+ Other Notes on Entrepreneurial Expertise
I’ve been going through the second edition of the Cambridge Handbook of Expertise after reading the first years ago, and was delighted to find the new edition has a chapter on excellence among entrepreneurs.
Formal Education? Who Needs It
Initial studies suggested that since many entrepreneurs had little formal education, the skills and knowledge needed to start up and manage new ventures must be developed from on-the-job experience (Cooper, Gimeno-Gascon, & Woo, 1994; Reuber & Fischer, 1994). Through experience, entrepreneurs accumulate knowledge about products, technologies, markets, customers, investors and suppliers, etc. Researchers observed that venture investors (e.g. angel funders and venture capitalists) prioritized entrepreneurial experience in their evaluation and selection of venture funding proposals (Zacharakis & Meyer, 2000). Consequently, numerous entrepreneurship studies acknowledged and built on Becker’s (1964, 1975) works on the role of human capital (defined primarily as education and job training) in entrepreneurial success. Findings showed that success in venturing is significantly higher for specific, task related human capital than for general education (Unger, Rauch, Frese, & Rosenbusch, 2011). Specific human capital here refers to skills and knowledge acquired in previous new ventures or in the same industry as the new venture.
I could’ve sworn I saw something a couple months back about self-made millionaires (or some similar demographic) being much less college educated than one might anticipate but, googling now, I’m not finding it.
Experts Focus on Markets and Metrics
The authors noted that the cognitive frameworks used by experienced entrepreneurs, “tended to focus on factors pertaining to financial success, rejecting ideas for new products or services that did not appear to offer manageable risk, the capacity to generate positive cash flow, and so on” (Baron & Ensley, 2006, p. 1340). By contrast, first-time entrepreneurs highlighted the novelty of the business idea, its competitive superiority, new technology, and their gut feel about the opportunity.
The effect size here has to be enormous, as this is something you can pick up on just by reading through, say, anything Patrick McKenzie has ever written. Here’a one example:
There are, broadly speaking, two ways to sell SaaS. The selling model dictates almost everything else about the SaaS company and the product, to a degree which is shocking to first-time entrepreneurs. One of the classic mistakes in SaaS, which can take years to correct, is a mismatch between a product or market and the selected model to sell it on.
You will find that the sales model for SaaS defines much more about a product (and company) than other distinctions, like whether a company sells to customers (B2C) or businesses (B2B), whether it is bootstrapped or riding the VC rocket ship trajectory, or what technology stack it is built on.
–from Patrick’s “The Business of SaaS”
This theme appears in Rob Walling’s Start Small, Stay Small, too, with sections like:
Math is the science behind every business in the world, whether they realize it or not. With internet marketing, the math involves views, clicks, click through rates, unique visitors, goals, conversion rates, gross profit and net profit.
[…] …it’s all about Math.
Notice how both Patrick and Rob demonstrate here the core thing that distinguishes an expert from an amateur: the ability to extract abstract, structural, information-dense features from their domain and communicate them as superior organizing principles. Contrast that with the novice’s fumbling surface-level categorizations.
Developing Skills Takes Less Than You Think
Fifty hours or fewer represent enough practice to become socially competent in many recreational activities (for example, driving a car). However, once individuals achieve sufficient performance, improvement plateaus because they stop paying deliberative attention to the learning process.
I’m wondering if this holds for learning guitar, a task I keep pushing off feeling it’ll take too many hours to reach “socially competent.” Certainly more than 50, right? Right?
I’m reminded too here of Scott Adam’s career advice:
If you want an average successful life, it doesn’t take much planning. Just stay out of trouble, go to school, and apply for jobs you might like. But if you want something extraordinary, you have two paths:
- Become the best at one specific thing.
- Become very good (top 25%) at two or more things.
The first strategy is difficult to the point of near impossibility. Few people will ever play in the NBA or make a platinum album. I don’t recommend anyone even try.
The second strategy is fairly easy. Everyone has at least a few areas in which they could be in the top 25% with some effort.
According to Knight (1921), while risk consists of unknowns that are drawn from a known distribution, uncertainty has to do with unknown and even unknowable distributions. Therefore, entrepreneurial expertise consists of heuristics that minimize or eliminate reliance on prediction. Predictive strategies are more useful in dealing with risk. Effectual heuristics help deal with uncertainty. Expert entrepreneurs generally rejected heuristics based on prediction and forecasting. In the words of one of the experts: “I’ve always tended to be very skeptical about market research studies” (E14, Sarasvathy, 1998). Instead, their experience encouraged heuristics that sought to exert control over the environment. They shunned the notion of “placing bets” based on business plans, and in general challenged assumptions underlying predictive reasoning. In their view the future is an endogenous creation shaped by willful human beings. Hence it is not very useful to invest in predicting it. Unlike forms of expertise rooted in prediction, and typically associated with errors in judgment (Shanteau, 1992), effectuation internalizes “complex indeterminate causation” (Hoffman, Klein, & Miller, 2011) by incorporating co-creative human activity into the heuristics, to shape desired outcomes.
Peter Thiel has a chapter arguing near exactly this in his Zero to One, “Can You Control Your Future?”:
You can expect the future to take a definite form or you can treat it as hazily uncertain. If you treat the future as something definite, it makes sense to understand it in advance and to work to shape it. But if you expect an indefinite future ruled by randomness, you’ll give up on trying to master it.
Indefinite attitudes to the future explain what’s most dysfunctional in our world today. Process trumps substance: when people lack concrete plans to carry out, they use formal rules to assemble a portfolio of various options. This describes Americans today. In middle school, we’re encouraged to start hoarding “extracurricular activities.” In high school, ambitious students compete even harder to appear omnicompetent. By the time a student gets to college, he’s spent a decade curating a bewilderingly diverse résumé to prepare for a completely unknowable future. Come what may, he’s ready—for nothing in particular. A definite view, by contrast, favors firm convictions. Instead of pursuing many-sided mediocrity and calling it “well-roundedness,” a definite person determines the one best thing to do and then does it. Instead of working tirelessly to make herself indistinguishable, she strives to be great at something substantive—to be a monopoly of one.
Intriguingly, invert this and you end up with the also very popular The Lean Start-Up. Who’s right? Maybe you don’t have to choose: small multi-armed bandit-style bets with an initial bias toward exploration that gradually shifts toward exploiting now known-good options might feel a lot like, from the inside, an ever expanding sense of agency and internal locus of control.
Speaking of inverting, Peter’s advice here is also the precise opposite of Scott Adams’ above.
“The Ask” is the Entrepreneur’s Core Skill
Given that entrepreneurship is nigh by-definition fuzzily defined, what is the core skill all entrepreneurs are practicing? “The Ask,” argue the authors.
In our search for such an activity conducive to purposeful and deliberate practice in entrepreneurship, we observed one in which entrepreneurs engage across all types of ventures, geographies, and times. We call this activity “The Ask.” In building a venture, entrepreneurs continually and iteratively interact with other people. Almost all of these interactions involve Asks. Asks can cover a variety of inputs necessary to creating a new venture that may include both intangibles (advice, introductions to network contacts) and tangibles (resources such as customer orders, supplier materials, labor, and money). While the “what” of The Ask differs across stages of the venture and particular stakeholders and situations, our observation is that the “how” of The Ask has repeatable common elements capable of continual practice and improvement. Likewise, while the “who” of The Ask differs (the identity of The Askee, from family, close friends, and network contacts to complete strangers), the activity of asking remains comparable.
This led us to posit “The Ask” as one of the most important activities on which purposeful practice may be applied to improving entrepreneurship. Most importantly, asking is intrinsic to the early stages of the entrepreneurial process. Whether they like doing it or not, entrepreneurs have to engage in The Ask on multiple occasions each day in the course of launching a new venture. Hence repeated practice of The Ask is an inevitable feature of the startup environment (Ericsson & Smith, 1991).
The Ask itself may not be inherently motivating for an entrepreneur but the larger objective is motivating, e.g. of successfully establishing a new venture. This provides the entrepreneur with powerful incentives for getting better at asking. Furthermore, an Ask typically creates spontaneous natural feedback for an entrepreneur, whether verbal or non-verbal, from The Askee or from surrounding observers. Immediate feedback in the form of rejection, acceptance (with the provision of new resources), or the introduction of new alternatives (perhaps an introduction to another person) provides the sort of feedback necessary for diagnosing failures and identifying improvement opportunities (Ericsson, 2004, p. S77). Lastly, The Ask may be tailored to the skill level of the entrepreneur. Indeed, we can precisely conceptualize a natural progression from apprentice to higher proficiency levels of asking.
Here I’m again inclined to offer Patrick McKenzie as a concrete example. I can think of nothing that betters exemplifies “the Ask” than his approach to developing Appointment Reminder:
Three years ago, I had had the idea for Appointment Reminder, and wanted to discover whether businesses had a large enough no-show problem to justify paying $30 a month for it. I don’t have great access to non-technical small business owners, so I just decided to pretend I was an extrovert for a day, and interview people door to door in Chicago.
Here was my pitch, which I made to every massage therapist and hair salon owner I could find just doing a breadth-first search down Michigan Avenue:
Hiya, do you take walk-ins? Are you the owner? Great, can I book the thirty minute option for name-a-service? Great, actually, I’ve got a request. More than the name-a-service, I am really interested in the business of name-industry-here and want to talk to you about it a bit. I’m happy to pay for your time. Does that work for you?
I lost my notebook where I kept the interview results (d’oh), but my recollection was that only one person out of a dozen plus actually took my money for this. Most were happy to talk, since unscheduled time for them in the early afternoon had a predicted value of zero anyhow. (n.b. That was, in itself, a useful lesson.)
Did you catch how he was surprised to discover how friendly everyone was? This segues perfectly into my favorite bit of this post:
It turns out that these perceptions significantly affect an individual’s performance in the activity of asking in a strongly negative way, i.e. help seekers underestimate the likelihood that others will help them by as much as 50 percent. Non-expert askers appear to systematically believe that others will say no, even when they have no hard evidence on which to base such an assumption. Expert entrepreneurs, however, achieve better calibration through the actual practice of asking.
People tend to underestimate how willing others are to help them by a staggering 50%, except for seasoned entrepreneurs who, with practice, have learned the monstrous truth of it: people are secretly fantastic, want you to succeed, and are willing to help you get there. (!!!!)