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Ego Makes Entrepreneurs?

Submitted by Leo Kolivakis on 10/23/2010 00:41 -0400

I
spent all morning at the Palais des Congrès here in Montreal attending a
conference on entrepreneuship which was sponsored by the Board of Trade
of Metropolitan Montreal and financial institutions like the Business
Development Bank of Canada as part of Small Business Week 2010:

The
Board of Trade of Metropolitan Montreal and its team of experts in
entrepreneurship – Info entrepreneurs – today announced the programming
for Small Business Week 2010 in Montréal. The program will feature a
series of activities that will bring together hundreds of entrepreneurs
from the Montréal area. “This prestigious event is a special one for
Montréal small businesses,” said Michel Leblanc, President and CEO of
the Board of Trade. “It combines helpful training, presentations by
experts and the perfect opportunity to establish or develop a
professional network.”

The week offers a variety of activities that
meet the needs and reflect the interests of all small businesses. On
October 19, participants will have a chance to explore the different
avenues available to them for financing their business projects. This
day devoted to the search for financing will offer invaluable advice on
developing business plans and using management tools. The day of
October 20 will be devoted to expanding and growing companies, dealing
in particular with export and innovation. The day will end with an
exclusive evening to celebrate the top performing companies of the year.
The week will close on October 22 with a major seminar on
entrepreneurship. Panels throughout the day will feature renowned
conference speakers who will share their experience and best advice. For
details on the program, please visit the www.infoentrepreneurs.org.

At
the same time the Board of Trade also unveiled the confidence index
for its members for the third quarter of 2010, which has dropped
slightly, moving from 5.95 during the second quarter to 5.93 during the
third. “Entrepreneurs remain fairly confident about the growth of their
businesses, but their confidence in the Montréal economy has flagged
somewhat,” said Michel Leblanc. “The results show that Montréal
businesses are resilient, in spite of the deteriorating global economic
outlook.”

The Business Development Bank of Canada, the presenter
for Small Business Week, also presented the conclusions of a survey
conducted as part of the Angus Reid Forum. “This survey presents an
enlightening picture of the outlook for small business,” said Mr.
Leblanc. “It shows us that small businesses have understood the
importance of innovation, that they remain prudent in their intentions
to invest, but that they are optimistic about their growth objectives.”

This
morning's presentations were excellent. There is nothing like listening
to entrepreneurs tell their stories and how they succeeded with their
companies. I was struck by two things in particular. There were quite a
few young women in the audience and as panelists. It seems like women
have more of the entrepreneur spirit here in Quebec (maybe elsewhere
too).

The second thing that struck me is that while financing
remains a big concern, it's not the biggest preoccupation for
entrepreneurs. In fact, the bankers and financial experts made it clear
that you need to choose your partners well and make sure they bring a
lot more to the table than just money.

Jean-René Halde, President & CEO of the Business Development Bank of Canada (BDC)
started things off this morning and gave an incredible speech. I've
heard Mr. Halde speak a few times while working at the BDC - and was
always very impressed - but this speech was amazing. Mr. Halde masters
the French and English language and his speeches are both inspiring and
thought provoking. Listening to him speak, I almost wish he'd run as the
leader of a federal party (we desperately need leaders like him, but he
serves us better at the BDC).

Mr. Halde said that the culture of
entrepreneurship is lagging in Quebec. He said that the 60s produced
some great entrepreneurs and business leaders but in recent years there
has been a marked lack of entrepreneurship in Quebec, especially
compared with Western provinces. He said that while "we identify,
promote and support hockey players with talent starting at a young age,
we do little to identify, promote and support our young entrepreneurs."

There
was something else that struck me in Mr. Halde's speech. He talked
about learning through failure. "In Quebec, we penalize people who fail"
but in reality we should not penalize people who take on entrepreneur
risk. There is value in failure and some of the best entrepreneurs have
failed many times in their lives before succeeding. At one point, he
referred to hockey great Wayne Gretzky who once said "You miss 100% of
the shots you don't take" (see BDC's latest press releases for more).

Mr. Halde was followed by a panel of young and seasoned entrepreneurs which included:

Daniel Drouet, co-founder, Montreal Start Up
Caroline Saulnier, President, Synetik Ergonomic Solutions
Mary-Eve Ruel, President, Uranium

Élisabeth Deschênes, President, Zoum Armada
Daniel Schneider, Vice-President, Meubles Foliot inc.
André Morissette, President, Campagna Motors

I
absolutely loved listening to their presentations. We spend so
much time worrying about the stock market, bond market, black swans,
etc., but these are the people who are producing and creating real
wealth and jobs in our economy. I admire their perseverance, dedication and
willingness to chase their dreams. We need more entrepreneurs, less
financial engineers.

The ladies really impressed me. Ms. Saulnier
spoke of how she developed her business and still has aspirations to
pursue other ideas. Ms. Ruel said something very true "If being an
entrepreneur was easy, everyone would be doing it". Ms. Deschênes spoke
on the importance of branding.

The men were equally impressive.
Mr. Drouet spoke on the low barriers to entry of web businesses and how
entrepreneurs are using the web to grow their businesses. Mr. Schneider
spoke on the importance of succession planning and integrating everyone
when important decisions have to be made. He used the term "sociocratie" which is a mode of decision making and governance that enables an organization to behave like a living organism, self-organizing. The
primary objective is to develop co-responsibility to the players and
put the power of the collective intelligence of the organization's
success (pension funds take note!!!). Mr. Morissette spoke
of how he started the company at the worst possible time, facing
unbelievable odds. "the greatest entrepreneurs are rebels".

A
panel discussion then took place with Mr. Halde, Gaétan Morin, First
Vice-President, Investments at Fonds de solidarité FTQ, Luc Bernard,
Vice-President, Small and Medium Sized Enterprises at Laurentian Bank
and Stephen Rosenhek, Associate Director at RSM Richter Chamberland.
Michel Leblanc, President of the Board of trade moderated the
discussion.

The panelists answered questions from Mr. Leblanc and
the audience and gave aspiring entrepreneurs some sound advice: Be
transparent, know your clients' clients better than they know them, keep
your business plan simple/ realistic and remember you only have one
shot to make a first impression. Importantly, choose your financial
partners well, and make sure they offer you sound advice and consult you
in good times and bad times. And Mr. Gaétan gave some sound advice: "Don't be afraid to surround yourself with people who are better than you."

Finally, Yahoo carried an article on Being Steve Job's Boss and I ran across a 2005 article from Bloomberg BusinessWeek, Ego Makes Entrepreneurs?:

Just
how much appetite for risk do entrepreneurs really have? That's the
question Wharton doctoral student Brian Wu began asking himself while
examining their behavioral patterns. He found the general assumption to
be that entrepreneurs are risk seekers -- but the empirical evidence
suggests that, surprisingly, they weren't. But if entrepreneurs are more
cautious than everyone presumes, then what accounts for their
risk-bearing behavior?

That question is at the crux of Entrepreneurial Risk and Market Entry,
which received the annual Best Doctoral Paper award from the Small
Business Administration's Office of Advocacy this month. Co-written with
Professor Anne Marie Knott of the University of Maryland, the paper
describes entrepreneurs as inherently overconfident, which helps cancel
out their sensitivity to risk.

A native of Shandong province,
China, Wu has also studied the influence of the euro on his country's
foreign exchange reserve and the staged financing of entrepreneurs. He
came to the U.S. three years ago, after earning degrees from Tsinghua
University in China and the National University in Singapore.
BusinessWeek Online reporter Stacy Perman
recently spoke with Wu about uncovering a seemingly inherent
contradiction on the nature of entrepreneurs. Edited excerpts of their
conversation follow.

Q: The accepted understanding has been
that entrepreneurs have a greater tolerance for risk than the rest of
the population, and yet your study found the opposite to be true. How
so?
A: While conventional wisdom assumes entrepreneurs have great
risk tolerance compared to the rest of us, in controlled experiments
that tracked attitudes to risk, we consistently found that they aren't
really that different. In some cases, they're even more risk averse
[than the norm], and yet they continue to bear risk.

Q: So you're debunking the conventional wisdom?
A:
I wouldn't say that so much as I wanted to make clear that there are
dimensions of uncertainty. This disparity confronts two dimensions of
uncertainty: One, the uncontrollable risks or market uncertainty, and
two, the uncertainty of ability.

Entrepreneurs, like everybody
else, hate uncontrollable risks, but on the other hand, they're
overconfident in their own abilities -- they think they can control
their abilities in a random drawing of people. It's like the Lake
Wobegon effect in assessing their position among peers. They think
they're above the average.

Q: That being the case, what then accounts for their willingness to bear risk?
A:
It's their overconfidence in their ability. Their confidence is
greater than their risk avoidance. It compensates for their aversion to
risk.

Q: How does that influence their behavior?
A:
Entrepreneurs appear to be risk seeking with respect to their ability.
For example, if there are two industries and one has a high cost of
ability uncertainty and the other has a low cost of ability
uncertainty, the entrepreneur will choose the first case because of his
overconfidence.

Even though the second industry has the same
mean value, he would be considered just average [there]. While in the
first, he thinks he can be Bill Gates. It's that overconfidence in
their ability that encourages them to be entrepreneurs.

Q: Is this then the main differentiating factor between what makes an entrepreneur compared to the rest of the population?
A:
There are many sources [of difference], like education, culture,
social environment, and family tradition, but in the end, it's their
overconfidence that drives them to be entrepreneurs.

Q: What's the advantage to this approach?
A:
I wouldn't say it's advantageous. These findings help us understand
why entrepreneurs take risks. If, in fact, entrepreneurs with low
capabilities and high overconfidence enter [ventures], they're likely
to fail in the end because they have overestimated their abilities.

For
example, look at the airline industry. There's much uncertainty, and
it's volatile. Still, we see a lot of entrants into it because they
think they understand the industry. They think they have a higher
ability then the other guys. They say, "I will be the next Southwest
Airlines."

Q: Then is this an inherent disadvantage?
A:
Of course, [the venture] is a failure for the entrepreneur, but the
average person benefits. Overconfidence encourages [entrepreneurs] to
enter an uncertain industry, and their low ability in it may lead to
failure. But without that, the average person wouldn't enjoy the
creativity of the entrepreneur and their innovations that lead to lower
prices due to competition.

Q: What's the broader implication of this research?
A:
It helps us to understand the entry-pattern behavior of entrepreneurs
across industries. We can see the dynamic of entrepreneurial behavior.
When there's a high degree of uncontrollable uncertainty but a low
degree of ability uncertainty, we won't see a sufficient level of entry
into an industry. But if there's a high degree of ability uncertainty,
we will see a sufficient amount of entrants because their
overconfidence compensates for the uncontrollable risks.

Q: As a native of China, how do you see the American entrepreneur in comparison to the Chinese entrepreneur?
A:
I think mainly the difference is in culture, in terms of confidence
and, in particular, overconfidence. I would characterize American
entrepreneurs as confident. I wouldn't say they are overconfident, but
they're confident, which is good.

Chinese entrepreneurs in some
sense used to be constrained by all kinds of social, political, and
cultural factors. Now, they're changing, as China enters the World
Trade Organization, and they're becoming more and more confident.

The
second thing is that, especially in technological startups, many
Chinese entrepreneurs in the big cities are trying to learn from the
Americans. More and more, there's a flow of information between the two
economies. I'm not sure, but I feel there could be a convergence in
entrepreneurial behaviors as China and the U.S. are becoming the two
most important economies.

I end by telling you that I
had a long and fascinating discussion with Leo de Bever, President and
CEO at AIMCo on Friday afternoon and will prepare something over the
weekend for you to read. It's going to be an absolute must read for
senior pension officers, asset managers and all investors.

- advertisements -

Wed, 11/10/2010 - 05:01 | 715407 cheap uggs for sale

Sat, 10/23/2010 - 12:31 | 671895 Djirk

Great article.

From my experience living throught the heart of the dot.com cycle. Ego and (over)confidence are definitely trademarks of the successful entreprenuers. One differential between the winners and losers is the ability to admit you were wrong, get the fjuk up, look back, re-tool and go after it again.

After the bust in SF the gold chasers left, but the real entreprenuers didn't blink, just kept on innovating and creating.

Sat, 10/23/2010 - 12:28 | 671891 treemagnet

I just looked at the picture....the dude on the left reminds me of "There's something about Mary", the scene where they go to the prom......"We got a bleeder here!"

Sat, 10/30/2010 - 23:11 | 688602 Unlawful Justice

Picture: Steve Jobs on the left. John Scully on the Right. Schully was a Pepsi CEO when Jobs had him come over to apple. Schuly then had Jobs fired soon after in a board room coup.

Sat, 10/23/2010 - 12:25 | 671880 treemagnet

This is classic.....a bureauracy studying free market thinking....in a vacuum. Those who can't, teach.

Sat, 10/23/2010 - 11:19 | 671806 michigan independant

I made money and I put enough away to start another. The sad thing is the IRS in Ohio told me how to avoid tax on real property "inventory" from the local assessor death grip on cash flow they levied claim to. Also they never got it. This was when we started a video tape sales - rental and VCR repair shop. Sure we all knew the 10 year cycle on technology medium then, and the next step was hard work just as the first step was. It would of felt good to tell the State and Local Government to fuck off as they sued us but I never said a word to them. I handed the Judge the letter from the IRS and the same week closed the door on that Business in that insane town since they had the law on there side in the point of view. We already started our new Business and we worked our ass off to get it going. Before the tech bubble popped I got out since I kept my day job and felt I seen the future enough and had enough since I was tired over the years. Later it was sold to http://iserv.com/

I have never had a problem helping people who would work just those who wanted our money who would not.

Sat, 10/23/2010 - 10:52 | 671782 ATG

The results show that Montréal businesses are resilient, in spite of the deteriorating global economic outlook....We need more entrepreneurs, less financial engineers...If being an entrepreneur was easy, everyone would be doing it...sociocratie which is a mode of decision making and governance that enables an organization to behave like a living organism, self-organizing

What dog and pony show claims business is bad?

When China or USA sneezes, Canada catches cold

Keynes wanted to transaction tax the casino to let entrepreneurs go back to work

Ayn Rand noted most entrepreneurs were loners who did not care for crowds

To paraphrase Wallace Stevens, insurance lawyer, ideas are not the thing itself

http://www.poets.org/poet.php/prmPID/124

Leo Leo Leo Red Krill Red Krill Red Krill

Regards

Sat, 10/23/2010 - 09:53 | 671732 dark pools of soros

is that Leo on the left??? looks like there is a solar panel on the back of that jacket

Sat, 10/23/2010 - 08:53 | 671696 The Methanizer

Fucking lame Leo, save your hard earned cash and next time go to business section of Barnes and Nobel. Or better yet, E-mail Chet Holmes for Chapter 4 of his book.

Sat, 10/23/2010 - 09:06 | 671702 Leo Kolivakis

Are you an entrepreneur with a story to tell or just here to tout Chet Holmes? -;) Btw, chapter 4 of his book is free on-line:

http://www.chetholmes.com/media/documents/Chapter4_MYS_NEW.pdf

Stopped reading after I saw pic of him with uber douche, Tony Robbins.

Sat, 10/23/2010 - 09:08 | 671705 The Methanizer

How much you willing to pay for the story? You seem ripe.

Sat, 10/23/2010 - 08:43 | 671690 snowball777

OPM

Sat, 10/23/2010 - 08:08 | 671663 spinone

The secret is having an inside track for a government contract

Sat, 10/23/2010 - 05:28 | 671589 kayl

The secret to entrepreneurship is having a good product or company model and the willingness to get out there.

The second secret is to known the Uniform Commercial Code inside and out. And to take care of your commercial affairs or discharge your debt when needed.

Sat, 10/23/2010 - 10:41 | 671771 poggi

Following someone else' rules and acting only when knowing one has a "good" product or model is the antithesis of entrepreneurial risk taking.

Sat, 10/23/2010 - 04:58 | 671574 Chicago bear

Wow, Canada is late. 50 years of a dry spell in entrepreneurship bodes poorly.
Everyone please look at Andrew Mason, founder of Groupon, growing faster than any tech startup in history. He's a tech smart goofball. If he's overconfident it a risk-measuring logical algo-like representative of this research, I am Madonna.
The view of apprentice-journeyman-master-master teacher is quite on the money. What takes the apprentice a lot of effort for little return is often the opposite of the master who with little effort yields high return. Entrepreneurial success is a function of how many times a guy tried (the 4th start is always better than the 3rd, 2nd and 1st). The winner starts early and iterates. That's it. Most avoid them or stick to one failure or stop at 2 startups.

Sat, 10/23/2010 - 01:30 | 671485 Unlawful Justice

Feel the fear, do it any way.

The apprentice doesn't know what he doesn't know.

The Journeyman knows when he is about to make a mistake and takes corrective action.

Sat, 10/23/2010 - 00:58 | 671437 Orly

"Q: That being the case, what then accounts for their willingness to bear risk?
A: It's their overconfidence in their ability. Their confidence is greater than their risk avoidance. It compensates for their aversion to risk."

If I may submit that this entire premise is incorrect. It is the willing and courageous act of deliberately overcoming the fear of failure that makes the entrepreneur. It may be misunderstood as ego, it may be recognised as arrogance. But when one decides that he is right and damn the consequences, the attitude is much different and not readily understood by the crowd.

The fear is there, to be sure. It is just not overwhelming.

Sat, 10/23/2010 - 03:41 | 671559 hugolp

"The difference between a hero and a fool is success"

Btw, I happen to agree with your remark, but the difference in attitude is so subtle that its hard to see from the outside.

Sat, 10/23/2010 - 04:19 | 671521 i-dog

"But when one decides that he is right and damn the consequences, the attitude is much different and not readily understood by the crowd."

Great observation! It's so much easier when you know you're right!

Sat, 10/23/2010 - 10:47 | 671778 poggi

Way too complicated. Entrepreneurship is marked by the willingness to take risks.

One's capacity for risk is determined by two distinct psychological needs. They are the need or drive for dominance and the need/drive for perfection. Both are measurable to within a 1/5 sigma. One's risk propensity can be measured as well. This is no deep dark secret. The only mystery is why is this continues to surprise and astound. My clients do it every day.

Sat, 10/23/2010 - 11:40 | 671830 i-dog

I disagree. I have been a successful entrepreneur all my life, yet I would consider myself risk averse. However ... I am willing to go in boots and all when I know (by intelligent analysis) that I am right. That's why I complimented the above poster on his astute observation.

I gather that you are a psychologist with no entrepreneurial experience at all?

Sat, 10/23/2010 - 12:43 | 671898 poggi

Cool. Now define "intelligent analysis". If you gave the product of that analysis to someone else, would they be as successful as you? Could you take all the risk out of it for regular "Joe" to be successful with it? If not, what makes you different? Perhaps it's that your need to dominate (win) is stronger than your need to conform to tradition and precedent mixed in with intelligence, experience, education, etc.

There are lots of folks who can engage in "intelligent analysis", say, Ben Bernake, Tim Geitner, etc., who would never cut it as entrepreneurs.

Ego Makes Entrepreneurs?

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