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Antagonists, Bridges, and Freedom

March 15th, 2007

I come at entrepreneurship from the perspective of conflict, obstacles, and antagonists. An entrepreneur’s action on his or her idea will create antagonists. It has nothing to do with merit. In fact, increased merit only increases opposition both in intensity and the number of antagonists. I spent 35 years trying to figure that out. At first I had no idea the issue itself was entrepreneurial. I didn’t see experts as antagonists but rather those who identified poor management, incapacity, unnecessary risks, and high risk. My first efforts to win support for entrepreneurs were to eliminate the bases of that criticism. Thirty years ago I agreed with the antagonists. Then I wondered if the antagonists were right. I posed a question: Suppose entrepreneurs were business-competent and did execute sound management. It changed my thinking, allowed me to significantly reduce the burden on entrepreneurs by aggressively carving away the bureaucratic carry-overs of sound management practice. Implementing the shift revealed that the expert’s criticism was superficial and blindly prejudicial: what is different is bad, everything associated with different is bad, and so is every one. I found that moving to “fix” the entrepreneur was counter productive and actually increased risk.

Years ago I concluded that conventional wisdom and practices were wrong when it mattered most. It was my clients’ efforts, contrary to convention, that were producing prejudicial and scathing criticisms. The antagonists weren’t supporting or improving; they were pre-consciously trying to stop improvement.

Being something of a blockhead, I moved to help my clients prove their ideas to those whose support they needed. I wanted them to know my client was right. It was all a factual battle. About 20 years ago it began to dawn on me, very slowly, that facts produce counter-facts, more facts produce more argument, and so on. What became clear is a problem of risk, perception and nature. This led directly to considering the role of economic adjustments and economic volatility. Economic adjustment is the need to improve, discover, and develop new products and services. Somebody else does even if you don’t. The practical failure to do so on the part of most firms was evident because the model performance benchmarks touted by industry experts was so low that in most years the average firm’s earnings percentage was lower than the cost of borrowed funds. In other words, convention is almost always wrong. This redefined risk. Risk tacitly accepted by doing nothing is much higher than the risk of acting today on the future. This was an important bridge to build because what is behind many objections is myopia and provincialism.

To counter these limitations we spread the data over decades showing that what is high risk in business is avoidance of improvement. A remarkable finding from this work: gradual improvement was even riskier than none.

The bridge had to deal with another risk. This one is real, economic volatility. We narrowed the consideration of broad economic volatility to its basic business impact — credit supply (cost and availability), demand (volume), and prices (paid and received, including modification by foreign exchange). Few know much about economics, but they fully understand credit, volume, and prices. They have felt them. This was more than interesting because with it we could readily punch holes in the assumptions regarding the causes of success for tired old companies, and plug holes if an innovation is being dragged down by external economic matters. It is accurate to say the economy is improving in seven times as many months as it is declining. We forget the good, and have “day-mares” about the bad.

This thinking also opened up two other avenues important to entrepreneurs. (I believe entrepreneurs have a heightened sense of risk and so are more risk averse than others.) The first is the timing of their “adventures”. Economic troughs are always better for starts than the peaks. This tends to time most development with economic peaks–notice the shift. The second is a host of risk mitigation strategies including types of financing, financing covenants, and hedges including commodities and currencies. We don’t do predictions, they are non-sense. Prediction depends on fundamentals but the future depends on human reaction, which is altogether unpredictable–especially in timing. We do odds. This proved to be a very good way of avoiding arguments over facts and predictions from facts. Everybody loves prediction; only a fool believes it.

Together the elements of this bridge help antagonists because it shows respect for their concerns.

The final element is the entrepreneur, the entrepreneur’s story.

I discussed these out of sequence for how we apply them today. The sequence is only how I learned them over the decades.

The story is first. The bridges come second, to demonstrate that the entrepreneur is astute in business terms, or more accurately, in economic terms. Defense is applied after start-up to deal with the inevitable snooping. (To put a good face on snooping, call it the need to demonstrate stewardship).

Finally, as to the entrepreneur. I very much like von Mises’ description:

“What distinguishes the successful entrepreneur is precisely the fact that he does not let himself be guided by what was and is, but arranges his affairs on the ground of his opinion about the future.”

To that statement add his other comments that concern the entrepreneur’s uncertain (that is, not looking positive) future for himself and his family. Add to that my own more homely experience. An entrepreneur is some one who sees that a thing can be done [much] better and that doing so would be worthwhile. It is a combination of improvement and market acceptance.

I recently did some research on the Toyota Industries Corporation—highly regarded and for good reasons. Years ago, the Toyodas (the family name of the founders) fit von Mises’ description. They started with looms, autos were later. I think when they watched how the women in villages did manual weaving they went outside of expert practice (what was, and is). But their observation goes much deeper. It is like Edison looking at the veins of feather as inspiration for the filaments in a light bulb. It is respect. The women earned respect, Toyoda gave it and from that could see improvement. I think something, a great deal, is lost by studying Toyota (or the start-up and growth of any highly-regarded firm) without an even deeper understanding of an essential and deep respect for creation.

Toyoda went from loom to zoom. Wright went from pedal to flight. Porsche, from VW parts to Lemans. What are these but great dreams! And also something else: the compulsion of their story, the very means of their support is their status as the underdog. People love underdogs (even business experts). Toyoda wanted to build a world-class car. Ferry Porsche wanted a sports car you could drive every day. Think of it in their times. The CEO of Porsche asked Ferry in early 80’s what made him think he take VW parts and sell it for 5 times what everyone else did. He replied, “I didn’t listen to anybody. I thought others would share my dream.” For Eijii Toyoda’s renowned stubbornness he was called “the Ox in the darkness.”

When the entrepreneur tells his story–this kind of story–people listen, they follow and they support. Resistance will rise. But it does not matter for people want somebody to follow.

Robert McKee in Story describes the compulsion of a great story as having these elements:

1. the basic conflict – the reality of scarcity in life
2. insight into the gap between reality and expectation
3. life is filled with contradictions, so a healthy suspicion that things are not as they seem
4. the requirement of absolute values
5. and, finally, an Object of Desire

Those are things of Toyodas’ story and every other entrepreneur, renowned or not.

The antagonist is usually expert, and certainly someone who feels threatened. They are not enemies; they are cooperatives in advance. For those who sense their needs, who see the future, the antagonist is merely the means of sharpening sight, selecting supporters, and helping them to be able to help.

I close with a couple of thoughts that are at once disturbing. But if you think about them you will see, as I do, underneath they reveal great possibilities for us. One investment house makes investments overseas because although the business climate is better here, the idea flow is much better there. Peter Drucker said that other than advances in distribution there have been no major discoveries in the U.S. in a century. Twenty-five years ago financial firms accounted for 6% of Dow capitalization’ today it is nearly 30% of capitalization and profits. A South American e-mailed a friend here to explain that what he and his friends were doing is copying what the USA used to do but does no longer.

The book on what is and was is written. We are therefore free to move on, and freedom is a better word for entrepreneur: free to discover. We are therefore also free to respect, for respect is a better understanding of what grounds all invention.

This journal previews a series of entrepreneurial exchanges oriented around my forthcoming book and moderated by Jim Jacobs of Savvy Consortium. Click here to read more, and to register.