entrepreneurship « discourse and notes

This is the time of year when predictions begin to circulate. For some, it’s always that time of year, especially when value is captured by what happens next rather than what happened last. Arbitrarily, perhaps, the new calendar year prompts the musings to begin in earnest. We step from one plank to another, or we think we do, although these steps are more correctly progressions along a continuum that – despite budget realities – is not so cleanly fenced in by calendars. Psychology, nevertheless, does have its impact on markets and economies, and if we think this is the time of year for predicting, then it is indeed that time, and if we think that pasts and futures meet head-on around new years, who is to say they don’t, the universe notwithstanding.

Respecting custom, therefore, while also cognizant of the continuum, the forecast I would put forth is mainly one of psychology. There is a four-year stretch in our past that will mark its approximate anniversary around this time, and that’s a sufficiently long period to influence the way we are likely to behave into the foreseeable future. A recent study has undertaken to illustrate the differences in management styles between generations, depending on the economic era in which these were rooted, and the same is no doubt true more broadly than in the enterprise per se. I would argue that events in the last four years have been sufficiently profound to plant deep roots from which some substantial biologies will blossom.

I would argue that, scenes of disarray on Black Friday notwithstanding, we could begin to see a shift from consumerism to production, and from value transference to value creation. At some level, there is no difference between stocks and homes and consumer trinkets and angel rounds when these acquisitions cause bubbles to happen; and bubbles are the result of value transference outpacing value creation. When we speak of perceived value exceeding fundamental value, this is a bubble, and when this pops, perception reverts to fundamentals. In markets these days, and elsewhere, the organized effort has been about propping up financial value, buying time for fundamentals to catch up. Fundamentals are about creation, and I expect this to start catching up.

We see these trends already underway in the entrepreneurial community, where makingÂ and innovationÂ are the central forces. That the ascent of entrepreneurship and its assortment of makers and innovators has paralleled other economic phenomena – employment disruption, the popping of bubbles, consumption shifts – is not a coincidence, and I expect that in the year ahead these trends will only intensify. By the same token, however, the funding that has underpinned this wave will become more selective and even cautious, and this is not a bad thing. Distinctions will be drawn between true innovation and merely refashioned apps, between lasting value and temporary splash, and between fashionable investing and purposeful capital.

In the small, private, and early-stage segment of financial markets, empirical evidence is hard to come by, but we can look at stand-ins by proxy for proof that the described theme is already underway. In more mature and voluminous public markets, the analogous phenomenon that describes a transition from fluff to substance, if you will, is going to be seen in a growing preference for income-generating investments and perhaps even a climb up the capital structure to the more senior and secured tranches. Part of this pattern, already happening, is prodded along by diminished risk appetite, but that is only one part. The other is a recognition: After a prolonged period of excess, retrenchment is only reversion to the mean.

For every action there is an equal and opposite reaction, or so the saying goes. When we predict, when we project out into an unknown future, we tend to think in terms of straight arrows and linear outgrowths. The tendency to think rigidly in this way is maybe the same that drives us to mark off certain calendar dates and consider new years as beginnings. In actuality, these are continuations and, to the extent that there is any abrupt change in the pattern, more like pendular swings than new directions. In the year ahead, I look for signs of both, the continuation of certain trajectories already formed, and a market reaction to historical motifs a long time in the making.

In the past few columns in this space particular attention has been paid to themes of entrepreneurship, which on reflection are probably universal. We are all entrepreneurs, though some may not realize it, and anyway it’s a matter of definition. Extending the subject’s scope as broadly or narrowly as one likes, the distinction still remains between the successful entrepreneurs and the less successful. (I hesitate to use this arbitrary measure, suspecting as I do that many of the truest entrepreneurs don’t see themselves as successful, it being an endless task. Today’s success was yesterday’s failure, and tomorrow is another day.) But as arbitrary as this sort of distinction may be, it is nevertheless useful to draw it, if for no other reason than to study the method of those on one side of the line versus those on the other.

Books have been written on the subject, speeches have been given, business school programs designed and consultancies erected. It certainly isn’t my belief that a little article in a little series of blog posts can possibly capture the whole of a reality so complex, so angular, so fickle at times. If anything, this is thinking out loud, jotting down observations as they come to mind. In another week, or later today, other observations will follow, no doubt, and these may negate or support the going-in position, which anyway will be forgotten. And this, in part, is the point: Entrepreneurship is about results, as entertaining as the philosophy may be for a moment or two. For now, the entertainment comes from Woody Allen, an entrepreneur whose success deserves to be studied.

In the prior article here, the PBS documentary on the life of the film director has already been referenced, (which goes to show that some ideas do linger). The subject is interesting for purposes of the current discussion because filmmakers – who build a new business with each new product they release – are entrepreneurs, and this particular filmmaker – who built some 40 new businesses in this fashion – did so entirely outside of the big studio system. Such stubborn independence is about as pure as entrepreneurship gets, and the subject is not less relevant than any case study out of Silicon Valley or the industrial revolution. This entrepreneur has ideas, he recruits teams to execute the same, he raises capital to fund the execution, and he sells his product much like a marketer or a founder who exits. He has been doing this for more than forty years, regularly, so I would say that is something like serial entrepreneurship with a track record.

In this case study, there are two characteristics that caught my attention in particular: the subject’s energy, and the subject’s ability to stay removed. These are both mental aspects that require exercise. Much like any assortment of muscles in the physical sense, perhaps the brain is an organ needing exercise too. And the more one works out, as it were, the healthier one becomes. In the example of the filmmaker, I was struck by the steady diet of jokes that Woody AllenÂ wrote each day – 20, 30, sometimes 40 – in his formative years, as a young columnist for the local papers. Later in life this evolved to a movie every year, an ongoing regimen, that all stems out of hundreds of seeds regularly planted – which is to say, ideas scribbled on hundreds of little papers, and stacked in a drawer for eventual review.

This mental energy, which may be a cause or an effect of regular exercise, is in some ways antithetical to another quality of the filmmaker’s, which may be natural or is perhaps another trait requiring active pursuit. The reference is to a certain humbleness, a distance, an ability to see from a wide angle and thus to perceive the ultimate smallness of his work. When inviting actors and actresses to join him in a new production, he writes them personal notes to introduce himself, as if they would not know him otherwise. When the script is sent over, he tells them to feel free to make changes because individual lines are not particularly important. When he directs, he tells the actors and actresses he recruited to just do what they do best, and then he gets out of the way.

Energy and distance, focus and largesse, passion and comedy, detail and ease, remembering and forgetting: these are the contradictions that often determine success and that, in the last analysis, make entrepreneurs of us all, as has already been stated.

This essay presupposes some things that may or may not be reasonable to presuppose. Some day we will know if doing so was right or wrong – and maybe reality will fall in between, as it so often does – but if the anticipation proves to be unfounded, or misguided, this will not necessarily negate the wisdom of themes and recommendations shared here. This essay presupposes that we are entering a time in which employee culture, as described in the previous article, will be displaced by ownership culture. It is another way of saying that entrepreneurship will become the norm rather than the exception, the universal standard rather than some novelty outlier.

Some will argue that this was the case already, that this was the essence of our modern industrial evolution, built as it was upon entrepreneurial foundations. Indeed. But as little businesses grow, as these become dominant, maintaining an entrepreneurial drive – and doing so at all levels of an evolving bureaucracy – becomes a taller and taller order. As this occurs, factors like “too big too fail,” “safety nets,” “politics,” feature more and more prominently, while the spirit that created value in the first place falls to the background. We’ve all seen this happen, not only in finance (the presently fashionable target).

As with most subjects, the matter is not one of absolutes but of degree. The difference is not necessarily between entrepreneurial or employee characteristics – in organizations or in individuals – but between the more so and less so. Successful entrepreneurs throughout history, dating all the way back to the Roman generals, have combined grand vision with the savvy of the flea market, technical expertise with an artistic disposition, cold and precise economic analysis with a sense for human nature. Some of these qualities don’t last – or don’t last unfettered – in the corporate army or the political machine. Some of these qualities require constant nurturing, perpetual refreshment, in all the minutest startups.

When economic times are good, we might lose sight, we forget. Flaws are covered up or undetected, margins for error increase, cushions develop, and, arguably, laziness, in a variety of manifestations, and etc., etc., etc. This might lead to an employee mentality even in owners. But the most successful owners, the most successful entrepreneurs, in good times or bad, live in fear… fear of failure, fear of competition, in short, the fear that would exist in anyone who does not see a safety net under the tightrope. For some people this is a natural blind-spot, for others it ebbs and flows with the safety net itself. As we enter a time of very thin safety nets, the entrepreneurship that comes natural to all of us will be pulled out from the depths, or will manifest itself more clearly than before.

But this is not an essay about urgency, because the patterns described and the themes predicted are, in one opinion, unavoidable. If there is urgency, therefore, it isn’t to act but rather to prepare. Presupposing that the era of ownership is upon us, in a variety of manifestations, the most important thing is to train – in some cases to re-train – accordingly. One way to do so, maybe the best way, at least in one opinion, is to study the method of the most successful predecessors in entrepreneurship. And, as has been alluded to already, “entrepreneurs” should not be seen as confined to the founders of startups, at least not always in the conventional sense. If one looks for it, one finds entrepreneurship everywhere, and learns from a variety of sources.

The key is to look, and by example here are two sources, one obvious and the other maybe less: Here is vintage footage of young Steve Jobs at the launch of NeXT and its early months; and here is Woody Allen in a PBS documentary of the filmmaker. In the former, watch the CEO’s anxiety and the subtle cover-up of the same, watch the general’s interaction with his troops, watch the combination of delegating and extracting ideas with a concern about loss of focus and the unified goal. In the latter, watch how the director is able to attract the best actors in the business and extract the best that each is capable of giving. I won’t provide further summaries, because these are lessons that today one should learn personally: these are not, obviously, the only lessons, but as good places as any from which to continue or to start.

To understand a complex system it is sometimes useful to isolate its characteristics in a simplified example and let the imagination wonder from there. Recognizing that enterprise, economies, and markets are highly complex and intertwined systems, let’s investigate two simplified extremes – at polar ends of a continuum – and proceed to draw conclusions.

Let’s assume that there are two types of enterprise: the pure startup and the perfectly mature. The pure startup is made up of pure possibility and nothing actual, and the perfectly mature enterprise is completely actual and has no potential outside of that. At one extreme, thus, all value is option value, and at the other the business value is the value of the underlying asset (in its most fundamental state). The pure startup represents the most speculative form of equity and will be funded with the most flexible form of capital, and the mature asset will be funded with debt because it is completely predictable and has no upside at all.

Beyond this, the two isolated ends of the described enterprise continuum also differ in operational and strategic ways. There is, for example, a difference in management style required – as has been touched upon in a previous article here – with vision and leadership ranking high for the startup, where nimbleness, competitive positioning, and direction in a volatile scenario are all critical to growth. For the mature business, pure operating management and maintenance of the status quo are the necessary executive objectives. The respective management teams will accordingly require different types of boards, different forms of advice, and different offerings from its assorted service providers: On one hand a highly strategic, forward looking, aggressive and anticipatory approach; and on the other a conservative method based on historical observation, predetermined formulas, and careful asset conservation. To state this slightly differently, the difference is between entry and exit.

Now, while there are countless real examples of the two extreme scenarios, the vast majority of enterprise is likely to fall at one point or another in between. At such points there will be greater or lesser emphasis – combinations and permutations – of the characteristics described above. Depending on where an enterprise exists along the trajectory from entry to exit, as it were, it will have to be analyzed, managed, funded, and serviced accordingly. Sometimes there is a challenge in doing so effectively, because analysts, managers, funding sources and service providers are commonly only prepped and ready in one thing. This is especially true in an era of high specialization, and sometimes this disconnect is exacerbated by revolutionary changes that take place within whole sectors or, even more notably, as whole new sectors are born. To take the subject to an even higher plateau, the described nuances may even be manifest at the macro-economic level.

Regardless of one’s perspective in such matters – whether it is analytic, strategic, operational, financial, (political), or service oriented – it would be, I believe, a correct approach – maybe even the most correct – to first and foremost isolate the subject of one’s perspective and try to find its place along the evolutionary continuum. As hopefully demonstrated herein, not all such places are to be handled identically and not all such places demand cookie-cutter solutions. From a very high level looking down, one could even argue that our global economy, our technology, and our capital markets, are at a general point that is closer to the startup extreme – and all this signifies – than the other. The greatest mistake anyone can make – assuming one has an interest in the subject – is to fail to recognize this reality. Consequences and repercussions are multiple.

In a television interview to promote his new book, the author, consultant, venture capitalist and student of technology trends, Geoffrey Moore, describes the difference between management and leadership. He uses this contrast to shape a perspective of recent events at Yahoo!, as well as other Silicon Valley notables – from the current headlines, Hewlett-Packard and Cisco, and from the archives, Netscape. In Mr. Moore’s opinion, the difference between management and leadership is the difference between using one’s existing resources with optimal efficiency, and knowing how to reallocate such resources for anticipated changes ahead. The former is management and the latter is leadership. Stated differently, management parallels execution and leadership reflects vision.

The conversation touches on an additional variant – integral to any analysis of such distinctions – which is the pace of change in the external environment. It being a television interview of limited scope and time allotment, the discussion is unfortunately choppy and superficial, but the principal point can be surmised: In an extreme scenario in which there is no change at all, management alone suffices; while at the other extreme (i.e., pure and constant change) leadership (which is to say, vision) is the only necessary feature of enterprise success. Reality is never at either of these ends, and so the question is more about combining the right mix of management and leadership to correspond with the pace of change, and with the way an enterprise performs in response to its opportunity.

There was a time, not long ago, when the technology sector – at least so far as technology was defined as the evolution of the Internet and those things associated with it – was in a state quite close to absolute transformation. The state was never absolute, (these states can never be quite absolute, either one way or the other), but it tended that way and, such being the case, qualities of vision, imagination, and recognition of possibilities comprised the leadership profile for success. The needle has moved since then, and although we are nowhere close to the opposite extreme of a static environment, the segment is steadily distancing itself from the point of birth (where the rate of evolution is highest).

As a sector and with countless individual exceptions, technology may now be at a point where a blend of vision and management is the correct enterprise recipe. This is a very difficult environment in which to compete. Extremes are always easy because they’re obvious and follow simple precepts. The gray areas, where nuance and mixture take over, are more delicate and comprise a myriad variables, any of which can shape direction and throw the vessel (temporarily or permanently) off course. We have seen illustrations and case studies of this theme in recent events in the Internet world, and many have been quick to point out the issue in such cases.

Beyond technology, however, the time has arrived to recognize that the same issues apply in all aspects of the global economy. There have been enormous changes underway in capital markets, for example, and management alone is no longer sufficient. Similarly, the monetary disruption that began in 2008 is far from over, and its impact on economies and systems is yet to be fully understood. If technology is in a state of motion away from the extreme of perfect transformation to a more stable point along the continuum, these other fields are moving towards the same middle-ground but from the opposite direction. Settling on an equilibrium to combine leadership with management is now a universal challenge, transcending individual segments, reflecting an era singularly defined by change at a combination of multiple velocities.

The furor and volatility that have descended upon global markets in the past days and weeks have been a particular tumult marked by fundamental confusion. That Treasuries and gold, for example, should simultaneously surge is indicative of a chaotic market. While one of these investments symbolizes a flight to quality and an asset to hold in a slow economy or deflationary environment, the other is a speculative position and a bet on inflation (currency devaluation). A pair more diametrically contrary would be difficult to find, and yet both seem to have been on the receiving end of money storming out of stocks, at least recently. We’re witnessing a rush to the extremes, and while this may reflect a binary consensus of equally frightened perspectives, it may also be indicative of a market that, on the whole, lacks conviction. Or it may otherwise be that both inflation and deflation are expected by some, manifesting themselves in different ways and hitting different economic segments. As I said, it’s very confusing out there.

And through all this an interesting new theme is emerging, which makes for a refreshing coincidence and welcome approach. Lacking a better term, let’s call this an investment thesis focused on the self: learning, work, building of expertise; in short, an investment in personal equity. For example, one of the leading tech investors, entrepreneurs and bloggers has been persistently urging his followers to stay away from speculation, save their money andÂ invest in “becoming knowledgeable about the business of something [they] really love to do.” While this next item is certainly unrelated, at roughly the same time a high-profile venture syndicate has funded a social teaching startup, the mission of which is to “transform every community into a campus, every address into a classroom, and every neighbor into a teacher and student.” Separately, one of the leading textbook rental companies has announced its acquisition of an online tutoring firm, while just the other night a new web service was rolled out geared at teaching basic coding skills to would-be programmers.

The opinions and activities described would have been welcome in any market, symbolic as these are of dedication, hard work and improvement (as distinct from speculation and myopic financial motive). That the noted theme of personal equity-building happens to coincide with a time when speculation is turning on itself in ways more or less destructive, should not be interpreted with irony. As previously stated, it is a welcome theme and a refreshing approach that should be taken seriously and imitated when possible. That it may perhaps be more convenient to do so nowadays than it may have been when other options always beckoned, this also is not a silver lining to overlook for all the gray around it. If mass confusion has served as catalyst for a positive inward dedication, for a longer-term commitment to growth and personal value creation, then so be it and let us be thankful for confusion. Needless to say… within reason, within reason, excess is never a good thing in any variety… so let us hope that the inward orientation, as well as the external tumult from which it arguably stems, don’t go too far.

Earnings season is always an exciting time to watch markets, even if only for entertainment value. Financial gamesmanship seems always to escalate, or at least manifest itself more visibly, when companies announce their quarterly results. There is not only the bilateral dynamic between guidance and actual postings – a delicate balance – but the triangular relationship between guidance and results and market expectations. The market, after all, makes its own assumptions and has three months between seasons to fine tune and adjust. In regard to expectations, furthermore, there is the interplay between analyst consensus and whisper number, and all this before we even get into systemic factors that push values up or down regardless of a company’s performance.

Entertainment value aside, interpreting (or at least monitoring) these gyrations, convolutions, relationships and inconsistencies in the public markets, can be important for those outside of the daily trade. For starters, there is an inherent statement in the markets about the broader economic environment and its prospects. The cause and effect of markets and the economy, and vice versa, is not always straightforward, especially not since QE2 was launched to inflate asset values and create a “virtuous circle” that would lead to jobs and consumer spending and higher prices. Even so, a close look at these and other variables is worth the effort because the most disinterested stock picker is nonetheless bound by basic economics.

Another reason to monitor the flow is to glean insights this provides into the funding market, for which the public environment often serves as a guide. It isn’t only that private valuations are informed by public metrics, but that the very consummation of private transactions is influenced by the health of public holdings and assets represented thereby. When, back in 2008 and 2009, public stocks had fallen, M&A as well as private investing came to a relative halt. For strategic buyers this had a lot to do with loss of confidence, which relates back to economic aspects described in the earlier paragraph. For financial investors, this was the result of collapsing portfolio values, the math of which improved considerably in ensuing periods.

Among founders and other entrepreneurs, the topics raised are not common in discussions, focused as business builders rightly should be on building businesses. These subjects, however, and business-building are closely connected, and should take up a greater share of entrepreneurial thinking. Operations, growth strategies, product launches, customer interaction, and others aspects of successful enterprise being determined by economic conditions, and all such aspects requiring planning prior to implementation, economic advance notice should be much appreciated. The earlier and more complete the notice, the more effective the plan and its implementation. Although markets are fickle and sometimes anticipate but otherwise trail economic (and industry) patterns, thoughtful reading of market conditions will only complete a picture that couldn’t ever be too detailed.

As importantly, there is the aspect of corporate finance. Some businesses are never done raising capital, some investors are never done selling shares, and certain securities can never be done getting rolled over. Even limiting our discussion to the primary private market, certain correspondences stand out. For example, public stocks began their never-ending rebound from the depths of panic right around the time that massive liquidity through quantitative easing was introduced, and introduced some more, and is still happening. This parallel path has also coincided with the advent of what some now refer to as a seed and late-stage venture bubble. As argued in a previous column here, it is not only the bubble per se but the unevenness of it that can profoundly impact business ventures as these expand.

One starting a business, or one continuing to build an enterprise, should pay close attention to these issues, as these will determine the future to at least the same extent as the quality of a given product or a business model.Â While it is critical to think in terms of sector trends and venture capital motifs, for obvious reasons, it is as important to become versed in the esoteric: Inflation and deflation, quantitative easing and its impact, employment growth and ways that this is measured, the flows that push financial markets daily, and those that could cause directions to reverse.

There have been interesting debates in the technology press of late. Decisions may be made, or unmade, on the basis of issues raised, as these discussions have covered spectacular subjects and lent themselves to momentous, nearly operatic, undertakings. For example, there is for investors the subject of a major bubble, or a minor not-bubble, or a hard to pin down sometimes-bubble, any of which possibilities is ripe with consequence. For entrepreneurs, there is the issue of the “pivot” – much less an argument per se than a mantra of sorts, and one that has become almost a badge of honor. Finally, for many blog readers a new subject has emerged, more sensitive than the others even, dealing with the issue of education. In these big themes, however, a small flaw permeates, having to do with definition and context. Decision makers, and un-makers, should practice caution as they embark upon monumental choices, because roads are slippery when approached with faulty gear.

Take, for example, the case of the alleged tech bubble. A frequent argument in defense of its non-existence is a comparison to the scenario of 1999 and 2000, at which time valuation multiples for public companies were truly spectacular and would in many cases make current standards seem timid in contrast. This is true enough, but by the same token the comparison is of apples and oranges, as it were, because of differences in context. Industry growth prospects when the Internet was at its literal beginning were far different from industry growth prospects more than ten years later. This is not a judgment call but a statement. And that only some investors are now participating in the wave, and that the wave is selective rather than sweeping across all variants, is also true… but does not diminish the possibility of wild overvaluation occurring where and when it does. An asset, in fact, can be priced low and still be in a bubble if its fundamental value is nil.

In regard to the “pivot” – that oft-used term which can only truly catch on like it has, let’s be honest, in an environment that tends to the bubbly – the misunderstanding ranges from mild to considerable. I mean, changing course in business is really a natural progression. When IBM morphed from typewriters to mainframes, was that a “pivot”? When Apple introduced the iPod after years of successful Mac production, was that a “pivot”? Why should natural evolution in an industry that is rapidly evolving get branded with a word that makes the process anxiety-making, self-important, and drastic? As though a wild adventure were in the making when in fact the enterprise is merely moving on… No big congratulations are in order, no trembling emotion, palpitations, ribbon cutting ceremony, because change is necessary to survive – like breathing, for example, the act of which does not elicit accolades.

Which brings us to Thiel’s education critique. The point made by the investor who correctly called both of the last two bubbles is that education has become bubble number three. Because the price of education and its value are far apart for many of the educated on grounds of financial calculation, this difference constitutes a bubble according to standard definition. Can education, however, be appraised like a financial asset? And even if it could, at what point after graduation is this value established? At what point after graduation does schooling actually stop? And what is the rate to use in discounting these numbers to present value? When treating education as a financial asset that can exist in a bubble in the same way that a dot-com stock or a subprime mortgage can, there is a definitional flaw and a distortion of context that serve to diminish the argument.

What all these examples have in common, more than the imperfection of each case as presented, is an insistence on rigidity and generalization, forcing simplistically derived rules upon highly complex and nuanced subjects. As such, guidance is offered up with almost aggressive confidence, and patterns of behavior are encouraged on the foundation of half-baked misconceptions. Mischaracterizing a financial environment is as perilous to the investor as aggrandizing the “pivot” is to the entrepreneur. At once exaggerated and insignificant, such arguments can lead to inaction or otherwise excessive expectation from an outcome. Education, among its other advantages, offers a defense against such risks.

Investing and entrepreneurship are two sides of the same coin, at least from the entrepreneur’s side of it. According to one definition of the word entrepreneur, this is a person who “has possession of a new enterprise, venture or idea and is accountable for the inherent risks and the outcome.” Note the presence of terms such as venture and risk in the definition. Note the root derivation from enterprise and its possession. These are words that could just as well be found in descriptions of investing and its aspects. There is, however, a difference of diversification, in that an entrepreneur will invest at any one time in a portfolio of one, and is thus accountable for its fate. Investors, in the pure sense, will spread their bets more liberally, and are by the same token less accountable. Oh well.

In the dance between the two – the ritual of raising capital to fund enterprise building – the entrepreneur nevertheless takes the investor’s lead. I say “nevertheless” because it should not be so, because according to the definitional analysis above, the risk and responsibility weighs much more heavily with the entrepreneur, for which reason alone he or she should be the more determined party. Nevertheless… entrepreneurs need capital and investors have it… so it goes. And thus, again, the way investors go so do entrepreneurs, most often. The theme is particularly pronounced in segments in which investor capital is the only capital, at least for a while, as revenues (let alone cash flows) are prone to lie somewhere along the proverbial horizon – which dreamscape may be more distant in certain ventures than others.

In following the lead of investors, however, entrepreneurs expose themselves to even greater risk than their singular non-diversification already creates. As capital providers are, contrariwise, diversified and risk-mitigated, they are also more careless because they can afford to be. For the singularly committed party to pursue a course laid out by the promiscuous is surely not a direction the former would willingly undertake, especially as the latter – as a class – has been known to travel in herds that are often flighty and blow bubbles that often pop. (It’s crazy, really, when one stops to consider, and downright infuriating when investors seek to convince entrepreneurs that bubbles don’t exist and not to worry about it so much, little feller.) But, as already stated, these things can’t be helped, so it goes, oh well, and all that.

Nevertheless… As one qualifies the distinction between an entrepreneur and an investor by defining the entrepreneur as a wholly un-diversified investor who must often follow the lead of others who have much less at risk but sometimes take condescending liberties from their position of strength, it may serve some entrepreneurs well to guard against recklessness in the following ways: Do not forget the importance of business fundamentals, as these defy herds and bubbles and outlast the same; if offered a choice, take your advice (and capital) from those with the narrowest diversification – as manifest in specialized sector focus and few offsetting bets; and remember that money is fungible, ideas come and go, but execution reigns supreme and thoughtful planning is priceless.

You may find, maybe not surprisingly, that this recipe leads directly to your customers. By far, these are your best advisors and capital providers.

When you read a book that rings true, you are bound to see its insights everywhere you look. Reading Eric Hoffer, it’s possible to come away seeing mass movements everywhere, and in so doing apply Hoffer’s observations about the causes and effects of these universally. Although composed as a socio-political thesis, The True Believer does not have to be taken literally – that is to say, as a discourse on religious and political movements strictly speaking. If regarded from the perspective of collective behavior more broadly, such movements can be seen in many other realms, and it’s mainly a matter of how far from the literal bulls-eye one is inclined to travel.

In a sense, consumer trends are mass movements. In some cases these even border on fanaticism and party lines in the manner they are prone to behave. Apple “fanboys,” for instance, can undoubtedly be as animated and steadfast a group as any of the early bolsheviks. The reverence, allegiance, and indiscriminate support for all things that Apple represents for members of this circle are only a nuance away from religious passion. (I kid, sort of, though often feel myself swept up in the emotion.) But there are other consumer trends we can point to, surely, considering the ways that some spring up with nearly miraculous speed, breadth, and magnitude. Perhaps the very terminology of “network effect” – used to describe the value of a product that exists as a link between large numbers of users – is in a sense an allusion to mass movements in consumerism.

Another realm in which lately I detect such traits – in an almost political sense that at times makes me uncomfortable – is entrepreneurship. This field is now populated by recruiting missions (e.g., pitch contests and demos), rallies (e.g., meetup groups), organized message dissemination (e.g., venture blogs), and all manner of more blatant propaganda that can hold its own with any of history’s best campaigns. There is even villainizing of the enemy: That would be a corporate job, especially on Wall Street. Whether or not these initiatives offer legitimate support and advance a noble cause is not the point, as many mass movements – in fact, according to Hoffer, all of these – are born from necessity and practical circumstance. The point, rather, is whether individual decisions are made in bulk, on the basis of collective rather than individual reflection.

While we’re at it, we should also consider if trends such as a market run-up that nearly defies reason, angel investing that seems almost in vogue, secondary private trades for a concentrated basket of names – in short, the bubble whereof so many lately speak – is not also another term to describe mass movements. The subject of herd investing was discussed previously here, and regardless of whether we are now experiencing a bubble or not, the fact remains that capital is being funneled into singular directions en masse. This too is a movement, even if not political, or social, or religious, although in certain figurative respects it is a little bit of all these things.

In any case, the subject is complicated, and is probably not interesting as an observation in itself, but rather as a way of understanding market patterns. To the extent that these are sometimes based on mass behavior – that is, of a collective whole rather than confluence of individuals – Hoffer’s explanations of such movements can help us to see economies and enterprise more completely. By extension, we can also consider asset valuations and the drivers of these in a farther reaching context. Lastly, Hoffer’s book is fascinating as a subtle academic study composed by a self-taught longshoreman who worked the San Francisco docks between library visits: A true independent, an entrepreneur in the classic sense.

discourse and notes

Tag Archives: entrepreneurship

From consumption to production and the end of bubbles

Energy and distance

Business education for an era with no nets

Adaptation of perspective along the evolutionary path

Managing with leadership in a time for both

From speculation to personal equity: a welcome refocus

An entrepreneur’s guide to the trading desk

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