One of the things I find most compelling about the entrepreneurial world is how it divides into those who are vision led and those who lead through consensus (market study, everyone’s opinion). On first glance, this might seem like an odd way to divide the startup world as surely wannabe successful businesses must study the target market to become successful in the first place. Surely they must gather opinions, weigh them and choose from the analysis. My angle for this article comes from a macro observation, perhaps very relevant to the Canadian investment market, but also one that invades the US investment market as well — vision and insight are two qualities that those without insight or vision find uncomfortable!
It’s difficult to invest in a vision-led idea because the traditional business evidence to support the founding investment is essentially unattainable. This sounds like a contradiction to many who invest as one of the key tenants of building successful businesses appears to be immaterial — maybe it is. What this observation says is that often the true entrepreneur actually knows what needs to get done without first spending time validating the opportunity. In fact, I would assert this is really what a true entrepreneur is supposed to be — someone who can come up with business ideas almost purely from their vision and perspective of the world.
So where does this assertion lead to? It most cases, it leads to the “build and they will come” model which many startup entrepreneurs often run as their business plan. Many if not most businesses fail this scenario, the founding idea is wasted as is any money that went into it. The businesses based purely on market study tend rarely to be market leaders, but they can differentiate on ability to execute which is often the key distinction of leaders as measured by revenue and also-rans. I think Microsoft is a good example of this — a company built largely from studying existing markets, ultimately out-executing whoever formed the market in the first place.
So why is this assertion even important for me to write about and you to read (hopefully you will read the rest of this post)? This assertion is important as we need to figure out how to identify the pure entrepreneur so we can support them properly from both an investment perspective and also an execution excellence perspective. I was a panel member at an E&Y event today where the moderator was citing that Canada spends the lowest amount as a % of GDP (1%) on R&D compared to most other countries who are members of the O.E.C.D (2.5% average).
It’s not that we are cheap or short sighted, I think it is largely that our investment community lacks the skills to properly evaluate and assess the value of the entrepreneurs they are working with. They treat the visionary as someone who must prove their vision to gain proper support, which is a contradiction given vision is often about a future need so quantitative research is often unavailable. Next the investor looks at the team to see if they can confidently execute but often the investor is not much more knowledgeable than the team they would invest in, so accurate judgement is hard to come by. The team makes mistakes while the investors sit back and watch, looking for ways to slow things down to the point of operational uselessness. The visionary has to fall back to market study as the way to take the next steps — lead by consensus instead.
We need to fix this if Canada is to realize its full potential as an innovative society. If government would recognize the value of great and experienced people to help sheppard investment money into the right places, that would be a good start. If private investors would network properly with experienced and successful mentors for their businesses, that would be a great start. If all investors would allow the fundamental way in which businesses are governed by a Board to change (e.g. the CEO/Board relationship), that would be a great as well. If managing by consensus was removed from the equation (for the most part), more would happen faster — more good things, as long as experienced oversight was actually in place.
Let’s get started — before no one wants to live the Canadian stereotype any more.