In a guest column for WA Business News, Tim Atterton, director of the Entrepreneurship and Business Development Unit at Curtin Business School, and chairman of WA Small Business Development Corporation, gives an insight into what it takes to crack the ‘entrepreneurial code’.
ATTEMPTS to understand what it is that differentiates high-growth entrepreneurs from ordinary new businesses has taxed entrepreneurs, researchers, bankers, venture capitalists and the broader business support sector for years. As yet, no one has come up with an answer that is really useful which can be applied.
However, current research: “Cracking the Entrepreneurial Code” is coming up with some revealing and useful findings.
The research team comprises: David Hall, a consultant in corporate entrepreneurship; Dr Wyatt Woodsmall, coach to the American Olympic athletics team; David Johnson, an expert in psychological profiling; and me, an experienced business support practitioner within a business school.
This unique combination of an entrepreneur, a top Olympic athletics coach, a psychological profiler and a ‘practical-academic’ was deliberately put together to look at the problem from new perspectives. The team used interviews, modeling and self-assessment of 105 entrepreneurs from the UK and Australia to produce some fascinating new insights.
This is one of the few studies that correlates entrepreneurial behaviours with financial performance over 10 years, in order to identify the behaviours that predict success. Less than 10 per cent of all studies of entrepreneurs relate the finding to actual performance data.
Early strong indications are that the activities of the entrepreneur and key team are focused upon the creation of a valued business. This may seem obvious, but behavioural profiling indicates that businesses that fail to achieve do so because a great deal of time is spent in activities that add nothing to the creation of a valued business.
High-growth entrepreneurs seem to make the decision to create a high-growth business from day one, although when asked they may not be aware of it, but their behaviour confirms it.
Two key themes that emerge, which distinguish high-growth entrepreneurs from the rest are ‘insight’ and ‘energy’. Insight is about spotting ‘superior opportunities’. Entrepreneurs see and capture superior opportunities others fail to see. Superior opportunities are the starting point for high-growth businesses as opposed to hard-growth businesses. A superior opportunity is one with high margins, one with a source of enduring competitive advantage, and one that is new and defensible.
The ‘Cracking the Code’ team has discovered at least 20 algorithms of how high-growth entrepreneurs convert ordinary opportunities into superior opportunities.
For example, one of the research sample has developed a one-stop gadget shop to retail high-tech gadgets under one roof. It was a brilliant success – so a one-stop shop is an example of an algorithm, or way of creating a superior opportunity.
One of the new findings is that successful entrepreneurs have a ‘difference frame’ that allows them to see things differently in order to spot superior opportunities.
While 80 per cent of the population sees similarities when they look at things, entrepreneurs see distinctions, which they turn into ‘don’t like’, which become ‘could improve’, which can develop into a new opportunity.
Another entrepreneur in the research sample noticed that fence installers had problems when the wire supplied by his company broke and installers struggled to fix it. He felt that this was unsatisfactory, so he invented the Gripple, a clever device that enables fence installers to mend broken fences quickly and safely.
The findings show clearly that the lead entrepreneur and the key team at the helm of the business display what we are calling ‘purposeful goal directed energy’. High-growth businesses happen because the individuals at the helm of the business are able to channel their energies and resources in a purposeful direction towards the achievement of established goals. They have compelling visions, which keep them on track.
Entrepreneurship is about passion and energy, sheer will and persistence. These people are really driven and that’s what makes them successful. Often, this drive comes from the need for entrepreneurs to prove their identity to themselves. Often they had early childhood setbacks, which lead them to say: “I will prove myself to myself and do whatever it takes”. This is a major energy source.
Another feature of successful high-growth entrepreneurs is that they engage in ‘deliberate prioritisation’. They identify the strategic priority, sequence an order of tasks and then delete any activities that do not contribute directly to the successful completion of the task.
The behaviour of the core team is mobilised towards what we call the creation of a ‘business generating system’. In entrepreneurial businesses, ‘focused networking’ is a key component of their business generating system – ‘know who’ as well as ‘know how’. This was epitomised by one entrepreneur, who described his business generating system as making contacts and turning the contacts into relationships. These became contracts, which he turned into partnerships and often into joint ventures.
When it works really well they become family.
The key process of creating new customers is by ‘problem seeking – problem solving’ which, when done well, creates friends for life. More than 90 per cent of high-growth businesses use this approach to create new customers and build their business. They identify where the customers are having problems and then fix these as fast as possible – they then give us a share of the action.
The research confirms the critical need to delegate and involve other people in the process. Almost by definition a high-growth business is a team project, and while the entrepreneur may lead the process, it will not happen if he or she attempts to do it alone.
According to the research this is one of the main failings of many entrepreneurs, who would like to grow but are unwilling or unable to delegate and involve others. High growth requires a driver (lead entrepreneur) doer, seller and controller. It’s rare to get these skills in one person.
The value of profiling is that it allows you to identify behaviours that build the business and behaviours that make little contribution.
As Dr Johnson says: “If the balance of behaviour tips in favour of wasteful activity, the business is destined to fail or muddle along, surviving from year to year, but never growing”.
An interesting indication at this stage of the research is that those people who had built successful businesses displayed higher levels of what we describe as ‘emotional robustness’. This does not mean that they are 100 per cent ‘well sorted’ as individuals, but when it comes to running the business they are able to talk positively to themselves and maintain an image of capability with customers and clients.
When they get home, or off stage, they may not feel capable at all, but when on stage they maintain themselves to hold the deal together. They achieve this by supportive self-talk. One way of maintaining emotional robustness is to ‘act as if …’. When negotiating tough deals, simply say: “It’s no big deal” and then your body language and words become congruent and you usually get what you want.
One of the clearest early indicators is the propensity for successful entrepreneurs to focus upon the big picture.
They like to work in a way that will produce results and do not wish to follow procedures or do things in a methodical order. This is interesting as it may explain why many people who establish their own businesses after being employed within larger organisations struggle when working for themselves.
They find it difficult to see the big picture. Once again, however, it is important not to lose sight of the need for effective and focused management within a high-growth business.
However, if you expect the lead entrepreneur to do it you will be disappointed. It also explains the frustration that occurs when business support agencies attempt to focus the lead entrepreneur on the fine detail of a business plan. This needs to be done, but done sensitively and with great skill.
“Let us not kill entrepreneurship”, said the Cracking the Code team.
The two Davids and I have worked in this field for more than 20 years and are able to bring our extensive experience to interpreting these results and crafting interventions that have made a significant difference to many businesses.
We are also helping large organisations rediscover their entrepreneurial spirit and advising banks and venture capitalists on which prospects have the requisite entrepreneurial talents.
The amount of money that will be made and saved if venture capitalists and other investors can increase their return on investment is immense.
p See Financial Management, page 33
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