In Business, Becoming Fearless Is What Makes You Great

October 7th, 2007

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.

On an individual basis, this is called a near-death experience. If you are not sure what I mean, watch the movie Fearless (1993).

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.

Developing Games and Living the American Dream In China

September 18th, 2007

Last night I had dinner with five individuals in Beijing. Except for me, all of them had real hands-on experience in the gaming industry in China. (My experience in gaming is limited to the business side; not programming and production.) All of them were Americans, or had extensive experience in the US.

Long story short: China has become a boomtown for gaming companies doing development. There are several reasons for this:

  • A large Chinese gaming population
  • Smart programmers and artists
  • A large cheap labor pool which is eager to work, and more importantly, learn

Significantly, most of the group had started, or were starting, their own companies in China. The president of one company, Gage Galinger, had been working in stealth mode for three years, quietly hiring and developing its own title for his company, Possibility Space.

Most of them were former Microsoft employees.

Gage was from Texas, and had come to Beijing to start his own game development studio. He is not Chinese, or Chinese-American, but Caucasian. I always admire someone who is not of Chinese extraction, and is willing just to jump on a plane to Beijing or Shanghai, learn, and start a company. More than anything else, that is what starting a business is all about in this age of globalization. This is the mark of a true entrepreneur.

After arriving in Beijing, he started hiring for his own studio where he is lead programmer and president.

I’m sure many of my readers may be wondering how someone who does not know Chinese could possibly function in an environment where many people do not speak a common language. How could he add value?

This is where his background at Microsoft came in handy, and the American style of collaboration for game development really shines. In Chinese gaming companies, the artists and programmers are just worker bees, performing repetitive tasks. They are not asked, and do not offer their opinions about the games they are developing; they are told what to do, and just do it. In his company, employees are required to show their day’s work to everyone else in the company, and others are encouraged to critique the work. Of course, most Chinese are reluctant to say bad things about other peoples’ work, afraid that it will hurt their colleagues’ feelings. For Americans, it is more natural to critique other peoples’ work because Americans are able to separate the work from the person.

Most of the time anyway.

Gage said that the path was not entirely smooth; he had to fire people who did not fit. But all in all, he was encouraged by the experience, and he had a very clear idea about how he added value to his company. He was very optimistic about his experience, and said that for him, living in China was about realizing the American dream of having his own company and making his own title, and launching it worldwide.

The economics of the gaming industry in the US is broken; developments costs are high, and game developers are always in debt and losing their IP to investors. But development costs in China are low, and Gage claims that his developers in China are better than any team he has worked with in the US by an exponential factor, or anywhere else.

He said that he has tried to get other game developers to come to China to partner with him, but while they have expressed interest, none have made the move. He has just opened an office in Austin, Texas.

If America had more entrepreneurs like Gage, who don’t overthink, overplan, have a solid core skill, and just get on a plane to China and start their company, and are humble and willing to learn, the US would be in a much better place.

America used to be a much more entrepreneurial country, now it is overly regulated, overly expensive, overly specialized, overly structured and overly corporate. In order to be competitive again, the entire society and culture will have to make major adjustments. The road will not be a smooth one.

That is why the smart entrepreneurs, like Gage, start their businesses in China.

In this new globalized world, China has become what America used to be.