Failure Is Not an Option

Failure is not an option
31/08/2005. Source: IVCJ. Dr. Arielle Lehrmann

What makes the entrepreneurs backed by venture capital firms believe that they will be the one to beat the statistics? What traits, value system or faith is necessary in order to think a portfolio company will make it despite the sometimes-gloomy numbers? Dr. Arielle Lehrmann looks at the delicate dynamics between entrepreneurs and their private equity backers.
Organisational psychologist and former high-tech entrepreneur Dr. Arielle Lehrmann delves into the mindset of the entrepreneur and finds a highly motivated person committed to succeed and much more.

Statistics on successful start-ups imply that a high-tech entrepreneur works hard and dedicates years of his or her life "against the odds." What makes an entrepreneur believe that he or she will be the one to beat the statistics? What traits, value system or faith is necessary in order to think one's business "will make it" despite the gloomy numbers?

As an organizational psychologist as well as a former high-tech entrepreneur, I've long been interested in the "entrepreneurial spirit." Is it a spirit that sees a learning opportunity where most people see a dead-end, or is it the spirit of megalomania, of a certain detachment from reality?

The psychological study of entrepreneurship is not a start-up. It began long before many of today's active entrepreneurs were born. As early as the 1950s, researchers tried to map the personality factors that determine who is - and who is not - likely to become an "entrepreneur".

In the 1960s, it was found that entrepreneurs had a higher need for achievement than non-entrepreneurs and were, contrary to popular opinion, only moderate risk takers. A great deal of research on the personality characteristics and socio-cultural background of successful entrepreneurs was conducted in the 1980s and 1990s.

In an analysis of more than 50 studies, there was a consensus around six general characteristics of entrepreneurs: (1) determination; (2) leadership; (3) opportunity pursuit; (4) tolerance of uncertainty; (5) creativity; and (6) motivation to excel.

It is agreed then that entrepreneurs are "determined". But what is the state of mind, which underlies their determination? In other words, what kind of thoughts and beliefs enable an entrepreneur to carry on when others burn out? Do entrepreneurs have a special relationship with what we call "reality"?

This is quite a tricky point as studies indicate that the vast majority of people have a special relationship with "reality". In fact, intriguing psychological data suggest that the people who are the most precise and realistic in their judgment are those who have been diagnosed as clinically depressed. In particular, studies found that depressed people are realistic as to whether they can control uncontrollable events, while non-depressed people exhibit an illusion of control over the same events.

This phenomenon, known as "depressive realism", means that being realistic about your capabilities is actually not a very healthy thing. Apparently, in order to function well, we need to believe we are capable and in control even when we are not. So it seems that a certain detachment from reality is necessary for normal functioning. May a further detachment from reality be required in order to become an entrepreneur?

"An entrepreneur must have an absolute trust in himself and in his ability to change the world around him. He is very high in what we call in psychology self-efficacy", says Amir Rubin, partner and chief psychologist at Tema, a recruitment and placement firm. "Optimism is a must for entrepreneurship, but optimism is just the external manifestation of an exceptionally high self-confidence. Such a confidence is very appealing, but it comes at a cost. The costs may be megalomania and losing touch with reality", Rubin warns.

"Entrepreneurs have the energy of creating a breakthrough. The challenge is to think beyond the breakthrough - on the day after the 'big bang' - how to channel the energy into a useful and profitable business?"

For VCs who interview entrepreneurs, Rubin has a word of advice - "make sure the entrepreneur is listening, open for discussion, interacting with his environment. See if the charisma is balanced with some humility and readiness to learn. Check whether the entrepreneur is exchanging views with you or only seeks to impose his own point of view. If he is open to learning, he's not only an entrepreneur but also a manager - which is, of course, what VCs are looking for."

A learning curve, the accumulative result of years of experience, is incompatible with the culture of most Israeli start-ups, says Yifat Reuveni, a researcher at McGill University, whose doctorate examines the organizational culture of high-tech industry in Canada and Israel.

Reuveni recalls a huge sign welcoming the visitors in one of the start-up companies she studied: "Failure is Not an Option". "Most high-tech entrepreneurs are probably more optimistic than the average man", says Reuveni, "but it is easy to be optimistic when you come from a favorable socio-economic background and do not risk your own money."

Reuveni notes that frequent job changes in the high-tech industry make it easier to deal with failures. "These days when a start-up company shuts down, the entrepreneur will seldom have the patience to explore what went wrong. Instead he is more likely to say 'next please'."

Reuveni clarifies that optimism and determination are not synonymous: "Israeli entrepreneurs may be optimistic and keep high spirits, but they seldom need to show determination and persistence in the long term. In North America, entrepreneurs aim at building solid, lasting businesses. In Israel, the dream is the exit - the sooner the better".

Rony Ross, executive chairman and founder of Panorama, should know something about determination and persistence. When she started her high-tech career more than 25 years ago, there were hardly any role models around, let alone female role models. For Ross, the creation of some-thing out of nothing defines the entrepreneurial experience.

"When you're making the first steps, " she says, "you're alone. You come to investors on your own. You give all those presentations on your own. Ninety-nine percent of the people around you don't know what you're talking about and can't understand why the hell it's important. You have to generate an extraordinary amount of energy to make it happen. Risking other people's money is far from easy. They risk money, but you risk something much more fragile, because your honor and ego are at stake".

When Rony Ross started her entrepreneurial journey she was aware of the difficulty. What came as a surprise to her was the elation brought by success: "An entrepreneur's life is extreme - very long hours, crazy travels, extraordinary efforts. But when you actually make it, the satisfaction is huge. I didn't know a professional achievement could be so uplifting, so fulfilling… I didn't realize how it was going to affect me. Like extreme sport, it's addictive, which is why entrepreneurs tend to become serial entrepreneurs."

But what if you don't make it after all? What crosses your mind when things go wrong? "It's the other way around. I fear the easy way. Because when it gets hard, this is exactly when you find your strength. It's almost like an instinct. The need to fight sharpens your view. You see things more clearly. You become focused. I discovered I'm at my best at tough times. A business partner used to say, 'I see we're in trouble' whenever he saw a really big smile on my face!"

"Entrepreneurs focus on the next steps instead of falling down", agrees Gil Hecht, founder and CEO of Novus Interactive, a provider of business continuity testing and monitoring solutions.

"The real world is bound to put obstacles in your way, but you believe in your idea, in your business, in your team, and you just keep on. Entrepreneurs know the statistics about start-up successes, but they put them aside the same way we put aside statistics on car accidents when we're on the road." Hecht emphasises that in our volatile business world, no one is immune.

"Companies shut down all the time - not only start-ups, big corporates too - but this fact does not stop people from building, creating and making business, does it?"

Hecht indicates that there is a well-known duality between vision and realism in companies, typically represented by the CEO and the CFO. "The CEO wants to fly, while the CFO has to remain grounded. The CEO is a doer who wants to do this and that, while the CFO will explain why this and that are not currently possible." Hecht points out that the management role shapes the perception and behavior of the entrepreneur.

"You can be sober and disillusioned in the middle of the night when you're on your own or perhaps with your spouse," he says, "but during the day, when you're surrounded by business colleagues as well as competitors, you have to express hopefulness, you have to sell. With time, these selling skills become part of you - you need to be optimistic, so you become an optimist."

Shay Ben-Asulin, co-founder and chairman of m-Wise, a wireless middleware technology provider that recently completed the listing of its shares in the US, says real entrepreneurs realize the way to success is hard and long. "At m-Wise we say half jokingly, 'if it was easy, everyone would be doing it'", he says. Ben-Asulin thinks the vast majority of start-up failures in recent years are due to "people who were not really entrepreneurial, but got somehow tempted to start their own high-tech business, fantasizing it would rapidly make them rich."

Ben-Asulin comments that "being an entrepreneur sounds appealing and sexy, especially as people believe they are going to risk other people's money rather than their own. In reality, entrepreneurial life is much more challenging than the common perception. You have neither job security nor fixed income. You may live without a salary for a significant period of time. On rainy days you may need to use your own pocket and sustain your business. People should take this into account when they consider becoming entrepreneurs."

Ben-Asulin believes the compensation is more in ego than in financial terms. "Entrepreneurs," he maintains, "do what they do because they're in love with the idea. Usually they're in love with their own idea, but at times they fall in love with an idea that originated from someone else, but they were the ones to recognize its business potential. The gloomy statistics seem irrelevant for them. They think that their idea is so wonderful that it must work out."

Failure is therefore not an option. And optimism is a must. On an optimism scale of one to ten, entrepreneurs would probably score not less than nine. At the same time venture capitalists would probably score not more than seven. Contemplate this difference, and you will under-stand something about the delicate dynamics between entrepreneurs and their investors.

Dr. Arielle Lehrmann

Dr. Lehmann is affiliated with the Zofnat Institute for Organizational Research and Consultancy - www.zofnat.co.il

Human Capital: Beyond Technology

Beyond technology
Engineering can be automated; the future belongs to artsy folks
By Michael Hill
Sun reporter
Originally published July 2, 2006

The future, as we all know, will belong to the techno-savvy whizzes who can write computer programming code in their sleep. According to this conventional wisdom, the health of our economy depends on educating a new cadre of technocrats and engineers ready to do battle for the U.S. in the digital wars.

That's hogwash, says, among others, author Dan Pink, whose book A Whole New Mind draws up a very different blueprint for economic success in the 21st century.

"We tend to obsess on high tech, high tech, high tech," he says. "In some ways, that's fighting the last war."

Pink says that in that last war, success was associated with the logical functions associated with the left hemisphere of the brain, things like "being able to do a spreadsheet, ace the SAT, zero in on the right answers.

"Those abilities might be necessary, but they are not sufficient," he says. "It's the other kind of abilities, right-brained abilities - artistry, empathy, inventiveness, big-picture thinking - that give you skills that are hard to outsource and even harder to automate."

The idea is that the computer-based, Internet-connected, digital technology is now a given, a platform that can largely be constructed and maintained either by relatively cheap overseas labor or, even more cheaply, by computers themselves. So there is not going to be much future in learning how to build that platform.

There will still be a few out on the edge, using right-brain skills to envision real advances in the technological infrastructure. But most of the money is going to be made by those who put something interesting and desirable on top of that platform. It's akin to when everyone in the country got a television - the big money wasn't in building the sets, it was in making the programs that were shown on them.

It's an idea that's catching on with more and more educational leaders.

"We are realizing that the technology will take care of itself," says Kevin Manning, president of Villa Julie College. "The real question is how to use the technology in a significant way."

President Freeman A. Hrabowski III of the University of Maryland, Baltimore County, a trained mathematician who is usually bragging on the scientists UMBC is turning out, likes to talk this year about the classics scholar who is off to Oxford for graduate study.

"Certainly, you need students to be comfortable with technology, and we certainly need more scientists," says Hrabowski, who cites the influence of Pink's book. "But we need people who are broad thinkers.

"And part of that breadth comes from taking humanities and social sciences," he says. "There needs to be more emphasis on the importance of literature and philosophy and the arts more than ever before, as there is more and more interaction between humanity and technology."

Pink puts it succinctly.

"The M.F.A. will be the M.B.A. of the future," he says, predicting that the basic arts school graduate degree, the master of fine arts, will have more value in this new economy than what is now considered an imprimatur needed for success in the business world, the master of business administration.

This theory is being put into practice at the University of Baltimore in a program designed to train people for jobs in one of the big employers of the new digital economy - the computer game industry. Maryland is a major center of this industry.

Kathleen Harmeyer, the director of the simulation and digital degree program at UB, says that the first thing industry employers told her was that they didn't need computer science majors. The people attracted to the profession are already techno-literate. Harmeyer refers to them as "digital natives," those who grew up with this technology, as opposed to people her age, who are "digital immigrants."

As Pink says, he is old enough to remember when people put "computer skills" on resumes.

"If you did that today, you would be disqualified, not qualified," he says. "It would be like putting down 'pencil skills' 60 years ago. When high-tech ability becomes ubiquitous, it does not have economic value."

What Harmeyer says the computer game industry needs is people to come up with story lines and characters and artistic ideas, to think about the psychology of what gets a player involved in a game, and other things rarely taught in a computer programming course.

"You need a broad, liberal education," she says. "You need to know everything - most of all, how to get along with people, because being in a service economy, you are always working with three other people or 10 other people. If you can't get along with people, you are out."

The students in the UB program take game development courses that teach some computer skills, Harmeyer says, but they are also required to take mythology - the source of many game characters.

"They need a broad base of information," she says. "We make sure they have history, philosophy, sociology, psychology."


The students take art courses at nearby Maryland Institute College of Art. "Art is key," Harmeyer says. "Art and design is what the player sees first. They can either be engaged or turned off by that."

As Pink would point out, art and design are not courses taught in business school.

Deb Tillet, president of BreakAway Ltd., a Hunt Valley-based computer game and simulation company, says that many of her company's hires come out of MICA.

"A lot of what we do in computer games and across the board to the more serious side of computer visualizations requires 3-D graphic artists," she says. "So we have MICA graduates who have taken courses in using computers to create art, but who are also classically trained in art.

"We also have historians and writers and any manner of folks who design and create stories around our computer games," she says. "There are a lot of people with music backgrounds."

Tillet says that the U.S. leads the world in computer games for the same reason Hollywood leads in movies.

"It goes back to something de Tocqueville says about individuality in American culture being unlike any other," she says. "You can outsource the art when it becomes rote or production-like. You need to create certain pieces of programming, but that can essentially be a learned skill.

"What you need are creativity, innovation and individuality," she says. "Those are the people we are looking for, that make me stay up at night wondering where they are coming from."

Pink says that most technologically based industries are telling engineering schools the same thing. "They are saying, 'Don't give us technicians, people who only do routine work; we can send that to India. We need people who can think across disciplines.'"

Tillet says that the computer game industry was started by the same kind of people she is looking for now.

"It began with a few people who went on to be super-, super-, superstars," she says. "They followed their dream. They had a real passion for their idea, a desire that turned a few little blips on the screen into what we are now.

"They are the true heroes who started with a passion and created an industry," she says.

That speaks to another of Pink's points - that following your passion is not just a cliched recipe for a fulfilled life of dubious financial reward; it is the new path to economic security.

The reason, he says, is that if you are doing something you really care about, you are much more likely to engage your right brain and come up with the type of creative ideas that will be the desirable products of the 21st century.

"If you ask me, 'What should I study?' I would say you are asking the wrong question," Pink says. "I would say, 'Let me ask you: What do you love to do? What gives you meaning and pleasure and enjoyment?' Because that is a window into what you should be doing for a living."

So, Pink says not to become an accountant because your parents tell you it will be a good job - then, you would probably just do the rote accounting jobs that will be taken over by online services from India, or by programs like TurboTax. "But if you love accounting, then you will probably be a great accountant. You will never let the job get automatic."

In other words, you will bring to accounting a kind of creativity and inventiveness that can never be outsourced.

For instance, say you love cooking. A restaurant is a big capital investment that competes with franchises, the food equivalent of automation. But the dedicated chef can be creative.

"Not that long ago," Pink says, "people like me had never heard of a personal chef. They were something only the Rockefellers had. Now they are motoring through suburban Baltimore, delivering meals to private homes. Try outsourcing that to India."

If you are doing something you love, you will also probably bring to your job something that Pink says is invaluable in the new economy: an empathy for your clients that will make your relationship more than a simple economic transaction.


Pink says that in a world of abundance - so abundant that one huge growth industry is places to store all our excess stuff - economic success will go to those who create products that deliver more than the physical item, that give the buyer something "that satisfies the growing nonmaterial aesthetic and emotional yearnings of a very abundant age."

So we don't just buy toilet brushes, we go to Target - one of the companies that Pink says understands this new economy - and buy Michael Graves' designed toilet brushes.

"The cell phone is a perfect example," he says. "It went from a logical device to an emotional device to an aesthetic device. In some ways, cell phones are now fashion accessories. Razor cell phones sell not because they make calls better but because they look better.

"Or look at ring tones. Several billion dollars are spent on ring tones each year," Pink says. "Our grandparents would think that was crazy, but that's what happens in a world of abundance."

Pink notes that the hot things in computers right now are not new technologies but applications like MySpace. "That's not a big technological advance, but it's a big advance in giving regular folks places for self-expression."

The people who come up with these ideas, Pink says, will be the ones who have engaged the right side of their brain because they are working on something they really care about. He points to Whole Foods, selling you not just the chicken but its back story, where and how it was raised. Or Toyota, selling a hybrid that really makes no economic sense as a math problem but provides an intangible, a means of self-expression.

Apple, Virgin and JetBlue are other companies that Pink says understand this new right-brained economy. Almost all are run by individuals with distinctive personalties who have a strong sense of what they and their companies are about, the kind of love for their job that leads to the creativity needed in this new marketplace.

Manning of Villa Julie - a school with unabashed vocational aspirations for its students - talks about taking this idea into the real world with a program at that school called "career architecture."

"How do you educate someone in a specific area, knowing that all the jobs in their market will change drastically in their lifetime?" he asks. "One way is to develop this process that will help students identify what their core values are, try to help the student talk about and think about what are the things that really interest them in their lives and in their world and in their work."

Manning says that these are skills the students can "use and replicate their entire lifetimes," even as the specific skills needed for their various jobs change. And it fits into Pink's contention that if the students continue to work in jobs that mesh with their core values, they are much more likely to have successful careers in the right-brained economy.

Other basic values will grow in importance as specific skill sets have a shorter and shorter half-life. "What we talk about is teaching people how to learn, to develop a lust for learning," says UMBC's Hrabowski. "That's far more important than any particular course one might take."

And then there is the matter of learning to work in groups, the ubiquitous teams of the modern corporate world. Pink, whose previous book Free Agent Nation advocated breaking away from companies and working on your own, might prefer to put the emphasis on the importance of empathy in terms of understanding your clients and customers.

In either case, Harmeyer says the lessons are old ones.

"A lot of it is what we were taught growing up," she says of those raised in a previous generation. "I am noticing that basic politeness is something that is not taught today, but that is number one for anyone on a team. You can't have a Jerry Springer encounter, but that's what they see on TV. If you have screamers on a team, nothing gets done."

So, where you used to put "Computer skills" on the resume, insert "Plays well with others."