Building on Bedrock Page 2
Stephanie DiMarco created a large and successful software company. She’s not a computer programmer, engineer, or scientist (she’s an accountant); and she didn’t need venture capital until it was entirely in her best interests to seek it. Initially, Stephanie had a computer engineer as a partner. How that became both a blessing and a curse is an important story in itself. Choosing partners and making early hires is one of the trickiest aspects of starting a company, something many entrepreneurs fumble, killing their chance of success. Stephanie serves as an excellent role model in many different entrepreneurial dimensions. Her company sold its software to other companies, the company had a successful IPO, and it grew to be global and immensely valuable. I doubt you’ve ever heard of her or of Advent Software, but her story illustrates the contrast between how most successful entrepreneurs grow their companies and how the high-risk entrepreneurs we read so much about grow theirs.
You will also meet Vidal Herrera, a disabled entrepreneur who had no choice but to start his own business or see his family starve. The world is filled with people who, like him, became entrepreneurs out of necessity. Almost all of them learn on the job how to succeed as business people. They go on to build valuable companies, often with the goal of creating a lifestyle that rewards them for having survived onerous hardships. Vidal, who grew up very poor and barely made it through high school, created a company based on the only skill he possessed that anyone cared about: performing autopsies. When he founded 1-800-AUTOPSY he had no idea what entrepreneurship was about, yet he succeeded without earning a fancy degree or plowing through complicated books on the topic.
Ken Marlin is a college dropout who joined the marines and eventually founded one of the most profitable, valuable, and influential boutique investment banks on Wall Street. Wall Street seems impenetrable and scary to virtually all entrepreneurs (particularly since we’ve seen so many large, old investment banks go down in flames in the past few years). Ken’s story shows us that prevailing establishment wisdom about what’s possible and what’s not doesn’t apply to entrepreneurs that are diligent and genuinely open to learning new skills.
Getting to know legendary entrepreneurs poses challenges, whether they’re dead or alive. Their companies, families, financial trusts, and others have vested interests in maintaining their image. And their autobiographies are often exercises in making myths. If we are to understand such people, we need to get below the surface of the myth to a level that illuminates how things really happen.
Consider Sam Walton. On many measures he is the most successful entrepreneur of all time—Walmart has greater revenues than any company in the world, and it has created more jobs, both directly and indirectly, than any company in history by far. And Sam’s family still owns a large percentage of the company, which is another amazing feat. How did he do it? Was he just lucky? Was he a pre-digital-era phenomenon? Who is the man behind the myth?
As someone who studies and teaches entrepreneurship, I needed to know the answers to these questions about Sam. I have been very fortunate to have been granted access to the archives of the Walmart Museum in Bentonville, Arkansas, where I have immersed myself in his personal papers and notes. A diligent team of archivists, aided by the Walton family and many of Sam’s closest associates over the years, have collected a warehouse full of Sam’s notes, reports, artifacts, and memorabilia. All this documentation and all these artifacts mean that there is plenty to learn from Sam, beyond the legend.
Having been an entrepreneur, as well as a CEO of a global public company, I can directly relate to the context and tone of his notes, letters, and memos. Reading them, you can see where his thinking started and how it evolved relative to key aspects of entrepreneurship that are just as relevant today—his experiments in making money, scaling up, finding people who would dedicate their lives to his vision, staying in control, and out-foxing even the most well-funded and experienced competitors.
He was clearly a bedrock entrepreneur. He grew his company based on coaxing ever-increasing profits from the small retail stores he initially franchised. He was supported in his efforts with money he borrowed from family and then from banks. He relentlessly learned through experimentation and from emulating others. He took on risk but he never “bet the company.” He knew what the people he put in key positions had achieved for others and he was confident that he could provide them with the support, and surround them with a culture, that would enable them to do even better working for him. The lessons we can learn from Sam are relevant to every entrepreneur that’s ever lived, including today’s digital age high-risk entrepreneurs.
Sam wasn’t perfect and he would be the first one to say so. While you may aspire to be better than Sam in certain areas after reading this book, you will nonetheless come to understand that being a great entrepreneur has nothing to do with perfection. But every aspiring or practicing entrepreneur today, bedrock or high-risk, needs to understand Sam.
You will also get to know Estée Lauder, Ray Kroc, and Walt Disney, all of whom embody important truths about entrepreneurship. Walt Disney serves as a particularly relevant juxtaposition to Sam Walton. Sam was focused on relentlessly improving the performance of his stores, and he borrowed good ideas from wherever he found them. Walt Disney was driven by his desires to do things that had not been done before. He was open to incorporating the ideas of others into his visions, but he wanted to entertain people in completely new ways. Walt Disney innovated more businesses that directly impacted the lives of more people around the world than even Steve Jobs. Walt worked in the entertainment industry when it was the hotbed of innovations, investment, and aspiring startups, completely analogous to the period of development of the personal computer and digital electronics that served as the fertile bed of possibilities for Steve Jobs.
Walt and Steve share many personality traits, quite a few of which made them difficult to deal with but which led them to develop products they considered beautiful and perfect, often to the consternation of their colleagues. Similar to Jobs, Disney suffered setbacks too; he went bankrupt, had his second business taken away from him by his distributor, and was sidelined by his board (at the insistence of his bankers).
Estée Lauder serves as a particularly relevant role model for young aspiring entrepreneurs who want to turn their natural interests into vast enterprises. Estée aspired to rise above her very humble beginnings. Starting as a teenager, she relentlessly experimented with how to sell beauty products. It took her decades of making small profits to find out how to make the large profits that would allow her to live the life she wanted.
By contrast, Ray Kroc was fifty-two years old when he decided to dedicate the rest of his life to licensing McDonald’s franchises. His story is particularly relevant to entrepreneurs seeking a career change. Ray had spent his career up until then perfecting his selling skills, which he relied upon to create a large business, when he finally spotted the major entrepreneurial opportunity he was hoping to find: selling McDonald’s franchises on a national scale.
You need to understand high-risk entrepreneurs as well. With the support of venture capital they create companies that grow faster than the companies of bedrock entrepreneurs, especially when economies of scale or network effects provide a competitive advantage over everyone else. Although high-risk entrepreneurs represent less than 1 percent of all successful entrepreneurs in the United States, they do generate about 10 percent of all new entrepreneurial wealth. Not surprisingly, however, aspiring high-risk entrepreneurs fail at a much higher rate than bedrock entrepreneurs. Mark Zuckerberg, Larry Page, and Travis Kalanick (of Uber) are high-risk entrepreneurs. Their stories are well known, and won’t be retold here, but you will learn why they made the right decisions in taking higher-risk paths to success. But their paths are for the very few, and I will make clear why almost all successful entrepreneurs, including many tech entrepreneurs, correctly choose not to emulate them.
Occasionally, we are fascinated with entrepreneurs who found companie
s that they sell quickly for large amounts of money. These “fast-flip” entrepreneurs often have interesting personalities and lifestyles, but they make terrible role models for aspiring entrepreneurs. And fast-flipping can only occur during the short windows of time associated with the hyper-adoption of major new tools and technologies. How fast-flip entrepreneurs achieve high-risk/short-term pay-offs has virtually no relationship with what entrepreneurs need to do to achieve long-term growth and profitability, and so in this book I will ignore them.
The conclusions I reach in the book are at every point consistent with the research in the field. Since the goal of this book is to describe real, potent, and relevant role models for aspiring entrepreneurs, I often rely on storytelling to convey what is important. I pay particular attention to the critical emotional components that drive entrepreneurs to do what they do. Because emotions drive actions, they ultimately drive entrepreneurial success or failure.
Unfortunately, much of what is written about entrepreneurship is misleading or wrong. Worse, our fascination with high-risk entrepreneurs can lead us to make faulty decisions that result either in failure or missed opportunity. Our fascination has encouraged more entrepreneurs to undertake risks not commensurate with the economic or social value delivered—risks taken for the purpose of setting valuation records rather than bettering the lives of others. These risks can lead to behaviors that are unethical or asocial—their sole purpose can be to increase valuations at the expense of the public. Only by becoming better educated about entrepreneurship can our fascination be refocused on the bedrock entrepreneurs that are essential to our happiness and well-being.
Entrepreneurship is a hot topic. It encourages people to claim expertise on the basis of limited personal experience. Experience can give context to the How and some of the What, When, and Where that describe entrepreneurship. But experience doesn’t provide a complete picture because, as we’ll see in the next chapter, entrepreneurship differs for everyone. Even among so-called experts, significant confusion has always existed about who qualifies as an entrepreneur. This confusion is so fundamental to deciding whether entrepreneurship is a good thing for you that we must start by resolving it. Fortunately, by untangling “the who,” we can make the subject all the more relevant to just about everyone.
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[1] Sam originally called his store “Wal-Mart” but over the years the name was simplified to Walmart. I will use the style of the name that was in use at the time referred to in the text.
[2] To make the book more readable, I will not cite references in the text nor will I use footnotes unless it adds directly to the text. You can find a complete set of supporting notes in the back of the book, including references for all the facts cited.
CHAPTER 2:
Who
“I deliver joy!”
—Jordan Monkarsh
It’s embarrassing: We, the people who claim to be experts on entrepreneurship, cannot agree on the definition of who is really an entrepreneur. “Entrepreneur” is a loaded term used in almost countless ways, each expression conveying a distinct message.
Most of those messages distract potential and existing entrepreneurs from their real task. For example, some economists think all of us are entrepreneurs as long as we are capable of making decisions for ourselves. Why? Because in deciding where to work, what to buy, and how we spend our time, we all weigh what we perceive as risk. Collectively known as the Austrian School, these economists argue that we are always reaping the gains and losses of the economic decisions we make. They see no difference between deciding to start a company and deciding what job to take. In their view, everyone who is cognizant enough to make decisions about how to lead their lives is an entrepreneur.
The simplest definition of entrepreneurship, and one that I will use throughout the book, is this: An entrepreneur is someone who founds a business or runs a business he or she owns, whether that business is officially incorporated or not. This definition focuses on the founding of companies and the continuing role of the entrepreneur as the boss of the enterprise. It sets the bar for being able to claim “entrepreneur” as a title to people who are in business for themselves. This definition also closely resembles the one found in many dictionaries.
I have encountered close to a hundred other definitions that various groups of people use for “entrepreneur,” each with its own implied criterion of success. The requirements to be considered an entrepreneur that these common definitions state or imply, alone or in various combinations, include: achieving minimum levels of revenues, profits, growth rates, value creation, jobs creation, ability to utilize resources, personal self-satisfaction (short-term and/or long-term), aspirations, lasting impact on the world, self-sustainability, personal control, risk tolerance, and independence.
Each definition implies or states a minimum threshold a person must meet in order to be counted and acknowledged as an entrepreneur. Many definitions of entrepreneur exclude people who work for themselves or who have not formally incorporated their businesses. Some entrepreneurship research uses a definition that requires an entrepreneur aspire to grow a large incorporated business, otherwise they’re just a “small business owner” or “self-employed.” The funny thing is that all the ultra-successful entrepreneurs profiled in this book started out as small business owners. Sam Walton began by running a variety store in a small town. Like Sam, most successful founders of large companies started out running small operations.
The most extreme definition is used among some venture capitalists, extremely rich former entrepreneurs, a few writers, and some media pundits who define entrepreneurs (often denoted with the qualifier “real” or “born” to denote specialness) as people who are driven to risk their well-being in order to have a lasting impact on some major market. You can often spot this definition in stories about Henry Ford, Steve Jobs, Bill Gates, Mark Zuckerberg, and the like. It implies that entrepreneurs like these—young when they succeeded, untrained, and inexperienced—are simply born with special traits.
This “real entrepreneurs are born genius-heroes” definition is often unintentionally self-serving. If you are a major venture capitalist who needs to invest a billion dollars a year in startups, then you want to deal only with people who aspire to disrupt major markets; you don’t want to waste your time with anyone aiming lower or patiently growing. Media pundits like this heroic definition because it ties directly to stories about very uncommon situations—stories that will attract many readers. But this definition applies to just a few thousand individuals in the world. And it discourages potential entrepreneurs in communities where such role models may be lacking. Describing entrepreneurs as people with extraordinary innate traits is particularly harmful to aspiring women and minority entrepreneurs and is an insidious form of discrimination. And no research shows that you must possess special genetic material to be an entrepreneur.
Anyone who starts a company or is self-employed can choose his or her own definition of “entrepreneur” and its criterion of success. As we’ll discuss, since entrepreneurs take full responsibility for supporting themselves they can also decide what it will take to feel satisfied that they have succeeded.
Unfortunately, most entrepreneurs do not think about what they really want, which causes real problems. The definition of entrepreneur you choose influences the decisions you make and affects the outcomes you achieve. Entrepreneurs who lack a clear definition of what they’re doing make inconsistent decisions, ultimately wasting time and money and causing unnecessary anxiety—a subject treated in greater depth in the Why chapter.
Someone To Care About
Meet Jordan Monkarsh, aka Jody Maroni, who fits virtually all definitions of “entrepreneur.” I met Jordan over thirty years ago and I still savor the encounter. He leaned out of the window of his Venice Beach sausage stand and motioned to me and my wife. “Hey you, Handsome, you want to impress your girlfriend? Come over here and try a free sample. Show her you’ve got taste.”
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br /> I couldn’t resist, nor could many other passers-by; the sausages he was offering smelled and looked great. I ordered a mild Italian sausage that came tightly packed inside a warm roll surrounded by freshly grilled caramelized onions and red peppers. It was delicious.
When Jordan founded Jody Maroni’s Sausage Kingdom he did not fit today’s stereotype of the brilliant tech-savvy revolutionary. He still doesn’t. He does typify the bedrock entrepreneurs you don’t hear much about but who actually drive our economy.
Jordan grew up in one of LA’s sprawling suburbs in a middle-class household. His dad was a butcher and his mom stayed home and took care of their three children. Jordan was the oldest. He liked being on his own, he read a lot, and he asked lots of questions at the dinner table. His parents sometimes wondered why their twelve-year-old son was asking so many questions about various religions and other perplexing things. They thought he should be talking about the Dodgers’ chances in the World Series. But he was more interested in reading each issue of the family’s National Geographic cover to cover as soon as it arrived. He found other cultures and landscapes fascinating. He dreamed of visiting new places and watching people perform exotic rituals. He cared nothing about business or entrepreneurship.
All the Monkarsh kids did chores to help their father Max, who worked long hours at his butcher shop. Besides presiding at the counter during business hours, Max had to make sure the shop was spotless each night before returning home for dinner with the family. In the morning, before the shop opened, he had to decide what meats and cuts he would feature that day, what prices to adjust, and what orders to place with his meat suppliers.