Phil Rosenzweig: 'entrepreneurs need two brains -- one left, one right'

27 Jan 2014
Daniel Mitchell

Two common notions shape our views about entrepreneurs, and neither is quite right. One of them imagines that they craft careful business plans and execute them skilfully. In fact, most new businesses don't adhere to a script. They adapt and modify as they go along, learning from feedback and trying new things.

The other sees entrepreneurs as slightly wacky, possessed by extraordinary self-belief and willing to take a bet with very long odds. They exhibit common cognitive biases which are often associated with bad decisions, but are useful when it comes to starting a new business. This view, currently in vogue, isn't right either.

The truth is less surprising but no less impressive. Successful entrepreneurs display a blend of seemingly contradictory skills.

They combine careful analytical thinking -- what we associate with the left brain -- and a willingness to push boundaries -- what we call the right stuff.

Both skills come together in the essential tasks of entrepreneurship: the ability to manage risk. Wise entrepreneurs consider three very different sources of risk: market; technical; and financial. Market risk includes all those external elements that cannot be controlled, from consumer tastes to competitor moves to regulation. Betting we can get customers to change their habits, or banking on competitors to overlook our actions, makes little sense. It's best to be wary of these risks and seek to minimise them.

Technical risk has to do with finding new methods or breakthrough technologies. Such improvements are not only within our power to influence, but are very likely crucial for success, for only with superior technology will we prevail against rivals.

Only those who set their sights on very high performance will be in a position to succeed. The key to success is to set aggressive technical goals, then pursue them with confidence.

Financial risk isn't just about raising money, but also spending it wisely. A common error is to spend too much too soon. Developing a new technology is often not dependent on lots of money. During the early phase it is vital to focus on the technical challenge while keeping costs down. Once a new product is developed, it is risky not to spend money. Many companies miss the transition point, either spending too much in the early phase or failing to ramp spending when it's most needed.

Managing a new venture calls for the ability to assess these risks, and to understand what we cannot change, as well as what we can. It calls for sober analysis and a willingness to push boundaries. The role of the leader is to identify critical factors for success and communicate them with confidence, enabling people to do more than they might have thought possible.

In the book Founders at Work: Stories of Startups' Early Days, author Jessica Livingston reports that many entrepreneurs, far from exhibiting blind faith or bravado, were unsure their idea would succeed at all, much less produce a big hit. Many simply persisted and kept fixing what was broken. Some of the best-known hi-tech companies began with entirely different products in mind.

PayPal started out writing encryption software. Excite started as a database search company and Flickr began as an online game.

These and other ventures did well because their founders were willing to adapt, to learn from feedback to find opportunities.

They blended very different skills: a detached and dispassionate assessment of markets, technologies and competitors, and an ability to inspire team members to push boundaries and do more than had been done before. Neither is sufficient; but together they make a powerful pair -- matching left brain and right stuff.

Phil Rosenzweig is a professor at the International Institute for Management Development, in Lausanne, Switzerland. His book Left Brain, Right Stuff: How Leaders Make Winning Decisions (Profile Books) is out in January
