Physics and marketing don’t seem to have much in common, or do they? Watch this TED talk by Dan Cobley (a Marketing Director at Google), who uses Newton’s Second Law, Heisenberg’s Uncertainty Principle and a few more bits of physics to explain the theory of branding…
I’ve recently been contemplating the psychology of risk in connection with a number of projects. If it’s something that interests you then I can highly recommend The Psychology of Risk by Glynis Breakwell (Cambridge University Press). The book blurb:
“Risk surrounds and envelopes us. Without understanding it, we risk everything and without capitalising on it, we gain nothing. This accessible book from Glynis Breakwell comprehensively explores the psychology of risk, examining how individuals think, feel and act, as well as considering the institutional and societal assessments, rhetoric and reactions to risk.
Featuring chapters on all the major issues in the psychology of risk including risk assessment, hazard perception, decision-making, risk and crisis management, risk and emotion, risk communication, safety cultures, the social amplification and social representation of risk and mechanisms for changing risk responses, Breakwell uses illustrations and examples to bring to life the significance of her research findings. She provides an innovative overview of current knowledge on the subject but also suggests that there are many fascinating questions still to be answered…”
To paraphrase General Helmuth von Moltke – famed for his thesis that ‘no plan survives contact with the enemy’ – it’s obvious to all business founders that no plan survives contact with the market! Especially anything to do with timing, a point well made in Margaret Heffernan’s latest Inc post:
So you’ve got a great team, and a fantastic idea that fits like a dream into a gap in the market. Not only that, a financial wizard has produced a set of figures that suggest you can all retire in three to five years time. All you need now is some money. No problem. This is the most investable idea there’s ever been. Anyone could see that. You’re ready to talk to the angels. Stop!
Time for some homework
Do you know anything about the investors? And what do you know about pitching to entrepreneurs? The first bit is quite easy. Ask about the panel, and do some research on how they made their money. What makes them tick, and where do their interests and values lie? Also, do they have any specialist knowledge? Critically: Are you sure you know more than they do about your proposition? You certainly should do! Don’t imagine that you’re going to be able to wing it.
Look, this is a selling job, and the first thing to know about selling is you must know what you’re selling, and who you’re selling it to. Which brings me onto the second big question, if you’re going to be dealing with a panel of successful entrepreneurs, you need to know what entrepreneurs are like. Do you? Here’s a quick crash course.
Try: heart first, head second
First, entrepreneurs are usually energetic, passionate folk. Give a pitch that suggests you’re really really interested in your business idea, and you have the drive and zap to see it through. Better still, tell them what your drive is. What gets your motor running? Remember: all that emotional stuff is processed by the brain before the dry logic of your market research, or the endless figures supporting your financial projections… You need to appeal to the heart first, the head second. This allows you to capitalise on the fact that entrepreneurs are intuitive thinkers, and that they genuinely trust their initial (emotional) reactions.
Get to the (jargon free) point
Next, most entrepreneurs are ‘do it now’ people. They have a need for immediacy and get bored with too much detail. What this means is that whilst you do have to have the facts and figures at your finger tips, your pitch must be quick and clear. Frankly if you can’t explain the basics of what you want to do, and what you want from them in 60 seconds, all the time in the world isn’t going to help. Get your message sorted out. You must make an immediate impact before you paint the rest of the picture.
Go for the vision thing
Entrepreneurs are interested in ‘difference’. They are comfortable with change and new ideas. Sell the difference – your USP – and explain how it fits into a bigger picture. Why? Well, isn’t this what it’s all about? If you don’t have a vision of how you can make things change, and can’t explain how to scale up your proposition, it’s not going to be investable.
Create a potent message
Okay, where’s all this going? Simple. Likely as not you will be talking to some pretty savvy investors. They know what it’s like to have big dreams and even more ambitious goals. To want to make a difference. To be so fired up that little else seems to matter. So do it right:
- Idea. What’s the (big) idea and what’s the claim, i.e. what’s the business proposition and why is it different and better to what ever else is out there.
- Benefits. What are the three most compelling reasons that support your claim? This means what are the key benefits of your proposition. For example, what ‘problem’ is it actually solving? How will it change things for the customer?
- Validity. What evidence supports your claim? This can be in the form of (simple) stats, quotes from experts or customers, perhaps even a story. But give the listener a reason for wanting to hear more.
If you can do this and load your pitch with passion and sincerity, you might stand a chance. Oh, and by the way, what’s so special about you or your team, and why are you the only people who can make this thing fly? Precisely what is everyone putting in, and more to the point, what are you putting on the line? Commitment, commitment, commitment…
“The best style is the style you don’t notice.” Somerset Maughan.
If you think an ‘elevator pitch’ is just a frenzied two-minute sales pitch you would be wrong! Well, come on, how do you react when someone backs you into a corner and gives you their best marketing shot? Yep, it’s often too much, too quickly, and too in your face. Read this article by Geoffrey James in Inc. magazine to brush up your style:
I’ve recently been doing some research on resilience in the medical profession. In particular looking at how people cope when the going gets tough, the sort of individuals who thrive on continual change, and how it is that some see stress as a ‘healthy’ aspect of work. It turns out that those who are more resilient, or who possess what can be described as ‘hardiness’, have a set of four mental attitudes that makes them more likely to stick to tasks and to thrive. Coincidently these same attitudes are seen in successful entrepreneurs. They are:
Optimism. A view of the world, and of the self, that is unfailingly positive. Entrepreneurs have a powerful positive expectation about how things will turn out, reinforced by complete faith in their own competence.
Control. An unshakeable belief that they are in the driving seat and that they make their own luck. In short that it’s what you do that makes the real difference; and success is not simply a matter of luck or waiting for the right breaks.
Commitment. If you spend any time with entrepreneurs you will realise that what they are doing is feeding a consuming passion. It’s something that fully captures their attention, and energy, and is deeply linked to their sense of identity.
Challenge. And finally entrepreneurs accept that challenge, change, and not-quite-knowing-what-will-happen-next are par for the course. Business is a ‘work in progress’ and the twists and turns are what make it fascinating and energising.
If you’re familiar with the work on the psychology of entrepreneurs none of this will seem revolutionary. However what is new is that perhaps entrepreneurs possess a natural resilience: a package of optimism, sense of control, commitment, and ability to deal with change that specifically equips them to deal with the business creation process. A process that is characterised by personal challenge, risk and ambiguity
The new season of The Apprentice is now firmly established on BBC1. However wouldn’t it be interesting to put the ‘top entrepreneurs’ through a rigorous assessment process before the series, to see who has what it takes, and then compare the eventual winner with their assessment profile? In the meantime here’s how the candidates are selected
(c) BBC 2011
Let’s just imagine that I’ve got this great business idea, but I need to raise some major finance. After having exhausted the spare resources of my friends and relatives I arrange to have a series of meetings with potential investors. After a quick run through my business plan they start to ask me about my motivation, my interest in, and my passion for starting the business. Why do I want to do this? What makes me think that I will succeed?
Good questions. That’s because it seems to make sense that my personal characteristics are at least as important as my business idea. And naturally because the individual is considered to be key to the success of a venture, psychologists have long been concerned with what such people are like. Indeed there are decades of research that have been dedicated to getting under the skin of the entrepreneur and trying to work out how he or she ticks.
A glance through any list of entrepreneurs, be it one that is aiming to identify rising stars, or a ‘Rich List’ compiled by a newspaper, often yields some familiar names. It seems that the sons and daughters of the famously successful are themselves frequently in line to make business history. The cynic might observe that in the ‘are entrepreneurs born or made’ debate, it does no harm to be a member of a wealthy family. Having attended Oxford or Cambridge University also appears to give a good start. However a deeper trawl through the ‘biographies’ of entrepreneurs reveals that they come from a wide variety of backgrounds, and that success is independent of early privilege, be it of the financial sort, or educational opportunity.
Psychologists and others have looked at the full range of background factors, such as education, occupation of parents, previous business experience, age at start-up, gender, religion or immigrant status. The results suggest that there is no entrepreneurial blueprint, although a successful parent, or a desire to succeed for some other reason may fire a potential entrepreneur’s imagination and self-belief. Interestingly Cary Cooper, formerly Bupa Professor of Organisational Psychology at UMIST, observes that many entrepreneurs have been inspired by a caring parent or a mentor, and the majority can also identify a significant ‘shaping’ event in their childhood – with bereavement at an early age being a common factor. And of course there are many examples of entrepreneurs who have started with nothing apart from their wits and a burning desire to get on in life.
Leader of the pack
More recently there has been much talk of the importance of birth order. This seems to be a hangover from Victorian times in as much as the order of precedence used to be: first son inherits business, second joins the Army, and third seeks a position in the Church. These days the ‘older brother’ or ‘older sister’ syndrome involves seeing the older child as being special in some way, or as the leader of the pack.
Many an entrepreneur-watcher has uncovered statistics that suggest that most are first-born children, and in particular that the majority of successful female entrepreneurs are the eldest. Conversely there is a school of thought that supports the view that later-born siblings are more rebellious and open to innovation. The fact is that statistics of this sort bedevil the whole area and it is probably sufficient to say that Bill Gates is a middle child – a position often touted as being inauspicious for opening a corner shop, let alone founding a global business empire. Although we would be wise to consider that other family factors such as sibling rivalry may play a role, and second-generation entrepreneurs are often fuelled by a tension between their ideas of how to grow the business, and those of the founder.
Overall, while the drive and determination of entrepreneurs may be influenced by where they come from, and the environment in which they were raised, there is obviously more to it.
The magic bullet
A thorough examination of the personality characteristics of successful entrepreneurs provides some useful insights. Indeed if it was possible to isolate a distinctive group of attributes, this would be the ‘magic bullet’ that investors would pay good money to possess. After all, it would be a way of determining who was most likely to succeed, and thus of reducing the risk of investing.
It turns out that there is a long list of personality-type attributes, some of which are fairly obvious, others less so. For example, on any list would be independent mindedness, the desire to create something new, and perseverance. The desire to be independent and to be the master of one’s own destiny is a powerful driving factor, but of course the ability to plough-on, regardless, and not to be distracted by success or failure, is also a valuable characteristic.
However for the technically minded, the three big factors that are recognised as being fundamental to the entrepreneur are a high ‘need for achievement’, an internal ‘locus of control’ and ‘risk seeking’ behaviour. The first two are based on the work of a number of famous psychologists, not least the postwar research on achievement motivation of David McClelland.
In reality ‘need for achievement’ is concerned with the unique way in which people think when their desire to achieve is stimulated. Those with a high ‘need to achieve’ perform better when they are confronted with challenging, rather than routine tasks. They also like to innovate and to find new or different ways of doing things.
Locus of control is all about the degree to which people perceive that they can influence the events in their own lives. Thus those with an ‘internal’ locus believe that they are in control; whereas those with an ‘external’ locus believe that they are at the mercy of outside influences such as what other people do, or the vagaries of chance.
Finally risk, or rather the way in which entrepreneurs view risk, has also been put under the microscope. This is a complicated area and the uninitiated often believe that entrepreneurs are big risk takers – gamblers even. Not helped by scores of autobiographies that play up the author’s willingness to risk all. The truth is often rather more prosaic. Entrepreneurs may take bigger risks than the rest of us, but they are calculated risks. Also risks that are bearable because many entrepreneurs have a high ‘tolerance of ambiguity’, in that they are good at coping with open-ended situations and can deal with uncertainty.
Indeed the latest view of entrepreneurial risk-taking is that they actually take on risk as the last resort; much better, in the mind of the entrepreneur, to apportion it amongst lenders, suppliers and even employees. This sort of ‘bootstrapping’ behaviour is perhaps best illustrated by many of the original founders of dot.com businesses, as these were usually started with large amounts of other people’s money.
Also, to turn risk on its head, investors in particular need to realise that many entrepreneurs are actually incapable of running businesses. They are in themselves the biggest risk. This harks back to the desire to be independent, and frankly getting bored with the detail. In a small concern the entrepreneur can manage everything personally, but this is not possible when the business has grown to a certain size. Management conflict then ensues because there is a fundamental difference between running a large, stable (and more bureaucratic – more people, more paperwork, more processes) business, than a small growing company.
The clutch of factors described so far provides quite a good entrepreneurial profile, but it is not unique to entrepreneurs. For example, a high need for achievement is a drive that could just as easily be attributed to many sports people. However the final chink may well be in the way in which entrepreneurs prefer to solve problems…
Think yourself rich
As a Business Psychologist my own research has highlighted the differences not in biographical factors, or personality attributes alone, but in thought processes.
Having conducted a large project that looked at 20 businesses over several years, some distinct trends emerged. For example the more innovative the person the broader their ideas base. But perhaps more fundamentally, true innovators looked for differences, whilst ‘imitators’ looked for similarities. This makes sense, as innovative entrepreneurs are often fated for their open-mindedness, and their willingness, at times, to think the unthinkable.
There were also telling differences between entrepreneurs when it came to overcoming mental ‘blocks’. A good example is the Gambler’s Fallacy. Many gamblers believe that luck influences their chances of success. A run of bad luck, and losses, must eventually change because they are due a break. However it’s a fact that past ‘bad’, or indeed ‘good’ luck, has no effect on future winnings. But lots of people take the same view: if I just keep going, my luck will change. In contrast successful entrepreneurs seem to take a more pragmatic approach, and genuinely believe that you make your own luck. So successful entrepreneurs seem to make fewer errors based on the probability of events, and the best know exactly when to quit and start again.
New developments in assessment technology have made it possible to look at how people tend to approach problems, rather than concentrate on the end result. Like someone completing a maths examination it is often more instructive to see the ‘working out’ rather than focus on whether the answer is correct.
Some of the techniques now used by Business Psychologists include Cognitive Process Profiling (CPP). A method that allows a person’s cognitive style, or the approach they take to thinking, to be examined; plus the areas of their thinking that can be developed, and the work environment in which they will perform the best. This is a powerful tool as it helps to highlight important differences in thinking ‘capability.’
As entrepreneurs are often innovative, versatile people who enjoy a challenge, something like CPP allows a unique view into their problem solving and decision-making style – a style that is not necessarily based on linear problem solving, but which is often more indirect and exploratory, or ’wiggly’. This process-based approach also allows learning potential to be assessed. A capability that is central to business success. That’s because the sustainability of a venture relies on an entrepreneur’s ability to learn and develop while a business is growing.
The Entrepreneur Detector
Putting all this together you have probably spotted that there are some things that seem to be hard-wired into the potential entrepreneur, and other things, let’s call them E-skills, that can be learnt. Also that assembling all the things we know about personality and thinking style means that we can produce a reasonable ‘entrepreneur detector’. A way of looking at entrepreneurs that allows us to see what gets their engine running, and that also allows us access to some of the moving parts under the bonnet.
In addition if there are genuine E-skills, we can, for example, teach someone about the likely pitfalls and how to avoid them. The upshot being that it would then be reasonable to run courses in Entrepreneurship. This is a trick that has not been missed by the Higher Education establishment. It is now possible to study any number of degrees in Entrepreneurship, and it is firmly established as an elective subject on many MBA courses.
So it seems then that we have accepted that there are aspects of being an entrepreneur that can be learnt, and that like any sport you can improve your skill with practise. But the important extra ingredient is the passion that you bring to it, and this is likely to be a complex mixture of emotional and intellectual factors – many of which are now recognised by the business psychologist. This is good news for those who want to understand what drives entrepreneurs to create businesses, and also to organisations that wish to stimulate their ‘talent within’, or to capitalise on their employees ‘intrapreneurial’ potential.
Picture credit: zirconicusso/freedigitalphotos.net
If you would like to be part of some research to find out, follow this link. Online survey designed by Tomas Chamorro-Premuzic of Goldsmiths College, University of London.
Interesting footnote: Tomas was the resident psychologist on Big Brother!