sense of fellowship that are vital to the lonely entrepreneur, especially if his or her own socio-economic grouping is under-represented in entrepreneurial circles. Mentoring can also be valuable, although care is needed when trying to impose formal structures on individuals who may just be looking for shared experiences, occasional guidance and – most importantly – a network.

Networks, however, are only part of the answer. More importantly, the image of entrepreneurship needs to change so that it encourages both the cautious and the fearful, proving that this most meritocratic of economic sectors is open to all.

Robert Kelsey FRSA is a businessman and author
Robert Kelsey’s book, What’s Stopping You? Why Smart People Don’t Always Reach Their Potential, and How You Can will be published by Capstone/Wiley in April 2011

[pull quote] Entrepreneurialism has nothing to do with hardwired personality traits
[call to action] The RSA’s Social Entrepreneurs Network provides a source of support and advice to Fellows interested in social enterprise. Join in the discussion at www.RSAfellowship.com/group/socialentrepreneursnetwork

The revenge of the nerd

A long flight and I finally get to see The Social Network, the recently released movie on the founding of Facebook. As an entrepreneur I find the execution of ideas into reality fascinating, hence my addiction to programmes such as Dragon’s Den and The Apprentice despite their being run through the inevitable anti-business mangle of the BBC (making anyone interested in business appear dodgy, unlikeable and/or criminal). No less so Hollywood, it seems, as The Social Network quickly descends into a near-farce of backstabbing perfidiousness and intrigue, whatever the historical reality.

Like most people, I watch movies developing either sympathy or antipathy towards the main characters, although I’m often attracted or repelled in the inverse to the director’s most obvious intentions. Yet this was a difficult one to call, as the scriptwriter’s (Aaron Sorkin’s) obvious intention of pointing out accredited founder Mark Zuckerberg’s character flaws was balanced by the lack of other characters deserving support.

The narrative focuses on Zuckerberg’s defence against two law suits aimed at recognizing the significant role played by others in the creation of Facebook. Zuckerberg is portrayed as an disagreeable misanthropist whose lack of empathy for his fellow students borders on Asperger’s Syndrome (although an online debate on the subject concludes against this notion). His misanthropy – it seems – extended to shafting a group of New England aristos (Cameron Winklevoss, Tyler Winklevoss, and Divya Narendra) who claimed the idea as their own and Zuckerberg as originally no more than their recruited programmer. It also extended to freezing out Paul Ceglia, the original funder of Zuckerberg’s venture, and apparently the only person on campus with a favourable view of our inventor prior to his success with Facebook.

My empathy was certainly not triggered by the plight of the aristos. As Zuckerberg said (at least in the movie), their ire was triggered by the fact this was the first time in their lives that something had not gone their way. Astonished by Zuckerberg’s chutzpah – a boy they seemed to consider an unattractive, unclubbable outsider – they used daddy’s attorney to plot retribution for the “stolen” idea.

Partly, my lack of empathy for the aristos comes from my former role as Metrocube CEO, where we witnessed many start-up companies in our London incubators and developed an insight into what entrepreneurial contributions counted, and what didn’t. One contribution that counted for very little was the idea. In fact, it counted for nothing – zilch – in our view because we saw that execution was everything. And if you lacked the skills to execute your idea – as the aristos appeared to – you were vulnerable to those that had such skills, as the aristos discovered. One of the reasons we believed this at Metrocube was because it was clear that, in any given set of circumstances, several if not many people were capable of having the same idea simultaneously.

In the case of Facebook (again going by the movie), it was various houses at Harvard College that had the original online “facebook” (yes, even apparently using that name) for undergraduates. So to make the leap into a cross campus Facebook, with added functionality for further personal details, was such a small leap of imagination that it hardly even deserves the credit of being an idea (not least because MySpace was well established at the time). From what I could see, it was simply a race to market and it was the aristos’ bad luck to “employ” (there was no sign of a contract) a programmer with entrepreneurial ambition.

Or was it such bad luck? I’m just going on the movie (and some fact-checking on Wiki) but the aristos won a substantial settlement ($65m according to the movie, $20m according to Wiki), which – in my view – they can put down to their fabulous luck in choosing Zuckerberg as their programmer. Anyone else and no enterprise would have gotten off the ground, giving them no one to sue for "their" brilliant idea (and I’d wager there are others who also claim the idea). Daddy’s attorney certainly earned his fee on that one (as stated, just an opinion based purely on the movie).

Yet my empathy did extend to Zuckerberg’s “only friend” (as he called himself during his lawsuit) and the original funder of the venture – roommate Paul Ceglia. While ideas are cheap (free even), risking cash at such an early stage deserves reward. And Facebook would have remained no more than an idea without Ceglia’s $1,000 – making his “three-F” stage investment (friends, family and fools) crucial.

So what of Zuckerburg himself? The misfit, the geek, the social outcast – this is a difficult character to empathise with, not least because he doesn’t seem to seek our empathy. In the movie, at least, he seeks revenge – against his girlfriend for dumping him, against all womankind (at least on campus) for finding him unattractive, against the college establishment, against the WASP jocks that guarded entry to the elite clubs and houses at Harvard.

In terms of social skills Zuckerburg appears to follow the Millwall FC mantra of “no one likes us, but we don’t care”. At least, he seems to accept his unpopularity as a price for his genius. Arrogance is the result, as well as an entrepreneurial clumsiness that most will see as typical of the billionaire mindset although, in most cases, leads to disaster and no eventual movie portrayal. Even for Zuckerburg, it resulted in lawsuits that – in the case of Ceglia at least – could and should have been avoided with a more synergistic approach.

One obvious question for this blog is whether Zuckerburg is a High-FF (someone with a high fear of failure, as described in What’s Stopping You?)? I think not. Certainly his social awkwardness is a High-FF trait, although the key aspect of High-FF behaviour he lacks is avoidance. He jumps right in – elbowing others out of the way in the process. Convinced of his messianic mission, he remains focused on the end result and is happy to make small adjustments on the way (such as dropping “the” from the title). This makes Zuckerburg more a classic High-AM (those with high achievement motivation – the opposite to a High-FF).

Nor Ceglia, who was happy to back Zuckerburg with cash on more than one occasion prior to the website earning a dime. No, the real High-FFs in the story (at least as portrayed by the movie) were the three aristos who claimed the original idea, outsourced it to a “doer” – thus ceding control to the High-AM – and then complained bitterly that their idea had been stolen. Only their rich daddy and his attorney saved them from achieving nothing from “their idea” – like millions of High-FFs before them who have also had ideas and then failed to act.

Not all High-FFs, it seems, are deserving of empathy.