For most of my career, I have been looking for patterns to discover why some companies come out of nowhere and become big and great, and why others who have dominated the market lose market share and users to the newcomers. More often than not, the newcomers are entrepreneurs who had a vision, while the established companies were as Lou Gerstner called it in his book, “Who Says Elephants Can’d Dance?”
I have looked at startups and established companies, and if there is one word which separates the hungry newcomers from the established, shall I say it, dinosaurs, it is fear. It is not so much the emotion, but how they react to the possibility of failure. More than anything else, this strikes at the heart of what differentiates the entrepreneur from the established firms which frequently end up belonging to another age, and usually end up being swept into the dustbin of history.
Most successful Internet companies, whether they are Yahoo! or Google in the US, and Shanda, Baidu, Alibaba or Tencent in China have one common theme in their histories. At some low point in their early years, their founder/s almost gave up, and they almost sold their companies at a low price to another company. When this happened, the founder/s would seriously consider their options. Sometimes they would lay off people, cut down their costs, maybe fight with their spouses who wanted them to quit and work for IBM or Microsoft or somehow throw in the towel and give up, or sell out. Then, when things were at their lowest point, their user numbers would go up, or they would secure funding and they would turn the corner and start to grow dramatically.
It is all about fear, and overcoming fear. When you have reached a low point, there is no more fear.
“What is the worse thing that can happen to you?”
That you will lose your house? Your car? Your spouse and family? That you will die and be forgotten? Are you willing to take these risks?
When you have reached that point, there is nothing more to fear. It’s all about willingness to sacrifice today in the belief that you will succeed tomorrow. What is there to lose? Money? That has already been invested. Quitting would only be a recognition of the loss; most entrepreneurs refuse to recognize the loss. This is what makes entrepreneurs special; the best ones are truly fearless.
And it’s not about money. They know that money buys the trappings of success such as a big house and trophy wife or mistresses, but that they are just trappings of success. After they become successful, they frequently look back on their “good old days”. And what are their good old days? When they didn’t know whether they would make the month’s payroll, or were living in their car, or eating instant noodles because they could not afford anything better.
This is not something which can be taught in business school. And this is why the US was, and now China is, a great place for entrepreneurs. It’s easy when you are starting from zero. More than any other markets, American business investors believe in the value and experience of failure; this is where Japan and Europe cannot compete with the US and China.
And this is why is it so difficult for large companies to make the leap or cross the chasm. The only way for a successful marketmaker to bridge the gap is to give up all its revenue, all its investments and to start over again.
That has not happened yet. Microsoft has tried to do it, but they cannot sacrifice revenue; their investors won’t let them. Yahoo! was a great Web 1.0 company with great assets but has had significant challenges reinventing itself from the glory days when banner ads were king. When companies become successful, they attract people who wish to avoid risk and who want to make money to buy their big homes, drive big cars and to have their status. They are risk avoiders, not risk takers. Once a company starts to attract this kind of person, it cannot re-invent itself.
It fears failure and won’t take risks.
Entrepreneurialism is all about finding success or failure relatively quickly by putting everything on the line. What the Internet has done in the US and now in China is it has sped up the failure and success cycle, collapsing the amount of time it takes to discover what works.
In my articles I am frequently critical of large businesses which cannot adapt to new changed situations; this is because they are afraid of fear and failure. They want to be market dominators at a time when the market is changing beneath their feet. They have meetings and talk and grumble and analyze, but most of the time they are not able to do much. They acquire small companies to maintain growth, and more often than not, they destroy the spark which made those startups successful in the first place. Or the smart people who have entrepreneurial talent and are willing to take the risks see market opportunities and become entrepreneurs in their own startups themselves.
That is why successful change always comes from the bottom, not from the top. And that is why the cycle of change will continue, only faster.
UPDATE: Frank Yu pointed me to this article by the consistently good Paul Graham who says a lot of the same things.